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SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities and Exchange Act of 1934
(Amendment No. 4)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e) (2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Globe Business Resources, Inc.
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(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.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, no par value
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(2) Aggregate number of securities to which transaction applies:
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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)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee Paid:
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[X] Fee paid previously with preliminary materials.
[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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REVISED PRELIMINARY COPY
GLOBE BUSINESS RESOURCES, INC.
Notice of Special Meeting of Shareholders
May __, 2000
Dear Shareholder:
The Board of Directors has scheduled a special meeting of shareholders
for 10:00 a.m. eastern time on June 29, 2000 at our offices, 11260 Chester Road,
Suite 400, Cincinnati, Ohio. The purpose of the meeting is for shareholders to
consider adoption of an Agreement of Merger with Globe Acquisition Co., Inc., a
company affiliated with ERP Operating Limited Partnership and certain executive
officers of Globe. If the Merger Agreement is adopted, shareholders will receive
$13.00 cash for each share of Globe upon the completion of the Merger.
The Board of Directors has received an opinion from Friedman, Billings,
Ramsey & Co. dated May 10, 2000 to the effect that the consideration to be
received by public shareholders in the Merger is fair, from a financial point of
view, to them.
After careful study and evaluation, a Special Committee of the Board of
Directors and the full Board of Directors have determined that the Merger is
fair and in the best interests of Globe and its public shareholders and
unanimously recommend that you approve the transaction by voting "FOR" adoption
of the Merger Agreement.
The record date for shareholders entitled to notice of and to vote at
the meeting has been established as the close of business on May 12, 2000.
Record holders who do not vote in favor of the Merger Agreement will be entitled
to appraisal rights under Ohio law.
Please review the materials contained in the attached proxy statement
carefully and then sign, date and return your proxy card with your vote so that
your shares may be represented at the meeting. You may also attend and vote in
person.
Sincerely,
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David D. Hoguet
Chairman
May __, 2000
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GLOBE BUSINESS RESOURCES, INC.
11260 CHESTER ROAD, SUITE 400
CINCINNATI, OHIO 45246
(513) 771-8287
PROXY STATEMENT
May ___, 2000
We have sent you this Proxy Statement to describe the proposed sale of
Globe to Globe Holding Co., Inc., a company owned by ERP Operating Limited
Partnership and certain executive officers of Globe. The sale would take place
through the merger of Globe Acquisition Co., Inc., a subsidiary of Globe
Holding, into Globe pursuant to the Merger Agreement, which was entered into in
connection with an Amended and Restated Agreement and Plan of Merger among
Globe, ERP and Globe Holding. If the Merger Agreement is approved, Globe
shareholders will receive $13.00 cash for each of their Globe shares.
David D. Hoguet will receive the cash consideration for 81% of his
Globe Common Stock in the Merger and Blair D. Neller will receive the cash
consideration for 79% of his Globe Common Stock in the Merger. Messrs. Hoguet
and Neller will contribute their remaining Globe shares, namely, 148,148 each,
for a combined approximate 10% ownership in Globe Holding, which will be Globe's
sole shareholder after the Merger.
Adoption of the Merger Agreement requires the affirmative vote of at
least 50% of Globe's outstanding shares. Messrs. Hoguet, Neller and Alvin Z.
Meisel, Mr. Hoguet's father-in-law and also a director of Globe, together own
approximately 39% of Globe's outstanding Common Stock and have agreed to vote
those shares in favor of the Merger Agreement.
These matters will be considered at a special meeting of shareholders
to be held at 10:00 a.m. Eastern Time on June 29, 2000 at the company's offices.
The close of business on May 12, 2000 has been established as the record date
for determination of shareholders entitled to notice of and to vote at this
special meeting.
These materials were first mailed on May ___, 2000.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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SUMMARY TERM SHEET
The following are the more important terms of the proposed sale of
Globe to a subsidiary of ERP:
o ERP's subsidiary, Globe Holding, would purchase Globe in a
merger transaction. See "The Merger Agreement."
o ERP is a partnership which owns and operates apartment
complexes and has a partners' capital of approximately $5.9
billion as of December 31, 1999. ERP is a subsidiary of Equity
Residential Properties Trust, the largest publicly traded
apartment company in the United States. See "Summary."
o Globe shareholders would receive $13.00 per share. See "The
Merger Agreement."
o The receipt of cash in the Merger will be a taxable
transaction to you. See "Expected Federal Income Tax
Consequences."
o David D. Hoguet and Blair D. Neller will contribute an
aggregate of 296,296 of their Globe shares for an approximate
10% interest in Globe Holding, which will own the continuing
Globe entity. Other executive officers will purchase an
approximate 5% interest in Globe Holding. See "Interests of
Executive Officers in the Merger." Their continuing interest
in Globe may present a conflict of interest. See "Interests of
Executive Officers in the Merger".
o The Special Committee of Globe's Board of Directors believes
that the value that Messrs. Hoguet and Neller are receiving
for the Globe shares they will contribute to Globe Holding is
less than $13.00 per share. See "Background of the Merger."
o At least 50% of the outstanding shares of Globe must be voted
in favor of the Merger Agreement. See "The Special Meeting."
o Messrs. Hoguet, Neller and Alvin Z. Meisel have agreed to vote
their 39% of Globe's outstanding common stock in favor of the
Merger Agreement. See "The Special Meeting."
o The transaction is not conditioned upon a vote of a majority
of unaffiliated shareholders.
o Globe's Board of Directors believes that the proposed Merger
is fair and in the best interests of public shareholders and
unanimously recommends that you approve and adopt the Merger.
See "Fairness of the Transaction." No independent third party
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was retained to represent the interests of unaffiliated
shareholders. Directors Hoguet and Neller may be deemed to
have a conflict of interest because of their continuing
interest in Globe. See "Interest of Executive Officers in the
Merger."
o The investment banking firm of Friedman, Billings, Ramsey &
Co., Inc. has given its opinion that the consideration to be
received by public shareholders in the Merger is fair from a
financial point of view. See "Fairness of the Transaction."
o You will be sent forms after the meeting to use in turning in
your certificates for the cash consideration offered in the
Merger. See "Matters Following the Shareholders' Meeting."
o Record holders who do not vote in favor of the Merger
Agreement will be entitled to appraisal rights under Ohio law.
See "Dissenters' Rights."
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QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGER
Q. Why have you sent me these materials?
A: These materials are for the purpose of providing information to aid
you in determining how to vote at the special shareholders meeting with respect
to the merger of Globe and Globe Acquisition, which is owned by Globe Holding, a
company formed by ERP, David D. Hoguet and Blair D. Neller.
Q. If approved, what effect will the Merger have on me?
A. Each of your shares will be exchanged for $13.00 cash. You will have
no interest in the continuing Globe enterprise.
Q: What vote is required to adopt the Merger Agreement?
A. The affirmative vote of at least 50% of Globe's outstanding shares
is required to adopt the Merger Agreement.
Q. How do I vote?
A. To ensure that your vote is counted, you should complete, sign and
date the proxy card that is enclosed and return it in the enclosed envelope as
soon as possible. You may also attend the meeting and vote in person.
Q. What if my shares are held in a brokerage or similar account?
A. A voting card is enclosed with these materials. That card instructs
the broker or other holder how to cast your votes. That card should also be
completed, signed and dated and returned in the envelope provided.
Q. Can I change my vote?
A. Yes. If you are a record holder, you can change your vote by
attending the meeting and voting in person or by submitting a later dated proxy
changing your vote. Otherwise, you must submit new voting instructions to the
broker or other party holding the shares for you.
Q. Why are David D. Hoguet and Blair D. Neller investing an aggregate
of 296,296 of their Globe shares in the company that will own Globe after the
Merger?
A. ERP requires that Messrs. Hoguet and Neller invest in Globe Holding
in order to provide a continuing management presence with a significant equity
stake in that enterprise and to
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provide the equity to permit ERP to complete the acquisition without impairing
its current tax status as a real estate investment trust.
Q. Are Messrs. Hoguet and Neller getting more than I am in the
transactions?
A. No. The Special Committee believes that the value they are receiving
for the shares that they leave in the enterprise is less than $13.00 per share.
This belief is based primarily upon the illiquid, non-controlling and
economically subordinate nature of their continuing investment.
Q. Should I send in stock certificates now?
A. No. If the Merger Agreement is adopted you will receive separate
instructions for exchanging your shares for cash.
Q. When will I receive my cash?
A. If the Merger Agreement is adopted, you will receive instructions
for exchanging certificates for cash about three days after the closing and
receive the $13.00 in cash per share about five days after you return your stock
certificates and the other materials sent you.
Q. When will the Merger close?
A. The Merger is scheduled to close eleven days after the shareholders'
meeting unless the parties agree to an earlier date.
Q. Will I have any dissenters rights?
A. Yes. You are entitled to dissent to the Merger under Ohio law by
following the procedures outlined later in this statement.
Q. Will this transaction be taxable to me?
A. Yes, the Merger will be a taxable transaction under federal and most
state income tax laws.
Q. Who can I contact if I have questions about the Merger?
A. Contact Sharon Kebe, at Globe Business Resources, Inc., 11260
Chester Road, Suite 400, Cincinnati, Ohio, 45246 phone 513-771-8287 ext. 1217.
In addition, there are documents that are not included with this Proxy Statement
but which are available from various sources as described under "Additional
Information."
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Summary Term Sheet................................................................................................4
Questions And Answers About The Proposed Merger...................................................................6
Special Factors..................................................................................................11
Summary.................................................................................................11
Parties to the Merger..........................................................................11
Reasons for the Merger.........................................................................11
Fairness of the Merger.........................................................................11
The Amended and Restated Agreement and Plan of Merger..........................................12
Conditions to the Merger.......................................................................12
Expected Tax Consequences......................................................................12
Interests of Executive Officers................................................................12
Voting.........................................................................................13
Market Prices..................................................................................13
Background of the Merger................................................................................13
Reasons for the Merger.........................................................................13
Fairness Determinations and Recommendations.............................................................24
Recommendations of the Special Committee and the Board of Directors............................24
Recommendations of ERP.........................................................................26
Opinion of the Financial Advisor...............................................................26
The Special Meeting..............................................................................................46
Expected Federal Income Tax Consequences.........................................................................47
Regulatory Approvals.............................................................................................48
Matters Following the Shareholders Meeting.......................................................................48
Surrender of and Payment for Shares.....................................................................48
Certain Effects of the Merger...........................................................................49
Interests of Executive Officers in the Merger....................................................................50
The Amended and Restated Agreement and Plan of Merger............................................................54
Market Price of and Dividends on Globe Common Stock..............................................................56
</TABLE>
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<TABLE>
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<S> <C>
Principal Shareholders...........................................................................................57
Dissenters Rights................................................................................................58
Other Matters....................................................................................................61
Pending Litigation......................................................................................61
Certain Transactions....................................................................................61
Source of Consideration in the Transaction..............................................................62
Shareholder Proposals...................................................................................63
Additional Information Concerning Globe.................................................................63
Where You Can Find More Information..............................................................................63
</TABLE>
APPENDICES
Appendix A Amended and Restated Agreement and Plan of Merger by and among
ERP Operating Limited Partnership, Globe Holding Co., Inc. and
Globe Business Resources, Inc. dated as of January 13, 2000,
as amended and restated as of May 10, 2000.
Appendix B Agreement of Merger.
Appendix C Voting Agreements dated as of January 13, 2000 between ERP
Operating Limited Partnership and David D. Hoguet, Blair D.
Neller (including Joinder of Spouse) and Alvin Z. Meisel.
Appendix D Ohio Revised Code Section 1701.85
Appendix E Annual Report to the Securities and Exchange Commission on
Form 10-K for the fiscal year ended February 28, 1999
Appendix F Quarterly Report to the Securities and Exchange Commission
on Form 10-Q, as amended, for the quarter ended November 30,
1999.
If you would like to request documents from Globe, please do so by June 19, 2000
so that they can be received before the meeting. They will be sent to you within
one business days of receipt of your request by first class mail. The contact at
Globe is Sharon Kebe, (513) 771-8287, ext. 1217.
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SPECIAL FACTORS
SUMMARY
We have highlighted in the following paragraphs some of the information
contained in this Proxy Statement. However, this summary may not contain all of
the information that may be important to you. To understand the transaction
fully you should read carefully the entire document and the other documents to
which we refer you.
PARTIES TO THE MERGER
Globe is the third largest operator in both the corporate housing
market and the rent to rent segment of the furniture rental business.
ERP owns and operates apartment complexes throughout the United States.
At December 31, 1999 it had total assets of approximately $11.7 billion and
partners' capital of approximately $5.9 billion. It is a subsidiary of Equity
Residential Properties Trust, the largest publicly traded apartment company in
the United States.
ERP entered into an Agreement and Plan of Merger with Globe and Globe
Holding. ERP and Messrs. Hoguet and Neller are forming Globe Holding which after
the Merger will own all of the outstanding shares of Globe. Globe Holding is the
party responsible for payment of the $13.00 per share Merger consideration.
REASONS FOR THE MERGER
When it became apparent in early September that Globe's earnings for
the second quarter ended August 31, 1999 would come in below Wall Street
expectations, Globe's Board of Directors decided to examine Globe's prospects
and the alternatives available to it with a view toward maximizing shareholder
value in view of those earnings and Globe's stock price. The Board hired
Friedman, Billings, Ramsey & Co., Inc. as its investment advisor to evaluate its
alternatives, one of which was the possible sale of Globe. That process led to
the present transaction.
FAIRNESS OF THE MERGER
Since ERP required that Messrs. Hoguet and Neller continue as investors
in the continuing Globe business following the proposed transaction, the Board
appointed a Special Committee composed of directors William R. Griffin and
Thomas C. Parise to consider the proposed Merger with ERP and to determine
whether the transaction would be in the best interests of public shareholders.
Messrs. Griffin and Parise are viewed as independent directors since they are
not and have not been employed by Globe and are not related to any of Globe's
directors or executive officers. The Special Committee had the authority to
approve or disapprove the transaction.
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The Special Committee utilized the services of Friedman, Billings,
Ramsey & Co., Inc. and Globe's counsel. After a series of meetings and a review
of all aspects of the transaction the Special Committee unanimously determined
that the proposed transaction is fair and in the best interests of the public
shareholders and recommended that the Board of Directors and the shareholders
approve and adopt the Merger Agreement. In making its decision, the Special
Committee had the benefit of the opinion of FBR that the receipt of $13.00 in
cash in the transaction would be fair from a financial point of view to Globe's
public shareholders.
THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
The Amended and Restated Agreement and Plan of Merger is the legal
document that will govern the Merger. It is attached as Appendix A. Its more
important terms are summarized on Page ____.
The Amended and Restated Agreement and Plan of Merger also allows Globe
to accept a higher offer if one is received prior to the taking of the vote at
the special shareholders meeting. If Globe did accept a higher offer, it would
be required to pay a fee of $5 million to ERP.
CONDITIONS TO THE MERGER
Completion of the Merger is conditioned upon adoption by shareholders
and compliance with the other conditions for closing set forth in the Amended
and Restated Agreement and Plan of Merger.
EXPECTED TAX CONSEQUENCES
Your receipt of cash in the Merger will be a taxable transaction under
federal and most state income tax laws.
INTERESTS OF EXECUTIVE OFFICERS
Some of Globe's executives officers have interests in the transaction
that are different than yours. Messrs. Hoguet and Neller will contribute in the
aggregate 296,296 shares of their Globe common stock to Globe Holding in
exchange for 4,000 shares of Class B Common Stock of that company. Other
executive officers will purchase 2,000 shares of Class B Common Stock. The
eventual redemption of their interests may yield them a greater or lesser amount
than you are receiving based on the future performance of Globe. All executive
officers are expected to continue in employment with Globe and some will have
the benefit of existing employment agreements that will provide them severance
compensation. Officers, employees and directors holding Globe stock options will
receive, for all of the shares covered by their options, the same amount
received by you less the exercise price for the option.
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VOTING
Adoption of the Merger Agreement requires the affirmative vote of at
least 50% of the outstanding Common Stock. Messrs. Hoguet, Neller and Meisel
have each entered into a voting agreement with ERP requiring them to vote their
39% of the outstanding common shares in favor of the Merger Agreement. Other
officers and directors holding approximately 2% of the outstanding shares have
also indicated they will vote for the Merger Agreement, but they are not
required to do so.
MARKET PRICES
On January 13, 2000, the last trading day before announcement of the
Merger terms, Globe stock closed at $11.875 per share on the Nasdaq Stock
Market. On May 9, 2000, the last trading day before announcement of the revised
Merger terms, Globe stock closed at $12.9375 per share on the Nasdaq Stock
Market.
BACKGROUND OF THE MERGER
REASONS FOR THE MERGER
When it became apparent that Globe's earnings for the second quarter
ended August 31, 1999 would come in below Wall Street expectations, Globe's
management and Board of Directors determined to examine the Company's prospects
and alternatives available to it with the view of maximizing shareholder value.
The alternatives considered included a possible sale of business segments,
expansion of Globe's share repurchase program, the possible sale of Globe and
taking Globe private. In furtherance of its objective, Globe engaged the
investment banking firm of Friedman, Billings, Ramsey & Co., Inc. to assist it
in this undertaking. Globe had utilized the services of FBR in financing and
acquisition matters since late 1998. Globe was favorably impressed with FBR in
these matters and FBR had become familiar with Globe. Prior to the September
action of the Board in deciding to explore strategic alternatives, management of
Globe had been approached at trade shows and on similar occasions by companies
expressing varying degrees of interest in purchasing Globe. None of these
approaches led to further developments.
Globe issued a press release on September 13, 1999 in which it
announced the engagement of FBR. The press release also stated that Globe's
earnings were expected to fall short of Wall Street expectations for both the
second quarter ended August 31, 1999 and the fiscal year ending February 29,
2000. A.G. Edwards, the only brokerage firm with continuous research coverage of
Globe for the past twelve months, originally estimated Globe's earnings per
share for fiscal 2000 at $1.28 on October 15, 1998. One day after Globe's press
release announcing that it would not meet its estimate for the second quarter,
A.G. Edwards reduced its full-year estimate to $.85, or $1.02 excluding
nonrecurring items. After Globe's January 2000 press release announcing the
definitive agreement
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with ERP as well as third quarter earnings, A.G. Edwards reduced its full-year
estimate to $.65, or $.87 excluding nonrecurring items, on February 18, 2000.
After discussions with management, FBR undertook to solicit interest in
the acquisition of all or part of Globe. In conjunction with management, FBR
prepared a confidential information memorandum concerning Globe and contacted
approximately 100 potential purchasers. Confidentiality agreements and a
confidential information memorandum then were sent to 30 potential buyers.
At a Board of Director's meeting on October 27, 1999 the Board reviewed
Globe's current financial statements and future financial outlook. In this
discussion the Board noted the continued industry wide slowdown that was taking
place in both of Globe's business segments, corporate housing and furniture
rental. The Board discussed continuing efforts to reduce costs in reaction to
these business slowdowns.
The rest of the meeting of October 27th was devoted to an extensive
discussion concerning the strategic alternatives the Board was considering. An
FBR representative was present and made a presentation to the Board of his
firm's work with Globe in this area to date. The Board also reviewed several
evaluation models prepared by FBR concerning Globe that looked at comparables in
both the corporate housing and furniture rental industries. A representative of
Arthur Andersen LLP, Globe's tax accountants, joined the meeting and reviewed
the tax consequences of potential sales of all or parts of the corporation. That
memorandum concluded that a stock sale at the shareholder level was more tax
efficient than an asset sale at the corporate level. The board also reviewed
initial indications of interest that had been submitted by potential buyers.
These indications of interest were in a variety of forms including stock
purchases of the entire corporation and asset purchases of separate divisions.
These proposals were generally in line with FBR evaluation advice. The FBR
representative discussed with the Board a proposed transaction time line. He
recommended that the transaction process proceed to the next level with multiple
potential buyers. After extensive discussion the Board agreed that it was in the
best interest of Globe to follow these recommendations and proceed to an auction
process which would include multiple interested bidders. It was agreed that the
bidders would be directed to focus their proposals on a stock purchase.
FBR continued with its efforts on behalf of Globe following the October
27 Board meeting. It had established a deadline for submitting second round
indications of interest for November 15th but moved that to November 19th
because of scheduling conflicts arising for two parties interested in purchasing
Globe. During the first three weeks of November, Globe met with five potential
purchasers of the Company, including ERP. Another party had submitted a first
round bid for the corporate housing business but then declined to visit or bid
in the second round. Globe received a preliminary bid from ERP at $14.50 per
share with a request for a 45 day exclusive negotiating period. Another party
submitted a proposed bid in the range of $13.00 to $14.00 per share and a
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third party proposed a $75 million purchase of the furniture rental business.
Two of the parties that had met with the Company declined to proceed further.
The November activity was reported to the Board of Directors at a
November 22, 1999 meeting. The FBR representative attended and stated that he
had conversations with two potential purchasers, including ERP, earlier that
day. He said that he had told ERP that while Globe was interested in pursuing a
transaction with it, Globe was unwilling to grant an exclusive negotiating
period. ERP then proposed a 21 day nonexclusive negotiating period. The other
party remaining in the bidding had raised financing contingencies which it
expected to clear up in the next few weeks. On this basis, Globe, with the FBR
representative, planned to negotiate definitive agreements with ERP and the
other party over the next three weeks while those bidders were proceeding with
their due diligence examinations. The FBR representative stated that it was
expected that those bidders would then provide their best and final offers at
the conclusion of their due diligence examination. He was told to inform the
party that had bid for the furniture rental business that its bid, when coupled
with the belief of Globe management and FBR, based partly on the earlier bid
received for the corporate housing business, would not be competitive with the
value of the other two offers being considered.
On December 17, 1999 Globe received a bid from ERP at $14.00 per share.
That bid was contingent on Globe's existing management maintaining a $6 million
investment in the continuing Globe enterprise. ERP's bid was also based on
various assumptions and the satisfaction of various conditions. The other
company that had been involved in the process decided not to submit a final bid.
At Globe's Board meeting on December 21, 1999 the FBR representative
discussed the $14.00 bid from ERP in relation to the then current market price
of $12.875. He pointed out that the market had been conditioned to a possible
transaction by Globe's September 13, 1999 press release that disclosed that the
Company had hired FBR to consider strategic alternatives. He also pointed out
that the Company had completed an auction for the sale of the Company resulting
in the $14.00 proposal.
The Board also discussed elements of the $14.00 per share proposal from
ERP that were based on the assumption that all of Globe's existing debt
instruments could be maintained in place. Continuing Globe's existing debt
instruments in place would require a waiver of the Company's bank debt
provisions requiring that Messrs. Hoguet, Neller and Meisel own at least 20% of
Globe. The Board discussed the breakup fee contained in ERP's proposal. ERP had
proposed that there be a breakup fee in an exclusive negotiating agreement
between the parties. The proposed breakup fee was that each party would pay the
other $2,500,000 if the deal did not close because the opposing party failed to
sign a definitive agreement by January 13, 2000 assuming no other changes in
assumptions. Globe was opposed to the breakup fee as proposed because it could
be triggered by such things as a decline in earnings or an inability to continue
the current Globe debt structure. Globe management discussed with the FBR
representative two items of which it did not believe ERP
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was aware that could trigger the breakup fee, namely that pre-tax earnings for
the third quarter were expected to be approximately $140,000 below the forecast
previously presented to ERP and that there might be a potential inventory
adjustment in the third quarter as well. After discussion the FBR representative
was instructed to disclose these items to ERP and work on securing more
acceptable breakup fee terms.
The Board then considered the implications of ERP's requirement that
Messrs. Hoguet and Neller maintain an investment of approximately $6 million in
the continuing enterprise. This investment would be met by Messrs. Hoguet and
Neller contributing Globe stock to the continuing Globe entity. Other senior
management of Globe would be allowed to participate for up to $2 million of the
$6 million investment so long as Messrs. Hoguet and Neller maintained an
investment of at least $2 million each. Because of the potential conflict of
interest presented by this proposed investment, the Board then appointed a
Special Committee consisting of Globe's outside independent directors, William
R. Griffin and Thomas C. Parise, with the responsibility of evaluating the
proposed ERP transaction and recommending to the Board whether to accept the
proposal.
The Special Committee met by telephone conference call on December 22
to consider ERP's proposals. Also at the meeting were Messrs. Hoguet and Neller
along with the FBR representative and representatives of the Company's counsel,
Keating, Muething & Klekamp, P.L.L. Mr. Griffin, chairman of the Committee,
opened the meeting by asking Messrs. Hoguet and Neller their views about Globe's
business prospects if no sale were consummated. Mr. Hoguet stated that both
business areas in which the Company was engaged, corporate housing and furniture
rental, had been contracting in the current year. He identified reasons for
these trends such as the growth in extended stay hotels and the downturn in
employee relocation due to individuals being able to find acceptable alternative
employment instead of relocating with their current employers in the current
tight labor market. He stated that it would be difficult to predict when a
turnaround would come and what the long term growth trends were. Mr. Neller
offered that he thought the future of the business was brighter with the
combination of Globe and ERP than for Globe standing alone because of synergies
between the two companies that could help Globe's business.
The FBR representative reported that since the meeting on December 21
he had followed the Board's direction and disclosed the shortfall in the third
quarter earnings projection previously given ERP and the existence of a
potential inventory adjustment. He stated that ERP's management was absorbing
the information and indicated they would be able to inform Globe of their
position on December 23 as to whether there were changes to the proposed terms
of the transaction. The FBR representative discussed compromises on the breakup
fee proposals that had been offered by ERP which included the obligation of
Globe to pay ERP's expenses if the transaction did not happen due to changes
beyond Globe's control. Mr. Griffin suggested that those expenses be capped. The
FBR representative also discussed a phone call earlier in the day in which Globe
management discussed with ERP financial covenants in Globe's bank loan agreement
and in its 7.54% senior note agreement requiring a ratio of senior funded debt
to earnings before interest, income taxes, depreciation and amortization and
that Globe did not have much leeway on those covenants. He noted that it was
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important that there be no violation of these covenants since it was a key to
the ERP transaction that the 7.54% senior notes continue to remain outstanding
after the transaction was completed. He also stated that as part of this
discussion Globe disclosed that its fiscal 2001 EBITDA estimate had been reduced
from $29.9 million as contained in the confidential information memorandum
previously given to ERP to $26.5 million in the most recent data given to ERP In
response to Mr. Griffin's inquiry to the FBR representative as to where he
expected the Globe stock might trade if there were no transaction and the
earnings came in as now projected, the FBR representative offered his view that
there existed a risk of the stock trading substantially lower than the current
$12 range due to the fact that this would be the fourth time that Wall Street
earnings estimates had been missed.
The Special Committee met again by telephone conference call on
December 23. Messrs. Hoguet, Neller, the FBR representative and counsel were
also in attendance. The Special Committee recessed its meeting so that it could
review the latest proposals in the form of a draft exclusive negotiation
agreement from ERP. After resuming the meeting, Mr. Griffin, the chairman, asked
Messrs. Hoguet, Neller and the FBR representative to advise the Committee of
current developments in the ERP negotiations. Mr. Hoguet reviewed changes to the
proposed exclusive negotiation agreement, pointing out, among other things,
changes related to Globe's future performance, changes in the fourth quarter
projections and the decline in projections for the full fiscal year 2000, as
well as the projected decline in EBITDA for fiscal 2001 and a potential
inventory adjustment. He also stated that ERP had lowered its proposal from
$14.00 to $13.50 per share in response to the information furnished. Mr. Hoguet
also noted other changes to the agreement and his belief that in a properly
structured transaction the consent of the holders of Globe's 7.54% senior notes
would not be required in the transaction.
The exclusive negotiation agreement provided for an exclusive
negotiation period through January 13, 2000. It prohibited Globe and its
representatives from negotiating with other parties during that period. It also
outlined the proposed structure for the transaction as well as terms for
participation by Messrs. Hoguet and Neller in the continuing business in which
their contribution of Globe stock would be valued at $13.50 per share. The
exclusive negotiation agreement provided that Globe would owe ERP a fee of $2.5
million if Globe refused to execute a definitive agreement on the transaction
terms proposed. It also provided that if ERP failed to execute a definitive
agreement on the same terms, other than as a result of any of its assumptions
listed in the agreement being materially erroneous or any information having
been previously provided to it being misleading, it would pay Globe $2.5
million. The Agreement further provided that if Globe were required to pay ERP a
$2.5 million fee and then within one year after termination of the exclusive
negotiation agreement Globe entered into an agreement with any other party for
an acquisition of more than 25% of Globe's outstanding stock or assets or if any
other transaction occurred in which another party acquired Globe or sufficient
of its securities to be able to consolidate Globe as a subsidiary in its
financial statements, Globe would pay an additional fee of $2.5 million to ERP.
Other provisions were that Globe would receive a fairness opinion based on those
terms and that Messrs. Hoguet, Neller and other principal stockholders of senior
management of Globe would enter
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into a voting agreement whereby they would agree to vote all of their Globe
shares in favor of the transaction.
The Special Committee then discussed with counsel the proposed timing
for the transaction. Counsel reviewed requirements under the Hart Scott Rodino
Antitrust Improvements Act and the Securities Exchange Act of 1934. Mr. Griffin
inquired as to what could go wrong with the transaction and the Committee then
discussed various scenarios including the possibility of further earnings
declines, anti-trust scrutiny by the Federal Trade Commission and shareholder or
other litigation.
The Special Committee then excused Messrs. Hoguet and Neller from the
meeting and queried the FBR representative as to whether and what type of
fairness opinion FBR would be able to render. The FBR representative reviewed
the factors that his firm was considering on this point. The Committee discussed
the part of the ERP proposal that required Messrs. Hoguet and Neller to each
make an investment of up to $3 million in the continuing Globe enterprise. The
FBR representative pointed out that in his opinion, under the terms of the
transaction Messrs. Hoguet and Neller would start out with their investment
valued at a discount to $13.50 based upon the terms which ERP proposed for the
ultimate repurchase of their shares. He further stated that in his opinion the
cash transaction to the public was better than the cash and stock transaction
would be for Messrs. Hoguet and Neller. He stated that ERP had required Messrs.
Hoguet and Neller to invest in the continuing Globe enterprise to demonstrate
their confidence in it and so that ERP could gain the advantage of their
expertise in managing the Company. In addition, their investment in the
enterprise provided the equity to permit ERP to make the acquisition without
impairing its tax status as a real estate investment trust. The FBR
representative stated that he had attempted, without success, to negotiate a
lower contribution by Messrs. Hoguet and Neller to the continuing operation.
The FBR representative then reviewed for the Special Committee the
process which had been followed in seeking a buyer for Globe. He noted that
Globe's investigation of strategic alternatives had first been announced to the
public in its September 13, 1999 press release. His firm had then prepared a
confidential information memorandum concerning Globe with the assistance of
management. His firm then contacted 100 potential purchasers, including ERP, and
sent confidentiality agreements and a confidential information memorandum to 30
potential buyers. The list of potential buyers then narrowed to six indications
of interest submitted. Following this, five potential buyers visited with
management and with other personnel of Globe. This number then had narrowed to
two and ended with one offer on the table, that being the one from ERP.
The FBR representative stated that his firm had looked at the
possibility of taking the Company private with the Company's management. It had
also made known to potential buyers that Globe would consider selling off the
business in segments. Although some interest had been received for that type of
proposal, the FBR representative believed that it would not be possible, based
on the indications received, to obtain full value for the entire Company if it
were sold piecemeal. In response to questions of the Special Committee, he
repeated his earlier observation
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that if there were no transaction, Globe stock would, in his opinion, likely
trade substantially below the then current $12 range. The Committee continued
its discussion. Mr. Parise pointed out that the mid-term 2001 outlook was
negative as far as growth and that would mean that Globe's only real hope of
maintaining earnings near prior year levels would be through significant cost
cutting, but that strategy would inhibit growth prospects. Mr. Griffin observed
that standing alone Globe had exhausted its ability to grow further via
acquisition without substantial additional equity financing. He noted that
revenues were down in both the furniture rental area and the corporate housing
business if acquisitions were excluded. These factors were attributed to
increased competition from extended stay hotels as well as the decline in the
relocation of executives due to the tight labor market.
The Committee then unanimously resolved that the proposed transaction
with ERP at $13.50 per share as represented by an exclusive negotiation
agreement between Globe and ERP be accepted and that management be authorized to
enter into such an agreement. The Special Committee then recalled Messrs. Hoguet
and Neller to the meeting by telephone and the parties agreed to further
meetings to be held on December 30, January 10, 2000 and January 12, 2000 since
the exclusive negotiation agreement contemplated signing a definitive agreement
by January 13, 2000. The FBR representative stated that his firm's fairness
opinion would be ready on January 12.
The Special Committee met again by telephone conference call on
December 30. With them were Messrs. Hoguet and Neller as well as Sharon G. Kebe,
Globe's Senior Vice President - Finance and Treasurer, the FBR representative
and the Company's counsel, Keating Muething & Klekamp, P.L.L. Mr. Griffin, the
chairman, first asked Ms. Kebe to report on due diligence developments. She
reported that the ERP team and its outside accountants were scheduled to return
to Globe on January 5th. They had announced that they would focus on several
items including testing revenues, examining fourth quarter forecasts, and
looking at bonus requirements while their accountants would be concentrating on
inventory and accounts receivable matters. Next, the Committee discussed with
Ms. Kebe likely third quarter inventory adjustments and instructed her to
discuss these matters with Globe's outside accountants, PricewaterhouseCoopers
LLP. The Committee also discussed proposed severance and bonus arrangements for
executives to be entered into upon the closing of the transaction with ERP.
The Special Committee next met by telephone conference call on
January 7, 2000. In addition to the members of the Committee, Messrs. Hoguet,
Neller, the FBR representative and the Company's counsel were present.
Management reported to the Committee discussions concerning the structure under
which Messrs. Hoguet and Neller would maintain a portion of their investment in
the continuing operation. It was also reported that a $300,000 pre-tax physical
inventory adjustment would be booked in the third fiscal quarter. Counsel then
reviewed developing changes to the Merger Agreement, particularly the insertion
of a termination date of August 31, 2001 and changes to the breakup fee
arrangements. The draft now provided breakup fees for each party with an
additional breakup fee if Globe were to accept and close on a better
transaction.
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The Committee excused Messrs. Hoguet and Neller from the meeting and
discussed with counsel the interrelationship between Messrs. Hoguet and Neller's
proposed arrangements whereby they would continue in the business, the structure
of the Merger Agreement and whether there were conflicts in the transaction
between those two proposed transactions. The Committee, on the advice of
counsel, determined that there was not a conflict in the terms of the
transaction since ERP was the party that insisted that Messrs. Hoguet and Neller
retain an investment in the continuing Globe enterprise to satisfy ERP's
requirements.
The Committee next met on January 11, 2000 again by telephone
conference call and also again with Messrs. Hoguet, Neller, the FBR
representative and counsel present. The purpose of the meeting was to receive an
update on developments that had occurred since the prior meeting. The Committee
considered the implications of questions that ERP was raising concerning the
Company's outstanding debt. The consensus of the Committee was that ERP was
signaling some type of modification to the price of the transaction. The
Committee also discussed a draft of the fairness opinion that had been received.
In addition, ERP had proposed a voting agreement whereby Messrs. Hoguet and
Neller and Mr. Hoguet's father-in-law, Alvin Meisel, who is also a director of
Globe, would agree to vote in favor of the Merger. Together they would vote
approximately 39% of the outstanding shares. Counsel stated that approval of the
Merger would require the affirmative vote of at least 50% of all outstanding
shares.
Mr. Hoguet confirmed information he had previously given Committee
members and counsel that he had received a call from an investment banking firm
indicating that there was a substantial real estate investment trust with an
interest in acquiring Globe. He had referred the call to the FBR representative.
Counsel advised that the exclusive negotiation agreement prohibited Globe from
giving information to any other party during its term but that the terms of the
proposed Merger Agreement, when executed, would allow that information to be
given.
During the meeting a call was received from ERP and the Committee
recessed allowing management to take that call. When the meeting reconvened, the
FBR representative reported that ERP proposed that the purchase price remain at
$13.50 but that up to $.50 of the consideration be paid at a later time if
representations, warranties and covenants of Globe that would survive the Merger
proved to be accurate. The Committee discussed this proposal and it was their
consensus that Globe should investigate a small reduction in the purchase price
in the range of $.10 to $.25 per share in return for eliminating the conditions
concerning the representations and covenants. The Committee then excused Messrs.
Hoguet, Neller and the FBR representative from the meeting and reviewed the
entire matter with counsel prior to adjournment.
On January 12, 2000 the Committee met again by telephone conference
with Messrs. Hoguet, Neller, the FBR representative and Company counsel also in
attendance. The chairman asked for an update on the negotiation. Counsel
responded that the negotiation group had gone back with a $13.25 offer. This
approach was rejected by ERP. After discussions of alternatives with ERP, the
committee concluded that the $13.00 plus $.50 proposal of ERP was the preferred
alternative. The
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<PAGE> 20
Committee asked management and the FBR representative for their recommendations.
Counsel stated that from a legal standpoint a transaction on the $13.00 plus up
to an additional $.50 basis proposed by ERP would not interfere with the timing
of the transaction although the description and details would be somewhat
complex. The FBR representative stated that he believed that FBR would opine
that a transaction on this basis would be fair.
Management also reported that another unsolicited call had been
received from another investment banking firm on behalf of an unnamed party with
an interest in acquiring Globe. The Committee asked Mr. Neller to advise ERP of
that call and then to forward the call on to the FBR representative.
In view of the January 13th deadline for execution of a definitive
agreement contained in the exclusive negotiation agreement and the desirability
of allowing time for negotiations, the Committee authorized management to extend
the exclusive negotiation agreement on a day to day basis at a revised level of
$13.00 per share cash plus up to an additional $.50 per share. Messrs. Hoguet,
Neller and the FBR representative were then excused and the Committee continued
to review the matter with counsel. In particular, the Committee discussed the
likelihood of other potential buyers for Globe at a higher price than was being
offered by ERP. They also talked about other alternatives to the sale of Globe
at this time, including such concepts as going private, selling assets in pieces
and withdrawing from the sale process and continuing in the business. They
expressed their belief that several years of retrenchment were on the horizon
for the industry and Globe and that none of the alternatives they were
discussing would be as favorable to shareholders as the offer of $13.00 per
share and up to an additional $.50 per share that was on the table from ERP.
The Special Committee met again on January 13, 2000 by telephone
conference call with Messrs. Hoguet, Neller, the FBR representative and counsel
present. In response to Mr. Griffin's inquiry, counsel took the Committee
through the discussions that had been held that day aimed at reaching an
agreement with ERP. The Committee discussed with counsel Ohio's dissenters
rights statute and how that would apply to the transaction and contract
provisions allowing ERP to terminate the transaction before closing if holders
of more than 10% of Globe's outstanding shares demanded appraisal rights. There
was also a discussion of the proposed voting agreement arrangements. The general
consensus was that although that arrangement would require a vote of 39% of the
stock for the ERP proposal even if a higher offer were being made by outsiders,
that should not be an impediment to a higher value transaction since approval of
the ERP transaction required the affirmative vote of at least 50% of the
outstanding Globe stock.
The Committee reviewed with the FBR representative the fairness opinion
of FBR concerning the ERP proposal as well as the methodologies that had been
utilized by his firm in arriving at their conclusions. He noted that results for
the third quarter that were now available were anticipated by his firm in
reaching its conclusion. The chairman asked why the proposed fairness opinion
excluded Messrs. Hoguet and Neller from its conclusion and the implications of
that
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exclusion. The FBR representative said that Messrs. Hoguet and Neller had been
excluded because their transaction and the consideration they would receive
would be different in form from that being received by public shareholders. He
went on to say however, that although the opinion presented did not say so, it
was his firm's belief that the value of the consideration to be received by
Messrs. Hoguet and Neller was less than that being received by the public
shareholders because the consideration to be received by Messrs. Hoguet and
Neller would in part consist of illiquid, non-control and economically
subordinate securities with a value less than the cash being received by public
shareholders in the Merger.
The Committee recessed the meeting to allow its members to review
additional drafts of the documentation that was being provided to them by
counsel. After the meeting reconvened, Mr. Parise asked counsel to review again
the changes that had been made to the draft documents since January 11. The
Committee also discussed the signed fairness opinion from FBR it had received
which stated that a price of $13.00 was fair without assuming receipt of up to
an additional $.50 per share. The FBR representative stated that he had relied
primarily on a comparable company analysis in reaching his conclusions. He
repeated his earlier statements that if there were no transaction, and in view
of Globe's disappointing third quarter results, of which the Committee was aware
and that were about to be announced, there existed a substantial risk that
Globe's stock would decline significantly. He reiterated his comments concerning
the proposed continuing interest of Messrs. Hoguet and Neller in Globe under the
ERP proposal.
The Committee excused Messrs. Hoguet, Neller and the FBR representative
from the meeting at this point. The Committee then continued its discussion of
the proposed transaction and its fairness to shareholders. It noted particularly
downward trends in both the Company and the marketplace for the industry, recent
stock prices, and Globe's debt load in absolute size and in relation to its book
value. It also discussed its conclusion that Globe could not continue to grow
through acquisitions with its present debt load and the advice it had received
from FBR as to the substantial risk that Globe's stock would decline
significantly without a transaction of the nature being proposed by ERP.
Committee members also discussed the indications of interest that had been
received in the last several days from investment banking firms. They observed
that the terms of the proposed Merger Agreement would allow Globe to proceed
with the ERP transaction but at the same time accept a better transaction if one
were offered at the cost of a termination fee of $5,000,000. They noted that
FBR's compensation was based on a percentage of the transaction price and that
therefore it would have a continuing motivation to pursue a higher value
transaction if one were to materialize. Then after completion of its
deliberations, the Committee unanimously determined that the terms of the
proposed transaction with ERP, as contained in a draft Agreement and Plan of
Merger and related documents were fair and in the best interests of the
shareholders of Globe other than Messrs. Hoguet and Neller and also unanimously
recommended that the directors and shareholders approve and adopt the Agreement
and Plan of Merger.
Following the Special Committee meeting of January 13th, the Board of
Directors met on January 13 by telephone conference call. All of the directors
were present as were the FBR
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representative and Globe's counsel. The Chairman, Mr. Hoguet, opened the meeting
by asking the Special Committee to report on its deliberations. Mr. Griffin
reviewed for the Board the deliberations and actions of the Special Committee
and its recommendation concerning the ERP offer. The Board discussed these
developments in detail with those present and also noted those aspects of the
Merger Agreement which would allow the Board to accept a higher offer should one
be made by a third party. The FBR representative reviewed his firm's fairness
opinion with the Board and its conclusion that $13.00 per share was fair to
shareholders other then Messrs. Hoguet and Neller from a financial point of
view. The Board excused the FBR representative from the meeting at this point
and continued with their discussion of the transaction and its ramifications to
shareholders. After this discussion, the Board unanimously resolved to accept
the report and recommendation of its Special Committee, determined that the
terms of the proposed acquisition of Globe would be fair to and in the best
interests of Globe's shareholders other than Messrs. Hoguet and Neller and
recommended that the shareholders adopt the Agreement of Merger. The resolution
also authorized management to enter into the Agreement and Plan of Merger and
related agreements; waived application of Ohio Revised Code Section 1704,
generally known as the business combination statute, to the acquisition by ERP's
subsidiary through consummation of the Merger of 10% of Globe's outstanding
Common Stock; and set a record date and a meeting date for a shareholders
meeting to vote upon the proposal.
After this meeting the parties executed an Agreement and Plan of Merger
along with the Voting Agreements attached as Appendix C and an agreement
providing for Messrs. Hoguet and Neller's investment in the continuing Globe
enterprise.
Preliminary proxy materials were filed with the Securities and Exchange
Commission on February 18, 2000. Comments were received from the staff of the
SEC and a response filing was made on March 23, 2000. The proxy material
remained under submission for some time. During that time, it became evident
that Globe's financial performance for the fourth quarter of fiscal 2000 would
be lower than for the prior year by more than previously anticipated. In these
circumstances, ERP initiated discussions with Globe's Special Committee and
conducted additional due diligence. In late April 2000, the Special Committee
and representatives of ERP entered into negotiations responding to ERP's concern
about the decline in Globe's operating performance. Earnings per share for the
fourth quarter of fiscal 2000 declined 133% to a loss of $.07 per share compared
to $.21 per share in the fourth quarter of fiscal 1999. For the full fiscal year
ending February 29, 2000 earnings per share declined 54% to $.51 per share
compared to $1.10 for fiscal 1999.
These discussions led to an agreement on May 4, 2000 to amend the
Merger Agreement of January 13, 2000. The principal changes of the amendment
were to remove the consideration of an additional $.50 per share, which was
contingent upon certain representations and warranties of Globe being true and
correct for a period of time after the Merger and to provide that the
representations and warranties do not survive closing. The Special Committee was
aided by its financial advisor during this period and, after consideration of
the changes, was of the opinion that a revised transaction of $13.00 per share
without the possibility of an additional $.50 per share was in the best
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<PAGE> 23
interests of Globe's shareholders and should be adopted. The Committee noted
that no inquiries had been received from other parties for the acquisition of
Globe since announcement of the original transaction in January 2000. The
Amended and Restated Agreement and Plan of Merger continues to allow for the
receipt of any such additional proposals by other parties. The Special Committee
presented its conclusions at a meeting of the Board of the Directors of Globe
which began on May 9, recessed and concluded on May 10, 2000. The FBR
representative was present throughout the meeting and expressed the opinion of
his firm that the transaction would be fair to shareholders at the $13.00 price.
FAIRNESS DETERMINATIONS AND RECOMMENDATIONS
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS
The Special Committee of the Board of Directors and the full Board of
Directors, including Messrs. Hoguet and Neller, after considering the terms and
structure of the revised Merger terms and reviewing with counsel and its
financial advisor the legal and financial aspects of the proposed transaction,
believe that the proposed Merger, as revised, is fair to and in the best
interests of Globe's public shareholders. They have, therefore, recommended that
shareholders vote for adoption of the Merger Agreement.
These conclusions are based on a number of factors, namely:
o The fact that after an extensive auction process, ERP was the
only firm bidder for the whole Company;
o The fairness opinion of the Company's financial advisor, FBR;
o Declines in Globe's earnings which continued throughout fiscal
2000 and which are expected to continue into the first quarter
of fiscal 2001.
o Globe's failure to meet analysts' projections for earnings
five times since it went public in February 1996;
o Declines in Globe's stock price from a high of $15 on January
19, 1999 to the $12 price range prior to announcement of the
original Merger terms on January 13, 2000;
o A slow-down in the two business areas in which Globe competes,
namely, the corporate housing business and the furniture
rental business;
o A recognition that Globe's recent growth has come through
acquisitions and that, without additional equity infusions, it
would not be able to secure sufficient credit to continue
those acquisitions on a cash basis;
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<PAGE> 24
o The belief that, at current prices for Globe's stock, the
raising of additional equity or the use of equity in
acquisitions would be impractical;
o The belief that the sale of the entire Company for cash was
superior to other alternatives examined; and
o Provisions of the Amended and Restated Agreement and Plan of
Merger that permit Globe to entertain higher offers.
Both the Special Committee and full Board attach more weight to the
auction process and the opinion of the financial advisor in their determination
of fairness than to the other factors and have adopted the analysis of the
financial advisor. They did not think that historical market prices or prices
paid in individual transactions by any of the executive officers in the last two
years were relevant to a present determination of value. They also did not think
that net book value, going concern value or liquidation value were particularly
relevant to the transaction under consideration since the price under
consideration was the best received after an extensive and open auction process
and the fact that the fairness of that price was confirmed by FBR in its
opinion.
The Special Committee and the Board did not believe it was necessary to
condition approval of the Merger as originally contemplated and as amended, on a
majority vote of public shareholders, nor did they believe it was necessary to
retain an unaffiliated representative to represent them. Their reason for this
belief is that Messrs. Hoguet and Neller had the same economic interests in
securing the highest possible price as did public shareholders. Their continuing
interest in Globe Holding is set at $13.00 per share. The price they will
receive for the shares they are selling was affected in the same manner as
public shareholders by the deletion of the original provision for an additional
consideration of up to $.50 per share. The Committee also noted that Ohio law
provides an appraisal remedy for shareholders who are dissatisfied with the
purchase price.
Messrs. Hoguet, Neller and the other executive officers who will invest
in the continuing Globe enterprise have each also determined that the proposed
Merger is fair to and in the best interests of Globe's public shareholders and
each recommend that shareholders vote for adoption of the Merger Agreement.
Those other executive officers are Christopher S. Gruenke, Louis W. Holliday,
Sharon G. Kele, Cory M. Nye, Jeffery D. Pederson, John H. Ruby and Lyle J.
Tomlinson. Each of these persons have based their conclusions and
recommendations solely upon the analyses and determinations made by the Special
Committee of the Board of Directors and the fairness opinion expressed by FBR
and have adopted the analysis made by FBR. Messrs. Hoguet, Neller and the other
executive officers each may be deemed to have a conflict of interest in making
their recommendations because of their participation in the continuing Globe
enterprise. See "Interests of Executive Officers in the Merger."
The financial advisor provided similar services to Globe in connection
with a strategic acquisition by Globe that was not consummated and for which it
received a $25,000 retainer and reimbursement of out-of-pocket expenses. It had
also provided advice and services to Globe in connection with a possible stock
offering at various times since October 1998 without receiving
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<PAGE> 25
additional fees. Fees to FBR for its advice to Globe in connection with the
proposed restructuring through the auction process and the fairness opinion were
negotiated by FBR and Globe senior management. Those fees were $175,000 upon
delivery of the opinion set forth below and upon consummation of the Merger an
estimated $1,190,000, less the $25,000 retainer previously paid, plus
out-of-pocket expenses.
No further inquiry was received as of the date hereof from the two
parties that had expressed an interest in acquiring Globe as reported to the
Special Committee in its meetings on January 11 and January 12, 2000.
RECOMMENDATIONS OF ERP AND CERTAIN AFFILIATES
None of ERP, Equity Residential Properties Trust ("EQR"), Douglas
Crocker II, President of EQR and the following Executive Vice Presidents of EQR:
Alan W. George, David J. Neithercut, Gerald A. Spector and Bruce C. Strohm
(collectively, the "ERP Parties") have undertaken any formal evaluation of its
own as to the fairness of the terms of the Merger to the public shareholders of
Globe. The ERP Parties, however, have considered the factors, set forth herein,
which were taken into account by the Special Committee and Board of Directors of
Globe in determining the fairness of the Merger to the public shareholders of
Globe and in recommending the approval of the Amended and Restated Agreement of
Merger. See "Recommendations of the Special Committee and the Board of
Directors." Following their consideration of these factors, the ERP Parties
adopted the conclusions, and the analysis underlying such conclusions, of the
Special Committee and Board of Directors of Globe with respect to the fairness
of the terms of the Merger to the public shareholders of Globe, in each case
subject to the assumptions and limitations set forth herein. The ERP Parties did
not find it practicable to, and did not, quantify or otherwise attach relative
weights to the factors considered by the Special Committee and Board of
Directors of Globe independent of the analysis used by the Special Committee and
Board of Directors in reaching their respective conclusions as to the fairness
of the Merger. Based solely on the foregoing, and without undertaking any
analysis of its own with respect to the fairness of the terms of the Merger to
the public shareholders of Globe from a financial point of view, the ERP Parties
believe that the terms of the Merger are fair from a financial point of view to
the public shareholders of Globe.
OPINION OF THE FINANCIAL ADVISOR
The following is the full text of the opinion of Friedman, Billings,
Ramsey & Co., Inc. supplied to the Special Committee and the Board of Directors
on May 10, 2000:
May 10, 2000
Board of Directors
Globe Business Resources, Inc.
11260 Chester Road
Suite 400
Cincinnati, OH 45246
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<PAGE> 26
Board of Directors:
You have requested that Friedman, Billings, Ramsey & Co., Inc. ("FBR")
provide you with its opinion as to the fairness, from a financial point of view,
to the holders of common stock ("Shareholders") of Globe Business Resources,
Inc. (the "Company") of consideration to be received by them pursuant to the
Amended and Restated Agreement and Plan of Merger dated May 10, 2000 (the
"Merger Agreement") among the Company, a newly formed Delaware Corporation
("NewCo") and ERP Operating Limited Partnership, an Illinois limited partnership
of which Equity Residential Properties Trust is the General Partner. Pursuant to
the Merger Agreement, a wholly owned subsidiary of NewCo will be merged with and
into the Company (the "Merger"). The Merger Agreement provides, among other
things, that for each outstanding share of common stock of the Company (a
"Share") (other than those shares subject to dissenters' rights), Shareholders
will receive $13.00 cash per Share other than with regard to 296,296 Company
shares held by certain members of Management ("Management"). Management will be
required to exchange the 296,296 Company Shares, for class B common stock of
NewCo. The terms of the Merger are more fully set forth in the Merger Agreement
FBR has acted as financial advisor to the Company in connection with
the Merger. Additionally, FBR was requested to, and did complete a broad
solicitation of third party indications of interest in acquiring all or any part
of the Company. In delivering this opinion, FBR has among other things:
1. Reviewed the Company's Annual Report to Shareholders for the fiscal
year ended February 28, 1999 and the Company's draft Annual Report on Form 10-K
for the fiscal year ended February 29, 2000 (FBR has assumed that the final
February 29, 2000 Form 10-K filing will not differ in any material respect from
the draft provided by Management);
2. Reviewed the Company's Annual Proxy Statement dated May 26, 1999
filed with the SEC;
3. Reviewed the Company's Quarterly Reports on Form 10-Q filed with the
SEC for the fiscal quarters ended May 31, 1999, August 31, 1999 and November 30,
1999;
4. Conducted discussions with certain members of management of the
Company concerning the financial condition, results of operations, financial
forecasts, business and prospects of the Company;
5. Reviewed the reported market prices and trading activity for the
Shares for the period January 8, 1997 through May 9, 2000;
6. Compared the results of operations and financial condition of the
Company with those of certain publicly-traded companies that FBR deemed to be
reasonably comparable to the Company;
-27-
<PAGE> 27
7. Participated in discussions and negotiations among representatives
of the Company and Equity Residential Properties Trust;
8. Reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions that FBR deemed to be reasonably comparable to
the Merger;
9. Reviewed a copy of the Merger Agreement and related documents; and
10. Performed such other analyses and reviewed and analyzed such other
information as FBR deemed appropriate.
In rendering this opinion, FBR did not assume responsibility for
independently verifying, and did not independently verify, any financial or
other information concerning the Company furnished to it by the Company, or the
publicly-available financial and other information regarding the Company and
other comparable public companies. FBR has assumed that all such information is
accurate and complete and has no reason to believe otherwise. FBR has further
relied on the assurances of management of the Company that they are not aware of
any facts that would make such financial or other information relating to such
entities inaccurate or misleading. With respect to financial forecasts for the
Company provided to FBR by the Company's management, FBR has assumed, for
purposes of this opinion, that the forecasts have been reasonably prepared on
bases reflecting the best available estimates and judgments of such management
at the time of preparation as to the future financial and operating performance
of the Company. FBR has assumed that there has been no undisclosed material
change in the Company's assets, financial condition, result of operations,
business or prospects since February 29, 2000, and has relied upon the draft
10-K for February 29, 2000 as representation of the Company's financial position
and operating results through that date. FBR was not requested to, and did not,
undertake an independent appraisal of the assets or liabilities of the Company
nor was FBR furnished with any such appraisals. FBR's conclusions and opinion
are necessarily based upon economic, market and other conditions and the
information made available to FBR as of the date of this opinion. FBR expresses
no opinion on matters of a legal, regulatory, tax or accounting nature related
to the Merger.
In connection with FBR's role as financial advisor to the Company
regarding the Merger, FBR will receive a fee which is conditioned upon the
consummation of the Merger, and will also receive a fee of $175,000 upon
rendering this opinion.
Based upon and subject to the foregoing, as well as any such other
matters as we consider relevant, it is FBR's opinion, as of the date hereof,
that consideration to be received by the Shareholders (other than for the
Company Shares which certain members of Management are required to exchange for
class B common stock of NewCo for which you have not requested us to provide an
opinion) in the Merger is fair, from a financial point of view, to the
Shareholders of the Company.
-28-
<PAGE> 28
This letter does not constitute a recommendation to any Shareholder as
to how such Shareholder should vote on the proposed Merger or as to what
election Management should make pursuant to the Merger Agreement. This letter is
for the information of the Board of Directors and of the Special Committee of
the Board of Directors and may be referred to and reproduced in its entirety in
proxy materials sent to the Shareholders in connection with the solicitation of
approval for the Merger. The letter may not be otherwise reproduced,
disseminated, quoted from or referred to by the Company without FBR's prior
written consent.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
Preparation of a fairness opinion is a complex process that involves
various determinations as to the most appropriate and relevant methods of
analysis and the application of those methods to the particular circumstances at
hand. The following summary of FBR's analysis does not purport to be a complete
description of the presentations made by it to Globe's Special Committee and its
Board of Directors. In reaching its opinion, FBR did not attribute any
particular weight to any analysis or factor considered by it, but rather made
its determinations on the basis of qualitative judgements as to the significance
and relevance of each analysis and factor taken as a whole. Accordingly, FBR
believes that the analyses summarized below must be considered as a whole and
that considering any portions of the analysis or the summary without considering
all factors and analyses could create an incomplete view of the process
underlying its opinion. With respect to the comparable public trading analyses
and comparable transaction discussions, no public company or transaction is
identical to Globe or the proposed Merger. These analyses were prepared solely
for the purposes of providing an opinion to Globe's Board of Directors and do
not purport to be appraisals or reflect prices at which businesses or securities
actually may be sold.
Comparable Company Analysis
FBR analyzed historical and projected financial operating and stock
market data for the following furniture rental companies; Aaron Rents, Inc.,
Rent-Way, Inc., Rent-A-Center, Inc., and Rainbow Rentals, Inc. It made the same
analysis with respect to BridgeStreet Accommodations, Inc., a corporate housing
company. FBR analyzed the comparable stock prices, equity value, enterprise
value, last twelve months (LTM) revenues, earnings before interest, taxes,
depreciation and amortization (EBITDA), earnings before interest and taxes
(EBIT), and net income (NI). The analysis showed that the comparable companies
had a multiple of EV/LTM revenue ranging from 0.3x to 1.7x, with a mean of 1.0x
and a median of 0.8x. Applying the mean and median multiples of this analysis to
Globe's LTM revenues implies a range of value for Globe of $18.18 per share to
$13.66 per share. The EV/LTM EBITDA multiple from the comparable companies had a
range of 2.3x to 8.0x and a mean and median of 4.3x and 3.9x, respectively.
Applied to Globe, the mean and median multiples of EV/LTM EBITDA imply a range
of value for Globe of $6.71 per share to $4.67
-29-
<PAGE> 29
per share. The EV/LTM EBIT multiples for the comparable companies ranged from
6.8x to 10.9x with a mean and median of 8.7x and 8.5x, respectively. Applying
the mean and median multiples to Globe's LTM EBIT provides a range of indicated
value from $3.06 per share to $2.75 per share. Finally, the Equity Value (EQV)
to LTM NI analysis of comparable companies yielded multiples ranging from 11.2x
to 16.1x with a mean and median of 12.8x and 11.9x, respectively. Applied to
Globe's LTM NI the mean and median multiples imply a range of value for Globe
shares of $6.55 to $6.12 per share.
Comparable Purchase Transactions
FBR analyzed 12 comparable purchase transactions selected based upon
the following parameters: US deals announced from May 1, 1999 through April 30,
2000, deal value between $50 - $500 million and 100% of selling company
acquired. In addition, the deals were screened by the acquired company's
industry. The seller was required to be a business services company; however,
due to the unique nature of Globe's business the analysis does not include
directly comparable companies. In addition, the deals were screened by the
acquired company's specific industry to exclude technology companies such as
CombiChem, GRC International and Wireless One. FBR analyzed the enterprise value
of each acquired company against each acquired company's LTM revenues, EBITDA,
EBIT, and the equity value of each acquired company against each acquired
company's LTM net income. For certain analyses the number of transactions
selected was smaller than the 12 comparable purchase transactions due to the
nature of certain values unique to each specific transaction that was not
selected. The analysis showed that the comparable transactions had a multiple of
EV/LTM revenue ranging from 0.1x to 2.3x, with a mean of 0.8x and a median of
0.6x. Applying the mean and median multiples of this analysis to Globe's LTM
revenues implies a range of value for Globe of $12.27 per share to $7.15 per
share. The EV/LTM EBITDA multiple from the comparable transactions had a range
of 3.1x to 10.8x and a mean and median of 6.8x and 6.1x, respectively. Applied
to Globe, the mean and median multiples of EV/LTM EBITDA imply a range of value
for Globe of $17.85 per share to $14.52 per share. The EV/LTM EBIT multiples for
the comparable transactions ranged from 4.1x to 21.8x with a mean and median of
12.1x and 10.8x, respectively. Applying the mean and median multiples to Globe's
LTM EBIT provides a range of indicated value from $9.45 per share to $6.96 per
share. Finally, EQV/LTM NI analysis of comparable transactions yielded multiples
ranging from 6.9x to 45.8x with a mean and median of 19.6x to 16.0x,
respectively. Applied to Globe's LTM NI the mean and median multiples imply a
range of value for Globe shares of $10.02 to $8.21 per share.
The comparable purchase transactions analyzed were:
<TABLE>
<CAPTION>
Date Effective Target Name Value of Transaction ($ mil)
<S> <C> <C>
3/24/00 BridgeStreet Accommodations $33.3
3/23/00 PS Group Holdings Inc $105.1
3/9/00 Gibson Greetings Inc $182.9
1/14/00 American Business Products Inc $305.6
1/14/00 Cort Business Services $477.2
</TABLE>
-30-
<PAGE> 30
<TABLE>
<CAPTION>
Date Effective Target Name Value of Transaction ($ mil)
<S> <C> <C>
12/22/99 Intelliquest Information Group $107.1
11/23/99 Merrill Corp $486.9
10/31/99 Novacare Employee Services Inc $70.0
9/30/99 Jevic Transportation Inc $193.7
9/1/99 Mark VII Inc $211.6
8/31/99 Smartflex Systems $90.1
6/18/99 EMCON $68.6
</TABLE>
None of these transactions involved affiliated purchasers.
Analysis of Premiums Paid
In order to analyze the proposed premium paid for Globe, FBR conducted
a premium paid analysis for acquisitions comparable to the proposed acquisition
of Globe. The analysis reflects Globe's micro-cap status and the all cash nature
of the transaction. FBR used a Securities Data Corporation screen to determine
the proper comparable transactions for the analysis.
The parameters to determine inclusion in the analysis were: US deals
announced from May 1, 1999 through April 30, 2000, deal value between $50 - $500
million and 100% of selling company acquired. In addition, the deals were
screened by the acquired company's industry. The seller was required to be a
business services company; however, due to the unique nature of Globe's business
the analysis does not include directly comparable companies. In addition, the
deals were screened by the acquired company's specific industry to exclude
technology companies such as CombiChem, GRC International and Wireless One. Our
screen produced 12 comparable transactions based upon the description above. For
the transactions produced, FBR determined the premium paid for the time period
of four weeks, one week and one day before the transaction was announced. The
mean premium paid four weeks prior to announcement was 61.7%, for one week prior
it was 57.7%, and for one day prior it was 43.1%. The adjusted mean in all cases
was lower than the non-adjusted mean. The adjusted means were 55.7%, 48.0% and
41.4% for four weeks, one week and one day period prior to announcement,
respectively. The median was below the adjusted mean in all the observations,
for four weeks prior it was 49.3%, for one week prior it was 36.4% and for the
one day period prior it was 33.8%.
For all 12 transactions across all three time periods, the highest
premium paid was 217.0%, and the lowest premium paid was -21.6%. Four weeks
prior to announcement, the high premium was 205.5%, and the low was -21.6%. One
week prior to announcement, the high premium was 217.0%, and the low was B3.6%.
One day prior to the announcement the high was down to 108.70% and the low was
B4.8%.
These computations of mean and median premiums for each time period
when applied to Globe's closing per share price on the corresponding days prior
to the initial announcement on January 14, 2000 resulted in a range of prices
from $15.88 to $21.12 for Globe.
-31-
<PAGE> 31
Discounted Cash Flow Analysis
FBR performed a discounted cash flow analysis of the free cash flow of
Globe's projected five year performance estimates as prepared by Globe's
management. For these purposes, FBR utilized an aggressive case and a downside
case as prepared by Globe management and applied a range of terminal values
based on 7.0x - 9.0x EBIT, a discount rate range of 15.0% - 25.0%, and a tax
rate of 40.0%. From these assumptions, FBR calculated per share values for Globe
under the aggressive range from $3.85 to $16.85. Applying those same assumptions
to management's downside case projections resulted in a calculation of per share
values ranging from ($1.26) to $7.13.
No representation or warranty was made by anyone with respect to the
projections provided. Financial projections are subject to contingencies beyond
the control of management and their realization depends on numerous factors
including actual costs incurred in relation to such projections and decisions by
management to modify business plans to address changing needs and changing
operating environments. All material events and circumstances cannot be
predicted and unanticipated events and circumstances are likely to occur.
Accordingly, it is expected that there will be differences between projected and
actual results. The following were the projections provided by Globe to FBR and
used by FBR in its analysis.
<TABLE>
<CAPTION>
GLOBE BUSINESS RESOURCES, INC. Management High DCF
HISTORICAL AND PROJECTED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------------------
(All Dollar Amounts in Thousands)
FYE: 2/28
------------------------- -------------------------------------------------------
1997 1998 1999 2000 2001E 2002E 2003E 2004E 2005E
------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $67,520 $103,900 $147,450 $157,680 $171,467 $186,212 $202,300 $217,294 $233,564
Total costs of goods sold 28,207 52,843 84,255 95,861 102,477 112,739 123,179 132,828 143,330
------------------------- -------------------------------------------------------
Gross profit 39,313 51,057 63,195 61,819 68,990 73,473 79,121 84,467 90,235
Gross margin 58.2% 49.1% 42.9% 39.2% 40.2% 39.5% 39.1% 38.9% 38.6%
Expenses 31,334 40,150 48,148 48,580 50,250 53,906 56,537 59,146 61,810
Nonrecurring Items 0 0 0 1,640 0 0 0 0 0
Amortization of goodwill 225 1,003 2,034 2,491 2,624 2,660 2,630 2,600 2,580
------------------------- -------------------------------------------------------
Total operating expenses 31,559 41,153 50,215 52,711 52,874 55,966 59,167 61,747 64,460
EBIT 7,754 9,904 12,980 9,108 16,116 17,507 19,954 22,720 25,775
EBIT margin 11.5% 9.5% 8.8% 5.8% 9.4% 9.4% 9.9% 10.5% 11.0%
</TABLE>
-32-
<PAGE> 32
<TABLE>
<CAPTION>
2/28/97 2/28/98 2/28/99 2/28/00 2/28/01 2/28/02 2/28/03 2/28/04 2/28/05
------------------------- -------------------------------------------------------
1997 1998 1999 2000 2001E 2002E 2003E 2004E 2005E
------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest/other expenses 1,368 3,241 4,389 4,897 5,150 4,691 4,255 3,642 2,905
Earnings before taxes 6,386 6,663 8,591 4,211 10,966 12,816 15,699 19,078 22,870
Income tax expense 2,478 2,598 3,437 1,735 4,386 5,126 6,280 7,631 9,148
Tax rate 38.8% 39.0% 40.0% 41.2% 40.0% 40.0% 40.0% 40.0% 40.0%
Net income $ 3,908 $4,065 $5,154 $ 2,476 $ 6,580 $ 7,689 $ 9,419 $11,447 $13,722
========================= ======================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBE BUSINESS RESOURCES, INC. Management High DCF
HISTORICAL AND PROJECTED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------
(All Dollar Amounts in Thousands)
FYE: 2/28
------------------- ---------------------------------------------------------
ASSETS 1999 2000 2001E 2002E 2003E 2004E 2005E
------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $ 1,123 $ 2,142 $ 2,142 $ 2,142 $ 2,142 $ 2,142 $ 2,142
Marketable securities 0 0 0 0 0 0 0
Accounts receivable 11,982 16,543 15,033 16,836 18,290 19,646 21,117
Furniture, net 55,426 54,027 56,059 57,640 59,504 61,684 64,215
Prepaid expenses 4,229 3,989 4,388 4,827 5,309 5,840 6,424
Other assets 2,988 3,367 3,700 4,950 6,200 7,700 9,200
------------------- ---------------------------------------------------------
PP&E net 8,469 8,197 8,747 9,172 9,534 9,831 10,062
Goodwill 47,580 47,038 46,164 44,504 41,874 39,274 36,694
------------------- ---------------------------------------------------------
Total Assets $131,797 $135,303 $136,233 $140,070 $142,853 $146,117 $149,854
=================== =========================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $ 6,250 $ 8,945 $ 4,913 $ 5,405 $ 5,906 $ 6,368 $ 6,872
Other payables/accruals 7,795 8,207 8,207 8,207 8,207 8,207 8,207
------------------- ---------------------------------------------------------
Debt 68,900 66,438 64,820 69,476 53,339 44,693 34,205
Deferred income taxes 5,738 6,079 6,079 6,079 6,079 6,079 6,079
------------------- ---------------------------------------------------------
Total liabilities 88,683 89,669 84,019 80,167 73,531 65,348 55,363
Total stockholders' equity 43,114 45,634 52,214 59,903 69,322 80,769 94,491
------------------- ---------------------------------------------------------
Total Liabilities and Equity $131,797 $135,303 $136,233 $140,070 $142,853 $146,117 $149,854
=================== =========================================================
</TABLE>
-33-
<PAGE> 33
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS Management High DCF
- --------------------------------------------------------------------------------------------------------------------
2/28/01 2/28/02 2/28/03 2/28/04 2/28/05
-------------------------------------------------------
2001E 2002E 2003E 2004E 2005E
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 6,580 $ 7,689 $ 9,419 $ 11,447 $ 13,722
Depreciation on furniture 7,350 8,712 9,252 9,826 10,435
Depreciation on PP&E 2,700 2,825 2,888 2,953 3,019
Amortization of goodwill 2,624 2,660 2,630 2,600 2,580
Prepaid expenses (399) (439) (483) (531) (584)
Accounts receivable 1,510 (1,803) (1,455) (1,356) (1,471)
Other assets (333) (1,250) (1,250) (1,500) (1,500)
Accounts payable (4,032) 492 501 463 504
Other payables / accruals 0 0 0 0 0
-------------------------------------------------------
Total adjustments 9,421 11,197 12,084 12,455 12,983
-------------------------------------------------------
Cash From Operating Activities 16,000 18,887 21,503 23,902 26,705
Capital expenditures - furniture (23,000) (25,000) (27,000) (29,160) (31,493)
Book value of furniture sold 13,618 14,707 15,884 17,154 18,527
Capital expenditures - PP&E (3,250) (3,250) (3,250) (3,250) (3,250)
Acquisitions (1,750) (1,000) 0 0 0
-------------------------------------------------------
Net Cash used in Investing Activities (14,382) (14,543) (14,366) (15,256) (16,216)
Debt (1,618) (4,344) (7,317) (8,646) (10,489)
-------------------------------------------------------
Net Cash (Provided) in Funding Activities (1,618) (4,344) (7,137) (8,646) (10,489)
Cash at Beginning of Period 2,142 2,142 2,142 2,142 2,142
Net Increase / Decrease in Cash 0 0 0 0 0
Cash at End of Period 2,142 2,142 2,142 2,142 2,142
=======================================================
</TABLE>
-34-
<PAGE> 34
<TABLE>
<CAPTION>
GLOBE BUSINESS RESOURCES, INC. Management Low DCF
HISTORICAL AND PROJECTED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------------------
(All Dollar Amounts in Thousands)
FYE: 2/28
------------------------- -------------------------------------------------------
1997 1998 1999 2000 2001E 2002E 2003E 2004E 2005E
------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $67,520 $103,900 $147,450 $157,680 $156,783 $164,749 $173,947 $182,644 $191,776
Total costs of goods sold 28,207 52,843 84,255 95,861 93,697 99,228 104,771 110,130 115,764
------------------------- -------------------------------------------------------
Gross profit 39,313 51,057 63,195 61,819 63,086 65,521 69,176 72,514 76,013
Gross margin 58.2% 49.1% 42.9% 39.2% 40.2% 39.8% 39.8% 39.7% 39.6%
Operating Expenses 31,334 40,150 48,181 48,580 47,350 49,718 52,299 54,813 57,449
Nonrecurring Items 0 0 0 1,640 0 0 0 0 0
Amortization of goodwill 225 1,003 2,034 2,491 2,624 2,660 2,630 2,600 2,580
------------------------- -------------------------------------------------------
Total operating expenses 31,559 41,153 50,215 52,711 49,974 52,378 54,928 57,413 60,028
EBIT 7,754 9,904 12,980 9,108 13,112 13,143 14,247 15,102 15,984
EBIT margin 11.5% 9.5% 8.8% 5.8% 8.4% 8.0% 8.2% 8.3% 8.3%
Interest/other expenses 1,368 3,241 4,389 4,897 5,150 4,686 4,309 3,817 3,255
Earnings before taxes 6,386 6,663 8,591 4,211 7,962 8,457 9,938 11,285 12,729
Income tax expense 2,478 2,598 3,437 1,735 3,185 3,383 3,975 4,514 5,092
Tax rate 38.8% 39.0% 40.0% 41.2% 40.0% 40.0% 40.0% 40.0% 40.0%
------------------------- -------------------------------------------------------
Net income $3,908 $4,065 $5,154 $2,476 $4,777 $5,074 $5,963 $6,771 $7,637
========================= =======================================================
</TABLE>
-35-
<PAGE> 35
<TABLE>
<CAPTION>
GLOBE BUSINESS RESOURCES, INC. Management Low DCF
HISTORICAL AND PROJECTED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------
(All Dollar Amounts in Thousands)
FYE: 2/28
------------------ -----------------------------------------------------
ASSETS 1999 2000 2001E 2002E 2003E 2004E 2005E
------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $ 1,123 $ 2,142 $ 2,142 $ 2,142 $ 2,142 $ 2,142 $ 2,142
Accounts receivable 11,982 16,543 13,745 14,444 15,250 16,013 16,813
Furniture, net 55,426 54,027 54,927 55,303 55,675 55,962 56,152
Prepaid expenses 4,229 3,989 4,388 4,827 5,309 5,840 6,424
Other assets 2,988 3,367 3,700 4,700 5,700 6,700 7,700
------------------ -----------------------------------------------------
PP&E net 8,469 8,197 8,747 9,172 9,534 9,831 10,062
Goodwill 47,580 47,038 46,164 44,504 41,874 39,274 36,694
------------------ -----------------------------------------------------
Total Assets $131,797 $135,303 $133,813 $135,091 $135,485 $135,762 $135,987
================== =====================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable 6,250 8,945 4,492 4,758 5,023 5,280 5,550
Other payables / accruals 7,795 8,207 8,207 8,207 8,207 8,207 8,207
------------------ -----------------------------------------------------
Debt 68,900 66,438 64,624 60,563 54,728 47,977 40,925
Deferred income taxes 5,738 6,079 6,079 6,079 6,079 6,079 6,079
------------------ -----------------------------------------------------
Total liabilities 88,683 89,669 83,402 79,606 74,037 67,543 60,131
Total stockholders' equity 43,114 45,634 50,411 55,485 61,448 68,219 75,856
------------------ -----------------------------------------------------
Total Liabilities and Equity $131,797 $135,303 $133,813 $135,091 $135,485 $135,762 $135,987
================== =====================================================
</TABLE>
-36-
<PAGE> 36
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS Management Low DCF
- -----------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------
2001E 2002E 2003E 2004E 2005E
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 4,777 $ 5,074 $ 5,963 $ 6,771 $ 7,637
Depreciation on furniture 7,350 8,287 8,723 9,264 9,838
Depreciation on PP&E 2,700 2,825 2,888 2,953 3,019
Amortization of goodwill 2,624 2,660 2,630 2,600 2,580
Prepaid expenses (399) (439) (483) (531) (584)
Accounts receivable 2,798 (698) (806) (763) (801)
Other assets (333) (1,000) (1,000) (1,000) (1,000)
Accounts payable (4,453) 265 266 257 270
Other payables / accruals 0 0 0 0 0
--------------------------------------------------------------
Total adjustments 10,287 11,900 12,218 12,780 13,323
--------------------------------------------------------------
Cash From Operating Activities 15,064 16,974 18,180 19,551 20,960
Capital expenditures - furniture (21,000) (22,050) (23,153) (24,310) (25,526)
Book value of furniture sold 12,750 13,388 14,057 14,760 15,498
Capital expenditures - PP&E (3,250) (3,250) (3,250) (3,250) (3,250)
Acquisitions (1,750) (1,000) 0 0 0
--------------------------------------------------------------
Net Cash used in Investing Activities (13,250) (12,913) (12,346) (12,800) (13,278)
Short-term Debt (1,814) (4,061) (5,835) (6,751) (7,682)
--------------------------------------------------------------
Net Cash Provided/used in Funding Activities (1,814) (4,061) (5,835) (6,751) (7,682)
Cash at Beginning of Period 2,142 2,142 2,142 2,142 2,142
Net Increase / Decrease in Cash 0 0 0 0 0
Cash at End of Period 2,142 2,142 2,142 2,142 2,142
==============================================================
</TABLE>
-37-
<PAGE> 37
The Special Committee did not request FBR, nor does FBR intend, to
update the fairness opinion to the date of closing. No events have occurred nor
have there been any significant changes to the information provided FBR which
could, in the opinion of the Special Committee, alter the fairness
determination. However, if such an event or change does occur including, without
limitation, an amendment to the Agreement and Plan of Merger or its subsidiary
documents which materially affects the terms of the Merger transaction, a
revised fairness opinion will be requested.
THE SPECIAL MEETING
A special meeting of shareholders to consider adoption of the Merger
will be held at 10:00 a.m. eastern time on June 29, 2000 at the Company's office
at 11260 Chester Road, Suite 400, Cincinnati, Ohio. The sole purpose of the
meeting is to vote on the Merger Agreement pursuant to Globe's Code of
Regulations which limit the business that may be conducted at a special meeting
to matters specified in the notice sent to shareholders.
The record date for shareholders entitled to notice of and to vote at
the meeting is the close of business on May 12, 2000. At that date Globe had
[4,811,491] shares of Common Stock outstanding held by approximately [56]
holders of record, which Globe believes represents approximately [1,055]
beneficial owners. Approval of the Merger Agreement requires the affirmative
vote of at least 50% of Globe's outstanding shares. For this reason, the failure
to vote will have the same effect as a negative vote. If you are a shareholder
of record you may use the accompanying proxy card to cast your vote or you may
attend the meeting and vote in person. If your shares are held in a brokerage or
similar account, you may use the enclosed form provided by the broker to cast
your vote or you may ask the broker to give you its proxy which will enable you
to attend the meeting and vote in person. All shares represented by properly
executed proxies, unless previously revoked, will be voted in accordance with
the instructions indicated on the proxy card. If no instructions are given in a
properly executed proxy, all shares represented by that proxy will be voted in
favor of the Merger Agreement. You may revoke any proxy given at any time prior
to its use. Revocation may be done by signing and returning a later dated proxy
or by voting in person at the special meeting.
At the record date, Globe's directors and executive officers together
own 41% of the voting stock of Globe. All of those persons have indicated that
they will vote in favor of the Merger Agreement and Messrs. Hoguet, Neller and
Meisel, who together own 39% of Globe's outstanding Common Stock, are bound to
vote in favor of the Merger Agreement by separate agreements with ERP. ERP owns
approximately 1.3% of Globe's voting stock and is expected to vote in favor of
the Merger Agreement.
There is no requirement that the Merger Agreement be approved by a
majority of security holders who are unaffiliated with Globe, ERP or Messrs.
Hoguet and Neller.
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<PAGE> 38
Persons who do not vote in favor of the Merger Agreement and who follow
the procedures set forth in Ohio Revised Code Section 1701.85, a copy of which
is attached as Appendix D to this Proxy Statement, may exercise dissenters
rights to have the fair market value of their shares appraised. Full discussion
of this matter is contained under "Dissenters' Rights" on page ___.
EXPECTED FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash in the Merger will be a taxable transaction for
federal income tax purposes under the current Internal Revenue Code, and is
likely to be a taxable transaction under applicable state, local or foreign
income tax laws. Generally, for federal income tax purposes, a stockholder will
recognize gain or loss equal to the difference between the amount of cash
received in the Merger and the stockholder's adjusted tax basis in the relevant
shares purchased pursuant to the Merger. Gain or loss will be calculated
separately for each block of shares surrendered in the Merger.
If shares are held by a stockholder as capital assets, gain or loss
recognized by the stockholder will be capital gain or loss, which will be
long-term gain or loss if the stockholder's holding period for the shares
exceeds one year. Long-term capital gain recognized by an individual stockholder
will generally be subject to federal tax at a maximum tax rate of 20%. The
deductibility of capital losses is subject to certain limitations.
The Exchange Agent will be required to withhold 31% of any cash
payments to which a stockholder or other payee is entitled pursuant to the
Merger unless the stockholder or other payee provides his or her tax
identification number, social security number or employer identification number
and certifies that such number is correct. Each stockholder and, if applicable,
each other payee is required to complete and sign the Form W-9 that will be
included as part of the transmittal letter sent to stockholders of Globe to
avoid backup withholding, unless an applicable exception exists and is proved in
a manner satisfactory to Globe and the Exchange Agent.
The transaction is not expected to have any tax consequences to Globe.
Messrs. Hoguet and Neller will have the same tax consequences as public
shareholders with respect to their shares for which they receive cash
consideration. It is expected that no gain or loss will be recognized for
federal income tax purposes by Messrs. Hoguet and Neller upon the contribution
of their Globe common shares to Globe Holding in exchange for shares of Globe
Holding.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES
RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS
COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES THAT ARE SUBJECT TO SPECIAL
TAX TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE
COMPANIES, DEALERS IN SECURITIES, TAX-EXEMPT ORGANIZATIONS, AND FINANCIAL
INSTITUTIONS. THE DISCUSSION ALSO MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT
OF INDIVIDUAL CIRCUMSTANCES, INCLUDING HOLDERS HOLDING SHARES AS PART OF A
STRADDLE, A CONVERSION TRANSACTION, A HEDGING TRANSACTION OR OTHER SIMILAR
TRANSACTION. STOCKHOLDERS ARE URGED TO
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<PAGE> 39
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
THEM, INCLUDING THE EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
LAWS OF THE MERGER.
The foregoing discussion is based upon current provisions of the
Internal Revenue Code and applicable Treasury regulations. There can be no
assurance that future legislative, administrative or judicial changes or
interpretations will not affect the accuracy of the statements or conclusions
set forth herein. Any such change could apply retroactively and could affect the
accuracy of such discussion.
No information is provided with respect to the consequences of the
Merger under applicable foreign, state or local income tax or other laws.
Each stockholder of Globe is urged to consult such stockholder's own
tax advisor as to the specific tax consequences to such stockholder of the
Merger under U.S. federal, state, local or any other applicable tax laws.
REGULATORY APPROVALS
Equity Residential Properties Trust and Globe Holding filed a Premerger
Notification and Report Form pursuant to the Hart Scott Rodino Antitrust
Improvements Act of 1986 relating to the acquisition of ERP of securities of
Globe Holding. The parties received notification of early termination of the
required waiting period on March 20, 2000.
MATTERS FOLLOWING THE SHAREHOLDERS MEETING
If shareholders adopt the Merger Agreement and all of the conditions of
the Merger are met, it is expected that the Merger will be closed and become
effective approximately eleven days after the shareholder vote unless the
parties agree to an earlier date. The Merger will become effective at such time
as a Certificate of Merger is filed with the Secretary of State of Ohio. At that
time each issued and outstanding share of Globe, other than those held as
treasury stock and those owned by Messrs. Hoguet, Neller and other senior
executives which are being invested in the continuing Globe enterprise, will be
converted into the right to receive $13.00 in cash.
SURRENDER OF AND PAYMENT FOR SHARES
At the effective time of the Merger, holders of Globe common shares,
other than those who have perfected their appraisal rights in accordance with
the Ohio General Corporation Law, will be entitled to receive the Merger
consideration described above. As soon as practicable following the
effectiveness of the Merger, The Fifth Third Bank, as Exchange Agent, will send
a letter of transmittal to each holder of Globe Shares. The letter of
transmittal will contain instructions with respect to the surrender of
certificates representing Shares of Globe in exchange for cash. The Exchange
Agent will accept certificates upon compliance with such reasonable terms and
conditions
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<PAGE> 40
as the Exchange Agent may impose to effect an orderly exchange in accordance
with normal exchange practices.
After the effective time, there will be no further transfer on the
records of Globe or its transfer agent of certificates representing Globe Shares
that have been converted pursuant to the Merger Agreement into the right to
receive cash. If such certificates are presented to Globe for transfer, they
will be canceled against delivery of cash. Until surrendered each certificate
representing Globe Shares will be deemed after the effective time to represent
only the right to receive upon surrender the consideration contemplated by the
Merger Agreement. No interest will be paid or will accrue on any cash payable as
consideration in the Merger.
WE REQUEST THAT YOU NOT SURRENDER YOUR CERTIFICATES FOR EXCHANGE UNTIL
YOU RECEIVE A TRANSMITTAL LETTER AND INSTRUCTIONS. LETTERS OF TRANSMITTAL WILL
BE MAILED ABOUT TWO WEEKS AFTER THE EFFECTIVE TIME OF THE MERGER.
CERTAIN EFFECTS OF THE MERGER
At the effective time of the Merger, Globe Acquisition, a wholly-owned
subsidiary of Globe Holding, will merge into Globe. Globe's Common Stock will no
longer be publicly traded and will represent only the right to receive the
Merger consideration or to exercise dissenters rights. Trading in Globe shares
on Nasdaq will cease at 4:00 p.m. eastern time on the date when the Merger
becomes effective. Globe's shares will then be deregistered and it will no
longer file periodic reports or proxy materials with the SEC or be subject to
the going private provisions of SEC Rule 13e-3. Globe's officers and directors
and 10% or greater shareholders will no longer be subject to restrictions on
trading imposed by the insider trading profit provisions of Section 16 of the
Securities Exchange Act of 1934. Globe and the officers and directors will
thereby be relieved of the cost of compliance with these rules and the
continuing securityholders of Globe Holding will no longer receive reports filed
with the SEC.
Public shareholders will benefit by receiving cash of $13.00 in the
Merger. However, public shareholders will no longer have any continuing interest
in the Globe business and will not participate in any potential future growth or
earnings of Globe. Messrs. Hoguet and Neller will be similarly affected except
that they will retain an interest in the continuing Globe entity to the extent
described below. To the extent cash is received by shareholders, they will be
required to consummate a taxable transaction at a time not of their choosing. As
holders of the stock of a public corporation, shareholders can choose when and
how much to sell in taxable transactions but this transaction will require the
recognition of a taxable transaction for all of their shares in 2000. Messrs.
Hoguet and Neller will not have a taxable transaction with respect to the
portion of their Globe stock which they are contributing to Globe Holding, but
they will receive in return Class B Common Stock of Globe Holding which will not
have the liquidity of their current public shares of Globe. Globe expects to
benefit by having access to synergies provided by the larger ERP organization.
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<PAGE> 41
INTERESTS OF EXECUTIVE OFFICERS IN THE MERGER
David D. Hoguet, Blair D. Neller and other Globe executive officers
will retain a minority interest in the ongoing operations of Globe through
ownership of equity securities of Globe Holding Co., Inc. Globe Holding was
formed by ERP and Messrs. Hoguet and Neller. Messrs. Hoguet and Neller have
agreed to contribute an aggregate of 296,296 shares to Globe Holding in exchange
for 4,000 shares of Class B common stock of Globe Holding. Christopher S.
Gruenke, Louis W. Holliday, Sharon G. Kebe, Cory M. Nye, Jeffery D. Pederson,
John H. Roby and Lyle J. Tomlinson, executive officers of Globe, have agreed to
purchase the remaining 2,000 Class B Shares of Globe Holding for $944.44 per
share. Their purchase will be financed by the issuance of secured recourse
promissory notes payable to Globe Holding in the full amount of the purchase
price. The remaining capitalization of Globe Holding will be furnished by ERP
and certain of its executives. The interests of Messrs. Hoguet, Neller and the
other Globe executives as a group will equal one-third of the Class B Common
Shares or 5% of all Common Shares of Globe Holding.
The Class B stockholders will have the right to elect two of the six
directors of Globe Holding. In general, Class B stockholders will be entitled to
15% of the dividends and distributions on liquidation. However, once the
preferred stock and initial debt of Globe Holding has received a 20% annualized
rate of return and all of the common stockholders have received the same return
on their investment, any additional dividends or liquidation proceeds will be
distributed 25% to the Class B stockholders and 75% to the remaining
stockholders. After eight years, or earlier under certain circumstances, Globe
Holding shall have the right to make a payment to the Class B stockholders
(calculated as though the Company were liquidated) equal to the difference
between the payment that would be made to the Class B stockholders if they were
entitled to a 15% rather than a 25% distribution. After receipt of this payment,
the Class B stockholders are entitled only to 15% of further common dividends.
For purposes of their redemption or purchase by ERP, the Class B shares of Globe
Holding held by Messrs. Hoguet and Neller will be valued at $962.9630 per Globe
Holding share, which is the equivalent of $13.00 per share of Globe common
stock.
If a Class B stockholder leaves the employ of Globe, dies or becomes
disabled, ERP may purchase such stockholder's Class B shares at a price equal to
the higher of cost or fair market value or a lower price depending on the
circumstances. ERP has the right to purchase the shares of the Class B
stockholders after ten years at the value of the Company based on the
capitalization of earnings before interest, taxes, depreciation and amortization
as if Globe Holding were liquidated.
At the time the Merger is closed, Messrs. Hoguet and Neller will each
enter into an Amended and Restated Severance Agreements with Globe pursuant to
which each agrees to perform certain executive duties for Globe. If Globe
terminates their employment, other than for cause, or if the executive
terminates employment because of a substantial adverse change in the position, a
material reduction in base salary, a material breach by Globe of the Severance
Agreement or if Globe requires the executive to be based at a location away from
his current place of employment, the executive is
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<PAGE> 42
entitled to base salary and cash bonus. Amounts of base salary and cash bonus
are determined by the Board of Directors of Globe and the following:
- If termination occurs during the first fiscal year of the
Severance Agreement, the executive is entitled to two years of
base salary and cash bonus.
- If termination occurs during the second fiscal year of the
Severance Agreement, the executive is entitled to eighteen
months of base salary and one and one-half times the amount of
cash bonus received by the executive during the first fiscal
year of the Severance Agreement.
- If termination occurs after the second fiscal year of the
Severance Agreement, the executive is entitled to one year of
base salary and one-half of the amount of cash bonus received
by the executive during the two fiscal years immediately
preceding the year in which the executive's employment
terminates.
ERP will maintain the indemnification provisions for directors and
officers of Globe presently contained in Globe's Code of Regulations and provide
directors and officers insurance similar to that now carried by Globe.
All outstanding options to purchase Globe Common Stock, whether vested
or unvested, will be canceled at the time of the Merger and the holders will
receive the same consideration per share paid to holders of Common Stock less
the exercise price per share of the option. The value of the options vesting for
the executive officers and directors is:
<TABLE>
<CAPTION>
Shares Subject to Merger Value at
Option Holder Accelerated Vesting(1) Exercise Price $13.00 Per Share
------------- ---------------------- -------------- ----------------
<S> <C> <C> <C>
David D. Hoguet None
Blair D. Neller None
Alvin Z. Meisel None
William R. Griffin None
Thomas C. Parise None
Jeffery D. Pederson 750 $ 8.0000 $ 3,750
Christopher S. Gruenke 7,500 $11.5000 $11,250
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
Shares Subject to Merger Value at
Option Holder Accelerated Vesting(1) Exercise Price $13.00 Per Share
------------- ---------------------- -------------- ----------------
<S> <C> <C> <C>
Sharon G. Kebe 7,500 $11.50 $11,250
500 $ 8.00 $ 2,500
----- -------
8,000 $13,750
Lyle J. Tomlinson 7,500 $11.50 $11,250
500 $ 8.00 $ 2,500
----- -------
8,000 $13,750
Louis W. Holliday 7,500 $11.50 $11,250
500 $ 8.00 $ 2,500
----- -------
8,000 $13,750
Cory M. Nye 7,500 $11.50 $11,250
250 $ 8.00 $ 1,250
----- -------
7,750 $12,500
John H. Roby 7,500 $11.50 $11,250
250 $ 8.00 $ 1,250
----- -------
7,750 $12,500
Timothy J. Duggan 7,500 $12.50 $ 3,750
</TABLE>
(1) Only shares with an exercise price of less than $13.00 per share are listed.
Certain executive officers of Globe, other than Messrs. Hoguet and
Neller, will receive cash bonuses totaling $135,000 for their efforts in the
sale process.
Globe has agreed to waive the restriction of 1,482 shares of Globe
Common Stock issued to Mr. Pederson in 1997 and, therefore, he will receive the
full Merger consideration for those shares.
The following table shows the effect of the transaction on Messrs.
Hoguet and Neller in terms of book value and net earnings:
<TABLE>
<CAPTION>
Globe Business Globe Business
Globe Business Resources, Inc. Resources, Inc. Globe Holding
Resources, Inc. Common Stock Common Stock Value Common Stock
Shares Outstanding Book Value at $13.00/share Book Value (b)
---------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
($000) ($000) ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total 4,811,491 100.0% $45,634 100.0% $62,549 100.0% $38,518 100.0%
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
Globe Business Globe Business
Globe Business Resources, Inc. Resources, Inc. Globe Holding
Resources, Inc. Common Stock Common Stock Value Common Stock
Shares Outstanding Book Value at $13.00/share Book Value (b)
---------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
($000) ($000) ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total
Hoguet/Neller
Shares(a)
- -----------------
D.D. Hoguet 772,465 16.1% 7,326 16.1% 10,042 16.1% NA NA
B.D. Neller 705,643 14.7% 6,693 14.7% 9,173 14.7% NA NA
Shares Cashed Out
- -----------------
D.D. Hoguet
B.D. Neller 624,317 13.0% 5,921 13.0% 8,116 13.0% NA NA
557,495 11.6% 5,787 11.6% 7,247 11.6% NA NA
Shares Exchanged
For Globe
Holding
- -----------------
D.D. Hoguet
B.D. Neller 148,148 3.1% 1,405 3.1% 1,926 3.1% 1,926 5.0%
148,148 3.1% 1,405 3.1% 1,926 3.1% 1,926 5.0%
</TABLE>
(a) The totals exclude options of 11,500 each for Messrs. Neller and Hoguet
and 166 shares for Mr. Hoguet and 200 shares for Mr. Neller that are
held in the Company's 401(k) plan. The totals include 46,751 shares
held by Mr. Hoguet as custodian for his two minor children.
(b) The total cost for Globe Holding to acquire Globe Business Resources,
Inc. is $62,549,000 plus expenses. The difference between $62,549,000
plus expenses and the total $38,518,000 common equity of Globe Holding
will be mezzanine debt/preferred stock at the Globe Holding level.
THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
We have highlighted the material terms of the Amended and Restated
Agreement and Plan of Merger. Our summary may not contain all of the information
in that document that may be important to you. For this reason, we have attached
the entire Amended and Restated Agreement and Plan of Merger as Appendix A for
your review. Article and Section numbers refer to numbers in the Amended and
Restated Agreement and Plan of Merger.
Section 1.1 If shareholders adopt the Merger Agreement
and the other terms and conditions are met,
a wholly-owned subsidiary of Globe Holding,
will merge into Globe.
Sections 1.2 & 1.6 Each outstanding share of Globe Common Stock
will be canceled upon effectiveness of the
Merger. Those shares will then represent
only the right to receive cash of up to
$13.00 per share. The Merger is expected to
close eleven days after the shareholders'
meeting. The delay is provided in Section
7.2 to allow ERP to determine whether the
condition regarding dissenters' rights has
been met.
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<PAGE> 45
Each outstanding option to purchase Globe
Common Stock, whether vested or unvested,
will be canceled and the holders will
receive the same consideration per share
paid to holders of Common Stock less the
exercise price per share of the option.
Section 1.7 Forms will be sent to shareholders
instructing them how to exchange their
certificates for the cash consideration.
Article 2 Globe made representations and warranties
concerning its organization, capital
structure, ability to complete the
transaction and the other matters set forth
in Article 2, including, without limitation:
2.18 No defaults under debt instruments.
2.19 Receipt of the fairness opinion of FBR.
Articles 3 & 4 ERP made representations and warranties to
Globe regarding its organization and
abilities to complete the transaction.
Section 5.1 Globe is prohibited from soliciting any
other offers to purchase Globe. However,
Globe is permitted to furnish information
and enter into negotiations with any one who
makes an unsolicited proposal to acquire
Globe if the Board of Directors determines
that step is necessary in fulfilment of
their fiduciary duties to shareholders. If a
proposal is received which is superior to
the terms of the acquisition of Globe by
ERP, the Board of Directors may withdraw
their recommendations to shareholders of the
Merger Agreement and the Company may enter
into the superior proposal.
Sections 6.8 & 1.6(c) Option holders will receive the Merger
consideration of $13.00 per share less the
exercise price per share for their options.
All options will be fully vested for this
purpose.
Section 6.11 ERP will maintain the indemnification
provisions for directors and officers of
Globe presently contained in Globe's Code of
Regulations and provide directors and
officers insurance similar to that now
carried by Globe.
Section 7.1 The conditions of the parties to the
Agreement and Plan of Merger to close the
Merger are dependent upon shareholder
approval and the absence of any injunction
or other court restraint.
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<PAGE> 46
Section 7.2 The obligation of ERP to complete the Merger
depends on the representations of Globe
being true and correct and Globe having
performed all of its obligations under the
Agreement and Plan of Merger. The additional
conditions are that there be no material
adverse change in Globe since November 30,
1999 except as previously disclosed, and
that demands for appraisal under Ohio's
dissenters' rights statute have not been
received from more than 20% of Globe's
outstanding shares of Common Stock.
Section 7.3 Globe's obligation to complete the Merger is
dependent upon the representations and
warranties of ERP being true and correct and
the same waiting period under anti-trust
laws having passed.
Section 8.1 o The parties may terminate the
Agreement and Plan of Merger by
mutual consent at any time prior to
effectiveness of the Merger.
o ERP and Globe may each terminate
the Agreement and Plan of Merger if
representations, warranties,
covenants or obligations of the
other have not been met or if any
judgment or other court order
preventing consummation of the
Merger has become final and
non-appealable or if shareholders
do not approve the Merger Agreement
or if the Merger has not been
consummated by August 15, 2000.
o Globe may terminate if prior to the
tabulation of votes at the
shareholder meeting, Globe receives
a proposal superior to the
transaction with ERP.
Section 8.2 Termination by either party under certain
conditions can require that party to pay the
other a fee of $2.5 million. If Globe
terminates the agreement because it has
received a superior proposal and closes that
proposal within twelve months, Globe will
owe ERP a total of $5 million.
Section 9.2 The equitable remedy of specific performance
is provided as a remedy to each party in the
event the other refuses to consummate the
Merger without legal justification.
MARKET PRICE OF AND DIVIDENDS ON GLOBE COMMON STOCK
Globe's Common Shares are traded on the Nasdaq national market. The
following table sets forth the high and low sales prices per share of Globe's
Common Shares as reported for the calendar periods shown:
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<PAGE> 47
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1998
First Quarter............................................ $21.25 $11.50
Second Quarter........................................... $15.125 $ 9.75
Third Quarter............................................ $18.00 $14.25
Fourth Quarter........................................... $15.50 $10.375
1999
First Quarter............................................ $15.00 $11.375
Second Quarter........................................... $14.00 $9.75
Third Quarter............................................ $14.25 $11.50
Fourth Quarter........................................... $15.00 $12.125
2000
First Quarter............................................ $13.00 $10.00
Second Quarter through May __............................
</TABLE>
On September 10, 1999, the last trading day prior to the announcement
by Globe that it had retained FBR to assist it in seeking strategic
alternatives, Globe's shares closed at $13.50 per share on Nasdaq. On January
13, 2000 the last trading day prior to announcement of the Merger transaction
with ERP, Globe's shares closed at $11.875 per share on Nasdaq. On May 9, 2000,
the last trading day prior to the announcement of the revised Merger terms,
Globe's shares closed at $12.9375 per share on Nasdaq.
On October 16, 1998, Globe purchased 50,000 shares of its Common Stock
for $13.06 per share. On July 28, 1999, Mr. Hoguet purchased 1,000 shares on the
open market at $12.50 per share. On March 6, 2000 Alvin Meisel donated 100,000
shares to the Meisel Family Foundation, an entity controlled by Mr. Meisel.
Globe has not paid any dividends since it became a public corporation.
PRINCIPAL SHAREHOLDERS
The following table shows ownership of Common Stock of Globe by its
officers and directors and all 5% shareholders.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(a) of Class
---------------- ----------------------- --------
<S> <C> <C>
David D. Hoguet 784,087(b) 16.3%
11260 Chester Road, Suite 400
Cincinnati, Ohio 45246
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(a) of Class
---------------- ----------------------- --------
<S> <C> <C>
Blair D. Neller 717,261(c) 14.9%
340 E. Palm Lane, Suite 230
Phoenix, Arizona 85004
Alvin Z. Meisel 384,428(d) 8.0%
1650 Central Parkway
Cincinnati, Ohio 45210
Christopher S. Gruenke 4,948 *
Louis W. Holliday 6,513 *
Sharon G. Kebe 11,719 *
Cory M. Nye 7,750 *
Jeffrey D. Pederson 19,556(e) *
John H. Roby 6,455 *
Lyle J. Tomlinson 24,046 *
William R. Griffin 4,500 *
Thomas C. Parise 5,000 *
Timothy J. Duggan 61,935 1.3%
All executive officers and directors as a group 2,038,248 41.5%
(13 persons)
</TABLE>
* less than 1%
(a) Includes options exercisable within 60 days as follows: Hoguet -
11,500; Neller - 11,500; Pederson - 17,500; Kebe - 10,625; Tomlinson -
10,625; Meisel - 3,000; Griffin - 3,000; Parise - 3,000; Holliday -
6,375; Nye - 7,625; Roby - 6,375; Duggan - 2,500; and Gruenke -4,875.
(b) Includes 46,751 shares held as custodian for Mr. Hoguet's two minor
children.
(c) 318,492 shares are beneficially owned by the Neller Trust, of which Mr.
Neller is the trustee.
(d) Includes 100,000 shares held by the Meisel Family Foundation, an entity
controlled by Mr. Meisel.
(e) Does not include 1,482 restricted shares that will vest if the Merger
is consummated.
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<PAGE> 49
DISSENTERS RIGHTS
The following is a summary of the principal steps a holder of Globe
Common Stock must take to perfect dissenter's rights under Ohio law. Section
1701.85 of the Ohio General Corporation Law provides that all holders of Globe
Common Stock of record at the close of business on May 12, 2000, may exercise
dissenter's rights with respect to the Merger. Because the description of
dissenter's rights in this proxy statement is a summary, it doesn't contain all
the information that may be important to you. A copy of Section 1701.85, which
describes the steps a holder of Globe Common Stock must take to perfect
dissenter's rights, is attached to this proxy statement as Appendix D. Any
holder of Globe Common Stock contemplating exercising dissenter's rights should
review Appendix D carefully and consult an attorney, because dissenter's rights
will be lost if the procedural requirements under Section 1701.85 of the Ohio
law are not fully and precisely satisfied.
To perfect dissenter's rights, a Globe shareholder must satisfy each of
the following conditions:
1. Not Vote in Favor of the Merger.
Shares of Globe Common Stock held by the dissenting Globe shareholder
must not be voted at the special meeting in favor of the adoption of the Merger
Agreement. This requirement will be satisfied if a proxy is signed and returned
with instructions to vote against the adoption of the Merger Agreement, if no
proxy is returned and no vote is cast in favor of the adoption of the Merger
Agreement, or if the Globe shareholder revokes a proxy, and thereafter votes
against or abstains from voting for the adoption of the Merger Agreement.
A vote in favor of the adoption of the Merger Agreement constitutes a
waiver of dissenter's rights. A proxy that is returned signed but on which no
voting preference is indicated will be voted in favor of the Merger Agreement
and will constitute a waiver of dissenter's rights. A dissenting Globe
shareholder may revoke his or her proxy at any time before its exercise by
giving notice of revocation to Globe in writing, by verifiable communication, at
the special meeting or by signing and returning a later dated proxy although
attendance at the special meeting will not in and of itself constitute
revocation of a proxy.
2. Filing Written Demand.
Not later than ten days after the taking of the vote on the Merger
Agreement, a dissenting Globe shareholder must deliver to Globe a written demand
for payment of the fair cash value of the dissenting shareholder's shares of
Globe Common Stock. The demand should be delivered to Globe at 11260 Chester
Road, Suite 400, Cincinnati, Ohio, Attention: Corporate Secretary. It is
recommended, although not required, that the demand be sent by registered or
certified mail, return receipt requested. Voting against the adoption of the
Merger Agreement will not itself constitute a demand. Globe will not send any
further notice to Globe shareholders as to the date on which the ten-day period
expires.
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<PAGE> 50
The demand must identify the name and address of the holder of record
of the dissenting shareholder's Globe Common Stock, the number of shares of the
dissenting shareholder's Globe Common Stock and the amount claimed as the fair
cash value thereof. A beneficial owner must, in all cases, have the record
holder submit the demand regarding the dissenting shareholder's Globe Common
Stock. The demand must be signed by the shareholder of record or a duly
authorized representative exactly as the shareholder's name appears on the
shareholder records of Globe. A demand regarding Globe Common Stock owned
jointly by more than one person must identify and be signed by all of the
shareholders of record. Any person signing a demand on behalf of a partnership
or corporation or in any other representative capacity, such as an
attorney-in-fact, executor, administrator, trustee or guardian, must indicate
the nature of the representative capacity and, if requested, must furnish
written proof of this capacity and that person's authority to sign the demand.
Because only shareholders of record on the record date may exercise
dissenter's rights, any person who beneficially owns shares that are held of
record by a broker, fiduciary, nominee or other holder and who wishes to
exercise dissenter's rights must instruct the record holder of the shares to
satisfy the conditions outlined above. If a record holder does not satisfy in a
timely manner all of the conditions outlined in this section, the dissenter's
rights for all of the shares held by that shareholder will be lost.
From the time the demand is given until either the termination of the
rights and obligations arising from the demand or the purchase of the dissenting
shareholder's Globe Common Stock by Globe, all rights accruing from the shares,
including voting and dividend or distribution rights, will be suspended. If any
dividend or distribution is paid on Globe Common Stock during the suspension, an
amount equal to the dividend or distribution which would have been payable on
the dissenting shareholder's shares of Globe Common Stock, but for that
suspension, shall be paid to the holder of record of those shares of Globe
Common Stock as a credit upon the fair cash value of the shares. If the right to
receive the fair cash value is terminated otherwise than by the purchase of the
dissenting shareholder's Globe Common Stock by Globe, all rights will be
restored to the dissenting shareholder and any distribution that would have been
made to the holder of record of the shares of Globe Common Stock for which
dissenter's rights have been asserted, but for the suspension, will be made at
the time of the termination.
3. Petitions to Be Filed in Court.
If Globe and the dissenting shareholder do not reach an agreement on
the fair cash value of the dissenting shareholder's Globe Common Stock within
three months after the service of the demand, the dissenting shareholder or
Globe may file a complaint in the Court of Common Pleas of Hamilton County,
Ohio, or join or be joined in an action similarly brought by another dissenting
shareholder, for a judicial determination of the fair cash value of the shares
for which dissenter's rights have been asserted. Globe does not intend to file
any complaint for a judicial determination of the fair cash value of any Globe
Common Stock.
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For purposes of the Ohio law, "fair cash value" is the amount which a
willing seller, under no compulsion to sell, would be willing to accept, and
which a willing buyer, under no compulsion to purchase, would be willing to pay,
but in no event may the fair cash value exceed the amount specified in the
demand. The fair cash value is to be determined as of the date before the vote
on the Merger. Any appreciation or depreciation in the market value of the
shares of Globe Common Stock for which dissenter's rights have been asserted
resulting from the Merger is excluded.
The Court of Common Pleas will hold a hearing to determine whether the
dissenting shareholder is entitled to be paid the fair cash value of his or her
Globe shares. If the Court of Common Pleas finds that the dissenting shareholder
is so entitled, it may appoint one or more appraisers to receive evidence and to
recommend a decision on the amount of that value. The Court of Common Pleas is
required to make a finding as to the fair cash value of the shares of Globe
Common Stock for which dissenter's rights have been asserted and to render a
judgment against Globe for the payment thereof, with interest at a rate and from
a date that the Court of Common Pleas considers equitable. Costs of the
proceedings, including reasonable compensation to the appraiser or appraisers to
be fixed by the Court of Common Pleas, are to be apportioned or assessed as the
Court of Common Pleas considers equitable. Payment of the fair cash value of the
shares of Globe Common Stock is required to be made within 30 days after the
date of final determination of the fair cash value or the effective time of the
Merger, whichever is later, only upon surrender to Globe of the certificates
representing the shares of Globe Common Stock for which payment is made.
The rights of any dissenting shareholder will terminate if, among other
things:
(1) the dissenting shareholder does not comply with Section 1701.85 of
the Ohio laws;
(2) the Merger is abandoned or otherwise not carried out or the
dissenting shareholder withdraws the demand with the consent of the Globe board
of directors; or
(3) no agreement has been reached between Globe and the dissenting
shareholder regarding the fair cash value of the shares of Globe Common Stock
for which dissenter's rights have been asserted and no complaint is timely filed
in the Court of Common Pleas.
OTHER MATTERS
PENDING LITIGATION
On January 20, 2000, a class action suit was filed by a shareholder
seeking to enjoin the Merger and recover damages from Globe and its directors.
The suit is captioned Nicholas Simac v. Globe et al. and it is identified as
Court of Common Pleas, Hamilton County, Ohio Number A0000403. The suit alleges
that the directors violated their fiduciary duty to maximize the value a
shareholder will receive in the transaction by agreeing to a sale below market
prices achieved in the
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last twelve months, taking actions to deter other offers, not announcing third
quarter results prior to announcing execution of the Merger Agreement, not
conducting an active auction for sale of the Company, structuring a preferential
deal for the officers and directors and not disclosing non-public information.
The defendants believe that, in several respects, the suit misstates Ohio law
and the facts of the transaction and is contesting the suit. The pendency of the
suit will not affect the progress and closing of the Merger transaction unless
an injunction is issued by the court stopping the transaction. Globe and the
other defendants have filed motions to dismiss the action. On April 4, 2000, the
plaintiff filed an amended complaint. The amended complaint makes many of the
same allegations as the original complaint, and also alleges that the process
employed by the directors of Globe in deciding to proceed with the Equity
transaction was unfair and flawed and was designed to enrich the defendants at
the expense of the public shareholders. The amended complaint also alleges that
neither the Special Committee nor FBR was independent of Globe management and
that the preliminary proxy materials do not adequately disclose all material
facts to Globe shareholders. The amended complaint seeks to enjoin the Merger
transaction.
CERTAIN TRANSACTIONS
On January 20, 1998, the Company loaned $100,000 to Jeffery D.
Pederson, Executive Vice President, pursuant to a promissory note. Interest
accrues at the rate of 7.5% per annum and is payable annually on the anniversary
date of the note. The principal amount is payable on the third anniversary date
of the note. The loan was issued in connection with Mr. Pederson's relocation to
Cincinnati, Ohio. On May 1, 1998 the Company purchased for resale Jeffery D.
Pederson's home for $328,000, also in connection with his relocation to
Cincinnati, Ohio. The home was subsequently sold on September 4, 1998. The
Company waived its right to offset the shortfall on the sale of Mr. Pederson's
home (approximately $10,000) against the shares of restricted stock granted to
him in October 1997. Globe has agreed to waive the restriction on 1,482 shares
of Globe Common Stock issued to Mr. Pederson in 1997 and, therefore, he will
receive the full Merger consideration for those shares.
On February 29, 2000, Globe borrowed $4 million from a commercial bank
pursuant to a subordinated term note due on the earlier of December 31, 2000 or
the closing of the Merger Agreement. David D. Hoguet guaranteed payment of the
note in full and secured his guarantee by a pledge of 576,565 shares of Globe
Common Stock. Globe expects to increase its subordinated debt by $4 million
prior to May 31, 2000. ERP has consented to these loans.
In its normal course of business, ERP rents apartment units to Globe
Business Resources, Inc. and rents furniture from Globe Business Resources, Inc.
and the estimated dollar amount of such transactions for the two year period
ending December 31, 1999 is $9,000,000.
SOURCE OF CONSIDERATION IN THE TRANSACTION
The Merger is not subject to any financing contingency. The funds
required to pay the merger consideration to the shareholders of Globe will be
contributed by Globe Holding to Globe following the completion of the Merger. In
addition, Globe Holding will contribute a sufficient amount to Globe to pay for
the estimated costs of the Merger incurred by the surviving corporation or its
predecessors. The cash funds required to pay the merger consideration and
expenses by Globe Holding will be approximately $63 million. Such amount will be
paid to Globe Holding by ERP
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<PAGE> 53
either as a loan, through the purchase of stock or loans to individuals,
including executive officers of Globe as described under "Interest in the
Merger," who will purchase stock of Globe Holding. ERP plans to make available
to the required funds for Globe Holding from its general working capital,
including but not limited to its existing revolving credit facility. ERP is a
party to a Revolving Credit Agreement dated as of August 12, 1999 among ERP,
Bank of America, National Association, as administrative agent, The Chase
Manhattan Bank, as syndication agent, Morgan Guaranty Trust Company of New York,
as documentation agent, Bank of America Securities LLC, as joint lead arranger,
and Chase Securities Inc., as joint lead arranger and the Banks listed therein.
The Revolving Credit Agreement is a three year $700 million (all of which was
available as of March 20, 2000) unsecured revolving credit facility which
matures on August 11, 2002 and bears interest at a floating rate which averaged
during calendar 1999, on a weighted basis, 6.42%. ERP has no current intentions
to finance or repay the Revolving Credit Agreement in connection with this
transaction. ERP has agreed to provide Globe Holding with up to $9 million in
subordinated debt to repay the subordinated debt Globe incurs prior to the
Merger. There have been no provisions made for alternative financing
arrangements.
SHAREHOLDER PROPOSALS
If the Merger is not completed, Globe will hold an Annual Shareholders'
Meeting in 2000. Shareholders who desire to have proposals included in the
Notice for the Shareholders' Meeting to be held in 2000 must have submitted
their proposals in writing to Globe before January 29, 2000.
The form of Proxy intended to be used at the 2000 Annual Shareholders'
Meeting will grant authority to the designated proxies to vote in their
discretion on any matters that come before the meeting except those set forth in
the Globe proxy statement and except for matters as to which adequate notice is
received. In order for notice to be deemed adequate for the 2000 Annual
Shareholders' Meeting, it must be received prior to April 13, 2000. If there is
a change in the anticipated date of next year's annual meeting or these
deadlines by more than 30 days, notification will be supplied through Form 10-Q
filings.
ADDITIONAL INFORMATION CONCERNING GLOBE
Globe's annual report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended February 28, 1999 and its report to the
Securities and Exchange Commission on Form 10-Q for the quarter and nine months
ended November 30, 1999 are attached as Appendices D and E, respectively.
The ratio of Globe's earnings to fixed charges for fiscal 2000 and 1999
are 1.86 and 2.95 respectively. Globe's book value per share as of February 29,
2000 is $9.50.
WHERE YOU CAN FIND MORE INFORMATION
Globe files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, proxy statements
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<PAGE> 54
or other information that Globe files with the Commission at the Commission's
public reference facilities at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611, and at 7 World Trade Center, 13th Floor, New York, New
York 10048. Any interested party may obtain copies of such material at
prescribed rates from the Reference Section of the Commission at its principal
office in Washington, D.C. These Commission filings are also available to the
public from commercial document retrieval services and at the Internet web site
maintained by the Commission at "http://www.sec.gov". In addition, reports,
proxy statements and other information should also be available for inspection
at the offices of the NASDAQ, 9801 Washington Blvd., Gaithersburg, Maryland
20878.
All documents filed by Globe pursuant to the Exchange Act after the
date of this and prior to the date on which the Merger is consummated shall be
deemed to be incorporated by reference in this Proxy Statement and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them from us, the SEC or
the SEC's Internet web site as described above. Documents incorporated by
reference are available from us without charge, excluding all exhibits, except
those we have specifically incorporated by reference an exhibit in this Proxy
Statement. You may obtain documents incorporated by reference in this Proxy
Statement by requesting them in writing or by telephone from Globe at the
following address:
Globe Business Resources, Inc.
11260 Chester Road, Suite 400
Cincinnati, Ohio 45246
Tel: (513) 771-8287
Attn: Corporate Secretary's Department
You should rely only on the information contained or incorporated by
reference in this Proxy Statement. We have not authorized anyone to provide you
with information that is different from what is contained in this Proxy
Statement. This Proxy Statement is dated May ___, 2000.
No provision has been made to grant unaffiliated security holders
access to the corporate files of Globe, Mr. Hoguet or Mr. Neller or to obtain
counsel or appraisal services at the expense of any of them.
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<PAGE> 55
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ERP OPERATING LIMITED PARTNERSHIP
GLOBE HOLDING CO., INC.
AND
GLOBE BUSINESS RESOURCES, INC.
DATED AS OF JANUARY 13, 2000
AS AMENDED AND RESTATED AS OF
MAY 10, 2000
<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 THE MERGER......................................................................................2
SECTION 1.1 The Merger.........................................................................2
SECTION 1.2 Effective Time.....................................................................2
SECTION 1.3 Effect of the Merger...............................................................2
SECTION 1.4 Articles of Incorporation, Code of Regulations.....................................3
SECTION 1.5 Directors and Officers.............................................................3
SECTION 1.6 Effect on Capital Stock............................................................3
SECTION 1.7 Exchange of Certificates...........................................................4
SECTION 1.8 Stock Transfer Books...............................................................6
SECTION 1.9 No Further Ownership Rights in Common Stock........................................6
SECTION 1.10 Lost, Stolen or Destroyed Certificates.............................................6
SECTION 1.11 Taking of Necessary Action; Further Action.........................................6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................7
SECTION 2.1 Organization, Standing And Power of Company........................................7
SECTION 2.2 Company Subsidiaries...............................................................7
SECTION 2.3 Capital Structure..................................................................8
SECTION 2.4 Other Interests....................................................................9
SECTION 2.5 Authority; Noncontravention; Consents..............................................9
SECTION 2.6 SEC Documents; Financial Statements; Undisclosed Liabilities......................11
SECTION 2.7 Absence of Certain Changes or Events..............................................12
SECTION 2.8 Litigation........................................................................12
SECTION 2.9 Properties........................................................................13
SECTION 2.10 Environmental Matters.............................................................15
SECTION 2.11 Related Party Transactions........................................................17
SECTION 2.12 Employee Benefits.................................................................17
SECTION 2.13 Employee Matters..................................................................19
SECTION 2.14 Taxes.............................................................................20
SECTION 2.15 No Payments to Employees, Officers, Trustees or Directors.........................23
SECTION 2.16 Brokers; Schedule of Fees And Expenses............................................24
SECTION 2.17 Compliance With Laws..............................................................24
SECTION 2.18 Contracts; Debt Instruments.......................................................24
SECTION 2.19 Opinion of Financial Advisor......................................................26
SECTION 2.20 Investment Company Act of 1940....................................................26
SECTION 2.21 Trademarks, Patents And Copyrights................................................26
SECTION 2.22 Insurance.........................................................................27
SECTION 2.23 Definition of Knowledge of Company................................................27
SECTION 2.24 Vote Required.....................................................................27
SECTION 2.25 Year 2000.........................................................................27
SECTION 2.26 Chapter 1704 of the Ohio Law Not Applicable.......................................27
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 2.27 Stock Issued in Connection with Acquisitions......................................27
SECTION 2.28 Contingent Earn-Outs..............................................................28
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ERP..........................................................28
SECTION 3.1 Organization, Good Standing and Power of ERP......................................28
SECTION 3.2 Authority; Noncontravention; Consents Relating to ERP.............................28
SECTION 3.3 Brokers; Schedule of Fees And Expenses............................................29
SECTION 3.4 State Takeover Statutes...........................................................29
SECTION 3.5 Definition of Knowledge of ERP. .................................................29
SECTION 3.6 Proxy Statement...................................................................29
SECTION 3.7 Financing.........................................................................30
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF NEWCO........................................................30
SECTION 4.1 Organization, Good Standing and Power of Newco....................................30
SECTION 4.2 Authority; Noncontravention; Consents Relating to Newco...........................30
SECTION 4.3 Organization, Good Standing and Power of Acquisition..............................31
SECTION 4.4 Authority; Noncontravention; Consents Relating to Acquisition.....................31
SECTION 4.5 Brokers; Schedule of Fees And Expenses............................................32
SECTION 4.6 State Takeover Statutes...........................................................32
SECTION 4.7 Definition of Knowledge of Newco. ...............................................32
SECTION 4.8 Proxy Statement...................................................................33
ARTICLE 5 COVENANTS......................................................................................33
SECTION 5.1 Acquisition Proposals.............................................................33
SECTION 5.2 Conduct of the Company's Business Pending Merger..................................34
SECTION 5.3 Other Actions.....................................................................37
ARTICLE 6 ADDITIONAL AGREEMENTS..........................................................................38
SECTION 6.1 Preparation of Proxy Statement; Stockholder Meeting; Comfort Letters..............38
SECTION 6.2 HSR Act...........................................................................39
SECTION 6.3 Access to Information; Confidentiality............................................39
SECTION 6.4 Best Efforts; Notification........................................................39
SECTION 6.5 Costs of Transaction..............................................................40
SECTION 6.6 Public Announcements..............................................................40
SECTION 6.7 Taxes.............................................................................40
SECTION 6.8 Optionees.........................................................................41
SECTION 6.9 Declaration of Dividends and Distributions........................................41
SECTION 6.10 Resignations......................................................................41
SECTION 6.11 Indemnification...................................................................41
SECTION 6.12 Certain Debt of the Company.......................................................42
SECTION 6.13 Fees and Expenses.................................................................42
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 6.14 Employee Benefits.................................................................42
SECTION 6.15 Subordinated Debt.................................................................42
ARTICLE 7 CLOSING CONDITIONS.............................................................................43
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger........................43
SECTION 7.2 Conditions to Obligations of ERP..................................................43
SECTION 7.3 Conditions to Obligations of the Company..........................................44
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER..............................................................46
SECTION 8.1 Termination.......................................................................46
SECTION 8.2 Certain Fees and Expenses.........................................................47
SECTION 8.3 Effect of Termination.............................................................48
SECTION 8.4 Amendment.........................................................................48
SECTION 8.5 Extension; Waiver.................................................................48
ARTICLE 9 GENERAL PROVISIONS.............................................................................49
SECTION 9.1 Nonsurvival of Representations and Warranties.....................................49
SECTION 9.2 Notices. .........................................................................49
SECTION 9.3 Interpretation. ..................................................................50
SECTION 9.4 Counterparts. ....................................................................50
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries. ..................................50
SECTION 9.6 Governing Law. ..................................................................50
SECTION 9.7 Assignment. ......................................................................51
SECTION 9.8 Specific Enforcement. ...........................................................51
SECTION 9.9 Severability. ...................................................................51
SECTION 9.10 Non-Recourse to Trustees and Officers. ...........................................51
</TABLE>
EXHIBIT INDEX
- -------------
Exhibit A - Form of Agreement and Plan of Merger
Exhibit B - Form of Company Counsel Opinion
Exhibit C - Form of ERP's Counsel Opinion
<PAGE> 59
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
-------------------------------------------------
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER ("Agreement"),
dated as of January 13, 2000, and as amended and restated as of May 10, 2000,
but all as of January 13, 2000, is by and among GLOBE BUSINESS RESOURCES, INC.,
an Ohio corporation (the "Company"), GLOBE HOLDING CO., INC., a Delaware
corporation ("Newco") and ERP OPERATING LIMITED PARTNERSHIP, an Illinois limited
partnership ("ERP").
R E C I T A L S:
---------------
WHEREAS, the General Partner of ERP, the Board of Directors of Newco
and the Board of Directors of the Company (the "Company Board"), including the
Special Committee of the Company Board established to consider the transaction
(the "Special Committee"), have each approved the acquisition of the Company by
an indirect partially-owned subsidiary of ERP upon the terms and subject to the
conditions set forth in that certain Agreement and Plan of Merger by and between
the parties hereto dated as of January 13, 2000 (the "Original Agreement");
WHEREAS, the parties hereto elected to amend and restate the Original
Agreement as of May 10, 2000; and
WHEREAS, ERP, David D. Hoguet, Blair D. Neller and others have entered
into that certain Amended and Restated Formation and Investment Agreement dated
as May 10, 2000 (the "Formation Agreement") pursuant to which the parties have
formed Newco which will, in turn, form a wholly-owned Ohio corporation
("Acquisition");
WHEREAS, the General Partner of ERP and the Board of Directors of Newco
have approved and the Board of Directors and sole shareholder of Acquisition
will approve the merger (the "Merger") of Acquisition with and into the Company
in accordance with the Ohio General Corporation Law (the "Ohio Law") upon the
terms and subject to the conditions set forth herein;
WHEREAS, the Company has received a fairness opinion relating to the
Merger, as more fully described herein;
WHEREAS, the Company Board, including the Special Committee, has: (i)
determined that the consideration to be paid for each issued and outstanding
share of common stock, no par value per share ("Common Stock") of the Company
(each a "Share") in the Merger (as defined below) is fair to and in the best
interests of the shareholders of the Company; and (ii) approved this Agreement
and the transactions contemplated hereby and declared their advisability and
resolved to recommend approval and adoption of this Agreement by the
shareholders of the Company;
<PAGE> 60
WHEREAS, ERP, Newco and the Company desire to make certain
representations, warranties and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company, Newco and ERP hereby agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 THE MERGER.
(a) AGREEMENT OF MERGER. Prior to the Effective Time (as defined
below), and subject to and upon the terms and conditions of this Agreement, the
Agreement of Merger substantially in the form attached as Exhibit A hereto (the
"Agreement of Merger") shall be executed and delivered by the Company and
Acquisition, as soon as practicable after the date hereof, but in no event later
than the date of the meeting of the shareholders of the Company called to adopt
the Agreement of Merger, in accordance with Ohio Law. Pursuant to the terms of
the Agreement of Merger, Acquisition shall be merged with and into the Company,
the separate corporate existence of Acquisition shall cease and the Company
shall continue as the surviving corporation. The Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
(b) CLOSING. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1 and subject to the satisfaction or waiver of the conditions set forth in
Article 7, the consummation of the Merger will take place on the eleventh day
following the meeting of the Company's shareholders held to vote on the approval
of the Merger; provided, however, in the event that ERP waives the condition set
forth in Section 7.2(j) then the Merger shall take place as soon as practicable
after the meeting of the Company's shareholders, but in no event later than 3
business days after satisfaction or waiver of the conditions set forth in
Article 7 (the "Closing Date"), at the offices of Piper Marbury Rudnick & Wolfe,
203 North LaSalle Street, Suite 1800, Chicago, Illinois 60601, unless another
date, time or place is agreed to in writing by the parties hereto.
SECTION 1.2 EFFECTIVE TIME. On the Closing Date, Newco, Acquisition and
the Company shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the Ohio Law (the "Certificate of Merger"), together
with any required related documents, with the Secretary of State of the State of
Ohio, in such form as required by, and executed in accordance with the relevant
provisions of, the Ohio Law (the time of such filing being the "Effective
Time").
2
<PAGE> 61
SECTION 1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in the Agreement of Merger and the Certificate
of Merger and the applicable provisions of the Ohio Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property rights, privileges, powers and franchises of the Company and
Acquisition shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Acquisition shall become the debts, liabilities
and duties of the Surviving Corporation.
SECTION 1.4 ARTICLES OF INCORPORATION, CODE OF REGULATIONS.
(a) ARTICLES OF INCORPORATION. At the Effective Time the Articles of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by Ohio Law and such Articles of Incorporation.
(b) CODE OF REGULATIONS. The Code of Regulations of the Company, as in
effect immediately prior to the Effective Time, shall be the Code of Regulations
of the Surviving Corporation until thereafter amended as provided by the Ohio
Law, the Articles of Incorporation of the Surviving Corporation and such Code of
Regulations.
SECTION 1.5 DIRECTORS AND OFFICERS. The directors of Acquisition
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Code of Regulations of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of ERP, Acquisition, Newco, the
Company or the holders of any of the following securities:
(a) CONVERSION OF SECURITIES. Each Share issued and outstanding
immediately prior to the Effective Time (excluding any Shares to be canceled
pursuant to Section 1.6(b)) shall be cancelled and converted into the right to
receive, subject to the terms and conditions of this Agreement, $13.00 per Share
(the "Merger Consideration") payable to the holder thereof, without interest
thereon, upon the surrender of the certificate formerly representing such Share,
less any required withholding of taxes. The Merger Consideration shall be
payable in cash without interest thereon in accordance with Section 1.7 as soon
as practicable after the Deposit Date, as defined herein.
(b) CANCELLATION. Each Share held in the treasury of the Company and
each Share owned by ERP, Newco, Acquisition or any direct or indirect
wholly-owned subsidiary of the Company or ERP immediately prior to the Effective
Time shall, by virtue of the Merger and without any action
3
<PAGE> 62
on the part of the holder thereof, cease to be outstanding, be canceled and
retired without payment of any consideration therefor and cease to exist.
(c) STOCK OPTIONS. At the Effective Time, each outstanding option
(a"Stock Option") to purchase Common Stock granted under or pursuant to any
employee stock option plan or agreement entered into by the Company with any
employee of the Company or any subsidiary thereof or any other person listed on
Schedule 2.3 of the Company Disclosure Letter or otherwise existing (the
"Company Stock Option Plans"), shall be cancelled and the holder thereof shall
be entitled to receive in cash (the "Total Option Amount") an amount (less
applicable withholding taxes) equal to the product of: (i) the number of shares
of Common Stock previously subject to such Stock Option, whether vested or
unvested, multiplied by; (ii) the excess, if any, of the amount of the Merger
Consideration over the exercise price per share of Common Stock previously
subject to such Stock Option, payable, as soon as practicable after the
Effective Time.
(d) CAPITAL STOCK OF ACQUISITION. Each share of common stock, no par
value, of Acquisition issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of common stock, no par value, of the Surviving
Corporation.
(e) DISSENTING SHARES. Notwithstanding anything in this Agreement to
the contrary, Shares outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such Shares in accordance with
Section 1701.85 of the Ohio Law ("Dissenting Shares") shall not be converted
into a right to receive the Merger Consideration, unless such holder fails to
perfect or withdraws or loses his right to appraisal, in which case such Shares
shall be treated as if they had been converted as of the Effective Time into a
right to receive the Merger Consideration, without interest thereon. The Company
shall give ERP prompt notice of any demands received by the Company for
appraisal of Shares and, prior to the Effective Time, ERP shall have the right
to direct all negotiations and proceedings with respect to such demands. Prior
to the Effective Time, the Company shall not, except with the prior written
consent of ERP, make any payment with respect to, or settle or offer to settle,
any such demands. From and after the Effective Time, the Surviving Corporation
shall give ERP prompt notice of any demands received by the Surviving
Corporation for appraisal of Shares and, after the Effective Time, ERP shall
have the right to direct all negotiations and proceedings with respect to such
demands. After the Effective Time, the Surviving Corporation shall not, except
with the prior written consent of ERP, make any payment with respect to, or
settle or offer to settle, any such demands.
SECTION 1.7 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT AND PROCEDURES. Prior to the Effective Time, a bank
or trust company reasonably acceptable to the Company shall be designated by ERP
(the "Paying Agent") to act as agent in connection with the Merger to receive
the funds to which holders of shares shall
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become entitled pursuant to Section 1.6(a). Promptly after the Effective Time
but in no event more than three (3) business days after the Effective Time, the
Surviving Corporation shall cause to be mailed to each record holder, as of the
Effective Time, of a certificate or certificates (the "Certificates") that,
prior to the Effective Time, represented Shares, a form of letter of transmittal
and instructions for use in effecting the surrender of the Certificates for
payment of the Merger Consideration therefor. Upon the surrender of each such
Certificate formerly representing Shares, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the Paying Agent shall pay the holder of such Certificate
the Merger Consideration multiplied by the number of Shares formerly represented
by such Certificate, in exchange therefor, and such Certificate shall forthwith
be canceled. Until so surrendered and exchanged, each such Certificate (other
than Shares held by ERP, Newco, Acquisition or the Company, or any direct or
indirect subsidiary thereof) shall represent solely the right to receive the
Merger Consideration. No interest shall be paid or accrue on the Merger
Consideration. If the Merger Consideration (or any portion thereof) is to be
delivered to any person other than the person in whose name the Certificate
formerly representing the Shares surrendered in exchange therefor is registered,
it shall be a condition to such exchange that the Certificate so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the person requesting such exchange shall pay to the Paying Agent any transfer
or other taxes required by reason of the payment of the Merger Consideration to
a person other than the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of the Paying Agent that such tax has been
paid or is not applicable.
(b) CONSIDERATION. (i) Within three (3) business days after the
Effective Time (the "Deposit Date"), ERP or the Surviving Corporation shall
deposit, or cause to be deposited, in trust with the Paying Agent the amount of
Merger Consideration to which holders of Shares shall be entitled at the
Effective Time pursuant to Section 1.6(a) hereof.
(c) INVESTMENT OF MERGER CONSIDERATION. The Merger Consideration shall
be invested by the Paying Agent, as directed by ERP, provided such investments
shall be limited to direct obligations of the United States of America,
obligations for which the full faith and credit of the United States of America
is pledged to provide for the payment of principal and interest, commercial
paper rated of the highest quality by Moody's Investors Service, Inc. and
Standard & Poor's Corporation, or certificates of deposit issued by a commercial
bank having at least $10,000,000,000 in assets.
(d) TERMINATION OF DUTIES. Promptly following the date which is six (6)
months after the Effective Time, ERP will cause the Paying Agent to deliver to
the Surviving Corporation all cash and documents in its possession relating to
the funds to be deposited on the Deposit Date described in this Agreement, and
the Paying Agent's duties relating thereto shall terminate. Thereafter, each
holder of a Certificate formerly representing a Share may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor the Merger
Consideration, without any interest thereon.
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(e) NO LIABILITY. None of ERP, Acquisition, Newco and the Company shall
be liable to any holder of Common Stock for any Merger Consideration delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) WITHHOLDING RIGHTS. ERP or the Paying Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Common Stock such amounts as ERP or the Paying
Agent is required to deduct and withhold with respect to the making of such
payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by ERP or the Paying Agent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the Shares
in respect of which such deduction and withholding was made by ERP or the Paying
Agent.
SECTION 1.8 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Common Stock thereafter on the records of the
Company.
SECTION 1.9 NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. The Merger
Consideration delivered upon the surrender for exchange of Shares in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to such Shares, and there shall be no further
registration of transfers on the records of the Surviving Corporation of Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article 1.
SECTION 1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Paying Agent shall
deliver in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, the Merger
Consideration as may be required pursuant to Section 1.6; provided, however,
that ERP may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against ERP, the Surviving Corporation or the Paying
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
SECTION 1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of ERP,
Acquisition, Newco and the Company will take all such reasonable and lawful
action as may be necessary or appropriate in order to effectuate the Merger in
accordance with this Agreement as promptly as possible. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Acquisition, the officers and directors
of the Company and Acquisition immediately
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prior to the Effective Time are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to ERP and Newco that,
except as set forth in the written letter of even date herewith signed by the
Chairman of the Board or the President of the Company, in his capacity as such,
and delivered on or prior to the date hereof by the Company to ERP (the "Company
Disclosure Letter"):
SECTION 2.1 ORGANIZATION, STANDING AND POWER OF COMPANY. The Company is
a corporation duly organized and validly existing under the laws of Ohio and has
the requisite corporate power and authority to carry on its business as now
being conducted. The Company is duly qualified or licensed to do business as a
corporation and is in good standing (or the local law equivalent) in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect on
the business, properties, assets, financial condition or results of operations
of the Company and the Company Subsidiaries (as defined below) taken as a whole
(a "Company Material Adverse Effect"). Schedule 2.1 of the Company Disclosure
Letter sets forth each jurisdiction in which the Company is qualified or
licensed to do business, as well as all assumed names under which the Company
conducts business in such jurisdictions. The Company has previously delivered to
ERP complete and correct copies of its Articles of Incorporation and Code of
Regulations, in each case, as amended or supplemented to the date of this
Agreement.
SECTION 2.2 COMPANY SUBSIDIARIES. Except as otherwise provided in the
Company Disclosure Letter:
(a) Schedule 2.2 of the Company Disclosure Letter sets forth:
(i) each subsidiary of the Company (each a "Company
Subsidiary");
(ii) the legal form of each Company Subsidiary,
including the state or country of formation;
(iii) the identity and ownership interest of each
owner of such Company Subsidiary, including but not limited to
the amount of securities of such Company Subsidiary owned by
such owner;
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(iv) each jurisdiction in which each Company
Subsidiary is qualified or licensed to do business; and
(v) each assumed name under which each Company
Subsidiary conducts business in any jurisdiction.
As used in this Agreement, "Subsidiary" of any Person means any corporation,
partnership, limited liability company, joint venture or other legal entity of
which such Person (either directly or through or together with another
Subsidiary of such Person) owns a majority of any of the capital stock or other
equity interests of such corporation, partnership, limited liability company,
joint venture or other legal entity. As used herein, "Person" or "person" means
an individual, corporation, partnership, limited liability company, joint
venture, association, trust, unincorporated organization or any other legal
entity.
(b) All the outstanding shares of capital stock of each Company
Subsidiary that is a corporation have been validly issued and are (A) fully paid
and nonassessable, (B) owned by the Company or by another Company Subsidiary,
and (C) owned free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") other than restrictions on transfer imposed by federal
or state securities laws or regulations, and all equity interests in each
Company Subsidiary that is a partnership, joint venture, limited liability
company or trust which are owned by the Company, by another Company Subsidiary
or by the Company and another Company Subsidiary are owned free and clear of all
Liens other than restrictions on transfer imposed by federal or state securities
laws and regulations and by the operating agreement of any such Company
Subsidiary that is a limited liability company. Each Company Subsidiary that is
a corporation is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted, and each Company
Subsidiary that is a partnership, limited liability company or trust is duly
organized and validly existing under the laws of its jurisdiction of
organization and has the requisite power and authority to carry on its business
as now being conducted. Each Company Subsidiary is duly qualified or licensed to
do business and, with respect to each Company Subsidiary that is a corporation,
is in good standing (or the local law equivalent) in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed, individually or in the
aggregate, would not have a Company Material Adverse Effect. True and correct
copies of the Articles of Incorporation, Codes of Regulations, Bylaws,
partnership agreements, joint venture and operating agreements or similar
organizational documents of each Company Subsidiary, as amended to the date of
this Agreement, have been previously delivered to ERP.
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SECTION 2.3 CAPITAL STRUCTURE.
(a) As of the date hereof, the authorized shares of capital stock of
the Company consist of (i) 15,000,000 shares of Common Stock (which includes all
restricted stock) of which 4,803,198 are issued and outstanding and (ii) 100,000
shares of preferred stock, none of which are issued and outstanding. As of the
date hereof, 677,638 shares of Common Stock were reserved for issuance but not
issued under the Company Stock Option Plans. On the date hereof, except as set
forth in this Section 2.3 or Schedule 2.3 of the Company Disclosure Letter, no
Common Stock or other voting securities of the Company were issued, reserved for
issuance or outstanding.
(b) Set forth in Schedule 2.3 of the Company Disclosure Letter is a
true and complete list as of the date hereof of each outstanding incentive or
nonqualified stock option outstanding under the Company Stock Option Plans and a
total thereof, all agreements to issue shares of Restricted Stock and the amount
and terms of all outstanding shares of restricted stock issued by the Company.
(c) All outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and nonassessable and not subject to, and were not issued in
violation of, any preemptive rights. There are no bonds, debentures, notes or
other indebtedness of the Company, or assets of any other entities exchangeable
into Common Stock having the right to vote on any matters on which shareholders
of the Company may vote.
(d) Except as set forth in this Section 2.3 or in Schedule 2.3 of the
Company Disclosure Letter, as of the date of this Agreement there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
Company Subsidiary is a party or by which such entity is bound, obligating the
Company or any Company Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock, voting securities
or other ownership interests of the Company or any Company Subsidiary or
obligating the Company or any Company Subsidiary to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking.
(e) Except as set forth in Schedule 2.3 of the Company Disclosure
Letter, all dividends or distributions on Common Stock which have been
authorized or declared prior to the date of this Agreement have been paid in
full.
SECTION 2.4 OTHER INTERESTS. Except as set forth in Schedule 2.2 or 2.4
of the Company Disclosure Letter, neither the Company nor any Company Subsidiary
owns directly or indirectly any interest or investment (whether equity or debt)
in any corporation, partnership, limited liability company, joint venture,
business trust or entity (other than investments in short-term investment
securities). With respect to such interests, the Company and each such Company
Subsidiary owns such interests free and clear of all Liens, pledges, security
interests, claims, options
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or other encumbrances. With respect to such interests, neither the Company nor
any of the Company Subsidiaries is in breach in any material respect of any
provision of any agreement, document or contract governing its rights in or to
the interests owned or held by it, all of which agreements, documents and
contracts are (a) set forth on the Company Disclosure Letter, (b) unmodified
except as described therein and (c) in full force and effect. To the Knowledge
of Company (as defined in Section 2.23), the other parties to such agreements,
documents or contracts are not in any material breach of any of their respective
obligations under such agreements, documents or contracts.
SECTION 2.5 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) The Company has the requisite power and authority to enter into
this Agreement and, subject to the affirmative vote of holders of at least a
majority of the outstanding Common Stock entitled to vote thereon to approve the
Merger (the "Company Shareholder Approval"), to consummate the transactions
contemplated by this Agreement to which the Company is a party. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated by this Agreement have been duly
authorized by all necessary action on the part of the Company or any Company
Subsidiary, including the Special Committee of the Company's Board, subject to
the Company Shareholder Approval. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
(b) Except as set forth in Schedule 2.5 of the Company Disclosure
Letter, the execution and delivery of this Agreement by the Company do not, and
the consummation of the transactions contemplated by this Agreement by the
Company and compliance by the Company with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any material obligation or to loss of a material
benefit under, or result in the creation of any Lien upon any of the properties
or assets of the Company or any Company Subsidiary under, (i) the Articles of
Incorporation or Code of Regulations, in each case as amended or supplemented to
the date of this Agreement, of the Company or the comparable charter or
organizational documents or partnership or similar agreement (as the case may
be) of any Company Subsidiary, in each case as amended or supplemented to the
date of this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license to which the Company or any Company
Subsidiary is a party or their respective properties or assets are bound or
(iii) subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation (collectively, "Laws") applicable to the Company or any Company
Subsidiary, or their respective properties or assets, other than, in the case of
clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss or
Liens that individually or in the aggregate would not (x) have a Company
Material Adverse Effect or (y) prevent the consummation
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of the transactions contemplated by this Agreement. Except as set forth on
Schedule 2.5 of the Company Disclosure Letter, no consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by or with respect to the Company or any
Company Subsidiary in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (i) the filing with the SEC of (x)
materials relating to the transactions contemplated by this Agreement including,
but not limited to the Proxy Statement and (y) such reports under Section 13(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as may
be required in connection with this Agreement and the transactions contemplated
by this Agreement, (ii) the acceptance for record of the Certificate of Merger
by the Ohio Secretary of State and post-closing filings of the said Certificate
of Merger or other documents with the secretaries of state of other
jurisdictions in which the Company is qualified to do business as a foreign
corporation, (iii) the pre-merger notification of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR Act"); and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings (A) as are set forth in Schedule 2.5 of the Company Disclosure Letter or
(B) which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement or otherwise prevent the Company or any Company Subsidiary from
performing its obligations under this Agreement in any material respect or have,
individually or in the aggregate, a Company Material Adverse Effect.
SECTION 2.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED
LIABILITIES. The Company has filed all required reports, schedules, forms,
statements and other documents with the SEC since February 7, 1996 through the
date hereof (the "Company SEC Documents"). Schedule 2.6 of the Company
Disclosure Letter contains a complete list (without exhibits) of all Company SEC
Documents filed by Company with the SEC since February 7, 1996 and on or prior
to the date of this Agreement. All of the Company SEC Documents (other than
preliminary material), as of their respective filing dates, or as of the date of
the last amendment thereof (if amended after filing), complied in all material
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act and, in each case, the
rules and regulations promulgated thereunder applicable to such Company SEC
Documents. None of the Company SEC Documents at the time of filing contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent such statements have been modified or
superseded by later Company SEC Documents filed on a non- confidential basis
prior to the date of this Agreement. The consolidated financial statements of
the Company included in the Company SEC Documents (which, solely for purposes of
this sentence, shall be deemed to include the Company's annual report on Form
10-K for the fiscal year ended February 29, 2000, as of the date filed with the
SEC) complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally
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accepted accounting principles ("GAAP") (except, in the case of unaudited
statements, as permitted by the applicable rules and regulations of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented, in accordance
with the applicable requirements of GAAP and the applicable rules and
regulations of the SEC in all material respects, the consolidated financial
position of the Company and the consolidated Company Subsidiaries, taken as a
whole, as of the dates thereof and the consolidated results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments, any other adjustments
described therein and the fact that certain information and notes have been
condensed or omitted in accordance with the Exchange Act). Schedule 2.6 of the
Company Disclosure Letter sets forth all Company Subsidiaries which are not
consolidated for accounting purposes as of the date hereof. Except for
liabilities and obligations set forth in the Company SEC Documents or in
Schedule 2.6 of the Company Disclosure Letter, neither the Company nor any of
the Company Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of the Company or in the notes thereto and
which, individually or in the aggregate, would have a Company Material Adverse
Effect, after taking into account any assets acquired or services provided in
connection with the incurrence of such liabilities or obligations.
SECTION 2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Company SEC Documents, Schedule 2.7 of the Company Disclosure Letter or
Schedule 2.7A of the written letter dated May __, 2000, signed by the Chairman
of the Board or the President of the Company, in his capacity as such, and
previously delivered by the Company to ERP (the "Supplemental Disclosure
Letter"), since the date of the most recent audited financial statements
included in the Company SEC Documents (the "Company Financial Statement Date")
the Company and the Company Subsidiaries have conducted their business only in
the ordinary course (taking into account prior practices, including the
acquisition of properties and issuance of securities) and there has not been (a)
any material adverse change in the business, financial condition or results of
operations of the Company and the Company Subsidiaries taken as a whole (a
"Company Material Adverse Change"), nor has there been any occurrence or
circumstance that with the passage of time would reasonably be expected to
result in a Company Material Adverse Change, (b) any declaration, setting aside
or payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any Common Stock, (c) any split, combination or
reclassification of any Common Stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for, or giving the right to acquire by exchange or exercise, shares of its
beneficial interest or any issuance of an ownership interest in, any Company
Subsidiary except as contemplated by this Agreement, (d) any damage, destruction
or loss, whether or not covered by insurance, that has or would have caused or
created a Company Material Adverse Effect, (e) any change made prior to the date
of this Agreement in accounting methods, principles or practices by the Company
or any Company Subsidiary materially affecting its assets, liabilities or
business, except insofar as may have been disclosed in Company SEC Documents or
required by a change in
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GAAP, or (f) any amendment of any employment, consulting, severance, retention
or any other agreement between the Company and any officer or director of the
Company.
SECTION 2.8 LITIGATION. Except as disclosed in the Company SEC
Documents, Schedule 2.8 or Schedule 2.9 of the Company Disclosure Letter,
Schedule 2.8A of the Supplemental Disclosure Letter, and other than personal
injury and other routine tort litigation arising from the ordinary course of
operations of the Company and the Company Subsidiaries (a) which are covered by
adequate insurance or (b) for which all material costs and liabilities arising
therefrom are reimbursable pursuant to common area maintenance or similar
agreements, there is no suit, action or proceeding pending or, to the Knowledge
of the Company, threatened against or affecting the Company or any Company
Subsidiary that, individually or in the aggregate, could reasonably be expected
to (i) have a Company Material Adverse Effect or (ii) prevent the consummation
of any of the transactions contemplated by this Agreement, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any Company Subsidiary having, or
which could reasonably be expected to have, any such effect. Notwithstanding the
foregoing, (y) Schedule 2.8 of the Company Disclosure Letter sets forth each and
every uninsured claim that the Company has Knowledge of involving a potential
dollar cost to the Company in excess of $50,000 and each and every equal
employment opportunity claim, claim relating to sexual harassment and/or
discrimination and claim threatened as of the date hereof, in each case with a
brief summary of such claim or threatened claim and (z) no claim is pending or
has been made since February 7, 1996 under any directors' or officers' liability
insurance policy maintained at any time by the Company or any of the Company
Subsidiaries.
SECTION 2.9 PROPERTIES.
(a) Schedule 2.9 of the Company Disclosure Letter identifies all real
property owned by the Company and the Company Subsidiaries (the "Company
Properties"). Except as provided in Schedule 2.9 of the Company Disclosure
Letter, the Company and the Company Subsidiaries set forth on Schedule 2.2 of
the Company Disclosure Letter owns fee simple title to their respective Company
Properties. Except as set forth on Schedule 2.9, all such properties are owned
in each case free and clear of liens, mortgages or deeds of trust, claims
against title, charges which are liens, security interests or other encumbrances
on title securing monetary obligations ("Encumbrances"). Except as set forth in
Schedule 2.2, Schedule 2.9 or Schedule 2.18 of the Company Disclosure Letter, no
other Person has any ownership interest in any of the Company Properties, and
any such ownership interest so scheduled does not materially detract from the
value of, or materially interfere with the present use of, any of the Company
Properties subject thereto or affected thereby. The Company Properties owned by
the Company are not subject to any rights of way, written agreements, laws,
ordinances and regulations affecting building use or occupancy, or reservations
of an interest in title (collectively, "Property Restrictions") or other
Encumbrances, except for (i) Encumbrances and Property Restrictions set forth in
the Company Disclosure Letter, (ii) Property Restrictions imposed or promulgated
by law or any governmental body or authority with respect to real property,
including zoning regulations, provided they do not materially adversely affect
the
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current use of any Company Property, (iii) Encumbrances and Property
Restrictions of record, which Encumbrances and Property Restrictions, in any
event, do not materially detract from the value of, or materially interfere with
the present use of, any of the Company Properties subject thereto or affected
thereby, (iv) real estate taxes and assessments which constitute a lien but are
not yet due and payable and (v) mechanics', carriers', workmen's, repairmen's
liens, other Encumbrances and Property Restrictions, if any, which, individually
or in the aggregate, do not materially detract from the value of or materially
interfere with the present use of any of the Company Properties subject thereto
or affected thereby, and do not otherwise materially impair business operations
conducted by the Company and the Company Subsidiaries.
(b) Schedule 2.9 of the Company Disclosure Letter also identifies all
real property leased by the Company and the Company Subsidiaries and used as
showrooms, warehouses or office space (the "Company Leased Properties"). Except
as set forth in Schedule 2.9, all such properties are leased pursuant to leases
that are in full force and effect on the date of this Agreement, with the
Company and the Company Subsidiaries not being in default under such leases and
with the lessors thereof, to the Knowledge of the Company, also not being in
default thereunder. The Company Leased Properties are not, to the Knowledge of
the Company, subject to any Property Restrictions or other Encumbrances, except
for (i) Encumbrances and Property Restrictions set forth in the Company
Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or
any governmental body or authority with respect to real property, including
zoning regulations, provided they do not materially adversely affect the current
use of any Company Leased Property, (iii) Encumbrances and Property Restrictions
of record, which Encumbrances and Property Restrictions, in any event, do not
materially detract from the value of, or materially interfere with the present
use of, any of the Company Leased Properties subject thereto or affected
thereby, (iv) real estate taxes and assessments which constitute a lien but are
not yet due and payable and (v) mechanics', carriers', workmen's, repairmen's
liens, other Encumbrances and Property Restrictions, if any, which, individually
or in the aggregate, do not materially detract from the value of or materially
interfere with the present use of any of the Company Leased Properties subject
thereto or affected thereby, and do not otherwise materially impair business
operations conducted by the Company Subsidiaries.
(c) Except as provided in Schedule 2.9 of the Company Disclosure
Letter, the Company has no Knowledge (i) that, any certificate, permit or
license from any governmental authority having jurisdiction over any of the
Company Properties owned by the Company or any agreement, easement or other
right which is necessary to permit the lawful use and operation of the buildings
and improvements on any of the Company Properties owned by the Company or which
is necessary to permit the lawful use and operation of all driveways, roads and
other means of egress and ingress to and from any of the Company Properties
owned by the Company has not been obtained and is not in full force and effect,
or of any pending threat of modification or cancellation of any of same; (ii) of
any written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement materially and adversely affecting
any of the Company Properties owned by the Company issued by any governmental
authority; (iii) of any material structural defects
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relating to any Company Property owned by the Company which costs more than
$50,000 to repair; (iv) of any Company Property owned by the Company whose
building systems are not in working order in any material respect and costs more
than $50,000 to repair; (v) of any physical damage to any Company Property owned
by the Company in excess of $50,000 for which there is no insurance in effect
covering the cost of the restoration; (vi) of any current renovation or
uninsured restoration underway to any Company Property owned by the Company the
cost of which exceeds $50,000; or (vii) of items referred to in Section
2.9(c)(iii)-2.9(c)(iv) which aggregate for the Company and the Company
Subsidiaries more than $250,000.
(d) Except as set forth in Schedule 2.9 of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries has received any
written notice to the effect that (i) any condemnation or rezoning proceedings
are pending or threatened with respect to any of the Company Properties or (ii)
any zoning, building or similar law, code, ordinance, order or regulation is or
will be violated in any material respect for any property by the continued
maintenance, operation or use of any buildings or other improvements on any of
the Company Properties or by the continued maintenance, operation or use of the
parking areas.
(e) Schedule 2.9 of the Company Disclosure Letter contains a printout
which is accurate in all material respects as of January 11, 2000 of all
apartment units leased or otherwise occupied by the Company, and the Company
Subsidiaries and used in the Company's corporate housing business activities
(the "Corporate Housing Units"), which computer printout is true and correct in
all material respects as of January 11, 2000. Except as set forth on Schedule
2.9, all such Corporate Housing Units are leased pursuant to leases that are in
full force and effect as of January 11, 2000, with the Company and the Company
Subsidiaries not being in default under any material number of such leases,
taking the Corporate Housing Units as a whole (except insofar as such leases may
have been acquired by the Company and the Company Subsidiaries without
compliance with consent to assignment provisions included in the leases), and
with the lessors thereof, to the Knowledge of the Company, also not being in
default under any material number of such leases, taking the Corporate Housing
Units as a whole.
(f) The Company and each of the Company Subsidiaries have good and
sufficient title to all their personal and non-real properties and assets
reflected in their books and records as being owned by them (including those
reflected in the consolidated balance sheet of the Company as of August 31,
1999, except as since sold or otherwise disposed of in the ordinary course of
business), free and clear of all liens and encumbrances, except such
Encumbrances reflected on Schedule 2.9 or Schedule 2.18 of the Company
Disclosure Letter or on the consolidated balance sheet of Company as of August
31, 1999, and the notes thereto, and except for liens for current taxes not yet
due and payable, and Liens or Encumbrances which are normal to the business of
the Company and the Company Subsidiaries and are not, in the aggregate, material
in relation to the assets of Company on a consolidated basis and except also for
such imperfections of title, easement and encumbrances, if any, as do not
materially interfere with the present use of the properties subject thereto or
affected thereby, or otherwise materially impair the consolidated business
operations of the Company.
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(g) Except as set forth in Schedule 2.9 of the Company Disclosure
Letter, no Company Property owned by the Company is currently under development
or subject to any agreement with respect to development, and neither the Company
nor any Company Subsidiary shall enter into any such agreements between the date
hereof and the Effective Time without the prior written approval of ERP.
SECTION 2.10 ENVIRONMENTAL MATTERS. The Company has delivered to ERP a
true and complete copy of the environmental reports by third-party consulting
firms listed on Schedule 2.10 of the Company Disclosure Letter (the "Company
Environmental Reports"). To the Company's Knowledge, the Company Environmental
Reports constitute all final environmental reports (including, without
limitation, all final versions of environmental investigations and testing or
laboratory analysis made by or on behalf of the Company or any of the Company
Subsidiaries) with respect to the Company Properties owned by the Company in the
possession of the Company or any Company Subsidiary. With respect to each
Company Property owned by the Company, except for any condition that
individually or in the aggregate would not be reasonably likely to have a
Company Material Adverse Effect, (a) no Hazardous Substances (as defined below)
have been used, stored, manufactured, treated, processed or transported to or
from any such Company Property owned by the Company except as necessary to the
conduct of business and in compliance with Environmental Laws (as defined
below); (b) no unlawful spills, releases, discharges or disposals of Hazardous
Substances have occurred or are presently occurring on or from such Company
Property owned by the Company; (c) such Company Property owned by the Company
and the business conducted thereon are not in violation of Environmental Laws;
and (d) the Company and the Company Subsidiaries have not received and do not
reasonably expect to receive any notice of potential responsibility, letter of
inquiry or notice of alleged liability under any Environmental Law from any
Person regarding such Company Property or the business conducted thereon,
provided, however, that with respect to any Company Property covered by an
Environmental Report, the representation contained in this Section 2.10 covers
only that period following the date of such Environmental Report. For the
purposes of this Section 2.10 only, "Company Properties" shall be deemed to
include all property formerly owned by the Company or the Company Subsidiaries;
solely, however, as to the period of time when such property was so owned by the
Company or the Company Subsidiaries.
"Environmental Laws" shall mean any applicable statute, code,
enactment, ordinance, rule, regulation, permit, consent, approval,
authorization, judgment, order, common law rule (including without limitation
the common law respecting nuisance and tortious liability), decree, injunction,
or other requirement having the force and effect of law, whether local, county,
state, territorial or national, at the date of this Agreement or at any prior
time in force or effect relating to:
(a) emissions, discharges, spills, releases or threatened
releases of Hazardous Substances into ambient air, surface water,
groundwater, watercourses, publicly or privately owned treatment works,
drains, sewer systems, wetlands, septic systems or onto land;
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(b) the use, treatment, storage, disposal, handling,
manufacturing, transportation or shipment of Hazardous Substances;
(c) the regulation of storage tanks; or
(d) otherwise relating to pollution or the protection the
environment.
"Hazardous Substances" shall mean all substances, wastes, pollutants,
contaminants and materials regulated or defined or designated as hazardous,
extremely or imminently hazardous, dangerous, or toxic pursuant to any law, by
any local, county, state, territorial or federal governmental authority, or with
respect to which such a governmental authority otherwise requires environmental
investigation, monitoring, reporting, or remediation; including, but not limited
to,
(a) all substances, wastes, pollutants, contaminants and
materials regulated, or defined or designated as hazardous, extremely
or imminently hazardous, dangerous or toxic, under the following
federal statutes and their state counterparts, as well as their
statutes' implementing regulations: the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. section 9601 et.
seq., the Resource Conservation and Recovery Act, 42 U.S.C. section
6901 et. seq., the Toxic Substances Control Act, 15 U.S.C. section 2601
et. seq., the Clean Water Act, 33 U.S.C. section 1251 et. seq., the
Clean Air Act, 42 U.S.C. section 7401 et. seq., the Emergency Planning
and Community Right to Know Act, 42 U.S.C. section 11011 et. seq., the
Safe Drinking Water Act, 33 U.S.C. section 300f et. seq., the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. section 136 et.
seq., and the Hazardous Materials Transportation Act, 49 U.S.C. section
1501 et. seq.;
(b) petroleum and petroleum products including crude oil and
any fractions thereof;
(c) natural gas, synthetic gas, and any mixtures thereof; and
(d) radon, radioactive substances, asbestos, urea
formaldehyde, polychlorinated biphenyls and electromagnetic field
radiation.
SECTION 2.11 RELATED PARTY TRANSACTIONS. Set forth in Schedule 2.11 of
the Company Disclosure Letter is a list of all arrangements, agreements and
contracts entered into by the Company or any of the Company Subsidiaries under
which continuing obligations exist with (a) any consultant (other than a
consultant entitled to receive less than $10,000 annually from the Company or
any Company Subsidiary, provided, however, that if the total amount owed to
consultants by the Company and the Company Subsidiaries exceeds $100,000
annually, all such agreements shall be set forth in Schedule 2.11), (b) any
person who is an officer, director or Affiliate (as defined below) of the
Company or any of the Company Subsidiaries, any member of the "immediate family"
(as such term is defined in Item 404 of Regulation S-K promulgated under the
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Securities Act) of any of the foregoing or any entity of which any of the
foregoing is an Affiliate or (c) any person who acquired Common Stock in a
private placement within three years preceding the date hereof, except those of
a type available to the Company employees generally. To the extent in writing,
such documents, copies of all of which have previously been delivered or made
available to ERP, are listed in Schedule 2.11 of the Company Disclosure Letter.
As used in this Agreement, the term "Affiliate" shall have the same meaning as
such term is defined in Rule 405 promulgated under the Securities Act.
SECTION 2.12 EMPLOYEE BENEFITS. As used herein, the term "Company
Employee Plan" includes any pension, retirement, savings, disability, medical,
dental, health, life, death benefit, group insurance, profit sharing, deferred
compensation, stock option, stock loan, bonus, incentive, vacation pay, tuition
reimbursement, severance pay, or other employee benefit plan, trust, agreement,
contract, arrangement, policy or commitment (including, without limitation, any
pension plan, as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended and the rules and regulations promulgated
thereunder ("ERISA") ("Pension Plan"), and any welfare plan as defined in
Section 3(1) of ERISA ("Welfare Plan")), whether any of the foregoing is funded,
insured or self-funded, written or oral, (i) sponsored or maintained by the
Company or Company Subsidiaries (each a "Controlled Group Member") and covering
any Controlled Group Member's active or former employees (or their
beneficiaries), (ii) to which any Controlled Group Member is a party or by which
any Controlled Group Member (or any of the rights, properties or assets thereof)
is bound or (iii) with respect to which any current Controlled Group Member may
otherwise have any material liability (whether or not such Controlled Group
Member still maintains such Company Employee Plan). Each Company Employee Plan
is listed on Schedule 2.12. With respect to the Company Employee Plans:
(a) Except as disclosed in the Company SEC Documents or in Schedule
2.12 of the Company Disclosure Letter, no Controlled Group Member has any
continuing liability under any Welfare Plan which provides for continuing
benefits or coverage for any participant or any beneficiary of a participant
after such participant's termination of employment, except as may be required by
section 4980B of the Code or Section 601 (et seq.) of ERISA, or under any
applicable state law, and at the expense of the participant or the beneficiary
of the participant.
(b) Each Company Employee Plan complies in all material respects with
the applicable requirements of ERISA and any other applicable law governing such
Company Employee Plan, and each Company Employee Plan has at all times been
properly administered in all material respects in accordance with all such
requirements of law, and in accordance with its terms and the terms of any
applicable collective bargaining agreement to the extent consistent with all
such requirements of law. Each Pension Plan which is intended to be qualified is
qualified under Section 401(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service (the "IRS") stating that
such Plan meets the requirements of Section 401(a) of the Code and that the
trust associated with such Plan is tax exempt under Section 501(a) of the Code
and no event has occurred which would be likely to jeopardize the qualified
status of any such plan or the tax exempt status of
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any such trust under Sections 401(a) and Section 501(a) of the Code,
respectively. No lawsuits, claims (other than routine claims for benefits) or
complaints to, or by, any person or governmental entity have been filed or are
pending, the Company has received no notice of such a lawsuit, claim or
complaint and, to the Knowledge of the Company, there is no fact or contemplated
event which would be expected to give rise to any such lawsuit, claim (other
than routine claims for benefits) or complaint with respect to any Company
Employee Plan. Without limiting the foregoing, except as disclosed on Schedule
2.12 of the Company Disclosure Letter, the following are true with respect to
each Company Employee Plan:
(i) except for those not yet required to be filed or
distributed, all Controlled Group Members have filed or caused to be
filed every material return, report, statement, notice, declaration and
other document required by any law or governmental agency, federal,
state and local (including, without limitation, the IRS and the United
States Department of Labor) with respect to each such Company Employee
Plan, each of such filings has been complete and accurate in all
material respects and no Controlled Group Member has incurred any
material liability in connection with such filings;
(ii) except for those not yet required to be filed or
distributed, all Controlled Group Members have delivered or caused to
be delivered to every participant, beneficiary and other party entitled
to such material, all material plan descriptions, returns, reports,
schedules, notices, statements and similar materials, including,
without limitation, summary plan descriptions and summary annual
reports, as are required under Title I of ERISA, the Code, or both, and
no Controlled Group Member has incurred any material liability in
connection with such deliveries;
(iii) all contributions and payments with respect to the
Company Employee Plans that are required to be made by a Controlled
Group Member with respect to periods ending on or before the Closing
Date (including periods from the first day of the current plan or
policy year to the Closing Date) have been, or will be, made or accrued
before the Closing Date in accordance with the appropriate plan
document, actuarial report, collective bargaining agreements or
insurance contracts or arrangements or as otherwise required by ERISA
or the Code;
(iv) with respect to each such Company Employee Plan, to the
extent applicable, the Company has delivered to ERP true and complete
copies of (A) current plan documents, or any and all other documents
that establish the existence of the current plan, trust, arrangement,
contract, policy or commitment and all amendments thereto, (B) the most
recent determination letter, if any, received from the IRS, (C) the
three most recent Form 5500 Annual Report (and all schedules and
reports relating thereto) and actuarial reports and (D) all related
trust agreements, insurance contract or other funding agreements that
implement each such Company Employee Plan.
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(c) With respect to each Company Employee Plan, there has not occurred,
and no person or entity is contractually bound to enter into, any "prohibited
transaction" within the meaning of Section 4975(c) of the Code or Section 406 of
ERISA, which transaction is not exempt under Section 4975(d) of the Code or
Section 408 of ERISA.
(d) Except as disclosed in Schedule 2.12, no Controlled Group Member
has maintained or been obligated to contribute to any Company Employee Plan
subject to Code Section 412 or Title IV of ERISA. With respect to each Company
Employee Plan set forth on Schedule 2.12A, the Company represents that each such
Company Employee Plan has been completely terminated in accordance with all Code
and ERISA requirements for a "standard termination" (as defined in 4041(b) of
ERISA), as applicable on the termination date.
(e) Except as set forth in Schedule 2.12 of the Company Disclosure
Letter, with respect to each pension plan maintained by any Controlled Group
Member, such Plans provide the Plan Sponsor the authority to amend or terminate
the plan at any time, subject to applicable requirements of ERISA and the Code.
SECTION 2.13 EMPLOYEE MATTERS. Schedule 2.13 of the Company Disclosure
Letter lists the employee handbooks of the Company and each of the Company
Subsidiaries currently in effect. A copy of each such employee handbook has
previously been made available to ERP. Except as set forth in Schedule 2.13 of
the Company Disclosure Letter, such handbooks fairly and accurately summarize
all material employee policies, vacation policies and payroll practices of the
Company and the Company Subsidiaries. Neither the Company nor any of the Company
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or other labor
organization, nor has the Company or any of the Company Subsidiaries agreed that
any unit of their employees is appropriate for collective bargaining. No union
or other labor organization has been certified as bargaining representative for
any of the Company's employees. To the Knowledge of the Company there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of the Company or
any of the Company Subsidiaries.
SECTION 2.14 TAXES.
(a) TAX RETURNS. For all tax years ending on or after February
28, 1995, the Company and each of the Company Subsidiaries has been or
will be included in the Affiliated Group (as defined below) and, to the
extent eligible to do so, has been or will be included in the
consolidated federal income tax returns (and any analogous combined,
consolidated or unitary group defined and required under state, local,
or foreign income Tax law) of the Company (the "Consolidated Group").
The Company and each of the Company Subsidiaries has filed separate,
consolidated or combined tax returns, as appropriate, under state,
local, or foreign income tax law as required. Except as set forth on
Schedule 2.14(a), all Tax Returns for tax years ending on or after
February 28, 1995, required to have been
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filed on or prior to the date hereof or the Closing Date by the
Consolidated Group, the Company or any Company Subsidiary have been
filed on or prior to the due date for such Tax Return and such Tax
Returns are true and correct in all material respects. In particular,
the foregoing Tax Returns are not subject to penalties under Section
6662 of the Code, relating to accuracy-related penalties (or any
corresponding provision of the state, local or foreign Tax law) or any
predecessor provision of law. Except as set forth on Schedule 2.14(a),
an extension of time within which to file any Tax Return that has not
been filed has not been requested or granted. As used in this
Agreement, the term "Affiliated Group" shall mean an affiliated group
as defined in Section 1504 of the Code (or any analogous combined,
consolidated or unitary group defined under state, local or foreign
income Tax law) of which the Company is or has been a member.
(b) PAYMENT OF TAXES. With respect to all amounts of Taxes
imposed on the Consolidated Group, the Company, any Company Subsidiary
or for which the Consolidated Group, the Company or any Company
Subsidiary is or could be liable, whether to taxing authorities or to
other persons or entities (as, for example, under Tax allocation
agreements), with respect to all taxable periods or portions of periods
ending on or before the Closing Date, all applicable Tax laws and
agreements have been fully complied with except where the failure to
comply would not have a Material Adverse Effect on the Company and all
such amounts required to be paid by the Consolidated Group, the Company
or any Company Subsidiary to taxing authorities or others on or before
the Closing Date have been paid, or have been accrued for or fully
reserved against on the Financial Statements.
(c) AUDIT HISTORY. Except as set forth on Schedule 2.14(c),
all federal income tax returns of the Consolidated Group for taxable
years ended prior to the date hereof, that have been examined by the
Internal Revenue Service and any deficiencies or assessments, including
interest and penalties thereon, claimed or made as a result of those
examinations have been paid or are fully reserved against on the
Financial Statements. Except as set forth on Schedule 2.14(c), no
issues have been raised or, to the Knowledge of the Company or any of
the Company Subsidiaries, are currently pending by any taxing authority
in connection with any of the Tax Returns of the Consolidated Group or
the Company or any of the Company Subsidiaries. Except as set forth on
Schedule 2.14(c), to the Knowledge of the Company, no issue has been
raised by any taxing authority in any audit of the Company or any
member of the Consolidated Group that, if raised with respect to any
other period not so audited, could be expected to result in a proposed
deficiency for any period so audited. Except as set forth on Schedule
2.14(c), no waivers of statutes of limitation with respect to the Tax
Returns have been given by or requested from the Consolidated Group,
any members of the Consolidated Group, the Company or any Affiliates of
such parties. Schedule 2.14(c) sets forth, with respect to the taxable
years of the Consolidated Group, any members of the Consolidated Group,
the Company and any of the Company Subsidiaries, those years for which
examinations have not been initiated, and those years for which
required Tax Returns
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have not yet been filed. Except to the extent shown on Schedule
2.14(c), all deficiencies asserted or assessments made as a result of
any examinations have been fully paid.
(d) LIENS. There are no liens for Taxes (other than for
current Taxes not yet due and payable) on any of the assets of the
Company or any of the Company Subsidiaries.
(e) TAX-SHARING OR ALLOCATION AGREEMENTS. Any Tax-indemnity,
Tax-sharing, Tax allocation or similar agreements of the Company or any
of the Company Subsidiaries and any liability or obligation of the
Company or any of the Company Subsidiaries under such agreements will
terminate as of the Closing Date and be of no further force or effect.
All such agreements to which the Company or any of the Company
Subsidiaries is a party and are now in effect are listed on Schedule
2.14(e). Any payments pursuant to such agreements that were not
reflected in the Financial Statements, are disclosed on Schedule
2.14(e).
(f) PRIOR AFFILIATED GROUPS. Except as set forth on Schedule
2.14(f), and except for the Consolidated Group, neither the Company nor
any of the Company Subsidiaries has ever been a member of an Affiliated
Group of corporations.
(g) TAX ELECTIONS AND METHODS OF ACCOUNTING. Except as set
forth on Schedule 2.14(c), after the date hereof, no election with
respect to Taxes of the Company will be made without the written
consent of ERP which consent will not be unreasonably withheld and,
except as required by law, no method of accounting of the Company will
be changed without the written consent of ERP, which consent will not
be unreasonably withheld.
(h) CERTAIN CONSENTS AND ELECTIONS. (i) Neither the Company
nor any Affiliated Group in which the Company is or was a member has
filed a consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state,
local, or foreign income Tax law) or agreed to have Section 341(f)(2)
of the Code (or any corresponding provision of state, local, or foreign
income Tax law) apply to any disposition of any asset owned by the
Company or any of the Company Subsidiaries; (ii) none of the assets of
the Company or any of the Company Subsidiaries is property that is
required to be treated as being owned by any other person pursuant to
the "safe harbor lease" provisions of former Section 168(f)(8) of the
Code; (iii) to the Knowledge of the Company, none of the assets of the
Company or any of the Company Subsidiaries is "tax-exempt use property"
within the meaning of Section 168(h) of the Code; (iv) the Company or
any of the Company Subsidiaries has not made a deemed dividend election
under Regulations Section 1.1502-32(f)(2) and has not made and will not
make a consent dividend election under Section 565 of the Code; (v) the
Company or any of the Company Subsidiaries has not agreed to make nor
is it required to make any adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise; and (vi) the
Company or any of the Company Subsidiaries has not been a member of an
Affiliated Group
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that has filed an election to discontinue filing consolidated returns
pursuant to Revenue Procedure 91-11.
(i) PARACHUTE PAYMENT. Neither the Company nor any Company
Subsidiary is a party to any agreement, contract, arrangement, or plan
that has resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of
Section 280G or 4999 of the Code and the consummation of the
transactions contemplated by this Agreement will not result in any
excise tax withholding.
(j) NO WITHHOLDING. The transaction contemplated herein is not
subject to the tax withholding provisions of Section 3406 of the Code,
or of Subchapter A of Chapter 3 of the Code, or of any other tax
withholding provision of U.S. federal, state, local or foreign law.
(k) EXISTING PARTNERSHIPS. Except as set forth on Schedule
2.14(k), neither the Company nor any Company Subsidiary is a party to
any joint venture, partnership, or other arrangement or contract that
could be treated as a partnership for federal income tax purposes.
(l) COPIES OF TAX RETURNS. The Company has true, correct and
complete copies of all income Tax Returns filed by the Company and each
of the Company Subsidiaries including copies of any Tax Returns filed
by the Consolidated Group as listed on Schedule 2.14(l).
(m) DEFERRED INCOME. As a result of the transactions
contemplated under this Agreement, the Company will not recognize any
deferred income under federal consolidated return regulations (or
similar provisions, if any, of state, local or foreign Tax laws),
including, but not limited to, the deferred intercompany transaction
provisions of such federal consolidated return regulations (or similar
provisions, if any, of state, local or foreign tax laws).
(n) DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
(i) The term "Tax" shall mean any federal, state,
local or foreign income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use, transfer,
registration, value added, excise, natural resources,
severance, stamp, occupation, premium, surplus lines, windfall
profit, environmental, customs, duties, real property,
personal property, capital stock, social security,
unemployment, disability, payroll, license, employee or other
withholding, or other tax, of any kind whatsoever, including
any interest, penalties or additions to tax or additional
amounts in respect to the foregoing; the foregoing shall
include any transferee or secondary
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liability for a Tax and any liability assumed by agreement or
arising as a result of being (or ceasing to be) a member of
any Affiliated Group (or being included or required to be
included in any Tax Return relating thereto);
(ii) The terms "Tax Return(s)" shall means returns,
declarations, reports, claims for refund, information returns
or other documents (including any related or supporting
schedules, statements or information) filed or required to be
filed in connection with the determination, assessment or
collection of any Taxes of the Consolidated Group, any members
of the Consolidated Group, the Company, any Company Subsidiary
or any Affiliates of such parties or the administration of any
laws, regulations or administrative requirements relating to
any Taxes; and
(iii) The term "Code" shall mean the Internal Revenue
Code of 1986, as amended, and all citations to the Code or to
the regulations promulgated thereunder shall include any
amendments or any substitute or successor provisions thereof.
SECTION 2.15 NO PAYMENTS TO EMPLOYEES, OFFICERS, TRUSTEES OR DIRECTORS.
Set forth in Schedule 2.3 and Schedule 2.15 of the Company Disclosure Letter is
a true and complete list of all cash and non-cash payments, rights to property
or other contract rights which may become payable, accelerated or vested to or
in each current or former employee, officer or director of the Company or any
Company Subsidiary as a result of the Merger. Except as described in Schedule
2.3, Schedule 2.7 or Schedule 2.15 of the Company Disclosure Letter, or as
otherwise provided for in this Agreement, there is no employment or severance
contract, or other agreement requiring payments, cancellation of indebtedness or
other obligation to be made on a change of control or otherwise as a result of
the consummation of any of the transactions contemplated by this Agreement, with
respect to any current or former employee, officer, trustee or director of the
Company or any Company Subsidiary.
SECTION 2.16 BROKERS; SCHEDULE OF FEES AND EXPENSES. Except as
disclosed in Schedule 2.16 of the Company Disclosure Letter, no broker,
investment banker, financial advisor or other person, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of the Company or any Company Subsidiary.
A true and correct copy of all engagement letters executed by parties
disclosed on Schedule 2.16 of the Company Disclosure Letter have been delivered
to ERP prior to the date of this Agreement.
SECTION 2.17 COMPLIANCE WITH LAWS. Except as disclosed in the Company
SEC Documents or in Schedule 2.6 or Schedule 2.17 of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries has violated or
failed to comply with any statute, law, ordinance, regulation, rule, judgment,
decree or order of any Governmental Entity applicable
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to its business, properties, operations or the Merger, except to the extent that
such violation or failure would not have a Company Material Adverse Effect.
SECTION 2.18 CONTRACTS; DEBT INSTRUMENTS.
(a) To the Knowledge of the Company, except as disclosed in the Company
SEC Documents or in Schedule 2.18 of the Company Disclosure Letter, there is no
contract or agreement that purports to limit in any material respect the names
under or the geographic location in which the Company or any Company Subsidiary
may conduct its business.
(b) Neither the Company nor any Company Subsidiary has received a
written notice that the Company or any Company Subsidiary is in violation of or
in default under (nor to the Knowledge of the Company does there exist any
condition which upon the passage of time or the giving of notice or both would
cause such a violation of or default under) any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except as set forth in Schedule 2.18 of the Company Disclosure
Letter, nor to the Knowledge of the Company does such a violation or default
exist, except as set forth in Schedule 2.18 of the Company Disclosure Letter, or
to the extent that such violation or default, individually or in the aggregate,
would not have a Company Material Adverse Effect.
(c) (i) Except for any of the following expressly identified in Company
SEC Documents, Schedule 2.18 of the Company Disclosure Letter sets
forth a list of each loan or credit agreement, note, bond, mortgage,
indenture and any other agreement and instrument pursuant to which any
Indebtedness of the Company or any Company Subsidiary is outstanding or
may be incurred (collectively, the "Debt Documents"), as well as, with
respect to the Indebtedness evidenced by each Debt Document as of
December 31, 1999, the outstanding principal balance, the maturity
date, the applicable interest rate (including the method or formula for
calculating any interest that is not a fixed percentage of the
principal balance) and the amount of or the method or formula for
calculating any Equity Participation (as defined herein). For purposes
of this Section 2.18, "Indebtedness" shall mean (1) indebtedness for
borrowed money, whether secured or unsecured, (2) obligations under
conditional sale or other title retention agreements relating to
property purchased by such person, (3) capitalized lease obligations,
(4) obligations under interest rate cap, swap, collar or similar
transaction or currency hedging transactions (valued at the termination
value thereof), (5) obligations to pay any equity kicker or other
participation in the operating cash flow, gross revenue or other income
from the real property or other asset of the Company or any Company
Subsidiary or in the gross, net or excess sale, financing, refinancing
or other capital proceeds from any such property or other asset
(whether or not in connection with any other Indebtedness)(each an
"Equity Participation") and (6) guarantees of any such indebtedness of
any other person.
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(ii) The Company hereby represents and warrants that the
Merger will not cause a default or event of default under any item of
Indebtedness, except as set forth in Schedule 2.18 of the Company
Disclosure Letter, and will not require the consent of or requirement
to obtain the approval or confirmation as to any matter from the holder
of any such Indebtedness or any other person. For purposes of this
Section 2.18, "default" and/or "event of default" shall mean that,
immediately or after the giving of notice or the passage of time (or
both), such Indebtedness will not, either automatically or upon the
exercise of any right or option of the holder of such Indebtedness or
any other person, be accelerated or become due and payable in whole or
in part as a result of the consummation of the transactions
contemplated by this Agreement (including, without limitation, the
Merger).
(d) To the extent not set forth in response to the requirements of
Section 2.18(c), Schedule 2.18 of the Company Disclosure Letter sets forth each
interest rate cap, interest rate collar, interest rate swap, currency hedging
transaction, and any other agreement relating to a similar transaction to which
the Company or any Company Subsidiary is a party or an obligor with respect
thereto.
(e) Except as set forth in Schedule 2.18 of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries is party to any
agreement which would restrict any of them from prepaying any of their
Indebtedness without penalty or premium at any time or which requires any of
them to maintain any amount of Indebtedness with respect to any of the Company
Properties.
(f) Schedule 2.18 of the Company Disclosure Letter lists all agreements
entered into by the Company or any of the Company Subsidiaries providing for the
sale of, or option to sell, any Company Properties owned by the Company or the
purchase of, or option to purchase, any real estate which are currently in
effect.
(g) Except as set forth in Schedule 2.18 of the Company Disclosure
Letter, neither the Company nor any Company Subsidiary has any continuing
contractual liability (i) for indemnification or otherwise under any agreement
relating to the sale of real estate previously owned, whether directly or
indirectly, by the Company or any Company Subsidiary, except for standard
indemnification provisions entered into in the normal course of business, (ii)
to pay any additional purchase price for any of the Company Properties owned by
the Company, or (iii) to make any reprorations or adjustments to prorations that
may previously have been made with respect to any property currently or formerly
owned by the Company.
(h) Except as set forth in Schedule 2.18 of the Company Disclosure
Letter there are no material outstanding contractual obligations of the Company
or any Company Subsidiary to make any investment in the form of a loan, capital
contribution or otherwise in any Company Subsidiary or any other Person. A true
and complete copy of each Note has previously been furnished to ERP.
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SECTION 2.19 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Friedman, Billings, Ramsey & Co., Inc. (the "Financial Advisor"),
dated as of May 10, 2000, satisfactory to the Company, and a signed copy of
which has been provided to ERP, to the effect that the consideration to be
received by the holders of the Shares pursuant to the Merger is fair, from a
financial point of view, to such holders.
SECTION 2.20 INVESTMENT COMPANY ACT OF 1940. Neither the Company nor
any of the Company Subsidiaries is, or at the Effective Time will be, required
to be registered under the Investment Company Act of 1940, as amended (the "1940
Act").
SECTION 2.21 TRADEMARKS, PATENTS AND COPYRIGHTS. Except as set forth in
Schedule 2.21 of the Company Disclosure Letter, or to the extent the inaccuracy
of any of the following (or the circumstances giving rise to such inaccuracy)
individually or in the aggregate would not have a Company Material Adverse
Effect, the Company and each Company Subsidiary owns or possesses adequate
licenses or other legal rights to use all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
trade secrets, applications for trademarks and for service marks, know-how and
other proprietary rights and information used or held for use in connection with
the business of the Company and the Company Subsidiaries as currently conducted
and the Company has no Knowledge of any assertion or claim challenging the
validity of any of the foregoing. Each of the Company's material patents, patent
rights, trademarks, trademark rights, trade names, trade name rights,
copyrights, service marks, trade secrets, applications for trademarks and for
service marks, know-how and other proprietary rights and information used or
held for use in connection with the business of the Company and the Company
Subsidiaries as currently conducted is listed on Schedule 2.21 of the Company
Disclosure Letter. The conduct of the business of the Company and the Company
Subsidiaries as currently conducted does not and will not infringe in any way
any patent, patent right, license, trademark, trademark right, trade name, trade
name right, service mark, or copyright of any third party that, individually or
in the aggregate, could have a Company Material Adverse Effect. To the Company's
Knowledge, there are no infringements of any proprietary rights owned by or
licensed by or to the Company or any Company Subsidiary that individually or in
the aggregate could have a Company Material Adverse Effect.
SECTION 2.22 INSURANCE. Except as set forth on Schedule 2.22 of the
Company Disclosure Letter, each of the Company and the Company Subsidiaries are,
and has been continuously since the later of February 7, 1996 or the date upon
which Company acquired ownership of such Company Subsidiary, insured with
insurers in such amounts and against such risks and losses as are customary for
companies conducting the business as conducted by Company and the Company
Subsidiaries during such time period. Except as set forth on Schedule 2.22 of
the Company Disclosure Letter, neither the Company nor any Company Subsidiary
has received any written notice of cancellations or termination with respect to
any material insurance policy of the Company or any Company Subsidiary. The
insurance policies of the Company and each Company Subsidiary are valid and
enforceable policies in all material respects. Each insurance policy of the
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Company and the Company Subsidiaries in effect on the date hereof and a summary
of the terms of each such policy is listed on Schedule 2.22.
SECTION 2.23 DEFINITION OF KNOWLEDGE OF COMPANY. As used in this
Agreement, the phrase "to the Knowledge of Company" (or words of similar import)
means the knowledge of those individuals identified in Schedule 2.23 of the
Company Disclosure Letter.
SECTION 2.24 VOTE REQUIRED. Except for the Company Shareholder
Approval, no other vote or consent by the equity holders of Company or any
Company Subsidiary (whether by agreement, under applicable law or otherwise) is
required to approve this Agreement and the transactions contemplated hereby, nor
shall any such equity holders be entitled to dissenters' rights or other rights
of appraisal in connection with the Company Shareholder Approvals or the
consummation of the transactions contemplated by this Agreement, except as
provided under Ohio Law.
SECTION 2.25 YEAR 2000. Except as set forth in Schedule 2.25 of the
Company's Disclosure Letter, the information set forth under the caption "Year
2000" in Company's quarterly report on Form 10-Q for the quarterly period ended
August 31, 1999 is true and correct as of the date hereof.
SECTION 2.26 CHAPTER 1704 OF THE OHIO LAW NOT APPLICABLE. The Company
Board has taken all actions so that the restrictions contained in Chapter 1704
of the Ohio Law applicable to a "business combination" (as defined in Chapter
1704) will not apply to the execution, delivery or performance of this Agreement
or the consummation of the Merger or the other transactions contemplated by this
Agreement.
SECTION 2.27 STOCK ISSUED IN CONNECTION WITH ACQUISITIONS. Each offer,
sale and issuance of Common Stock by the Company in connection with the
acquisition of or merger with another company was effected through a transaction
which was exempt from the registration requirements of the Securities Act and
any applicable state securities laws, and neither the Company nor any authorized
agent acting on the Company's behalf has taken any action since such offer, sale
and issuance that would cause the loss of such exemption.
SECTION 2.28 CONTINGENT EARN-OUTS. Except as listed in Schedule 2.28 of
the Company Disclosure Letter, the Company is not a party to any agreement,
contract or any other obligation pursuant to which the Company is or may be
required to make payments based upon an "earn-out" or similar provision. The
maximum amount payable by the Company pursuant to any "earn-out" agreements or
similar provision is set forth in Schedule 2.28 of the Company Disclosure
Letter.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ERP
ERP hereby represents and warrants to the Company that, except as set
forth in the letter of even date herewith signed by the President or an
Executive Vice President of ERP and delivered to the Company on or prior to the
date hereof, by ERP (the "ERP Disclosure Letter"):
SECTION 3.1 ORGANIZATION, GOOD STANDING AND POWER OF ERP. ERP is a
limited partnership duly organized and validly existing under the laws of
Illinois and has the requisite limited partnership power and authority to carry
on its business as now being conducted. ERP is duly qualified or licensed to do
business as a foreign limited partnership and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect on
the business, properties, assets, financial condition or results of operations
of ERP and the subsidiaries of ERP ("ERP Subsidiaries") taken as a whole ("ERP
Material Adverse Effect").
SECTION 3.2 AUTHORITY; NONCONTRAVENTION; CONSENTS RELATING TO ERP.
(a) ERP has the requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated by this Agreement to
which ERP is a party. The execution and delivery of this Agreement by ERP and
the consummation by ERP of the transactions contemplated by this Agreement to
which ERP is a party have been duly authorized by all necessary action on the
part of ERP. This Agreement has been duly executed and delivered by ERP and
constitutes a valid and binding obligation of ERP, enforceable against ERP in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
(b) Except as set forth in Schedule 3.2 to the ERP Disclosure Letter,
the execution and delivery of this Agreement by ERP do not, and the consummation
of the transactions contemplated by this Agreement by ERP and compliance by ERP
with the provisions of this Agreement will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any material obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of ERP or any ERP
Subsidiary under, (i) ERP's Certificate of Limited Partnership or ERP's Fifth
Amended and Restated Agreement of Limited Partnership, in each case as amended
or supplemented to the date of this Agreement, or the comparable charter or
organizational documents or partnership or similar agreement (as the case may
be) of any other ERP Subsidiary, each as amended or supplemented to the date of
this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license to which ERP or any ERP Subsidiary is a
party or their
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respective properties or assets are bound or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to ERP or any ERP Subsidiary or their respective properties or
assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights, loss or Liens that individually or in the
aggregate would not (x) have a ERP Material Adverse Effect or (y) prevent the
consummation of the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to ERP or any ERP
Subsidiary in connection with the execution and delivery of this Agreement or
the consummation by ERP of any of the transactions contemplated by this
Agreement, except for (i) the filing with the SEC of such reports under Section
13(a) of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated by this Agreement, (ii) the acceptance for
record of the Certificate of Merger by the Ohio Secretary of State, (iii) such
filings as may be required in connection with the payment of any transfer and
gains taxes, (iv) the pre-merger notification of the HSR Act; and (v) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings (A) as are set forth in Schedule 3.2 to the ERP Disclosure Letter, (B)
as may be required under federal, state or local environmental laws or (C)
which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement or otherwise prevent ERP from performing its obligations under this
Agreement in any material respect or have, individually or in the aggregate, a
ERP Material Adverse Effect.
SECTION 3.3 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker,
investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of ERP or any ERP Subsidiary.
SECTION 3.4 STATE TAKEOVER STATUTES. ERP has taken all action necessary
to exempt transactions between ERP and the Company and its Affiliates from the
operation of any anti-takeover laws of any applicable jurisdiction designed to
restrict ERP's ability to consummate the transaction contemplated by this
Agreement.
SECTION 3.5 DEFINITION OF KNOWLEDGE OF ERP. As used in this Agreement,
the phrase "to the Knowledge of ERP" or (or words of similar import) means the
knowledge of those individuals identified in Schedule 3.5 to the ERP Disclosure
Letter.
SECTION 3.6 PROXY STATEMENT. None of the information provided by ERP or
Acquisition and/or by their auditors, attorneys, financial advisors or other
consultants or advisors in writing specifically for use in the Proxy Statement
shall, at the time filed with the SEC, at the time mailed to the Company's
shareholders, at the time of the Company Shareholder Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
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SECTION 3.7 FINANCING. At the Effective Time, Acquisition will have
readily available all of the funds necessary for the acquisition of all shares
of Company Common Stock pursuant to the Merger, and to perform its obligations
under the Agreement of Merger and this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to the Company that, except as set
forth in the letter of even date herewith signed by the President or an
Executive Vice President of Newco and delivered to the Company on or prior to
the date hereof, by Newco (the "Newco Disclosure Letter"):
SECTION 4.1 ORGANIZATION, GOOD STANDING AND POWER OF NEWCO. Newco is a
corporation duly organized and validly existing under the laws of Delaware and
has the requisite corporate power and authority to carry on its business as now
being conducted. Newco is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a material adverse effect on the business, properties, assets,
financial condition or results of operations of Newco and the subsidiaries of
Newco ("Newco Subsidiaries") taken as a whole ("Newco Material Adverse Effect").
SECTION 4.2 AUTHORITY; NONCONTRAVENTION; CONSENTS RELATING TO NEWCO.
(a) Newco has the requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated by this Agreement to
which Newco is a party. The execution and delivery of this Agreement by Newco
and the consummation by Newco of the transactions contemplated by this Agreement
to which Newco is a party have been duly authorized by all necessary action on
the part of Newco. This Agreement has been duly executed and delivered by Newco
and constitutes a valid and binding obligation of Newco, enforceable against
Newco in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
(b) Except as set forth in Schedule 4.2 to the Newco Disclosure Letter,
the execution and delivery of this Agreement by Newco do not, and the
consummation of the transactions contemplated by this Agreement by Newco and
compliance by Newco with the provisions of this Agreement will not, conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets of
Newco or any Newco Subsidiary under, (i) Newco's Certificate of
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Incorporation or Newco's By-laws in each case as amended or supplemented to the
date of this Agreement, or the comparable charter or organizational documents or
partnership or similar agreement (as the case may be) of any other Newco
Subsidiary, each as amended or supplemented to the date of this Agreement, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, reciprocal
easement agreement, lease or other agreement, instrument, permit, concession,
franchise or license to which Newco or any Newco Subsidiary is a party or their
respective properties or assets are bound or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to Newco or any Newco Subsidiary or their respective properties or
assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights, loss or Liens that individually or in the
aggregate would not (x) have a Newco Material Adverse Effect or (y) prevent the
consummation of the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Newco or any
Newco Subsidiary in connection with the execution and delivery of this Agreement
or the consummation by Newco of any of the transactions contemplated by this
Agreement, except for (i) the filing with the SEC of such reports under Section
13(a) of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated by this Agreement, (ii) the acceptance for
record of the Certificate of Merger by the Ohio Secretary of State, (iii) such
filings as may be required in connection with the payment of any transfer and
gains taxes, (iv) the pre-merger notification of the HSR Act; and (v) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings (A) as are set forth in Schedule 4.2 to the Newco Disclosure Letter, (B)
as may be required under federal, state or local environmental laws or (C)
which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement or otherwise prevent Newco from performing its obligations under this
Agreement in any material respect or have, individually or in the aggregate, a
Newco Material Adverse Effect.
SECTION 4.3 ORGANIZATION, GOOD STANDING AND POWER OF ACQUISITION.
Acquisition will on the Effective Date be a corporation duly incorporated and
validly existing under the laws of Ohio and will have the requisite corporate
power and authority to carry out the transactions contemplated by the Agreement
of Merger and hereby.
SECTION 4.4 AUTHORITY; NONCONTRAVENTION; CONSENTS RELATING TO
ACQUISITION.
(a) The consummation by Acquisition of the transactions contemplated by
the Agreement of Merger and hereby to which Acquisition will be a party will, as
of the Effective Time, have been duly authorized by all necessary action on the
part of Acquisition and will constitute a valid and binding obligation of
Acquisition, enforceable against Acquisition in accordance with their terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
(b) Except as set forth in Schedule 4.4 to the Newco Disclosure Letter,
the consummation of the transactions contemplated by the Agreement of Merger and
this Agreement by Acquisition
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and compliance by Acquisition with the provisions of the Agreement of Merger and
this Agreement will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Acquisition or under, (i) Acquisition's
Articles of Incorporation or Code of Regulations, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, reciprocal easement agreement, lease
or other agreement, instrument, permit, concession, franchise or license to
which Acquisition is a party or its properties or assets may be bound or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any Laws applicable to Acquisition or its properties or
assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights, loss or Liens that would prevent the consummation
of the transactions contemplated by the Agreement of Merger or this Agreement.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to
Acquisition in connection with the execution and delivery of this Agreement or
the consummation by Acquisition of any of the transactions contemplated by this
Agreement, except for (i) the acceptance for record of the Certificate of Merger
by the Ohio Secretary of State, (ii) the pre-merger notification of the HSR Act;
and (v) such other consents, approvals, orders, authorizations, registrations,
declarations and filings (A) as are set forth in Schedule 4.4 to the Newco
Disclosure Letter, (B) which, if not obtained or made, would not prevent or
delay in any material respect the consummation of any of the transactions
contemplated by the Agreement of Merger or this Agreement or otherwise prevent
Acquisition from performing its obligations under this Agreement in any material
respect.
SECTION 4.5 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker,
investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of Newco or any Newco Subsidiary.
SECTION 4.6 STATE TAKEOVER STATUTES. Newco has taken all action
necessary to exempt transactions between Newco and the Company and its
Affiliates from the operation of any anti-takeover laws of any applicable
jurisdiction designed to restrict Newco's ability to consummate the transaction
contemplated by this Agreement.
SECTION 4.7 DEFINITION OF KNOWLEDGE OF NEWCO. As used in this
Agreement, the phrase "to the Knowledge of Newco" or (or words of similar
import) means the knowledge of those individuals identified in Schedule 4.7 to
the Newco Disclosure Letter.
SECTION 4.8 PROXY STATEMENT. None of the information provided by Newco
or Acquisition and/or by their auditors, attorneys, financial advisors or other
consultants or advisors in writing specifically for use in the Proxy Statement
shall, at the time filed with the SEC, at the time mailed to the Company's
shareholders, at the time of the Company Shareholder Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact
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required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE 5
COVENANTS
SECTION 5.1 ACQUISITION PROPOSALS. Prior to the Effective Time, the
Company agrees that:
(a) neither it nor any of the Company Subsidiaries shall initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to a merger, acquisition,
tender offer, exchange offer, consolidation, sale of assets or similar
transaction involving all or any significant portion of the assets or any equity
securities of the Company or any of the Company Subsidiaries, other than the
transactions contemplated by this Agreement (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal;
(b) it will use its best efforts not to permit any of its officers,
employees, agents or financial advisors to engage in any of the activities
described in Section 5.1(a);
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing and will take the necessary steps to inform
the individuals or entities referred to in Section 5.1(b) of the obligations
undertaken in this Section 5.1; and
(d) it will notify ERP immediately if the Company receives any such
inquiries or proposals, or any requests for such information, or if any such
negotiations or discussions are sought to be initiated or continued with it;
provided, however, that nothing contained in this Section 5.1 shall prohibit the
Company Board from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Acquisition
Proposal, if, and only to the extent that (A) the Company Board determines in
good faith that failure to do so would create a reasonable probability of a
breach of its duties to shareholders imposed by law, (B) prior to furnishing
such information to, or entering into discussions or negotiations with, such
person or entity, the Company provides written notice to ERP to the effect that
it is furnishing information to, or entering into discussions with, such person
or entity, and (C) subject to any confidentiality agreement with such person or
entity (which the
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Company determined in good faith was required to be executed in order for the
Company Board to comply with its duties to shareholders imposed by law), the
Company keeps ERP informed of the status (not the terms) of any such discussions
or negotiations; and (ii) to the extent applicable, complying with Rule 14e-2 or
Rule 14d-9 promulgated under the Exchange Act with regard to an Acquisition
Proposal. Nothing in this Section 5.1 shall (x) permit the Company to terminate
this Agreement (except as specifically provided in Article 8 hereof), (y) permit
the Company to enter into an agreement with respect to an Acquisition Proposal
during the term of this Agreement (it being agreed that during the term of this
Agreement, the Company shall not enter into an agreement with any Person that
provides for, or in any way facilitates, an Acquisition Proposal (other than a
confidentiality agreement in customary form executed as provided above)) or (z)
affect any other obligation of the Company under this Agreement; provided,
however, that, subject to the provisions of Section 8.2, the Company Board may
approve and recommend a Superior Acquisition Proposal and, in connection
therewith, withdraw or modify its approval or recommendation of this Agreement
and the Merger. As used herein, "Superior Acquisition Proposal" means a bona
fide Acquisition Proposal made by a third party which a majority of the members
of the Company Board determines in good faith to be more favorable to the
Company's shareholders from a financial point of view than the Merger and which
the Company Board determines is reasonably capable of being consummated.
SECTION 5.2 CONDUCT OF THE COMPANY'S BUSINESS PENDING MERGER. Prior to
the Effective Time, except as (i) contemplated by this Agreement, (ii) set forth
in Schedule 5.2 of the Company Disclosure Letter, (iii) set forth in Schedule
5.2A of the Supplemental Disclosure Letter or (iv) consented to in writing by
ERP, the Company shall, and shall cause each of the Company Subsidiaries to,
conduct its business only in the usual, regular and ordinary course and in
substantially the same manner as heretofore conducted, and, irrespective of
whether or not in the ordinary course of business, the Company shall, and shall
cause each of the Company Subsidiaries to:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its
officers and employees;
(b) confer on a regular basis with one or more representatives
of ERP to report operational matters of materiality and, subject to
Section 5.1, any proposals to engage in material transactions not
otherwise expressly permitted under Section 5.2;
(c) promptly notify ERP of any material emergency or other
material change in the condition (financial or otherwise), business,
properties, assets, liabilities, or the normal course of its businesses
or in the operation of its properties, or of any material governmental
complaints, investigations or hearings (or communications indicating
that the same may be contemplated);
(d) promptly deliver to ERP true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date
of this Agreement;
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(e) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its
methods, principles or practices of accounting in effect at the Company
Financial Statement Date, except as may be required by the SEC,
applicable law or GAAP;
(f) duly and timely file all reports, tax returns and other
documents required to be filed with federal, state, local and other
authorities, subject to extensions permitted by law, provided the
Company notifies ERP that it is availing itself of such extensions;
(g) not make or rescind any express or deemed election
relative to Taxes (unless required by law);
(h) not amend its Articles of Incorporation or Code of
Regulations or the articles of incorporation, codes of regulations,
bylaws, partnership agreement, joint venture agreement or comparable
charter or organization document of any Company Subsidiary without
ERP's prior written consent, which shall not be unreasonably withheld
or delayed;
(i) not issue or make any change in the number of, shares of,
capital stock, membership interests or units of limited partnership
interest issued and outstanding or reserved for issuance, other than
pursuant to those items disclosed in Schedule 2.3 of the Company
Disclosure Letter;
(j) not grant any options or other right or commitment
relating to its shares of capital stock, or any security convertible
into its shares of capital stock, or any security the value of which is
measured by shares of capital stock, or any security subordinated to
the claim of its general creditors;
(k) except for dividends and distributions by a Company
Subsidiary to the Company or a wholly-owned Company Subsidiary, not (x)
authorize, declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital
stock, or (y) directly or indirectly redeem, purchase or otherwise
acquire any shares of capital stock, membership interests or units of
partnership interest or any option, warrant or right to acquire, or
security convertible into, shares of capital stock, membership
interests, or units of partnership interest;
(l) not sell, lease, mortgage, subject to Lien or otherwise
dispose of any material part of its assets, individually or in the
aggregate, except for sales or leases of furniture and other personal
property in the ordinary course of business consistent with past
practice and for leases of corporate housing units to customers in the
ordinary course of business consistent with past practice;
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(m) not make any loans, advances or capital contributions to,
or investments in, any other Person, other than (i) loans, advances and
capital contributions to wholly-owned Company Subsidiaries in existence
on the date hereof; (ii) any advances to any officer or director of the
Company made pursuant to the terms of a note, provided, however, that
under no circumstances shall the terms of any note be amended to
increase the total aggregate amount of borrowings available thereunder;
and (iii) advances of travel and other business expenses to employees
in the ordinary course of business consistent with past practice;
(n) not pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice, or in accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) furnished to
ERP or incurred in the ordinary course of business consistent with past
practice;
(o) not enter into any commitment, contractual obligation,
capital expenditure or transaction (each, a "Commitment") which may
result in total payments or liability by or to it in excess of $200,000
or aggregate Commitments in excess of $500,000; provided, however, that
notwithstanding the foregoing, the Company may purchase or make
Commitments to purchase (i) furniture to fill specific, bona fide
customer sales orders and (ii) in addition to those purchases and
Commitments to purchase permitted by (i) hereof, up to $2,500,000 in
furniture each month;
(p) not guarantee the indebtedness of another Person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement
having the economic effect of any of the foregoing;
(q) not enter into or amend any Commitment with any officer,
director, consultant or Affiliate of the Company or any of the Company
Subsidiaries other than Commitments with consultants involving payments
of (i) less than $10,000 per consultant and (ii) total aggregate
payments to all consultants of less than $100,000;
(r) not increase any compensation or enter into or amend any
employment agreement or other arrangement with any of its officers,
directors or employees earning more than $50,000 per annum as of the
date hereof, other than waivers by employees of benefits under such
agreements, enter into any employment agreement or arrangement with any
other Person not currently an employee of the Company or a Company
Subsidiary, providing for compensation in excess of $50,000 per annum
or increase any compensation or enter into or amend any employment
agreement or other arrangement with any new or current employee earning
more than $50,000 per annum except in the ordinary course of business
and consistent with past practice in timing and amount or pursuant to
the terms of any such agreement or arrangement; provided, however, that
the Company may increase compensation
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to employees in connection with promotions or otherwise, by not more
than ten percent (10%);
(s) not adopt any new employee benefit plan or amend any
existing plans, options or rights, except for changes which are
required by law;
(t) not settle any shareholder derivative or class action
claims arising out of or in connection with any of the transactions
contemplated by this Agreement without the prior written approval of
ERP, which approval shall not be unreasonably withheld or denied (it
being understood that it is the intent of the parties to avoid, to the
extent practicable, the termination of this Agreement pursuant to
Article 8 hereof);
(u) not reduce its ownership of any of the Company
Subsidiaries except pursuant to a transaction which has the same effect
as a transaction permitted by subsection 5.2(l) hereof;
(v) not accept a promissory note in payment of the exercise
price payable under any option to purchase shares of Common Stock;
(w) not enter into or amend or otherwise modify or waive any
rights under any agreement or arrangement for the persons that are
Affiliates of the Company or any Company Subsidiary or any officer,
director or employee, of the Company or any Company Subsidiary;
(x) except as provided in the Company Disclosure Letter, not
directly or indirectly or through a subsidiary, merge or consolidate
with, acquire all or substantially all of the assets of, or acquire the
beneficial ownership of a majority of the outstanding capital stock or
other equity interest in any person or entity; and
(y) take all action necessary to cause the payment of
compensation customarily made at the end of each quarter to the members
of the Company Board; and
For purposes of this Section 5.2 only, any contract, transaction or other event
for which a specific amount is not set forth above shall be deemed to be
material and to be subject to the terms hereof if it would result or is expected
to result in a net impact on the Company's consolidated income statement in
excess of $200,000, or on the Company's consolidated balance sheet in excess of
$500,000.
SECTION 5.3 OTHER ACTIONS. Each of the Company on the one hand and ERP
and Newco on the other hand shall not, and shall use its reasonable best efforts
to cause its Subsidiaries not to take, any action that would result in (i) any
of the representations and warranties of such party set forth in this Agreement
that are qualified as to materiality becoming untrue, (ii) any of such
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representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) except as contemplated by Section 5.1, any of the
conditions to the Merger set forth in Article 7 not being satisfied.
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.1 PREPARATION OF PROXY STATEMENT; STOCKHOLDER MEETING;
COMFORT LETTERS.
(a) Promptly following the date of this Agreement, the Company shall
prepare the Schedule 13E-3 with respect to the transactions contemplated by this
Agreement and a proxy statement (the "Proxy Statement") required to be
distributed to holders of Common Stock in connection with the Merger and include
therein the recommendation of the Company Board that the stockholders of the
Company vote in favor of the approval and adoption of this Agreement and include
therein the written opinion of the Financial Adviser that the cash consideration
to be received by the stockholders of the Company pursuant to the Merger is
fair, from a financial point of view, to such stockholders; provided, however,
that the Company Board may fail to make or may withdraw or modify such
recommendation, if, in accordance with Section 5.1, the Company Board recommends
a Superior Proposal. The Company shall use its reasonable best efforts to obtain
and furnish the information required to be included by it in the Proxy Statement
and Schedule 13E-3 and, after consultation with ERP, respond promptly to any
comments made by the Securities and Exchange Commission (the "SEC") with respect
to the Proxy Statement and Schedule 13E-3 and any preliminary version thereof,
ERP and Newco will cooperate with the Company in connection with the preparation
of the Proxy Statement and Schedule 13E-3 including, but not limited to,
furnishing to the Company any and all information regarding ERP as may be
required to be disclosed therein. The Company will use reasonable best efforts
to cause the Proxy Statement to be mailed to the Company's stockholders as
promptly as practicable.
(b) All filings with the SEC and all mailings to the Company's
stockholders in connection with the Merger, including the Proxy Statement and
Schedule 13E-3, shall be subject to the prior review, comment and approval of
ERP and Newco (and such approval shall not be unreasonably withheld or delayed).
(c) The Company shall, as promptly as practicable following the date of
this Agreement and in consultation with ERP and Newco, duly call and give notice
of, and, provided that this Agreement has not been terminated, convene and hold,
the Company Stockholders' Meeting for the purpose of approving this Agreement
and the transactions contemplated by this Agreement to the extent required by
Ohio Law (the "Company Stockholders' Meeting"). The Company will use reasonable
best efforts to hold such meeting as soon as practicable after the date hereof.
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(d) Upon the request of ERP, the Company shall use reasonable best
efforts to cause to be delivered to the Company and ERP a letter of
PricewaterhouseCoopers LLP, the Company's independent public accountants, dated
a date within two (2) business days before the date of mailing the Proxy
Statement to the stockholders of the Company and a letter of
PricewaterhouseCoopers LLP dated a date within two (2) business days before the
Company Stockholders' Meeting, addressed to the Company, in each case customary
in scope and substance for letters delivered by independent public accountants
in connection with proxy statements similar to the Proxy Statement; provided,
however, that such letters shall only be delivered to the extent permitted under
accounting principles and pronouncements applicable to the U.S. accounting
profession.
SECTION 6.2 HSR ACT. As promptly as practicable after the date of this
Agreement, the Company, ERP and Newco shall file notifications under the HSR Act
in connection with the Merger and the transactions contemplated hereby and to
respond as promptly as practicable to any inquiries received from the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division") for additional information or documentation
and to respond as promptly as practicable to all inquiries and requests received
from any State Attorney General or other governmental authority in connection
with antitrust matters.
SECTION 6.3 ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to the
requirements of confidentiality agreements with third parties, each of the
Company, ERP and Newco shall, and shall cause each of the Company Subsidiaries
and ERP Subsidiaries, respectively, to afford to the other party and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours prior to the Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each of
the Company, ERP and Newco shall, and shall cause each of the Company
Subsidiaries and ERP Subsidiaries, respectively, to furnish promptly to the
other party (a) a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
federal or state securities laws and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
Each of the Company and ERP shall, and shall cause the Company Subsidiaries and
ERP Subsidiaries, respectively, to use commercially reasonable efforts to cause
its officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to, hold any nonpublic information in confidence
to the extent required by, and in accordance with, and will comply with the
provisions of the letter agreements dated as of October 11, 1999 between the
Company and ERP (the "Confidentiality Agreements").
SECTION 6.4 BEST EFFORTS; NOTIFICATION.
(a) Subject to the terms and conditions herein provided, the Company,
Newco, Acquisition and ERP shall: (i) use all reasonable best efforts to
cooperate with one another in (A) determining which filings are required to be
made prior to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time,
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from governmental or regulatory authorities of the United States, the several
states and foreign jurisdictions and any third parties in connection with the
execution and delivery of this Agreement, and the consummation of the
transactions contemplated by such agreements and (B) timely making all such
filings and timely seeking all such consents, approvals, permits and
authorizations; (ii) use all reasonable best efforts to obtain in writing any
consents required from third parties to effectuate the Merger, such consents to
be in form reasonably satisfactory to the Company and ERP; and (iii) use all
reasonable best efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement,
including, but not limited to, furnishing all information required to be
included in the Proxy Statement. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and trustees of the Company, Newco and ERP shall
take all such necessary action.
(b) The Company shall give prompt notice to ERP, and ERP shall give
prompt notice to the Company, (i) if any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becomes untrue
or inaccurate in any respect or any such representation or warranty that is not
so qualified becomes untrue or inaccurate in any material respect or (ii) of the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
SECTION 6.5 COSTS OF TRANSACTION. In the event that the Merger is not
consummated, each of ERP and the Company shall pay their own costs and expenses
relating to the Merger and the other transactions contemplated by this
Agreement. This Section 6.5 shall in no way affect the rights and obligations of
the parties hereto under Article 8 hereof.
SECTION 6.6 PUBLIC ANNOUNCEMENTS. ERP, Acquisition and the Company will
consult with each other before issuing, and provide each other the opportunity
to review and comment upon, any press release or other written public statements
with respect to the transactions contemplated by this Agreement, including
(without limitation) the Merger, and shall not issue any such press release or
make any such written public statement prior to such consultation, except as may
be required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by this Agreement will be in the form agreed to by the parties
hereto prior to the execution of this Agreement. For purposes of this Section
6.6, "written public statements" shall include any written statement transmitted
to the New York Stock Exchange Inc. ("NYSE"), Nasdaq National Market or the
shareholders of ERP or the Company.
SECTION 6.7 TAXES. At ERP's expense, the Company will and will cause
each Company Subsidiary to consult with and provide ERP the opportunity to
review and comment upon all returns, questionnaires, applications or other
documents to be filed after the date hereof by the
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Company with respect to Taxes including, without limitation, the Company's
federal, state and local income tax returns for its taxable year ended February
29, 2000 (collectively, the "Company Tax Returns"), and shall not file any such
returns without the prior review and comment of ERP and Acquisition, which shall
not be unreasonably delayed.
SECTION 6.8 OPTIONEES.
(a) Prior to the Closing, the Company will, through its Board (or any
committee thereof), take all action required for the cancellation as of the
Effective Time of all Stock Options in consideration for cash in an amount set
forth in section 1.6(c).
(b) From and after the date hereof, the Company, through its Board or
otherwise, will not modify any Stock Option Plan or authorize, and the Company
will not grant, any Stock Options.
(c) The Company shall require each employee who exercises a Stock
Option or otherwise receives any payment from the Company as a result of the
transactions contemplated by this Agreement, to pay to the Company in cash an
amount sufficient to satisfy in full the Company's obligation to withhold Taxes
incurred by reason of such exercise, issuance or receipt.
SECTION 6.9 DECLARATION OF DIVIDENDS AND DISTRIBUTIONS. From and after
the date of this Agreement, neither the Company, nor any of the Company
Subsidiaries shall make any dividend or distribution to its shareholders without
the prior written consent of ERP.
SECTION 6.10 RESIGNATIONS. On the Closing Date, if requested by ERP,
the Company shall cause the directors of each of the Company and the Company
Subsidiaries to submit their resignations from such positions, effective as of
the Effective Time.
SECTION 6.11 INDEMNIFICATION.
(a) From and after the Effective Time, ERP shall provide exculpation
and indemnification for each person who is now or has been at any time prior to
the date hereof or who becomes prior to the Effective Time, an officer, director
of the Company or any Company Subsidiary (the "Indemnified Parties") which is
the same as the exculpation, indemnification and advancement of expenses
provided to the Indemnified Parties by the Company (including advancement of
expenses, if so provided) immediately prior to the Effective Time in its
Articles of Incorporation or Code of Regulations as in effect at the close of
business on the date hereof; PROVIDED, that such exculpation and indemnification
covers actions on or prior to the Effective Time, including, without limitation,
all transactions contemplated by this Agreement. The Surviving Corporation shall
use commercially reasonable efforts to obtain and, if obtained, maintain in
effect from the Effective Time and continuing until the sixth anniversary
thereof "run-off" directors and officers liability insurance with a commercially
reasonable coverage amount and other terms and conditions, including exclusions,
as are commercially reasonable and at least as favorable as now provided by
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the Company; provided, however, in no event shall the Surviving Corporation be
required to expend in respect of any year's coverage in excess of 300% of the
annual premium currently paid by the Company for such coverage with respect to
their service as such prior to the Effective Time (the "Run-Off Policy"). The
Surviving Corporation shall provide the Company with a true and complete copy of
a binder with respect to the Run-Off Policy at least 10 days prior to the
Effective Time, and shall use its reasonable best efforts to provide to the
Company a true and complete copy of the Run-Off Policy as proposed to be issued
prior to the Effective Time. The premium for such policy shall be paid in full
at the Effective Time.
(b) The provisions of this Section 6.11 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of ERP and the Surviving Corporation. ERP agrees to pay
all costs and expenses (including fees and expenses of counsel) that may be
incurred by any Indemnified Party or his or her heirs or his or her personal
representatives in successfully enforcing the indemnity or other obligations of
ERP or the Surviving Corporation under this Section 6.11. The provisions of this
Section 6.11 shall survive the Merger and are in addition to any other rights to
which an Indemnified Party may be entitled.
(c) In the event that ERP or the Surviving Corporation or any of its
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case the successors
and assigns of such entity shall assume the obligations set forth in this
Section 6.11, which obligations are expressly intended to be for the irrevocable
benefit of, and shall be enforceable by, each director and officer covered
hereby.
SECTION 6.12 CERTAIN DEBT OF THE COMPANY. The Company shall maintain in
full force and effect that certain loan outstanding as of the date hereof from
those lenders party to that certain Note Purchase Agreement (the "Note Purchase
Agreement") dated as of September 1, 1997 (the "Section 6.12 Debt") and there
shall be no default or event of default or any condition which upon the passage
of time or the giving of notice or both which would cause such an event of
default or a default to exist under the Note Purchase Agreement as of the
Effective Time.
SECTION 6.13 FEES AND EXPENSES. The Company and the Company
Subsidiaries shall not incur (a) fees and expenses and (b) liabilities
(collectively, the "Transaction Expenses") in excess of the amount set forth on
Schedule 7.2(g)A of the Supplemental Disclosure Letter.
SECTION 6.14 EMPLOYEE BENEFITS. Neither the Company nor the Surviving
Corporation shall amend, modify or revise any Employee Plan without the prior
written consent of ERP.
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SECTION 6.15 SUBORDINATED DEBT. On or prior to the Closing Date, ERP
shall provide Newco with a subordinated debt facility of up to $9 million, which
facility shall have a one (1) year term, fifteen percent (15%) annual interest
rate (interest being payable quarterly in arrears) and the proceeds of which
shall be loaned to the Company and used solely to enable the Company to repay
any outstanding subordinated debt incurred by the Company prior to Closing, with
the prior consent of ERP.
ARTICLE 7
CLOSING CONDITIONS
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) SHAREHOLDER APPROVAL. The Merger shall have been approved and
adopted by the shareholders of each of the Company and Acquisition.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other transactions contemplated hereby
shall be in effect.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF ERP. The obligations of ERP to
effect the Merger and to consummate the other transactions contemplated to occur
on the Closing Date are further subject to the following conditions, any one or
more of which may be waived in writing by ERP:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in this Agreement shall be true and correct as of the
Closing Date, as though made on and as of the Closing Date, except to the extent
the representation or warranty is expressly limited by its terms to another
date, and ERP shall have received a certificate (which certificate may be
qualified by Knowledge to the same extent as the representations and warranties
of the Company contained herein are so qualified) signed on behalf of the
Company by the chief executive officer or the chief financial officer of the
Company, in such capacity, to such effect. For the purposes of Section 7.2(a),
the representations and warranties of the Company shall be deemed true and
correct unless the breach of such representations and warranties, in the
aggregate, could reasonably be expected to have a Company Material Adverse
Effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior
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to the Effective Time, and ERP shall have received a certificate signed on
behalf of the Company by the chief executive officer or the chief financial
officer of the Company, in such capacity, to such effect.
(c) MATERIAL ADVERSE CHANGE. Since November 30, 1999, except as
discussed in Schedule 2.7 of the Company Disclosure Letter or Schedule 2.7A of
the Supplemental Disclosure Letter, there shall have been no Company Material
Adverse Change and ERP shall have received a certificate of the chief executive
officer or chief financial officer of the Company, in such capacity, certifying
to such effect.
(d) COMFORT LETTER. If required by ERP, ERP shall have received the
letter from the accountants for the Company required by Section 6.9 hereof.
(e) OPINION OF COUNSEL. ERP shall have received an opinion of Keating,
Muething & Klekamp, P.L.L. or other counsel to the Company reasonably
satisfactory to ERP dated the Closing Date in form and substance reasonably
satisfactory to ERP addressing the matters set forth in Exhibit "B" hereto.
(f) CONSENTS. Except as set forth on Schedule 7.2 to the Company
Disclosure Letter, all consents and waivers (including, without limitation,
waivers of rights of first refusal) from third parties necessary in connection
with the consummation of the transactions contemplated by this Agreement shall
have been obtained, other than such consents and waivers from third parties,
which, if not obtained, would not result, individually or in the aggregate, in
an ERP Material Adverse Effect or a Company Material Adverse Effect.
(g) CERTAIN FEES, EXPENSES AND LIABILITIES. The Transaction Expenses
set forth in Schedule 7.2(g)A of the Supplemental Disclosure Letter shall not
exceed the amounts set forth in such Schedule.
(h) HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated and no
restrictive order or other requirements shall have been placed on ERP or the
Surviving Corporation in connection therewith which would have a material
adverse effect on the expected benefits to ERP of the transactions contemplated
hereby.
(i) FORMATION AGREEMENT. The Closing, as defined in the Formation
Agreement, shall have been consummated.
(j) DISSENTERS' RIGHTS. The record holders of not more than 20% of the
issued and outstanding shares of Common Stock on the Effective Date have
properly served a demand on the Company seeking relief pursuant to the
provisions of Section 1701.85 of the Ohio Law.
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SECTION 7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to effect the Merger and to consummate the other transactions
contemplated to occur on the Closing Date is further subject to the following
conditions, any one or more of which may be waived in writing by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of ERP set forth in this Agreement shall be true and correct as of the date of
this Agreement and as of the Closing Date, as though made on and as of the
Closing Date, except to the extent the representation or warranty is expressly
limited by its terms to another date, and the Company shall have received a
certificate (which certificate may be qualified by Knowledge to the same extent
as the representations and warranties of ERP contained herein are so qualified)
signed on behalf of ERP and Acquisition by the chief executive officer and the
chief financial officer of such party to such effect. For the purposes of this
Section 7.3(a), the representations and warranties of ERP shall be deemed true
and correct unless the breach of such representations and warranties, in the
aggregate, could reasonably be expected to have an ERP Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF ERP AND ACQUISITION. ERP and
Acquisition shall have performed in all material respects all of their
respective obligations required to be performed by them under this Agreement at
or prior to the Effective Time, and the Company shall have received a
certificate of ERP signed on behalf of ERP by the chief executive officer or the
chief financial officer of ERP, in such capacity, to such effect.
(c) OPINION OF COUNSEL. The Company shall have received an opinion from
Piper Marbury Rudnick & Wolfe or other counsel to ERP reasonably satisfactory to
the Company dated the Closing Date in form and substance reasonably satisfactory
to the Company addressing the matters set forth in Exhibit "C" hereto dated the
Closing Date.
(d) CONSENTS. All consents and waivers (including, without limitation,
waivers or rights of first refusal) from third parties necessary in connection
with the consummation of the transactions contemplated hereby shall have been
obtained, other than such consents and waivers from third parties, which, if not
obtained, would not result, individually or in the aggregate, in an ERP Material
Adverse Effect or a the Company Material Adverse Effect.
(e) CERTAIN FEES, EXPENSES AND LIABILITIES. The (x) fees and expenses
and (y) liabilities set forth in Schedule 7.2(g) of the Company Disclosure
Letter shall not exceed the amounts set forth in such Schedule.
(f) HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated and no
restrictive order or other requirements shall have been placed on ERP or the
Surviving Corporation in connection therewith which would have a material
adverse effect on the expected benefits to ERP of the transactions contemplated
hereby.
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(g) FORMATION AGREEMENT. The Closing, as defined in the Formation
Agreement, shall have been consummated.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the acceptance of the Certificate of Merger for record by the Secretary
of State of the State of Ohio, whether before or after the Shareholder Approval
have been obtained:
(a) by mutual written consent duly authorized by both the Company Board
and the General Partner of ERP;
(b) by ERP, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of the Company set forth in this Agreement,
in either case such that the conditions set forth in Section 7.2(a) or Section
7.2(b), as the case may be, would be incapable of being satisfied by August 15,
2000 (or as otherwise extended);
(c) by the Company, upon a breach of any representation, warranty,
covenant obligation or agreement on the part of ERP set forth in this Agreement,
in either case such that the conditions set forth in Section 7.3(a) or Section
7.3(b), as the case may be, would be incapable of being satisfied by August 15,
2000 (or as otherwise extended);
(d) by either ERP or the Company, if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority preventing
the consummation of the Merger shall have become final and nonappealable;
(e) by either ERP or the Company, if the Merger shall not have been
consummated before August 15, 2000; provided, that in the case of termination
pursuant to this Section 8.1(e), the terminating party shall not have breached
in any material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the occurrence of the failure referred to
in this Section;
(f) by either ERP or the Company if, upon a vote at a duly held the
Company Shareholders Meeting or any adjournment thereof, the Company Shareholder
Approval shall not have been obtained as contemplated by Section 6.1;
(g) by the Company, if prior to the conclusion of the tabulation of the
votes with respect to the Merger at the Company Shareholders Meeting, the
Company Board shall have withdrawn or
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modified its approval or recommendation of the Merger or this Agreement in
connection with, or approved, recommended or entered into, a Superior
Acquisition Proposal; and
(h) by ERP if (i) prior to the Company Shareholders Meeting, the
Company Board shall have withdrawn or modified in any manner adverse to ERP its
approval or recommendation of the Merger or this Agreement in connection with,
or approved, recommended or entered into, any Superior Acquisition Proposal, or
(ii) the Company shall have entered into a definitive agreement with respect to
any Acquisition Proposal.
(i) by ERP if the record holders of more than 20% of the issued and
outstanding shares of Common Stock on the Effective Date have properly served a
demand on the Company seeking relief pursuant to the provisions of Section
1701.85 of the Ohio Law.
SECTION 8.2 CERTAIN FEES AND EXPENSES. If this Agreement shall be
terminated (i) pursuant to Section 8.1(g) or 8.1(h), then the Company will pay
ERP (provided the Company was not entitled to terminate this Agreement pursuant
to Section 8.1(c) at the time of such termination) a fee equal to the Break-Up
Fee (as defined below), or (ii) pursuant to Section 8.1(b) or 8.1(f), then the
Company will pay ERP (provided the Company was not entitled to terminate this
Agreement pursuant to Section 8.1(c) at the time of such termination) an amount
equal to the ERP Liquidated Damages Amount (as defined below).
If this Agreement shall be terminated pursuant to Section 8.1(c), then
ERP (rather than Newco) will pay the Company (provided ERP was not entitled to
terminate this Agreement pursuant to Section 8.1(b) at the time of such
termination), an amount equal to the Company Liquidated Damages Amount (as
defined below).
If the Merger is not consummated (other than due to the termination of
this Agreement pursuant to Section 8.1(a) or 8.1(c), or ERP pursuant to 8.1(e)),
and at the time of the termination of this Agreement an Acquisition Proposal has
been received by the Company, and either prior to the termination of this
Agreement or within twelve (12) months thereafter the Company or any the Company
Subsidiary enters into any written Acquisition Proposal which is subsequently
consummated (whether or not such Acquisition Proposal is the same Acquisition
Proposal which had been received at the time of the termination of this
Agreement), then the Company shall pay the Break-Up Fee to ERP.
The Company and ERP agree that actual damages accruing from a
termination of the Agreement pursuant to the subsections of Section 8.1 with
respect to which the provisions of Section 8.2 provide for the payment of
damages are incapable of precise estimation and would be difficult to prove,
that the payment to ERP or the Company, as applicable, of the ERP Liquidated
Damages Amount, the Company Liquidated Damages Amount or the Break-Up Fee shall
constitute liquidated damages, that the rights to the ERP Liquidated Damages
Amount, Company Liquidated Damages Amount or Break-Up Fee, as applicable,
stipulated in this Section 8.2 bear a reasonable
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relationship to the potential injury likely to be sustained in the event of such
a termination and that such stipulated rights to liquidated damages are intended
by the parties to provide just compensation in the event of such a termination
and are not intended to compel performance or to constitute a penalty for
nonperformance. Other than as set forth in Section 9.8 hereof, payment of the
ERP Liquidated Damages Amount or the Break-Up Fee by the Company shall terminate
all of ERP's rights and remedies at law or in equity against the Company in
respect of a termination of this Agreement pursuant to the subsections of
Section 8.1 with respect to which the provisions of Section 8.2 provide for the
payment of damages. Other than as set forth in Section 9.8 hereof, payment of
the Company Liquidated Damages Amount by ERP shall terminate all of the
Company's rights and remedies at law or in equity against ERP in respect of a
termination of this Agreement pursuant to Section 8.1 (c). The ERP Liquidated
Damages Amount or the Break-Up Fee shall be paid by the Company to ERP, or the
Company Liquidated Damages Amount, shall be paid by ERP to the Company, in
immediately available funds within fifteen (15) days after the date of the event
giving rise to the obligation to make such payment occurred.
The "ERP Liquidated Damages Amount" payable to ERP by the Company shall
be $2,500,000.
The "Company Liquidated Damages Amount" payable to the Company by ERP
shall be $2,500,000.
As used in this Agreement, "Break-Up Fee" shall be an amount equal to
$5,000,000, less the ERP Liquidated Damages Amount, if such ERP Liquidated
Damages Amount has been paid in full by the Company to ERP,
SECTION 8.3 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or ERP as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of ERP or Newco, or the Company, other than the last
sentence of Section 6.3, Section 8.2, this Section 8.3 and Article 9.
SECTION 8.4 AMENDMENT. This Agreement may be amended by the parties in
writing by action of the Board of Trustees of the General Partner of ERP, by the
Company's Board and the Board of Directors of Newco at any time before or after
any Shareholder Approval is obtained and prior to the filing of the Certificate
of Merger with the Secretary of State of the State of Ohio; PROVIDED, HOWEVER,
that, after the Shareholder Approval is obtained, no such amendment,
modification or supplement shall be made which by law requires the further
approval of shareholders without obtaining such further approval.
SECTION 8.5 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained in this Agreement or
in any document delivered pursuant to this Agreement or (c) subject
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to the proviso of Section 8.4, waive compliance with any of the agreements or
conditions of the other party contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement confirming the representations and warranties in this
Agreement shall survive the Effective Time. This Section 9.1 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
SECTION 9.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
(a) If to ERP, Acquisition or Newco:
ERP Operating Limited Partnership
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Telecopier No.: (312) 454-0434
Telephone No.: (312) 474-1300
Attention: Bruce C. Strohm
With a copy to:
Piper Marbury Rudnick & Wolfe
203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601
Telecopier No.: (312) 236-7516
Telephone No.: (312) 368-4033
Attention: Errol R. Halperin, Esq.
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(b) If to the Company:
Globe Business Resources, Inc.
11260 Chester Road, Suite 400
Cincinnati, Ohio 45246
Telecopier No.: (513) 771-5354
Telephone No.: (513) 771-8287
Attention: David D. Hoguet
With a copy to:
Keating, Muething & Klekamp, P.L.L.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Telecopier No.: (513) 579-6578
Telephone No.: (513) 579-6468
Attention: Edward E. Steiner, Esq.
All notices shall be deemed given only when actually received.
SECTION 9.3 INTERPRETATION. All references made herein to any party
shall include any predecessor to such party. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
SECTION 9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
SECTION 9.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement and the Confidentiality Agreements and the other agreements entered
into in connection with the Transactions (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement and (b)
except as provided in Section 6.11 ("Third Party Provisions"), are not intended
to confer upon any person other than the parties hereto any rights or remedies.
The Third Party Provisions may be enforced by the beneficiaries thereof or on
behalf of the beneficiaries thereof by the officers and directors of the Company
who had been officers and directors of the Company prior to the Effective Time.
The Company shall not be deemed to have made to ERP or Newco any
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representation or warranty including with respect to any projections, estimates
or budgets of future revenues, expenses or expenditures or future results of
operations except other than as expressly set forth in Article 2 of this
Agreement.
SECTION 9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
SECTION 9.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 9.8 SPECIFIC ENFORCEMENT. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that (x) the parties shall be entitled to an
injunction or injunctions to prevent material breaches of this Agreement; and
(y) in lieu of and as an alternative to any and all monetary damages, including,
without limitation, the liquidated damages provided for in Section 8.2 hereof,
the parties shall be entitled to a court order to enforce specifically (by means
of a mandatory injunction or otherwise) the terms and provisions of this
Agreement, in either case in any court of the United States located in the State
of Illinois or Ohio or state court located in Illinois or Ohio. Without limiting
the generality of the foregoing, the parties agree that the Company is a unique
asset and that (i) the holders of the Shares would be irreparably injured in a
manner not adequately compensated by money damages (including without
limitation, by payment of the Company Liquidated Damages Amount) in the event
ERP refused to consummate the Merger without legal justification under this
Agreement and (ii) ERP would be irreparably injured in a manner not adequately
compensated by money damages (including without limitation, by payment of the
ERP Liquidated Damages Amount) in the event the Company refused to consummate
the Merger without legal justification under this Agreement. The parties hereto
hereby waive (to the maximum extent permitted by applicable law) all legal and
equitable defenses to a motion or other proceeding by the Company or ERP, as the
case may be, for specific performance of the Merger and the other transactions
contemplated by this Agreement as a remedy in the event ERP or the Company, as
the case may be, refuses to consummate the Merger without legal justification
under this Agreement. In addition, each of the parties hereto (a) consents to
submit itself (without making such submission exclusive) to the personal
jurisdiction of any federal court located in the State of Illinois or Ohio or
any Illinois or Ohio state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement and (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court; provided, however,
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that both the Company and ERP reserve all rights to assert that legal
justification does or does not exist.
SECTION 9.9 SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 9.10 NON-RECOURSE TO TRUSTEES AND OFFICERS. This Agreement and
all documents, certificates, agreements, understandings and arrangements
relating hereto have been entered into or executed on behalf of the General
Partner of ERP by the undersigned in his capacity as a trustee or officer of the
General Partner of ERP, which has been formed as a Maryland real estate
investment trust pursuant to an Amended and Restated Declaration of Trust of ERP
dated as of November 2, 1992, as amended and restated, and not individually, and
neither the trustees, officers nor shareholders of the General Partner of ERP
shall be personally bound or have any personal liability hereunder. The Company
shall look solely to the assets of ERP for satisfaction of any liability of ERP
with respect to this Agreement and any other agreements to which it is a party.
The Company will not seek recourse or commence any action against any of the
shareholders of the General Partner of ERP or any of their personal assets, and
will not commence any action for money judgments against any of the trustees or
officers of the General Partner of ERP or seek recourse against any of their
personal assets, for the performance or payment of any obligation of ERP
hereunder or thereunder.
(Remainder of page intentionally blank; signature page follows)
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IN WITNESS WHEREOF, ERP, the Company and Newco have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
ERP OPERATING LIMITED PARTNERSHIP
By:/s/Bruce C. Strohm
-------------------------------
Name: Bruce C. Strohm
Title: Executive Vice President
GLOBE BUSINESS RESOURCES, INC.
By:/s/David D. Hoguet
-------------------------------
Name: David D. Hoguet
Title: Chairman
GLOBE HOLDING CO. INC.
By:/s/Bruce C. Strohm
-------------------------------
Name: Bruce C. Strohm
Title: President
By:/s/David D. Hoguet
-------------------------------
Name: David D. Hoguet
Title: Secretary
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APPENDIX B
AGREEMENT OF MERGER
-------------------
THIS AGREEMENT OF MERGER (the "Agreement), dated as of _____________,
2000, is by and among, ACQUISITION, an Ohio corporation ("Acquisition") and
GLOBE BUSINESS RESOURCES, INC., an Ohio corporation ("Globe"). Any capitalized
terms used herein but not defined herein shall have the meanings respectively
assigned thereto in that certain Agreement and Plan of Merger between Globe, ERP
Operating Limited Partnership, an Illinois limited partnership ("ERP"), and
Globe Hunting Co., Inc., a Delaware corporation ("Newco"), dated as of January
13, 2000 as amended and restated as of May 10, 2000. (the "Merger Agreement").
R E C I T A L S:
- - - - - - - -
WHEREAS, Globe is a corporation duly organized and existing under the
laws of the Sate of Ohio;
WHEREAS, Acquisition is a corporation duly organized and existing under
the laws of the State of Ohio;
WHEREAS, Acquisition desires to merger with and into Globe, and Globe
desires to merge with Acquisition upon the terms and subject to the conditions
of this Agreement and the Merger Agreement and in accordance with the applicable
provisions of the laws of the State of Ohio; and
WHEREAS, the respective Boards of Directors of Globe and Acquisition
deem it advisable and in the best interest of each such corporation and their
respective shareholders that Acquisition be merged with and into Globe as
provided herein, and they have accordingly adopted resolutions approving this
Agreement and direct the submission of this Agreement to the shareholders of
Globe and Acquisition.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, Globe and Acquisition
hereby agree as follows:
ARTICLE 1
---------
THE MERGER; EFFECTIVE TIME
--------------------------
1.1 THE MERGER. At the Effective Time, Globe and Acquisition shall
consummate the merger (the "Merger") in accordance with the provisions of the
Merger Agreement and (a) Acquisition shall be merged with and into Globe and the
separate corporate existence of Acquisition
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shall thereupon cease; (b) Globe shall be the surviving corporation in the
Merger (in this capacity, the "Surviving Corporation"), the separate corporate
existence of Globe with all of its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger and Globe shall continue to
be governed by the laws of the State of Ohio.
1.2 EFFECTIVE TIME. The Effective Time shall be 4:00 p.m. E.S.T. time,
as set forth in the Certificate of Merger as filed with the Secretary of State
of the State of Ohio.
1.3 EFFECTS OF THE MERGER. Acquisition and Globe agree that the terms
and conditions of the Merger shall be governed by the Merger Agreement and by
the applicable provisions of the Ohio Law.
ARTICLE 2
---------
MANNER AND BASIS OF CONVERSION OF SHARES
----------------------------------------
2.1 CONVERSION. At the Effective Time (a) each share of common stock,
no par value, of Acquisition issued and outstanding immediately prior to the
Effective Time shall be converted in the manner set forth in the Merger
Agreement; (b) each share of Globe Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted in the manner set
forth in the Merger Agreement; (c) each share of Globe Common Stock held in the
treasury of Globe and each share of Globe Common Stock owned by ERP, Newco,
Acquisition or any direct or indirect wholly- owned subsidiary of Globe or ERP
immediately prior to the Effective Time shall be canceled and retired in the
manner set forth in the Merger Agreement; and at the Effective Time, each
outstanding option to purchase Globe Common Stock granted under or pursuant to
any employee stock option plan or agreement entered into by Globe with any
employee of Globe or any subsidiary thereof or any other person listed on
Schedule 2.3 of Globe Disclosure Letter or otherwise existing shall be canceled
and the holder thereof shall be entitled to receive in cash in the manner set
forth in the Merger Agreement.
ARTICLE 3
---------
AMENDMENT AND TERMINATION
-------------------------
3.1 AMENDMENT. The Boards of Directors of Globe and Acquisition may
amend this Agreement at any time prior to the approval hereof by the
shareholders of Globe.
3.2 TERMINATION. The provisions of this Agreement may be terminated and
abandoned at any time before the Effective Time by the respective Boards of
Directors of Acquisition and Globe.
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ARTICLE 4
---------
MISCELLANEOUS
-------------
4.1 COUNTERPART. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute on and the same instrument.
4.2 GOVERNING LAW. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of Ohio.
4.3 WAIVER; SUCCESSORS AND ASSIGNS. The provisions of this Agreement:
(a) shall not be waived, except by an instrument in writing, signed by the party
to be charged, and (b) shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties.
4.4 FURTHER ACTIONS. Each of Acquisition and Globe will take all such
reasonable and lawful action as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as promptly as possible.
If, at any time after the Effective Time, any such further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of Globe and Acquisition,
the officers and directors of Globe and Acquisition immediately prior to the
Effective Time are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action.
[Signature Page Follows]
3
<PAGE> 116
IN WITNESS WHEREOF, each of Globe and Acquisition has caused this
Agreement of Merger to be executed on its behalf by its officers hereunto duly
authorized, all as of the date first written above.
GLOBE BUSINESS RESOURCES, INC.,
an Ohio corporation
By:________________________________
Name:______________________________
Title:_____________________________
ACQUISITION, an Ohio corporation
By:________________________________
Name:______________________________
Title:_____________________________
4
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Appendix C
STOCKHOLDER VOTING AGREEMENT
THIS STOCKHOLDER VOTING AGREEMENT (the "Agreement") dated as of January
13, 2000 between ERP OPERATING LIMITED PARTNERSHIP, an Illinois limited
partnership ("ERP"), and the undersigned holder of shares of common stock, no
par value (the "Common Stock"), of GLOBE BUSINESS RESOURCES, INC., an Ohio
corporation (the "Company") for and on behalf of itself and each of its
affiliates which is a holder of Common Stock (the undersigned holder, the
"Stockholder" and, where the content requires, all such holders, the
"Stockholders" or each a "Stockholder").
WHEREAS, ERP, Globe Holding Co., Inc., a Delaware corporation
("Newco"), and the Company propose to enter into an Agreement and Plan of Merger
dated as of the date hereof (as the same may be amended or supplemented, the
"Agreement and Plan of Merger"; capitalized terms used but not defined herein
shall have the meanings set forth in the Agreement and Plan of Merger) providing
for the merger of Acquisition, an Ohio corporation to be formed, with and into
the Company (the "Merger"), upon the terms and subject to the conditions set
forth in the Agreement and Plan of Merger;
WHEREAS, the Stockholder owns the number of shares of Common Stock set
forth below his name on the signature page of this Agreement (such shares of
Common Stock, the "Existing Shares" and, together with any other shares of
capital stock of the Company acquired by such Stockholder after the date hereof
and during the term of this Agreement, being collectively referred to herein as
the "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Agreement
and Plan of Merger, ERP has requested that Stockholder enter into this
Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. Stockholder
hereby represents and warrants to ERP as of the date hereof as follows:
(a) Stockholder has all requisite legal capacity, power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Stockholder and constitutes a
valid and binding obligation of the Stockholder enforceable in
accordance with its terms. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, or result
in any breach or violation of, or default (with or without notice or
lapse of time or both) under any provision of, any agreement to which
any Stockholder is a party. Except as
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contemplated by that certain Formation and Investment Agreement dated
as of the date hereof (the "Formation Agreement"), the Existing Shares
are not subject to any lien, pledge or encumbrance of any kind except
for any encumbrances under the terms of the Stockholder's margin
account in which the Existing Shares are held, but with respect to such
margin account, only for the period permitted by, and subject to the
provisions of, the Formation Agreement.
(b) Each Stockholder is the record holder or beneficial owner
of the number of Existing Shares as is set forth on the signature page
hereto. On the date hereof, the Existing Shares set forth on the
signature page hereto constitute all of the outstanding shares of
Common Stock owned of record or beneficially by such Stockholder.
Stockholder does not have record or beneficial ownership of any shares
of Common Stock not set forth on the signature page hereto. Each
Stockholder has sole power of disposition with respect to all of the
Existing Shares set forth on the signature page hereto and sole voting
power with respect to the matters set forth in Section 3 hereof and
sole power to demand dissenter's or appraisal rights, in each case with
respect to all of the Existing Shares set forth on the signature page
hereto, with no restrictions on such rights, subject to the terms of
this Agreement.
(c) Each Stockholder's Existing Shares and the certificates
representing such shares and the Subject Shares and the certificates
representing such shares when acquired are now and at all times during
the term hereof will be held by such Stockholder, or by a nominee or
custodian for the benefit of such Stockholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising
hereunder or under the terms of the Stockholder's margin account in
which the Existing Shares are held, but with respect to such margin
account, only for the period permitted by, and subject to the
provisions of, the Formation Agreement.
(d) The Stockholder is a bona fide resident of the State set
forth below Stockholder's name on the signature page hereto.
2. REPRESENTATIONS AND WARRANTIES OF ERP. ERP hereby represents and
warrants to the Stockholder that ERP has all requisite limited partnership power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the general
partner of ERP, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary limited partnership action on the
part of ERP. This Agreement has been duly executed and delivered by the general
partner of ERP and constitutes a valid and binding obligation of ERP enforceable
in accordance with its terms.
3. COVENANTS OF STOCKHOLDER. From and after the date hereof and until
the termination of this Agreement in accordance with Section 7, Stockholder
agrees as follows:
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(a) At any meeting of stockholders of the Company called to
vote upon the Merger or the Agreement and Plan of Merger or any
adjournment thereof or in any other circumstances upon which a vote,
consent or other approval with respect to the Merger or the
transactions contemplated by the Agreement and Plan of Merger is
sought, each Stockholder shall vote (or cause to be voted) all of the
Subject Shares in favor of the Merger, the adoption by the Company of
the Agreement and Plan of Merger and the approval of the terms thereof
and the transaction contemplated thereby.
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's vote, consent or other approval is sought, each
Stockholder shall vote (or cause to be voted) all of the Subject Shares
against (i) any merger agreement or merger (other than the Agreement
and Plan of Merger and the Merger), consolidation, combination, sale of
assets, reorganization, recapitalization, dissolution, liquidation or
winding-up of or by the Company or any other takeover proposal
(collectively, "Takeover Proposal"), (ii) any action or agreement that
would result in a breach of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Agreement
and Plan of Merger or this Agreement or (iii) (x) any material
amendment of the Company's articles of incorporation or code of
regulations, (y) any change in a majority of the persons who constitute
the Board of Directors of the Company or (z) any other proposal or
transaction involving the Company, which is intended by any Stockholder
to, or which ERP notifies any Stockholder that ERP reasonably believes
will, impede, frustrate, prevent, delay or nullify (A) the ability of
the Company to consummate the Merger or (B) any of the transactions
contemplated by this Agreement or the Agreement and Plan of Merger.
(c) Except as contemplated by the Formation Agreement,
Stockholder agrees not to (i) offer to sell, sell, transfer, encumber,
pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or enter into any contract, option or other
arrangement with respect to or consent to the Transfer of, the Subject
Shares or any interest therein to any person other than pursuant to the
terms of the Merger, (ii) except as contemplated hereby, grant any
proxies or powers of attorney with respect to the Subject Shares,
deposit any Subject Shares into a voting trust or enter into any voting
arrangement with respect to the Subject Shares, or any interest in the
foregoing, except with ERP, (iii) take any action that would make any
representation or warranty of such Stockholder contained herein untrue
or incorrect to have the effect of preventing or disabling the
Stockholder from performing any of its obligations under this Agreement
or (iv) commit or agree to take any of the foregoing actions.
(d) Stockholder hereby irrevocably waives and agrees not to
exercise any rights of appraisal or rights to dissent from the Merger
that the Stockholder may have.
3
<PAGE> 120
(e) Stockholder agrees with, and covenants to, ERP that the
Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Subject Shares, unless such transfer is made in
compliance with this Agreement.
(f) Stockholder will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to the sale, voting or
other disposition of the Existing Shares or a business combination
transaction involving the Company. Stockholder shall not directly or
indirectly, through any employee of the Company, representative, agent
or other person, solicit or encourage the initiation or submission of
any direct or indirect inquiries, proposals or offers regarding any
acquisition, merger, takeover bid or sale of all or any of the assets
or any shares of capital stock of the Company, whether or not in
writing and whether or not delivered to the Company or to the
stockholders of the Company generally (including, without limitation,
by way of a tender offer) by any party other than ERP or its affiliates
(any such inquiry, proposal or offer being referred to herein as an
"Acquisition Proposal"); provided, however, that nothing contained in
this Agreement shall prevent any Stockholder from considering or
negotiating, solely in his capacity as a director of the Company, an
unsolicited, bona fide Acquisition Proposal in accordance with Section
5.1 of the Agreement and Plan of Merger. Stockholder will immediately
notify ERP, orally and in writing, of any direct or indirect contact
related in any way to an Acquisition Proposal, including the identity
of the person involved in such contact, or on whose behalf such contact
is made, and the terms and conditions of any Acquisition Proposal made.
(g) THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS ERP AND ANY
DESIGNEE OF ERP, AND EACH OF THEM INDIVIDUALLY, STOCKHOLDER'S
IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) PROXY AND
ATTORNEY-IN-FACT WITH FULL POWER OF SUBSTITUTION TO VOTE THE SUBJECT
SHARES OF STOCKHOLDER AS INDICATED IN SECTION 3(A) AND 3(B) ABOVE. THE
STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION
OF THIS AGREEMENT) AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH
FURTHER ACTION TO REVOKE AND HEREBY REVOKES ANY PROXY PREVIOUSLY
GRANTED BY STOCKHOLDER WITH RESPECT TO SUCH STOCK HOLDER'S SUBJECT
SHARES.
4. FORMATION AGREEMENT. Notwithstanding anything herein to the
contrary, the Stockholder's execution of the Formation Agreement shall not be
deemed to be a violation or breach of this Agreement in any manner.
5. FURTHER ASSURANCES. The Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
consents, documents and other
4
<PAGE> 121
instruments as ERP may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement.
6. ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties without the
prior written consent of the other parties. This Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successor and assigns.
7. TERMINATION. This Agreement shall terminate, and no party shall have
any rights or obligations hereunder and this Agreement shall become null and
void and have no further effect upon the Effective Time or sooner termination of
the Agreement and Plan of Merger pursuant to Section 8.1 thereof, and the
payment, if required, by the Company to ERP of the Break-Up Fee or the ERP
Liquidated Damages Amount. Nothing in this Section 7 shall relieve any party of
liability for breach of this Agreement.
8. COSTS AND EXPENSES. All costs and expenses incurred in connection
with this Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such expenses.
9. GENERAL PROVISIONS.
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) NOTICE. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally
or sent by overnight courier (providing proof of delivery) to ERP in
accordance with Section 9.2 of the Agreement and Plan of Merger and to
Stockholder at its address set forth on the signature page of this
Agreement (or at such other address for a party as shall be specified
by like notice).
(c) INTERPRETATION. When a reference is made in this Agreement
to Sections, such reference shall be to a Section to this Agreement
unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(d) SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to
any party. Upon such determination that any
5
<PAGE> 122
term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby may be consummated as originally
contemplated to the fullest extent possible.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
counterparts have been signed by each of the parties and delivered to
the one party, it being understood that each party need not sign the
same counterpart.
(f) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein)
(i) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (ii) is not intended to
confer upon any Person other than the parties hereto any rights or
remedies hereunder.
(g) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Ohio regardless
of the laws that might otherwise govern under applicable principles of
conflicts of law thereof.
10. ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Ohio or in an Ohio state court, this being in addition
to any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (i) consents to submit such party to the personal
jurisdiction of any Federal court located in the State of Ohio or any Ohio state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) agrees that such party will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court; (iii) agrees that such party will not bring any
action relating to this Agreement or the transactions contemplated hereby in any
court other than a Federal court sitting in the State of Ohio or an Ohio state
court and (iv) waives any right to trial by jury with respect to any claim or
proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
6
<PAGE> 123
11. JOINDER. If the Stockholder resides in a community property state,
the Stockholder has delivered to ERP a spousal joinder or consent in the form
heretofore provided by ERP.
(signature page follows)
7
<PAGE> 124
IN WITNESS WHEREOF, ERP has caused this Agreement to be signed by its
general partner and Stockholder has signed this Agreement, all as of the date
first written above.
ERP OPERATING LIMITED
PARTNERSHIP
By: Equity Residential Properties Trust, its
general partner
By: /s/ Bruce C. Strohm
-------------------------------------
Name: Bruce C. Strohm
-----------------------------------
Title: Executive Vice President
----------------------------------
STOCKHOLDER
By: /s/ David D. Hoguet
-----------------------------------------
Name: David D. Hoguet
Address: 11260 Chester Road
Suite 400
Cincinnati, Ohio 45246
By: /s/ David D. Hoguet
-----------------------------------------
Name: David D. Hoguet, as custodian
for Jennifer L. Hoguet
Address: 11260 Chester Road
Suite 400
Cincinnati, Ohio 45246
By: /s/ David D. Hoguet
-----------------------------------------
Name: David D. Hoguet, as custodian
for Laura B. Hoguet
Address: 11260 Chester Road
Suite 400
Cincinnati, Ohio 45246
Aggregate Number of Existing Shares: 772,630
8
<PAGE> 125
JOINDER OF SPOUSE
I, Elizabeth P. Neller, spouse of Blair D. Neller, acknowledge that I
have read the Stockholder Voting Agreement and the Formation and Investment
Agreement, each dated as of January 13, 2000 both of which this Joinder is
attached as an addendum (each an "Agreement," and together the "Agreements") and
that I know the contents thereof. All capitalized terms not defined herein shall
have the meanings set forth in the Agreements.
I am aware that by the provisions of the Stockholder Voting Agreement
(a) my spouse is required to vote his Subject Shares in favor of the Merger, the
adoption by the Company of the Agreement and Plan of Merger and the approval of
the terms thereof and the transactions thereby; (b) certain other restrictions
are imposed upon the sale, transfer or other disposition of the Subject Shares;
(c) my spouse irrevocably waives and agrees not to exercise any rights of
appraisal or rights to dissent from the Merger that my spouse may have; (d) my
spouse must terminate any activities, negotiations or discussions with any
parties heretofore conducted with respect to the sale, voting or other
disposition of the Existing Shares or a business combination transaction
involving the Company; and (e) my spouse granted and appointed ERP and any
designee of ERP, his irrevocable (until termination of the Agreement) proxy and
attorney-in-fact to vote his Subject Shares.
I am aware that by the provisions of the Formation and Investment
Agreement (a) my spouse has agreed, subject to certain conditions, to contribute
certain of his shares of GBR Common Stock to Newco; (b) the shares of Class B
Common Stock that he would receive in exchange therefor will be subject to
certain restrictions on transfer (whether voluntary or involuntary) as set forth
in the Stockholders Agreement; (c) my spouses' shares of Class B Common Stock
are subject to certain buy-back provisions whereby ERP or an affiliate of ERP or
others may buy-back his shares of Class B Common Stock; (d) my spouses' shares
of Class B Common Stock will be subject to certain "drag-along" rights; (e) my
spouse will deposit certain shares of his GBR Common Stock into an escrow
account; and (f) if my spouse is terminated by the Company for any reason
(whether by death, disability, termination or otherwise), ERP may be entitled to
purchase his shares of Class B Common Stock at pre-determined valuation
I hereby agree that my interest, if any, in the Existing Shares subject
to the Stockholder Voting Agreement and the Formation and Investment Agreement
shall be irrevocably bound by the Agreement. I understand that the execution of
this Joinder of Spouse shall not create any right or interest in any of the
shares of stock described herein.
I am aware that the legal and related matters contained in the
Agreements are complex and that I am free to seek independent professional
guidance or counsel with respect to this Joinder. I have either sought such
guidance or counsel or determined after reviewing the Agreements carefully that
I will waive such right.
[signature page follows]
9
<PAGE> 126
Dated as of the 13th day of January, 2000.
By: /s/ Elizabeth P Neller
-----------------------------
Elizabeth P. Neller
10
<PAGE> 127
STOCKHOLDER VOTING AGREEMENT
THIS STOCKHOLDER VOTING AGREEMENT (the "Agreement") dated as of January
13, 2000 between ERP OPERATING LIMITED PARTNERSHIP, an Illinois limited
partnership ("ERP"), and the undersigned holder of shares of common stock, no
par value (the "Common Stock"), of GLOBE BUSINESS RESOURCES, INC., an Ohio
corporation (the "Company") for and on behalf of itself and each of its
affiliates which is a holder of Common Stock (the undersigned holder, the
"Stockholder" and, where the content requires, all such holders, the
"Stockholders" or each a "Stockholder").
WHEREAS, ERP, Globe Holding Co., Inc., a Delaware corporation
("Newco"), and the Company propose to enter into an Agreement and Plan of Merger
dated as of the date hereof (as the same may be amended or supplemented, the
"Agreement and Plan of Merger"; capitalized terms used but not defined herein
shall have the meanings set forth in the Agreement and Plan of Merger) providing
for the merger of Acquisition, an Ohio corporation to be formed, with and into
the Company (the "Merger"), upon the terms and subject to the conditions set
forth in the Agreement and Plan of Merger;
WHEREAS, the Stockholder owns the number of shares of Common Stock set
forth below his name on the signature page of this Agreement (such shares of
Common Stock, the "Existing Shares" and, together with any other shares of
capital stock of the Company acquired by such Stockholder after the date hereof
and during the term of this Agreement, being collectively referred to herein as
the "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Agreement
and Plan of Merger, ERP has requested that Stockholder enter into this
Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. Stockholder
hereby represents and warrants to ERP as of the date hereof as follows:
(a) Stockholder has all requisite legal capacity, power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Stockholder and constitutes a
valid and binding obligation of the Stockholder enforceable in
accordance with its terms. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, or result
in any breach or violation of, or default (with or without notice or
lapse of time or both) under any provision of, any agreement to which
any Stockholder is a party. Except as
11
<PAGE> 128
contemplated by that certain Formation and Investment Agreement dated
as of the date hereof (the "Formation Agreement"), the Existing Shares
are not subject to any lien, pledge or encumbrance of any kind except
for any encumbrances under the terms of the Stockholder's margin
account in which the Existing Shares are held, but with respect to such
margin account, only for the period permitted by, and subject to the
provisions of, the Formation Agreement.
(b) Each Stockholder is the record holder or beneficial owner
of the number of Existing Shares as is set forth on the signature page
hereto. On the date hereof, the Existing Shares set forth on the
signature page hereto constitute all of the outstanding shares of
Common Stock owned of record or beneficially by such Stockholder.
Stockholder does not have record or beneficial ownership of any shares
of Common Stock not set forth on the signature page hereto. Each
Stockholder has sole power of disposition with respect to all of the
Existing Shares set forth on the signature page hereto and sole voting
power with respect to the matters set forth in Section 3 hereof and
sole power to demand dissenter's or appraisal rights, in each case with
respect to all of the Existing Shares set forth on the signature page
hereto, with no restrictions on such rights, subject to the terms of
this Agreement.
(c) Each Stockholder's Existing Shares and the certificates
representing such shares and the Subject Shares and the certificates
representing such shares when acquired are now and at all times during
the term hereof will be held by such Stockholder, or by a nominee or
custodian for the benefit of such Stockholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising
hereunder or under the terms of the Stockholder's margin account in
which the Existing Shares are held, but with respect to such margin
account, only for the period permitted by, and subject to the
provisions of, the Formation Agreement.
(d) The Stockholder is a bona fide resident of the State set
forth below Stockholder's name on the signature page hereto.
2. REPRESENTATIONS AND WARRANTIES OF ERP. ERP hereby represents and
warrants to the Stockholder that ERP has all requisite limited partnership power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the general
partner of ERP, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary limited partnership action on the
part of ERP. This Agreement has been duly executed and delivered by the general
partner of ERP and constitutes a valid and binding obligation of ERP enforceable
in accordance with its terms.
3. COVENANTS OF STOCKHOLDER. From and after the date hereof and until
the termination of this Agreement in accordance with Section 7, Stockholder
agrees as follows:
12
<PAGE> 129
(a) At any meeting of stockholders of the Company called to
vote upon the Merger or the Agreement and Plan of Merger or any
adjournment thereof or in any other circumstances upon which a vote,
consent or other approval with respect to the Merger or the
transactions contemplated by the Agreement and Plan of Merger is
sought, each Stockholder shall vote (or cause to be voted) all of the
Subject Shares in favor of the Merger, the adoption by the Company of
the Agreement and Plan of Merger and the approval of the terms thereof
and the transaction contemplated thereby.
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's vote, consent or other approval is sought, each
Stockholder shall vote (or cause to be voted) all of the Subject Shares
against (i) any merger agreement or merger (other than the Agreement
and Plan of Merger and the Merger), consolidation, combination, sale of
assets, reorganization, recapitalization, dissolution, liquidation or
winding-up of or by the Company or any other takeover proposal
(collectively, "Takeover Proposal"), (ii) any action or agreement that
would result in a breach of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Agreement
and Plan of Merger or this Agreement or (iii) (x) any material
amendment of the Company's articles of incorporation or code of
regulations, (y) any change in a majority of the persons who constitute
the Board of Directors of the Company or (z) any other proposal or
transaction involving the Company, which is intended by any Stockholder
to, or which ERP notifies any Stockholder that ERP reasonably believes
will, impede, frustrate, prevent, delay or nullify (A) the ability of
the Company to consummate the Merger or (B) any of the transactions
contemplated by this Agreement or the Agreement and Plan of Merger.
(c) Except as contemplated by the Formation Agreement,
Stockholder agrees not to (i) offer to sell, sell, transfer, encumber,
pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or enter into any contract, option or other
arrangement with respect to or consent to the Transfer of, the Subject
Shares or any interest therein to any person other than pursuant to the
terms of the Merger, (ii) except as contemplated hereby, grant any
proxies or powers of attorney with respect to the Subject Shares,
deposit any Subject Shares into a voting trust or enter into any voting
arrangement with respect to the Subject Shares, or any interest in the
foregoing, except with ERP, (iii) take any action that would make any
representation or warranty of such Stockholder contained herein untrue
or incorrect to have the effect of preventing or disabling the
Stockholder from performing any of its obligations under this Agreement
or (iv) commit or agree to take any of the foregoing actions.
(d) Stockholder hereby irrevocably waives and agrees not to
exercise any rights of appraisal or rights to dissent from the Merger
that the Stockholder may have.
13
<PAGE> 130
(e) Stockholder agrees with, and covenants to, ERP that the
Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Subject Shares, unless such transfer is made in
compliance with this Agreement.
(f) Stockholder will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to the sale, voting or
other disposition of the Existing Shares or a business combination
transaction involving the Company. Stockholder shall not directly or
indirectly, through any employee of the Company, representative, agent
or other person, solicit or encourage the initiation or submission of
any direct or indirect inquiries, proposals or offers regarding any
acquisition, merger, takeover bid or sale of all or any of the assets
or any shares of capital stock of the Company, whether or not in
writing and whether or not delivered to the Company or to the
stockholders of the Company generally (including, without limitation,
by way of a tender offer) by any party other than ERP or its affiliates
(any such inquiry, proposal or offer being referred to herein as an
"Acquisition Proposal"); provided, however, that nothing contained in
this Agreement shall prevent any Stockholder from considering or
negotiating, solely in his capacity as a director of the Company, an
unsolicited, bona fide Acquisition Proposal in accordance with Section
5.1 of the Agreement and Plan of Merger. Stockholder will immediately
notify ERP, orally and in writing, of any direct or indirect contact
related in any way to an Acquisition Proposal, including the identity
of the person involved in such contact, or on whose behalf such contact
is made, and the terms and conditions of any Acquisition Proposal made.
(g) THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS ERP AND ANY
DESIGNEE OF ERP, AND EACH OF THEM INDIVIDUALLY, STOCKHOLDER'S
IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) PROXY AND
ATTORNEY-IN-FACT WITH FULL POWER OF SUBSTITUTION TO VOTE THE SUBJECT
SHARES OF STOCKHOLDER AS INDICATED IN SECTION 3(A) AND 3(B) ABOVE. THE
STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION
OF THIS AGREEMENT) AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH
FURTHER ACTION TO REVOKE AND HEREBY REVOKES ANY PROXY PREVIOUSLY
GRANTED BY STOCKHOLDER WITH RESPECT TO SUCH STOCK HOLDER'S SUBJECT
SHARES.
4. FORMATION AGREEMENT. Notwithstanding anything herein to the
contrary, the Stockholder's execution of the Formation Agreement shall not be
deemed to be a violation or breach of this Agreement in any manner.
5. FURTHER ASSURANCES. The Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
consents, documents and other
14
<PAGE> 131
instruments as ERP may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement.
6. ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties without the
prior written consent of the other parties. This Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successor and assigns.
7. TERMINATION. This Agreement shall terminate, and no party shall have
any rights or obligations hereunder and this Agreement shall become null and
void and have no further effect upon the Effective Time or sooner termination of
the Agreement and Plan of Merger pursuant to Section 8.1 thereof, and the
payment, if required, by the Company to ERP of the Break-Up Fee or the ERP
Liquidated Damages Amount. Nothing in this Section 7 shall relieve any party of
liability for breach of this Agreement.
8. COSTS AND EXPENSES. All costs and expenses incurred in connection
with this Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such expenses.
9. GENERAL PROVISIONS.
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) NOTICE. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally
or sent by overnight courier (providing proof of delivery) to ERP in
accordance with Section 9.2 of the Agreement and Plan of Merger and to
Stockholder at its address set forth on the signature page of this
Agreement (or at such other address for a party as shall be specified
by like notice).
(c) INTERPRETATION. When a reference is made in this Agreement
to Sections, such reference shall be to a Section to this Agreement
unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(d) SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to
any party. Upon such determination that any
15
<PAGE> 132
term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby may be consummated as originally
contemplated to the fullest extent possible.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
counterparts have been signed by each of the parties and delivered to
the one party, it being understood that each party need not sign the
same counterpart.
(f) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein)
(i) constitutes the entire agree ment and supersedes all prior
agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (ii) is not intended to
confer upon any Person other than the parties hereto any rights or
remedies hereunder.
(g) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Ohio regardless
of the laws that might otherwise govern under applicable principles of
conflicts of law thereof.
10. ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Ohio or in an Ohio state court, this being in addition
to any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (i) consents to submit such party to the personal
jurisdiction of any Federal court located in the State of Ohio or any Ohio state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) agrees that such party will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court; (iii) agrees that such party will not bring any
action relating to this Agreement or the transactions contemplated hereby in any
court other than a Federal court sitting in the State of Ohio or an Ohio state
court and (iv) waives any right to trial by jury with respect to any claim or
proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
16
<PAGE> 133
11. JOINDER. If the Stockholder resides in a community property state,
the Stockholder has delivered to ERP a spousal joinder or consent in the form
heretofore provided by ERP.
(signature page follows)
17
<PAGE> 134
IN WITNESS WHEREOF, ERP has caused this Agreement to be signed by its
general partner and Stockholder has signed this Agreement, all as of the date
first written above.
ERP OPERATING LIMITED
PARTNERSHIP
By: Equity Residential Properties Trust, its
general partner
By: /s/ Bruce C. Strohm
-------------------------------------
Name: Bruce C. Strohm
-----------------------------------
Title: Executive Vice President
----------------------------------
STOCKHOLDER
By: /s/ Blair D. Neller
-----------------------------------------
Name: Blair D. Neller
Address: 340 E. Palm Lane
Suite 230
Phoenix, Arizona 85004
By: /s/ Blair D. Neller
-----------------------------------------
Name: Blair D. Neller, Trustee for the
Neller Trust
Address: 340 E. Palm Lane
Suite 230
Phoenix, Arizona 85004
Number of Existing Shares: 705,709
18
<PAGE> 135
STOCKHOLDER VOTING AGREEMENT
THIS STOCKHOLDER VOTING AGREEMENT (the "Agreement") dated as of January
13, 2000 between ERP OPERATING LIMITED PARTNERSHIP, an Illinois limited
partnership ("ERP"), and the undersigned holder of shares of common stock, no
par value (the "Common Stock"), of GLOBE BUSINESS RESOURCES, INC., an Ohio
corporation (the "Company") for and on behalf of itself and each of its
affiliates which is a holder of Common Stock (the undersigned holder, the
"Stockholder" and, where the content requires, all such holders, the
"Stockholders" or each a "Stockholder").
WHEREAS, ERP, Globe Holding Co., Inc., a Delaware corporation
("Newco"), and the Company propose to enter into an Agreement and Plan of Merger
dated as of the date hereof (as the same may be amended or supplemented, the
"Agreement and Plan of Merger"; capitalized terms used but not defined herein
shall have the meanings set forth in the Agreement and Plan of Merger) providing
for the merger of Acquisition, an Ohio corporation to be formed, with and into
the Company (the "Merger"), upon the terms and subject to the conditions set
forth in the Agreement and Plan of Merger;
WHEREAS, the Stockholder owns the number of shares of Common Stock set
forth below his name on the signature page of this Agreement (such shares of
Common Stock, the "Existing Shares" and, together with any other shares of
capital stock of the Company acquired by such Stockholder after the date hereof
and during the term of this Agreement, being collectively referred to herein as
the "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Agreement
and Plan of Merger, ERP has requested that Stockholder enter into this
Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. Stockholder
hereby represents and warrants to ERP as of the date hereof as follows:
(a) Stockholder has all requisite legal capacity, power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Stockholder and constitutes a
valid and binding obligation of the Stockholder enforceable in
accordance with its terms. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof will not, conflict with, or result
in any breach or violation of, or default (with or without notice or
lapse of time or both) under any provision of, any agreement to which
any Stockholder is a party. Except as
19
<PAGE> 136
contemplated by that certain Formation and Investment Agreement dated
as of the date hereof (the "Formation Agreement"), the Existing Shares
are not subject to any lien, pledge or encumbrance of any kind except
for any encumbrances under the terms of the Stockholder's margin
account in which the Existing Shares are held, but with respect to such
margin account, only for the period permitted by, and subject to the
provisions of, the Formation Agreement.
(b) Each Stockholder is the record holder or beneficial owner
of the number of Existing Shares as is set forth on the signature page
hereto. On the date hereof, the Existing Shares set forth on the
signature page hereto constitute all of the outstanding shares of
Common Stock owned of record or beneficially by such Stockholder.
Stockholder does not have record or beneficial ownership of any shares
of Common Stock not set forth on the signature page hereto. Each
Stockholder has sole power of disposition with respect to all of the
Existing Shares set forth on the signature page hereto and sole voting
power with respect to the matters set forth in Section 3 hereof and
sole power to demand dissenter's or appraisal rights, in each case with
respect to all of the Existing Shares set forth on the signature page
hereto, with no restrictions on such rights, subject to the terms of
this Agreement.
(c) Each Stockholder's Existing Shares and the certificates
representing such shares and the Subject Shares and the certificates
representing such shares when acquired are now and at all times during
the term hereof will be held by such Stockholder, or by a nominee or
custodian for the benefit of such Stockholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising
hereunder or under the terms of the Stockholder's margin account in
which the Existing Shares are held, but with respect to such margin
account, only for the period permitted by, and subject to the
provisions of, the Formation Agreement.
(d) The Stockholder is a bona fide resident of the State set
forth below Stockholder's name on the signature page hereto.
2. REPRESENTATIONS AND WARRANTIES OF ERP. ERP hereby represents and
warrants to the Stockholder that ERP has all requisite limited partnership power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the general
partner of ERP, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary limited partnership action on the
part of ERP. This Agreement has been duly executed and delivered by the general
partner of ERP and constitutes a valid and binding obligation of ERP enforceable
in accordance with its terms.
3. COVENANTS OF STOCKHOLDER. From and after the date hereof and until
the termination of this Agreement in accordance with Section 7, Stockholder
agrees as follows:
20
<PAGE> 137
(a) At any meeting of stockholders of the Company called to
vote upon the Merger or the Agreement and Plan of Merger or any
adjournment thereof or in any other circumstances upon which a vote,
consent or other approval with respect to the Merger or the
transactions contemplated by the Agreement and Plan of Merger is
sought, each Stockholder shall vote (or cause to be voted) all of the
Subject Shares in favor of the Merger, the adoption by the Company of
the Agreement and Plan of Merger and the approval of the terms thereof
and the transaction contemplated thereby.
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's vote, consent or other approval is sought, each
Stockholder shall vote (or cause to be voted) all of the Subject Shares
against (i) any merger agreement or merger (other than the Agreement
and Plan of Merger and the Merger), consolidation, combination, sale of
assets, reorganization, recapitalization, dissolution, liquidation or
winding-up of or by the Company or any other takeover proposal
(collectively, "Takeover Proposal"), (ii) any action or agreement that
would result in a breach of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Agreement
and Plan of Merger or this Agreement or (iii) (x) any material
amendment of the Company's articles of incorporation or code of
regulations, (y) any change in a majority of the persons who constitute
the Board of Directors of the Company or (z) any other proposal or
transaction involving the Company, which is intended by any Stockholder
to, or which ERP notifies any Stockholder that ERP reasonably believes
will, impede, frustrate, prevent, delay or nullify (A) the ability of
the Company to consummate the Merger or (B) any of the transactions
contemplated by this Agreement or the Agreement and Plan of Merger.
(c) Except as contemplated by the Formation Agreement,
Stockholder agrees not to (i) offer to sell, sell, transfer, encumber,
pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or enter into any contract, option or other
arrangement with respect to or consent to the Transfer of, the Subject
Shares or any interest therein to any person other than pursuant to the
terms of the Merger, (ii) except as contemplated hereby, grant any
proxies or powers of attorney with respect to the Subject Shares,
deposit any Subject Shares into a voting trust or enter into any voting
arrangement with respect to the Subject Shares, or any interest in the
foregoing, except with ERP, (iii) take any action that would make any
representation or warranty of such Stockholder contained herein untrue
or incorrect to have the effect of preventing or disabling the
Stockholder from performing any of its obligations under this Agreement
or (iv) commit or agree to take any of the foregoing actions.
(d) Stockholder hereby irrevocably waives and agrees not to
exercise any rights of appraisal or rights to dissent from the Merger
that the Stockholder may have.
21
<PAGE> 138
(e) Stockholder agrees with, and covenants to, ERP that the
Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Subject Shares, unless such transfer is made in
compliance with this Agreement.
(f) Stockholder will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to the sale, voting or
other disposition of the Existing Shares or a business combination
transaction involving the Company. Stockholder shall not directly or
indirectly, through any employee of the Company, representative, agent
or other person, solicit or encourage the initiation or submission of
any direct or indirect inquiries, proposals or offers regarding any
acquisition, merger, takeover bid or sale of all or any of the assets
or any shares of capital stock of the Company, whether or not in
writing and whether or not delivered to the Company or to the
stockholders of the Company generally (including, without limitation,
by way of a tender offer) by any party other than ERP or its affiliates
(any such inquiry, proposal or offer being referred to herein as an
"Acquisition Proposal"); provided, however, that nothing contained in
this Agreement shall prevent any Stockholder from considering or
negotiating, solely in his capacity as a director of the Company, an
unsolicited, bona fide Acquisition Proposal in accordance with Section
5.1 of the Agreement and Plan of Merger. Stockholder will immediately
notify ERP, orally and in writing, of any direct or indirect contact
related in any way to an Acquisition Proposal, including the identity
of the person involved in such contact, or on whose behalf such contact
is made, and the terms and conditions of any Acquisition Proposal made.
(g) THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS ERP AND ANY
DESIGNEE OF ERP, AND EACH OF THEM INDIVIDUALLY, STOCKHOLDER'S
IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) PROXY AND
ATTORNEY-IN-FACT WITH FULL POWER OF SUBSTITUTION TO VOTE THE SUBJECT
SHARES OF STOCKHOLDER AS INDICATED IN SECTION 3(A) AND 3(B) ABOVE. THE
STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION
OF THIS AGREEMENT) AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH
FURTHER ACTION TO REVOKE AND HEREBY REVOKES ANY PROXY PREVIOUSLY
GRANTED BY STOCKHOLDER WITH RESPECT TO SUCH STOCK HOLDER'S SUBJECT
SHARES.
4. FORMATION AGREEMENT. Notwithstanding anything herein to the
contrary, the Stockholder's execution of the Formation Agreement shall not be
deemed to be a violation or breach of this Agreement in any manner.
5. FURTHER ASSURANCES. The Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
consents, documents and other
22
<PAGE> 139
instruments as ERP may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement.
6. ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties without the
prior written consent of the other parties. This Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successor and assigns.
7. TERMINATION. This Agreement shall terminate, and no party shall have
any rights or obligations hereunder and this Agreement shall become null and
void and have no further effect upon the Effective Time or sooner termination of
the Agreement and Plan of Merger pursuant to Section 8.1 thereof, and the
payment, if required, by the Company to ERP of the Break-Up Fee or the ERP
Liquidated Damages Amount. Nothing in this Section 7 shall relieve any party of
liability for breach of this Agreement.
8. COSTS AND EXPENSES. All costs and expenses incurred in connection
with this Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such expenses.
9. GENERAL PROVISIONS.
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) NOTICE. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally
or sent by overnight courier (providing proof of delivery) to ERP in
accordance with Section 9.2 of the Agreement and Plan of Merger and to
Stockholder at its address set forth on the signature page of this
Agreement (or at such other address for a party as shall be specified
by like notice).
(c) INTERPRETATION. When a reference is made in this Agreement
to Sections, such reference shall be to a Section to this Agreement
unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(d) SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to
any party. Upon such determination that any
23
<PAGE> 140
term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby may be consummated as originally
contemplated to the fullest extent possible.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
counterparts have been signed by each of the parties and delivered to
the one party, it being understood that each party need not sign the
same counterpart.
(f) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein)
(i) constitutes the entire agree ment and supersedes all prior
agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (ii) is not intended to
confer upon any Person other than the parties hereto any rights or
remedies hereunder.
(g) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Ohio regardless
of the laws that might otherwise govern under applicable principles of
conflicts of law thereof.
10. ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Ohio or in an Ohio state court, this being in addition
to any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (i) consents to submit such party to the personal
jurisdiction of any Federal court located in the State of Ohio or any Ohio state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) agrees that such party will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court; (iii) agrees that such party will not bring any
action relating to this Agreement or the transactions contemplated hereby in any
court other than a Federal court sitting in the State of Ohio or an Ohio state
court and (iv) waives any right to trial by jury with respect to any claim or
proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
24
<PAGE> 141
11. JOINDER. If the Stockholder resides in a community property state,
the Stockholder has delivered to ERP a spousal joinder or consent in the form
heretofore provided by ERP.
(signature page follows)
25
<PAGE> 142
IN WITNESS WHEREOF, ERP has caused this Agreement to be signed by its
general partner and Stockholder has signed this Agreement, all as of the date
first written above.
ERP OPERATING LIMITED
PARTNERSHIP
By: Equity Residential Properties
Trust, its general partner
By: /s/ Bruce C. Strohm
-------------------------------
Name: Bruce C. Strohm
-----------------------------
Title: Executive Vice President
----------------------------
STOCKHOLDER
By: /s/ Alvin Z. Meisel
-------------------------------------
Name: Alvin Z. Meisel
Address: 1650 Central Parkway
Cincinnati, Ohio 45210
Number of Existing Shares: 381,428
26
<PAGE> 143
OH ST Section 1701.85, QUALIFICATIONS OF AND PROCEDURES
FOR DISSENTING SHAREHOLDERS
APPENDIX D
----------
R.C. Section 1701.85
BALDWIN'S OHIO REVISED CODE
ANNOTATED TITLE XVII.
CORPORATIONS-PARTNERSHIPS
CHAPTER 1701. GENERAL
CORPORATION LAW MERGER AND
CONSOLIDATION
Current through 1999 Portion of 123rd G.A.,
Files 1 and 2, apv. 3/31/1999
1701.85 QUALIFICATIONS OF AND
PROCEDURES FOR DISSENTING
SHAREHOLDERS
(A)(1) A shareholder of a domestic corporation is entitled to relief as
a dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constituents service on the surviving or the
new entity, whether the demand is served before, on, or after the effective date
of the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such
1
<PAGE> 144
OH ST Section 1701.85, QUALIFICATIONS OF AND PROCEDURES
FOR DISSENTING SHAREHOLDERS
endorsed certificates to the dissenting shareholder. A dissenting shareholder's
failure to deliver such certificates terminates his rights as a dissenting
shareholder, at the option of the corporation, exercised by written notice sent
to the dissenting shareholder within twenty days after the lapse of the fifteen
day period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for
payment of the fair cash value of the shares. A request under this paragraph by
the corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is
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<PAGE> 145
OH ST Section 1701.85, QUALIFICATIONS OF AND PROCEDURES
FOR DISSENTING SHAREHOLDERS
specified in the order of their appointment. The court thereupon shall make a
finding as to the fair cash value of a share and shall render judgement against
the corporation for the payment of it, with interest at such rate and from such
date as the court considers equitable. The costs of the proceeding, including
reasonable compensation to the appraisers to be fixed by the court, shall be
assessed or apportioned as the court considers equitable. The proceeding is a
special proceeding and final orders in it may be vacated, modified, or reversed
on appeal pursuant to the Rules of Appellate Procedure and, to the extent not in
conflict with those rules, Chapter 2505. of the Revised Code. If, during the
pendency of any proceeding instituted under this section, a suit or proceeding
is or has been instituted to enjoin or otherwise to prevent the carrying out of
the action as to which the shareholder has dissented, the proceeding instituted
under this section shall be stayed until the final determination of the other
suit or proceeding. Unless any provision in division (D) of this section is
applicable, the fair cash value of the shares that is agreed upon by the parties
or fixed under this section shall be paid within thirty days after the date of
final determination of such value under this division, the effective date of the
amendment to the articles, or the consummation of the other action involved,
whichever occurs last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates, payment
shall be made only upon and simultaneously with the surrender to the corporation
of the certificates representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined
or
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<PAGE> 146
OH ST Section 1701.85, QUALIFICATIONS OF AND PROCEDURES
FOR DISSENTING SHAREHOLDERS
prevented from carrying it out, or the shareholders rescind their adoption of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
4
<PAGE> 147
Appendix E
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended February 28, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 0-27682
GLOBE BUSINESS RESOURCES, INC.
Incorporated under the IRS Employer
laws of Ohio Identification No. 31-1256641
11260 Chester Road
Suite 400
Cincinnati, Ohio 45246
Phone: (513) 771-8287
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
-------------------
Common Stock, no par value
------------------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and need not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 26, 1999, 4,797,489 shares of the Registrant's common
stock, no par value, were outstanding. The aggregate market value of Common
Stock held by non-affiliates of the Registrant at April 26, 1999, was
approximately $37.6 million computed at the closing price of $13.125 per share
on that date.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference in Part III.
- --------------------------------------------------------------------------------
<PAGE> 148
GLOBE BUSINESS RESOURCES, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
Page
----
Part I
- ------
<S> <C> <C>
Item 1 - Business 1
Item 2 - Properties 8
Item 3 - Legal Proceedings 8
Item 4 - Submission of Matters to a Vote of Security Holders 8
Executive Officers of the Registrant 9
Part II
- -------
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters 11
Item 6 - Selected Financial Data 12
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 7(a) - Quantitative and Qualitative Disclosures about Market Risk 22
Item 8 - Financial Statements and Supplementary Data 23
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23
Part III
- --------
Item 10 - Directors and Executive Officers of the Registrant 23
Item 11 - Executive Compensation 23
Item 12 - Security Ownership of Certain Beneficial Owners and Management 23
Item 13 - Certain Relationships and Related Transactions 23
Part IV
- -------
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K S-1
</TABLE>
<PAGE> 149
PART I
ITEM 1
BUSINESS
--------
INDUSTRY BACKGROUND
Globe Business Resources, Inc. is a major participant in the temporary
relocation industry, serving primarily corporate customers in both the corporate
housing and furniture rental businesses.
The furniture rental business serves both corporate and individual
customers who generally have immediate, temporary needs for office or
residential furniture but who typically do not seek ownership. Office furniture
customers range from large corporations who desire flexibility to meet their
temporary and transitional needs, to small businesses and professionals who need
office furniture but seek to conserve capital. Residential furniture customers
include institutional customers (consisting of apartment property management
companies and corporate housing specialists that provide short-term leased
housing to relocated, transferred and temporary personnel) and individual
customers.
The "rent-to-rent" segment of the furniture rental business, in which
Globe participates, is differentiated from the "rent-to-own" segment of the
furniture rental business, in which Globe does not participate, primarily by the
terms of the rental arrangements and the type of customers served. Rent-to-rent
customers generally desire high-quality furniture to meet temporary needs, have
good credit and pay by the month. Typically, these customers do not seek to
acquire the property rented. By contrast, rent-to-own arrangements are generally
made by customers without established credit whose objective is to acquire
ownership of the property by renting it through the full term of the lease.
Those arrangements typically involve weekly payments made over 18 to 24 months.
The corporate housing business provides short-term housing (furnished
apartments) to transferring or temporarily assigned corporate personnel, new
hires, trainees, consultants and individual customers. Corporate housing
operators typically maintain an inventory of leased housing units, although some
operators own a portion of their units. Most corporate housing operators lease
their furniture, housewares and electronics, but a small percentage of operators
maintain their own furniture inventory and a greater percentage maintain their
own housewares and electronics inventories.
Corporate housing has become an important distribution channel for
furnished apartments over the last several years, growing at a faster rate than
the other major distribution channels, such as property management companies
renting furnished apartments, and individuals renting unfurnished apartments and
using a furniture rental company to furnish the apartment. The rapid growth of
corporate housing has created margin pressures for furniture rental companies.
Additionally, corporate housing companies serve as middlemen, blocking the
access of furniture rental companies to the corporate end-user, thereby
hampering the ability of furniture rental companies to cross-sell office
furniture to these end-users and to secure new business leads.
The United States' market for paid room nights of four or more weeks is
estimated to generate annual revenues of $2.4 billion. Corporate housing
generates in excess of $800 million of these revenues and conventional lodging
generates the remainder. The furniture rental business is also estimated to
generate in excess of $800 million in annual revenues. Historically, a
significant portion of these businesses has been comprised of small local and
regional providers. Both businesses have experienced significant consolidation
over the last several years and are expected to undergo continued
1
<PAGE> 150
consolidation in the future, as consolidators capitalize on the desire of many
corporations to have both corporate housing and furniture rental providers that
can meet their needs nationally. The top four companies in the corporate housing
business account for a market share approaching 70%, while the top four
companies in the furniture rental business account for a market share of
approximately 75%. Globe is the largest, and the only publicly-held, company
that is currently pursuing a strategy of integrating these two consolidating
businesses. There are several private companies that have integrated corporate
housing and furniture rental.
COMPANY BACKGROUND AND STRATEGY
Globe is an Ohio corporation formed in 1988 to acquire two existing
furniture rental businesses. At that time, the Company operated in Michigan and
Ohio. Subsequently, Globe implemented an aggressive strategy of expanding market
share through both internal growth, primarily by commencing operations in
several midwestern cities, and through four furniture rental acquisitions in
both the midwest and west. The Company completed an initial public offering of
its common stock in February of 1996, at which time it had operations in four
midwestern and six western states. Since completion of the initial public
offering, Globe has accelerated its expansion through an aggressive corporate
housing acquisition program coupled with selected acquisitions of furniture
rental companies, as discussed under "Current Business Developments" below, and
is a leading consolidator in the temporary relocation industry. Globe currently
has operations in 34 markets in 23 states, as discussed under "Operations"
below.
The Company operates in the corporate housing business, doing business
as Globe Corporate Stay International, and in the furniture rental business,
doing business as Globe Furniture Rentals. Both businesses are highly
competitive. Globe is vying with two other corporate housing companies for the
number two position in corporate housing and is the third largest company in
furniture rental. The Company has an established reputation for quality
furniture and a high level of customer service.
Management believes that the demand for corporate housing, as well as
office and residential rental furniture, is driven by the changing trends in
American business towards flexibility and outsourcing, continued growth in
management and professional employment levels and the resulting impact of a more
mobile and transitory white collar workforce. Corporate housing customers
include transferring or temporarily assigned corporate personnel and other
individuals whose lives are in transition. Office furniture rental customers
include Fortune 500 companies with temporary, seasonal or outsourcing
requirements as well as small businesses and professional practices that desire
to conserve capital. Residential furniture customers include both institutional
and individual customers.
Globe distinguishes itself from most of its furniture rental
competitors by maintaining the majority of its showrooms as combined
rental/clearance showrooms in 14,000-15,000 square foot superstore formats. The
Company believes that selling expenses generally are reduced by combining retail
clearance centers with rental showrooms. Inside sales personnel are trained to
perform both rental and retail sales functions within the same facility.
The Company intends to become the leading national player in meeting
the country's temporary relocation needs and, to that end, is integrating its
corporate housing and furniture rental businesses. To further this integration,
the Company operates under a regional management structure which was put in
place in mid-fiscal 1998. Each region is headed by a Regional Vice President who
is responsible for operations in both businesses and reports to an Executive
Vice President in charge of operations. Business integration has progressed from
the beginning of fiscal 1998 when none of Globe's 21 markets contained
2
<PAGE> 151
both corporate housing and furniture rental to the end of April 1999 when 16 of
34 markets contained both.
Globe's furniture rental operating formula emphasizes its combined
rental/retail facilities, high quality furniture, new furniture sales,
decentralized sales and marketing and an ongoing commitment to superior customer
service. Management believes this formula has been an important contributor to
its success.
The companies acquired by Globe in the corporate housing businesses
have similar characteristics to Globe's furniture rental operations, as they
have strong reputations for superior customer service. As is the case in many
Globe Furniture Rentals markets, Globe Corporate Stay International enjoys a
leading market share in many of its markets.
The Company is currently implementing both a comprehensive corporate
housing business information system and an enhanced furniture rental inventory
system. The corporate housing system includes fully integrated business
management and financial reporting capabilities. The inventory system provides
upgraded inventory management capabilities, including a perpetual inventory
system which is designed to provide more accurate and timely information
concerning merchandise availability. Both systems are designed to allow the
Company to better service customer needs. Implementation of these systems will
take several months and is expected to be completed during early fiscal 2001.
The Company's growth strategies include: (1) continuing to acquire
corporate housing companies, particularly in major metropolitan markets where
the Company has no presence; (2) continuing to expand the furniture rental
business, both through selected acquisitions and through grass roots operations
in markets where the Company has recently acquired a corporate housing business;
and (3) increasing market share in the office furniture business.
CURRENT BUSINESS DEVELOPMENTS
Globe implemented an aggressive acquisition strategy in fiscal 1997. In
the last three fiscal years, the Company completed fifteen asset acquisitions
and two stock acquisitions. Fourteen of these acquisitions were in corporate
housing, thereby supporting the corporate housing consolidation strategy.
During fiscal 1999, the Company used approximately $20.0 million from
its line of credit, issued 287,784 shares of stock, issued $2.0 million in notes
payable and assumed certain liabilities in completing four corporate housing
acquisitions and one furniture rental acquisition, in addition to settling
contingent consideration on three fiscal 1998 acquisitions. In April 1998, the
assets of privately owned Express Furniture Rental were acquired. In May 1998,
the assets of privately owned Feld Corporate Housing were acquired. In June
1998, the assets of privately owned Village Suites were acquired. The assets of
privately owned Castleton and Corporate Condominiums were acquired in January
1999. An additional asset acquisition, Castleton of Tulsa, was completed in
March 1999. See Note 2 to the Consolidated Financial Statements for further
discussion of these acquisitions.
From March 1, 1999 through April 26, 1999, the Company used
approximately $0.3 million from its line of credit, issued $0.3 million of notes
payable and assumed certain liabilities in completing the Tulsa asset
acquisition and in paying contingent consideration and other purchase price
adjustments related to certain fiscal 1999 acquisitions. See Note 2 to the
Consolidated Financial Statements for further discussion of this
acquisition-related activity.
With the corporate housing acquisitions to date, Globe has expanded its
corporate housing presence into 29 markets, with annualized corporate housing
revenues of
3
<PAGE> 152
approximately $110 million. Globe is currently vying with two other corporate
housing companies for the number two position in the industry based on revenues.
The impact of the corporate housing acquisitions on the Company's
operating results is discussed in more detail in Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
OPERATIONS
The Company operates in the corporate housing market by providing fully
furnished short-term housing through an inventory of leased housing units to
temporarily assigned corporate personnel, new hires, trainees, consultants and
individual customers in Arizona, California, Colorado, Connecticut, Florida,
Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota, Missouri, North
Carolina, New Jersey, New York, Ohio, Oklahoma, Oregon, Tennessee, Texas,
Washington and Wisconsin.
Globe leases most of its housing units on a short-term basis under
leasing arrangements typically ranging from one month to one year. These leases
are designed to match customer demand and, consequently, have staggered
expiration dates within each market. Management believes that these arrangements
allow the Company to react to changes in demand for certain types of
accommodations or to address the seasonal nature of the business. The Company's
goal is to maintain occupancy rates which exceed 90%.
The Company rents office and residential furniture to a variety of
corporate and individual customers with temporary and transitional needs through
20 showrooms in Arizona, California, Colorado, Indiana, Kentucky, Michigan,
Nevada, North Carolina, Ohio, Oregon, Tennessee and Washington. The Company
sells residential and office furniture that no longer meets its showroom
condition standards for rental through its clearance centers and sells new
furniture through its showrooms and its account executives.
The following table sets forth the major metropolitan areas where Globe
maintains leased corporate housing units or furniture rental showrooms.
<TABLE>
<CAPTION>
SHOWROOMS ONLY CORPORATE HOUSING ONLY SHOWROOMS AND CORPORATE HOUSING
- -------------- ---------------------- --------------------------------------------------
<S> <C> <C> <C>
Las Vegas Chicago Ann Arbor Los Angeles
Reno Cleveland Charlotte Louisville/Lexington
Sacramento Dallas/Ft. Worth Cincinnati Nashville
San Jose Fairfield County, CT Columbus Orange County, CA
Toledo Kansas City Dayton Phoenix
Lansing Denver Portland
Milwaukee Detroit San Diego
Minneapolis Indianapolis Seattle
New York City
Orlando
Raleigh
St. Louis
Tulsa
</TABLE>
Based on monthly rent roll (aggregate monthly rental payments required
by outstanding leased housing unit or furniture leases), Globe believes it has
the leading market position in ten of its 29 markets for corporate housing and
in ten of its 21 furniture rental markets.
4
<PAGE> 153
The following table shows historical operating data as of each
year-end.
<TABLE>
<CAPTION>
Years Ended February 28/29,
--------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Operating Data:
Markets served
Furniture rental only 5 8 17 17 17
Corporate housing only 13 6 4 - -
Furniture rental/Corporate housing 16 11 - - -
------- ------- ------- ------- -------
Total markets served 34 25 21 17 17
Number of furniture leases
Unaffiliated customers 14,934 17,016 17,591 16,332 16,492
Corporate housing affiliates (a) 2,797 900 - - -
------- ------- ------- ------- -------
Total number of furniture leases 17,731 17,916 17,591 16,332 16,492
Number of available leased housing units (b) 4,790 3,396 1,331 - -
Annual occupancy rate (c) 91.4% 89.0% 85.0% - -
Number of units with Company-owned furniture 3,609 2,060 778 - -
Percentage of units with Company-owned furniture 75.0% 64.0% 58.5% - -
Monthly furniture rent roll
Unaffiliated customers $ 3,265 $ 3,477 $ 3,642 $ 2,962 $ 2,932
Corporate housing affiliates (a) 563 155 - - -
------- ------- ------- ------- -------
Total monthly furniture rent roll $ 3,828 $ 3,632 $ 3,642 $ 2,962 $ 2,932
Average furniture lease
Unaffiliated customers $ 218 $ 204 $ 207 $ 181 $ 178
Corporate housing affiliates (a) 201 172 - - -
Average furniture lease 216 203 207 181 178
Monthly leased housing units rent roll $ 7,949 $ 5,297 $ 1,779 $ - $ -
Average corporate housing lease $ 1,837 $ 1,684 $ 1,528 $ - $ -
</TABLE>
(a) Excludes furniture owned by acquired companies and the corresponding monthly
rent roll in markets where Globe has not established furniture rental
operations.
(b) Due to the seasonal nature of the business, these numbers reflect units at a
low point. Fiscal 1999 peak units, adjusted for the January 1999 acquisitions,
would be 5,919.
(c) Represents average occupancy for the fiscal year rather than at fiscal
year-end.
The Company's sale of residential and office furniture that no longer
meets its showroom condition standards for rental through its 18 clearance
centers allows the Company to recover a substantial portion of original cost and
maintain the freshness of rental furniture. The Company distinguishes itself
from its furniture rental competition by selling new furniture through its
showrooms and its account executives. This provides additional marketing
opportunities, especially with office furniture customers, and generates
additional operating revenues with little added operating expense.
Globe Business Resources markets its products and services under four
brands: (1) Globe Corporate Stay International, which includes corporate housing
sales; (2) Globe Furniture Rentals, which includes both residential rental sales
and residential new furniture sales; (3) Globe Instant Office, which includes
both office rental sales and
5
<PAGE> 154
office new furniture sales; and (4) Globe Clearance Center, which includes all
clearance sales.
The following table sets forth revenues by category for fiscal 1999.
<TABLE>
<CAPTION>
Year Ended February 28, 1999
----------------------------
Dollars in Percent of
Thousands Total
--------- ------
<S> <C> <C>
Rental sales:
Corporate housing $ 87,248 59.2%
Residential furniture 30,296 20.5%
Office furniture 13,088 8.9%
-------- ------
Total rental sales 130,632 88.6%
Retail sales:
Clearance
Residential furniture 5,494 3.7%
Office furniture 2,406 1.6%
-------- ------
Total clearance sales 7,900 5.4%
New
Residential furniture 2,698 1.8%
Office furniture 6,220 4.2%
-------- ------
Total new sales 8,918 6.0%
-------- ------
Total retail sales 16,818 11.4%
-------- ------
Total revenues $147,450 100.0%
======== ======
Revenues by brand:
Globe Corporate Stay International $ 87,248 59.2%
Globe Furniture Rentals 32,994 22.4%
Globe Instant Office 19,308 13.1%
Globe Clearance Center 7,900 5.4%
-------- ------
Total revenues $147,450 100.0%
======== ======
</TABLE>
The fiscal 1999 acquisitions accounted for approximately $18.7 million
of rental revenues and $0.2 million of retail revenues.
COMPETITION
The corporate housing business is highly competitive, with many local
and regional participants. Management believes that Oakwood Corporate Housing,
BridgeStreet Accommodations, Inc. and ExecuStay Corporation (recently acquired
by Marriott International) are the Company's significant competitors. In
addition to these companies, Globe also competes with a number of regional and
local corporate housing businesses. The impact of the Marriott acquisition of
ExecuStay is not certain, but management believes it will create increased
visibility for the industry and may increase its competitiveness. Globe believes
that the principal competitive factors in the corporate housing business are
location of the corporate housing units, service, ability to handle customers'
needs in multiple markets, terms of the rental agreement and price.
The rent-to-rent segment of the furniture rental business is highly
competitive. Management believes that Cort Business Services, Aaron Rents and
Brook Furniture Rental are the Company's significant competitors. In addition to
these companies, Globe also competes with a number of regional and local
furniture rental companies. Globe believes that the principal competitive
factors in the furniture rental business are service, speed
6
<PAGE> 155
of delivery, product selection and availability, price, furniture condition,
terms of the rental agreement and reputation.
The office and residential furniture retail businesses are also highly
competitive. The Company competes with numerous new and used furniture dealers
in these businesses, many of whom are larger than the Company and have greater
financial resources. Management believes that the principal competitive factors
in new furniture sales are price, value, service and speed of delivery and in
used furniture sales the principal factors are price and value.
EMPLOYEES
At April 26, 1999, Globe had 778 full-time and 55 part-time employees,
of whom 274 full-time and 10 part-time were in executive and administrative
positions, 168 full-time and 12 part-time were in marketing and sales positions
and 336 full-time and 33 part-time were in warehouse, housekeeping and
distribution positions. The Company's employees are not represented by a
collective bargaining agreement, and employee relations, in the opinion of
management, are good.
GENERAL
The Company does not have any customers accounting for 10% or more of
revenues, the loss of which would have a material adverse effect on the
business.
The Company markets its products and services through its showrooms and
its account executives, supplemented by a variety of sales and marketing
collateral and print and broadcast media.
The Company delivers its furniture using a fleet of 104 delivery
trucks, of which 93 are owned and 11 are leased.
The Company acquires furniture from a large number of manufacturers and
is not dependent on any particular manufacturer as a sole source of supply. In
fiscal 1999, there were no material business interruptions due to delays in
acquiring furniture.
Furniture purchases are seasonally weighted to the first half of the
fiscal year in order to ensure adequate levels of inventory to meet customer
needs during the spring and summer months, which are typically the busiest.
On May 14, 1998, the Company's $30.0 million unsecured line of credit
was increased to $45.0 million. See the discussion of liquidity and capital
resources in Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations", for further information relative to this
transaction.
The Company regularly evaluates and pursues potential acquisition
candidates. As a general rule, acquisitions are announced only after a
definitive agreement has been reached. The Company has no agreements or
understandings for any acquisition.
The Company is not involved in any issues related to compliance with
environmental protection laws.
Risks and uncertainties that affect the Company are discussed in
greater detail in a separate Exhibit 99 to the Company's Form 10-K for fiscal
1999.
7
<PAGE> 156
YEAR 2000
The Company has developed a Year 2000 Remediation Plan and is currently
evaluating the potential impact of the Year 2000 issue on both its information
technology systems and its non-information technology systems, including
internal risks and those resulting from third-party non-compliance. See the
discussion of the Year 2000 issue in Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations", for further
information relative to this issue.
ITEM 2
Properties
----------
With the exception of a warehouse purchased as part of an October 1996
acquisition and a showroom/clearance center/warehouse opened in July, 1997 in
Indianapolis, Globe leases space for all of its store and warehouse operations
under operating leases expiring at various times through 2008. Many of these
leases contain renewal options for additional periods ranging up to ten years at
rental rates generally adjusted for changes in the level of the consumer price
index or other factors.
Globe currently maintains duplicate facilities in several markets as a
result of acquisitions and is actively pursuing modification or termination of
any leases which are not required. All of Globe's facilities are well maintained
and suitable for their current and reasonably foreseeable uses. Globe regularly
reviews the appearance of its showrooms and clearance centers and improves or
refurbishes them on an on-going basis.
The Company leases all of its corporate housing units and maintains an
inventory of these units under various short-term (one year or less) leasing
arrangements. This inventory fluctuates throughout the year, subject to
seasonality of customer demands. These facilities are well maintained and
suitable for their current and reasonably foreseeable uses.
ITEM 3
Legal Proceedings
-----------------
The Company is involved in certain legal proceedings arising in the
normal course of its business. The Company believes that the outcome of these
matters will not result in a material adverse impact upon its business or
financial condition.
ITEM 4
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
8
<PAGE> 157
Executive Officers of the Registrant
------------------------------------
The following information regarding the executive officers of Globe
Business Resources, Inc. is presented as of April 26, 1999.
<TABLE>
<CAPTION>
<S> <C>
Name and Age Office and Experience
- ------------ ---------------------
David D. Hoguet, 47 Mr. Hoguet has been Chairman of the Board and Chief
Executive Officer of the Company since April 1990. From
1986 to 1990, he served as President of the Company and
its predecessor businesses. He has been a director
since 1988. Prior to joining Globe, Mr. Hoguet was Vice
President of Finance, Treasurer and a director of
Chemed Corporation. Mr. Hoguet is currently a director
of the International Furniture Rental Association,
serving a three year term from May 1997 through May
2000. He served as the Association's Chairman from May
1993 to March 1994 and as its President from March 1991
to May 1993. Mr. Hoguet is a founder of the Company.
Blair D. Neller, 46 Mr. Neller joined the Company as Executive Vice
President in April 1989 and has been President and
Chief Operating Officer since April 1990 and a director
since 1989. Prior to joining Globe, Mr. Neller was a
Vice President in the Consumer Markets Division of
Merrill Lynch & Co. Mr. Neller was a director of the
International Furniture Rental Association from May
1995 through May 1997. Mr. Neller is a founder of the
Company.
Jeffery D. Pederson, 39 Mr. Pederson has served as Executive Vice President
since January 1996. From January 1996 until October
1997 he was responsible for the Company's western
operations. In October 1997 Mr. Pederson's
responsibilities were expanded to include all the
Company's operations. From April 1994 until January
1996, he served as Senior Vice President. Prior to
joining Globe, Mr. Pederson was employed as the Vice
President and Chief Operating Officer of Budget Rents
Furniture, Inc.
Sharon G. Kebe, 38 Ms. Kebe has served as the Company's Senior Vice
President - Finance and Treasurer since January 1996.
She joined the Company as Controller in January 1993
and also served as Vice President - Finance between
January 1995 and January 1996. Prior to that time, Ms.
Kebe was employed by Ernst & Young in various positions
including audit manager and recruitment coordinator.
Ms. Kebe is a certified public accountant.
Lyle J. Tomlinson, 37 Mr. Tomlinson has served as Regional Senior Vice
President of the Company since October 1997. From
February 1993 to September 1997 he served as Senior
Vice President of the Company and was a Vice President
from April 1990 through January 1993. Prior to April
1990, Mr. Tomlinson was a District Manager of the
Company.
Louis W. Holliday, Jr., 39 Mr. Holliday has served as Regional Vice President
since October 1997. From March 1997 to September 1997
he was a Regional Manager and from April 1996 to
February 1997 he
</TABLE>
9
<PAGE> 158
<TABLE>
<CAPTION>
<S> <C>
served as District General Manager. From August 1992
through March 1996, Mr. Holliday worked as a realtor in
the real estate services division of Polley Polley and
Madsen, previously acquired by Coldwell Banker.
Cory M. Nye, 38 Mr. Nye has served as a Regional Vice President since
October 1997. From January 1997 to October 1997 he was
a Regional Manager and from June 1994 to January 1997,
he served as a District General Manager. From May 1992
through May 1994, Mr. Nye was employed by B.K.M.
California, a Steelcase dealership in Los Angeles,
holding a variety of positions including Rental
Division Manager, New Business Development Manager and
Contract Sales Manager.
John H. Roby, 36 Mr. Roby has served as Regional Vice President since
October 1997. From February 1997 to September 1997, he
served as a Regional Manager and from November 1991 to
January 1997 he was a District General Manager. Mr.
Roby was an elected Officer and Vice President of the
Columbus Apartment Association in 1997 and served on
its Board of Trustees in 1996 and 1997. Prior to
joining Globe, he was a District Manager for Glicks
Furniture Rental, which Globe acquired in November
1991.
Timothy J. Duggan, 39 Mr. Duggan joined the Company as Vice President in
January 1999. From July 1987 until January 1999, Mr.
Duggan was President and Chief Executive Officer of
Castleton, a corporate housing company he founded and
which Globe acquired in January 1999. Prior to July
1987, he was employed by The Residence Inn by Marriott
as regional sales and marketing director. Mr. Duggan
was a charter member of the National Interim Housing
Network and the founder of the Association of Interim
Housing Providers, the corporate housing industry trade
association.
Christopher S. Gruenke, 37 Mr. Gruenke joined the Company as Vice President and
Chief Information Officer in October 1997. For two
years prior to joining Globe, he was the President and
founding partner of Westminster's Billiard Club. From
1983 through 1995 he was employed by Marion Merrell Dow
in their Information Systems division. He served as the
Director of Information Systems for Marion Merrell Dow
(Canada) located in Montreal, Quebec from 1992 through
1995.
George S. Quay IV, 32 Mr. Quay joined the Company as Vice President and
Director of National Sales in June 1998. From June 1990
until June 1998, Mr. Quay was Vice President and
General Manager of Village Suites, a corporate housing
company acquired by Globe in June 1998. Prior to June
1990, he was employed by Hyatt Corporation. Mr. Quay
served on the Board of the National Interim Housing
Network from 1992 until 1997 and as its President in
1995. Mr. Quay was also the founding
Secretary/Treasurer of the Association of Interim
Housing Providers, a position he continues to hold.
</TABLE>
10
<PAGE> 159
PART II
ITEM 5
Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
The Company's Common Stock is publicly traded on The Nasdaq Stock
Market under the trading symbol "GLBE". The range of high and low sales prices
by quarter for fiscal years 1999 and 1998, as reported by the Market, appear in
the following table.
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
---------------------------- ----------------------------
Quarter High Low High Low
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
First 15 1/8 9 3/4 11 9 1/4
Second 18 14 16 1/2 10
Third 16 10 3/8 26 3/8 14 1/4
Fourth 15 10 7/8 22 1/8 11 1/2
</TABLE>
As of April 26, 1999 there were 69 shareholders of record. The Company
believes there are approximately 1,200 beneficial owners of its common stock.
Globe has never paid any cash dividends on its common stock and the
Board of Directors intends to retain all the Company's earnings for use in the
expansion of the Company's business for the foreseeable future. The Company's
credit agreement dated September 29, 1997 and amended May 14, 1998 contains
covenants that limit the amount of dividends or distributions it can pay on its
common stock and the amount of stock the Company can repurchase. See Note 5 to
the Consolidated Financial Statements for further discussion of these
restrictions.
On January 4, 1999 the Company issued 82,283 shares of common stock as
part of the consideration for the acquisition of Castleton. Of these shares,
59,367 were issued to Timothy Duggan, the prior owner, and the rest to 24
employees. On January 14, 1999, the Company issued 133,601 shares of common
stock to Corporate Condominiums, Inc. as part of the consideration for the
acquisition of Corporate Condominiums. These issuances were exempt from
registration under the Securities Act of 1933 pursuant to the exemptions from
registration provided by Section 4(2) of the Act.
11
<PAGE> 160
ITEM 6
Selected Financial Data
-----------------------
(Dollars and shares in thousands except per share data)
The selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto, Item 8, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", Item 7.
<TABLE>
<CAPTION>
Years Ended February 28/29,
-------------------------------------------------------------
1999 (1) 1998 (2) 1997 (3) 1996 1995
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Corporate housing sales $ 87,248 $ 42,840 $ 11,811 $ - $ -
Rental sales 43,384 45,337 40,940 36,580 36,711
Retail sales 16,818 15,723 14,769 13,717 11,740
--------- --------- --------- -------- ---------
Total revenues 147,450 103,900 67,520 50,297 48,451
--------- --------- --------- -------- ---------
Gross profit
Corporate housing sales 25,067 11,832 3,517 - -
Rental sales 39,956 41,673 37,635 34,211 34,510
Retail sales 6,852 5,811 5,551 5,899 4,874
--------- --------- --------- -------- ---------
Gross profit before depreciation
and disposals 71,875 59,316 46,703 40,110 39,384
Furniture depreciation and disposals (8,680) (8,259) (7,390) (6,244) (4,918)
--------- --------- --------- -------- ---------
Combined gross profit 63,195 51,057 39,313 33,866 34,466
Operating expenses 48,181 40,150 31,334 26,040 26,249
Amortization of intangible assets 2,034 1,003 225 - -
--------- --------- --------- -------- ---------
Operating income 12,980 9,904 7,754 7,826 8,217
Interest/other expenses 4,389 3,241 1,368 2,461 2,783
--------- --------- --------- -------- ---------
Income before income taxes 8,591 6,663 6,386 5,365 5,434
Provision for income taxes 3,437 2,598 2,478 2,136 2,079
--------- --------- --------- -------- ---------
Net income 5,154 4,065 3,908 3,229 3,355
Preferred stock dividends - - - 505 557
--------- --------- --------- -------- ---------
Net income applicable to common stock $ 5,154 $ 4,065 $ 3,908 $ 2,724 $ 2,798
========= ========= ========= ========= =========
Earnings per common share:
Basic $ 1.13 $ 0.91 $ 0.90 $ 1.05 $ 1.54
========= ========= ========= ========= =========
Diluted $ 1.10 $ 0.89 $ 0.89 $ 1.03 $ 1.10
========= ========= ========= ========= =========
Weighted average number of common shares
outstanding:
Basic 4,578 4,475 4,336 2,600 1,812
Diluted 4,689 4,577 4,372 2,650 2,553
</TABLE>
12
<PAGE> 161
<TABLE>
<CAPTION>
February 28/29,
----------------------------------------------------
1999 1998 1997 1996 (5) 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $131,797 $ 99,437 $ 71,778 $ 44,461 $ 39,512
Total debt 68,900 49,713 30,516 10,573 19,900
Redeemable preferred stock - - - - 5,794
Preferred stock - - - - 500
Common stock and other shareholders' equity 43,114 35,421 29,836 24,664 4,024
Cash dividends declared per common share (4) - - - - -
OTHER DATA:
Number of employees at year-end 834 690 551 430 412
</TABLE>
(1) Results include the impact of five acquisitions during the year, which
accounted for approximately $18.9 million in revenues and $3.2 million in
operating income. See further discussion of the impact of these
acquisitions in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
(2) Results include the impact of seven acquisitions during the year, which
accounted for approximately $18.6 million in revenues and $0.9 million in
operating income. See further discussion of the impact of these
acquisitions in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
(3) Results include the impact of five acquisitions during the year, which
accounted for approximately $14.8 million in revenues and $1.9 million in
operating income. See further discussion of the impact of these
acquisitions in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
(4) The Company has not declared cash dividends on its common stock.
(5) The Company completed an initial public offering in February 1996 and
realized net proceeds of $17.4 million, which were used to redeem preferred
stock and accrued dividends and repay a portion of the Company's
indebtedness.
13
<PAGE> 162
ITEM 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements.
COMPONENTS OF OPERATING INCOME
Revenues. Globe's revenues are derived from corporate housing rental
income, furniture leases and the sale of new and used furniture. Rental revenues
are recognized in the month in which they are earned. Furniture sales revenues
and rental buyout revenues are recognized when the furniture is delivered to the
customer or taken off lease by the customer.
Globe derives additional revenues from various fees which are included
in the applicable corporate housing, rental and retail sales revenue categories.
Intercompany revenues, consisting of furniture and housewares rentals
to corporate housing affiliates, are eliminated in consolidation.
Cost of Revenues. Cost of corporate housing sales consists primarily of
housing unit rental and various furniture, housewares, utility and cleaning
charges. Cost of rental sales consists primarily of housewares expenses and
lease buyout related charges. Cost of retail sales is primarily the depreciated
book value of the furniture sold.
Furniture depreciation and disposals are reflected as a separate
component of cost of revenues. As a result of the ongoing integration of the
Company's business, these expenses cannot be related to specific revenue
categories. Furniture is depreciated on a straight-line basis at a rate of 1%
per month, which is designed to approximate an estimated useful life of four
years with provision for a 50% residual value.
Intercompany costs, consisting of furniture and housewares rentals to
corporate housing affiliates, are eliminated in consolidation.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include warehousing, occupancy, selling, advertising,
administrative and other operating expenses and non-rental depreciation.
Amortization. Goodwill and other intangibles are amortized on a
straight-line basis over periods ranging from three to 35 years.
GENERAL
Globe is a major participant in the temporary relocation industry,
operating in both the corporate housing and furniture rental businesses. The
corporate housing business provides short-term housing through an inventory of
leased housing units to transferring or temporarily assigned corporate
personnel, new hires, trainees, consultants and individual customers. The
furniture rental business rents quality office and residential furniture to a
variety of corporate and individual customers. Additionally, the Company sells
residential and office furniture that no longer meets its showroom condition
standards for rental through its clearance centers and sells new furniture
through its showrooms and account executives.
14
<PAGE> 163
RESULTS OF OPERATIONS
Globe's increase in total revenues to $147.5 million in fiscal 1999
from $48.5 million in fiscal 1995 and in operating income to $13.0 million from
$8.2 million over the same period is mainly attributable to acquisitions,
particularly acquisitions in the corporate housing business.
The Company's business mix has changed since fiscal 1995, with
furniture rental revenues decreasing to 29.4% of total revenues in fiscal 1999
from 75.7% of total revenues in fiscal 1995, while corporate housing revenues,
which were non-existent in fiscal 1995, represented 59.2% of total revenues in
fiscal 1999. Additionally, retail sales have decreased to 11.4% of total
revenues in fiscal 1999 from 24.3% of total revenues in fiscal 1995. This shift
in business mix reflects the Company's decision in fiscal 1997 to become a
consolidator in the corporate housing business. The percentage of revenues
represented by corporate housing is expected to increase in the future.
The following table sets forth for the periods indicated certain income
statement data as a percentage of total revenues and certain gross profit data
as a percentage of respective corporate housing, rental and retail sales
revenues.
<TABLE>
<CAPTION>
Years Ended February 28/29,
----------------------------------------------
1999 1998 1997 1996 1995
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Corporate housing sales 59.2% 41.2% 17.5% 0.0% 0.0%
Rental sales 29.4% 43.7% 60.6% 72.7% 75.7%
Retail sales 11.4% 15.1% 21.9% 27.3% 24.3%
------ ----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit:
Corporate housing sales 28.7% 27.6% 29.8% N.A. N.A.
Rental sales 92.1% 91.9% 91.9% 93.5% 94.0%
Retail sales 40.7% 37.0% 37.6% 43.0% 41.5%
----- ----- ----- ----- -----
Gross profit before depreciation
and disposals 48.7% 57.1% 69.2% 79.7% 81.3%
Furniture depreciation and disposals (5.9%) (7.9%) (10.9%) (12.4%) (10.2%)
----- ----- ----- ----- -----
Combined gross profit 42.9% 49.1% 58.2% 67.3% 71.1%
Operating expenses 32.7% 38.6% 46.4% 51.8% 54.2%
Amortization of intangible assets 1.4% 1.0% 0.3% 0.0% 0.0%
----- ----- ----- ----- -----
Operating income 8.8% 9.5% 11.5% 15.6% 16.9%
Interest/other 3.0% 3.1% 2.0% 4.9% 5.7%
----- ----- ----- ----- -----
Income before taxes 5.8% 6.4% 9.5% 10.7% 11.2%
===== ===== ===== ===== =====
</TABLE>
IMPACT OF GRANTREE AND CORPORATE HOUSING ACQUISITIONS
In January 1993, Globe acquired all of the outstanding common stock of
GranTree, a west coast-based furniture rental company, for $9.3 million. At the
time of the acquisition, GranTree was experiencing significant operational
problems and declining
15
<PAGE> 164
revenues. Management's initial strategy with respect to GranTree was to reduce
operating expenses and to reverse the declining revenue trend, which was largely
accomplished by the end of fiscal 1995.
From the date of the GranTree acquisition through November 1995, the
Company's reported cost of revenues was favorably impacted as furniture was sold
to retail customers or bought out by lease customers due to the adoption of
fresh-start reporting in March 1992, at which time GranTree reduced the net book
value of its rental furniture by approximately $7.1 million, and the $3.3
million amount by which the book value for GranTree exceeded the purchase price
paid by the Company (collectively, the "GranTree Gross Profit Accounting
Effects").
The following table sets forth for the periods indicated certain income
statement data as a percentage of total revenues adjusted to exclude the effect
of the GranTree Gross Profit Accounting Effects on fiscal 1996 and 1995 results.
<TABLE>
<CAPTION>
Years Ended February 28/29,
------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Combined gross profit 42.9% 49.1% 58.2% 64.3% 65.1%
Operating income 8.8% 9.5% 11.5% 12.5% 10.9%
Income before taxes 5.8% 6.4% 9.5% 7.6% 5.2%
==== ==== ==== ==== ====
</TABLE>
Globe entered the corporate housing business in fiscal 1997 by making
three acquisitions. Seven additional corporate housing businesses were acquired
in fiscal 1998. Globe continued its corporate housing acquisition program in
fiscal 1999 with the asset acquisitions of Feld Corporate Housing in May 1998,
Village Suites in June 1998 and Castleton and Corporate Condominiums in January
1999. Castleton of Tulsa was acquired in March 1999, subsequent to fiscal
year-end. All acquisitions to date have been accounted for using the purchase
method of accounting.
Corporate housing companies' assets consist primarily of accounts
receivable, customer deposits and some minor furniture and fixed asset balances.
Consequently, the purchase price for these businesses is allocated largely to
goodwill and other intangibles. Cost of goodwill and other intangibles related
to corporate housing acquisitions approximates $49.6 million and is being
amortized on a straight-line basis over periods ranging from three to 35 years,
with a weighted average life of approximately 24 years. Goodwill and intangibles
amortization, which is a separate component of operating expenses, reduced
operating profit by $2.0 million, or 1.4% of sales, in fiscal 1999; by $1.0
million, or 1.0% of sales, in fiscal 1998; and by $0.2 million, or 0.3% of
sales, in fiscal 1997.
The corporate housing business has a slightly lower operating margin
than the furniture rental business, consisting of a lower gross profit margin
offset somewhat by lower operating expenses. As a result, the Company's gross
profit margin and operating expenses as a percentage of revenues have been
declining since the Company entered the corporate housing business in fiscal
1997. Gross profit margin decreased to 42.9% in fiscal 1999 from 49.1% in fiscal
1998 and 58.2% in fiscal 1997, resulting from corporate housing's increasing
percentage of total revenues (59.2% in fiscal 1999 versus 41.2% and 17.5% in
fiscal 1998 and 1997, respectively). Gross profit margin on rental sales in
fiscal 1999 was 92.1% versus 28.7% for corporate housing. Comparable gross
profit margins for fiscal 1998 were 91.9% and 27.6%, respectively. Because the
Company is integrating its furniture rental and corporate housing operations,
these gross profit percentages exclude furniture depreciation and disposals
which can no longer be related to specific revenue categories. An additional
result of this integration is that operating expenses
16
<PAGE> 165
and, therefore, operating margins for furniture rental and corporate housing
cannot be specifically identified. Operating expenses, excluding amortization,
decreased to 32.7% of revenues in fiscal 1999 from 38.6% in fiscal 1998 and
46.4% in fiscal 1997, while the operating margin, excluding amortization,
decreased to 10.2% of revenues in fiscal 1999 from 10.5% in fiscal 1998 and
11.8% in fiscal 1997. The reduction in operating margin is primarily the result
of the increasing mix of corporate housing revenues, as well as additions to the
Company's management team and related infrastructure spending to support the
Company's rapid growth. Including amortization expenses, operating margins
declined to 8.8% in fiscal 1999 from 9.5% in fiscal 1998 and 11.5% in fiscal
1997.
Globe plans to continue its consolidation of corporate housing through
additional acquisitions, thereby capitalizing on the desire of many corporations
to have a corporate housing company that can meet their needs nationally. With
the acquisitions to date, Globe has expanded its presence into 29 markets and is
the market leader in ten of these markets, with annualized corporate housing
revenues of approximately $110 million. Globe is vying with two other corporate
housing companies for the number two position in the industry based on revenues.
A major risk of Globe's increasing presence in the corporate housing
business is the potential loss of furniture rental revenues from competing
corporate housing companies that are also customers. To date, the majority of
this business with unaffiliated customers has been retained, which is largely
attributable to the Company's superior level of service. Additionally, the
significance of this risk has lessened over the three years that Globe has been
in corporate housing. In fiscal 1999, unaffiliated corporate housing customers
accounted for $7.4 million, or 5.0%, of Globe's revenues. During this time
period, furniture rental revenues from affiliated corporate housing providers,
which are not included in reported revenues, increased to $5.7 million.
Due to the significant impact of the GranTree acquisition and the
related GranTree Gross Profit Accounting Effects and the corporate housing
acquisitions on the Company's operations and financial results, the Company's
historical results of operations and period-to-period comparisons will not be
indicative of future results.
CLEARANCE CENTER SALES
Sales through the Company's clearance centers of used furniture that no
longer meets showroom condition standards for rental allow Globe to recover a
substantial portion of original cost and to maintain the freshness of rental
furniture inventory. Clearance center revenues and cost recovery ratios for the
last five years are presented in the following table.
<TABLE>
<CAPTION>
Years Ended February 28/29,
--------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Clearance center sales $ 7,900 $ 6,877 $ 7,649 $ 6,529 $ 6,223
Original cost of furniture 8,887 7,326 8,608 7,493 7,225
Cost recovery ratio 88.9% 93.9% 88.9% 87.1% 86.1%
Cost recovery ratio, former
GranTree operations 84.5% 87.4% 81.0% 75.3% 70.7%
</TABLE>
Management believes that the ability to recover a substantial portion
of the original cost of its furniture through its clearance center sales is a
key contributor to the Company's profitability. The improvement in the cost
recovery ratio over the 1995-1998 period is due primarily to upgrading the
quality of furniture in the former GranTree operations. The decrease in the cost
recovery ratio in fiscal 1999 reflects the Company's
17
<PAGE> 166
disposal of excess older inventory at reduced prices to support its focus on
improved inventory management.
COMPARISON OF FISCAL YEARS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
Total revenues of $147.5 million increased $43.6 million, or 41.9%, in
fiscal 1999 from $103.9 million in fiscal 1998 primarily due to acquisitions.
Excluding the corporate housing operations and the impact of the elimination of
intercompany revenues (furniture rented to Company-owned corporate housing
operations), total revenues increased $4.3 million, or 6.9%, in fiscal 1999
compared to fiscal 1998.
Corporate housing sales of $87.2 million in fiscal 1999 increased
103.7% from $42.8 million in fiscal 1998. This increase was primarily caused by
acquisitions.
Rental sales of $43.4 million in fiscal 1999 decreased $1.9 million, or
4.3%, from $45.3 million in fiscal 1998 largely as a result of intercompany
eliminations. Excluding the impact of these eliminations, rental revenues
increased 6.9%.
Retail sales of $16.8 million increased $1.1 million, or 7.0%, in
fiscal 1999 from $15.7 million in fiscal 1998, driven by an increase of 14.9% in
clearance center revenues.
Gross profit of $63.2 million in fiscal 1999 increased $12.1 million,
or 23.8%, from $51.1 million in fiscal 1998 and declined as a percentage of
revenues to 42.9% from 49.1% over the same period due primarily to the higher
mix of corporate housing revenues and the lower margins associated with these
revenues. Gross profit percentages on corporate housing, rental and retail sales
revenues all improved versus the comparable prior year period.
Operating expenses of $48.2 million (excluding amortization) in fiscal
1999 increased $8.0 million, or 20.0%, from $40.2 million (excluding
amortization) in fiscal 1998, primarily as a result of acquisitions, as well as
additions to the Company's management team and related infrastructure spending
to support the Company's rapid growth. As a percentage of total revenues, these
expenses declined to 32.7% from 38.6% over the same period as a result of
corporate housing's lower operating expenses as a percentage of revenues.
Amortization of intangible assets increased $1.0 million, or 102.8%, to
$2.0 million in fiscal 1999, from $1.0 million in fiscal 1998, as a result of
acquisitions. As a percentage of revenues, amortization expenses increased to
1.4% from 1.0% over the same period.
As a result of the changes in revenues, gross profit, operating
expenses and amortization of intangible assets discussed above, operating income
increased 31.1% to $13.0 million, or 8.8% of revenues in fiscal 1999, from $9.9
million, or 9.5% of revenues in fiscal 1998.
Interest/other expense (income) increased $1.2 million, or 35.4%, to
$4.4 million in fiscal 1999 from $3.2 million in fiscal 1998 and as a percentage
of total revenues decreased slightly to 3.0% from 3.1% over the same period. The
$1.4 million increase in interest expense for fiscal 1999 was due primarily to
higher debt balances resulting from funding required for acquisitions. Other
income in fiscal 1999 included a $0.2 million insurance settlement.
Income before income taxes of $8.6 million in fiscal 1999 increased
$1.9 million, or 28.9%, compared to fiscal 1998 and as a percentage of revenues
decreased to 5.8% from 6.4% over the same period.
18
<PAGE> 167
The Company's effective tax rate, which includes federal, state and
local taxes, increased to 40.0% in fiscal 1999 from 39.0% in fiscal 1998.
COMPARISON OF FISCAL YEARS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
Total revenues of $103.9 million increased $36.4 million, or 53.9%, in
fiscal 1998 from $67.5 million in fiscal 1997 due largely to seven acquisitions
completed during 1998. Excluding the corporate housing operations and the impact
of the elimination of intercompany revenues, total revenues increased $5.9
million, or 10.5%, in fiscal 1998 compared to fiscal 1997.
Corporate housing sales of $42.8 million in fiscal 1998 increased
262.7% from $11.8 million in fiscal 1997. This increase was primarily caused by
acquisitions.
Rental sales of $45.3 million in fiscal 1998 increased $4.4 million, or
10.7%, from $40.9 million in fiscal 1997. This growth resulted from significant
volume increases in the California and Denver markets, as well as several
midwestern markets, and is partially attributable to furniture rental
acquisitions in Detroit and Southern California which occurred during the second
and third quarters of fiscal 1997. Excluding the impact of intercompany
eliminations, rental sales increased $4.9 million, or 12.0%.
Retail sales of $15.7 million increased $0.9 million, or 6.5%, in
fiscal 1998 from $14.8 million in fiscal 1997, driven by an individually
significant new office furniture sale.
Gross profit of $51.1 million in fiscal 1998 increased $11.7 million,
or 29.9%, from $39.3 million in fiscal 1997 and declined as a percentage of
revenues to 49.1% from 58.2% over the same period due primarily to the higher
mix of corporate housing revenues and the lower margins associated with these
revenues. Gross profit margin on rental sales remained constant at 91.9% in each
year, while the corporate housing margin declined to 27.6% from 29.8% and the
retail sales gross profit margin declined to 37.0% from 37.6%. In addition, the
Company recorded a physical inventory adjustment of $0.6 million during the
fourth quarter of fiscal 1998.
Operating expenses of $40.2 million (excluding amortization) in fiscal
1998 increased $8.8 million, or 28.1%, from $31.3 million (excluding
amortization) in fiscal 1997, primarily as a result of acquisitions, as well as
additions to the Company's management team and increased infrastructure spending
to support the Company's rapid growth. Operating expenses as a percentage of
total revenues declined to 38.6% from 46.4% over the same period as a result of
corporate housing's lower operating expenses as a percentage of revenues.
Amortization of intangible assets increased $0.8 million, or 345.8%, to
$1.0 million in fiscal 1998, from $0.2 million in fiscal 1997, as a result of
acquisitions. As a percentage of revenues, amortization expenses increased to
1.0% from 0.3% over the same period.
As a result of the changes in revenues, gross profit, operating
expenses and amortization of intangible assets discussed above, operating income
increased 27.7% to $9.9 million, or 9.5% of revenues in fiscal 1998, from $7.8
million, or 11.5% of revenues in fiscal 1997.
Interest/other expense (income) increased $1.8 million, or 136.9%, to
$3.2 million in fiscal 1998 from $1.4 million in fiscal 1997 and as a percentage
of total revenues increased to 3.1% from 2.0% over the same period. The
increased expense for fiscal 1998
19
<PAGE> 168
was due primarily to higher debt balances resulting from funding required for
acquisitions.
Income before income taxes of $6.7 million in fiscal 1998 increased
$0.3 million, or 4.3%, compared to fiscal 1997 and as a percentage of revenues
decreased to 6.4% from 9.5% over the same period.
The Company's effective tax rate, which includes federal, state and
local taxes, increased slightly to 39.0% in fiscal 1998 from 38.8% in fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
On September 29, 1997, the Company completed a private placement of
$30.0 million of unsecured 7.54% Senior Notes due September 1, 2007, with
interest payable semi-annually on March 1 and September 1. Principal payments of
$4.3 million are due annually beginning September 1, 2001. These Senior Notes
may be redeemed at a premium.
Also, on September 29, 1997, the Company established a $30.0 million
unsecured line of credit which replaced an existing $45.0 million secured line
of credit. This $30.0 million line was increased on May 14, 1998, to $45.0
million. Interest is currently the lesser of the prime rate minus 25 basis
points or LIBOR plus 150 basis points. At April 26, 1999, the unused line was
$9.6 million, which is available for acquisitions and general corporate
purposes.
The term of the line of credit will expire on September 30, 2000,
requiring full payment of the then outstanding balance. The Company expects to
have other financing arrangements in place prior to this date.
From March 1, 1998 through April 26, 1999 Globe used approximately
$20.3 million from its lines of credit, issued 215,884 shares of common stock
for fiscal 1999 acquisitions and 71,900 shares of common stock previously held
in escrow for fiscal 1998 acquisitions, issued approximately $2.3 million of
notes payable and assumed approximately $1.2 million of certain liabilities in
completing six acquisitions and settling certain contingent consideration for
three fiscal 1998 acquisitions. (See Note 2 to the Consolidated Financial
Statements for further discussion of these acquisitions.)
Other than acquisitions, the Company's principal use of cash is for
furniture purchases. The Company purchases furniture to replace furniture which
has been sold and to maintain adequate levels of rental furniture to meet
existing and new customer needs. Furniture purchases were $21.2 million in
fiscal 1999 and $23.6 million in fiscal 1998. The lower level of purchases in
fiscal 1999 reflects the Company's efforts to better manage inventory levels
while continuing to ensure that existing and new customer needs can be met. As
the Company's growth strategies are implemented, furniture purchases are
expected to increase.
Capital expenditures were $2.6 million, $3.7 million and $2.4 million
in fiscal 1999, 1998 and 1997, respectively. These expenditures are largely
attributable to ongoing development of computer systems and construction of a
showroom/warehouse facility in Indianapolis, Indiana during fiscal 1998 and
1997. Acquisitions of property and equipment financed through capital leases and
not reflected in the preceding capital expenditure data were $0.1 million, $0.5
million and $0.2 million over the same periods.
On March 13, 1997, Globe obtained a $1.5 million mortgage note to
finance the showroom/warehouse facility in Indianapolis. The Company can elect
to fix the interest rate for a one-, three-, or five-year period based on the
corresponding Treasury Note rate plus 175 basis points, currently 6.25%. The
initial term of the note requires full
20
<PAGE> 169
payment of the then outstanding balance on December 1, 2002, however the Company
expects to renew the note for an additional five-year period at that date.
Costs to further develop the computer systems will be incurred in the
next 12-15 months and are anticipated to exceed $2.0 million. The systems
development is expected to be financed through cash generated by operations.
Remaining capital expenditures are expected to exceed $1.0 million and are also
expected to be funded by cash generated by operations. Any temporary cash
deficiencies resulting from timing of these expenditures will be funded via the
line of credit.
The Company paid no material Federal income tax until fiscal 1994 when
it began paying alternative minimum tax. At February 28, 1999, Globe had
alternative minimum tax credit carryforwards of $0.6 million that can be carried
forward indefinitely.
In fiscal 1999 and 1998, net cash provided by operations was $27.8
million and $23.5 million, respectively, generating $4.0 million more cash than
was necessary to fund investing activities (excluding acquisitions) in fiscal
1999 and $3.8 million less cash than was necessary to fund investing activities
(excluding acquisitions) in fiscal 1998. The improvement in cash flow in fiscal
1999 results primarily from higher levels of net income, depreciation and
amortization and lower levels of furniture purchases and capital expenditures.
In October 1998, Globe repurchased 50,000 shares of stock for $0.7
million, pursuant to an authorized $3.0 million stock repurchase program. These
shares are held in treasury.
Aside from acquisitions, furniture purchases, which have historically
been seasonally weighted to the first half of the fiscal year, are the primary
reason for use of the credit facilities. Any temporary cash deficiencies
resulting from these purchases will be funded via the line of credit. The
Company expects cash flow from operations plus the credit facilities to be
sufficient to fund the Company's needs for the foreseeable future, except for
significant acquisitions and any additional repurchases that may be made under
the Company's stock repurchase program.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Historically, the Company has been able to offset increases in
furniture prices with increases in rental rates. Management believes that
increases in new furniture prices have averaged less than the overall inflation
rate over the last three years and expects this trend to continue.
Management believes the Company will be able to offset future increases
in leased corporate housing unit rents and utilities with increases in rental
rates.
YEAR 2000
The Company has developed a Year 2000 Remediation Plan and is currently
evaluating the potential impact of the Year 2000 issue on both its information
technology systems and its non-information technology systems. The initial
phases of the plan consist of planning and assessment and involve developing
complete inventories of all hardware and software containing potential date
sensitivity, completing vendor and customer surveys and performing a series of
controlled tests to determine compliance. The inventory phase has been
completed. The planning/assessment and vendor/customer survey phases are
approximately 60% complete. The vendor and customer surveys have been sent and
the results are now being compiled. No issues have been identified to date. The
controlled tests are currently scheduled for May and June 1999. Preliminary
results indicate that the Company's
21
<PAGE> 170
existing internal financial and operational software is Year 2000 compliant, and
that a moderate number of desktop computers may need to be replaced. The
corporate housing and furniture rental inventory systems currently under
development have been designed to be Year 2000 compliant.
Globe expects to have the initial phases of the remediation plan
completed by June 30, 1999. Costs incurred to date and those anticipated to
complete the initial phases are immaterial to the Company's results of
operations.
Based upon the results of the initial phases, Globe will develop a
detailed remediation and contingency plan. This plan will address such concerns
as the time required to replace equipment or software and contingency plans for
unforeseen Year 2000 failures, including the identification of alternate vendors
or financial institutions, as well as the financial resources necessary to
reasonably ensure compliance by the Year 2000. It is expected that this plan
will be completed by September 1, 1999. Costs associated with this phase are not
expected to exceed $0.1 million.
While Globe is not aware of exposures related to the operations of
customers or vendors and it does not have a relationship with any third-party
vendor which is material to its operations, there can be no assurance that the
systems of other companies on which the Company relies will be converted in a
timely manner or that the failure to convert would not have an adverse impact on
Globe's operations. Costs associated with any such failure cannot be reasonably
estimated.
ITEM 7(a)
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to
future issuances of fixed rate debt and existing issuances of variable rate
debt. Primary exposures include movements in the prime rate, U.S. Treasury Note
rates and LIBOR.
The table below provides information on Globe's significant debt
issuances by expected maturity date. (See Note 5 to the Consolidated Financial
Statements for further information.)
<TABLE>
<CAPTION>
Years Ended February 28/29,
----------------------------------------------------------------------------------
(Dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total
------ -------- ------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Characteristics:
Unsecured revolving note $34,416 $34,416
Average interest rate 6.62% 6.62%
Unsecured senior note $ 4,285 $4,286 $4,286 $4,286 $12,857 $30,000
Fixed interest rate 7.54% 7.54% 7.54% 7.54% 7.54% 7.54%
Mortgage note $ 63 $ 73 $ 77 $ 82 $ 87 $ 1,063 $ 1,445
Fixed interest rate 6.25% 6.25% 6.25% 6.25% 6.25% 6.25% 6.25%
Other debt issues $ 736 $ 711 $ 488 $ 578 $ 2,513
Average fixed interest rate 5.86% 5.85% 5.77% 5.69% 5.79%
</TABLE>
22
<PAGE> 171
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Index to Financial Statements
Financial Statements: Page
----
Report of Independent Accountants F-1
Consolidated Balance Sheet:
February 28, 1999 and February 28, 1998 F-2
Consolidated Statement of Income:
Years ended February 28, 1999, February 28, 1998 and F-3
February 28, 1997
Consolidated Statement of Cash Flows:
Years ended February 28, 1999, February 28, 1998 and F-4
February 28, 1997
Consolidated Statement of Changes in Shareholders' Equity:
Years ended February 28, 1999, February 28, 1998 and F-5
February 28, 1997
Notes to Consolidated Financial Statements F-6
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the F-21
three years ended February 28, 1999
All other schedules are omitted because they are not
applicable or the required information is shown in the
Company's financial statements or the notes thereto.
"Selected Quarterly Financial Data" has been included in Note 11 to Globe's
Financial Statements.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None
PART III
--------
Except for the information presented under Part I, "Executive Officers
of the Registrant", the information required by the following Items will be
included in Globe's definitive Proxy Statement which will be filed with the
Securities and Exchange Commission in connection with the 1999 Annual Meeting of
Shareholders and is incorporated herein by reference:
Item 10 Directors and Executive Officers of the Registrant
--------------------------------------------------
Item 11 Executive Compensation
----------------------
Item 12 Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Item 13 Certain Relationships and Related Transactions
----------------------------------------------
23
<PAGE> 172
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Globe Business Resources, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Globe
Business Resources, Inc. and its subsidiaries at February 28, 1999 and 1998 and
the results of their operations and their cash flows for each of the three years
in the period ended February 28, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
April 9, 1999
24
<PAGE> 173
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
February 28,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS:
Cash $ 1,123 $ 526
Trade accounts receivable, less allowance for doubtful
accounts of $977 and $609, respectively 11,982 8,252
Other receivables 1,418 131
Prepaid expenses 4,229 2,038
Rental furniture, net 55,426 53,220
Property and equipment, net 8,469 7,743
Goodwill and other intangibles, less accumulated
amortization of $3,262 and $1,228, respectively 47,580 26,695
Note receivable from officer 100 100
Other, net 1,470 732
--------- ---------
Total assets $ 131,797 $ 99,437
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 6,250 $ 3,561
Customer deposits 2,072 2,027
Accrued compensation 2,628 2,061
Accrued taxes 304 325
Deferred income taxes 5,738 4,183
Accrued interest payable 1,541 1,121
Other accrued expenses 1,250 1,025
Debt 68,900 49,713
--------- ---------
Total liabilities 88,683 64,016
--------- ---------
Common stock and other shareholders' equity:
Common stock, no par, 15,000,000 shares
authorized, 4,794,489, and 4,548,399
shares outstanding 24,018 21,492
Retained earnings 23,180 18,013
Fair market value in excess of historical cost of
acquired net assets attributable to related
party transactions (4,084) (4,084)
--------- ---------
Total common stock and other shareholders' equity 43,114 35,421
--------- ---------
Total liabilities and shareholders' equity $ 131,797 $ 99,437
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
25
<PAGE> 174
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
<TABLE>
<CAPTION>
Years Ended February 28,
----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Corporate housing sales $ 87,248 $ 42,840 $ 11,811
Rental sales 43,384 45,337 40,940
Retail sales 16,818 15,723 14,769
--------- --------- ---------
147,450 103,900 67,520
--------- --------- ---------
Cost of revenues:
Cost of corporate housing sales 62,181 31,008 8,294
Cost of rental sales 3,428 3,664 3,305
Cost of retail sales 9,966 9,912 9,218
Furniture depreciation and disposals 8,680 8,259 7,390
--------- --------- ---------
84,255 52,843 28,207
--------- --------- ---------
Gross profit 63,195 51,057 39,313
Operating expenses:
Warehouse and delivery 10,366 9,509 7,929
Occupancy 7,456 7,012 6,012
Selling and advertising 10,818 9,198 8,740
General and administration 19,541 14,431 8,653
Amortization of intangible assets 2,034 1,003 225
--------- --------- ---------
50,215 41,153 31,559
--------- --------- ---------
Operating income 12,980 9,904 7,754
Other expense (income):
Interest expense 4,410 3,055 1,640
Other, net (21) 186 (272)
--------- --------- ---------
4,389 3,241 1,368
Income before income taxes 8,591 6,663 6,386
Provision for income taxes 3,437 2,598 2,478
--------- --------- ---------
Net income $ 5,154 $ 4,065 $ 3,908
========= ========= =========
Earnings per common share:
Basic $ 1.13 $ 0.91 $ 0.90
========= ========= =========
Diluted $ 1.10 $ 0.89 $ 0.89
========= ========= =========
Weighted average number of common shares outstanding:
Basic 4,578 4,475 4,336
Diluted 4,689 4,577 4,372
</TABLE>
The accompanying notes are an integral part of these financial
statements.
26
<PAGE> 175
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended February 28,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,154 $ 4,065 $ 3,908
Adjustments to reconcile net income to
net cash provided by operating activities:
Rental furniture depreciation 7,781 7,177 6,055
Other depreciation and amortization 4,130 2,625 1,157
Provision for losses on accounts receivable 463 541 173
Provision for deferred income taxes 1,555 1,282 1,108
(Gain)/loss on sale of property and equipment (3) 10 44
Book value of furniture sales and rental buyouts 12,812 12,368 11,832
Changes in assets and liabilities:
Accounts receivable (4,952) (3,467) (1,587)
Note receivable - (100) -
Other assets, net (402) (272) 9
Prepaid expenses (1,442) (107) (334)
Accounts payable 2,677 (877) 394
Customer deposits (366) 400 (324)
Accrued compensation 413 (598) (35)
Accrued taxes (41) (285) 11
Accrued interest payable 420 736 251
Other accrued expenses (405) (27) (176)
--------- --------- ---------
Net cash provided by operating activities 27,794 23,471 22,486
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental furniture (21,242) (23,620) (21,845)
Purchases of property and equipment (2,622) (3,742) (2,377)
Purchases of businesses, net of cash acquired (19,940) (15,055) (15,354)
Other investing activities 31 6 (56)
--------- --------- ---------
Net cash used in investing activities (43,773) (42,411) (39,632)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on the revolving credit agreements 172,820 131,213 100,053
Repayments on the revolving credit agreements (154,880) (143,290) (81,329)
Borrowings on the senior note - 30,000 -
(Repayments)/borrowings of other debt (546) 1,309 (671)
Principal payments under capital lease obligations (170) (508) (338)
Exercise of common stock options 5 25 15
Purchase of treasury stock (653) - -
--------- --------- ---------
Net cash provided by financing activities 16,576 18,749 17,730
--------- --------- ---------
Net increase/(decrease) in cash 597 (191) 584
Cash at beginning of period 526 717 133
--------- --------- ---------
Cash at end of period $ 1,123 $ 526 $ 717
========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 4,075 $ 2,348 $ 1,408
========= ========= =========
Cash paid for income taxes $ 1,922 $ 1,485 $ 1,302
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
27
<PAGE> 176
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Excess
------------------------ Fair
Outstanding Retained Market
Shares Amount Earnings Value Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at February 29, 1996 4,254,369 $ 18,549 $ 10,199 $ (4,084) $ 24,664
Stock issued in connection with
acquisitions 169,000 1,324 1,324
Exercise of options, net of tax
effects 17,140 10 (70) (60)
Net income 3,908 3,908
---------- ---------- ---------- ---------- ----------
Balance at February 28, 1997 4,440,509 $ 19,883 $ 14,037 $ (4,084) $ 29,836
Stock issued in connection with
acquisitions 94,595 1,479 1,479
Restricted stock issued 4,446 100 100
Exercise of options, net of tax
effects 8,849 30 (89) (59)
Net income 4,065 4,065
---------- ---------- ---------- ---------- ----------
Balance at February 28, 1998 4,548,399 $ 21,492 $ 18,013 $ (4,084) $ 35,421
Stock issued in connection with
acquisitions 287,784 3,171 3,171
Purchase of treasury stock (50,000) (653) (653)
Exercise of options, net of tax
effects 8,306 8 13 21
Net income 5,154 5,154
---------- ---------- ---------- ---------- ----------
Balance at February 28, 1999 4,794,489 $ 24,018 $ 23,180 $ (4,084) $ 43,114
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
28
<PAGE> 177
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data;
Shares in whole numbers except where noted)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------
NATURE OF BUSINESS AND COMMENCEMENT OF OPERATIONS
Globe Business Resources, Inc., formerly known as Globe Furniture
Rentals, Inc., commenced operations on March 1, 1989 with the acquisition of
certain assets and assumption of certain liabilities of the former Globe
Furniture Rentals, Inc. and Globe Furniture Rental of Tri-County, Inc.
(collectively, the Selling Corporations). The transaction was accounted for as a
purchase. Certain shareholders of the Company (either directly or through
related party relationships) also had a 50% ownership in the Selling
Corporations. Consequently, only 50% of the amount by which the fair market
value of the net assets acquired exceeded their historical basis was considered
in establishing the carrying value of the net assets. The remaining 50% of such
excess was accounted for as a $4,084 reduction of shareholders' equity.
The Company provides fully furnished short-term housing through an
inventory of leased housing units to transferring or temporarily assigned
corporate personnel, new hires, trainees, consultants and individual customers
throughout the United States. Additionally, the Company rents and sells
furniture to a diversified base of commercial and residential customers
throughout the United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All intercompany transactions
are eliminated.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, other assets, accounts
payable, accrued expenses and debt approximate fair value.
RENTAL FURNITURE
Rental furniture is stated at cost and depreciated on a straight-line
basis at a rate of 1% per month, which is designed to approximate an estimated
useful life of four years with provision for a 50% residual value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including interest on funds
borrowed to finance the acquisition or construction of major capital additions.
Capitalized interest was $16, $27 and $15 in fiscal 1999, 1998 and 1997,
respectively. Depreciation expense is provided on a straight-line basis over
estimated useful lives of three to ten years. Leasehold improvements are
amortized on a straight-line basis over the terms of the respective leases.
Expenditures that enhance or extend the useful lives of the assets involved are
capitalized. Maintenance and repair expenditures are expensed as incurred. When
property and equipment is retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is included in income.
29
<PAGE> 178
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles are amortized on a straight-line basis
over periods ranging from three to 35 years. The Company periodically reviews
goodwill and other intangibles and impairments will be recognized if a permanent
decline in value has occurred. Accumulated amortization of goodwill and other
intangibles was $3,262 and $1,228 at February 28, 1999 and 1998, respectively.
REVENUE RECOGNITION
Leased housing unit rentals vary in terms from a few days to several
months. Leases of furniture generally have an initial term of three to six
months in duration and can be extended by the customer on a month-to-month
basis. Leased housing unit rentals and furniture rentals are accounted for as
operating leases, and revenue is recorded in the month earned. For sales of
furniture, as well as rental buyouts, revenue and related cost of sales are
recorded when the furniture is delivered or taken off lease.
ADVERTISING
The costs of advertising are generally expensed as incurred.
INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes",
deferred taxes are provided for all differences between the financial statement
basis and the tax basis of assets and liabilities using the enacted tax rate. A
valuation allowance is provided for deferred tax assets which are more likely
than not unrealizable.
EARNINGS PER SHARE
For all periods presented, basic earnings per share was calculated by
dividing net income applicable to common stock by the weighted average number of
shares outstanding during the period.
For all periods presented, diluted earnings per share was calculated by
dividing net income applicable to common stock by the weighted average number of
shares and dilutive potential common shares outstanding during the period.
Potential common shares include outstanding stock options for all periods
presented and contingently issuable shares in fiscal 1999 and 1998.
30
<PAGE> 179
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the calculation of basic and diluted
earnings per share for the periods indicated.
<TABLE>
<CAPTION>
(Shares in thousands) Years Ended February 28,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income used to calculate basic and diluted
earnings per share $5,154 $4,065 $3,908
====== ====== ======
Weighted average common shares used to calculate
basic earnings per share 4,578 4,475 4,336
====== ====== ======
Basic earnings per common share $ 1.13 $ 0.91 $ 0.90
====== ====== ======
Shares used in the calculation of diluted earnings per share:
Weighted average common shares 4,578 4,475 4,336
Dilutive effect of assumed exercise of options
for the purchase of common shares 52 82 36
Dilutive effect of assumed issuance of
contingently issuable shares 59 20 -
------ ------ ------
Weighted average common shares used to calculate
diluted earnings per share 4,689 4,577 4,372
====== ====== ======
Diluted earnings per common share $ 1.10 $ 0.89 $ 0.89
====== ====== ======
</TABLE>
USE OF ESTIMATES
The financial statements, which are prepared in conformity with
generally accepted accounting principles, require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from these estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
STOCK OPTION PLAN
The Company follows Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees", in accounting for its employee stock
options and has not recognized compensation expense for those options granted in
the years ended February 28,
31
<PAGE> 180
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1999, 1998 and 1997. As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company has elected to adopt the disclosure only provisions.
(See Note 7 for further information.)
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". In February 1998, the
FASB issued SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits". All pronouncements were adopted in fiscal year 1999
and had no effect on the Company's financial reporting.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The pronouncement, which must be adopted in
fiscal year 2001, applies to all entities and all types of derivatives. The
Company is currently evaluating the impact of this pronouncement on its future
financial reporting.
NOTE 2--ACQUISITIONS:
- ---------------------
During fiscal 1999, the Company completed five asset acquisitions and
settled certain contingent consideration on three fiscal 1998 acquisitions.
These transactions were completed by payment of approximately $20.0 million in
cash, issuance of 287,784 shares of common stock (including 71,900 shares
previously held in escrow), issuance of $2.0 million of notes payable and the
assumption of certain liabilities. On fiscal 1999 acquisitions, additional
contingent consideration of up to $3.3 million is payable in cash and notes
payable, subject to achieving certain future earnings levels. Additional
contingent consideration of up to $1.0 million and 50,000 shares of common
stock, currently held in escrow, is payable on fiscal 1998 acquisitions, subject
to resolution of certain purchase contract issues.
One of the fiscal 1999 acquisitions operates in the furniture rental
business. The remaining acquisitions, which include Detroit-based Village
Suites, St. Louis-based Castleton and Stamford-based Corporate Condominiums,
operate in the corporate housing business, providing short-term housing to
transferring or temporarily assigned corporate personnel, new hires, trainees,
consultants and individual customers. At their respective dates of acquisition,
the corporate housing businesses maintained inventories totaling approximately
2,000 leased housing units and had annual revenues in their most recent fiscal
year totaling approximately $37.0 million.
In accordance with APB No. 16, all acquisitions were accounted for
using the purchase method.
The purchase price allocation for the businesses is as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash, receivables and prepaids $ 1,572
Rental furniture 1,557
Property and equipment 125
Other assets 336
Goodwill and other intangibles 22,918
-----------
26,508
Liabilities assumed (3,103)
-----------
$ 23,405
===========
</TABLE>
32
<PAGE> 181
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table sets forth certain consolidated income statement
data on an unaudited proforma basis, as if the businesses were acquired at the
beginning of the periods indicated.
<TABLE>
<CAPTION>
(Shares in thousands) Twelve months ended February 28,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues $170,225 $141,801
Net income 6,053 5,044
Basic earnings per common share $ 1.25 $ 1.08
Diluted earnings per common share $ 1.23 $ 1.05
Weighted average number of common
shares outstanding:
Basic 4,824 4,691
Diluted 4,935 4,793
</TABLE>
Subsequent Events:
- ------------------
In March and April 1999, the Company acquired Castleton of Tulsa and
paid certain other consideration on fiscal 1999 acquisitions. These transactions
were completed by use of approximately $0.3 million from the line of credit,
issuance of $0.3 million of notes payable and the assumption of certain
liabilities.
NOTE 3--RENTAL FURNITURE:
- -------------------------
Rental furniture consists of the following:
<TABLE>
<CAPTION>
February 28,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Furniture on rental $ 43,648 $ 41,884
Furniture on hand 24,120 21,537
--------- ---------
67,768 63,421
Accumulated depreciation (12,342) (10,201)
--------- ---------
$ 55,426 $ 53,220
========= =========
</TABLE>
33
<PAGE> 182
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 4--PROPERTY AND EQUIPMENT AND LEASES:
- ------------------------------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
February 28,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Land $ 370 $ 370
Buildings 1,949 1,950
Leasehold improvements 2,888 2,569
Delivery equipment 2,811 1,973
Office and store equipment 6,183 4,963
Assets under capital lease (primarily delivery
and computer equipment) 1,000 1,231
Construction in progress 519 1
-------- --------
15,720 13,057
Accumulated depreciation and amortization (7,251) (5,314)
-------- --------
$ 8,469 $ 7,743
======== ========
</TABLE>
The Company leases certain real property and equipment under operating
leases from unrelated third parties and from certain of the Company's directors.
Lease terms range from one to 15 years. Rental expense was $4,354, $4,149 and
$3,703 in 1999, 1998 and 1997, respectively.
Acquisition of assets financed through capital leases totaled $103,
$543, and $153 in 1999, 1998 and 1997, respectively.
Minimum future rentals under noncancelable capital and operating leases
at February 28, 1999 are as follows:
<TABLE>
<CAPTION>
Operating Leases
----------------------
Capital Related Unrelated
Leases Parties Parties Total
------- -------- --------- --------
<S> <C> <C> <C> <C>
2000 $ 273 $ 275 $ 3,517 $ 4,065
2001 251 187 3,080 3,518
2002 39 187 2,245 2,471
2003 - 187 1,510 1,697
2004 - 187 840 1,027
Thereafter - 824 27 851
-------- -------- -------- --------
Total minimum lease payments 563 1,847 11,219 13,629
Amounts receivable from sublease - - (176) (176)
-------- -------- -------- --------
Minimum future lease obligations 563 $ 1,847 $ 11,043 $ 13,453
======== ======== ========
Amount representing interest (37)
--------
Present value of capital lease obligations $ 526
========
</TABLE>
34
<PAGE> 183
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5--DEBT:
- -------------
Outstanding debt consists of the following:
<TABLE>
<CAPTION>
February 28,
------------------
1999 1998
-------- -------
<S> <C> <C>
The Fifth Third Bank, PNC Bank and
Norwest Bank unsecured revolving note,
average interest of 6.62% $34,416 $ -
The Fifth Third Bank and PNC Bank unsecured
revolving note, average interest of 7.39% - 16,476
7.54% Senior Notes, unsecured, interest
payable semi-annually on March 1 and
September 1, due September 1, 2007 30,000 30,000
6.25% mortgage note payable to The Fifth
Third Bank, interest payable in monthly
installments, due December 1, 2002 1,445 1,510
6.0% note payable to seller of acquired
business, payable in monthly installments,
due December 31, 2000 550 850
7.5% note payable to seller of acquired
business, payable in monthly installments,
due November 2, 1998 - 181
6.0% note payable to seller of acquired
business, payable in quarterly
installments, due December 31, 2002 1,463 -
5.0% note payable to seller of acquired
business, payable in quarterly
installments, due December 31, 2002 500 -
Capital lease obligations 526 696
------- -------
$68,900 $49,713
======= =======
</TABLE>
On September 29, 1997, the Company obtained a $30 million unsecured
line of credit with The Fifth Third Bank and PNC Bank. This line of credit was
increased, by amendment, on May 14, 1998 to a $45 million unsecured line of
credit with The Fifth Third Bank, PNC Bank and Norwest Bank. Interest rates for
this revolving line of credit are based on a leverage formula, which is
currently the lesser of the prime rate minus 25 basis points or
35
<PAGE> 184
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
LIBOR plus 150 basis points. At February 28, 1999, the line of credit provided a
total unused credit facility of approximately $10.6 million. Unused facility
fees are payable at 0.20% per year. The term of the line of credit will expire
on September 30, 2000. Interest rates for the $30 million line of credit were
based on a leverage formula, which at February 28, 1998 was the lesser of the
prime rate minus 25 basis points or LIBOR plus 150 basis points.
The line of credit, as amended, contains covenants that limit the
amount of dividends or distributions the Company can pay on its common stock and
the amount of its own stock the Company can repurchase. The Company may pay
dividends or distributions on its common stock or repurchase shares of its
common stock as long as the aggregate amount is not in excess of $2 million in
any fiscal year. Any portion of such $2 million which is not utilized in a
fiscal year ending February 28/29 will be available for utilization during the
next fiscal year in addition to the $2 million already available for that year.
On March 13, 1997, the Company obtained a $1.5 million construction
loan with The Fifth Third Bank to fund construction of a showroom/clearance
center/warehouse facility. Effective December 1, 1997 the construction loan was
amended to a mortgage note due December 1, 2002, with principal and interest
payable monthly. The Company can elect to fix the interest rate for a one-,
three-, or five-year period based on the corresponding Treasury Note rate plus
175 basis points. Principal and interest are amortized over a 15-year period. At
February 28, 1999 the interest rate was 6.25%.
On September 29, 1997, the Company completed a private placement of $30
million of unsecured 7.54% Senior Notes due September 1, 2007, with interest
payable semi-annually on March 1 and September 1. Principal payments of $4.3
million are due annually beginning September 1, 2001. These Senior Notes may be
redeemed at a premium.
The aggregate payments of debt outstanding at February 28, 1999 for the
next five fiscal years and thereafter are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 1,046
2001 39,726
2002 4,889
2003 4,946
2004 4,373
Thereafter 13,920
--------
$ 68,900
========
</TABLE>
NOTE 6-SHAREHOLDERS' EQUITY:
- ----------------------------
One hundred thousand authorized but unissued shares of preferred stock
may be issued from time to time in series having such designated preferences and
rights, qualifications and limitations as the Board of Directors may determine
without any approval of shareholders.
On March 12, 1998, the Company's Board of Directors approved a program
for the repurchase of up to $3 million of the Company's outstanding common
stock. Shares may be purchased as market conditions warrant in the open market
or in privately negotiated transactions. During fiscal 1999, 50,000 shares were
repurchased for $653 and are currently held in treasury.
36
<PAGE> 185
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7--STOCK OPTIONS:
- ----------------------
Nonqualified options to purchase shares of the Company's common stock
were granted to certain key employees of the Company in April 1989, 1990 and
1992 under separate stock option agreements with these employees. Such options
were granted at a price equal to the market value at the date of grant. The
options expire ten years after the date of grant.
Effective January 11, 1996, April 8, 1997 and April 21, 1998, the
Company established stock option plans (the 1996 Plan, 1997 Plan and 1998 Plan,
respectively) which provide for the grant of options to purchase up to 200,249,
150,000 and 150,000 shares of common stock, respectively. All Plans are
administered by the Compensation Committee of the Company's Board of Directors.
The Committee intends to grant options at market value at the date of grant. The
maximum number of shares with respect to which options may be granted to any
employee during each fiscal year of the Company is 19,071 under the 1996 Plan
and 20,000 under both the 1997 and 1998 Plans. Options under all plans become
exercisable at the rate of 25% per year commencing one year after grant or as
determined by the Committee and expire ten years after date of grant.
The Plans provide for the grant of both incentive stock options and
nonqualified stock options, as well as restricted stock. To date, 4,446 shares
of restricted stock have been issued to an officer of the Company.
Effective April 8, 1997 the Company established a Directors stock
option plan (the Directors Plan) which provides for the grant of options to
purchase up to 50,000 shares of common stock to non-employee directors of the
Company. The Directors Plan is administered by a committee of the Company's
Board of Directors. Each eligible director receives options to purchase 1,000
shares of common stock upon election to the Board of Directors. Options are
priced at the last closing sales price reported immediately prior to the date of
grant and are immediately exercisable. The options expire ten years after date
of grant.
In March 1996, options to purchase 94,000 shares of the Company's
common stock were granted under the 1996 Plan at the initial public offering
price of $11.50. The exercise price of all but 12,000 of these options was
modified to $8.00 per share in November, 1996.
37
<PAGE> 186
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following information represents certain data as required by SFAS
No. 123, "Accounting for Stock-Based Compensation".
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Price
-------- ---------
<S> <C> <C>
Options outstanding at February 29, 1996 49,586 $ 0.61
-------- ---------
Granted 149,000 $ 8.28
Canceled (22,000) $ 8.00
Exercised (24,793) $ 0.61
Options outstanding at February 28, 1997 151,793 $ 7.07
-------- ---------
Granted 192,500 $ 19.72
Canceled (42,687) $ 10.52
Exercised (13,188) $ 3.36
Options outstanding at February 28, 1998 288,418 $ 15.18
-------- ---------
Granted 173,750 $ 13.33
Canceled (54,000) $ 19.03
Exercised (16,875) $ 3.67
Options outstanding at February 28, 1999 391,293 $ 14.32
-------- ---------
</TABLE>
The fair value of each option granted during fiscal 1999, 1998 and 1997
is estimated using the Black-Scholes option-pricing model assuming: (1) average
risk-free interest rate of 4.51%, 6.07% and 6.08%, respectively, (2) expected
life of 5 years, (3) expected volatility of 40% and (4) no dividend yield.
The weighted average fair value of options granted in fiscal 1999, 1998
and 1997 was $5.59, $8.74 and $4.38, respectively.
38
<PAGE> 187
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following tables summarize stock options outstanding and
exercisable at February 28, 1999:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------------------------------------
Weighted Average
Range of Exercise Options Remaining Weighted Average
Prices Outstanding Contractual Life Exercise Price
----------------- ------------------- ------------------ ----------------
<S> <C> <C> <C>
$ 1.03 6,793 1.16 yrs. $ 1.03
$ 8.00 - $ 9.75 82,875 7.35 yrs. $ 8.10
$11.50 - $14.75 199,750 9.40 yrs. $ 13.28
$22.25 - $23.00 101,875 8.63 yrs. $ 22.32
$ 1.03 - $23.00 391,293 8.62 yrs. $ 14.32
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
--------------------------------------------------------
Range of Exercise Options Weighted Average
Prices Exercisable Exercise Price
----------------- ----------- ----------------
<S> <C> <C>
$ 1.03 6,793 $ 1.03
$ 8.00 - $ 9.75 37,132 $ 8.02
$11.50 - $14.75 16,000 $ 13.27
$22.25 - $23.00 25,750 $ 22.32
$ 1.03 - $23.00 85,675 $ 12.75
</TABLE>
39
<PAGE> 188
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Had compensation expense been recorded for 1999, 1998 and 1997 grants
for stock-based compensation plans in accordance with the provisions of SFAS No.
123, the Company would have reported net income and earnings per share as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income applicable to common stock:
As reported $ 5,154 $ 4,065 $ 3,908
Pro forma $ 4,830 $ 3,894 $ 3,810
Earnings per common share:
As reported
Basic $ 1.13 $ 0.91 $ 0.90
Diluted $ 1.10 $ 0.89 $ 0.89
Pro forma
Basic $ 1.06 $ 0.87 $ 0.88
Diluted $ 1.03 $ 0.85 $ 0.87
</TABLE>
NOTE 8--INCOME TAXES:
- ---------------------
The components of income tax expense for the years ended February 28,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
February 28,
-----------------------------------
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Current $ 1,425 $ 931 $ 1,067
Deferred 1,555 1,282 992
State and local taxes 457 385 419
---------- ------- -------
$ 3,437 $ 2,598 $ 2,478
========== ======= =======
</TABLE>
40
<PAGE> 189
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
February 28,
------------------
1999 1998
------- -------
<S> <C> <C>
Deferred assets:
Alternative minimum tax (AMT) credit carryforwards $ 586 $ 994
Deferred state taxes 221 190
Accruals 1,049 834
Excess GranTree tax basis 195 195
Capitalized reorganization costs 299 299
Other 144 150
------- -------
2,494 2,662
Deferred liabilities:
Depreciation and other (7,900) (6,513)
------- -------
Net deferred liability (5,406) (3,851)
Valuation allowance (332) (332)
------- -------
Liability reflected in balance sheet $(5,738) $(4,183)
======= =======
</TABLE>
A reconciliation of the effective tax rate to the statutory federal tax
rate is summarized as follows:
<TABLE>
<CAPTION>
February 28,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Federal income taxes at 34% statutory rate $2,921 $2,265 $2,171
State and local taxes, net of federal benefit 434 304 267
Permanent differences 36 19 16
Other 46 10 24
------ ------ ------
Provision for income taxes $3,437 $2,598 $2,478
====== ====== ======
</TABLE>
The AMT credit carryforwards of $586 at February 28, 1999 can be
carried forward indefinitely. As a result of the initial public offering and the
subsequent ownership change of the Company by more than 50%, the annual
utilization of the AMT credit carryforward is limited. The Company began using
the alternative minimum tax carryforward in fiscal 1997.
The tax basis of GranTree's net assets at the date of its acquisition
by Globe exceeded the financial reporting basis. However, income tax regulations
limit the portion of such excess basis that can be deducted for income tax
purposes, with approximately $971 available for Globe's future use. The Company
began using this deduction in fiscal 1998. At February 28, 1999, approximately
$572 of the excess basis was available as a tax deduction.
The valuation allowance primarily relates to capitalized reorganization
costs, which can only be realized upon disposition of GranTree.
41
<PAGE> 190
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 9--401(k) PLANS:
- ---------------------
The Company maintains a defined benefit contribution plan for its
employees. An employee must complete one year of service and attain the age of
21 to be eligible to participate in the plan. To satisfy the required period of
service, an employee must complete at least 1,000 hours of service during a
consecutive twelve-month period. Eligible employees may elect to have between 1%
and 15% of their before-tax pay contributed to the plan. The Company will make a
matching contribution of 25 cents on each dollar contributed by a participant up
to 4% of a participant's total pay. Participants become vested in the Company
contributions to the extent of 10% after one year, 25% after two years, 45%
after three years, 70% after four years, and 100% after five years.
Employees of the former Oxford Furnished Apartments, Inc. were covered
by a separate defined benefit contribution plan until July 1, 1998. Terms were
identical to Globe's plan except that participants became vested in the Company
contributions to the extent of 0% after one year, 20% after two years, 40% after
three years, 60% after four years, 80% after five years and 100% after six
years. The Company match was a discretionary amount determined annually.
Effective July 1, 1998, these employees were transferred to Globe's plan.
Expense related to these plans was $81, $70 and $58 in 1999, 1998 and
1997, respectively.
NOTE 10--RELATED PARTY TRANSACTIONS:
- ------------------------------------
The Company leases certain real property and equipment under operating
leases from certain of the Company's directors. Lease terms range from one to
ten years. On March 31, 1998 one operating lease with certain of the Company's
officers and directors was canceled at no penalty to the Company. Related party
rental expenses were $621, $754 and $771 in 1999, 1998 and 1997, respectively.
On January 20, 1998 the Company issued a relocation loan of $100 to an
officer. Interest accrues at the rate of 7.5% per annum and is payable annually
on the anniversary date of the promissory note evidencing the debt. The
principal amount is payable in a lump sum on the third anniversary date of the
note.
On May 1, 1998 the Company purchased for resale the home of an officer
for $328 in connection with the officer's relocation. The home was sold on
September 4, 1998.
42
<PAGE> 191
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11--QUARTERLY INFORMATION (UNAUDITED):
- -------------------------------------------
Quarterly Operating Results - The following are quarterly results of
consolidated operations for fiscal 1999 and fiscal 1998 (in thousands except per
share data).
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED FEBRUARY 28, 1999
Revenues $ 32,882 $ 39,676 $ 38,208 $ 36,684 $147,450
Gross profit 14,919 17,372 15,964 14,940 63,195
Operating income 2,758 3,910 3,388 2,924 12,980
Net income 1,075 1,665 1,440 974 5,154
Earnings per common share:
Basic $ 0.24 $ 0.37 $ 0.32 $ 0.21 $ 1.13
Diluted $ 0.23 $ 0.36 $ 0.31 $ 0.21 $ 1.10
FISCAL YEAR ENDED FEBRUARY 28, 1998
Revenues $ 22,192 $ 25,086 $ 28,033 $ 28,589 $103,900
Gross profit 11,775 13,271 13,987 12,024 51,057
Operating income 2,553 3,218 2,928 1,205 9,904
Net income 1,162 1,486 1,257 160 4,065
Earnings per common share:
Basic $ 0.26 $ 0.33 $ 0.28 $ 0.04 $ 0.91
Diluted $ 0.26 $ 0.33 $ 0.27 $ 0.03 $ 0.89
</TABLE>
43
<PAGE> 192
GLOBE BUSINESS RESOURCES, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Charged
(Credited) Charged
Balance at to Cost (Credited) Balance at
Beginning and to Other End of
Description of Period Expenses Accounts Deductions Period
- --------------------------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended February 28, 1999 $609 $463 $ - $ 95 $977
Year ended February 28, 1998 460 541 - 392 609
Year ended February 28, 1997 327 173 - 40 460
Charged
Balance at (Credited) Balance at
Beginning to Other End of
Description of Period Accounts Deductions Period
- --------------------------------- ---------- --------- ---------- ----------
FAS 109 valuation allowance:
Year ended February 28, 1999 $332 $ - $ - $332
Year ended February 28, 1998 332 - - 332
Year ended February 28, 1997 332 - - 332
</TABLE>
44
<PAGE> 193
Part IV
Item 14
Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) Documents filed as part of this Report:
1. Financial Statements are included in Part II, Item 8.
2. Financial Statement Schedules are included in Part II, Item 8.
3. Exhibits - see Exhibit Index.
(b) Reports on Form 8-K filed during the fourth quarter of fiscal 1999:
Form 8-K filed January 22, 1999 under Item 5 for the Corporate
Condominiums acquisition.
45
<PAGE> 194
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Globe Business Resources, Inc.
By: /s/ David D. Hoguet
----------------------------
David D. Hoguet
Chief Executive Officer
Signed: May 5, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
- --------- -------- ----
/s/ David D. Hoguet
- ----------------------
David D. Hoguet Director May 5, 1999
/s/ Blair D. Neller
- ----------------------
Blair D. Neller Director May 5, 1999
/s/ Alvin Z. Meisel
- ----------------------
Alvin Z. Meisel Director May 5, 1999
/s/ William R. Griffin
- ----------------------
William R. Griffin Director May 5, 1999
/s/ Thomas C. Parise
- ----------------------
Thomas C. Parise Director May 5, 1999
/s/ Sharon G. Kebe Senior Vice President-
- ---------------------- Finance and Treasurer
Sharon G. Kebe (Principal Financial Officer) May 5, 1999
46
<PAGE> 195
GLOBE BUSINESS RESOURCES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Exhibit Description
- ------ -------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Registrant (a)
3.1 (i) Amendment to Articles of Incorporations (b)
3.2 Code of Regulations of the Registrant (a)
4.1 Form of Stock Certificate (a)
10.1 Amended and Restated Credit Agreement among the Registrant, GranTree
Corporation, The Fifth Third Bank, PNC Bank and Society National Bank dated as
of February 28, 1996 (a)
10.2 Amended and Restated Credit Agreement among the Registrant,
GranTree Corporation, Interim Quarters, LTD, Corporate Stay
International, Inc., The Fifth Third Bank, PNC Bank, KeyBank
National Bank and Fountain Square Commercial Funding Corp.
dated as of December 16, 1996 (d)
10.3 Tax Allocation Agreement for Registrant and its subsidiaries dated as of
December 31, 1992 (a)
10.4 GranTree Corporation Convertible Debenture due 1996 (a)
10.5 Credit Agreement among the Registrant, The Fifth Third Bank and PNC Bank dated
as of September 29, 1997 (b)
10.5.1 Amendment to Credit Agreement among the Registrant, The Fifth Third Bank, PNC
Bank and Northwest Bank dated May 14, 1998 (e)
10.6 7.54% Senior Notes due September 1, 2007 among the Registrant,
Security Life of Denver Insurance Company, Life Insurance
Company of Georgia, Peerless Insurance Company, Indiana
Insurance Company and Southland Life Insurance Company dated
as of September 1, 1997 (b)
MANAGEMENT COMPENSATORY CONTRACTS
10.7 1996 Stock Option Plan (a)
10.8 Amended Severance Agreement for David D. Hoguet (a)
10.9 Amended Severance Agreement for Blair D. Neller (a)
10.10 1997 Stock Option and Incentive Plan (c)
10.11 1997 Directors Stock Option plan (c)
10.12 Severance Agreement for Jeffery D. Pederson (b)
10.13 1998 Stock Option and Incentive Plan (f)
*******************************************************************************
21 Subsidiaries of the registrant
23 Consent of PricewaterhouseCoopers LLP
</TABLE>
47
<PAGE> 196
GLOBE BUSINESS RESOURCES, INC.
INDEX TO EXHIBITS - CONTINUED
27 Financial data schedule
99 Safe Harbor Statement
(a) Incorporated by reference to Registration No. 33-99894
(b) Incorporated by reference to Form 10-Q for the quarterly period ended
November 30, 1997
(c) Incorporated by reference to the definitive Proxy Statement for the 1997
Annual Meeting of Shareholders
(d) Incorporated by reference to Form 10-K for the year ended February 28, 1997
(e) Incorporated by reference to Form 10-Q for the quarterly period ended May
31, 1998
(f) Incorporated by reference to the definitive Proxy Statement for the 1998
Annual Meeting of Shareholders
Certain instruments evidencing debt of the registrant, none of which exceed
10% of total assets, are not being filed herewith. A copy will be provided
to the SEC at its request.
48
<PAGE> 197
Appendix F
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended Commission File No. 0-27682
November 30, 1999
Globe Business Resources, Inc.
Incorporated under the IRS Employer Identification
laws of Ohio No. 31-1256641
11260 Chester Road
Suite 400
Cincinnati, OH 45246
Phone: (513) 771-8287
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of January 7, 2000, 4,803,198 shares of the Registrant's common stock,
no par value, were outstanding.
<PAGE> 198
GLOBE BUSINESS RESOURCES, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
Page No.
--------
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet -
November 30, 1999 and February 28, 1999 3
Consolidated Statement of Income -
Three and nine months ended November 30, 1999 and 1998 4
Consolidated Statement of Cash Flows -
Nine months ended November 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18
<PAGE> 199
PART I - FINANCIAL INFORMATION
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
November 30, February 28,
1999 1999
--------------- ------------
(Unaudited)
ASSETS:
Cash $ 2,390 $ 1,123
Trade accounts receivable, less
allowance for doubtful accounts
of $1,126 and $977, respectively 14,209 11,982
Other receivables 1,099 1,418
Prepaid expenses 4,495 4,229
Rental furniture, net 54,695 55,426
Property and equipment, net 8,720 8,469
Goodwill and other intangibles,
less accumulated amortization of
$5,128 and $3,262, respectively 47,081 47,580
Note receivable from officer 100 100
Other notes receivable 1,054 490
Other, net 928 980
-------- --------
Total assets $134,771 $131,797
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 5,149 $ 6,250
Customer deposits 3,638 2,072
Accrued compensation 2,182 2,628
Accrued taxes 398 304
Deferred income taxes 5,877 5,738
Accrued interest payable 1,021 1,541
Other accrued expenses 1,078 1,250
Debt 69,441 68,900
-------- --------
Total liabilities 88,784 88,683
-------- --------
Common stock and other shareholders' equity:
Common stock, no par, 15,000,000 shares
authorized, 4,803,198, and 4,794,489
shares outstanding 24,058 24,018
Retained earnings 26,013 23,180
Fair market value in excess of historical
cost of acquired net assets attributable
to related party transactions (4,084) (4,084)
-------- --------
Total common stock and other
shareholders' equity 45,987 43,114
-------- --------
Total liabilities and shareholders' equity $134,771 $131,797
======== ========
The accompanying notes are an integral part
of these financial statements.
1
<PAGE> 200
GLOBE BUSINESS RESOURCES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
<TABLE>
<CAPTION>
For the three months For the nine months
ended, ended
------------------------- -------------------------
November 30, November 30, November 30, November 30,
------------ ----------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Corporate housing sales $25,577 $23,033 $ 80,765 $ 64,381
Rental sales 9,577 10,741 29,868 33,219
Retail sales 4,154 4,434 11,966 13,166
------- ------- -------- --------
39,308 38,208 122,599 110,766
------- ------- -------- --------
Cost of revenues:
Cost of corporate housing sales 17,954 16,652 56,014 45,318
Cost of rental sales 1,058 841 2,940 2,587
Cost of retail sales 2,935 2,681 7,668 8,144
Furniture depreciation and disposals 2,741 2,070 7,452 6,462
------- ------- -------- --------
24,688 22,244 74,074 62,511
------- ------- -------- --------
Gross profit 14,620 15,964 48,525 48,255
Operating expenses:
Warehouse and delivery 2,759 2,544 8,365 7,989
Occupancy 1,685 1,835 5,645 5,567
Selling and advertising 2,450 2,740 7,731 8,327
General and administration 5,330 4,947 16,521 14,868
Amortization of intangible assets 623 510 1,866 1,448
------- ------- -------- --------
12,847 12,576 40,128 38,199
------- ------- -------- --------
Operating income 1,773 3,388 8,397 10,056
Other expenses:
Interest expense 1,215 1,145 3,634 3,254
Other, net (75) (118) (16) (52)
------- ------- -------- --------
1,140 1,027 3,618 3,202
Income before income taxes 633 2,361 4,779 6,854
Provision for income taxes 261 921 1,950 2,674
------- ------- -------- --------
Net income $ 372 $ 1,440 $ 2,829 $ 4,180
======= ======= ======== ========
Earnings per common share:
Basic $ 0.08 $ 0.32 $ 0.59 $ 0.92
====== ====== ====== ======
Diluted $ 0.08 $ 0.31 $ 0.58 $ 0.90
====== ====== ====== ======
Weighted average number of
common shares outstanding:
Basic 4,798 4,532 4,797 4,546
Diluted 4,838 4,648 4,836 4,670
</TABLE>
The accompanying notes are an integral part of these
financial statements.
2
<PAGE> 201
GLOBE BUSINESS RESOURCES, INC
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the nine months ended,
---------------------------
November 30, November 30,
1999 1998
------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,829 $ 4,180
Adjustments to reconcile net income to
net cash provided by operating activities:
Rental furniture depreciation 5,974 5,839
Other depreciation and amortization 3,921 2,992
Provision for losses on accounts receivable 606 511
Provision for deferred income taxes 139 669
Loss (gain) on sale of property and equipment 21 (8)
Book value of furniture sales and rental buyouts 10,371 10,394
Changes in assets and liabilities:
Accounts receivable (2,516) (4,565)
Notes receivable (564) --
Other assets, net 56 195
Prepaid expenses (264) (1,618)
Accounts payable (1,101) 2,404
Customer deposits 1,556 (161)
Accrued compensation (461) 1,065
Accrued taxes 94 37
Accrued interest payable (520) (16)
Other accrued expenses (220) (310)
--------- ---------
Net cash provided by operating activities 19,921 21,608
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental furniture (15,614) (17,493)
Purchases of property and equipment (2,143) (1,992)
Purchases of businesses, net of cash acquired (1,018) (13,551)
Other investing activities -- 8
--------- ---------
Net cash used in investing activities (18,775) (33,028)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on the revolving credit agreement 141,224 126,708
Repayments on the revolving credit agreement (140,234) (114,015)
Repayments of other debt (559) (393)
Principal payments under capital lease obligations (364) (264)
Exercise of common stock options 117 5
Purchase of treasury stock (63) (653)
--------- ---------
Net cash provided by financing activities 121 11,388
--------- ---------
Net increase (decrease) in cash 1,267 (32)
Cash at beginning of period 1,123 526
--------- ---------
Cash at end of period $ 2,390 $ 494
========= =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 202
GLOBE BUSINESS RESOURCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data;
shares in whole numbers except where noted)
NOTE 1 -- PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Globe Business Resources, Inc., the
accompanying unaudited consolidated financial statements include all adjustments
considered necessary to present fairly its financial position as of November 30,
1999, and the results of its operations for the three and nine months ended
November 30, 1999 and 1998 and its cash flows for the nine months ended November
30, 1999 and 1998. All adjustments are of a normal recurring nature. Interim
results are not necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented in accordance
with the requirements of Form 10-Q, and do not contain certain information
included in the Company's audited consolidated financial statements and notes in
its Form 10-K for the fiscal year ended February 28, 1999.
Certain prior year amounts have been reclassified to conform with current
year presentation.
NOTE 2 -- ACQUISITIONS
During the first nine months of fiscal 2000, the Company completed the
asset acquisition of Castleton of Tulsa, a privately owned corporate housing
business, and paid certain other consideration on fiscal 1998 and 1999
acquisitions. These transactions were completed by payment of approximately $0.5
million in cash, issuance of $0.3 million of notes payable and the assumption of
certain liabilities.
In accordance with APB No. 16, these acquisitions were accounted for using
the purchase method.
The purchase price allocation for the acquired businesses is as follows:
(Unaudited)
-----------
Cash, receivables and prepaids $ 8
Property and equipment 10
Other assets 4
Goodwill and other intangibles 1,367
-------
1,389
Liabilities assumed (363)
-------
$ 1,026
=======
Certain pro forma Globe consolidated income statement data are not
presented due to the immaterial impact of Castleton of Tulsa on the previously
reported operating results. Current year actual results reflect the acquisition
for the entire reporting period.
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NOTE 3 -- RENTAL FURNITURE
Rental furniture consists of the following:
November 30, February 28,
1999 1999
------------- ------------
(Unaudited)
Furniture on rental $ 26,709 $ 43,648
Furniture on hand 40,955 24,120
-------- --------
67,664 67,768
Accumulated depreciation (12,969) (12,342)
-------- --------
$ 54,695 $ 55,426
======== ========
NOTE 4 -- EARNINGS PER SHARE
For all periods presented, basic earnings per share was calculated by
dividing net income applicable to common stock by the weighted average number of
shares outstanding during the period.
For all periods presented, diluted earnings per share was calculated by
dividing net income applicable to common stock by the weighted average number of
shares and dilutive potential common shares outstanding during the period.
Potential common shares include outstanding stock options for all periods
presented and contingently issuable shares in fiscal 1999.
The following table presents the calculation of basic and diluted earnings
per share for the periods indicated. (Shares in thousands)
For the three For the nine
months ended months ended
-------------- ----------------
November 30, November 30,
-------------- ----------------
1999 1998 1999 1998
------ ------ ------ -------
(Unaudited) (Unaudited)
Net income used to calculate
basic and diluted
earnings per share $ 372 $1,440 $2,829 $4,180
====== ====== ====== ======
Weighted average common shares
used to calculate
basic earnings per share 4,798 4,532 4,797 4,546
====== ====== ====== ======
Basic earnings per common share $ 0.08 $ 0.32 $ 0.59 $ 0.92
====== ====== ====== ======
Shares used in the calculation
of diluted earnings per share:
Weighted average common shares 4,798 4,532 4,797 4,546
Dilutive effect of assumed
exercise of options
for the purchase of common shares 40 44 39 52
Dilutive effect of assumed issuance of
contingently issuable shares -- 72 -- 72
------ ------ ------ ------
Weighted average common shares used to
calculate diluted earnings per share 4,838 4,648 4,836 4,670
====== ====== ====== ======
Diluted earnings per common share $ 0.08 $ 0.31 $ 0.58 $ 0.90
====== ====== ====== ======
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NOTE 5 -- DEBT
Outstanding debt consists of:
November 30, February 28,
1999 1999
------------ ------------
(Unaudited)
The Fifth Third Bank, PNC Bank and
Norwest Bank unsecured revolving note,
average interest of 6.89% and 6.62% $35,407 $34,416
7.54% Senior Notes, unsecured, interest
payable semi-annually on March 1 and
September 1, due September 1, 2007 30,000 30,000
6.25% mortgage note payable to The Fifth
Third Bank, interest payable in monthly
installments, due December 1, 2002 1,400 1,445
6.0% note payable to seller of acquired
business, payable in monthly installments,
due December 31, 2000 325 550
6.0% note payable to seller of acquired
business, payable in quarterly
installments, due December 31, 2002 1,129 1,463
5.0% note payable to seller of acquired
business, payable in quarterly
installments, due December 31, 2002 450 500
5.0% note payable to seller of acquired
business, payable in monthly
installments, due February 29, 2000 229 --
Capital lease obligations 501 526
------- -------
$69,441 $68,900
======= =======
The funds required for the acquisition related payments were derived from
borrowings under the Company's unsecured revolving Credit Agreement and through
the issuance of a note payable.
The Company's unsecured revolving line of credit provides credit facilities
of up to $45 million. At November 30, 1999, the revolving Credit Agreement
provided a total unused credit facility of approximately $9.6 million.
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NOTE 6 -- SUBSEQUENT EVENT
The Company announced on January 14, 2000 that it has entered into a
definitive agreement with Equity Residential Properties Trust for the sale of
Globe for $13.00 per share, payable in cash upon closing, and up to an
additional $.50 per share post closing, upon final determination of costs, if
any, relating to any potential breaches on certain representations and
covenants. The agreement must be approved by Globe shareholders and is subject
to customary closing conditions.
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements beginning on page 3.
GENERAL
Globe is a major participant in the temporary relocation industry,
operating in both the corporate housing and furniture rental businesses. The
corporate housing business provides short-term housing through an inventory of
leased housing units to transferring or temporarily assigned corporate
personnel, new hires, trainees, consultants and individual customers. The
furniture rental business rents quality office and residential furniture to a
variety of corporate and individual customers. Additionally, the Company sells
residential and office furniture that no longer meets its showroom condition
standards for rental through its clearance centers and sells new furniture
through its showrooms and account executives.
The Company's fiscal year ends on February 28/29.
The discussions contained in this Item 2 include forward-looking
information which is subject to risks and qualifications including, but not
limited to, those set forth in Exhibit 99.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain income
statement data as a percentage of total revenues and certain gross profit data
as a percentage of respective corporate housing, rental and retail sales
revenues.
For the three For the nine
months ended months ended
-------------- ------------------
November 30, November 30,
--------------- ------- --------
1999 1998 1999 1998
------ ------ ------- --------
Revenues:
Corporate housing sales 65.1% 60.3% 65.9% 58.1%
Rental sales 24.4% 28.1% 24.4% 30.0%
Retail sales 10.6% 11.6% 9.8% 11.9%
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
Gross profit:
Corporate housing sales 29.8% 27.7% 30.6% 29.6%
Rental sales 89.0% 92.2% 90.2% 92.2%
Retail sales 29.3% 39.5% 35.9% 38.1%
----- ----- ----- -----
Gross profit before depreciation
and disposals 44.2% 47.2% 45.7% 49.4%
Furniture depreciation and disposals (7.0%) (5.4%) (6.1%) (5.8%)
----- ----- ----- -----
Combined gross profit 37.2% 41.8% 39.6% 43.6%
Operating expenses 31.1% 31.6% 31.2% 33.2%
Amortization of intangible assets 1.6% 1.3% 1.5% 1.3%
----- ----- ----- -----
Operating income 4.5% 8.9% 6.8% 9.1%
Interest/other 2.9% 2.7% 3.0% 2.9%
----- ----- ----- -----
Income before taxes 1.6% 6.2% 3.9% 6.2%
===== ===== ===== =====
Fiscal 2000 third quarter and first nine months results were impacted by
certain nonrecurring items related primarily to the consolidation of real estate
and clearance center inventories in Globe Furniture Rentals western markets and
the accelerated implementation of a comprehensive corporate housing business
information system. The following table presents selected income statement data
after adjustment to exclude these nonrecurring items.
Summary Financial Data, excluding nonrecurring items
For the three For the nine
months ended months ended
------------------- --------------------
November 30, November 30,
------------------- --------------------
1999 1998 1999 1998
------- -------- -------- --------
Revenues $ 39,308 $ 38,208 $122,599 $110,766
Gross profit 14,860 15,964 48,765 48,255
Operating expenses 11,762 12,066 37,110 36,751
Operating income 2,475 3,388 9,789 10,056
Income before taxes 1,335 2,361 6,171 6,854
Net income 778 1,440 3,653 4,180
Diluted earning per common share $ 0.16 $ 0.31 $ 0.76 $ 0.90
Impact of Corporate Housing Acquisitions
Globe implemented an aggressive corporate housing acquisition strategy in
fiscal 1997. Since that time, the Company has completed fifteen corporate
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housing acquisitions, including the March 1999 acquisition of Castleton of
Tulsa. All acquisitions to date have been accounted for using the purchase
method of accounting.
Corporate housing companies' assets consist primarily of accounts
receivable, customer deposits and some minor furniture and fixed asset balances.
Consequently, the purchase price for these businesses is allocated largely to
goodwill and other intangibles. Cost of goodwill and other intangibles related
to the corporate housing acquisitions approximates $50.9 million and is being
amortized on a straight-line basis over periods ranging from three to 35 years,
with a weighted average life of approximately 24 years. Goodwill and intangibles
amortization, which is a separate component of operating expenses, reduced
operating profit by $1.9 million, or 1.5% of revenues, in the first nine months
of fiscal 2000 and $1.4 million, or 1.3% of revenues, in the first nine months
of fiscal 1999.
Generally, the corporate housing business has a slightly lower operating
margin than the furniture rental business, consisting of a lower gross profit
margin offset somewhat by lower operating expenses as a percentage of revenues.
As a result, the Company's gross profit margin and operating expenses as a
percentage of revenues have been declining since the Company entered the
corporate housing business. Gross profit margin decreased to 39.6% in the first
nine months of fiscal 2000 from 43.6% in the first nine months of fiscal 1999.
Gross profit margin on rental sales in the first nine months of fiscal 2000 was
90.2%, versus 30.6% for corporate housing. Comparable gross profit margins for
the first nine months of fiscal 1999 were 92.2% and 29.6%, respectively. Because
the Company is integrating its furniture rental and corporate housing
operations, these gross profit percentages exclude furniture depreciation and
disposals which can no longer be related to specific revenue categories. An
additional result of this integration is that operating expenses and, therefore,
operating margins for furniture rental and corporate housing cannot be
specifically identified. Operating expenses, excluding amortization and the
impact of nonrecurring expenses, decreased to 30.3% of revenues in the first
nine months of fiscal 2000 from 33.2% of revenues in the first nine months of
fiscal 1999, while the operating margin, excluding amortization and the impact
of nonrecurring items, decreased to 9.5% of revenues in the first nine months of
fiscal 2000 from 10.4% of revenues in the first nine months of fiscal 1999. The
reduction in operating margin is primarily the result of the increasing mix of
corporate housing revenues over the comparable periods and a soft sales
environment. Including amortization expenses and excluding nonrecurring items,
the operating margin declined to 8.0% in the first nine months of fiscal 2000
from 9.1% in the first nine months of fiscal 1999.
Globe plans to continue its consolidation of corporate housing through
additional acquisitions, thereby capitalizing on the desire of many corporations
to have a corporate housing company that can meet their needs nationally. With
the acquisitions to date, Globe has expanded its presence into 29 markets and is
the market leader in ten of these markets, with annualized corporate housing
revenues exceeding $100 million. Globe is in the number three position in the
industry based on revenues.
A major risk of Globe's increasing presence in the corporate housing
business is the potential loss of furniture rental revenues from competing
corporate housing companies that are also customers. To date, the majority of
this business with unaffiliated customers has been retained, largely due to the
Company's superior level of service. Additionally, the significance of this risk
has lessened since Globe entered the corporate housing business. In the first
nine months of fiscal 2000, unaffiliated corporate housing customers accounted
for $5.3 million, or 4.3%, of Globe's revenues versus $6.4 million, or 5.8%, of
Globe's revenues in the first nine months of fiscal 1999. During these same
periods, furniture rental revenues from affiliated corporate housing providers,
which are not included in reported revenues, were $5.4 million and $4.0 million,
respectively.
The Company is implementing a comprehensive corporate housing business
information system which provides the tools for supporting Company-wide
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standardization, as well as enhancing apartment unit inventory management and
allowing operational efficiencies. Additionally, the system facilitates the
national sales effort and provides a common platform as the Company begins
implementation of its business-to-business e-commerce efforts during the second
half of fiscal 2000. Implementation of the corporate housing business
information system has been successfully completed in several markets and Globe
has retained the services of an outside consulting firm to expedite the
Company-wide rollout. Nonrecurring expenses consisting of consulting fees of
approximately $0.6 million are expected to be incurred and recorded in
administrative expenses during fiscal year 2000. Approximately $0.3 million of
these costs were incurred in the first nine months of the fiscal year.
Due to the significant impact of the corporate housing acquisitions on the
Company's operations and financial results, certain aspects of the Company's
historical results of operations and period-to-period comparisons will not be
indicative of future results.
Comparison of Third Quarter Fiscal 2000 to Third Quarter Fiscal 1999
Total revenues of $39.3 million increased $1.1 million, or 2.9%, in the
third quarter of fiscal 2000, from $38.2 million in the third quarter of fiscal
1999, primarily due to acquisitions.
Corporate housing sales of $25.6 million in the third quarter of fiscal
2000 increased 11.0% from $23.0 million in the third quarter of fiscal 1999.
This increase was primarily caused by acquisitions.
Rental sales of $9.6 million in the third quarter of fiscal 2000 decreased
10.8% from $10.7 million in the third quarter of fiscal 1999 partially as a
result of the elimination of intercompany revenues (furniture rented to
Company-owned corporate housing operations). Excluding the impact of these
eliminations, rental revenues decreased $1.1 million, or 8.9%, when compared
with the prior year quarter, reflecting a general softness in the residential
market and a loss of business from some competing corporate housing customers.
Management believes this softness represents a cyclical slowdown attributable to
the fact that corporate housing has taken over a substantial portion of the
furnished apartment distribution channel. As corporate housing has taken over
more of the furnished apartment distribution channel, furniture rental volume
growth from corporate housing customers has slowed. To date, the other customers
in the furnished apartment distribution channel (property management companies
and showroom customers) have not offset this slowdown.
Retail sales of $4.2 million decreased $0.2 million, or 6.3%, in the third
quarter of fiscal 2000 from $4.4 million in the third quarter of fiscal 1999,
with an increase of 30.4% in new office furniture sales more than offset by a
16.8% decline in used furniture sales. The used furniture decrease is primarily
attributable to the Company's decision to consolidate clearance centers in its
western markets and the closure of a store in Michigan.
Gross profit of $14.6 million in the third quarter of fiscal 2000 decreased
$1.4 million, or 8.4%, from $16.0 million in the third quarter of fiscal 1999
and declined as a percentage of revenues to 37.2% from 41.8% over the same
period partially due to the higher mix of corporate housing revenues and the
lower margins associated with these revenues. Gross profit percentage on
corporate housing sales improved to 29.8% from 27.7% over the period. Gross
profit percentage on rental sales decreased to 89.0% from 92.2% over the period
primarily due to an increase in housewares and other rental expenses. Gross
profit percentage on retail sales decreased to 29.3% from 39.5% over the period
resulting from lower margins on clearance center revenues and the impact of a
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nonrecurring liquidation sale associated with the inventory consolidation in the
western markets. Excluding this sale, retail gross profit was 35.1%. In
addition, the Company recorded a physical inventory adjustment of approximately
$0.3 million during the third quarter of fiscal 2000.
Operating expenses of $12.2 million (excluding amortization) in the third
quarter of fiscal 2000 increased 1.3% from $12.1 million in the third quarter of
fiscal 1999 as a result of acquisitions and approximately $0.5 million of
nonrecurring expenses associated with the consolidation of real estate and
clearance center inventories in the western markets and the accelerated
implementation of the corporate housing system. As a percentage of total
revenues, operating expenses declined to 31.1% from 31.6% over the same period.
Excluding the nonrecurring expenses, operating expenses decreased to 29.9% of
revenues from 31.6% of revenues during the period. Additional nonrecurring
expenses, estimated at approximately $0.4 million, are expected to be incurred
during the fourth quarter of fiscal year 2000 primarily due to the accelerated
rollout of the Company's corporate housing system.
As a result of the Company's continuing acquisition program, amortization
of intangible assets increased $0.1 million, or 22.2%, to $0.6 million in the
third quarter of fiscal 2000, from $0.5 million in the third quarter of fiscal
1999. As a percentage of revenues, amortization expense increased to 1.6% from
1.3% over the same period.
As a result of the changes in revenues, gross profit, operating expenses
and amortization discussed above, operating income decreased 47.7% to $1.8
million, or 4.5% of revenues in the third quarter of fiscal 2000, from $3.4
million, or 8.9% of revenues in the third quarter of fiscal 1999. Excluding
nonrecurring items, operating income decreased to $2.5 million, or 6.3% of
revenues during the quarter from $3.4 million, or 8.9% of revenues in the prior
year quarter.
Interest/other expense increased to $1.1 million in the third quarter of
fiscal 2000 from $1.0 million in the third quarter of fiscal 1999 and as a
percentage of total revenues increased to 2.9% from 2.7% over the same period.
Interest expense increased from the prior year period due to higher debt
balances in the current year period. The debt increase was the result of funding
required for acquisitions made in the fourth quarter of fiscal 1999.
Income before income taxes of $0.6 million in the third quarter of fiscal
2000 decreased $1.7 million, or 73.2%, compared to the third quarter of fiscal
1999 and as a percentage of revenues decreased to 1.6% from 6.2% over the same
period. Excluding nonrecurring items, income before taxes decreased to $1.3
million, or 3.4% of revenues from $2.3 million, or 6.2% of revenues during the
comparable quarters of fiscal 2000 and fiscal 1999.
The Company's effective tax rate, which includes federal, state and local
taxes, increased to 41.2% in the third quarter of fiscal 2000 from 39.0% in the
third quarter of fiscal 1999. This increase in tax rate is largely attributable
to Globe's expansion into states with higher tax rates than those included in
the prior year quarter.
Comparison of Nine Months Ended November 30, 1999
to Nine Months Ended November 30, 1998
Total revenues of $122.6 million increased $11.8 million, or 10.7%, in the
first nine months of fiscal 2000, from $110.8 million in the first nine months
of fiscal 1999, primarily due to acquisitions.
Corporate housing sales of $80.8 million in the first nine months of fiscal
2000 increased 25.4% from $64.4 million in the first nine months of fiscal 1999.
This increase was primarily caused by acquisitions.
Rental sales of $29.9 million in the first nine months of fiscal 2000
decreased 10.1% from $33.2 million in the first nine months of fiscal 1999
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<PAGE> 210
primarily due to the elimination of intercompany revenues. Excluding the impact
of these eliminations, rental revenues decreased 5.2%, reflecting a general
softness in the residential market and a loss of business from some competing
corporate housing customers.
Retail sales of $12.0 million decreased $1.2 million, or 9.1% in the first
nine months of fiscal 2000 from $13.2 million in the first nine months of fiscal
1999, resulting from a decrease of $1.2 million, or 21.0%, in clearance center
revenues over the period. The decrease is primarily the result of closure of a
store in Michigan and a decrease in revenues in the Company's western markets
resulting from the decision to consolidate clearance centers.
Gross profit of $48.5 million in the first nine months of fiscal 2000
increased $0.2 million, or 0.6%, from $48.3 million in the first nine months of
fiscal 1999 and declined as a percentage of revenues to 39.6% from 43.6% over
the same period partially due to the higher mix of corporate housing revenues
and the lower margins associated with these revenues. Gross profit percentage on
corporate housing sales improved to 30.6% from 29.6% in the comparable prior
year period, while gross profit percentage on rental and retail sales decreased
to 90.2% and 35.9% from 92.2% and 38.1%, respectively. The decrease in rental
gross profit percentage was largely attributable to higher housewares expenses,
while the decrease in retail gross profit was primarily attributable to the
impact of a nonrecurring liquidation sale associated with the inventory
consolidation in the western markets. In addition, the Company recorded a
physical inventory adjustment of approximately $0.3 million during the third
quarter of fiscal 2000.
Operating expenses of $38.3 million (excluding amortization) in the first
nine months of fiscal 2000 increased 4.1% from $36.8 million in the first nine
months of fiscal 1999 as a result of acquisitions and approximately $1.2 million
of nonrecurring expenses associated with the consolidation of real estate and
clearance center inventories in the western markets and the accelerated
implementation of the corporate housing system. As a percentage of total
revenues, these expenses declined to 31.2% from 33.2% over the same period.
Excluding the nonrecurring charges, operating expenses decreased to 30.3% of
revenues during the first nine months of fiscal 2000 from 33.2% of revenues in
the first nine months of fiscal 1999. Additional nonrecurring expenses,
estimated at approximately $0.4 million, are expected to be incurred during the
fourth quarter of fiscal year 2000 primarily due to the accelerated rollout of
the corporate housing system.
As a result of Globe's continuing acquisition program, amortization of
intangible assets increased $0.5 million, or 28.9%, to $1.9 million in the first
nine months of fiscal 2000, from $1.4 million in the first nine months of fiscal
1999. As a percentage of revenues, amortization expenses increased to 1.5% from
1.3% over the same period.
As a result of the changes in revenues, gross profit, operating expenses
and amortization discussed above, operating income decreased 16.5% to $8.4
million, or 6.8% of revenues in the first nine months of fiscal 2000, from $10.1
million, or 9.1% of revenues in the first nine months of fiscal 1999. Excluding
nonrecurring items, operating income decreased to $9.8 million, or 8.0% of
revenues from $10.1 million, or 9.1% over the period.
Interest/other expense increased $0.4 million to $3.6 million in the first
nine months of fiscal 2000 from $3.2 million in the first nine months of fiscal
1999 and increased slightly to 3.0% of total revenues from 2.9% in the
comparable prior year period. The increased expense for fiscal 2000 was due
primarily to higher debt balances than in the comparable period of fiscal 1999.
The debt increase was the result of funding required for fiscal 1999
acquisitions.
Income before income taxes of $4.8 million in the first nine months of
fiscal 2000 decreased $2.1 million, or 30.3%, compared to the first nine months
of fiscal 1999 and as a percentage of revenues decreased to 3.9% from 6.2% over
the same period. Excluding nonrecurring items, income before taxes decreased to
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$6.2 million, or 5.5% of revenues from $6.9 million, or 6.2% of revenues during
the period.
The Company's effective tax rate, which includes federal, state and local
taxes, increased to 40.8% in the first nine months of fiscal 2000 from 39.0% in
the first nine months of fiscal 1999. This increase in tax rate is largely
attributable to Globe's expansion into states with higher tax rates than those
included in the prior nine month period.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a $45.0 million unsecured line of credit which may be
used for acquisitions and general corporate purposes. At January 7, 2000, the
unused line of credit was $9.6 million. The term of this line of credit will
expire on September 30, 2000, requiring full payment of the then outstanding
balance. The Company expects to have other financing arrangements in place prior
to this date.
Principal payments of $4.3 million are due annually beginning September 1,
2001 on the $30.0 million unsecured Senior Notes due September 1, 2007. These
notes may be redeemed at a premium.
The Company maintains a $1.4 million mortgage note which requires full
payment of the then outstanding balance at the end of the initial term (December
1, 2002). Globe expects to renew the note for an additional five-year period at
that date.
From March 1, 1999 through January 7, 2000 Globe used approximately $0.5
million from its line of credit, issued approximately $0.3 million of notes
payable and assumed approximately $0.1 million of certain liabilities in
completing one acquisition and paying certain other consideration on fiscal 1998
and 1999 acquisitions. (See Note 2 to the consolidated financial statements for
further discussion of these acquisitions.)
Other than acquisitions, the Company's principal use of cash is for
furniture purchases. The Company purchases furniture to replace furniture which
has been sold and to maintain adequate levels of rental furniture to meet
existing and new customer needs. Furniture purchases were $15.6 million in the
first nine months of fiscal 2000 and $17.5 million in the first nine months of
fiscal 1999. The lower level of purchases in the first nine months of fiscal
2000 versus the prior year period reflects the lower level of rental sales
revenues. As the Company's growth strategies are implemented, furniture
purchases may increase.
Capital expenditures were $2.1 million and $2.0 million in the first nine
months of fiscal 2000 and 1999, respectively. These expenditures were financed
through cash provided by operations and utilization of the credit facilities.
Expenditures for the first nine months of both fiscal 2000 and fiscal 1999 were
largely attributable to continued development of computer systems. Costs to
further develop the computer systems and support user equipment needs, which are
anticipated to be approximately $1.5 million, will be incurred in the next 3-15
months and are expected to be financed through cash generated by operations.
Remaining capital expenditures are expected to be approximately $1.0 million and
are also expected to be funded by cash generated by operations. Any temporary
cash deficiencies resulting from timing of these expenditures will be funded via
the line of credit.
In the first nine months of fiscal 2000 and 1999, net cash provided by
operations was $19.9 million and $21.6 million, respectively, generating $2.2
million more cash than was necessary to fund investing activities (excluding
acquisitions) in the first nine months of fiscal 2000 and $2.1 million more cash
than was necessary to fund investing activities (excluding acquisitions) in the
first nine months of fiscal 1999.
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Aside from acquisitions, furniture purchases, which have historically been
seasonally weighted to the first half of the fiscal year, are the primary reason
for use of the credit facilities. Any temporary cash deficiencies resulting from
these purchases will be funded via the line of credit. The Company expects cash
flow from operations plus the credit facilities to be sufficient to fund the
Company's needs for the foreseeable future.
YEAR 2000
The Company successfully completed its Year 2000 Remediation Plan and has
not experienced material adverse consequences on its operations resulting from
non-compliance of either its information technology or non-information
technology systems.
To date, Globe has not experienced material adverse consequences related to
the operations of customers or vendors and it does not have a relationship with
any third-party vendor which is material to its operations, nor is it aware of
exposures related to these customer vendors. However, there can be no assurance
that future system failures of other companies on which the Company relies would
not have an adverse impact on Globe's operations. Costs associated with any such
failure cannot be reasonable estimated.
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt.
Primary exposures include movements in the prime rate, U.S. Treasury Note rates
and LIBOR.
The table below provides information on Globe's significant debt issuances
by expected maturity date. (See Note 5 to the Consolidated Financial Statements
for further information.)
<TABLE>
<CAPTION>
Twelve Months Ended November 30,
---------------------------------------------------------------------------------
(Dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Characteristics:
Unsecured revolving note $35,407 $35,407
Average interest rate 6.89% 6.89%
Unsecured senior note $ 4,285 $4,286 $4,286 $4,286 $12,857 $30,000
Fixed interest rate 7.54% 7.54% 7.54% 7.54% 7.54% 7.54%
Mortgage note $ 71 $ 76 $ 81 $ 86 $ 92 $ 994 $ 1,400
Fixed interest rate 6.25% 6.25% 6.25% 6.25% 6.25% 6.25% 6.25%
Other debt issues $924 $ 506 $510 $193 $ 2,133
Average fixed interest rate 5.61% 5.78% 5.77% 5.53% 5.68%
</TABLE>
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<PAGE> 213
PART II
ITEM 1
Legal Proceedings
None
ITEM 2
Changes in Securities
None
ITEM 3
Defaults Upon Senior Securities
None
ITEM 4
Submission of Matters to a Vote of Security Holders
None
ITEM 5
Other Information
The Company announced on January 14, 2000 that it has entered into a
definitive agreement with Equity Residential Properties Trust for the sale of
Globe for $13.00 per share, payable in cash upon closing, and up to an
additional $.50 per share post closing, upon final determination of costs, if
any, relating to any potential breaches on certain representations and
covenants. The agreement must be approved by Globe shareholders and is subject
to customary closing conditions. A copy of the press release is filed herewith
as Exhibit 10.
15
<PAGE> 214
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q/A
Amendment No. 1
To
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended Commission File No.
November 30, 1999 0-27682
Globe Business Resources, Inc.
Incorporated under the IRS Employer
laws of Ohio Identification No.
31-1256641
11260 Chester Road
Suite 400
Cincinnati, OH 45246
Phone: (513) 771-8287
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of January 7, 2000, 4,803,198 shares of the Registrant's common stock,
no par value, were outstanding.
This Amendment to Form 10-Q for the quarterly period ended November 30,
1999 is being filed to correct a clerical error in Note 3 to the Consolidated
Financial Statements and to add clarification to a line item description
contained in Summary Financial Data presented under Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Furniture on rental $ 40,955 $ 43,648
</TABLE>
<PAGE> 215
<TABLE>
<S> <C> <C>
Furniture on hand 26,709 24,120
-------- --------
67,664 67,768
Accumulated depreciation (12,969) (12,342)
-------- --------
$ 54,695 $ 55,426
======== ========
</TABLE>
Summary Financial Data, excluding nonrecurring items
<TABLE>
<CAPTION>
For the three months ended, For the nine months ended,
--------------------------- --------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 39,308 $ 38,208 $122,599 $110,766
Gross profit 14,860 15,964 48,765 48,255
Operating expenses
(excluding amortization) 11,762 12,066 37,110 36,751
Operating income 2,475 3,388 9,789 10,056
Income before taxes 1,335 2,361 6,171 6,854
Net income 778 1,440 3,653 4,180
Diluted earnings per
common share $ 0.16 $ 0.31 $ 0.76 $ 0.90
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Globe Business Resources, Inc.
By: /s/ Sharon G. Kebe
--------------------------------------
Senior Vice President-Finance and
Treasurer (Principal Financial
Officer)
Signed: January 19, 2000
<PAGE> 216
COMPANY LOGO
Globe Business Resources, Inc.
Special Meeting of Shareholders
----------------------
June 29, 2000
10:00 A.M. Eastern Time
Company's Corporate Headquarters
11260 Chester Road, Suite 400
Cincinnati, Ohio
PROXY
GLOBE BUSINESS RESOURCES, INC.
SPECIAL MEETING OF SHAREHOLDERS
June 29, 2000
The undersigned hereby appoints DAVID D. HOGUET and BLAIR D. NELLER, or either
one of them, proxies of the undersigned, each with the power of substitution, to
vote all shares of Common Stock which the undersigned would be entitled to vote
on the matters specified below and in their discretion with respect to such
other business as may properly come before the Special Meeting of Shareholders
of Globe Business Resources, Inc. to be held on June 29, 2000 at 10:00 A.M.
Eastern Time at the Company's Corporate Headquarters, 11260 Chester Road, Suite
400, Cincinnati, Ohio or any adjournment of such meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL:
Adoption of an Agreement of Merger between Globe Acquisition Co., Inc. and Globe
Business Resources, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(This proxy is continued and is to be signed on the reverse side)
THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS UNLESS A
CONTRARY CHOICE IS SPECIFIED.
<PAGE> 217
Globe Business Resources, Inc.
c/o Corporate Trust Services
Mail Drop 1090F5-4129
38 Fountain Square Plaza
Cincinnati, OH 45263
Date______________________________, 2000
________________________________________
________________________________________
(Important: Please sign exactly as name
appears hereon indicating, where proper,
official position or representative
capacity. In the case of joint holders, all
should sign.) THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
