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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
XLCONNECT SOLUTIONS, 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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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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.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$19,400
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
Initial Schedule 14A
___________________________________________________________________________
3) Filing Party:
XLConnect Solutions, Inc.
___________________________________________________________________________
4) Date Filed:
May 17, 1998
___________________________________________________________________________
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XLCONNECT SOLUTIONS, INC.
411 Eagleview Boulevard
Exton, PA 19341
(610) 458-5500
April 14, 1998
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
of XLConnect Solutions, Inc. to be held at the Holiday Inn, 815 North Pottstown
Pike, Exton, Pennsylvania 19341 on May 20, 1998 at 10:00 a.m. local time.
At this meeting, you will be asked to vote on the acquisition, by means
of a merger, of XLConnect by Xerox Corporation and a related amendment of
XLConnect's Articles of Incorporation to opt out of certain Pennsylvania law
provisions concerning dissenters' rights in control acquisitions. In the merger,
you will be entitled to receive $20.00 in cash for each share of XLConnect
common stock that you own.
A merger agreement with Xerox has been unanimously approved by your
Board of Directors acting on the unanimous recommendation of an independent
committee of the Board of Directors. The independent committee of the Board
received the opinion of its independent financial advisor, NationsBanc
Montgomery Securities LLC, that, at the date of such opinion, based upon the
assumptions made, matters considered and the limitations on the review
undertaken in connection therewith, the consideration to be received in the
merger by XLConnect shareholders (other than Intelligent Electronics) was fair
to such shareholders from a financial point of view. The Board of Directors has
concluded that the proposed merger and the related amendment of XLConnect's
Articles of Incorporation are in the best interests of XLConnect's shareholders
and, therefore, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE MERGER AGREEMENT AND THE ARTICLES AMENDMENT.
The attached notice of meeting and proxy statement explain the proposed
merger and amendment to the Articles of Incorporation and provide specific
information concerning the special meeting. Please read these materials
carefully.
Whether or not you plan to attend the special meeting, we urge you to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the meeting. The merger is an important step for
XLConnect and its shareholders. THE MERGER CANNOT BE COMPLETED UNLESS
XLCONNECT'S SHAREHOLDERS ADOPT THE MERGER AGREEMENT.
On behalf of the Board of Directors, I thank you for your support and
urge you to vote FOR adoption of the merger agreement.
Sincerely,
/s/ Richard D. Sanford
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Richard D. Sanford
Chairman of the Board of Directors
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XLCONNECT SOLUTIONS, INC.
411 Eagleview Boulevard
Exton, PA 19341
(610) 458-5500
NOTICE AND PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 20, 1998
To the shareholders of XLConnect Solutions, Inc.:
This notice is provided to inform you that a Special Meeting of
Shareholders of XLConnect Solutions, Inc. (the "XLConnect") will be held at the
Holiday Inn, 815 North Pottstown Pike, Exton, Pennsylvania 19341, on May 20,
1998 at 10:00 a.m. local time (the "Meeting"), for consideration of and action
upon the following matters (each a "Proposal" and collectively the "Proposals"):
1. To consider and vote on a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of March 4, 1998 (the "Merger Agreement"), by and
between Xerox Corporation ("Xerox"), TDC Subsidiary Corporation, a wholly-owned
subsidiary of Xerox ("Acquisition Sub One"), TDC Two Subsidiary Corporation, a
wholly-owned subsidiary of Xerox ("Acquisition Sub Two"), XLConnect and
Intelligent Electronics, Inc., ("IE") an 80% shareholder of XLConnect. Pursuant
to the Merger Agreement, Acquisition Sub One will be merged into XLConnect (the
"Merger") with XLConnect continuing as the surviving corporation (the "XLConnect
Surviving Corporation"). If the Merger Agreement is adopted and the Merger
approved by the shareholders and the other conditions to the Merger are
satisfied or waived, each share of common stock of XLConnect ("XLConnect Common
Stock") issued and outstanding immediately prior to the effective time of the
Merger (other than (i) shares owned by IE, (ii) shares of XLConnect Common Stock
held by XLConnect as treasury stock, which shares shall be canceled, and (iii)
shares as to which statutory appraisal rights have been exercised) will be
converted into the right to receive $20.00 in cash, without interest. The actual
terms of the Merger are contained in the Merger Agreement. The Merger Agreement
is included in the Proxy Statement as Appendix A.
2. To consider and vote on a proposal to amend the Articles of
Incorporation of XLConnect so that Subchapter E (relating to control
transactions) of Chapter 25 of the Pennsylvania Business Corporation Law of
1988, as amended (the "PBCL") does not apply to XLConnect (the "Articles
Amendment"). The Articles Amendment is included in the Proxy Statement as
Appendix D.
IF THE XLCONNECT SHAREHOLDERS DO NOT APPROVE THE MERGER, PROPOSAL NO. 2
TO AMEND XLCONNECT'S ARTICLES OF INCORPORATION WILL NOT BE EFFECTIVE. IN
ADDITION, OPTING OUT OF SUBCHAPTER E IS A CONDITION TO THE XEROX OBLIGATION TO
CONSUMMATE THE MERGER. THEREFORE, THE FAILURE TO APPROVE PROPOSAL NO. 2 MAY
RESULT IN THE TERMINATION OF THE MERGER.
3. To transact such other business as may properly come before the
Meeting and any postponement or adjournment thereof, and matters incident to the
conduct of the Meeting.
The Board of Directors has fixed the close of business on April 13,
1998 as the record date for the determination of shareholders of XLConnect
entitled to notice of, and to vote at, the Meeting and any postponement or
adjournment thereof. Shareholders may vote in person or by proxy. In the event
that there are not sufficient votes to approve any of the Proposals, XLConnect
expects that the Meeting will be postponed or adjourned in order to permit
further solicitation of proxies by XLConnect. If the Meeting is adjourned for
one or more periods aggregating at least 15 days because of the absence of a
quorum with respect to any Proposal, then those shareholders entitled to vote
who are present at the adjourned Meeting in person or by proxy shall
nevertheless constitute a quorum for the purpose of acting upon such Proposal.
The Proxy Statement and the accompanying XLConnect proxy card will first be sent
to shareholders on or about April 14, 1998.
Whether or not you plan to attend the Meeting in person, please mark,
date and sign your proxy, and mail it in the stamped envelope enclosed for your
convenience. In order to avoid the additional expense to XLConnect of further
solicitation, we ask your cooperation in mailing your proxy promptly. Returning
the proxy does not affect your right to vote in person on all matters brought
before the Meeting, but will help assure a quorum if you do not attend.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Richard D. Sanford
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Richard D. Sanford
Chairman of the Board of Directors
Exton, PA
April 14, 1998
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MEETING...........................................................................1
SUMMARY .........................................................................................................3
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING....................................................................8
VOTING SECURITIES OF XLCONNECT....................................................................................8
SOLICITATION OF PROXIES..........................................................................................10
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE..................................................................10
PROPOSAL NO. 1 - APPROVAL OF THE MERGER..........................................................................11
Purpose, Structure and Effect of the Merger.............................................................11
Background of the Merger................................................................................11
XLConnect's Reasons for the Merger; Recommendation of the Board of Directors............................14
Opinion of NationsBanc Montgomery Securities LLC........................................................15
Interests of Certain Persons in the Merger..............................................................18
Merger Agreement........................................................................................20
Terms of the Merger............................................................................20
Conversion of XLConnect Common Stock and the Stock of Acquisition Sub
One in the Merger.....................................................................20
Appraisal Rights. ............................................................................21
IE Options and Warrants. .....................................................................21
XLConnect Options and Warrants.................................................................21
Payment of Shares..............................................................................22
Representations and Warranties. ..............................................................23
Conduct of Business Pending the Merger. ......................................................23
Solicitations and Superior Proposals. ........................................................24
Additional Covenants. ........................................................................25
Conditions to the Merger. ....................................................................25
Termination of Merger Agreement and Termination Fees. ........................................26
Expenses ......................................................................................27
Amendment......................................................................................27
Accounting Treatment....................................................................................27
Certain Effects of the Merger...........................................................................28
Federal Income Tax Consequences.........................................................................28
Regulatory Compliance...................................................................................29
APPRAISAL RIGHTS.................................................................................................30
INFORMATION REGARDING IE AND XLCONNECT...........................................................................31
</TABLE>
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INFORMATION REGARDING XEROX, ACQUISITION SUB ONE
AND ACQUISITION SUB TWO.................................................................................34
PROPOSAL NO. 2 - APPROVAL OF THE ARTICLES AMENDMENT..............................................................35
MARKET PRICE FOR THE XLCONNECT COMMON STOCK.....................................................................37
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF OFFICERS AND DIRECTORS....................................................38
INDEPENDENT ACCOUNTANTS..........................................................................................40
WHERE YOU CAN FIND ADDITIONAL XLCONNECT INFORMATION..............................................................40
OTHER BUSINESS...................................................................................................41
Appendix A - Agreement and Plan of Merger
Appendix B - Opinion of NationsBanc Montgomery Securities LLC
Appendix C - Appraisal Rights Statute
Appendix D - Articles Amendment
Appendix E - Subchapter E
</TABLE>
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XLConnect Solutions, Inc.
411 Eagleview Boulevard
Exton, Pennsylvania 19341
(610) 458-5500
PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS
XLCONNECT SOLUTIONS, INC. ("XLCONNECT")
MAY 20, 1998
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QUESTIONS AND ANSWERS ABOUT THE MEETING
Q: When is the Special Meeting?
A: The Meeting will take place on May 20, 1998 at 10:00 a.m., local time, at
Holiday Inn, 815 North Pottstown Pike, Exton, Pennsylvania 19341. At the
Meeting, XLConnect's shareholders will be asked to approve the Merger, adopt the
related Merger Agreement and approve an amendment to XLConnect's Articles of
Incorporation.
Q: What will I receive in the Merger?
A: If the Merger is completed, XLConnect's shareholders (other than IE) will
have the right to receive $20.00 in cash for each share of XLConnect's common
stock they own.
Q: Do I have the option to receive Xerox common stock in the Merger?
A: No.
Q: Why is XLConnect recommending the Merger Agreement?
A: In the opinion of your Board of Directors, in order for XLConnect to compete
more effectively in its market and increase shareholder value, it is necessary
to become or combine with a larger, diversified and better capitalized
enterprise. Therefore, the XLConnect Board of Directors, as recommended by its
independent committee, concluded that a sale of XLConnect at the current time is
in the best interests of XLConnect's shareholders. Before making its
recommendation, the independent committee received the opinion of its
independent financial advisor, NationsBanc Montgomery Securities LLC
("Montgomery"), to the effect that, as of the date of such opinion, based upon
the assumptions made, matters considered and the limitations on the review
undertaken in connection therewith, the consideration to be received in the
Merger by XLConnect shareholders (other than IE) was fair to such holders, from
a financial point of view. The actual text of Montgomery's opinion is included
in this Proxy Statement as Appendix B. The price of $20.00 per share represents
a 29% premium over the closing market price of the shares as reported on January
30, 1998, four weeks prior to the date XLConnect's Board of Directors approved
the Merger. To review the background and reasons for the Merger in greater
detail, see page 11.
Q: Why is XLConnect recommending the amendment to the Articles of Incorporation?
A: The Merger itself may cause the occurrence of a control transaction that
would invoke certain substantial requirements concerning "fair value"
proceedings under Pennsylvania law. Xerox has required that XLConnect opt out of
this section of Pennsylvania law. In light of the desirability of completing the
Merger (and since shareholders are still entitled to statutory appraisal
rights), the Board of Directors decided that it is in the best interests of
XLConnect shareholders to amend the Articles of Incorporation to facilitate the
Merger.
Q: What is the required vote?
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A: The affirmative vote of the holders of a majority of the votes cast at the
Meeting is required to adopt the Merger Agreement and the Articles Amendment.
IE, which owns approximately 80% of the outstanding shares of XLConnect common
stock, has agreed with Xerox in the Merger Agreement that it will vote in favor
of adopting the Merger Agreement and the Articles Amendment. Therefore, the
Merger and the Articles Amendment will be approved and the Merger Agreement will
be adopted.
Q: Will I have appraisal rights?
A: Any shareholder who does not wish to accept the merger consideration has the
right under Pennsylvania law to receive the "fair value" of his or her shares as
determined by the Pennsylvania courts. This "right of appraisal" is subject to a
number of restrictions and technical requirements. The "right of appraisal" does
not include the ability to receive the amount by which the common stock
increased in anticipation of the Merger. See page 30.
Q: What do I need to do now? Should I send in my stock certificates now?
A: Please mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the Meeting. In addition,
you may attend and vote at the Meeting in person, whether or not you have signed
and mailed your proxy card. DO NOT SEND IN YOUR STOCK CERTIFICATES NOW. If the
Merger is completed, you will receive written instructions on how to exchange
them.
Q: What if I want to change my vote?
A: Just send in a later-dated, signed proxy card before the Meeting or attend
the Meeting in person and vote.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares ONLY if you instruct your broker how to
vote. Your broker should mail information to you that will explain how to give
instructions to your broker. If you do not instruct your broker how to vote,
your shares will not be counted as a vote cast.
Q: Will I owe any federal income tax as a result of the Merger?
A: You will be taxed on your receipt of the merger consideration to the extent
that the amount you receive exceeds your tax basis in your common stock. Tax
matters are complicated, and tax results may vary among shareholders. We urge
you to contact your own tax advisor to fully understand how the Merger will
affect you.
Q: When do you expect the Merger to be completed?
A: XLConnect and Xerox are working toward completing the Merger as quickly as
possible. We hope to complete the Merger on the same date that the Meeting is
held, May 20, 1998. Intelligent Electronics, Inc., XLConnect's 80% shareholder,
will merge with a subsidiary of Xerox at the same time. IE will also seek the
approval of the IE Merger from its shareholders at a meeting to be held on the
same date as the meeting of XLConnect's shareholders to approve the Merger. The
completion of the IE Merger is a prerequisite to the completion of the Merger.
Q: Whom should I call with questions?
A. If you have any questions about the Merger, please call XLConnect Investor
Relations at (610) 458-6718.
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SUMMARY
This summary highlights selected information from this document. The
Merger will be completed immediately prior to the merger of a subsidiary of
Xerox into IE so that IE will become a wholly-owned subsidiary of Xerox (the "IE
Merger"). Because a substantial portion of the business of IE is its 80%
ownership of XLConnect, we have utilized the term "Company" in this document
when describing the overall business or aspects of the business of IE and
XLConnect. We have utilized the terms "IE" or "XLConnect" when referring to a
specific entity or their wholly-owned subsidiaries.
This summary may not contain all of the information that is important
to you. To understand the Merger fully and for a more complete description of
the legal terms of the Merger, you should read carefully this entire document
and the other documents to which we have referred you. See "Where You Can Find
Additional XLConnect Information" at page 40 of this Proxy Statement. The actual
terms of the Merger are contained in the Merger Agreement. The Merger Agreement
is included in this Proxy Statement as Appendix A.
THE MERGER CONSIDERATION
If the Merger is completed, Xerox has agreed that shareholders who do
not exercise their statutory appraisal rights will receive $20.00 per share in
cash for their common stock. The total amount to be paid to all holders of
common stock (other than IE and assuming no shareholders exercise their
statutory appraisal rights) and holders of stock options and warrants will be
approximately $97 million.
VOTING
At the Meeting, the holders of common stock will vote on a proposal to
adopt the Merger Agreement and amend the Articles of Incorporation. Each share
of common stock is entitled to one vote. In order to be approved, a majority of
all the votes cast must be voted in favor of adopting the Merger Agreement and
the Articles Amendment. On the record date, there were 16,684,100 shares of
common stock outstanding and entitled to vote which were held by approximately
24 shareholders of record, representing in excess of 3,000 beneficial owners.
IE, which owns approximately 80% of the outstanding shares of
XLConnect, has agreed with Xerox in the Merger Agreement that it will vote in
favor of adopting the Merger and the Articles Amendment. Therefore, the Merger
and the Articles Amendment will be approved and the Merger Agreement will be
adopted at the Meeting.
RECORD DATE
The close of business on April 13, 1998, is the record date for
determining who is entitled to vote at the Meeting.
RECOMMENDATION OF XLCONNECT BOARD OF DIRECTORS (PAGE 14)
XLConnect's independent committee of the Board of Directors and the
entire Board of Directors have both unanimously approved the Merger Agreement
and the Articles Amendment and recommend that you vote to adopt the Merger
Agreement and the Articles Amendment. XLConnect's independent committee of the
Board of Directors and the entire Board of Directors believe that the Merger is
fair to, and in the best interests of, the XLConnect shareholders.
FACTORS CONSIDERED BY XLCONNECT BOARD OF DIRECTORS (PAGE 14)
In reaching its decision to recommend adoption of the Merger Agreement,
XLConnect's Board of Directors considered a number of factors. These included
the following:
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o The XLConnect Board of Directors believed that in order for
XLConnect to compete more effectively in its market and increase
shareholder value, it is necessary to become or to combine with a
larger, diversified and better capitalized enterprise.
Accordingly, the XLConnect Board of Directors concluded that a
sale of XLConnect at the current time is in the best interests of
the shareholders of XLConnect.
o The XLConnect Board of Directors believed that $20.00 per share
was the highest price that Xerox or another third party would be
willing to pay for XLConnect at that time. The XLConnect Board of
Directors formed this belief after substantial efforts to identify
interested parties and substantial negotiations with Xerox to
obtain the highest possible price.
o The XLConnect Board of Directors compared the historical and
prospective market prices of XLConnect's common stock with the
merger consideration. The merger consideration represents a 29%
premium over the closing market price as reported on January 30,
1998, four weeks prior to the date XLConnect's Board of Directors
approved the Merger.
o The decision by IE to complete the IE Merger and support the Merger.
o The Merger Agreement allows third parties to make bona fide offers
to acquire XLConnect and specifically permits XLConnect's Board of
Directors to provide information to and negotiate with third
parties. A termination fee may be owed to Xerox if XLConnect
accepts a financially superior proposal.
OPINION OF NATIONSBANC MONTGOMERY SECURITIES LLC (PAGE 15)
On March 2, 1998, NationsBanc Montgomery Securities LLC delivered to
the independent committee of XLConnect's Board of Directors its oral opinion
(subsequently confirmed in writing as of the same date) to the effect that, as
of such date, based upon the assumptions made, matters considered and the
limitations on the review undertaken in connection therewith, the consideration
to be received by XLConnect shareholders in the Merger (other than IE) was fair
to such shareholders from a financial point of view. A copy of Montgomery's
written opinion is included as Appendix B to this Proxy Statement. Shareholders
of XLConnect are urged to read the opinion of Montgomery.
INTERESTS OF XLCONNECT MANAGEMENT IN THE MERGER (PAGE 18)
All members of XLConnect's Board of Directors and officers of XLConnect
own stock options and/or common stock of XLConnect and, to that extent, their
interest in the Merger is the same as yours. However, some of the officers and
directors of XLConnect have interests in the Merger that are different from your
interests as a shareholder. Some of these interests are set forth below.
XLConnect's Board of Directors was aware of these interests and considered them
in recommending and approving the Merger.
o Certain of XLConnect's senior management will continue to be
employed and have employment agreements with the surviving
company and will receive Xerox stock options as employees of the
surviving company.
o Certain of IE's and XLConnect's officers will be entitled to
deferred compensation or severance payments.
o Two members of the XLConnect Board of Directors are also
members of the IE Board of Directors.
o Certain members of the XLConnect Board of Directors and
officers of XLConnect own IE Common Stock. In addition, Mr.
Richard Sanford, the Chairman of the XLConnect Board of Directors
and the
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Chairman of the IE Board of Directors and Chief Executive Officer
of IE, will receive a deferred compensation payment and other
consideration from IE in connection with the IE Merger.
o The Merger Agreement provides that all rights to
indemnification in favor of any present or former director or
officer of XLConnect as provided in the XLConnect Bylaws and
Articles of Incorporation or certain applicable indemnification
agreements shall survive for six years after the Merger with
respect to matters occurring at or prior to the effective time of
the Merger. Xerox, subject to certain limitations, will maintain
the present XLConnect director and officer liability insurance
policy for three years.
APPRAISAL RIGHTS (PAGE 30)
Any shareholder who does not wish to accept the merger consideration
has the right under Pennsylvania law to receive the "fair value" of his or her
shares as determined by a Pennsylvania court. This "right of appraisal" is
subject to a number of restrictions and technical requirements. Generally, in
order to exercise appraisal rights:
o you must not vote in favor of the Merger; and
o you must make a written demand for appraisal before the vote on
the Merger.
Merely voting against the Merger will not protect your right of
appraisal. Appendix C to this proxy statement contains the applicable provisions
of the PBCL relating to appraisal rights.
CONDITIONS TO THE MERGER (PAGE 25)
The obligations of IE, XLConnect and Xerox to complete the Merger are
subject to a number of conditions. If these conditions are not satisfied or
waived, the Merger will not be completed. The most important of the mutual
conditions are:
o approval of the Merger Agreement by IE's and XLConnect's
shareholders;
o expiration or earlier termination of the waiting period
under the federal antitrust pre-merger notification law;
o absence of legal restraints or prohibitions that prevent
completion of the Merger or the IE Merger;
o obtaining all governmental authorizations needed to complete
the Merger and the IE Merger;
o the Merger will be completed only if the IE Merger is
completed; and
o approval by the XLConnect shareholders of an amendment of
the Articles of Incorporation of XLConnect to opt out of
certain Pennsylvania law provisions concerning appraisal
rights in control acquisitions.
Several additional conditions exist that must be met to require Xerox
to complete the Merger and the IE Merger. The most important of these conditions
are:
o XLConnect's and IE's compliance with the Merger Agreement;
o accuracy in all material respects of the representations and
warranties made by XLConnect and IE in the Merger Agreement;
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o absence of a material adverse change with respect to
XLConnect or IE;
o absence of any injunctions, proceedings or laws that
prohibit the completion of the Merger or the IE Merger;
o retention of certain executive employees;
o continuation of the Company's consolidated status for
federal income tax purposes; and
o implementation of a transitional business plan for IE's
direct computer products sales business.
Additional conditions exist that must be met to require the Company to
complete the Merger. The most important of these conditions are:
o Xerox compliance with the Merger Agreement; and
o accuracy in all material respects of the representations and
warranties made by Xerox in the Merger Agreement.
TERMINATION OF THE MERGER AGREEMENT (PAGE 26)
Either XLConnect, IE or Xerox may terminate the Merger Agreement if:
o they mutually agree to terminate the Merger Agreement before
or after shareholder approval;
o the Merger has not been consummated by July 31, 1998, unless
the terminating party has caused the failure to meet the
closing conditions by wrongful action or a failure to act;
o the shareholders of IE or XLConnect do not approve the IE
Merger and the Merger, respectively; or
o a law or a final court order prohibits the IE Merger or the
Merger.
Xerox may terminate the Merger Agreement if:
o the Board of Directors of IE or XLConnect has withdrawn or
adversely modified its favorable recommendation of the IE
Merger or the Merger, respectively;
o XLConnect or IE fails to perform, in a material way, its
covenants in the Merger Agreement so as not to satisfy its
closing conditions; or
o XLConnect or IE breaches, in a material way, any of its
representations or warranties in the Merger Agreement in a
manner so as not to satisfy its closing conditions.
XLConnect or IE may terminate the Merger Agreement if Xerox breaches or
fails to perform in a material way any of its representations, warranties or
covenants in the Merger Agreement so as not to satisfy the applicable closing
conditions. Either XLConnect or IE may also terminate the Merger Agreement if it
receives a financially superior proposal to acquire substantially all of its
stock or assets. The Board of Directors of such company must determine in good
faith that the proposal is financially superior to the Merger or the IE Merger,
as the case may be, and is reasonably capable of being financed. In such case,
IE or XLConnect, as the case may be, must notify Xerox
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if it receives such a proposal prior to terminating the Merger Agreement, and IE
and XLConnect must pay the termination fee, if required as discussed below.
TERMINATION FEES (PAGE 26)
XLConnect and IE may be required to pay Xerox termination fees of $2.46
million and $9.84 million, respectively, if the Merger Agreement is terminated
and:
o XLConnect or IE accepts a financially superior proposal;
o the Board of Directors of XLConnect withdraws or adversely
modifies its favorable recommendation of the Merger or the
Board of Directors of IE withdraws or adversely modifies its
favorable recommendation of the IE Merger;
o IE does not vote its shares of XLConnect common stock in
favor of the XLConnect Merger.
o under certain circumstances, IE or XLConnect breaches its
representations or warranties to Xerox so as not to satisfy
the applicable closing conditions; or
o IE or XLConnect breaches or fails to perform its covenants
in the Merger Agreement so as not to satisfy the applicable
closing conditions.
Xerox may be required to pay XLConnect and IE termination fees of $2.46
million and $9.84 million, respectively, if Xerox breaches or fails to perform
in a material way any of its representations, warranties or covenants in the
Merger Agreement so as not to satisfy the applicable closing conditions.
The termination fee is intended to be the only damages that the
non-breaching party is entitled to receive, unless such breach is in bad faith.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 28)
You will be taxed for federal income tax purposes on your receipt of
the merger consideration to the extent that the amount you receive exceeds your
tax basis in your XLConnect common stock. Because determining the tax
consequences of the Merger can be complicated, especially in light of recent
changes to the federal tax laws governing capital gains, and because state tax
laws may apply as well, you should consult your tax advisor in order to
understand fully how the Merger will affect you.
ARTICLES AMENDMENT
You will be requested to vote at the Meeting to approve an amendment of
XLConnect's Articles of Incorporation to opt out of certain provisions relating
to dissenters' rights in control acquisitions as provided in Subchapter E of
Chapter 25 of the PBCL. The Merger itself may cause the occurrence of a control
transaction that would otherwise invoke certain substantial requirements of
Pennsylvania law. Xerox has required that XLConnect opt out of this section of
Pennsylvania law as a condition to completing the Merger. In light of the
desirability of completing the Merger (and since the shareholders are still
entitled to statutory appraisal rights), the Board of Directors decided that it
is in the best interests of XLConnect's shareholders to amend the Articles of
Incorporation to facilitate the Merger.
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TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING
This proxy statement and the accompanying XLConnect proxy card are
solicited by the Board of Directors (the "Board") of XLConnect Solutions, Inc.
("XLConnect"). These proxies will be used at the Special Meeting of Shareholders
(the "Meeting") to be held at 10:00 a.m. local time, on May 20, 1998 at the
Holiday Inn, 815 North Pottstown Pike, Exton, Pennsylvania 19341, and at any and
all adjournments thereof. The purpose of the Meeting is (i) to consider and vote
on a proposal to approve and adopt an Agreement and Plan of Merger, dated as of
March 4, 1998 (the "Merger Agreement"), by and among Xerox Corporation
("Xerox"), TDC Subsidiary Corporation, a wholly-owned subsidiary of Xerox
("Acquisition Sub One"), TDC Two Subsidiary Corporation, a wholly-owned
subsidiary of Xerox ("Acquisition Sub Two"), XLConnect and Intelligent
Electronics, Inc., an 80% shareholder of XLConnect ("IE"), pursuant to which
Acquisition Sub One will be merged with and into XLConnect (the "Merger") with
XLConnect continuing as the surviving corporation (the "XLConnect Surviving
Corporation") and (ii) to consider and vote on a proposal to amend the Articles
of Incorporation of XLConnect so that Subchapter E (relating to control
transactions) of Chapter 25 of the Pennsylvania Business Corporation Law of
1988, as amended (the "PBCL") does not apply to XLConnect (the "Articles
Amendment"). The Board of Directors of XLConnect has unanimously approved the
Merger Agreement and the Articles Amendment. The Board of Directors of XLConnect
recommends that the shareholders of XLConnect vote FOR approval and adoption of
the Merger Agreement, the Merger and the Articles Amendment. See "The
Merger--Background of the Merger."
The Merger will be completed immediately prior to the completion of the
merger of IE, XLConnect's 80% shareholder, into Acquisition Sub Two, with IE as
the surviving corporation (the "IE Merger"). In connection with the IE Merger:
(i) IE will become a wholly-owned subsidiary of Xerox; and (ii) the holders of
common stock, par value $.01 per share, of IE ("IE Common Stock") (other than
holders of IE Common Stock who perfect their statutory appraisal rights) will
receive $7.60 per share, in cash (the "IE Merger Consideration"). Because a
substantial portion of the business of Intelligent Electronics is its 80%
ownership of XLConnect (and therefore the business of XLConnect), we have
utilized the term "the Company" in this document when describing the overall
business or aspects of the business of IE and XLConnect. We have utilized the
terms "IE" or "XLConnect" when referring to a specific entity or their
wholly-owned subsidiaries.
In arriving at its conclusion that the Merger is fair to, and in the
best interests of, XLConnect's shareholders, the Independent Committee of
XLConnect's Board of Directors considered the opinion of NationsBanc Montgomery
Securities LLC ("Montgomery"), such committee's independent financial advisor,
that, as of March 2, 1998, based upon the assumptions made, matters considered
and the limitations on the review undertaken in connection therewith, the
consideration to be received by XLConnect's shareholders in the Merger pursuant
to the Merger Agreement (other than IE) was fair to such shareholders from a
financial point of view. A copy of Montgomery's opinion is attached as Appendix
B to this Proxy Statement and shareholders should read this opinion in its
entirety.
VOTING SECURITIES OF XLCONNECT
Only holders of record of XLConnect's common stock, par value $0.01 per
share (the "XLConnect Common Stock") at the close of business on April 13, 1998
(the "Record Date") are entitled to notice of, and to vote at, the Meeting. At
the close of business on the Record Date, 16,684,100 shares of XLConnect Common
Stock were outstanding. Each share of XLConnect Common Stock is entitled to one
vote on all matters presented at the Meeting. This Proxy Statement and the proxy
card will be sent to shareholders beginning on or about April 14, 1998. If you
give a proxy, you may revoke it at any time before the proxy is voted. You may
revoke your proxy before it is voted by executing another proxy at a later date,
by notifying the secretary of XLConnect in writing of your revocation, or by
attending in person and voting at the Meeting. Under Pennsylvania law and the
bylaws of XLConnect, the presence at the Meeting, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes that all
shareholders are entitled to cast on a particular matter to be acted upon at the
Meeting shall
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constitute a quorum. All valid proxies returned will be included in the
determination of whether a quorum is present at the Meeting.
An affirmative vote of a majority of the votes cast by shareholders
present in person or by proxy and entitled to vote at the Meeting is required
for approval of the Merger Agreement, the Merger and the Articles Amendment and
all other matters presented at the Meeting. Votes withheld, abstentions and
"broker non-votes" will not be counted as votes cast and will not be voted.
IE, which owns approximately 80% of the outstanding shares of XLConnect
Common Stock, has agreed with Xerox in the Merger Agreement to vote its shares
in favor of the Merger and the Articles Amendment. Therefore, the Merger and the
Articles Amendment will be approved and the Merger Agreement will be adopted.
If the enclosed proxy is duly executed and received in time for the
Meeting, and if no contrary instructions are included on the proxy, it is the
intention of the persons named as proxies to vote the shares of XLConnect Common
Stock represented thereby in favor of the proposal to adopt the Merger Agreement
and the Articles Amendment, and in the discretion of the persons named as
proxies in connection with any other business that may properly come before the
Meeting or any adjournment thereof.
At this time, XLConnect knows of no other matters that may be presented
for shareholder action at the Meeting. However, if any matters, other than those
referred to above, should properly come before the Meeting, it is the intention
of the persons named in the enclosed proxy to vote such proxy in accordance with
their best judgment.
In the event that there are not sufficient votes to approve any of the
Proposals raised at the Meeting, it is expected that the Meeting will be
postponed or adjourned in order to permit further solicitation of proxies by
XLConnect. If the Meeting is adjourned for one or more periods aggregating at
least 15 days because of the absence of a quorum with respect to any Proposal,
then those shareholders entitled to vote who are present at the adjourned
Meeting in person or by proxy shall nevertheless constitute a quorum for the
purpose of acting upon such Proposal.
The delivery of this Proxy Statement shall not, under any
circumstances, create any implication that the information contained herein is
correct after the date hereof, April 14, 1998.
XLCONNECT'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ADOPTION OF THE MERGER AGREEMENT AND THE ARTICLES AMENDMENT. THE AFFIRMATIVE
VOTE OF THE MAJORITY OF THE VOTES CAST BY SHAREHOLDERS PRESENT IN PERSON OR BY
PROXY AND ENTITLED TO VOTE AT THE MEETING IS REQUIRED TO ADOPT THE MERGER
AGREEMENT AND THE ARTICLES AMENDMENT.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH XLCONNECT'S SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
XLCONNECT OR ANY OTHER PERSON.
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SOLICITATION OF PROXIES
XLConnect will pay all expenses of the solicitation of proxies for the
Meeting, including the cost of mailing. In addition to solicitation by mail,
officers and regular employees of XLConnect may solicit proxies from
shareholders by telephone, telegram, facsimile or in person. XLConnect will not
pay these individuals any additional compensation for such services, except for
the reimbursement of any reasonable out-of-pocket expenses that they incur.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Some statements contained or incorporated by reference in this Proxy
Statement regarding future financial performance and results and other
statements that are not historical facts are forward-looking statements. The
words "expect," "project," "estimate," "predict," "anticipate," "believes" and
similar expressions are also intended to identify forward-looking statements.
Such statements and XLConnect's results are subject to numerous risks,
uncertainties and assumptions, including but not limited to: risks related to
the impact on XLConnect of the sale by IE of its indirect computer sales
business and the majority of its direct computer sales operations; the risks of
any substantial legal proceedings that could be instituted in the future; the
potential for year 2000 related expenditures; and the risk factors described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results and Seasonality" in XLConnect's Form 10-K for the
year ended December 31, 1997 and in "Risk Factors" in XLConnect's Prospectus
dated October 17, 1996 filed with the Securities and Exchange Commission in
connection with its initial public offering.
Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those indicated.
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PROPOSAL NO. 1
APPROVAL OF THE MERGER
Purpose, Structure and Effect of the Merger
The purpose of the Merger is for Xerox to acquire all of the
outstanding capital stock of XLConnect and to provide XLConnect shareholders
(other than IE, and those who perfect their statutory appraisal rights) with
$20.00 in cash for each share of XLConnect Common Stock that they hold. In
connection with the Merger: (i) XLConnect will become a wholly-owned subsidiary
of IE; and (ii) the holders of XLConnect Common Stock (other than IE, and
holders of XLConnect Common Stock who perfect their statutory appraisal rights)
will receive $20.00 per share, in cash (the "XLConnect Merger Consideration").
The Merger will be completed immediately prior to the completion of the merger
of IE, XLConnect's 80% shareholder, into Acquisition Sub Two, with IE as the
surviving corporation (the "IE Merger"). In connection with the IE Merger, (i)
IE will become a wholly-owned subsidiary of Xerox, (ii) the holders of IE Common
Stock (other than holders of IE Common Stock who perfect their statutory
appraisal rights) will receive the IE Merger Consideration, $7.60 per share, in
cash. See "Background of the Merger."
The Merger is structured as a cash merger of Acquisition Sub One into
XLConnect, with the result that XLConnect will be the surviving corporation and
a wholly-owned subsidiary of IE (the "XLConnect Surviving Corporation"). The IE
Merger is structured as a cash merger of Acquisition Sub Two into IE, with the
result that IE will be the surviving corporation and a wholly-owned subsidiary
of Xerox (the "IE Surviving Corporation"). Under the Merger Agreement, the
officers and directors of Acquisition Sub One and Acquisition Sub Two
immediately prior to the effective time of the Merger and the IE Merger,
respectively (the "XLConnect Effective Time" and the "IE Effective Time" and
collectively, the "Effective Times") shall be the officers and directors of the
XLConnect Surviving Corporation and the IE Surviving Corporation, respectively,
on and immediately following the respective Effective Times.
If the Merger and the IE Merger are consummated, the shareholders of
XLConnect and IE, respectively, will no longer have any equity interest in such
companies, and therefore will not share in their respective future earnings and
growth. Instead, each shareholder (other than shareholders who perfect statutory
appraisal rights and IE in the XLConnect Merger) will receive, upon surrender of
the certificate or certificates evidencing the XLConnect Common Stock and the IE
Common Stock, the XLConnect Merger Consideration or the IE Merger Consideration,
as applicable. As a result of the Merger and the IE Merger, IE will become a
wholly-owned subsidiary of Xerox and XLConnect will become a wholly-owned
subsidiary of IE. At such time, there will cease to be any public market for the
IE Common Stock and the XLConnect Common Stock and, after the respective
Effective Times, the IE Common Stock and the XLConnect Common Stock will be
delisted from the Nasdaq Stock Market. Upon such event, the IE Surviving
Corporation and the XLConnect Surviving Corporation will apply to the Securities
and Exchange Commission for the deregistration of the IE Common Stock and the
XLConnect Common Stock, respectively, under the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
The shareholders of IE will be requested, in a separate proxy statement
sent to each IE shareholder of record on April 13, 1998, to approve the IE
Merger and adopt the Merger Agreement. XLCONNECT, IN SOLICITING YOUR PROXY IN
THIS PROXY STATEMENT, IS NOT REQUESTING YOUR APPROVAL OF THE IE MERGER.
Background of the Merger
Founded in 1982, IE commenced its indirect business, the wholesale
distribution of microcomputers through its Reseller Network (the "Indirect
Business"), in March 1984. In 1995, IE commenced its direct business, the
provision of information technology products, services and solutions to
corporate customers, educational institutions and governmental agencies in the
United States (the "Direct Business"). The professional services portion of the
Direct Business was separated from IE in 1996 through the formation of
XLConnect. The direct
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computer products sales portion of the Direct Business remained at IE and was
operated through IE's wholly-owned subsidiary, XLSource, Inc. ("XLSource").
In response to market environment changes and competitive pricing
pressures throughout the industry which IE believed were having adverse effects
on its business, results of operations and financial position, IE sold its
Indirect Business on July 18, 1997 to Ingram Micro Inc. (the "RND Transaction").
On July 18, 1997, IE and XLConnect also consummated the sale of certain assets
of 20 of the 24 locations of XLSource (comprising approximately two-thirds of
the Direct Business based on revenues) and certain specified services contracts
that were part of XLConnect to GE Capital Information Technology Solutions
Acquisition Corp. ("GECITS"), a subsidiary of GE Capital Information Technology
Solutions, Inc. (the "GE Transaction").
After the RND Transaction and the GE Transaction, the Company's
operations focused on the XLConnect service business as supported by IE's
remaining direct computer products sales organization in XLSource, operating out
of four locations. These four XLSource locations comprised approximately
one-third of the Direct Business (based on revenues) prior to the transactions.
It was the assessment of the Company's management and the Board of
Directors of IE and XLConnect that the Company had to become substantially
larger to meet its business objectives and to compete more effectively in a
consolidating industry. Further, it was their assessment that it would be
difficult for the Company to achieve this either by acquisition or through
internal growth within a reasonable period of time, due to the greater financial
resources of many of the Company's competitors and, as a result, their greater
ability to hire and retain employees.
At a meeting of IE's Board of Directors on July 30, 1997, the directors
discussed various options and alternatives available to IE. At this meeting, the
directors authorized IE management to engage an investment banker to explore
such options, including a possible sale of IE. On September 18, 1997, IE
retained an investment banker.
At a joint meeting of the Boards of Directors of IE and XLConnect on
October 24, 1997 (the "October Board Meeting"), IE's investment banker reviewed
various aspects of a possible sale, by merger or otherwise, of all or
substantially all of IE's stock or assets. Each Board of Directors confirmed
that fair and equitable treatment should be provided in any such transaction by
IE to the holders of the XLConnect Common Stock other than IE, and that an
acquisition of the XLConnect Common Stock from such holders should be sought in
any transaction pursued by IE, with the fairness of the price to be paid for
such XLConnect Common Stock to be confirmed for XLConnect by an independent
investment banker. IE's Board of Directors authorized IE management to continue
to pursue the possibility of a sale transaction.
Subsequent to the October Board Meeting, IE and its investment banker
began contacting select potential acquirors of the Company, including Xerox.
IE's investment banker contacted over 30 potential acquirors in this process. In
November 1997 and early December 1997, IE received initial indications of
interest concerning a possible acquisition transaction from several entities,
including Xerox.
On December 8, 1997, Xerox and IE entered into a confidentiality
agreement concerning information about the Company. Shortly thereafter, IE and
XLConnect provided to Xerox certain non-public information regarding IE and
XLConnect. Fifteen other potential acquirors signed confidentiality agreements
and were provided with non-public information regarding IE and XLConnect.
On December 15, 1997, IE received, in writing, an initial letter from
Xerox expressing an interest in acquiring IE. This letter was non-binding and
did not include a definitive purchase price.
Between November 1997 and January 1998, several prospective acquirors,
including Xerox, conducted due diligence investigations of IE and XLConnect. IE,
XLConnect, Xerox and their respective counsel developed a
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possible structure for the Merger and the IE Merger and negotiated certain terms
of the Merger Agreement between December 1997 and February 1998.
On January 22, 1998, the XLConnect Board of Directors formed a
committee consisting of directors who were not employees of IE or XLConnect, or
directors of IE (the "Independent Committee"), to evaluate any acquisition
proposals. The Independent Committee authorized the engagement of independent
counsel and investment bankers. Two of the Committee members were former members
of the IE Board of Directors who resigned therefrom on December 31, 1997.
Shortly after the January 22 meeting, the Independent Committee engaged
independent counsel.
On January 23, 1998, Xerox submitted, in writing, a proposal to acquire
IE for $8.00 per share, in cash. The proposal, which was subject to the approval
of Xerox Board of Directors, legal and due diligence conditions and the
negotiation of satisfactory arrangements in respect of certain key Executive
Employees of the Company, did not include the purchase of the outstanding
XLConnect Common Stock not owned by IE.
At separate meetings on January 27, 1998 of the IE Board of Directors
and the XLConnect Board of Directors, the Boards of Directors were advised by
management of proposals received to date. One of these proposals included the
purchase of XLConnect. Present at the meetings, in person or by phone, were a
majority of IE's and all of XLConnect's directors, respectively, and at the IE
Board of Directors meeting, representatives of IE's investment banker. At the
meeting of the XLConnect Board of Directors the directors discussed the
proposals and the benefits which could flow to XLConnect from an acquisition of
IE by Xerox. The IE Board of Directors directed management to seek to negotiate,
subject to Board of Directors' approval, a satisfactory transaction with Xerox
providing for the acquisition of IE and fair and equitable treatment to the
holders of XLConnect Common Stock other than IE.
As a result of negotiations subsequent to January 27, 1998, Xerox
informed IE on January 30, 1998 that it was willing to pay cash in the amount of
$8.10 per share for IE and, on February 13, 1998, Xerox submitted, in writing,
an amended proposal which confirmed the $8.10 proposal and also provided for the
acquisition of the XLConnect Common Stock not owned by IE, for cash in the
amount of $19.00 per share. The proposal was subject to substantially the same
conditions as the January 23, 1998 proposal.
On February 19, 1998, IE received, in writing, an amended proposal
(which included the purchase of XLConnect) from another bidder that increased
the amount such bidder was willing to pay for the shares of IE Common Stock. IE
entered into a limited exclusivity agreement with this bidder that would allow
IE to continue its negotiations with Xerox and this bidder at the same time. On
February 27, 1998, IE was informed by this alternative bidder that it was no
longer interested in pursuing an acquisition.
On February 23, 1998, the Independent Committee engaged Montgomery as
its financial advisor.
On February 27, 1998, IE and XLConnect received, in writing, an amended
proposal from Xerox to purchase the shares of IE for cash in an amount equal to
$7.60 per share and the shares of XLConnect for cash in an amount equal to
$20.00 per share. Xerox indicated that the offer amendment resulted from its
analysis of XLConnect's results of operations for the calendar quarter ended
December 31, 1997.
On March 2, 1998, the Independent Committee met with its counsel and
Montgomery. Montgomery delivered to the Independent Committee its oral opinion
(subsequently confirmed in a written opinion dated as of the same date) to the
effect that, as of such date, based upon the assumptions made, matters
considered and the limitations on the review undertaken in connection therewith,
the consideration to be received by XLConnect shareholders (other than IE) in
the Merger was fair to such shareholders from a financial point of view. Counsel
to the Independent Committee reviewed with the Independent Committee the terms
and conditions of the Merger Agreement. After discussion, the Independent
Committee unanimously concluded that the Merger was fair to and in the best
interests of the XLConnect shareholders other than IE. The Independent Committee
meeting was
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immediately followed by a meeting of the entire XLConnect Board of Directors
which, based on the recommendation of the Independent Committee and XLConnect's
senior management, concluded that the Merger was fair to and in the best
interests of the XLConnect shareholders other than IE and unanimously approved
the Merger and authorized the execution of the Merger Agreement, as conclusively
negotiated by management.
At a meeting of the IE Board of Directors on March 3, 1998, IE's Board
of Directors determined that the Merger was fair to and in the best interests of
IE shareholders, approved the Merger and authorized the execution of the Merger
Agreement, as conclusively negotiated by management.
Thereafter, substantive negotiations continued by telephone and in
person among management of IE, XLConnect, Xerox, the investment bankers for IE
and Xerox, and counsel. After the close of business on March 4, 1998, Xerox, IE
and XLConnect reached agreement on all outstanding issues and entered into the
Merger Agreement. Prior to commencement of trading of the IE and XLConnect
Common Stock on March 5, 1998, IE, XLConnect and Xerox issued a joint press
release announcing the execution of the Merger Agreement.
XLConnect's Reasons for the Merger; Recommendation of the Board of Directors
The XLConnect Board of Directors and the Independent Committee have
determined that the Merger is fair to, and in the best interests of, the
shareholders of XLConnect, and has approved the Merger Agreement. Accordingly,
the Board of Directors of XLConnect and the Independent Committee recommends
that the shareholders vote to adopt the Merger Agreement and approve the Merger.
In reaching its conclusion, XLConnect's Board of Directors considered a number
of factors, including:
o The determination by XLConnect's management and the Board of
Directors of XLConnect that, in order for XLConnect to
compete more effectively in its market and increase
shareholder value, it is necessary to become or combine with
a larger, diversified and better capitalized enterprise.
Further, it was their assessment that it would be difficult
for XLConnect to achieve this either by acquisition or
through internal growth within a reasonable period of time,
due to the greater financial resources of many of
XLConnect's competitors and, as a result, their greater
ability to hire and retain employees. Accordingly, the
XLConnect Board of Directors concluded that a sale of
XLConnect at the current time is in the best interests of
the shareholders of XLConnect.
o The XLConnect Board of Directors compared the historical
market prices of the XLConnect Common Stock with the merger
consideration. The merger consideration represents a 29%
premium over the closing market price on January 30, 1998,
four weeks prior to the date XLConnect's Board of Directors
approved the Merger.
o The decision by IE to complete the IE Merger and support the
Merger.
o The substantial efforts undertaken in seeking potential
acquirors and the conclusion of the XLConnect Board of
Directors that a Merger could not be structured with another
purchaser that would offer greater value to XLConnect
shareholders.
o The financial presentation of Montgomery to the Independent
Committee and the oral opinion delivered to the Independent
Committee on March 2, 1998 (which opinion was subsequently
confirmed in a written opinion as of the same date) to the
effect that, as of such date, based upon the assumptions
made, matters considered and the limitations on the review
undertaken in connection therewith, the XLConnect Merger
Consideration was fair to the XLConnect shareholders (other
than IE) from a financial point of view. See "Opinion of
NationsBanc Montgomery Securities LLC" below and the written
opinion of Montgomery attached as Appendix B.
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o The terms and conditions of the Merger Agreement, including
the right of XLConnect's Board of Directors to terminate
the Merger Agreement under certain circumstances in the
exercise of its fiduciary duties.
The foregoing discussion of the factors considered by XLConnect's Board
of Directors and the Independent Committee is not intended to be all-inclusive.
In view of the variety of factors considered in connection with its evaluation
of the Merger, XLConnect's Board of Directors did not find it practicable to and
did not attempt to rank or assign relative weights to the foregoing factors.
The XLConnect Board of Directors recommends that the shareholders vote
FOR adoption of the Merger Agreement and Merger.
Opinion of NationsBanc Montgomery Securities LLC
Pursuant to an engagement letter dated February 23, 1998 (the
"Engagement Letter"), the Independent Committee retained Montgomery to act as
its financial advisor in connection with the consideration by the Independent
Committee of the Merger. Montgomery is a nationally recognized firm and, as part
of its investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with merger transactions and other
types of acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. The Independent Committee selected Montgomery as its
financial advisor on the basis of Montgomery's experience and expertise in
transactions similar to the Merger and its reputation in the general information
technology services industry and the investment community.
On March 2, 1998, Montgomery delivered to the Independent Committee its
oral opinion, subsequently confirmed in writing as of the same date, that the
consideration to be received by the holders of XLConnect Common Stock (other
than shares of XLConnect Common Stock held directly or indirectly by IE) was
fair to such holders from a financial point of view, as of that date. The amount
of such consideration was determined pursuant to negotiations between XLConnect
and Xerox and not pursuant to recommendations of Montgomery. No limitations were
imposed by the Independent Committee on Montgomery with respect to the
investigations made or procedures followed in rendering its opinion.
The full text of Montgomery's written opinion to the Independent
Committee is attached hereto as Appendix B and is incorporated herein by
reference. The following summary of Montgomery's opinion is qualified in its
entirety by reference to the full text of the opinion. Montgomery's opinion is
directed to the Independent Committee and does not constitute a recommendation
to any shareholder of XLConnect as to how such shareholder should vote with
respect to the Merger. Montgomery's opinion addresses only the financial
fairness of the consideration to be received by the holders of shares of
XLConnect Common Stock (other than shares held directly or indirectly by IE) and
does not address the relative merits of the Merger or any alternatives to the
Merger, XLConnect's underlying decision to proceed with or effect the Merger or
any other aspect of the Merger.
In connection with its opinion, Montgomery, among other things: (i)
reviewed certain publicly available financial and other data with respect to
XLConnect, including the consolidated financial statements for recent years and
interim periods to September 30, 1997, and certain other relevant financial and
operating data relating to XLConnect made available to Montgomery from published
sources and from the internal records of XLConnect; (ii) reviewed the financial
terms and conditions of the February 17, 1998 draft of the Merger Agreement;
(iii) reviewed certain publicly available information concerning the trading of,
and the trading market for, XLConnect Common Stock; (iv) compared XLConnect from
a financial point of view with certain other companies in the general
information technology services industry which Montgomery deemed to be relevant;
(v) considered the financial terms, to the extent publicly available, of
selected recent business combinations of companies in the general information
technology services industry which Montgomery deemed to be comparable, in whole
or in part, to the
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Merger; (vi) reviewed and discussed with representatives of the management of
XLConnect certain information of a business and financial nature regarding
XLConnect, furnished to Montgomery by them, including financial forecasts and
related assumptions of XLConnect prepared by management of XLConnect; (vii) made
inquiries regarding and discussed the Merger, the Merger Agreement and other
matters related thereto with XLConnect's counsel; and (viii) performed such
other analyses and examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery assumed and relied upon the
accuracy and completeness of the foregoing information and did not assume any
responsibility for independent verification of such information. With respect to
the financial forecasts of XLConnect provided to Montgomery, Montgomery assumed
for purposes of its opinion, upon the advice of management of XLConnect and with
the consent of the Independent Committee, that such forecasts have been
reasonably prepared on bases reflecting the best available estimates and
judgments of the management of XLConnect at the time of preparation as to the
future financial performance of XLConnect, and that they provide a reasonable
basis upon which Montgomery could form its opinion. XLConnect does not publicly
disclose internal management forecasts of the type provided to Montgomery by the
management of XLConnect in connection with Montgomery's review of the Merger.
Such forecasts were not prepared with a view toward public disclosure. In
addition, such forecasts were based upon numerous variables and assumptions that
are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in such forecasts. Montgomery has
assumed no liability for such forecasts. Montgomery also assumed that there have
been no material changes in XLConnect's assets, financial condition, results of
operations, business or prospects since the date of the last financial
statements made available to Montgomery. Montgomery relied on advice of counsel
and independent accountants to XLConnect as to all legal and financial reporting
matters with respect to XLConnect, the Merger and the Merger Agreement.
Montgomery assumed that the Merger will be consummated in a manner that complies
in all respects with the applicable provisions of the Exchange Act, and all
other applicable federal and state statutes, rules and regulations. In addition,
Montgomery did not assume responsibility for making an independent evaluation,
appraisal or physical inspection of the assets or liabilities (contingent or
otherwise) of XLConnect, nor was Montgomery furnished with any such appraisals.
Finally, Montgomery's opinion is based on economic, monetary and market and
other conditions as in effect on, and the information made available to
Montgomery as of, March 2, 1998.
Montgomery also assumed, with the consent of the Independent Committee,
that the Merger will be consummated in accordance with the terms described in
the Merger Agreement, without any amendments thereto, and without waiver by
XLConnect of any of the conditions to its obligations thereunder.
Set forth below is a brief summary of the report presented by
Montgomery to the Independent Committee on March 2, 1998 in connection with its
opinion.
Comparable Company Analysis. Based on public and other available
information, Montgomery calculated the multiples of aggregate value (defined as
equity value plus debt less cash) to last twelve months ("LTM") revenues,
earnings before interest and taxes ("EBIT") and earnings before interest, taxes,
depreciation and amortization ("EBITDA") and estimated 1998 net income (derived
from publicly available analysts' estimates) for nine companies in the general
information technology services industry and seven companies in the software
services industry. Such analysis indicated the following median and mean
multiples, respectively: 2.7x and 2.6x LTM revenues, 28.4x and 29.3x LTM EBIT,
20.9x and 23.5x EBITDA, and 29.4x and 30.0x estimated 1998 net income.
Montgomery noted that applying such multiples to XLConnect's calendar year 1997
revenues, EBIT and EBITDA and estimated 1998 net income (as estimated by
XLConnect management) yielded a range of implied equity values of XLConnect of
$237.7 million to $341.5 million, or $13.30 to $19.10 per share.
Comparable Transactions Analysis. Montgomery reviewed the consideration
paid in 11 acquisitions of comparable information technology services companies
that have been consummated since March 29, 1996 (including one transaction
pending at the date of Montgomery's opinion). Montgomery analyzed the aggregate
value of the consideration paid in such transactions as a multiple of the target
companies' LTM revenues, EBIT and net income. Such analysis yielded the
following median and mean multiples, respectively: 1.9x and 2.3x LTM
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revenues, 29.7x and 31.9x LTM EBIT and 34.1x and 45.5x LTM net income.
Montgomery noted that applying such multiples to XLConnect's 1997 revenues, EBIT
and net income yielded a range of implied equity values of XLConnect of $154.0
million to $294.3 million, or $8.62 to $16.46 per share.
No other company or transaction used in the comparable company or
comparable transactions analysis as a comparison is identical to XLConnect or
the Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which XLConnect and the Merger are being compared.
Discounted Cash Flow Analysis. Montgomery applied a discounted cash
flow analysis to the financial cash flow forecasts for XLConnect for calendar
years 1998 through 2002, as estimated by XLConnect management. In conducting
this analysis, Montgomery first calculated the present values of the forecasted
cash flows. Second, Montgomery estimated the present value of the aggregate
value of XLConnect at the end of 2002 by applying multiples to XLConnect's
estimated 2002 EBITDA, which multiples ranged from 6.5x to 7.5x. Such cash flows
and aggregate value were discounted to present values using discount rates
ranging from 16% to 20%. This analysis indicated a range of imputed equity
values of XLConnect of $272.5 million to $356.3 million, or $15.24 to $19.93 per
share.
Premiums Paid Analysis. Montgomery reviewed the consideration paid or
offered in 66 U.S. tender offers involving aggregate value paid between $100
million and $500 million announced since January 10, 1997. Montgomery calculated
the premiums paid or offered in these transactions over the applicable stock
price of the target company one day, one week and four weeks prior to the
announcement of the acquisition offer, and then calculated the median and mean
of those premiums. These calculations yielded median and mean premiums paid of
20.5% and 29.3%, respectively, of the target company's stock price one day prior
to public announcement of the transaction, 30.6% and 35.6%, respectively, of the
target company's stock price one week prior to such announcement, and 34.8% and
40.9%, respectively, of the target company's stock price four weeks prior to
such announcement. Montgomery then applied the median and mean premiums so
derived to XLConnect's closing stock price on February 27, 1998 ($17.75),
February 20, 1998 ($16.50) and January 30, 1998 ($15.50). Such analysis
indicated a range of implied equity values of XLConnect of $373.7 million to
$410.5 million, or $20.90 to $22.96 per share. Montgomery also applied the
median and mean premiums so derived to the deemed stock price of XLConnect on
such dates, determined by adjusting the stock price of XLConnect on January 27,
1997 (the date the IE Board of Directors announced it was considering strategic
alternatives for the Company) by the amount of the growth of the Nasdaq
composite index from January 27, 1997 through each of such dates. Such analysis
indicated a range of implied equity values of XLConnect of $211.6 million to
$232.3 million, or $11.83 to $12.99 per share.
While the foregoing summary describes all analyses and examinations
that Montgomery deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually conducted by Montgomery.
The preparation of a fairness opinion necessarily is not susceptible to partial
analysis or summary description. Montgomery believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses and of the factors considered, without considering all
analyses and factors, would create an incomplete view of the process underlying
the analyses set forth in its presentation to the Independent Committee.
Accordingly, the ranges of valuations resulting from any particular analysis
described above should not be taken to be Montgomery's view of the actual value
of XLConnect.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of XLConnect. The analyses
performed by Montgomery are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
those suggested by such analyses. Such analyses were prepared solely as part of
Montgomery's analysis of the financial fairness of the consideration to be
received by the holders of shares of XLConnect Common Stock (other than shares
held directly or indirectly by IE) and were provided to the Independent
Committee in connection with the delivery of Montgomery's opinion. The analyses
do not purport to
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be appraisals or to reflect the prices at which XLConnect might actually be sold
or the prices at which any securities may trade at any time in the future.
Montgomery used in its analyses various projections of future performance
prepared by the management of XLConnect. The projections are based on numerous
variables and assumptions which are inherently unpredictable and must be
considered not certain of occurrence as projected. Accordingly, actual results
could vary significantly from those set forth in such projections.
As described above, Montgomery's opinion and presentation to the
Independent Committee were among the many factors taken into consideration by
the Independent Committee in making its determination to approve, and to
recommend that XLConnect shareholders approve, the Merger.
Upon execution of the Engagement Letter, XLConnect agreed to pay
Montgomery a financial advisory fee, a portion of which was due upon the signing
of the Engagement Letter and the remainder of which was due upon delivery of
Montgomery's opinion. The fee payable to Montgomery was not conditioned on the
outcome of Montgomery's opinion or whether or not such opinion was deemed to be
favorable for any party's purposes. The Engagement Letter also calls for
XLConnect to reimburse Montgomery for its reasonable out-of-pocket expenses.
Pursuant to a separate letter agreement, XLConnect has agreed to indemnify
Montgomery, its affiliates, and their respective partners, directors, officers,
agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws.
In the ordinary course of its business, Montgomery actively trades the
equity securities of XLConnect for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Montgomery also acted as underwriter in connection with the
initial public offering of XLConnect Common Stock and has performed various
investment banking services for XLConnect.
Interests of Certain Persons in the Merger
In considering the Merger, shareholders should be aware that certain
directors and officers of XLConnect have interests in the Merger, as described
below.
Employment Arrangements of Certain XLConnect Employees. The Merger
Agreement provides as a condition to the obligation of Xerox to consummate the
Merger, that Timothy W. Wallace and certain other key employees of XLConnect
(each, an "Executive Employee" and collectively, the "Executive Employees")
enter into new employment agreements with XLConnect that will remain in effect
after the Merger and that such Executive Employees are employed by XLConnect at
the XLConnect Effective Time. Each employment agreement will be for a term
commencing on the XLConnect Effective Time and ending three years thereafter.
Each Executive Employee initially will be paid his or her current base salary.
In exchange for each Executive Employee's agreement to have his or her XLConnect
stock options (whether or not currently exercisable) canceled immediately prior
to the Merger without payment of the XLConnect Option Consideration (as defined
below), the Executive Employees, other than Mr. Wallace, will receive
three-quarters of the value of the stock options (i.e., the difference between
$20.00 and the exercise price of the option) in cash at the time of the Merger.
The remaining one-quarter of such value will be subject to a bonus plan to be
paid to them over the three year period after the Merger. Depending on the
financial results of the XLConnect Surviving Corporation after the Merger, the
Executive Employees may receive none or up to 150% of the amount that is carried
over (the "Additional Payment"). Mr. Wallace will receive one-half of the value
of his stock options in cash at the time of the Merger (approximately $1.38
million) and the remaining one-half will be subject to a bonus plan subject to
the same conditions as the other Executive Employees. Mr. Wallace will also
receive a $105,000 bonus payment upon completion of the Merger and the IE
Merger.
The Executive Employees will be eligible for a bonus payable
under a bonus plan similar to that currently in effect for XLConnect. Each of
the Executive Employees will also receive options to purchase shares of Xerox
common stock pursuant to the existing Xerox employee stock option plan. In the
event of the termination of an Executive Employee's employment without cause by
the XLConnect Surviving Corporation or by an Executive Employee for good reason
(in each case, as defined in the employment agreements), such Executive Employee
will
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receive the Additional Payment as otherwise payable in addition to any
applicable payment under the XLConnect Surviving Corporation's general severance
policy or their employment agreement, whichever is greater. The employment
agreements also contain restrictions on solicitation of employees and clients
and other customary provisions.
XLConnect's Chief Financial Officer, Stephanie Cohen, entered
into an agreement dated July 31, 1997 and amended by an agreement with XLConnect
on March 2, 1998 in which the parties agreed that Ms. Cohen would continue to
serve XLConnect in that capacity through the earlier of June 30, 1998 or such
time as she and Richard D. Sanford, XLConnect's Chairman, agree otherwise. She
would be entitled to an annual salary of $175,000, plus certain living expense
reimbursements. Ms. Cohen is also eligible to receive $225,000 and continuation
for one year of certain standard benefits upon termination of her employment for
any reason. In addition, Ms. Cohen will receive approximately $2.29 million in
XLConnect Option Consideration (as defined below).
IE Severance and Employment Arrangements. Upon closing of the
IE Merger, XLConnect's Chairman of the Board of Directors, Richard D. Sanford,
in his capacity as IE's Chairman of the Board and Chief Executive Officer, is
eligible for continued health and medical benefits for him and his family for
one year, a $40,000 lump sum payment to cover administrative support for one
year, a $30,000 lump sum payment to cover office rent for one year and the
receipt of two vehicles and certain other miscellaneous equipment from IE with a
book value equal to approximately $75,000. In addition, IE will exercise its
right to terminate certain split-dollar agreements for Mr. Sanford, and IE has
agreed that it will not be entitled to reimbursement for any excess of premiums
paid by IE over the cash surrender values of the life insurance policies to
which the split-dollar agreements pertain. IE estimates this excess to be
approximately $138,000. In connection with the completion of the IE Merger and
the resulting change of control of IE, Mr. Sanford is entitled to an
acceleration of certain deferred compensation payments under a 1994 agreement.
The Company estimates the amount subject to acceleration to equal approximately
$1,145,000. In addition, Mr. Sanford will receive approximately $690,000 in
XLConnect Option Consideration.
Other officers and employees of IE and XLConnect may be
entitled to severance payments based on existing agreements, severance plans and
policies of IE and XLConnect upon completion of the IE Merger or the XLConnect
Merger, or should such individuals be terminated after the IE Merger or the
Merger.
Options. All of the IE and XLConnect directors and the
XLConnect officers hold XLConnect Stock Rights (as defined herein). Except for
the Executive Employees of XLConnect discussed above, such officers and
directors who hold XLConnect Stock Rights will be entitled to receive payment of
the XLConnect Option Consideration (as defined below), to the extent provided in
the Merger Agreement, in connection with the cancellation of such Stock Rights.
In addition, certain members of the XLConnect Board of Directors own IE Common
Stock and/or IE Stock Rights (as defined below). See "Merger Agreement--IE
Options and Warrants," "Merger Agreement--XLConnect Options and Warrants,"
"Severance and Employment Arrangements" and "Employment Arrangements of Certain
XLConnect Employees."
IE Merger. The Merger Agreement provides that as a condition
to Xerox' obligation to complete the Merger, the IE Merger shall have been
completed.
Indemnification. The Merger Agreement provides that all rights
to indemnification and advancement of expenses existing in favor of any present
or former director or officer of IE or XLConnect, as provided in (i) IE's or
XLConnect's Articles of Incorporation or bylaws, respectively, or (ii) certain
indemnification agreements identified in the Merger Agreement as in effect on
the date thereof, shall survive for a period of six years after the Merger with
respect to matters occurring at or prior to the Effective Times. Pursuant to the
Merger Agreement, Xerox has agreed that, for a period of six years after the
Effective Times, it will indemnify and hold harmless the present and former
officers and directors of IE and XLConnect in respect of acts or omissions
occurring prior to the Effective Times, subject to limitations imposed under
applicable law. Xerox has agreed to maintain the
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existing IE and XLConnect policies of directors' and officers' liability
insurance for a period of three years after the Effective Times so long as the
annual premium for such insurance, in the aggregate, is not in excess of 150% of
the last annual premium paid prior to the execution date of the Merger Agreement
(the "Maximum Premium"), and provided that if the existing coverage expires, or
is terminated or canceled by the insurance carrier during such three-year
period, Xerox will use its commercially reasonable efforts to obtain as much
coverage as can be obtained for the remainder of the period for an aggregate
cost not in excess of the Maximum Premium.
Other. Barry M. Abelson, a member of the IE and the XLConnect
Boards of Directors, a shareholder of IE and XLConnect and a holder of XLConnect
stock options, is a partner in the law firm of Pepper Hamilton LLP, which
provides legal services to IE and XLConnect, including legal services relating
to the Merger and the IE Merger.
Mr. Sanford, the Chairman of the Board of Directors of
XLConnect, is also the Chairman of the Board of Directors and Chief Executive
Officer of IE.
Merger Agreement
The following summary of the Merger Agreement is subject to, and
qualified in its entirety by, the complete text of the Merger Agreement which is
attached to this Proxy Statement as Appendix A. The terms of the Merger
Agreement are the result of arms' length negotiations between XLConnect and
Xerox.
Terms of the Merger. At the XLConnect Effective Time, and subject to
and upon the terms and conditions of the Merger Agreement and the PBCL,
Acquisition Sub One will be merged with and into XLConnect, the separate
corporate existence of Acquisition Sub One will cease, and XLConnect will
continue as the XLConnect Surviving Corporation.
Subject to and immediately following the receipt of the vote of
shareholders of XLConnect and the satisfaction or waiver of the conditions to
the consummation of the Merger set forth in the Merger Agreement, the parties
shall cause the Merger to be consummated by filing articles of merger as
contemplated by the PBCL (the "Articles of Merger"). The Merger shall be
effective at the time the Articles of Merger are filed with the Pennsylvania
Secretary of State or such other time as specified in the Articles of Merger.
The Merger Agreement provides that the Articles of Incorporation of
XLConnect, as in effect immediately prior to the XLConnect Effective Time, shall
be the Articles of Incorporation of XLConnect Surviving Corporation. The Merger
Agreement provides that the bylaws of XLConnect, as in effect immediately prior
to the XLConnect Effective Time, shall be the bylaws of the XLConnect Surviving
Corporation.
The directors of Acquisition Sub One immediately prior to the XLConnect
Effective Time shall be the initial directors of the XLConnect Surviving
Corporation, and the officers of Acquisition Sub One immediately prior to the
XLConnect Effective Time shall be the initial officers of the XLConnect
Surviving Corporation.
Conversion of XLConnect Common Stock and the Stock of Acquisition Sub
One in the Merger. At the XLConnect Effective Time, each share of XLConnect
Common Stock which is issued and outstanding immediately prior to the XLConnect
Effective Time (other than (i) shares of XLConnect Common Stock as to which
appraisal rights are exercised and (ii) shares of XLConnect Common Stock held of
record by IE, Xerox or Acquisition Sub One or any other direct or indirect
subsidiary of Xerox or IE) shall, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into and represent the right to
receive, in cash, the XLConnect Merger Consideration.
At the XLConnect Effective Time, each share of common stock of
Acquisition Sub One, par value $0.01 per share (the "Acquisition Common Stock"),
which is issued and outstanding immediately prior to the XLConnect Effective
Time shall, and each share of XLConnect Common Stock held in the treasury of
XLConnect immediately
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prior to the XLConnect Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, be canceled and cease to exist at and
after the XLConnect Effective Time, and no payment shall be made with respect
thereto.
At the XLConnect Effective Time, each share of XLConnect Common Stock
held of record by IE or any other direct or indirect subsidiary of IE
immediately prior to the XLConnect Effective Time shall remain issued,
outstanding and unchanged and shall constitute the only issued and outstanding
shares of capital stock of the XLConnect Surviving Corporation immediately after
the XLConnect Effective Time.
Appraisal Rights. Notwithstanding any provision of the Merger Agreement
to the contrary, any shares of XLConnect Common Stock outstanding immediately
prior to the XLConnect Effective Time held by a holder who has demanded and
perfected the right of appraisal of those shares in accordance with the
provisions of Sections 1571-1580 of the PBCL and as of the XLConnect Effective
Time has not withdrawn or lost such right to such appraisal ("Dissenting
Shares") shall not be converted into or represent a right to receive a cash
payment pursuant to the Merger Agreement, but the holder shall only be entitled
to such rights as are granted by the PBCL. See "Appraisal Rights." If a holder
of shares of XLConnect Common Stock who demands appraisal of those shares under
the PBCL effectively withdraws or loses (through failure to perfect or
otherwise) the right of appraisal, then, as of the XLConnect Effective Time or
the occurrence of such event, whichever last occurs, those shares shall be
converted into and represent only the right to receive the XLConnect Merger
Consideration, as the case may be, as provided in the Merger Agreement, without
interest, upon compliance with the provisions, and subject to the limitations,
of the Merger Agreement. The Merger Agreement requires that XLConnect shall give
Xerox (a) prompt notice of any written demands for appraisal of any shares of
XLConnect Common Stock, attempted withdrawals of such demands, and any other
instrument served pursuant to the PBCL and received by XLConnect relating to
shareholders' rights of appraisal, and (b) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
PBCL. XLConnect shall not, except with the prior written consent of Xerox,
voluntarily make any payment with respect to any demands for appraisal of
XLConnect Common Stock, offer to settle or settle any such demands or approve
any withdrawal of any such demands.
IE Options and Warrants. At or immediately prior to the IE Effective
Time, all options (the "IE Stock Rights") to purchase shares of IE Common Stock
that were granted under any employee stock option or compensation plan, or other
arrangement shall, in accordance with the change in control provision applicable
thereto, become fully vested and each holder of an IE Stock Right shall be
entitled to receive in cancellation of such IE Stock Right a cash payment from
Xerox equal to the amount, if any, by which the IE Merger Consideration exceeds
the per share exercise price of such IE Stock Right, multiplied by the number of
shares of IE Common Stock then subject to such IE Stock Right (the "IE Option
Consideration"), but subject to all required tax withholdings by IE. Each IE
Stock Right shall be canceled upon payment of the IE Option Consideration. As
the outstanding IE Stock Rights do not automatically cancel upon consummation of
the IE Merger, the Merger Agreement provides that the IE Stock Rights will
remain outstanding after the IE Merger and shall entitle the holder thereof to
convert them for the IE Option Consideration at any time in the future. IE
issued two warrants to a third party on October 17, 1996 and January 13,1997
(the "Third Party Warrants"). The Third Party Warrants shall remain outstanding
until such time as the holder exercises them for the IE Option Consideration.
The exercise prices of the Third Party Warrants are above the IE Merger
Consideration and, therefore, the holder would be required to pay more than it
would receive upon exercise of the Third Party Warrants. Accordingly, it is not
anticipated that the holder will exercise the Third Party Warrants. Holders of
the IE Stock Rights and Third Party Warrants will not receive interest on any IE
Option Consideration to be received in connection with the IE Merger.
XLConnect Options and Warrants. At or immediately prior to the
XLConnect Effective Time, each then outstanding option to purchase XLConnect
Common Stock (an "XLConnect Stock Right") that was granted under any employee
stock option or compensation plan or other arrangement, except for the Delayed
Vesting Stock Rights (as defined below), shall become fully vested and each
holder thereof shall be entitled to receive in cancellation of such XLConnect
Stock Right a cash payment from Xerox in an amount equal to the amount, if any,
by which the XLConnect Merger Consideration exceeds the per share exercise price
of such XLConnect Stock Right, multiplied
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by the number of shares of XLConnect Common Stock then subject to such XLConnect
Stock Right (the "XLConnect Option Consideration"), but subject to all required
tax withholdings by XLConnect. Each XLConnect Stock Right shall be otherwise
canceled upon the XLConnect Effective Time. Notwithstanding the foregoing, the
holders of stock options to purchase approximately 53,000 shares of XLConnect
Common Stock issued on July 9, 1997 (the "Delayed Vesting Stock Rights") will
receive the XLConnect Option Consideration in respect of all of the Delayed
Vesting Stock Rights which are fully exercisable at the XLConnect Effective Time
and one-half of such Delayed Vesting Stock Rights which are not exercisable at
such time. Such holders will receive the XLConnect Option Consideration with
respect to the remaining one-half of the Delayed Vesting Stock Rights not vested
at the XLConnect Effective Time one year after the XLConnect Effective Time,
provided they are employed by the XLConnect Surviving Corporation at the time. A
third party, in connection with its warrant to purchase 325,000 shares of
XLConnect Common Stock (the "Third Party XLConnect Stock Right"), shall be
entitled to receive the XLConnect Option Consideration in respect of such
warrant upon exercise thereof. The Third Party XLConnect Stock Right shall
remain outstanding until such time as the holder exercises it for the XLConnect
Option Consideration; however, in no event will the holder be entitled to any
interest on the XLConnect Option Consideration in respect of the Third Party
XLConnect Stock Right. The holder has agreed not to exercise the Third Party
XLConnect Stock Right prior to the earlier of the XLConnect Effective Time or
June 30, 1998. In addition, XLConnect has agreed with Xerox not to issue shares
of XLConnect Common Stock upon exercise of exercisable XLConnect Stock Rights
prior to the XLConnect Effective Time. In lieu thereof, XLConnect will pay
holders the difference between the market price of the XLConnect Common Stock at
such time and the exercise price of the XLConnect Stock Right as permitted by
the applicable plan or instrument (the "Stock Right Cash Payment"). IE has
agreed to lend XLConnect the funds necessary to pay the Stock Right Cash
Payment, if needed.
In connection with employment arrangements entered into with XLConnect,
the Executive Employees have agreed to terminate their XLConnect Stock Rights
immediately prior to the XLConnect Effective Time in exchange for certain
payments from Xerox. These arrangements are discussed in further detail in
"Interests of Certain Persons in the Merger."
Payment of Shares. At the XLConnect Effective Time, Xerox shall
deposit, in immediately available funds, with ChaseMellon Shareholder Services
(the "Disbursing Agent"), an amount sufficient to allow the XLConnect Merger
Consideration and the XLConnect Option Consideration to be paid to the holders
of each share of XLConnect Common Stock and each XLConnect Stock Right then
entitled to be so paid (such sum being hereinafter referred to as the "Fund").
Out of the Fund, the Disbursing Agent shall, pursuant to instructions from the
holders of XLConnect Common Stock, make the payments of the XLConnect Merger
Consideration and the XLConnect Option Consideration referred to in the Merger
Agreement. Any amount remaining in the Fund twelve months after the XLConnect
Effective Time shall be refunded to the XLConnect Surviving Corporation and the
XLConnect Surviving Corporation shall remain liable for payment of the XLConnect
Merger Consideration and the XLConnect Option Consideration.
In the event any certificate or certificates representing XLConnect
Common Stock are lost, stolen or destroyed, then the person claiming such fact
must provide (i) an affidavit to that effect to XLConnect and the Disbursing
Agent and (ii) a written indemnity agreement in form and substance satisfactory
to the XLConnect Surviving Corporation or a bond in such sum as the XLConnect
Surviving Corporation may direct as indemnity against any claim that may be made
against the XLConnect Surviving Corporation with respect to the certificate or
certificates of XLConnect Common Stock alleged to have been lost, stolen or
destroyed. Upon receipt and processing of such documents, the amount owing to
such person shall be paid to such person.
At and after the XLConnect Effective Time, all shares of XLConnect
Common Stock issued and outstanding immediately prior to the XLConnect Effective
Time shall be canceled and cease to exist, and each holder of a certificate or
certificates that represented shares of XLConnect Common Stock issued and
outstanding immediately prior to the XLConnect Effective Time shall cease to
have any rights as a shareholder of XLConnect with respect to the shares of
XLConnect Common Stock represented by such certificate or certificates, except
for the right to surrender such holder's certificate or certificates in exchange
for the payment provided pursuant to the
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Merger Agreement or to perfect such holder's right to receive payment for such
holder's shares pursuant to the PBCL if such holder has validly exercised and
not withdrawn or lost such holder's right to receive payment for such holder's
shares pursuant to the PBCL, and no transfer of shares of XLConnect Common Stock
issued and outstanding immediately prior to the XLConnect Effective Time shall
be made on the stock transfer books of the XLConnect Surviving Corporation.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED
TO SHAREHOLDERS AND HOLDERS OF XLCONNECT STOCK RIGHTS PROMPTLY FOLLOWING THE
XLCONNECT EFFECTIVE TIME AS TO THE METHOD OF EXCHANGING CERTIFICATES FORMERLY
REPRESENTING SHARES OF XLCONNECT COMMON STOCK OR STOCK RIGHTS FOR THE XLCONNECT
MERGER CONSIDERATION. SHAREHOLDERS AND HOLDERS OF XLCONNECT STOCK RIGHTS SHOULD
NOT SEND CERTIFICATES REPRESENTING THEIR SHARES OF XLCONNECT COMMON STOCK OR
STOCK RIGHTS TO THE DISBURSING AGENT OR XLCONNECT PRIOR TO RECEIPT OF THE
TRANSMITTAL LETTER.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of IE and XLConnect, in respect of themselves and
their subsidiaries, relating, among other things, to the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (i) corporate organization, qualification and corporate
power; (ii) capitalization; (iii) the authorization, execution, delivery and
enforceability of the Merger Agreement; (iv) the execution and delivery of the
Merger Agreement not conflicting with or resulting in a breach of (a) IE's or
any subsidiary's Articles of Incorporation or bylaws, (b) any applicable
material agreement, contract, lease, license, instrument or other arrangements
or (c) any applicable constitution, statute, regulation, rule, injunction,
judgement, order, decree, or requiring governmental consents (except filing
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
the PBCL or the Exchange Act); (v) the financial statements of IE and XLConnect;
(vi) compliance with the applicable Commission filing requirements and
compliance in all material respects of such filings with the requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act;
(vii) compliance with all applicable laws; (viii) taxes; (ix) the absence of
undisclosed litigation or liabilities; (x) the absence of brokers or finders,
other than Montgomery and the advisor for IE; (xi) material contracts; (xii)
intellectual property; (xiii) absence of undisclosed liabilities; (xiv) fairness
opinions; (xv) certain issues with respect to IE's Rights Agreement dated as of
March 22, 1996 between IE and Chemical Mellon Shareholder Services L.L.C. (the
"Rights Plan"); (xvi) management letters of outside auditors; (xvii) other
equity interests; (xviii) employment and employee benefit matters and labor
matters; (xix) environmental matters; (xx) credit support arrangements; (xxi)
the absence of certain changes or events since November 1, 1997; (xxii) assets
and properties; (xxiii) contracts and insurance; (xxiv) reserves; (xxv) action
by the board of directors; (xxvi) transactions with certain related persons; and
(xxvii) expenses.
The Merger Agreement contains various joint and several representations
and warranties of Xerox, Acquisition Sub One and Acquisition Sub Two relating,
among other things, to the following matters (which representations and
warranties are subject, in certain cases, to specific exceptions): (i) corporate
organization; (ii) the authorization, execution, delivery and enforceability of
the Merger Agreement; (iii) the execution and delivery of the Merger Agreement
not conflicting with or resulting in a breach of (a) any provision of any of
such respective entity's charter or bylaws, (b) any applicable material
agreement, contract, lease, license, instrument or other arrangements or (c) any
applicable constitution, statute, regulation, rule, injunction, judgement,
order, decree, or requiring governmental consents (except filing under the HSR
Act, the PBCL or the Exchange Act); (iv) adverse pending or threatened
litigation; (v) brokers or finders; (vi) financial ability to perform the
requirements set forth in the Merger Agreement; and (vii) information supplied
for inclusion in the Proxy Statement.
None of the representations or warranties of any of IE, XLConnect,
Xerox, Acquisition Sub One or Acquisition Sub Two survive the consummation of
the Merger.
Conduct of Business Pending the Merger. The Merger Agreement provides
that, from the date of the Merger Agreement through the IE Effective Time and
the XLConnect Effective Time, respectively, IE and XLConnect shall conduct their
business only in the ordinary and usual course, and to the extent consistent
therewith,
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each of IE and XLConnect will use its commercially reasonable efforts to
preserve its business organization intact and maintain its existing relations
with customers, suppliers, employees and business associates. Without limiting
the generality of the foregoing, the Merger Agreement provides that, from the
date of the Merger Agreement through the IE Effective Time and the XLConnect
Effective Time, IE and XLConnect, respectively, shall not do any of the
following without the prior written consent of Xerox (except as otherwise
permitted or required by the Merger Agreement): (i) authorize or effect any
change in its charter or bylaws; (ii) grant, amend or modify any Stock Rights or
issue, sell or otherwise dispose of any of its capital stock (except, in the
case of IE, upon the exercise of Stock Rights outstanding as of the date of the
Merger Agreement; it being understood, however, that XLConnect shall not issue
any capital stock, whether or not upon the exercise of XLConnect Stock Rights
and, instead of issuing shares upon the exercise of the Stock Rights, will pay
the holder the Stock Right Cash Payment (which IE will lend to XLConnect, if
needed)), (iii) declare, set aside or pay any dividend or distribution with
respect to its capital stock, or redeem, repurchase or otherwise acquire any of
its capital stock or any Stock Rights; (iv) issue any debt security or create,
incur, assume or guarantee any indebtedness for borrowed money or capitalized
lease obligation other than borrowings under existing credit facilities to fund
current obligations in the ordinary course of business; (v) impose or allow to
be imposed any security interest upon any of its assets except pursuant to
certain existing security arrangements or purchase money security interests on
inventory financed in the ordinary course of business; (vi) make any expenditure
for a capital asset or lease any real property except in accordance with the
existing capital budgets; (vii) implement or adopt any change in its accounting
principles, other than as may be required by generally accepted accounting
principles; (viii) (I) enter into or amend or renew any written employment,
consulting, severance, "golden parachute" or similar agreement or arrangement
with any director, officer or employee of IE, XLConnect or any of their
subsidiaries, (II) grant any salary or wage increase, or (III) increase any
employee benefit (including incentive or bonus payments), except in the case of
"(II)" for normal individual increases in compensation to employees (other than
officers and directors of IE or any of its subsidiaries) in the ordinary course
of business consistent with past practice; (ix) enter into, establish, adopt or
amend (except as may be required by applicable law) any employee benefit,
incentive, or welfare contract, plan or arrangement, in respect of any director,
officer or employee of IE, XLConnect or any of their subsidiaries, or take any
action to accelerate the vesting or exercisability of stock options, restricted
stock or other compensation or benefits payable thereunder; (x) knowingly or
negligently take or fail to take any action, if such action or failure to act
would directly or indirectly, cause any of the subsidiaries of IE, including
XLConnect, to cease to be a member of the consolidated group of companies of
which IE is the common parent for Federal income tax purposes; it being
understood that compliance with terms of the Merger Agreement concerning the
exercise of the XLConnect Stock Rights and the payment of the Stock Right Cash
Payment in connection therewith will not constitute a violation of the
foregoing; (xi) take any action that would materially alter the strategic
business plan and/or service delivery capability of XLConnect; (xii) make any
capital investment in or make any loan to or acquire the securities or assets of
any other person other than to or from its subsidiaries in the ordinary course
of business; (xiii) make any change in employment terms for any of its
directors, officers and employees other than customary increases to non-director
or non-officer employees awarded in the ordinary course of business consistent
with past practices; or (xiv) except as may be required by law, intentionally
take or fail to take any action the reasonably foreseeable effect of which would
be to cause any representation or warranty in the Merger Agreement to be or
become inaccurate.
Solicitations and Superior Proposals. IE and XLConnect have agreed that
neither they, nor any of their respective officers, directors, employees, agents
and representatives will solicit, initiate or encourage (including by way of
furnishing information), or take any other action designed or reasonably likely
to facilitate any inquiries or the submission of any proposal or offer from any
person relating to a merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving, or any purchase of a significant portion of the assets or any equity
securities of, or any tender offer or exchange offer for shares of equity
securities of IE, XLConnect or any of their subsidiaries (an "Acquisition
Proposal"), or participate in any discussions or negotiations regarding any such
Acquisition Proposal. Notwithstanding the foregoing, IE, XLConnect and their
respective directors and officers may participate in any discussions or
negotiations regarding, furnish information with respect to, assist or
facilitate any effort or attempt by any person to do or seek, an Acquisition
Proposal, solely to the extent that the Board of Directors of IE or XLConnect,
as applicable, determines, in good faith, that such actions are necessary in
order to comply with its fiduciary obligations under applicable law in response
to an
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Acquisition Proposal or material modification to an Acquisition Proposal that
was made but not solicited after the date of the Merger Agreement. The Board of
Directors of IE and XLConnect have agreed not to modify or withdraw their
approval of the Merger and IE Merger, respectively, unless there is a bona fide
proposal made by a third party to acquire, for consideration consisting of cash
and/or securities, all or substantially all of the voting power of the shares of
IE Common Stock or XLConnect Common Stock then outstanding or all or
substantially all of the assets of IE or XLConnect on terms that the respective
Board of Directors determines in its good faith judgement to be materially more
favorable to IE's or XLConnect's shareholders, as applicable, than the Merger or
IE Merger, as applicable, and which proposal is reasonably capable of being
financed (a "Superior Proposal"). Upon receipt of a Superior Proposal and after
five (5) days written notice thereof to Xerox, identifying the material terms
and conditions and the person making the proposal, the respective Board of
Directors may terminate the Merger Agreement. The Termination Fee (defined
below) will be due Xerox if either IE's Board of Directors or XLConnect's Board
of Directors modifies or withdraws its approval of the IE Merger or the Merger,
respectively, or terminates the Merger Agreement upon the receipt of a Superior
Proposal.
Additional Covenants. Pursuant to the Merger Agreement, XLConnect and
IE have covenanted to: (i) convene a special meeting of their respective
shareholders as soon as practicable to vote upon adoption of the Merger
Agreement; (ii) prepare and file all materials required by federal and state
securities laws and the Nasdaq Stock Market after giving Xerox' counsel the
opportunity to review such materials; (iii) permit Xerox to have access to
XLConnect's officers, employees, agents, independent auditors, representatives,
properties, books and records; (iv) if any anti-takeover statute or regulation
becomes applicable to the Merger, to use all commercially reasonable efforts to
take such actions as are reasonably necessary, lawful and requested or consented
to by Xerox so that the Merger may be completed and to otherwise act to
eliminate the effect of such anti-takeover statute on the Merger; (v) take any
necessary action to obtain the consent of IBM Credit Corporation to the Merger;
and (vi) use all commercially reasonable efforts to obtain any third party
consents required to effectuate the Merger Agreement.
Xerox has covenanted to cause: (i) at the XLConnect Effective Time, the
payment of funds sufficient to pay the XLConnect Merger Consideration and the
XLConnect Option Consideration and not enter into any transaction, commitment or
obligation which could reasonably result in not being able to do so; and (ii)
all XLConnect Common Stock held by Xerox or any of its direct or indirect
wholly-owned subsidiaries to be voted in favor of the Merger.
IE, XLConnect, Xerox, Acquisition Sub One and Acquisition Sub Two each
have covenanted to: (i) make any filings required by the HSR Act; (ii) give any
required notices concerning breaches of its own representations and warranties
in the Merger Agreement; (iii) make a joint press release concerning the Merger;
and (iv) use all commercially reasonable efforts to take all actions and to do
all things necessary in order to consummate and make effective the transactions
contemplated by the Merger Agreement.
Conditions to the Merger. The obligations of IE, XLConnect, Xerox,
Acquisition Sub One and Acquisition Sub Two to complete the Merger and the IE
Merger are subject to the fulfillment of the following conditions, any one or
more of which may be waived by any such party, to the extent permitted by
applicable law: (i) the Merger and the Articles Amendment shall have been
approved by the shareholders of XLConnect and the Articles Amendment shall have
been completed; (ii) the IE Merger shall have been approved by the shareholders
of IE and XLConnect; (iii) IE and XLConnect shall have received all governmental
consents, approvals and authorizations required to be obtained prior to the
applicable Effective Time, including the expiration of the applicable waiting
period under the HSR Act; (iv) neither any statute, rule, regulation, order,
stipulation or injunction (each an "Order") shall have been enacted,
promulgated, entered, enforced or deemed applicable to the Merger or the IE
Merger nor shall any other action have been taken by any governmental authority,
administrative agency or court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by the Merger Agreement, prohibits
Xerox' ownership or operation of all or any material portion of the business
assets of IE or XLConnect or could compel Xerox to dispose of or hold separately
all or a material portion of such business or assets as a result of the
transactions contemplated in the Merger Agreement; and (v) the IE Merger shall
not occur unless all conditions to the Merger have been met and the Merger shall
not occur unless the IE Merger occurs.
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The obligations of Xerox, Acquisition Sub One and Acquisition Sub Two
to complete the Merger and the IE Merger are further subject to the fulfillment
of the following conditions, any one or more of which may be waived by Xerox,
Acquisition Sub One or Acquisition Sub Two: (i) IE and XLConnect shall have
performed and complied with, in all material respects, all obligations and
covenants required to be performed or completed by them under the Merger
Agreement; (ii) the representations and warranties of IE and XLConnect set forth
in the Merger Agreement are true and correct in all material respects at and as
of the applicable Effective Time, except for changes contemplated by the Merger
Agreement; (iii) Xerox shall have received an opinion of counsel to IE and
XLConnect in form and substance agreed to by the parties; (iv) no court or
governmental action or proceeding shall have been instituted and be pending to
restrain, prohibit or to obtain substantial damages in respect of the
consummation of the Merger or the IE Merger which, in the reasonable opinion of
Xerox, based upon advice of counsel respecting the likelihood of an adverse
outcome in such action or proceeding, may reasonably be expected to result in an
injunction against the Merger or the IE Merger or damages which would constitute
a Material Adverse Change (as defined in the Merger Agreement); (v) no Material
Adverse Change shall have occurred; (vi) except for certain liens, IE shall hold
all shares of stock of its subsidiaries, including XLConnect, free and clear of
any liens or encumbrances; (vii) IE, XLConnect and their subsidiaries shall
remain members of IE's consolidated tax group; (viii) certain of the Executive
Employees of XLConnect shall have executed employment agreements with XLConnect
and shall remain employed by XLConnect as of the applicable Effective Time; (ix)
Xerox shall have received a letter from XLConnect's independent certified public
accountants concerning certain procedures substantially in the form previously
agreed by Xerox, IE and XLConnect; (x) neither IE nor XLConnect shall have
granted, modified or amended any Stock Right or issued any capital stock, except
as permitted in the Merger Agreement; (xi) all outstanding Stock Rights must
either terminate upon completion of the Merger or the IE Merger or convert into
the right to receive only the Option Consideration; (xii) after the date of the
Merger Agreement, neither IE nor XLConnect shall have set aside or paid any
dividends; and (xiii) the implementation of a transitional business plan for
IE's XLSource business.
The obligations of IE and XLConnect to complete the Merger and the IE
Merger are further subject to the fulfillment of the following conditions, any
one or more of which may be waived by IE or XLConnect: (i) Xerox, Acquisition
Sub One and Acquisition Sub Two shall have performed and complied with, in all
material respects, all obligations and covenants required to be performed or
completed by them under the Merger Agreement; (ii) the representations and
warranties of Xerox, Acquisition Sub One and Acquisition Sub Two set forth in
the Merger Agreement are true and correct in all material respects at and as of
the applicable Effective Time, except for changes contemplated by the Merger
Agreement; and (iii) XLConnect shall have received an opinion of counsel to
Xerox in form and substance agreed to by the parties.
Termination of Merger Agreement and Termination Fees. Except as
provided below, if any party terminates the Merger Agreement pursuant to the
terms of the Merger Agreement, all rights and obligations shall terminate
without any liability of any party to any other party.
The Merger Agreement may be terminated in the event of any of the
following:
(i) by mutual consent of IE, XLConnect and Xerox;
(ii) by any party to the Merger Agreement if the Merger or the IE
Merger is not consummated by July 31, 1998, unless the terminating party has
caused the failure to meet the applicable closing conditions by wrongful action
or a failure to act;
(iii) by any party to the Merger Agreement if the shareholders of IE or
XLConnect do not approve the IE Merger or the XLConnect Merger, respectively;
(iv) by any party to the Merger Agreement if a law or court order
prohibits the Merger or the IE Merger;
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(v) by Xerox in the event that (A) the Board of Directors of IE or
XLConnect shall have withdrawn or modified in a manner adverse to Xerox its
approval or recommendation of the Merger Agreement, or shall fail to reaffirm
such approval or recommendation at the request of Xerox, or (B) IE or XLConnect
shall have failed to perform in a material way any of its covenants under the
Merger Agreement in a manner so as not to satisfy the applicable closing
conditions, which failure to perform is incapable of being cured or has not been
cured within twenty days after giving notice thereof to IE or XLConnect, as
applicable;
(vi) by Xerox in the event that IE or XLConnect shall have breached any
of its representations in any material respect in a manner so as not to satisfy
the applicable closing conditions, which failure to perform is incapable of
being cured or has not been cured within twenty days after giving notice thereof
to IE or XLConnect, as applicable;
(vii) by IE or XLConnect if the Board of Directors of either IE or
XLConnect determines to accept a Superior Proposal or recommend that its
shareholders accept such Superior Proposal, but only after such Board of
Directors has been advised by counsel that approval, acceptance or
recommendation of such transaction is necessary in order for such Board of
Directors to act in a manner consistent with its fiduciary obligations under
applicable law and IE or XLConnect complies with all other related provisions of
the Merger Agreement, including providing prior notice of the Superior Proposal
to Xerox and the payment of the Termination Fee (defined below); or
(viii) by IE or XLConnect if Xerox has breached or failed to perform in
any material way any of its representations, warranties or covenants under the
Merger Agreement, which breach or failure to perform is incapable of being cured
or has not been cured withing twenty days after giving notice thereof to Xerox.
If the Merger Agreement is terminated pursuant to paragraphs (v), (vi)
(but only if the applicable breach was intentional, reckless or grossly
negligent) or (vii) above, then within one day after such termination, IE and
XLConnect shall pay to Xerox $9.84 million and $2.46 million, respectively, as a
termination fee (the "Termination Fee") in immediately available funds and, in
the absence of bad faith, such payment shall constitute Xerox' and its
affiliates exclusive remedy. If the Merger Agreement is terminated pursuant to
paragraph (viii) above, then within one day after such termination, Xerox shall
pay to IE and XLConnect $9.84 million and $2.46 million, respectively, as a
termination fee in immediately available funds and, in the absence of bad faith,
such payment shall constitute IE's and XLConnect's exclusive remedy.
Except for the provisions concerning indemnification discussed above,
none of the representations, warranties or agreements of any party to the Merger
Agreement survives the consummation of the Merger, unless the specific terms
specify otherwise.
Expenses. All expenses incurred in connection with the Merger Agreement
and the transactions contemplated in the Merger Agreement will be paid by the
party incurring such expenses.
Amendment. Subject to applicable law, the parties to the Merger
Agreement may modify or amend any provision of the Merger Agreement at any time
prior to the XLConnect Effective Time by written agreement executed and
delivered by duly authorized officers of the respective parties.
Accounting Treatment
The Merger and the IE Merger will each be accounted for under the
purchase method of accounting. A final determination of required purchase
accounting adjustments of the fair value of the assets and liabilities of IE and
XLConnect has not yet been made.
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Certain Effects of the Merger
Upon consummation of the Merger, Acquisition Sub One will be merged
into XLConnect, the separate corporate existence of Acquisition Sub One will
cease, and XLConnect will continue as the XLConnect Surviving Corporation. Upon
consummation of the IE Merger, Acquisition Sub Two will be merged into IE, the
separate corporate existence of Acquisition Sub Two will cease, and IE will
continue as the IE Surviving Corporation. Xerox will own directly or indirectly
all of the outstanding shares of common stock of the IE Surviving Corporation
and XLConnect Surviving Corporation and will be entitled to all of the benefits
and detriments resulting from that interest, including all income or losses
generated by IE Surviving Corporation's and XLConnect Surviving Corporation's
operations and any future increase or decrease in IE Surviving Corporation's and
XLConnect Surviving Corporation's value. After the IE Effective Time, the
present holders of the IE Common Stock will no longer have any equity interest
in IE, will not share in the future earnings or growth of the IE Surviving
Corporation and will no longer have rights to vote on corporate matters. After
the XLConnect Effective Time, the present holders of the XLConnect Common Stock
will no longer have any equity interest in XLConnect, will not share in the
future earnings or growth of the XLConnect Surviving Corporation and will no
longer have rights to vote on corporate matters. IE and XLConnect are each
currently subject to the information filing requirements of the Exchange Act,
and in accordance therewith, are required to file reports and other information
with the Commission relating to its business, financial statements and other
matters. As a result of the Merger and the IE Merger, XLConnect will become a
wholly-owned subsidiary of IE, IE will become a wholly-owned subsidiary of
Xerox, there will cease to be any public market for the IE Common Stock and the
XLConnect Common Stock, and, after the respective Effective Times, the IE Common
Stock and the XLConnect Common Stock will be delisted from the Nasdaq Stock
Market. Upon such event, the IE Surviving Corporation and the XLConnect
Surviving Corporation will apply to the Commission for the deregistration of the
IE Common Stock and the XLConnect Common Stock, respectively, under the Exchange
Act. The termination of the registration of the IE Common Stock and the
XLConnect Common Stock under the Exchange Act would make certain provisions of
the Exchange Act (including the proxy solicitation provisions of Section 14(a),
and the short swing trading provisions of Section 16(b)), no longer applicable
to the IE Surviving Corporation and the XLConnect Surviving Corporation.
Federal Income Tax Consequences
Upon consummation of the Merger and the IE Merger, respectively, each
outstanding share of XLConnect Common Stock (except for those with respect to
which statutory appraisal rights are exercised and those owned by IE) will be
converted into the right to receive the XLConnect Merger Consideration and each
outstanding share of IE Common Stock (except for those with respect to which
statutory appraisal rights are exercised) will be converted into the right to
receive the IE Merger Consideration.
The following discussion is a summary of the principal federal income
tax consequences of the Merger and the IE Merger to shareholders of XLConnect
and IE whose shares of XLConnect Common Stock and IE Common Stock, respectively,
are surrendered pursuant to the Merger or the IE Merger (including any cash
amounts received by dissenting shareholders pursuant to the exercise of
appraisal rights). The discussion applies only to shareholders in whose hands
shares of IE Common Stock or XLConnect Common Stock are capital assets, and may
not apply to shares of IE Common Stock or XLConnect Common Stock received
pursuant to the exercise of employee stock options or otherwise as compensation
or to shareholders who are not citizens or residents of the United States.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH SHAREHOLDER IS URGED TO CONSULT SUCH
SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO SUCH SHAREHOLDER AND THE PARTICULAR TAX EFFECTS OF THE MERGER
AND THE IE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
OTHER TAX LAWS.
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The receipt of cash pursuant to the Merger and the IE Merger (including
any cash amounts received by dissenting shareholders pursuant to the exercise of
appraisal rights) will be a taxable transaction for federal income tax purposes
under the Internal Revenue Code of 1986, as amended (the "Code"). In general,
for federal income tax purposes, a shareholder will recognize gain or loss equal
to the difference between the cash received by the shareholder pursuant to the
Merger Agreement and the shareholder's adjusted tax basis in the shares of IE
Common Stock and XLConnect Common Stock surrendered pursuant to the Merger
Agreement. Such gain or loss will be a capital gain or loss and will be a
long-term gain or loss if, at the IE Effective Time and the XLConnect Effective
Time, the shares of IE Common Stock and XLConnect Common Stock, respectively,
were held for more than one year. Long-term capital gain recognized by an
individual shareholder will be taxed at the lowest rates applicable to capital
gains if the shareholder has held the shares of IE Common Stock or XLConnect
Common Stock for more than 18 months. Certain limitations apply with respect to
the deductibility of capital losses.
Payments in connection with the Merger and the IE Merger may be subject
to "backup withholding" at a 31% rate. Backup withholding generally applies if
the shareholder fails to furnish such shareholder's social security number or
other taxpayer identification number ("TIN"), or furnishes an incorrect TIN.
Backup withholding is not an additional tax but merely a creditable advance
payment, which may be refunded to the extent it results in an overpayment of
tax. Certain persons generally are exempt from backup withholding, including
corporations and financial institutions. Certain penalties apply for failure to
furnish correct information and for failure to include reportable payments in
income. Shareholders should consult with their own tax advisors as to the
qualifications and procedures for exemption from backup withholding.
Regulatory Compliance
The Merger and the IE Merger are each subject to review by the Federal
Trade Commission and the Antitrust Division of the Department of Justice under
the HSR Act. The applicable waiting period under the HSR Act expired on March
31, 1998.
Articles of Merger must be filed on behalf of XLConnect and Acquisition
Sub One with the Secretary of State of the Commonwealth of Pennsylvania in order
to effect the Merger. Articles of Merger must be filed on behalf of IE and
Acquisition Sub Two with the Secretary of State of the Commonwealth of
Pennsylvania in order to effect the IE Merger.
Except as described above, neither IE nor XLConnect is aware of any
licenses or regulatory permits that are material to their respective businesses
that might be adversely affected by the Merger or the IE Merger, as the case may
be, or of any approval or other action by any governmental, administrative or
regulatory agency or authority which would be required prior to the respective
Effective Times.
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APPRAISAL RIGHTS
If the Merger is consummated, shareholders who fully comply with the
statutory procedures for exercising appraisal rights set forth in the PBCL will
be entitled to receive cash for the fair value of their XLConnect Common Stock
as determined pursuant to the procedures prescribed by the PBCL. Merely voting
against the Merger Agreement will not perfect a shareholder's appraisal rights.
Shareholders are urged to review carefully the dissenting shareholders' rights
provisions of the PBCL, a description of which is provided below and the full
text of which is attached to this Proxy Statement as Appendix C and incorporated
herein by reference. SHAREHOLDERS WHO FAIL TO COMPLY STRICTLY WITH THE
APPLICABLE PROCEDURES WILL FORFEIT THEIR APPRAISAL RIGHTS IN CONNECTION WITH THE
MERGER.
Sections 1571-80 of the PBCL ("Subchapter D") and 1906(c) of the PBCL,
copies of which are attached to this Proxy Statement as Appendix C, entitle any
holder of record of XLConnect Common Stock who objects to the Merger, in lieu of
receiving the consideration for such XLConnect Common Stock provided under the
Merger Agreement, to demand in writing that he be paid in cash the fair value of
his XLConnect Common Stock. Section 1572 of the PBCL defines "fair value" as:
"The fair value of shares immediately before the effectuation of the corporate
action to which the dissenter objects, taking into account all relevant factors,
but excluding any appreciation or depreciation in anticipation of the corporate
action."
Any shareholder contemplating making demand for fair value is urged to
review carefully the provisions of Subchapter D, particularly the procedural
steps required to perfect his appraisal rights thereunder. APPRAISAL RIGHTS WILL
BE LOST IF THE PROCEDURAL REQUIREMENTS OF SUBCHAPTER D ARE NOT FULLY AND
PRECISELY SATISFIED. The following summary does not purport to be a complete
statement of the provisions of Subchapter D of the PBCL and is qualified in its
entirety by reference to Appendix C and the PBCL.
Filing Notice of Intention to Demand Fair Value. If you wish to
exercise your appraisal right or to preserve the right to do so, before the vote
of the shareholders is taken on the Merger you must deliver to XLConnect a
written notice of intention to demand that you be paid the fair value of your
XLConnect Common Stock if the Merger is effected. Such written notice must be
sent to Stephanie D. Cohen, the Secretary of XLConnect, at XLConnect Solutions,
Inc., 411 Eagleview Blvd, Exton, PA 19341. A vote against the Merger is not
sufficient to satisfy the requirement of delivering a written notice to
XLConnect. In addition, you must continuously hold your XLConnect Common Stock
from the date of filing the notice with XLConnect through the consummation of
the Merger, and you must not vote your XLConnect Common Stock in favor of the
Merger. Your failure to comply with any of the foregoing will result in the
forfeiture of any right to payment of fair value for your XLConnect Common
Stock. Once the demand has been properly made, the determination of "fair value"
will be made pursuant to the provisions of Pennsylvania law, including an
ultimate court determination if applicable.
Notice to Demand Payment. If the Merger is approved by the
shareholders, XLConnect will mail you a further notice if you gave due notice of
your intention to exercise your statutory appraisal right and you refrained from
voting in favor of the Merger. This notice will provide you with certain
instructions for demanding payment and will notify you of a date by which such
right must be exercised.
Record Owners and Beneficial Owners. If you are a record holder of
XLConnect Common Stock held in whole or in part for the benefit of another
person, you may assert appraisal rights as to fewer than all of the XLConnect
Common Stock registered in your name only if you dissent with respect to all the
XLConnect Common Stock beneficially owned by such person and disclose the name
and address of the person or persons on whose behalf you dissent. If you are a
beneficial owner of XLConnect Common Stock and are not the record holder, you
may assert appraisal rights with respect to XLConnect Common Stock held on your
behalf if you submit to XLConnect the written consent of the record holder not
later than the time of assertion of appraisal rights. If you are a beneficial
owner, you may not dissent with respect to fewer than all of your XLConnect
Common Stock, whether or not such XLConnect Common Stock is registered in your
name.
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INFORMATION REGARDING IE AND XLCONNECT
General. The Company provides information technology products, services
and solutions to corporate customers, educational institutions and governmental
agencies in the United States, primarily through its branch locations. IE was
founded in 1982. In March 1984, IE commenced the wholesale distribution of
microcomputers. On August 17, 1995, IE exchanged shares of its common stock for
all of the outstanding shares of common stock of The Future Now, Inc. ("FNOW")
not then owned by the Company. The acquisition of FNOW, a computer sales and
services company, expanded IE's offerings through the addition of the Direct
Business, which includes IE's XLSource direct computer products sales
organization, and a professional services organization providing a wide range of
sophisticated customer support and consulting services. The professional
services portion of the Direct Business was combined with one of IE's existing
subsidiaries to form XLConnect, which was incorporated in January 1996. On
October 17, 1996, XLConnect completed an initial public offering, with IE
retaining an 80%-ownership interest. On July 18, 1997, IE sold certain assets
of XLSource and XLConnect sold certain specified managed services contracts and
related assets to GECITS in the GE Transaction. On July 18, 1997, IE also sold
its Indirect Business, the wholesale distribution of microcomputers through its
reseller network, to Ingram Micro, Inc. in the RND Transaction. Accordingly, the
Indirect Business is treated as a discontinued operation in IE's financial
statements. The principal products sold, installed and serviced by the Company
include microcomputers, workstations, local and wide area network systems,
computer software and peripherals and telecommunications equipment. The Company
also offers a wide range of sophisticated customer support and consulting
services.
XL Source. As a result of IE's acquisition of the FNOW, which was
completed in August 1995 by the purchase of the remaining 69% of FNOW's
outstanding capital stock that IE did not already own, IE acquired a direct
computer products sales organization, which in 1996 was renamed XLSource. As
part of the GE Transaction, which was consummated on July 18, 1997, IE sold to a
subsidiary of GECITS certain assets, consisting primarily of the inventory,
accounts receivable and customer contracts relating to twenty of the twenty-four
XLSource locations and real property leases and fixed assets relating to six of
such twenty locations. After the GE Transaction, XLSource continued to operate
in four locations in Pittsburgh, Pennsylvania, Cincinnati and Cleveland, Ohio
and Indianapolis, Indiana. XLSource is an authorized dealer for or a reseller of
the products of over 80 manufacturers. XLSource has substantially outsourced its
distribution, handling and inventory logistics to Ingram Micro, Inc.,
substantially reducing the need to carry inventory and lease warehouse space.
XLSource, in conjunction with XLConnect (described below), focuses its
sales and marketing efforts on selling computer related products and services to
Fortune 1000 corporations, professional firms, and governmental and educational
institutions. These customers are relying more on business partners and
suppliers to provide a complete solution to their information technology needs,
in addition to competitive pricing. Also, many larger customers are outsourcing
their information technology needs. In order to meet these complex needs,
XLSource supplies the hardware and partners with XLConnect, which provides
sophisticated information technology services.
Sales to targeted customers are generated primarily by XLSource's sales
representatives. These sales representatives generally have three or more years
of microcomputer sales experience involving multi-product authorizations and are
assigned to accounts on the basis of skill, experience and prior results.
Successful operations will depend in part on XLSource's ability to attract, hire
and retain highly skilled and motivated sales personnel. Compensation programs
for sales representatives involve both salary and commission. Commissions are
based on a percentage of the gross profit generated by the sale, thereby
allowing the sales representative to participate in XLSource's gross profit.
XLConnect. XLConnect is a professional services organization providing
enterprise-wide solutions to clients with complex computing and communications
requirements. As a single source provider, XLConnect offers comprehensive
internetworking services, applications development services, managed services
and telecommunications services. XLConnect's solutions are custom designed to
integrate computing and communications devices and equipment with software
applications and systems to develop local area networks
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("LANs") and to link LANs through public and private communications networks and
the Internet to form wide area networks ("WANs").
Internetworking services include consulting, design and implementation
of LANs and WANs. Applications development services include customization and
adaptation of proven software as well as training to support XLConnect's
applications development and internetworking solutions. Managed services enable
clients to outsource multiple aspects of their information technology functions,
including technology selection, deployment and support, network management and
help desk support. Telecommunications services include data, video and voice
transmission. XLConnect believes that its solutions enable its clients to
increase productivity and enhance competitiveness by improving the flow of
information among clients' employees, customers and suppliers.
As LANs have proliferated, computing and communications technologies
have continued to converge. Evolving business practices have created an
increased need for the instantaneous flow of information within and beyond
traditional corporate walls to branch sales offices, telecommuters, mobile
offices and customer and supplier networks. Businesses now share data, video and
voice information among diverse locations across telecommunications networks,
thereby creating WANs. In addition, access to the Internet is providing new
communications and marketing opportunities for virtually all businesses.
XLConnect believes that demand for internetworking, applications
development and outsourcing services is expected to increase as organizations
continue to: (i) migrate from legacy mainframe environments to distributed,
client/server environments characterized by LANs relying on multi-vendor,
multi-protocol technologies; (ii) share information among diverse client,
employee and supplier locations across telecommunications networks, creating
WANs; and (iii) experience difficulty in maintaining in-house technical
expertise and personnel sufficient to support these complex LAN and WAN
environments.
Competition. Competition in the microcomputer industry is intense,
principally in the areas of price, product availability and technical
consulting, support and service. The Company competes with computer aggregators,
distributors, resellers and retailers in the sale of its products and services
as well as firms offering information technology implementation consulting
services. The Company faces competition from microcomputer manufacturers that
sell their products through direct sales forces and from distributors that
emphasize mail order and telemarketing. Certain competitors have greater
technical, marketing and financial resources than the Company.
XLConnect operates in rapidly changing markets that are intensely
competitive. These markets are highly fragmented with many direct and indirect
competitors in each of them. XLConnect believes that the principal competitive
factors for its services include technical expertise, breadth of service
offerings, geographic reach, quality performance, client service and support,
reputation, price of services and financial stability. XLConnect's competitors
include the services organizations of established computer product
manufacturers, value-added resellers, systems integrators and consultants,
aggregators, distributors, specific service providers and long distance carriers
and Regional Bell Operating Companies ("RBOCs"). Many of XLConnect's current and
potential competitors have substantially longer operating histories and
financial, sales, marketing, technical and other competitive resources which are
substantially greater than those of XLConnect. As a result, such competitors may
be better able to respond or adapt to new or emerging technologies and changes
in client requirements, to devote greater resources than XLConnect to
XLConnect's markets, either through internal efforts or by forming strategic
alliances with hardware or software vendors, telecommunication providers or
other competitors of XLConnect, to offer new and improved services to
XLConnect's clients, or to increase their efforts to gain and retain market
share through competitive pricing. There can be no assurance that XLConnect will
be able to continue to compete successfully.
Trademarks and Service Marks. The trademarks or service marks "The
Future Now, Inc.," "IE," "IE Intelligent Electronics," "XLConnect," "XLConnect
Solutions," "XLConnectNets," "XLSource," and the design of the XLConnect logo
are in use and are currently registered or are in the process of registration in
the United States Patent and Trademark Office by the Company. Although the marks
may not be registered with any states, the Company claims common law rights to
the marks based on adoption and use. To the Company's knowledge, there
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are no pending interference, opposition or cancellation proceedings, or
litigation, threatened or claimed, with respect to the marks in any
jurisdiction. The Company holds no patents. Management believes that the
Company's marks are valuable; however, the loss of any of the marks would not
have a material adverse effect on the Company's business.
Employees. As of January 31, 1998, the Company (IE and XLConnect) had
1,646 full-time employees. No employee is represented by a labor union and the
Company believes that its employee relations are good.
Property. The Company leases approximately 16,000 square feet in Exton,
Pennsylvania, primarily for its principal executive offices with a lease
expiring on December 31, 1998. In addition, the Company leases facilities for
the XLConnect and XLSource branch locations expiring at various dates between
1998 and 2007. The Company believes that its facilities are adequate for its
present needs.
Legal Proceedings. The Company is involved in various litigation and
arbitration matters in the ordinary course of business. The Company believes
that it has meritorious defenses in and is vigorously defending against all such
matters. Management believes the resolution of these matters will not have a
material adverse effect on the Company's financial position or results of
operations.
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INFORMATION REGARDING XEROX, ACQUISITION SUB ONE
AND ACQUISITION SUB TWO
Xerox is a leading provider of document processing products, systems,
supplies and services. In addition, Xerox provides document-related outsourcing
services, including document production, document management, workflow,
networking and support. TDC Subsidiary Corporation is a corporation recently
organized by Xerox for the purpose of effecting the XLConnect Merger. It has no
material assets and is not engaged in any material activities, except in
connection with the XLConnect Merger and the transactions contemplated thereby.
TDC Two Subsidiary Corporation is a corporation recently organized by Xerox for
the purpose of effecting the Merger. It has no material assets and is not
engaged in any material activities, except in connection with the Merger and the
transactions contemplated thereby.
The executive offices of Xerox, TDC Subsidiary Corporation and TDC Two
Subsidiary Corporation are located at 800 Long Ridge Road, Stamford, Connecticut
06904, and their telephone number is (203) 968-3000.
Xerox will finance the payment of the aggregate IE Merger Consideration
and XLConnect Merger Consideration from its existing cash reserves.
Prior Purchases. IE and XLConnect have periodically purchased products
or leased copiers from Xerox. Such purchases have been on arm's-length terms,
consistent with industry practice and have not been material. IE and XLConnect
have had no material arrangements or contracts with Xerox prior to the Merger
Agreement.
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PROPOSAL NO. 2
APPROVAL OF THE ARTICLES AMENDMENT
The text of the proposed Articles Amendment which is hereby submitted
for approval by XLConnect's shareholders is attached hereto as Appendix D and is
incorporated herein by reference. The following summary of legal considerations
relevant to the Articles Amendment is intended to assist shareholders in making
a voting decision; however, such summary is qualified in its entirety by
reference to the Annexes attached to this Proxy Statement.
Subchapter E of Chapter 25 of the PBCL ("Subchapter E"), a copy of
which is attached to this Proxy Statement as Appendix E and is incorporated
herein by reference, provides that any holder of voting shares of a registered
Pennsylvania corporation, which XLConnect is for purposes of Subchapter E, who
objects to a "control transaction" will be entitled to make a written demand of
the "controlling person or group" for payment of the fair value of the voting
shares of the corporation held by the shareholder. A "control transaction" is
defined as the acquisition by a person or group of the status of a "controlling
person or group." For this purpose, a "controlling person or group" is generally
defined as a person or group which has voting power over voting shares of the
registered corporation that would entitle the holder thereof to cast at least
20% of the votes that all shareholders would be entitled to cast in an election
of directors of the corporation. The "controlling person or group" is obligated
to give prompt notice following the occurrence of a control transaction to all
shareholders of record of the corporation. A shareholder making written demand
in accordance with Subchapter E upon the control transaction is entitled to
receive cash for each of the shareholder's shares in an amount equal to the fair
value of each voting share of the corporation as of the date on which the
control transaction occurs, taking into account all relevant factors, including
an increment representing a proportion of any value payable for the acquisition
of control over the corporation. The minimum per share value the shareholder can
receive under Subchapter E is the highest price per share paid by the
controlling person or group for shares of the corporation within the 90-day
period ending on and including the date of the control transaction (the "Minimum
Value").
If the shareholder and the controlling person or group are unable to
agree on the fair value of the shares or on a binding procedure to determine the
fair value of the shares within the time set forth in Subchapter E, the
shareholder is entitled to receive at least the Minimum Value, with any
additional amount owed determined by a Pennsylvania court.
Xerox has informed XLConnect that it believes that the provisions of
Subchapter E may adversely affect Xerox rights as a potential shareholder of
XLConnect following the proposed Merger. Specifically, because XLConnect is
currently subject to Subchapter E, the consummation of the Merger may cause the
occurrence of a control transaction pursuant thereto. In the event of such a
control transaction, in place of the consideration provided in the Merger
Agreement or the consideration payable pursuant to the exercise of a
shareholder's appraisal rights, Xerox may be required to pay fair value as
determined under Subchapter E for the voting shares of shareholders who make
demand pursuant to Subchapter E.
Although the PBCL provides for a judicial appraisal procedure, "fair
value" is defined to be not less than the highest price per share paid by the
acquiror in a control transaction at any time during the 90-day period ending on
and including the date of the control transaction, plus, to the extent not
reflected in such price paid, an increment representing any value, including,
without limitation, any proportion of any value payable for control of such
corporation. Xerox has not acquired, and XLConnect has been advised by Xerox
that it does not intend to acquire, shares of XLConnect Common Stock. Xerox will
only "acquire" shares of XLConnect Common Stock in the Merger and, consequently,
the highest price paid by Xerox during the 90-day period will be the XLConnect
Merger Consideration.
In order to induce Xerox to enter into the Merger Agreement, the
subject transaction of which the Board of Directors of XLConnect believes is
fair to, and in the best interests of, XLConnect's shareholders, the Board of
Directors has agreed that as a condition to the consummation of the Merger, the
shareholders of XLConnect must
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approve an amendment to its Articles of Incorporation so that Subchapter E does
not apply to XLConnect (the "Articles Amendment") and XLConnect must effect such
Articles Amendment. Xerox has required that XLConnect implement the Articles
Amendment prior to completion of the Merger.
In light of the desire of the Board of Directors of XLConnect to
facilitate the consummation of the Merger and the requirement that, as a
condition to the closing of the Merger, the shareholders of XLConnect approve
the Articles Amendment, the Board of Directors recommends that the shareholders
approve the Articles Amendment.
XLConnect's Board of Directors recommends that the shareholders vote
FOR the adoption of the Articles Amendment.
IF THE XLCONNECT SHAREHOLDERS DO NOT APPROVE THE MERGER, PROPOSAL NO. 2
TO AMEND XLCONNECT'S ARTICLES OF INCORPORATION WILL NOT BE EFFECTIVE. IN
ADDITION, OPTING OUT OF SUBCHAPTER E IS A CONDITION TO THE XEROX OBLIGATION TO
CONSUMMATE THE MERGER. THEREFORE, THE FAILURE TO APPROVE PROPOSAL NO. 2 MAY
RESULT IN THE TERMINATION OF THE MERGER.
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MARKET PRICE FOR THE XLCONNECT COMMON STOCK
The XLConnect Common Stock is listed on the Nasdaq Stock Market under
the symbol "XLCT." On March 4, 1998, the last trading day preceding the public
announcement of the Merger Agreement, the high and low sales prices for the
XLConnect Common Stock as reported by the Nasdaq Stock Market were 22 1/2 and 21
3/4, respectively. Set forth below is the range of the high and the low sales
prices for the XLConnect Common Stock as reported by the Nasdaq Stock Market
during each fiscal quarter within the two most recent fiscal years:
Quarter Ended High Low
- ------------- ---- ---
March 31, 1998 $22 1/2 $13 1/2
December 31, 1997 $17 7/8 $11 1/2
September 30, 1997 $15 7/8 $7 1/2
June 30, 1997 $8 3/4 $5 3/4
March 31, 1997 $30 3/8 $5
December 31, 1996 (from October 17, $31 3/4 $26
1996)
On October 17, 1996, XLConnect consummated its initial public offering
at an initial public offering price of $15 per share. The market price of the
XLConnect's Common Stock has been, and may continue to be, extremely volatile.
XLConnect has never paid any cash dividends on the XLConnect Common
Stock. XLConnect currently intends to retain future earnings for use in its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.
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PRINCIPAL SHAREHOLDERS AND HOLDINGS OF OFFICERS AND DIRECTORS
The following table sets forth the number and percentage of shares of
XLConnect Common Stock which, according to information supplied to XLConnect,
are beneficially owned by: (i) each person who is the beneficial owner of more
than 5% of the XLConnect Common Stock; (ii) each of the members of the XLConnect
Board of Directors, individually; (iii) XLConnect's President and each of
XLConnect's four other most highly compensated executive officers for the year
ended December 31, 1997; and (iv) all current directors and officers of
XLConnect as a group. Under rules of the Commission, a person is deemed to be
the beneficial owner of XLConnect Common Stock with respect to which such person
has or shares voting power or investment power. A person is also deemed to be
the beneficial owner of shares of XLConnect Common Stock as of a given date with
respect to which such person has the right to obtain voting or investment power
within 60 days of such given date, such as upon the exercise of options or
warrants. Unless otherwise indicated, the information in the following table is
as of March 31, 1998.
Percentage
Amount and Nature of Shares
of Beneficial Outstanding
Name of Beneficial Owner Ownership (1) (if 1% or greater)
------------------------ --------------- ------------------
Barry M. Abelson (2) 14,675 ---
Jeffrey A. Blain 2,575 ---
Stephanie D. Cohen 53,750 ---
J.B. Doherty 14,675 ---
William E. Johnson 39,675 ---
James P. Joyce 2,250 ---
Robert J. Kabel 2,000 ---
John A. Porter 14,675 ---
Richard D. Sanford (2) 131,250 ---
Timothy W. Wallace 65,000 ---
Intelligent Electronics, Inc. 13,348,280 80.0%
All directors and officers as a 344,009 2.1%
group (12 persons)
- ------------------------
(1) For purposes of this table, a person is deemed to be the "beneficial
owner" of any shares that such person has the right to acquire within
60 days, including upon the exercise of stock options. For purposes of
computing the percentage of outstanding shares held by each person
named above on a given date, any security that such person has the
right to acquire within 60 days is deemed to be outstanding, but is not
deemed to be outstanding for the purpose of computing the percentage of
ownership of any other person. The number of shares of XLConnect Common
Stock indicated in this table as beneficially owned by the following
individuals includes the respective number of shares purchasable upon
the exercise of stock options which are exercisable within 60 days of
March 31, 1998: Mr. Sanford, 31,250; Mr. Wallace, 65,000; Ms. Cohen,
53,750; Mr. Blain, 2,250; Mr. Joyce, 2,250; Mr. Kabel, 2,000; Mr.
Abelson, 6,250; Mr.
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Doherty, 6,250; Mr. Johnson, 6,250; Mr. Porter, 6,250; and all
directors and executive officers as a group, 182,125.
(2) Mr. Sanford is the Chairman and Chief Executive Officer of IE and Mr.
Abelson is a member of the Board of Directors of IE. Messrs. Sanford
and Abelson may be deemed to share beneficial ownership of the shares
of XLConnect Common Stock owned by IE; however, each disclaims
beneficial ownership of such shares, except to the extent of his
respective beneficial interest in IE.
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INDEPENDENT ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP, XLConnect's independent
accountants, are expected to be present at the Meeting, where they will be
available to respond to appropriate questions and have the opportunity to make a
statement if they so desire.
WHERE YOU CAN FIND ADDITIONAL XLCONNECT INFORMATION
As required by law, XLConnect files reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information contain additional information about XLConnect. You can inspect and
copy these materials at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
Suite 1300, New York, New York 10048. For further information concerning the
Commission's public reference rooms, you may call the Commission at
1-800-SEC-0330. Some of this information may also be accessed on the World Wide
Web through the Commission's Internet address at "http://www.sec.gov."
The Commission allows XLConnect to "incorporate by reference"
information into this Proxy Statement, which means that XLConnect can disclose
important information by referring you to another document filed separately with
the Commission. Information incorporated by reference is considered part of this
Proxy Statement, except to the extent that the information is superseded by
information in this Proxy Statement. This Proxy Statement incorporates by
reference the information contained in the following documents previously filed
by XLConnect with the Commission (Commission file number 0-28892):
(a) XLConnect's Annual Report on Form 10-K for the year ended
December 31, 1997; and
(b) XLConnect's Current Report on Form 8-K dated March 11,
1998.
XLConnect also incorporates by reference the information contained in
all other documents XLConnect files with the Commission after the date of this
Proxy Statement and before the Meeting. The information contained in any such
document will be considered part of this Proxy Statement from the date the
document is filed.
If you are a shareholder of XLConnect and would like to receive a copy
of any document incorporated by reference into this Proxy Statement (which will
not include any of the exhibits to the document other than those exhibits that
are themselves specifically incorporated by reference into this Proxy
Statement), you should call or write to Stephanie D. Cohen, Chief Financial
Officer, XLConnect Solutions, Inc., 411 Eagleview Boulevard, Exton, PA 19341,
telephone no. (610) 458-6718. In order to ensure timely delivery of the
documents you request, you should make your request by April 22, 1998.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN (OR INCORPORATED
BY REFERENCE INTO) THIS PROXY STATEMENT. XLCONNECT HAS NOT AUTHORIZED ANYONE TO
GIVE ANY INFORMATION DIFFERENT FROM THE INFORMATION CONTAINED IN (OR
INCORPORATED BY REFERENCE INTO) THIS PROXY STATEMENT. THIS PROXY STATEMENT IS
DATED APRIL 14, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THIS PROXY STATEMENT IS ACCURATE AS OF ANY LATER DATE, AND THE MAILING OF THIS
PROXY STATEMENT TO SHAREHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE
CONTRARY.
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OTHER BUSINESS
XLConnect knows of no other matter to be presented at the Meeting.
However, if other matters should properly come before the Meeting, it is the
intention of the persons named in the enclosed proxy to vote the proxy with
respect to such matters in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Richard D. Sanford
-------------------------------------
Richard D. Sanford
Chairman of the Board
Exton, Pennsylvania
April 14, 1998
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XLCONNECT SOLUTIONS, INC.
Proxy Solicited On Behalf Of The Board of Directors
The undersigned, revoking all previous proxies, hereby appoints Richard
D. Sanford and Stephanie D. Cohen, or any of them acting individually, as the
proxy of the undersigned, with full power of substitution, to vote, as indicated
below and in their discretion upon such other matters as may properly come
before the meeting, all shares which the undersigned would be entitled to vote
at the Special Meeting of the Company to be held at 10:00 A.M., May 20, 1998, at
the Holiday Inn, 815 North Pottstown Pike, Exton, Pennsylvania 19341, and at any
postponement or adjournment thereof.
1. The approval and adoption of the Agreement and Plan of Merger, dated as of
March 4, 1998 (the "Merger Agreement"), by and among Xerox Corporation
("Xerox"), TDC Subsidiary Corporation, a wholly-owned subsidiary of Xerox
("Acquisition Sub One"), TDC Two Subsidiary Corporation, a wholly-owned
subsidiary of Xerox, XLConnect Solutions, Inc. (the "Company") and Intelligent
Electronics, Inc., an 80% shareholder of the Company, and the merger of
Acquisition Sub One into the Company provided for therein.
[ ] For [ ] Against [ ] Abstain
2. The approval of an amendment to the Articles of Incorporation of the Company
so that Subchapter E (relating to control transactions) of Chapter 25 of the
Pennsylvania Business Corporation Law of 1988, as amended, does not apply to the
Company (the "Articles Amendment").
[ ] For [ ] Against [ ] Abstain
3. In accordance with their best judgement, the Proxies are authorized to
transact and vote upon such other business as may properly come before the
Special Meeting and any postponement or adjournment thereof.
Please date and sign your Proxy on the reverse side
and return it promptly.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. UNLESS
OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED "FOR" THE APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT AND "FOR" THE APPROVAL OF THE ARTICLES AMENDMENT
DESCRIBED ON THE REVERSE SIDE HEREOF. THIS PROXY ALSO DELEGATES DISCRETIONARY
AUTHORITY WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL
MEETING AND PROXY STATEMENT.
Date:_____________________________
___________________________________
Signature of Shareholder
___________________________________
Signature of Shareholder
NOTE: PLEASE SIGN THIS PROXY EXACTLY AS
NAME(S) APPEAR ON YOUR STOCK CERTIFICATE.
WHEN SIGNING AS ATTORNEY-IN-FACT, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
ADD YOUR TITLE AS SUCH, AND IF SIGNER IS A
CORPORATION, PLEASE SIGN WITH FULL CORPORATE
NAME BY A DULY AUTHORIZED OFFICER OR OFFICERS
AND AFFIX THE CORPORATE SEAL. WHERE STOCK IS
ISSUED IN THE NAME OF TWO (2) OR MORE
PERSONS, ALL SUCH PERSONS SHOULD SIGN.
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APPENDIX A
--------------------------------------------
AGREEMENT AND PLAN OF MERGER
Dated as of March 4, 1998
Among
Xerox Corporation
TDC Subsidiary Corporation
TDC Two Subsidiary Corporation
Intelligent Electronics, Inc.
and
XLConnect Solutions, Inc.
--------------------------------------------
<PAGE>
Execution
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (the "Agreement") entered into as of March
4, 1998 by and among Xerox Corporation, a New York corporation ("Purchaser"),
TDC Subsidiary Corporation, a Pennsylvania corporation and a wholly-owned
subsidiary of Purchaser ("Acquisition Sub One"), TDC Two Subsidiary Corporation,
a Pennsylvania corporation and a wholly-owned subsidiary of Purchaser
("Acquisition Sub Two"), Intelligent Electronics, Inc., a Pennsylvania
corporation ("Parent"), and XLConnect Solutions, Inc., a Pennsylvania
corporation ("Sub"). Purchaser, Acquisition Sub One, Acquisition Sub Two, Parent
and Sub are referred to individually herein as a "Party" and collectively herein
as the "Parties".
Recitals
WHEREAS, this Agreement contemplates a transaction in which Purchaser
will indirectly acquire, through a reverse triangular merger of Acquisition Sub
One with and into Sub (the "Sub Merger"), all of the capital stock of Sub that
is not owned directly or indirectly by Parent;
WHEREAS, this Agreement contemplates that immediately after completion
of the Sub Merger, Purchaser will acquire, through a reverse triangular merger
of Acquisition Sub Two with and into Parent (the "Parent Merger") all of the
capital stock of Parent;
WHEREAS, the Board of Directors of Sub (the "Sub Board") has determined
that the Sub Merger is fair to and in the best interests of the holders of Sub's
common stock and has resolved to recommend the acceptance and approval of the
Sub Merger by the holders of Sub Shares and Parent-Owned Sub Shares (as defined
in Section 1.2);
WHEREAS, the Independent Committee of the Board of Directors of Sub
(the "Independent Committee") has determined that the Sub Merger is fair to and
in the best interests of the holders of Sub Shares and has resolved to recommend
the acceptance and approval of the Sub Merger by the holders of Sub Shares;
WHEREAS, the Sub Board, the Independent Committee and the respective
Boards of Directors of Purchaser and Acquisition Sub One have approved the Sub
Merger pursuant to and subject to the terms and conditions of this Agreement;
WHEREAS, the Board of Directors of Parent (the "Parent Board") has
determined that the Parent Merger is fair to and in the best interests of the
holders of Parent's common stock and has resolved to take all necessary action
to approve the Sub Merger and to recommend the acceptance and approval of the
Parent Merger by the holders of Parent Shares (as defined in Section 2.2);
WHEREAS, the Parent Board and the respective Boards of Directors of
Purchaser and Acquisition Sub Two have approved the Parent Merger pursuant to
and subject to the terms and conditions of this Agreement;
1
<PAGE>
WHEREAS, the Parties desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth herein, and in consideration of the representations,
warranties and covenants set forth herein, intending to be legally bound hereby,
the Parties agree as follows:
ARTICLE I
The Sub Merger
1.1 The Sub Merger. Subject to the terms and conditions of
this Agreement, at the Sub Effective Time (as defined in Section 1.8),
Acquisition Sub One shall be merged with and into Sub pursuant to the Sub Merger
and the separate corporate existence of Acquisition Sub One shall thereupon
cease. Sub shall be the surviving corporation in the Sub Merger (sometimes
hereinafter referred to as the "Sub Surviving Corporation") and shall continue
to be governed by the laws of the Commonwealth of Pennsylvania, with all of
Sub's rights, privileges, immunities, powers and franchises unaffected by the
Sub Merger except as set forth in Sections 3.1 and 3.2 hereof. The Sub Merger
shall have the effects specified in the Pennsylvania Business Corporation Law of
1988, as amended (the "PABCL").
1.2 Conversion of Securities. At the Sub Effective Time, by
virtue of the Sub Merger and without any action on the part of the holder of any
shares of capital stock of Sub or common stock of Acquisition Sub One:
(i) each share of common stock of Sub issued and
outstanding immediately before the Sub Effective Time ("Sub
Shares") shall as of the Sub Effective Time be converted into
and become the right to receive from Purchaser the Sub Share
Conversion Price, as provided in Section 1.3; provided,
however, that Sub Shares shall not include any shares of
common stock of Sub which immediately before the Sub Effective
Time are owned directly or indirectly by Parent ("Parent-Owned
Sub Shares");
(ii) each option or warrant to purchase a share of
common stock of Sub that is outstanding as of the Sub
Effective Time ("Sub Options") shall as of the Sub Effective
Time be converted into and become the right to receive from
Purchaser the applicable Sub Option Conversion Price, if any,
as provided in Section 1.4;
(iii) each share of common stock of Sub issued and
held in the treasury of Sub at the Sub Effective Time shall as
of the Sub Effective Time be cancelled and no such shares
shall be converted into rights to receive the Sub Share
Conversion Price;
2
<PAGE>
(iv) each Parent-Owned Sub Share shall remain issued,
outstanding and unchanged, which shares shall be the only
capital stock of Sub outstanding after the Sub Effective Time,
and as of the Sub Effective Time Sub shall be a wholly-owned
subsidiary of XLSource, Inc., an Arkansas corporation and
indirect wholly-owned subsidiary of Parent; and
(v) the shares of common stock of Acquisition Sub One
issued and outstanding at the Sub Effective Time shall be
surrendered and cancelled.
1.3 Sub Share Conversion Price. The "Sub Share Conversion
Price" shall be an amount equal to $20.00.
1.4 Sub Option Conversion Price. The "Sub Option Conversion
Price" means, in the case of any Sub Option, the excess, if any, of $20.00 over
the exercise price of each such Sub Option, which excess shall be payable at
such time or times, if any, as shall be determined pursuant to the terms and
conditions of the applicable plan and/or agreement pursuant to which such Sub
Option is governed.
1.5 Payment for Sub Shares and Sub Options. Prior to the Sub
Effective Time, Purchaser shall designate a bank or trust company reasonably
acceptable to Sub to act as Paying Agent in connection with the Sub Merger
("Paying Agent") and to receive and disburse the cash to which holders of Sub
Shares or Sub Options become entitled pursuant to Section 1.2. At the Sub
Effective Time, Purchaser will provide Paying Agent with sufficient cash to
allow the Sub Share Conversion Price and the Sub Option Conversion Price to be
paid to the holders of each Sub Share or Sub Option then entitled to be so paid.
Promptly after the Sub Effective Time, the Sub Surviving Corporation shall cause
to be mailed to each Person who was, at the Sub Effective Time, a holder of
record of Sub Shares or Sub Options forms (in a form mutually agreed to by
Purchaser and Sub) of letters of transmittal, with instructions for use in
effecting the surrender of certificates that represented Sub Shares before the
Sub Effective Time in exchange for payment of the Sub Share Conversion Price or
in connection with the payment of the applicable Sub Option Conversion Price.
Upon surrender to Paying Agent of such certificates and proper submittal of the
related letter of transmittal (in connection with Sub Shares), or upon proper
submittal of the letter of transmittal (in connection with Sub Options), the Sub
Surviving Corporation shall promptly cause to be paid to the Persons entitled
thereto a check in the amount of the Sub Share Conversion Price and/or Sub
Option Conversion Price to which such Persons are entitled, after giving effect
to any required tax withholdings. No interest will be paid or will accrue on the
amount payable to any such Person. If payment of any Sub Share Conversion Price
is to be made to a Person other than the registered holder of the certificate
surrendered, it shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a Person other than the registered
holder of the certificate surrendered or establish to the satisfaction of the
Sub Surviving Corporation or the Paying Agent that such tax has been paid or is
not applicable. The Sub Surviving Corporation shall pay all charges and
expenses, including those of the Paying Agent, in connection with the exchange
of cash for Sub Shares and Sub Options. In the event any certificate
representing Sub Shares shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such certificate to
be lost, stolen or destroyed, the Paying Agent will issue in exchange for such
lost, stolen or
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destroyed certificate the Sub Share Conversion Price payable in respect thereof;
provided, however, the Person to whom the Sub Share Conversion Price is paid
shall, as a condition precedent to the payment thereof, give the Sub Surviving
Corporation a bond in such sum as it may direct or otherwise indemnify the Sub
Surviving Corporation in a manner satisfactory to it against any claim that may
be made against the Sub Surviving Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed. Promptly following the first
anniversary of the Sub Effective Time, the Paying Agent shall deliver to the Sub
Surviving Corporation all cash held for payment for Sub Shares or Sub Options
and all other documents in its possession relating to the transactions described
in this Agreement, and the Paying Agent's duties shall terminate. Thereafter
each holder of a certificate representing Sub Shares, and each holder of a Sub
Option, may surrender such certificate and/or other appropriate documentation to
the Sub Surviving Corporation (subject to applicable abandoned property, escheat
and similar laws) and receive in exchange therefor the Sub Share Conversion
Price or Sub Option Conversion Price in respect thereof, without interest
thereon.
1.6 Transfers After the Sub Effective Time. No transfers of
Sub Shares or Sub Options shall be made on the stock transfer or other
applicable books of Sub at or after the Sub Effective Time.
1.7 Sub Closing. The closing of the Sub Merger (the "Sub
Closing") shall take place at the offices of Pepper Hamilton LLP, 3000 Two Logan
Square, Philadelphia, PA 19103-2799 at 10:00 A.M. on the first business day
after the last of the conditions set forth in Article 7 hereof shall be
fulfilled or waived in accordance with this Agreement, or at such other place
and time and/or on such other date as Sub and Purchaser may agree; provided that
the Sub Closing and the Parent Closing shall occur on the same day.
1.8 Filing of Sub Merger Documents; Sub Effective Time. In
connection with the Sub Closing, Sub and Acquisition Sub One will execute and
file, and Purchaser will cause Acquisition Sub One to execute and file, Articles
of Merger relating to the Sub Merger ("Sub Articles of Merger") with the
Secretary of State of Pennsylvania as provided in the PABCL. The Sub Merger
shall become effective at the time at which the Sub Articles of Merger have been
duly filed with the Secretary of State of Pennsylvania (the "Sub Effective
Time"), which shall occur immediately prior to the Parent Effective Time.
1.9 Dissenters Rights. Notwithstanding any provision of this
Article I to the contrary, shares held of record by shareholders who shall not
have voted such shares in favor of the Sub Merger and who shall have properly
exercised rights to demand payment of the fair value of such shares in
accordance with the applicable provisions of the PABCL ("Sub Dissenting Shares")
shall not be converted into the right to receive the Sub Share Conversion Price,
but the holders thereof shall be entitled to payment of the fair value of such
shares in accordance with the applicable provisions of the PABCL; provided,
however, that (i) if such a holder fails to file a notice of election to dissent
in accordance with the PABCL, or after having done so delivers an effective
withdrawal of such notice or fails to establish (if he is required to do so) his
entitlement to dissenters rights as provided in the PABCL, or (ii) if a court
shall determine that such holder is not entitled to receive payment for his
shares or such holder shall otherwise lose his dissenters rights, each Sub Share
held of record by such holder shall automatically be converted into and
represent only the right to receive the Sub Share Conversion Price, upon the
surrender of the certificate or certificates representing such Sub Shares. Sub
will give Purchaser prompt notice of any demands received by Sub for payment of
the fair value of such shares, and
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Purchaser shall have the right to participate in all negotiations and
proceedings with respect to such demands, Sub will not, except with the prior
written consent of Purchaser, make any payment (except to the extent that any
such payment is made pursuant to a court order) with respect to, or settle or
offer to settle, any such demands.
1.10 PABCL. Section 1906 of the PABCL shall apply to the Sub
Merger. Dissenters rights shall be available to the holders of Sub Shares as
provided in Section 1.9.
ARTICLE II
The Parent Merger
2.1 The Parent Merger. Subject to the terms and conditions of
this Agreement, at the Parent Effective Time (as defined in Section 2.8),
Acquisition Sub Two shall be merged with and into Parent pursuant to the Parent
Merger and the separate corporate existence of Acquisition Sub Two shall
thereupon cease. Parent shall be the surviving corporation in the Parent Merger
(sometimes hereinafter referred to as the "Parent Surviving Corporation") and
shall continue to be governed by the laws of the Commonwealth of Pennsylvania,
with all of Parent's rights, privileges, immunities, powers and franchises
unaffected by the Parent Merger except as set forth in Sections 3.1 and 3.2
hereof. The Parent Merger shall have the effects specified in the PABCL.
2.2 Conversion of Securities. At the Parent Effective Time, by
virtue of the Parent Merger and without any action on the part of the holder of
any shares of capital stock of Parent or common stock of Acquisition Sub Two:
(i) each share of common stock of Parent (and related
Right, as defined in the Rights Agreement) issued and
outstanding immediately before the Parent Effective Time
("Parent Shares") shall as of the Parent Effective Time be
converted into and become the right to receive from Purchaser
the Parent Share Conversion Price, as provided in Section 2.3;
(ii) each option or warrant to purchase a share of
common stock of Parent that is outstanding as of the Parent
Effective Time ("Parent Options") shall as of the Parent
Effective Time be converted into and become the right to
receive from Purchaser the applicable Parent Option Conversion
Price, if any, as provided in Section 2.4;
(iii) each share of common stock of Parent issued and
held in the treasury of Parent at the Parent Effective Time
shall as of the Parent Effective Time be cancelled and no such
shares shall be converted into rights to receive the Parent
Share Conversion Price; and
(iv) the shares of common stock of Acquisition Sub
Two issued and outstanding at the Parent Effective Time shall
be converted into and become the number of shares of common
stock of Parent issued and outstanding at the Parent Effective
Time, which shares shall be the only
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capital stock of Parent outstanding after the Parent Effective
Time, and as of the Parent Effective Time Parent shall become
a wholly-owned subsidiary of Purchaser.
2.3 Parent Share Conversion Price. The "Parent Share
Conversion Price" shall be an amount equal to $7.60.
2.4 Parent Option Conversion Price. The "Parent Option
Conversion Price" means, in the case of any Parent Option, the excess, if any,
of $7.60 over the exercise price of each such Parent Option, or such other
amount, if any, and which excess or other amount shall be payable at such time
or times, if any, as shall be determined pursuant to the terms and conditions of
the applicable plan and/or agreement pursuant to which such Parent Option is
governed.
2.5 Payment for Parent Shares and Parent Options. The Paying
Agent shall receive and disburse the cash to which holders of Parent Shares or
Parent Options become entitled pursuant to Section 2.2. At the Parent Effective
Time, Purchaser will provide Paying Agent with sufficient cash to allow the
Parent Share Conversion Price and the Parent Option Conversion Price to be paid
to the holders of each Parent Share or Parent Option then entitled to be so
paid. Promptly after the Parent Effective Time, the Parent Surviving Corporation
shall cause to be mailed to each Person who was, at the Parent Effective Time, a
holder of record of Parent Shares or Parent Options forms (in a form mutually
agreed to by Purchaser and Parent) of letters of transmittal, with instructions
for use in effecting the surrender of certificates that represented Parent
Shares before the Parent Effective Time in exchange for payment of the Parent
Share Conversion Price or in connection with the payment of the applicable
Parent Option Conversion Price. Upon surrender to Paying Agent of such
certificates and proper submittal of the related letter of transmittal (in
connection with Parent Shares), or upon proper submittal of the letter of
transmittal (in connection with Parent Options), the Parent Surviving
Corporation shall promptly cause to be paid to the Persons entitled thereto a
check in the amount of the Parent Share Conversion Price and/or Parent Option
Conversion Price to which such Persons are entitled, after giving effect to any
required tax withholdings. No interest will be paid or will accrue on the amount
payable to any such Person. If payment of any Parent Share Conversion Price is
to be made to a Person other than the registered holder of the certificate
surrendered, it shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a Person other than the registered
holder of the certificate surrendered or establish to the satisfaction of the
Parent Surviving Corporation or the Paying Agent that such tax has been paid or
is not applicable. The Parent Surviving Corporation shall pay all charges and
expenses, including those of the Paying Agent, in connection with the exchange
of cash for Parent Shares and Parent Options. In the event any certificate
representing Parent Shares shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such certificate to
be lost, stolen or destroyed, the Paying Agent will issue in exchange for such
lost, stolen or destroyed certificate the Parent Share Conversion Price payable
in respect thereof; provided, however, the Person to whom the Parent Share
Conversion Price is paid shall, as a condition precedent to the payment thereof,
give the Parent Surviving Corporation a bond in such sum as it may direct or
otherwise indemnify the Parent Surviving Corporation in a manner satisfactory to
it against any claim that may be made against the Parent Surviving Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
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Promptly following the first anniversary of the Parent Effective Time, the
Paying Agent shall deliver to the Parent Surviving Corporation all cash held for
payment for Parent Shares or Parent Options and all other documents in its
possession relating to the transactions described in this Agreement, and the
Paying Agent's duties shall terminate. Thereafter each holder of a certificate
representing Parent Shares, and each holder of a Parent Option, may surrender
such certificate and/or other appropriate documentation to the Parent Surviving
Corporation (subject to applicable abandoned property, escheat and similar laws)
and receive in exchange therefor the Parent Share Conversion Price or Parent
Option Conversion Price in respect thereof, without interest thereon.
2.6 Transfers After the Effective Time. No transfers of Parent
Shares or Parent Options shall be made on the stock transfer or other applicable
books of Parent at or after the Parent Effective Time.
2.7 Parent Closing. The closing of the Parent Merger (the
"Parent Closing") shall take place at the offices of Pepper Hamilton LLP, 3000
Two Logan Square, Philadelphia, PA 19103-2799 at 10:00 A.M. on the first
business day after the last of the conditions set forth in Article 7 hereof
shall be fulfilled or waived in accordance with this Agreement, or at such other
place and time and/or on such other date as Parent and Purchaser may agree;
provided that the Parent Closing and the Sub Closing shall occur on the same
day.
2.8 Filing of Parent Merger Documents; Parent Effective Time.
In connection with the Closing, Parent and Acquisition Sub Two will execute and
file, and Purchaser will cause Acquisition Sub Two to execute and file, Articles
of Merger relating to the Parent Merger ("Parent Articles of Merger") with the
Secretary of State of Pennsylvania as provided in the PABCL. The Parent Merger
shall become effective at the time at which the Parent Articles of Merger have
been duly filed with the Secretary of State of Pennsylvania (the "Parent
Effective Time"), which shall occur immediately after the Sub Effective Time.
2.9 Dissenters Rights. Notwithstanding any provision of this
Article II to the contrary, and to the extent required under the applicable
provisions of the PABCL, Parent Shares held of record by shareholders who shall
not have voted such shares in favor of the Parent Merger and who shall have
properly exercised rights to demand payment of the fair value of such shares in
accordance with the applicable provisions of the PABCL ("Parent Dissenting
Shares") shall not be converted into the right to receive the Parent Share
Conversion Price, but the holders thereof shall be entitled to payment of the
fair value of such shares in accordance with the applicable provisions of the
PABCL; provided, however, that (i) if such a holder fails to file a notice of
election to dissent in accordance with the PABCL, or after having done so
delivers an effective withdrawal of such notice or fails to establish (if he is
required to do so) his entitlement to dissenters rights as provided in the
PABCL, or (ii) if a court shall determine that such holder is not entitled to
receive payment for his shares or such holder shall otherwise lose his
dissenters rights, each Parent Share held of record by such holder shall
automatically be converted into and represent only the right to receive the
Parent Share Conversion Price, upon the surrender of the certificate or
certificates representing such Parent Shares. Parent will give Purchaser prompt
notice of any demands received by Parent for payment of the fair value of such
shares, and Purchaser shall have the right to participate in all negotiations
and proceedings with respect to such demands, Parent will not, except with the
prior written consent of Purchaser, make any payment (except to the extent that
any such payment is made pursuant to a court order) with respect to, or settle
or offer to settle, any such demands.
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ARTICLE III
Articles of Incorporation and By-Laws
of the Surviving Corporations
3.1 Articles of Incorporation. The Articles of Incorporation
of the Sub Surviving Corporation shall, upon the Sub Effective Time, be and
remain unchanged until further amended in accordance with the terms thereof and
the PABCL, subject, however, to the provisions of Section 6.2(f)(i) hereof. The
Articles of Incorporation of the Parent Surviving Corporation shall, upon the
Parent Effective Time, be and remain unchanged until
further amended in accordance with the terms thereof and the PABCL, subject,
however, to the provisions of Section 6.2(f)(i) hereof.
3.2 By-Laws. The By-Laws of the Sub Surviving Corporation in
effect at the Sub Effective Time shall be and remain unchanged until duly
amended in accordance with the terms thereof and the PABCL, subject, however, to
the provisions of Section 6.2(f)(i) hereof. The By-Laws of Parent Surviving
Corporation in effect at the Parent Effective Time shall be and remain unchanged
until duly amended in accordance with the terms thereof and the PABCL, subject,
however, to the provisions of Section 6.2(f)(i) hereof.
ARTICLE IV
Officers and Directors
4.1 Sub. At the Sub Effective Time, the directors of
Acquisition Sub One shall be all the directors of the Sub Surviving Corporation,
each of such directors to hold office, subject to the applicable provisions of
the Articles of Incorporation and By-Laws of the Sub Surviving Corporation,
until their respective successors shall be duly elected or appointed and
qualified. At the Sub Effective Time, the officers of Acquisition Sub One
immediately prior to the Sub Effective Time shall, subject to the applicable
provisions of the Articles of Incorporation and By-Laws of the Sub Surviving
Corporation, be the officers of the Sub Surviving Corporation until their
respective successors shall be duly elected or appointed and qualified.
4.2 Parent. At the Parent Effective Time, the directors of
Acquisition Sub Two shall be all the directors of the Parent Surviving
Corporation, each of such directors to hold office, subject to the applicable
provisions of the Articles of Incorporation and By-Laws of the Parent Surviving
Corporation, until their respective successors shall be duly elected or
appointed and qualified. At the Parent Effective Time, the officers of
Acquisition Sub Two immediately prior to the Parent Effective Time shall,
subject to the applicable provisions of the Articles of Incorporation and
By-Laws of the Parent Surviving Corporation, be the officers of
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the Parent Surviving Corporation until their respective successors shall be duly
elected or appointed and qualified.
ARTICLE V
Representations and Warranties
5.1 Representations and Warranties of Parent and Sub. Parent
and Sub hereby jointly and severally (but subject to Section 5.1(bb)) represent
and warrant to Purchaser that, except as set forth in the disclosure letter of
even date herewith delivered by Parent to Purchaser in conjunction with
execution of this Agreement (the "Disclosure Letter"):
(a) Organization, Qualification and Corporate Power.
Each of Parent and its subsidiaries (direct or indirect) (such subsidiaries,
including Sub, being collectively referred to as "Parent Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification would not
result in a Material Adverse Change. Each of the Parent and the Parent
Subsidiaries has full corporate power and corporate authority, and all foreign,
federal, state and local governmental permits, licenses and consents
(collectively, "Permits"), to carry on the businesses in which it is engaged and
to own and use the properties owned and used by it, except where the failure to
have Permits would not result in a Material Adverse Change. The Disclosure
Letter contains an accurate list of the Parent Subsidiaries and the Sub
Subsidiaries, their jurisdiction, date of incorporation and date of acquisition
directly or indirectly by Parent, and their respective material Permits as well
as material Permits the applicable entity does not have and which Parent or Sub
has knowledge that it is required to have.
(b) Capitalization. (I) The authorized capital stock
of Parent consists of 100,000,000 shares of common stock, par value $.01 per
share (the "Parent Common Stock") and 15,000,000 shares of preferred stock, par
value $50.00 per share (the "Parent Preferred Stock"). As of March 3, 1998, (i)
41,798,091 shares of Parent Common Stock are issued and outstanding, and (ii)
7,006,540 shares of Parent Common Stock have been reserved for issuance upon the
exercise of outstanding options and warrants. No shares of Parent Preferred
Stock are issued and outstanding, and 200,000 shares of Series A Junior
Participating Preferred Stock have been reserved for issuance upon exercise of
the outstanding Rights (as defined in the Rights Agreement), none of which is or
will be outstanding at or before the Parent Effective Time. All issued and
outstanding shares of Parent's capital stock and all issued and outstanding
shares of each Parent Subsidiary's capital stock, have been validly issued and
are fully paid and nonassessable, and are not subject to, nor were they issued
in violation of, any preemptive rights. Except as detailed in the Disclosure
Letter, neither Parent nor any of the Parent Subsidiaries has any outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other agreements relating to the acquisition of
capital stock, or any cash
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settlement option, phantom stock, stock appreciation right or similar instrument
(the "Stock Rights") relating to any capital stock of Parent or any Parent
Subsidiary.
(II) The authorized capital stock of Sub
consists of 100,000,000 shares of common stock, par value $.01 per share (the
"Sub Common Stock") and 10,000,000 shares of preferred stock, par value $.01 per
shares (the "Sub Preferred Stock"). As of March 3, 1998, (i) 16,684,100 shares
of Sub Common Stock are issued and outstanding, (ii) 13,348,280 shares of Sub
Common Stock are owned by XLSource, Inc., an indirect wholly-owned subsidiary of
Parent, and (iii) 2,791,645 shares of Sub Common Stock have been reserved for
issuance upon the exercise of outstanding options and warrants. No shares of Sub
Preferred Stock are issued and outstanding. All issued and outstanding shares of
Sub's capital stock have been validly issued and are fully paid and
nonassessable, are entitled to full voting rights as to the election of
directors and other matters, and are not subject to, nor were they issued in
violation of, any preemptive rights. Except as detailed in the Disclosure
Letter, there exist no Stock Rights relating to any capital stock of Sub. No
stock of Sub or of any Sub Subsidiary owned by Parent or any Parent Subsidiary
is subject to any put option, redemption agreement (including a right to cause
redemption of stock) or any other instrument that provides for the right to
transfer such stock. Disregarding the execution of this Agreement, the Parent
Merger and the Sub Merger, (x) neither the shares of Sub capital stock directly
or indirectly owned by Parent nor the holders of any such shares are subject to
any limitations, pursuant to any provision of Chapter 25 of the PABCL, of voting
rights afforded generally to holders of shares of such class or series of
capital stock, and (y) no transaction has occurred or state of facts exists
which has triggered dissenters rights or any other right on the part of a
shareholder under the PABCL to receive payment in respect of such shares. Since
December 1, 1997, neither Parent nor any Parent Subsidiary has purchased or
otherwise acquired any shares of common stock of Sub for a per share price in
excess of the Sub Share Conversion Price.
(III) The Disclosure Letter describes the
equity capitalization of each Parent Subsidiary, including the authorized
capital stock, the issued and outstanding capital stock, and the ownership
thereof. With the exception of Sub and the Sub Subsidiaries, Parent is directly
or indirectly the owner of all shares of capital stock of each Parent
Subsidiary. All Sub Subsidiaries are 100% owned by Sub.
(c) Authorization of Transaction. Each of Parent and
Sub has the requisite corporate power and authority, and has taken all required
action necessary, to properly execute and deliver this Agreement and to perform
its obligations hereunder, and this Agreement constitutes the valid and legally
binding obligation of each of Parent and Sub, enforceable in accordance with its
terms and conditions, except as limited by (i) applicable bankruptcy, insolvency
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) general principles of
equity, regardless of whether asserted in a proceeding in equity or at law;
provided, however, that Parent cannot consummate the Parent Merger and Sub
cannot consummate the Sub Merger unless and except upon receipt of the approval
of the holders of Parent Common Stock and Sub Common Stock to the extent
required by the PABCL.
(d) Noncontravention. Neither the execution and
delivery of this Agreement, nor the consummation by Parent or Sub of the
transactions contemplated hereby, will (i) violate any constitution,
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statute, regulation, rule, injunction, judgment, order, decree or other
restriction of any government, governmental agency or court to which Parent or
any of the Parent Subsidiaries is subject or any provision of the charter or
bylaws of Parent or any of the Parent Subsidiaries, or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify or cancel or
require any notice under any contract required to be listed on the Disclosure
Letter or under any other material agreement, contract, lease, license,
instrument or other arrangement to which Parent or any of the Parent
Subsidiaries is a party or by which any of them is bound or to which any of
their respective assets is subject (or result in the imposition of any lien,
encumbrance or other security interest (a "Security Interest") upon any of their
respective assets), except in the case of clause (ii) as disclosed in the
Disclosure Letter. Other than filings required in connection with the provisions
of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR
Act"), the PABCL and the Exchange Act, neither Parent nor any of the Parent
Subsidiaries needs to give any notice to, make any filing with or obtain any
authorization, consent or approval of any government or government agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(e) Filings with the SEC. Since January 1, 1992,
Parent and Sub have made all filings with the SEC that either of them has been
required to make under the Securities Act and the Exchange Act (collectively,
the "Public Reports"). Each of the Public Reports complied with the requirements
of the Securities Act and the Exchange Act in all material respects and none of
the Public Reports, as of their respective dates, contained any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
(f) Financial Statements. (I) Parent has filed an
Annual Report on Form 10-K, as amended by its Form 10-K/A (the "Parent 10-K"),
for the fiscal year ended on February 1, 1997 and a Quarterly Report on Form
10-Q (the "Parent 10-Q") for the fiscal quarter ended November 1, 1997 (the
"Parent Most Recent Quarter End"). The financial statements included in the
Parent 10-K and the Parent 10-Q (including the related notes and schedules) have
been prepared from the books and records of Parent and the Parent Subsidiaries
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods covered thereby, and present fairly in
all material respects the financial condition of Parent and the Parent
Subsidiaries as of the indicated dates and the results of operations and cash
flows of Parent and the Parent Subsidiaries for the indicated periods. In the
opinion of Parent's management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair statement of operating
results for the interim periods presented have been made.
(II) Sub has filed an Annual Report on Form
10-K (the "Sub 10-K") for the fiscal year ended on December 31, 1996 and a
Quarterly Report on Form 10-Q, as amended by its Form 10-Q/A (the "Sub 10-Q")
for the fiscal quarter ended September 30, 1997 (the "Sub Most Recent Quarter
End"). The financial statements included in the Sub 10-K and the Sub 10-Q
(including the related notes and schedules) have been prepared from the books
and records of Sub and the Sub Subsidiaries in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, and present fairly in
all material respects the financial condition of Sub and the Sub Subsidiaries as
of the indicated dates and the results of operations and cash flows
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of Sub and the Sub Subsidiaries for the indicated periods. In the opinion of
Parent's and Sub's management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair statement of operating
results for the interim periods presented have been made.
(g) Events Subsequent to Most Recent Quarter End. (I)
Since the Parent Most Recent Quarter End, there has not been any Material
Adverse Change or any development or combination of developments relating to
Parent or any of the Parent Subsidiaries of which Parent has knowledge and which
would result in a Material Adverse Change.
(II) Since the Sub Most Recent Quarter End,
there has not been any Material Adverse Change or any development or combination
of developments relating to Sub or any of the Sub Subsidiaries of which Parent
or Sub has knowledge and which would result in a Material Adverse Change.
(h) Compliance. Parent and the Parent Subsidiaries
are in compliance with all applicable laws, rules and regulations, except where
the failure to be in compliance would not result in a Material Adverse Change.
(i) Litigation and Liabilities. There are (i) no
actions, suits or proceedings pending or, to the knowledge of Parent or Sub,
threatened against Parent or any of the Parent Subsidiaries which (x) if
adversely determined against Parent or any of the Parent Subsidiaries could
reasonably be expected to result in a Material Adverse Change, or (y) could
reasonably be expected to materially impair or delay the Parties' ability to
consummate the transactions contemplated by this Agreement, and (ii) no
obligations or liabilities of Parent or any of the Parent Subsidiaries known to
Parent or Sub and not disclosed in the Disclosure Letter or reflected in the
financial statements or related notes included in the Parent 10-K, the Parent
10-Q, the Sub 10-K or the Sub 10-Q which could reasonably be expected to result
in a Material Adverse Change. The Disclosure Letter lists all pending and, to
the knowledge of Parent or Sub, threatened EEOC and similar investigations,
actions, suits or proceedings against Parent or any Parent Subsidiary
(regardless of the materiality thereof) and copies of the pleadings for each
such pending matter have been made available to Purchaser by Parent.
(j) Taxes. (I) Each of Parent and the Parent
Subsidiaries has duly filed all federal, state, local and foreign tax returns
required to be filed by it and has duly paid, caused to be paid or made adequate
provision for the payment of all Taxes (as hereinafter defined) required to be
paid in respect of the periods covered by such returns. No claims for Taxes have
been asserted against Parent or any of the Parent Subsidiaries, and no
deficiency for any Taxes has been proposed, asserted or assessed against Parent
or any of the Parent Subsidiaries, in either case which has not been resolved or
paid in full. To Parent's knowledge, no Tax return for any taxable period of
Parent or any Parent Subsidiary is under examination by any taxing authority,
Parent has not received written notice of any pending audit by any taxing
authority against the Parent or any of the Parent Subsidiaries, and there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any Tax return for any taxable period of Parent or any of the
Parent Subsidiaries. "Taxes" means all federal, state, territorial, local,
foreign and other net income, gross income, gross receipts, sales, use, value
added, ad valorem, transfer, franchise, profits, license, lease, service, use,
withholding, payroll, employment, unemployment insurance, workers compensation,
social security, excise,
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severance, stamp, business license, occupation, premium, property,
environmental, windfall profits, customs, duties, alternative minimum, estimated
or other taxes, fees, premiums, assessments or charges of any kind whatever
imposed or collected by any governmental entity or political subdivision
thereof.
(II) Each of Sub and the Sub Subsidiaries has
duly filed all federal, state, local and foreign tax returns required to be
filed by it and has duly paid, caused to be paid or made adequate provision for
the payment of all Taxes required to be paid in respect of the periods covered
by such returns. No claims for Taxes have been asserted against Sub or any of
the Sub Subsidiaries, and no deficiency for any Taxes has been proposed,
asserted or assessed against Sub or any of the Sub Subsidiaries, in either case
which has not been resolved or paid in full. To Parent's and Sub's knowledge, no
Tax return for any taxable period of Sub is under examination by any taxing
authority, Sub has not received written notice of any pending audit by any
taxing authority against the Sub or any of the Sub Subsidiaries, and there are
no outstanding agreements or waivers extending the statutory period of
limitation applicable to any Tax return for any taxable period of Sub or any of
the Sub Subsidiaries.
(III) Parent and each Parent Subsidiary has
been a continuous member of the consolidated group of companies of which Parent
is the common parent for Federal income tax purposes since the time such
Subsidiary first became affiliated with the Parent's consolidated group.
(k) Brokers' and Other Fees. Except for the fees and
expenses of Lazard Freres & Co. LLC ("Lazard") for Parent and NationsBanc
Montgomery Securities LLC ("Montgomery") for Sub, none of Parent or the Parent
Subsidiaries has any liability or obligation to pay any fees or commissions to
any investment adviser, broker, finder or agent with respect to the transactions
contemplated by this Agreement.
(l) Fairness Opinions. Montgomery has delivered to
the Independent Committee of the Board of Directors of Sub, and not withdrawn,
its opinion that the consideration being paid to the holders of Sub Shares
(other than shares held directly or indirectly by Parent) pursuant to Section
1.2 hereof is fair to such holders, as of the date of such opinion, from a
financial point of view (the "Sub Fairness Opinion"), and a true and complete
copy thereof has been furnished to Purchaser. Lazard has delivered to the Board
of Directors of Parent, and not withdrawn, its opinion that the consideration
being paid pursuant to Section 2.2 hereof is fair to the shareholders of Parent,
as of the date of such opinion, from a financial point of view (the "Parent
Fairness Opinion"), and a true and complete copy thereof has been furnished to
Purchaser.
(m) Rights Plan. Parent has amended the Rights
Agreement to provide that the Purchaser and all direct and indirect wholly-owned
subsidiaries thereof and their respective Associates and Affiliates (as such
terms are defined in the Rights Agreement), for purposes of entering into and
consummating the transactions contemplated by this Agreement, are considered an
"Exempt Person", as defined in the Rights Agreement, until such time as this
Agreement shall terminate, if at all. Parent has taken all necessary action so
that none of the execution and delivery of this Agreement or the consummation of
the Sub Merger or Parent Merger contemplated hereby will (i) cause the Rights
(as such term is defined in the Rights Agreement) issued pursuant to the Rights
Agreement to become exercisable, (ii) cause any Person to become an Acquiring
Person
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(as such term is defined in the Rights Agreement) or (iii) give rise to a
Distribution Date (as such term is defined in the Rights Agreement).
(n) Management Letters. There is no management letter
of outside auditors for the year ended February 1, 1997 (in the case of Parent)
or for the year ended December 31, 1996 (in the case of Sub).
(o) Environmental Matters. The conduct or operation
of Parent and Parent Subsidiaries and any condition of property presently or
previously owned, leased or operated by any of them violates or violated no
Environmental Laws in any material respect and no condition has existed or event
has occurred with respect to any of them or any such property that, with notice
or the passage of time, or both, is reasonably likely to result in any material
liability under Environmental Laws. Neither Parent nor any of the Parent
Subsidiaries has received any notice from any person or entity that Parent or
any Parent Subsidiary or the operation or condition of any property ever owned,
leased or operated by any of them are or were in violation of or otherwise are
alleged to have liability under any Environmental Law. "Environmental Laws"
means all applicable local, state and federal environmental, health and safety
laws and regulations, including, without limitation, the Resource Conservation
and Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Clean Water Act, the Federal Clean Air Act, and the
Occupational Safety and Health Act, each as amended, regulations promulgated
thereunder, and state counterparts.
(p) Other Interests. Neither Parent nor any Parent
Subsidiary owns any shares of capital stock in any corporation (other than in
the Parent Subsidiaries as disclosed herein) or holds any debt or equity
interest in any joint venture, partnership or other entity.
(q) Intellectual Property. (I) Parent and each Parent
Subsidiary owns, or is licensed or otherwise possesses legally enforceable
rights to use, all material patents, trademarks, trade names, service marks,
copyrights, technology, know-how, computer software programs (which shall
exclude off-the-shelf software programs) that are used in the business of Parent
and each of the Parent Subsidiaries as currently conducted (the "Intellectual
Property").
(II) No claim against Parent or any Parent
Subsidiary has been asserted in writing or, to Parent's or Sub's knowledge,
orally by a third party respecting or related to the Intellectual Property or
related to the alleged infringement by Parent or any Parent Subsidiary of the
intellectual property of others and, in either case, Parent and the Parent
Subsidiaries do not know of any reasonable grounds for any such claim.
(III) To the knowledge of Parent and Sub, there
is no material unauthorized use, infringement or misappropriation of any
Intellectual Property by any third party, including any employee or former
employee of Parent or any Parent Subsidiary.
(r) Employment Matters. (I) The Disclosure Letter
identifies all stock options, restricted stock rights and other Stock Rights
outstanding under Parent's 1995 Long-Term Incentive Plan and Parent's
Non-Qualified Stock Option Plan for employees and directors and Sub's 1996
Long-Term Incentive Plan (the "Sub Plan") or any other agreement, plan or
arrangement of Parent or any Parent Subsidiary. Parent
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has provided Purchaser with copies of all such agreements, plans and
arrangements, except for agreements utilizing a standard form of agreement, in
which case Parent has provided Purchaser with a copy of such standard form.
(II) Except as described in the Disclosure
Letter, neither Parent nor any Parent Subsidiary (i) is a party or subject to
any contract of employment with any person which is not terminable at will
without penalty (other than standard severance policies offered to all employees
generally), or which would entitle any person to any payment (severance or
otherwise) as a result of the Merger, or any collective bargaining agreement, or
(ii) maintains or contributes to any profit sharing, pension, retirement,
thrift, savings, incentive compensation, deferred compensation, bonus, stock
option, stock purchase, restricted stock, stock appreciation right, performance
share, performance unit, severance, salary continuation, holiday, vacation,
disability, insurance, medical or other employee benefit, incentive or welfare
plan, policy, material contract or material arrangement (collectively, the
"Employee Benefit Plans").
(III) During the last three years there have
been no actual or threatened strikes or labor stoppages involving any employees
of Parent or any Parent Subsidiary, and neither Parent nor any Parent Subsidiary
is aware of any organizing activity actively seeking to certify a collective
bargaining unit or representative for any employees.
(IV) All retirement and employee benefit or
welfare plans of Parent or any Parent Subsidiary have been maintained and
operated in accordance with their terms in all material respects, and all such
plans which are subject to the Employee Retirement Income Security Act of 1974
("ERISA") or the Internal Revenue Code ("IRC") have been maintained and operated
in material compliance with all applicable provisions of ERISA and the IRC and
the regulations thereunder and are not subject to any accumulated funding
deficiency within the meaning of ERISA and the regulations thereunder or to any
outstanding liability to the Pension Benefit Guaranty Corporation (other than
for routine premium payments). All such plans are identified in the Disclosure
Letter. No "prohibited transaction" has occurred with respect to any such plan,
nor has any "reportable event" occurred in respect thereof, as such terms are
defined in ERISA and the regulations thereunder, and no such plan is a
"Multiemployer Plan" or a "Multiple Employer Plan", as such terms are defined in
ERISA and the regulations thereunder.
(s) Credit Support Arrangements. Neither the Parent
nor any Parent Subsidiary has issued any currently existing guarantee or credit
support or has obtained any currently existing letter of credit or bond with
respect to, or has directly or indirectly made any currently existing promise,
agreement or undertaking to fund, support, guarantee or otherwise backstop any
obligation or liability, contingent or otherwise, of any person or entity other
than Parent or a Parent Subsidiary.
(t) Changes. Since November 1, 1997 Parent and each
Parent Subsidiary has been operated only in the ordinary course of business and
there has not been any:
(i) Material Adverse Change;
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(ii) casualty loss, whether or not covered by
insurance, involving in any instance an amount in excess of
$50,000;
(iii) obligation or liability, contingent or
otherwise, incurred by Parent or any Parent Subsidiary other
than obligations and liabilities incurred in the ordinary
course of business and consistent with past practice, or loss
of a customer otherwise required to be listed on the
Disclosure Letter pursuant to Section 5.1(v)(II);
(iv) payment, discharge or settlement of any claim
against or obligation or liability of Parent or any Parent
Subsidiary except in the ordinary course of business and
consistent with past practice;
(v) capital expenditures or commitment to make any
capital expenditure by the Parent or any Parent Subsidiary not
included in Parent's or Sub's capital budget as set forth in
the Disclosure Letter;
(vi) issuance, sale, transfer or pledge by Parent or
any Parent Subsidiary of any capital stock of Parent or any
Parent Subsidiary;
(vii) sale, lease, transfer, pledge, mortgage or
encumbrance by Parent or any Parent Subsidiary of any capital
assets in an aggregate amount exceeding $100,000;
(viii) write-down or write off of any tangible or
intangible assets in an aggregate amount exceeding $100,000
except with respect to accounts receivable and inventory in
the ordinary course of business and consistent with past
practices; or
(ix) event which, if this Agreement were in effect,
would have required the consent of Purchaser pursuant to
Section 6.1(a) (other than (viii), (xiii) or (xiv) of Section
6.1(a)) and with respect to which such consent was not
obtained.
(u) Assets and Property. Parent and each Parent
Subsidiary has good and marketable title to all the assets it purports to own,
free and clear of all liens, claims and encumbrances, and valid leasehold
interests in all assets it purports to lease. Neither Parent nor any Parent
Subsidiary owns any real property.
(v) Contracts. (I) The Disclosure Letter lists all
agreements and arrangements pursuant to which Parent or any Parent Subsidiary
has any rights, obligations or liabilities with respect to (i) borrowed money,
(ii) real property leases, (iii) royalty agreements, (iv) joint venture or
product development agreements, (v) indemnification agreements, (vi) limitations
or restrictions on the use of assets it may own, the businesses it may conduct,
the persons or entities with whom it may do business or whom it may hire or
retain, or the locations in which it may own assets or conduct business, or
(vii) the performance of intercompany services or other arrangements between or
among Parent and any of the Parent Subsidiaries.
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(II) The Disclosure Letter lists all contracts
and arrangements to which Parent or any of the Parent Subsidiaries is a party
with vendors or customers that involve payments for services in excess of, for
any vendor or customer, $250,000 in the last fiscal year.
(III) Neither Parent or any Parent Subsidiary
nor, to the knowledge of Parent or Sub, any other party thereto is in breach or
default under any contract, agreement or instrument where the effect of such
breach or default would, singly or in the aggregate with breaches and defaults
under other contracts, agreements or instruments, result in a Material Adverse
Change.
(IV) Parent has provided Purchaser with a
complete and correct copy of each contract, agreement and instrument disclosed
in the Disclosure Letter (in the case of customer contracts, to the extent
available to Parent or Sub), and all such contracts, agreements and instruments
are in full force and effect, and are valid, binding and enforceable in
accordance with their terms subject, as to enforcement, to laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(w) Insurance. The Disclosure Letter lists all
insurance policies insuring Parent or any Parent Subsidiary or any of their
respective assets or operations. All such policies are and will be in full force
and effect through the Parent Effective Time except to the extent such policies
expire and cannot be renewed on a commercially reasonable basis. Except as
disclosed in the Disclosure Letter there are no pending or threatened disputes
or communications with or from any insurance carrier denying or disputing any
claim or coverage or regarding cancellation or nonrenewal of any such policy.
(x) Related Party Transactions. Except as described
in the Disclosure Letter, no executive officer of Parent or any Parent
Subsidiary, nor any entity in which any of the foregoing has a 1% or more equity
interest is a party to any contract, agreement or other financial or business
arrangement with Parent or any Parent Subsidiary.
(y) Reserves etc. (I) Parent has previously furnished
to Purchaser a list of (i) all reserves maintained on the unaudited books and
records of Parent or any Parent Subsidiary as of January 31, 1998, (ii) each
item in respect of which such reserves are maintained, and (iii) the amount of
reserves maintained for each such item. Parent management believes no additional
material reserves are required under GAAP.
(II) Neither Parent nor any Parent Subsidiary
has any liability in respect of the Novaquest or Pacific On Line notes
receivable totalling approximately $5.9 million as of May 1, 1997 that have been
sold to Ingram Micro.
(III) The reserves maintained on the unaudited
books and records of Parent and the Parent Subsidiaries respecting the sale
transaction with GE Capital are sufficient to satisfy any claims which might
reasonably be expected to arise out of either of those transactions.
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(z) Board Action. The Boards of Directors of Parent
and Sub have duly and validly approved and taken all corporate action required
to be taken by the Boards of Directors for the execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement. The Boards of Directors of Parent and Sub have determined that it is
advisable and in the best interest of their respective stockholders for the
Parent Merger and the Sub Merger to occur upon the terms and subject to the
conditions of this Agreement and the Parent's Board of Directors has resolved to
recommend that Parent's stockholders approve and adopt the Parent Merger and
Sub's Board of Directors and Independent Committee thereof have resolved to
recommend that Sub's stockholders approve and adopt the Sub Merger. The Board of
Directors of Sub has determined that the shareholders of Sub shall be entitled
to dissenters rights under Subchapter D of Chapter 15 of the PABCL in connection
with the Sub Merger in lieu of providing for a statutory class vote pursuant to
Section 1906(b) of the PABCL. The Board of Directors of Sub and the Independent
Committee thereof have approved an amendment to Sub's Articles of Incorporation
to provide that Subchapter E of Chapter 25 of the PABCL shall not be applicable
to Sub.
(aa) Expenses. Parent and Sub have provided to
Purchaser a good faith estimate and description of the expenses which either of
them has incurred or which either of them expects to incur in connection with
the transactions contemplated by this Agreement.
(bb) Effect of Certain Representations and
Warranties. (i) Insofar as any of the foregoing representations and warranties
are inaccurate with respect to or as a result of circumstances involving Sub,
and if Parent did not have knowledge of such inaccuracy, Parent will have no
liability for damages to Purchaser or Acquisition Sub One or Two for breach of
such representation and warranty; provided, however, that this subparagraph
shall have no effect on whether the condition set forth in Section 7.2(b) has
been satisfied, or on any right of Purchaser to terminate this Agreement under
Section 8.3, or on any obligation of Parent and Sub to pay the Termination Fee
to Purchaser pursuant to Section 9.1(b).
(ii) Insofar as any of the foregoing representations and
warranties are inaccurate with respect to or as a result of circumstances
involving Parent or any Parent Subsidiary (other than Sub or any Sub
Subsidiary), and if Sub did not have knowledge of such inaccuracy, Sub will have
no liability for damages to Purchaser or Acquisition Sub One or Two for breach
of such representation and warranty; provided, however, that this subparagraph
shall have no effect on whether the condition set forth in Section 7.2(b) has
been satisfied, or on any right of Purchaser to terminate this Agreement under
Section 8.3, or on any obligation of Parent and Sub to pay the Termination Fee
to Purchaser pursuant to Section 9.1(b).
5.2 Representations and Warranties of Purchaser, Acquisition
Sub One and Acquisition Sub Two. Purchaser, Acquisition Sub One and Acquisition
Sub Two jointly and severally represent and warrant to Parent and Sub that:
(a) Corporate Organization. Each of Purchaser,
Acquisition Sub One and Acquisition Sub Two is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each of Acquisition Sub One and Acquisition Sub Two is a direct,
wholly-owned subsidiary of Purchaser and was formed solely for the purpose of
engaging in the transactions contemplated by this
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Agreement. Except for obligations or liabilities incurred in connection with its
incorporation or other agreements or arrangements contemplated by this
Agreement, neither Acquisition Sub One nor Acquisition Sub Two has and will not
have incurred, directly or indirectly, through any subsidiary or affiliate, any
obligations or liabilities or engaged in any business activities of any type or
kind whatsoever or entered into any agreements or arrangements with any Person.
(b) Corporate Authority. Purchaser, Acquisition Sub
One and Acquisition Sub Two each has the requisite corporate power and
authority, and has taken all required action necessary, to properly execute and
deliver this Agreement and to perform its obligations hereunder, and this
Agreement constitutes the valid and legally binding obligation of each of
Purchaser, Acquisition Sub One and Acquisition Sub Two, enforceable in
accordance with its terms and conditions, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law.
(c) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation by Purchaser, Acquisition Sub
One or Acquisition Sub Two of the transactions contemplated hereby, will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree or other restriction of any government, governmental agency or
court to which Purchaser, Acquisition Sub One or Acquisition Sub Two or any of
their respective subsidiaries is subject or any provision of the charter or
bylaws of the Purchaser, Acquisition Sub One or Acquisition Sub Two or any of
their respective subsidiaries, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel or require any notice under
any agreement, contract, lease, license, instrument or other arrangement to
which Purchaser, Acquisition Sub One or Acquisition Sub Two or any of their
respective subsidiaries is a party or by which any of them is bound or to which
any of their respective assets is subject, and which would have a material
adverse effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement. Other than filings required in connection with
the provisions of the HSR Act, the PABCL and the Exchange Act, neither Purchaser
nor Acquisition Sub One nor Acquisition Sub Two needs to give any notice to,
make any filing with or obtain any authorization, consent or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Litigation. There are no actions, suits or
proceedings pending or, to the knowledge of the executive officers of Purchaser,
Acquisition Sub One or Acquisition Sub Two, threatened against Purchaser,
Acquisition Sub One or Acquisition Sub Two which if adversely determined against
Purchaser, Acquisition Sub One or Acquisition Sub Two would materially impair or
delay the Parties' ability to consummate the transactions contemplated by this
Agreement.
(e) Funds. Purchaser has all of the funds in its
control and possession required in order to consummate the Parent Merger and the
Sub Merger and to pay all fees and expenses as contemplated by this Agreement
(the "Payment Funds").
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(f) Brokers' and Other Fees. Neither Parent nor any
Parent Subsidiary has or will have any liability or obligation to pay any fees
or commissions to any investment advisor, broker, finder or agent engaged by
Purchaser, Acquisition Sub One or Acquisition Sub Two with respect to the
transactions contemplated by this Agreement. Any such fees or commissions will
be paid by Purchaser.
(g) Proxy Statement. None of the information supplied
in writing by Purchaser or any subsidiary of Purchaser specifically for
inclusion in the Proxy Statements (as defined in Section 6.1(c)), including all
amendments and supplements thereto, shall, in the case of the Proxy Statements,
at the date thereof and at the time of the meetings of shareholders to vote on
the matters covered thereby, contain any untrue statement of a material fact, or
omit a state material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they are made, not misleading.
ARTICLE VI
Covenants
6.1 Covenants of the Parent and Sub. Parent and Sub jointly
and severally (but subject to Section 6.4) covenant and agree that, except as
otherwise required by this Agreement:
(a) Interim Operations of Parent and Sub. From the
date hereof and continuing until the earlier of (i) the termination of this
Agreement or (ii) the Sub Effective Time (in the case of Sub) or (iii) the
Parent Effective Time (in the case of Parent), the business of Parent and Sub
and their respective subsidiaries, as applicable, shall be conducted only in the
ordinary and usual course and, to the extent consistent therewith, Parent and
Sub each shall use all commercially reasonable efforts to preserve its business
organization intact and maintain its existing relations with customers,
suppliers, employees and business associates. Without limiting the generality of
the foregoing from the date hereof and continuing until the earlier of (i) the
termination of this Agreement or (ii) the Sub Effective Time (in the case of
Sub) or (iii) the Parent Effective Time (in the case of Parent), Parent and Sub
will not with respect to themselves or any Parent Subsidiary without the prior
written consent of Purchaser (or except as expressly permitted by the Disclosure
Letter or as required by this Agreement) do or commit to do any of the
following:
(i) authorize or effect any change in its
charter or bylaws;
(ii) grant, amend or modify any Stock Rights or
issue, sell or otherwise dispose of any of its capital stock (except, in the
case of Parent, upon the exercise of Stock Rights outstanding as of the date of
this Agreement; it being understood, however, that Sub shall not issue any
capital stock, whether or not upon the exercise of Stock Rights);
(iii) declare, set aside or pay any dividend
or distribution with respect to its capital stock (whether in cash or in kind),
or redeem, repurchase or otherwise acquire any of its capital stock or any Stock
Rights;
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(iv) issue any note, bond or other debt
security or create, incur, assume or guarantee any indebtedness for borrowed
money or capitalized lease obligation other than borrowings and reborrowings
under existing credit facilities to fund current obligations in the ordinary
course of business;
(v) impose or allow to be imposed any
Security Interest upon any of its assets except pursuant to after-acquired
property clauses in existing security arrangements disclosed in the Disclosure
Letter or purchase money security interests on inventory financed in the
ordinary course of business;
(vi) make any expenditure for a capital
asset or lease any real property except in accordance with the Parent or Sub
capital budget as disclosed in the Disclosure Letter;
(vii) implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
generally accepted accounting principles and provided that same is promptly
disclosed to Purchaser;
(viii) (I) enter into or amend or renew any
written employment, consulting, severance, "golden parachute" or similar
agreement or arrangement with any director, officer or employee of Parent or of
a Parent Subsidiary, or (II) grant any salary or wage increase, or (III)
increase any employee benefit (including incentive or bonus payments), except in
the case of "(II)" for normal individual increases in compensation to employees
(other than officers and directors of Parent or a Parent Subsidiary) in the
ordinary course of business consistent with past practice;
(ix) enter into, establish, adopt or amend
(except as may be required by applicable law) any pension, retirement, stock
option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, in respect of any director, officer or
employee of Parent or any Parent Subsidiary, or take any action to accelerate
the vesting or exercisability of stock options, restricted stock or other
compensation or benefits payable thereunder;
(x) knowingly or negligently take or fail to
take any action, if such action or failure to act would, directly or indirectly,
cause any of the Parent Subsidiaries to cease to be a member of the consolidated
group of companies of which Parent is the common parent for Federal income tax
purposes; it being understood that compliance with Section 6.1(g)(iii) and (iv)
will not constitute a violation of this Section 6.1(a)(x); and it being further
understood that except as contemplated by Section 6.1(g)(iv) or as otherwise
agreed by Purchaser in writing, Parent shall comply with this Section 6.1(a)(x)
without resort to exercising its rights to acquire additional shares of Sub
pursuant to that certain Stock Registration and Option Agreement dated as of May
31, 1996 among Parent, Sub and The Future Now of Arkansas, Inc., as amended;
(xi) take any action that would materially
alter the strategic business plan and/or services delivery capability of Sub;
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(xii) make any capital investment in or make
any loan to or acquire the securities or assets of any other Person other than
to or from its subsidiaries in the ordinary course of business;
(xiii) make any change in employment terms
for any of its directors, officers and employees other than customary increases
to non-director or non-officer employees awarded in the ordinary course of
business consistent with past practices; or
(xiv) except as may be required by law,
intentionally take or fail to take any action the reasonably foreseeable effect
of which would be to cause any representation or warranty in this Agreement to
be or become inaccurate.
In the event Parent or Sub shall request Purchaser to
consent in writing to an action otherwise prohibited by this Section 6.1(a),
Purchaser shall use all reasonable efforts to respond in a prompt and timely
fashion, but may otherwise respond affirmatively or negatively in its sole
discretion exercised in good faith.
(b) Acquisition Proposals.
(1) Neither the Parent nor the Sub or any of
their respective officers and directors shall, and the Parent and Sub will cause
their respective employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by the Parent
or Sub) not to, solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate (including, without limitation, any amendment, modification or
termination, or any agreement to do any of the foregoing, to the Rights
Agreement or any redemption of rights issued thereunder) any inquiries or the
submission or any proposal or offer from any Person relating to an Acquisition
Proposal (as defined below) involving Parent, Sub or any other Parent Subsidiary
or participate in any discussions or negotiations regarding any such Acquisition
Proposal; provided, however, that subject to compliance with this Section
6.1(b), the Parent, the Sub and their respective directors and officers may
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or facilitate any effort or attempt by any
Person to do or seek, an Acquisition Proposal, solely to the extent that the
Board of Directors of Parent or Sub, as applicable, determines in good faith,
that such actions are necessary in order for the Board of Directors of Parent or
Sub, as applicable, to comply with its fiduciary obligations under applicable
law in response to an Acquisition Proposal or material modification to an
Acquisition Proposal, which Acquisition Proposal or material modification was
made after the date hereof and was not solicited after the date hereof. As used
herein, the term "Acquisition Proposal" means, with respect to a particular
Person, a merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving, or
any purchase of all or any significant portion of the assets or any equity
securities of, or any tender offer or exchange offer for shares of any class of
equity securities of, such Person. The transactions contemplated by this
Agreement shall not be deemed an Acquisition Proposal. The Parent and Sub will
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal and will notify Purchaser promptly if any such Acquisition
Proposal is received by,
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any such information is requested from, or any such negotiations or discussions
are sought to be instituted or continued with, the Parent or the Sub.
(2) Except as set forth in this paragraph
(2), neither the Board of Directors of Parent nor the Board of Directors of Sub
nor any committee of either of them shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Purchaser, or take any
action not explicitly permitted by this Agreement that would be inconsistent
with, the approval or recommendation by such Board of Directors or such
committee of the Parent Merger or the Sub Merger, (ii) approve or recommend, or
propose publicly to approve or recommend, any Acquisition Proposal, or (iii)
cause Parent or Sub to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "Acquisition
Agreement") related to any Acquisition Proposal. Notwithstanding the foregoing,
in the event that the Board of Directors of Parent or Sub has received a
Superior Proposal (defined below) and determines in good faith, after receipt of
advice from outside counsel, that it is necessary to do so in order to comply
with its fiduciary obligations under applicable law, the Board of Directors of
Parent or Sub, as applicable, may (subject to compliance with this Section
6.1(b) and subject to payment of any Termination Fee (as hereinafter defined)
then required pursuant to this Agreement), (x) withdraw or modify its approval
or recommendation of the Parent Merger or the Sub Merger or (y) terminate this
Agreement (and concurrently with or after such termination, if it so chooses,
cause Parent or Sub, as applicable, to enter into any Acquisition Agreement with
respect to any Superior Proposal), but in any such case set forth in this clause
(y), only at a time that is after the fifth (5th) day following Purchaser's
receipt of written notice advising Purchaser that the Board of Directors of
Parent or Sub or any such committee has received a Superior Proposal, specifying
the material terms and conditions of such Superior Proposal and identifying the
Person making such Superior Proposal. For purposes of this Agreement, a
"Superior Proposal" means any bona fide proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, all or substantially all of the voting power of the shares of Parent
Common Stock or Sub Common Stock then outstanding or all or substantially all of
the assets of Parent (which proposal may include as a component thereof the
purchase of all or substantially all of the shares of capital stock of Sub) or
Sub and otherwise on terms which the Board of Directors of Parent or Sub or such
committee determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be materially more
favorable to Parent's or Sub's stockholders than the Parent Merger and the Sub
Merger and for which financing, to the extent required, is then committed or
which, in the good faith judgment of the Board of Directors of Parent or Sub or
such committee, is reasonably capable of being furnished by such third party.
(c) Meetings of the Shareholders. Each of Parent and
Sub will take all action necessary in accordance with applicable law and its
Articles of Incorporation and By-Laws to convene a meeting of its stockholders
as promptly as practicable to consider and vote upon the approval of this
Agreement and the Parent Merger or Sub Merger, as applicable (the "Stockholder
Meetings"). Subject to Section 6.1(b)(2), the Board of Directors of Parent shall
recommend approval of the Parent Merger, and the Board of Directors of Sub and
the Independent Committee of Sub's Board shall recommend approval of the Sub
Merger, and the Parent and Sub shall take all lawful action to solicit such
approvals, as applicable. Each of the Parent and Sub hereby severally
represents, warrants and covenants that the proxy or information statement with
respect to such meeting of its shareholders (each, a "Proxy Statement"), at the
date thereof and at the date of such meetings, will not include
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an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided, however,
the foregoing shall not apply to the extent that any such untrue statement of a
material fact or omission to state a material fact was made in reliance upon and
in conformity with written information concerning the Purchaser, Acquisition Sub
One or Acquisition Sub Two furnished by Purchaser specifically for use in the
Proxy Statement. No Proxy Statement shall be filed, and no amendment or
supplement to such Proxy Statement will be made by the Parent or Sub, without
consultation with Purchaser and its counsel.
(d) Exchange Act Filings. Unless an exemption shall
be expressly applicable to the Parent or the Sub, or unless Purchaser agrees
otherwise in writing, the Parent and the Sub will each file with the SEC and
NASDAQ National Market System ("NASDAQ") all reports required to be filed by it
pursuant to the rules and regulations of the SEC (including, without limitation,
all required financial statements). Such reports and other information shall
comply in all material respects with all of the requirements of the SEC rules
and regulations and, when filed, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Purchaser and its counsel, shall be given
a reasonable opportunity to review and to comment on such filings prior to their
being filed with the SEC and NASDAQ.
(e) Access. Upon reasonable notice, the Parent and
the Sub shall afford Purchaser's officers, employees, counsel, accountants and
other authorized representatives access, during reasonable business hours
throughout the period prior to the Parent Effective Time and in a manner which
will not unreasonably interfere with the management of the business of Parent or
any Parent Subsidiary, to its officers, employees, agents, independent auditors,
representatives, properties, books and records and, during such period, the
Parent and the Sub each shall furnish promptly to Purchaser all information
concerning its business, properties and personnel as Purchaser may reasonably
request provided, however, neither the Parent nor the Sub shall be obligated to
furnish Purchaser with information respecting any negotiations referred to in
the last sentence of Section 6.1(b)(1) of this Agreement.
(f) Takeover Statutes. If any "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation enacted under state or federal laws in the United States,
including, without limitation, Subchapter E, F, G or H of the PABCL (each, a
"Takeover Statute" and, collectively, "Takeover Statutes"), is or becomes
applicable to the Parent Merger or the Sub Merger or the transactions
contemplated hereby, Parent, Sub and their respective Boards or Directors will
use all commercially reasonable efforts (a) to grant such approvals and take
such actions as are reasonably necessary, lawful and requested or consented to
by Purchaser so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated hereby and
thereby, and (b) to otherwise act to eliminate the effects of any Takeover
Statute on any of the transactions contemplated hereby and thereby. Parent and
Sub will use all commercially reasonable efforts to effect, prior to the Sub
Effective Time, the amendment to Sub's Articles of Incorporation described in
Section 5.1(z) hereof.
(g) Options and Warrants.
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(i) Prior to the Parent Effective Time, the
Parent shall take such actions (including obtaining any required consents) as
may be necessary such that at the Parent Effective Time each Stock Right issued
by the Parent shall be cancelled or converted into the right to receive, as the
case may be, and the holder thereof, upon surrender thereof, shall receive, the
Parent Option Conversion Price to which such holder is entitled, if any.
(ii) Prior to the Sub Effective Time, Sub
shall take such actions (including obtaining any required consents) as may be
necessary such that at the Sub Effective Time each Stock Right issued by Sub
shall be cancelled or converted into the right to receive, as the case may be,
and the holder thereof, upon surrender thereof, shall receive, the Sub Option
Conversion Price to which such holder is entitled, if any.
(iii) In connection with the exercise, prior
to the Sub Effective Time, of any employee stock options issued by Sub, Sub
shall (unless otherwise agreed by Purchaser in writing), in accordance with the
cash-out option of Sub under Section 3(l) of its 1996 Long-Term Incentive Plan
(the "XLC Plan"), pay to each holder of an option, upon notice of any exercise
thereof, cash in an amount equal to the spread between the exercise price and
the fair market value of the underlying common share or the Spread Value (as
defined in the XLC Plan), and will take all other action as may be necessary to
ensure that in no event will any capital stock of Sub be issued upon or in
connection with the exercise of any such option. Parent will, if necessary, lend
sufficient funds to Sub on commercially reasonable terms to enable Sub to pay
such cash in a timely manner.
(iv) In connection with the exercise, prior
to the Sub Effective Time, of any Stock Rights issued by Sub (other than
employee stock options), Sub shall not issue or permit to be issued any shares
of capital stock of Sub upon the exercise thereof other than simultaneously with
or after Parent (or a direct or indirect wholly-owned subsidiary of Parent)
shall have purchased (which Parent hereby agrees to do or cause to be done), and
Sub shall have issued (which Sub agrees to do or cause to be done) that number
of validly issued shares of the same class to Parent or such subsidiary that is
equal to four times the number of shares of capital stock issuable upon such
exercise of such Stock Rights, it being understood that Parent, Sub and
Purchaser expect such purchase and issuance to occur pursuant to that certain
Stock Registration and Option Agreement dated as of May 31, 1996 among Parent,
Sub and The Future Now of Arkansas, Inc., as amended; provided, however, that in
no event will Parent or any Parent Subsidiary purchase or otherwise acquire any
such shares of Sub for a per share amount in excess of the Sub Share Conversion
Price.
(h) [intentionally left blank]
(i) IBMCC. Parent and Sub shall request that IBM
Credit Corporation ("IBMCC") give any consent to the Sub Merger or the Parent
Merger necessary under Parent's and Sub's credit arrangements with IBMCC. If
Purchaser so requests, Parent and Sub will take all action necessary to pay, at
the time the Parent Merger and Sub Merger are consummated, any or all of the
balance of any amounts owed to IBMCC, subject, however, to Purchaser making
available to Parent and Sub the cash necessary to do so.
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(j) Third Party Consents. Parent and Sub shall use
their commercially reasonable efforts to obtain all necessary consents to the
transactions contemplated by this Agreement as may be required under contracts
to which Parent or any Parent Subsidiary is a party and as to which Purchaser
requests that such consents be obtained, including without limitation the real
property leases required to be listed in Section 5.1(v) of the Disclosure
Letter.
6.2 Covenants of the Parties. Each of the Parties, severally
and not jointly, covenants and agrees as to itself, as follows:
(a) Confidentiality. The terms and conditions of that
certain letter agreement dated December 8, 1997 entered into by the Purchaser
and the Parent (the "Confidentiality Agreement") are ratified and confirmed and
shall remain in full force and effect. Notwithstanding the foregoing, the Parent
and Purchaser hereby amend the Confidentiality Agreement such that the
provisions of the paragraph 2(c) thereof do not apply to any public announcement
effected in accordance with the provisions of Section 6.2(d) below regarding the
Parties' execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.
(b) Hart-Scott-Rodino Filings. Each Party will file
any Notification and Report Forms and related material that it may be required
to file with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the HSR Act, will use commercially
reasonable efforts to obtain termination of the applicable waiting period under
the HSR Act, and will make any further filings pursuant thereto that may be
necessary or appropriate.
(c) Notification of Certain Matters. Each Party will
give prompt written notice to the others of any development causing a breach of
any of its own representations and warranties set forth in this Agreement.
(d) Publicity. The initial press release relating to
the transactions contemplated hereby shall be a joint press release and
thereafter the Parent, the Sub and Purchaser shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and in making any filings with any federal
or state governmental or regulatory agency or with any national securities
exchange with respect thereto. None of the Parties shall issue any such press
release or make any such public statement or filing prior to such consultation,
except as may be required by law or by obligations pursuant to any listing
agreement with any national securities exchange or the NASDAQ.
(e) Cooperation. Each Party shall upon the request of
another Party provide its commercially reasonable cooperation and assistance to
the requesting Party in the latter's efforts to obtain any consents, approvals
and amendments to contracts required or to take such actions as may be required
to comply with any applicable laws to effect the Sub Merger, the Parent Merger
or otherwise required under this Agreement.
(f) Indemnification; Directors' and Officers'
Insurance.
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(i) The Parties agree that all rights to
indemnification and advancement of expenses by the Parent or the Sub now
existing in favor of each present and former director and officer of the Parent
or the Sub (acting in their capacities as directors and/or officers of the
Parent or the Sub, as applicable, the "Indemnified Parties") as provided in (i)
the Parent's or the Sub's respective Articles of Incorporation or By-Laws, or
(ii) the indemnification agreements listed in the Disclosure Letter as in effect
on the date thereof (the "Indemnification Agreements"), shall, with respect to
matters occurring at or prior to the Parent or Sub Effective Time, as
applicable, continue in full force and effect, shall survive the Sub Merger and
Parent Merger and shall continue in full force and effect thereafter until the
date which is six (6) years from the Sub Effective Time or Parent Effective
Time, as applicable; provided, however, in the event any claim or claims are
asserted or threatened within such period, all rights to indemnification in
respect of any such claim or claims shall continue until final disposition of
any and all such claims.
(ii) Subject to the provisions of Section
6.2(f)(iii) below, after the Sub Effective Time or Parent Effective Time, as
applicable, the Purchaser shall, subject to the further terms set forth herein,
indemnify and hold harmless, to the fullest extent permitted under applicable
law (and shall also advance expenses as incurred to the fullest extent permitted
under applicable law provided the Person to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification), each Indemnified Party against any
costs or expenses (including reasonable attorneys' fees and disbursements),
judgments, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to the transactions contemplated by this Agreement (and
whether commenced prior to or after the Sub Effective Time or the Parent
Effective Time), for a period of six (6) years after the Sub Effective Time or
Parent Effective Time, as applicable, in each case regardless of by whom
asserted and regardless of whether such claim, action, suit, proceeding or
investigation arises out of, pertains to or results from, solely or in part, the
active, passive or concurrent negligence of any Indemnified Party; provided,
however, in the event any claim or claims are asserted or threatened within such
six-year period, all right to indemnification in respect of any such claim or
claims shall continue until final disposition of any and all such claims. Any
Indemnified Party wishing to claim indemnification under this Section
6.2(f)(ii), and notwithstanding the provisions set forth in the Parent's or the
Sub's respective Articles of Incorporation or By-Laws, or in the Indemnification
Agreements, upon learning of any such claim, action, suit, proceeding or
investigation, such Indemnified Party shall promptly notify Purchaser thereof,
but the failure to so notify shall not relieve Purchaser of any liability it may
have to such Indemnified Party if such failure does not materially prejudice the
indemnifying party. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Sub Effective Time or the
Parent Effective Time), (i) Purchaser shall have the right to assume the defense
thereof and Purchaser shall not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except that if
Purchaser fails to assume such defense or counsel for Purchaser advises that
there are issues which raise conflicts of interest between the Parties, on the
one hand, and the Indemnified Parties, on the other hand, or that there are
additional defenses available to the Indemnified Parties which are not otherwise
available to the Parties, the Indemnified Parties may retain counsel
satisfactory to them, and the Purchaser shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, however, that Purchaser shall be obligated
pursuant to
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this paragraph (ii) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction unless the use of one counsel for such Indemnified
Parties would present such counsel with a conflict of interest, in which case
Purchaser need only pay for separate counsel to the extent necessary to resolve
such conflict, (ii) the Indemnified Parties will cooperate in the defense of any
such matter and (iii) Purchaser shall not be liable for any settlement
effectuated without its prior written consent. Purchaser shall not settle any
action or claim identified in this Section 6.2(f)(ii) in any manner that would
impose any liability on an Indemnified Party not paid by Purchaser or the Sub
Surviving Corporation or the Parent Surviving Corporation without such
Indemnified Party's prior written consent.
(iii) Notwithstanding any thing contained in
paragraph (ii) of this Section 6.2(f), Purchaser shall not have any obligation
hereunder to any Indemnified Party if the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law, or the
conduct of the Indemnified Party relating to the matter for which
indemnification is sought involved willful misconduct.
(iv) Parent and Sub shall maintain their
respective existing officers' and directors' liability insurance ("D&O
Insurance") for a period of three (3) years after the Sub Effective Time or
Parent Effective Time, as applicable, so long as the annual premium therefor, in
the aggregate, is not in excess of 150% of the last annual premium paid prior to
the date hereof (the "Maximum Premium"); provided, however, if the existing D&O
Insurance expires, or is terminated or cancelled by the insurance carrier during
such three-year period, the Parent and Sub will use their commercially
reasonable efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis) of
the Maximum Premium.
(v) To the fullest extent not prohibited by
applicable New York law or federal securities laws, Purchaser agrees to
guarantee the payment and performance of the Parent's, Sub's, Acquisition Sub
One's and Acquisition Sub Two's obligations under this Section 6.2(f). This
Section 6.2(f) shall survive the closing of the transactions contemplated hereby
and is intended to benefit each of the Indemnified Parties (each of whom shall
be entitled to enforce this Section against the Parties). If any Party, or any
of their respective successors or assigns (i) reorganizes or consolidates with
or merges into any other Person and is not the resulting, continuing or
surviving corporation or entity of such consolidation or merger or (ii)
liquidates, dissolves or transfers all or substantially all of its properties
and assets to any Person, then, and in each such case, prior to such action,
proper provision will be made so that the successors and assigns of such party
assume the obligations of such party set forth in this Section.
6.3 Covenants of Purchaser. Purchaser covenants and agrees as
follows:
(a) Maintenance of Payment Funds. Prior to the Sub
Effective Time and Parent Effective Time, as applicable, Purchaser shall cause
the Payment Funds to be available to effect payment of the Sub Share Conversion
Price, the Sub Option Conversion Price, the Parent Share Conversion Price and
the Parent Option Conversion Price and neither Purchaser, Acquisition Sub One
nor Acquisition Sub Two will enter into any transaction, commitment or
obligation which could reasonably result in the Payment Funds not being so
available as and when required for such payments pursuant to the terms and
conditions of this Agreement.
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(b) Purchaser Shares. At the Parent Stockholders'
Meeting, all Parent Shares then owned by Purchaser or any of its direct or
indirect wholly-owned subsidiaries shall be voted in favor of the Parent Merger.
At the Sub Stockholders' Meeting, all Sub Shares then owned by Purchaser or any
of its direct or indirect wholly-owned subsidiaries shall be voted in favor or
the Sub Merger.
6.4 Effect of Certain Covenants. (i) Insofar as any covenants
in this Article VI relate specifically to Sub, Parent shall have no obligation
to force Sub to comply therewith, but shall take such actions as may reasonably
assist and facilitate Sub in complying therewith. If Parent has done so and Sub
has nonetheless failed to comply with such covenant, Parent will have no
liability for damages to Purchaser, Acquisition Sub One or Acquisition Sub Two
for breach of such covenant; provided, however, that this subparagraph shall
have no effect on whether the condition set forth in Section 7.2(a) has been
satisfied, or on any right of Purchaser to terminate this Agreement under
Section 8.3, or on any obligation of Parent and Sub to pay the Termination Fee
to Purchaser pursuant to Section 9.1(b).
(ii) Insofar as any Covenants in this Article VI relate
specifically to Parent or any Parent Subsidiaries (other than Sub or any Sub
Subsidiaries), Sub shall have no obligation to force Parent to comply therewith,
but shall take such actions as may reasonably assist and facilitate Parent in
complying therewith. If Sub has done so and Parent has nonetheless failed to
comply with such covenant, Sub will have no liability for damages to Purchaser,
Acquisition Sub One or Acquisition Sub Two for breach of such covenant;
provided, however, that this subparagraph shall have no effect on whether the
condition set forth in Section 7.2(a) has been satisfied, or on any right of
Purchaser to terminate this Agreement under Section 8.3, or on any obligation of
Parent and Sub to pay the Termination Fee to Purchaser pursuant to Section
9.1(b).
ARTICLE VII
Conditions
7.1 Conditions to Obligations of the Parties. The obligations
of the Parties to consummate the Sub Merger and the Parent Merger are subject to
the fulfillment of each of the following conditions, any or all of which may be
waived in whole or in party by any of the Parties, as the case may be, to the
extent permitted by applicable law:
(a) Parent Shareholder Approval. The Parent Merger
shall have been duly approved by the holders of the outstanding stock of Parent
in accordance with the PABCL and the Articles of Incorporation and By-Laws of
the Parent.
(b) Sub Shareholder Approval. The Sub Merger and the
amendment to Sub's Articles of Incorporation described in Section 5.1(z) hereof
shall have been duly approved by the holders of the outstanding stock of Sub in
accordance with the PABCL and the Articles of Incorporation and By-Laws of the
Sub.
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(c) Governmental and Regulatory Consent. (i) The HSR
waiting period shall have expired or been terminated, and (ii) other than the
filings provided for in Section 1.8, all other filings required to be made prior
to the Sub Effective Time or Parent Effective Time, as applicable, by the
Parties with, and all consents, approvals and authorizations required to be
obtained prior to the applicable Effective Time by the Parties from,
governmental and regulatory authorities in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall have been made or obtained (as the case may be).
(d) Statutes; Injunctions. Neither any statute, rule,
regulation, order, stipulation or injunction (each an "Order") shall be enacted,
promulgated, entered, enforced or deemed applicable to the Sub Merger or the
Parent Merger, nor shall any other action have been taken by any governmental
authority, administrative agency or court of competent jurisdiction which (i)
prohibits the consummation of the transactions contemplated by this Agreement,
or (ii) prohibits Purchaser's direct or indirect ownership or operation of all
or any material portion of the business or assets of Parent or Sub, or (iii)
could compel Purchaser to dispose of or hold separate all or any material
portion of such business or assets as a result of the transactions contemplated
by this Agreement.
(e) Both Mergers. No Party shall be obligated to
consummate the Parent Merger if the Sub Merger shall not have been consummated.
No Party shall be obligated to consummate the Sub Merger unless all conditions
to the Parent Merger have been satisfied or waived.
(f) Amendment to Articles. The Articles of
Incorporation of Sub shall have been amended as described in Section 5.1(z).
7.2 Conditions to Obligations of Purchaser, Acquisition Sub
One and Acquisition Sub Two. The obligation of Purchaser, Acquisition Sub One
and Acquisition Sub Two to consummate the Sub Merger and Parent Merger is
further subject to the fulfillment of the following conditions, which may be
waived by Purchaser, Acquisition Sub One or Acquisition Sub Two:
(a) Compliance. The Parent and the Sub each shall
have performed and complied with, in all material respects, all obligations and
covenants required to be performed or completed with by it under, respectively,
this Agreement at or prior to the Sub Effective Time or Parent Effective Time,
as applicable, and Parent and Sub shall each have delivered to Purchaser a
certificate of an executive officer so certifying.
(b) Representations. Each of the representations and
warranties of Parent and of Sub made in this Agreement shall be true and correct
in all material respects as of the date when made and shall be deemed to be made
again at and as of the Sub Closing and the Parent Closing and shall then be true
and correct in all material respects, except to the extent changes are required,
permitted or contemplated pursuant to this Agreement, and Parent and Sub shall
each have delivered to Purchaser a certificate of an executive officer so
certifying.
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(c) Opinion of Counsel. Purchaser shall have received
an opinion of counsel to Parent and Sub in form and substance substantially the
same as previously agreed by Purchaser, Parent and Sub.
(d) Proceedings. No action or proceeding shall have
been instituted and be pending before any court or governmental body to restrain
or prohibit, or to obtain substantial damages in respect of, the consummation of
this Agreement and the transactions contemplated hereby which, in the reasonable
opinion of Purchaser based upon advice of counsel respecting the likelihood of
an adverse outcome in such action or proceeding, may reasonably be expected to
result in a preliminary or permanent injunction against such consummation or
damages which would constitute a Material Adverse Change.
(e) Material Adverse Change. There shall not have
occurred a Material Adverse Change.
(f) Liens. With the exception of the Security
Interest of IBMCC as disclosed in the Disclosure Letter, in all instances and
respects Parent (or the applicable Parent Subsidiaries as the case may be) shall
hold all shares of stock in all Parent Subsidiaries free and clear of any
restrictions, liens, claims and encumbrances whatsoever.
(g) Tax Consolidation. Each of the Parent
Subsidiaries shall be, and shall have been at all times from the date hereof to
the Parent Effective Time, a member of the consolidated group of companies of
which Parent is the common parent for Federal income tax purposes, it being
understood that compliance with Section 6.1(g)(iii) and (iv) will (for purposes
only of Sub Stock Rights) be deemed to satisfy this subparagraph (g).
(h) Employment Agreements. The employees of Sub
previously identified in writing by Purchaser shall be employees of Sub and
shall have entered into employment agreements on terms and conditions previously
identified in writing by Purchaser to Parent and Sub, and such employment
agreements shall be in full force and effect.
(i) Letter from Auditors. Purchaser shall have
received a letter (the "Agreed Upon Procedures Letter") from Parent's
independent certified public accountants substantially in the form previously
agreed by Purchaser, Parent and Sub.
(j) Stock Issuance, etc. Neither Parent, Sub nor any
Parent Subsidiary shall (I) after the date of this Agreement have granted,
amended or modified any Stock Rights (except as required pursuant to Section
6.1(g)(iii) or (iv)) or issued any capital stock (except, in the case of Parent,
but not Sub, upon the exercise of Stock Rights outstanding as of the date of
this Agreement), or (II) after December 1, 1997 have purchased or otherwise
acquired any shares of common stock of Sub for a per share price in excess of
the Sub Share Conversion Price.
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(k) Stock Rights. There shall be outstanding no Stock
Right which by its terms does not either terminate upon the completion of the
Sub Merger or the Parent Merger or convert into the right to receive only the
Sub Option Conversion Price or the Parent Option Conversion Price, as the case
may be.
(l) Dividends, etc. After the date of this Agreement,
neither Parent nor Sub shall have declared, set aside or paid any dividend or
distribution with respect to its capital stock (whether in cash or in kind), or
shall have redeemed, repurchased or otherwise acquired any of its capital stock
or, except as required by this Agreement, any Stock Rights.
(m) XLSource Transition. Those portions of the
XLSource Transition Plan to have been implemented prior to the Sub Effective
Time shall have been implemented on a timely basis in all material respects, and
there shall not have occurred a material adverse effect on the ability of Parent
or any Parent Subsidiary to implement the XLSource Transition Plan on a timely
basis.
7.3 Conditions to Obligations of Parent. The obligation of
Parent to consummate the Parent Merger and of Parent and Sub to consummate the
Sub Merger is further subject to the fulfillment of the following conditions,
which may be waived by Parent and Sub:
(a) Compliance. Purchaser, Acquisition Sub One and
Acquisition Sub Two each shall have performed and complied with, in all material
respects, all obligations and covenants required to be performed or completed
with by it under this Agreement at or prior to the Sub Effective Time or Parent
Effective Time, as applicable, and Purchaser shall have delivered to Parent and
Sub a certificate of an officer of Purchaser so certifying.
(b) Representations. Each of the representations and
warranties of Purchaser, Acquisition Sub One and Acquisition Sub Two made in
this Agreement shall be true and correct in all material respects as of the date
when made and shall be deemed to be made again at and as of the Sub Closing and
the Parent Closing and shall then be true and correct in all material respects,
except to the extent changes are required, permitted or contemplated pursuant to
this Agreement, and Purchaser shall have delivered to Parent and Sub a
certificate of an officer of Purchaser so certifying.
(c) Opinion of Counsel. Parent shall have received an
opinion of counsel to Purchaser in form and substance substantially the same as
previously agreed by Purchaser, Parent and Sub.
ARTICLE VIII
Termination
8.1 Termination by Mutual Consent. This Agreement may be
terminated and the Sub Merger and the Parent Merger may be abandoned at any time
prior to consummation thereof, before or after the approval by the stockholders
of Parent or Sub, by the written mutual consent of Purchaser, Sub and Parent.
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8.2 Termination by Purchaser, Sub or Parent. This Agreement
may be terminated and the Merger may be abandoned by Purchaser, Sub or Parent if
(i) the Sub Merger or the Parent Merger shall not have been consummated by July
31, 1998 (unless the failure to consummate by such date is due to the wrongful
action or failure to act of the party seeking to terminate), or (ii) the
stockholders of Parent disapprove the Parent Merger at the Parent Stockholder
Meeting, or (iii) any Order shall have become final and non-appealable.
8.3 Termination by Purchaser. This Agreement may be terminated
by Purchaser and the Sub Merger and the Parent Merger may be abandoned at any
time prior to consummation thereof, before or after the approval by stockholders
of Parent or Sub if (a) the Parent Board shall have withdrawn or modified in a
manner adverse to Purchaser its approval or recommendation of this Agreement, or
the Parent Board, upon request by Purchaser, shall fail to reaffirm its approval
or recommendation, or shall have resolved to do any of the foregoing, or at the
Sub Stockholders' Meeting all shares of Sub Common Stock owned directly or
indirectly by Parent shall not have been voted in favor of the Sub Merger and in
favor of the amendment to Sub's Articles of Incorporation described in Section
5.1(z) hereof; or (b) Parent shall have failed to perform in any material way
any of its covenants under this Agreement in a manner so as not to satisfy the
condition to closing in Section 7.2(a), which failure to perform is incapable of
being cured or has not been cured within twenty (20) days after the giving of
notice thereof to Parent; or (c) Parent shall have breached any of its
representations or warranties in any material respect in a manner so as not to
satisfy the condition to closing in Section 7.2(b), which breach is incapable of
being cured or has not been cured within twenty (20) days after the giving of
notice thereof to Parent; or (d) the Board of Directors of Sub, or the
Independent Committee thereof, shall have withdrawn or modified in a manner
adverse to Purchaser its approval or recommendation of this Agreement, or the
Board of Directors of Sub, or the Independent Committee thereof, upon request by
Purchaser, shall fail to reaffirm its approval or recommendation, or shall have
resolved to do any of the foregoing; or (e) Sub shall have failed to perform in
any material way any of its covenants under this Agreement in a manner so as not
to satisfy the condition to closing in Section 7.2(a), which failure to perform
is incapable of being cured or has not been cured within twenty (20) days after
the giving of notice thereof to Sub; or (f) Sub shall have breached any of its
representations or warranties in any material respect in a manner so as not to
satisfy the condition to closing in Section 7.2(b), which breach is incapable of
being cured or has not been cured within twenty (20) days after the giving of
notice thereof to Sub.
8.4 Termination by the Parent. This Agreement may be
terminated by Parent and the Sub Merger and the Parent Merger may be abandoned
at any time (i) prior to the consummation thereof, before or after the approval
by stockholders of Parent or Sub, by action of the Parent Board if the Parent
Board receives an unsolicited written offer with respect to a Superior Proposal,
or if an unsolicited tender or exchange offer for the Parent Shares (with
respect to a Superior Proposal) is commenced, and the Parent Board determines to
accept such Superior Proposal or recommend that its shareholders accept such
tender or exchange offer, but only after the Parent Board has been advised by
counsel that approval, acceptance or recommendation of such transaction is
necessary in order for the Parent Board to act in a manner consistent with its
fiduciary obligations under applicable law, in accordance with clause "(y)" of
Section 6.1(b)(2) provided that Parent has complied with all provisions thereof,
including the notice provisions therein, and that Parent and Sub comply with
applicable requirements relating to the payment (including the timing of any
payment) of the Termination Fee, or (ii) before the Parent Effective Time, if
Purchaser shall have breached or failed to perform in any material
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way any of its representations, warranties or covenants under this Agreement
which breach or failure to perform is incapable of being cured or has not been
cured within twenty (20) days after the giving of notice thereof to Purchaser.
8.5 Termination by the Sub. This Agreement may be terminated
by Sub and the Sub Merger and the Parent Merger may be abandoned at any time (i)
prior to the consummation thereof, before or after the approval by stockholders
of Parent or Sub, by action of the Sub Board if the Sub Board receives an
unsolicited written offer with respect to a Superior Proposal, or if an
unsolicited tender or exchange offer for the Sub Shares (with respect to a
Superior Proposal) is commenced, and the Sub Board determines to accept such
Superior Proposal or recommend that its shareholders accept such tender or
exchange offer, but only after the Sub Board has been advised by counsel that
approval, acceptance or recommendation of such transaction is necessary in order
for the Sub Board to act in a manner consistent with its fiduciary obligations
under applicable law, in accordance with clause "(y)" of Section 6.1(b)(2)
provided that Sub has complied with all provisions thereof, including the notice
provisions therein, and that Parent and Sub comply with applicable requirements
relating to the payment (including the timing of any payment) of the Termination
Fee, or (ii) before the Sub Effective Time, if Purchaser shall have breached or
failed to perform in any material way any of its representations, warranties or
covenants under this Agreement in a manner so as not to satisfy the condition to
closing in Section 7.3(a) or (b) which breach or failure to perform is incapable
of being cured or has not been cured within twenty (20) days after the giving of
notice thereof to Purchaser.
8.6 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article 8, no party thereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except as
provided in Sections 9.1 and 9.2. No termination of this Agreement shall result
in the termination of the obligations of the parties under Sections 5.1(k),
5.2(f), 6.2(a) or 9.1.
ARTICLE IX
Miscellaneous and General
9.1 Payment of Expenses.
(a) Except as set forth in subsection (b) below,
whether or not the Merger shall be consummated, each Party hereto shall pay its
own expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the Merger, except that and provided the
Merger is consummated, the expenses of Sub shall be borne by Parent.
(b) In the event that this Agreement is terminated by
Purchaser pursuant to Section 8.3(a), (b), (d) or (e), Parent and Sub shall pay
Purchaser an aggregate fee equal to $12,300,000 (the "Termination Fee"), payable
by wire transfer in immediately available funds, within one (1) business day of
the date of such termination in the respective proportions set forth below, and
such payment shall constitute Purchaser's and its affiliates' exclusive remedy
and be a limit on any damages to which Purchaser and such
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affiliates may be entitled for any loss or injury incurred with respect to any
such termination. In the event that this Agreement is terminated by Purchaser
pursuant to Section 8.3(c) or (f), and if the applicable breach of
representation by Parent or Sub was intentional, reckless or grossly negligent,
Parent and Sub shall pay Purchaser the Termination Fee, payable by wire transfer
in immediately available funds, within one (1) business day of the date of such
termination in the respective proportions set forth below, and such payment
shall constitute Purchaser's and its affiliates' exclusive remedy and be a limit
on any damages to which Purchaser and such affiliates may be entitled for any
loss or injury incurred with respect to any such termination. Prior to any
termination of this Agreement by Parent pursuant to Section 8.4(i) or by Sub
pursuant to Section 8.5(i), Parent and Sub shall pay Purchaser the Termination
Fee, payable by wire transfer of immediately available funds in the respective
proportions set forth below, and such payment shall constitute Purchaser's and
its affiliates exclusive remedy and be a limit on any damages to which Purchaser
and such affiliates may be entitled for any loss or injury incurred with respect
to any such termination. Parent and Sub acknowledge that the agreements
contained in this Section 9.1(b) are an integral part of the transactions
contemplated by this Agreement, that Parent and Sub will derive substantial
benefits from the transactions involving Sub contemplated by this Agreement, and
that, without the agreements contained in this Section 9.1(b), Purchaser would
not enter into this Agreement; accordingly, if Parent or Sub fails to promptly
pay any amount due pursuant to this Section 9.1(b), and, in order to obtain such
payment, Purchaser commences a suit which results in a judgment against Parent
or Sub for the applicable portion of the Termination Fee or damages in excess
thereof (to the extent permitted hereunder), Parent or Sub, as applicable, shall
also pay to Purchaser its costs and expenses (including reasonable attorneys'
fees) in connection with such suit, together with interest on the amount of the
Termination Fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made. If Purchaser terminates this Agreement pursuant
to Section 8.3(a), (b), (d) or (e), or if Purchaser terminates this Agreement
pursuant to Section 8.3(c) or (f) and is entitled to be paid the Termination
Fee, or if Parent terminates this Agreement pursuant to Section 8.4(i), or if
Sub terminates this Agreement pursuant to Section 8.5(i), then 80% of the
Termination Fee shall be paid to Purchaser by Parent and 20% of the Termination
Fee shall be paid to Purchaser by Sub. Notwithstanding the foregoing, if the
breach by Parent which gave rise to the ability to terminate this Agreement
under Section 8.3(b) or (c) or if the breach by Sub which gave rise to the
ability to terminate this Agreement under Section 8.3(e) or (f) constituted a
bad faith attempt by Parent or Sub to avoid its contractual obligations under
this Agreement, nothing in this Agreement shall limit the relief (in addition to
the Termination Fee) which Purchaser shall be entitled to recover under
applicable law. A good faith dispute as to whether the Termination Fee is
payable shall not constitute evidence of such bad faith.
(c) In the event that this Agreement is terminated by
Parent pursuant to Section 8.4(ii) or by Sub pursuant to Section 8.5(ii),
Purchaser shall pay Parent and Sub an aggregate amount equal to the Termination
Fee, payable by wire transfer in immediately available funds, within one (1)
business day of the date of such termination, payable 80% to Parent and 20% to
Sub, and such payment shall constitute Parent's and Sub's any of their
respective affiliates' exclusive remedy and be a limit on any damages to which
Parent or any such affiliate may be entitled for any loss or injury incurred
with respect to any such termination or breach or failure to perform that gave
rise to such termination. Notwithstanding the foregoing, if the breach by
Purchaser which gave rise to the ability to terminate this Agreement under
Section 8.4(ii) or 8.5(ii) constituted a bad faith attempt by Purchaser to avoid
its contractual obligations under this Agreement, nothing in this Agreement
shall limit the relief (in addition to the Termination Fee) which Parent or Sub
shall be entitled to recover under
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applicable law. A good faith dispute as to whether the Termination Fee is
payable shall not constitute evidence of such bad faith. Purchaser acknowledges
that the agreements contained in this Section 9.1(c) are an integral part of the
transactions contemplated by this Agreement, that Purchaser will derive
substantial benefits from the transactions contemplated by this Agreement, and
that, without the agreements contained in this Section 9.1(c), Parent and Sub
would not enter into this Agreement; accordingly, if Purchaser fails to promptly
pay any amount due pursuant to this Section 9.1(c), and, in order to obtain such
payment, Parent or Sub commences a suit which results in a judgment against
Purchaser for the Termination Fee or damages in excess thereof (to the extent
permitted hereunder), Purchaser shall also pay to Parent or Sub, as applicable,
its costs and expenses (including reasonable attorneys' fees but only for the
attorneys of either Parent or Sub, as the case may be, and not both) in
connection with such suit, together with interest on the amount of the
Termination Fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made.
9.2 Survival. The representations, warranties, agreements and
covenants in this Agreement shall not survive the consummation of the Sub Merger
and the Parent Merger or the termination of this Agreement unless the terms of a
specific agreement or covenant specify otherwise, in which case it shall survive
in accordance with its terms. Without limiting the foregoing, the provisions of
Section 6.2(f) shall survive the consummation of the Sub Merger and the Parent
Merger.
9.3 Cooperation. The Parties will cooperate with one another
in effecting the transactions contemplated hereby, in the making of all
necessary governmental filings (including, without limitation, filings with any
applicable taxing authority) and in connection with the prosecution or defense
of any investigation, claim, suit, arbitration or other proceeding brought by or
against any governmental authority or other third party.
9.4 Modification or Amendment. Subject to the applicable
provisions of the PABCL, at any time prior to the Parent Effective Time or Sub
Effective Time, as applicable, the Parties hereto may modify or amend this
Agreement, by written agreement executed and delivered by duly authorized
officers of the respective Parties.
9.5 Waiver of Conditions. The conditions to each of the
Parties' obligations to consummate the transactions contemplated hereby are for
the sole benefit of such Party and may be waived by such Party in whole or in
part to the extent permitted hereby and by applicable law.
9.6 Counterparts and Facsimile Signatures. For the convenience
of the Parties hereto, this Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
Execution of this Agreement may be made by facsimile signature which, for all
purposes, shall be deemed to be an original signature.
9.7 GOVERNING LAW; JURISDICTION; AND SERVICE OF PROCESS.
EXCEPT AS EXPRESSLY SET FORTH BELOW, THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
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APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. IN ADDITION, EACH OF THE
PARENT, THE PURCHASER AND ACQUISITION SUB HEREBY AGREE THAT ANY DISPUTE ARISING
OUT OF THIS AGREEMENT OR THE MERGER SHALL BE HEARD IN THE COURT OF COMMON PLEAS,
COUNTY OF CHESTER, OF THE COMMONWEALTH OF PENNSYLVANIA, OR IN THE UNITED STATES
DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA AND, IN CONNECTION
THEREWITH, EACH PARTY TO THIS AGREEMENT HEREBY CONSENTS TO THE JURISDICTION OF
SUCH COURTS AND AGREES THAT ANY SERVICE OF PROCESS IN CONNECTION WITH ANY
DISPUTE ARISING OUT OF THIS AGREEMENT OR THE MERGER MAY BE GIVEN TO ANY OTHER
PARTY HERETO BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, AT THE RESPECTIVE
ADDRESSES SET FORTH IN SECTION 9.8 BELOW.
9.8 Notices. Any notice, request, instruction or other
document to be given hereunder by any party to the others shall be in writing
and shall be deemed delivered upon receipt, if to Purchaser, Acquisition Sub One
or Acquisition Sub Two, addressed to Purchaser, Acquisition Sub One or
Acquisition Sub Two, as the case may be, Attention: Barry D. Romeril, P.O. Box
1600, 800 Long Ridge Road, Stamford, CT 06904, facsimile: (203) 968-3633 (with a
copy to Attention: Richard S. Paul, facsimile: (203) 968-3446; and with a copy
to Nixon, Hargrave, Devans & Doyle LLP, 437 Madison Avenue, New York, NY
10022-7001, Attention: Richard F. Langan, Esq., facsimile (212) 940-3111); and
if to the Parent, addressed to the Parent c/o Pepper Hamilton LLP, 3000 Two
Logan Square, Philadelphia, Pennsylvania 19103-2799, Attention Barry M. Abelson,
facsimile (215) 981-4750 (with a copy to Pepper Hamilton LLP, 3000 Two Logan
Square, Philadelphia, PA 19103-2799, Attention: Elam M. Hitchner, III, Esq.,
facsimile (215) 981-4750); and if to the Sub, addressed to the Sub at 411
Eagleview Boulevard, Exton, Pennsylvania 19341, Attention: Timothy W. Wallace,
facsimile (610) 458-6530 (with a copy to McCausland, Keen & Buckman, Radnor
Court, 259 Radnor-Chester Road, Suite 160, Radnor, Pennsylvania 19087-5240,
Attention Robert H. Young, facsimile (610) 341-1099); or to such other Persons
or addresses as may be designated in writing by the party to receive such
notice.
9.9 Entire Agreement, etc. This Agreement (including any
schedules, exhibits or Annexes hereto) and the Confidentiality Agreement (i)
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties both written and oral among the
parties, with respect to the subject matter hereof, (ii) shall not be assignable
by operation of law or otherwise and are not intended to create any obligations
to, or rights in respect of, any Persons other than the parties hereto;
provided, however, Purchaser may cause Acquisition Sub One and/or Acquisition
Sub Two to assign its rights and obligations hereunder to Purchaser or any other
wholly-owned subsidiary of Purchaser, but no such assignment shall relieve
Purchaser, Acquisition Sub One and Acquisition Sub Two of their obligations
hereunder.
9.10 Obligation of Purchaser. Whenever this Agreement requires
Acquisition Sub One or Acquisition Sub Two to take any action (including,
without limitation, the making of payment for the Parent Shares or the Sub
Shares), such requirement shall be deemed to include an undertaking on the part
of Purchaser to cause Acquisition Sub One and/or Acquisition Sub Two to take
such action.
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9.11 Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
9.12 Specific Performance. The parties hereto agree that if
any of the provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist, and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
9.13 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect except to the extent that the enforcement of such remaining provisions
would be inequitable.
9.14 Certain Definitions. (a) As used herein, the term
"knowledge" of a particular Person shall mean the actual knowledge of any such
individual or the actual knowledge of the executive officers (which, or purposes
hereof, shall mean those individuals who are required to file reports under
Section 16(a) of the Exchange Act) of any Person which is a corporation or other
entity.
(b) As used in this Agreement, the following terms shall have
the meanings set forth below:
"Acquisition Agreement" is defined in Section 6.1(b)(2).
"Acquisition Proposal" is defined in Section 6.1(b)(1).
"Acquisition Sub One" means TDC Subsidiary Corporation, a
Pennsylvania corporation.
"Acquisition Sub Two" means TDC Two Subsidiary Corporation, a
Pennsylvania corporation.
"Agreed Upon Procedures Letter" is defined in Section 7.2(j).
"Auditors" is defined in Section 7.2(j).
"Confidentiality Agreement" is defined in Section 6.2(a).
"D & O Insurance" is defined in Section 6.2(f)(iv).
"Disclosure Letter" is defined in Section 5.1.
"Employee Benefit Plans" is defined in Section 5.1(r)(II).
"Environmental Laws" is defined in Section 5.1(o).
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"ERISA" is defined in Section 5.1(r)(II).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" is defined in Section 5.1(f).
"HSR Act" is defined in Section 5.1(d).
"IBMCC" is defined in Section 6.1(i).
"Indemnification Agreements" is defined in Section 6.2(f)(i).
"Indemnified Parties" is defined in Section 6.2(f)(i).
"Independent Committee" means the Independent Committee of the
Sub Board.
"Intellectual Property" is defined in Section 5.1(q).
"IRC" is defined in Section 5.1(r)(IV).
"January 1998 Financial Statements" is defined in Section
7.2(j).
"Lazard" is defined in Section 5.1(k).
"Material Adverse Change" means a material adverse effect on
the assets, property, prospects, business condition (financial or otherwise) or
results of operations of either Parent and the Parent Subsidiaries (including
Sub and the Sub Subsidiaries) taken as a whole or Sub and the Sub Subsidiaries
taken as a whole, or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. Whenever a representation,
warranty, covenant, agreement or condition involves a determination as to
whether there has been a Material Adverse Change, the market price of Parent
Common Stock and Sub Common Stock on NASDAQ shall not constitute evidence as to
whether or not a Material Adverse Change has occurred.
"Maximum Premium" is defined in Section 6.2(f)(iv).
"Montgomery" is defined in Section 5.1(k).
"Most Recent Financial Statements" is defined in
Section 7.2(j).
"NASDAQ" is defined in Section 6.1(d).
"Order" is defined in Section 7.1(d).
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"PABCL" is defined in Section 1.1.
"Parent" means Intelligent Electronics, Inc., a Pennsylvania
corporation.
"Parent Articles of Merger" is defined in Section 2.8.
"Parent Board" is defined in the recitals.
"Parent Closing" is defined in Section 2.7.
"Parent Common Stock" is defined in Section 5.1(b)(I).
"Parent Dissenting Shares" is defined in Section 2.9.
"Parent Effective Time" is defined in Section 2.8.
"Parent Fairness Opinion" is defined in Section 5.1(l).
"Parent Merger" is defined in the recitals.
"Parent Most Recent Quarter End" is defined in Section
5.1(f)(I).
"Parent Option Conversion Price" is defined in Section 2.4.
"Parent Options" is defined in Section 2.2(ii).
"Parent-Owned Sub Shares" is defined in Section 1.2(i).
"Parent Preferred Stock" is defined in Section 5.1(b).
"Parent Share Conversion Price" is defined in Section 2.3.
"Parent Shares" is defined in Section 2.2(i).
"Parent Subsidiaries" is defined in Section 5.1(a).
"Parent Surviving Corporation" is defined in Section 2.1.
"Parent 10-K" is defined in Section 5.1(f)(I).
"Parent 10-Q" is defined in Section 5.1(f)(I).
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"Party" is defined in the introduction.
"Paying Agent" is defined in Section 1.5.
"Payment Funds" is defined in Section 5.2(e).
"Permits" is defined in Section 5.1(a).
"Person" means an individual, a partnership (general or
limited), a joint venture, a corporation, a trust, an unincorporated
organization, a limited liability company, a group and a government or other
department or agency thereof.
"Proxy Statement" is defined in Section 6.1(c).
"Public Reports" is defined in Section 5.1(e).
"Purchaser" means Xerox Corporation, a New York corporation.
"Purchaser Companies" means Purchaser and all direct and
indirect subsidiaries thereof.
"Rights Agreement" means the Rights Agreement dated as of
March 22, 1996 between Parent and Chemical Mellon Shareholder Services L.L.C.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" is defined in Section 5.1(d).
"Stock Rights" is defined in Section 5.1(b)(I).
"Stockholders Meeting" is defined in Section 6.1(c).
"Sub" means XLConnect Solutions, Inc., a Pennsylvania
corporation.
"Sub Articles of Merger" is defined in Section 1.8.
"Sub Board" is defined in the recitals.
"Sub Closing" is defined in Section 1.7.
"Sub Common Stock" is defined in Section 5.1(b)(II).
"Sub Dissenting Shares" is defined in Section 1.9.
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"Sub Effective Time" is defined in Section 1.8.
"Sub Fairness Opinion" is defined in Section 5.1(l).
"Sub Merger" is defined in the recitals.
"Sub Most Recent Quarter End" is defined in Section
5.1(f)(II).
"Sub Option Conversion Price" is defined in Section 1.4.
"Sub Options" is defined in Section 1.2(ii).
"Sub Plan" is defined in Section 5.1(r)(I).
"Sub Preferred Stock " is defined in Section 5.1(b)(II).
"Sub Share Conversion Price" is defined in Section 1.3.
"Sub Shares" is defined in Section 1.2(i).
"Sub Subsidiaries" means all direct and indirect subsidiaries
of Sub.
"Sub Surviving Corporation" is defined in Section 1.1.
"Sub 10-K" is defined in Section 5.1(f)(II).
"Sub 10-Q" is defined in Section 5.1(f)(II).
"Superior Proposal" is defined in Section 6.1(b)(2).
"Takeover Statutes" is defined in Section 6.1(f).
"Taxes" is defined in Section 5.1(j)(I).
"Termination Fee" is defined in Section 9.1(b).
"XLC Plan" is defined in Section 6.1(g)(iii).
"XLSource Transition Plan" means the plan Parent has
previously delivered to Purchaser regarding the pending transition of certain
business of XLSource, Inc.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first hereinabove written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Richard D. Sanford
--------------------------
Title: Chairman and CEO
XLCONNECT SOLUTIONS, INC.
By: /s/ Richard D. Sanford
--------------------------
Title: Chairman
XEROX CORPORATION
By: /s/ W. F. Buehler
--------------------------
Title: Executive Vice President
TDC SUBSIDIARY CORPORATION
By: /s/ Charles P. Gilliam
--------------------------
Title: President
TDC TWO SUBSIDIARY CORPORATION
By: /s/ Charles P. Gilliam
--------------------------
/s/ Charles P. Gilliam
Title: President
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APPENDIX B
[Letterhead of NationsBanc Montgomery Securities]
March 2, 1998
Independent Committee of the Board of Directors
XLConnect Solutions, Inc.
One Rosemont Business Campus, Suite 301
919 Conestoga Road
Rosemont, PA 19010
Ladies and Gentlemen:
We understand that Xerox Corporation, a New York corporation ("Buyer"),
TDC Subsidiary Corporation, a Pennsylvania corporation and a wholly-owned
subsidiary of Buyer ("Acquisition Sub One"), TDC Two Subsidiary Corporation, a
Pennsylvania corporation and a wholly-owned subsidiary of Buyer ("Acquisition
Sub Two"), Intelligent Electronics, Inc., a Pennsylvania corporation ("IE"), and
XLConnect Solutions, Inc., a Pennsylvania corporation ("Seller"), propose to
enter into an Agreement and Plan of Merger, a draft of which, dated February 17,
1998, has been provided to us by management of Seller (the "Merger Agreement"),
pursuant to which (i) Seller will be merged with and into Acquisition Sub One,
with Seller as the surviving entity (the "Merger"), and (ii) IE will be merged
with and into Acquisition Sub Two, with IE as the surviving entity. Pursuant to
the Merger, as more fully described in the Merger Agreement and as further
described to us by management of Seller, we understand that each outstanding
share of the common stock, $0.01 par value per share ("Seller Common Stock"), of
Seller, other than the shares of Seller Common Stock owned directly or
indirectly by IE, will be converted into and exchangeable for $20.00 (the
"Consideration"). The terms and conditions of the Merger are set forth in more
detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be received by the holders of Seller Common Stock (other than
the Seller Common Stock owned directly or indirectly by IE) pursuant to the
Merger is fair to such shareholders from a financial point of view, as of the
date hereof. As you are aware, we were not retained to nor did we advise Seller
with respect to alternatives to the Merger or Seller's underlying decision to
proceed with or effect the Merger. Further, we were not requested to nor did we
solicit or assist Seller in soliciting indications of interest from third
parties for all or any part of Seller.
In connection with our opinion, we have, among other things: (i)
reviewed publicly available financial and other data with respect to Seller,
including the consolidated financial statements for recent years and interim
periods to September 30,
<PAGE>
INDEPENDENT COMMITTEE OF THE BOARD OF DIRECTORS
XL CONNECT SOLUTIONS, INC.
MARCH 2, 1998
PAGE TWO
1997, and certain other relevant financial and operating data relating to Seller
made available to us from published sources and from the internal records of
Seller; (ii) reviewed the financial terms and conditions of the February 17,
1998 draft of the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, Seller Common
Stock; (iv) compared Seller from a financial point of view with certain other
companies in the general information technology services industry which we
deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of selected recent business combinations of companies in the
general information technology services industry which we deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of Seller certain information of a business
and financial nature regarding Seller, furnished to us by them, including
financial forecasts and related assumptions of Seller; (vii) made inquiries
regarding and discussed the Merger and the Merger Agreement and other matters
related thereto with Seller's counsel; and (viii) performed such other analyses
and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller provided to us by management of Seller, upon their advice
and with your consent we have assumed for purposes of our opinion that the
forecasts have been reasonably prepared on bases reflecting the best available
estimates and judgments of Seller's management at the time of preparation as to
the future financial performance of Seller and that they provide a reasonable
basis upon which we can form our opinion. We have also assumed that there have
been no material changes in Seller's assets, financial condition, results of
operations, business or prospects since the date of the last financial
statements made available to us. We have relied on advice of counsel and
independent accountants to Seller as to all legal and financial reporting
matters with respect to Seller, the Merger and the Merger Agreement. We have
assumed that the Merger will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Exchange Act of 1934
and all other applicable federal and state statutes, rules and regulations. In
addition, we have not assumed responsibility for making an independent
evaluation, appraisal or physical inspection of any of the assets or liabilities
(contingent or otherwise) of Seller, nor have we been furnished with any such
appraisals. Finally, our opinion is based on economic, monetary and market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. Accordingly, although subsequent developments may affect
this opinion, we have not assumed any obligation to update, revise or reaffirm
this opinion.
<PAGE>
INDEPENDENT COMMITTEE OF THE BOARD OF DIRECTORS
XL CONNECT SOLUTIONS, INC.
MARCH 2, 1998
PAGE THREE
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Seller of any of
the conditions to its obligations thereunder.
We have acted as financial advisor to Seller in connection with the
Merger and will receive a fee for our services, including rendering this
opinion. In the ordinary course of our business, we actively trade the equity
securities of Seller for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with the initial public
offering of Seller Common Stock and performed various investment banking
services for Seller.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the holders of
Seller Common Stock (other than Seller Common Stock owned directly or indirectly
by IE) pursuant to the Merger is fair to such shareholders from a financial
point of view, as of the date hereof.
This opinion is directed to the Independent Committee of the Board of
Directors of Seller in its consideration of the Merger and is not a
recommendation to any shareholder as to how such shareholder should vote with
respect to the Merger. Further, this opinion addresses only the financial
fairness of the Consideration to be received by the holders of Seller Common
Stock (other than shares of Seller Common Stock owned directly or indirectly by
IE) and does not address the relative merits of the Merger and any alternatives
to the Merger, Seller's underlying decision to proceed with or affect the Merger
or any other aspect of the Merger. Seller is authorized to disclose in full and
refer to this opinion in any information statement or proxy statement prepared
in connection with the Merger, provided that we expressly approve all statements
in such documents relating to this opinion. Seller may not disclose, quote, use
or refer to this opinion in any manner for any other purpose without our express
prior written consent.
Very truly yours,
/s/ NationsBanc Montgomery Securities LLC
<PAGE>
APPENDIX C
15 Pa.C.S.A. Section 1571
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1571 Application and effect of subchapter.--
(a) General rule.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on transfer
of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
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Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the holders of the shares
of any class or series of shares that, at the record date fixed to determine the
shareholders entitled to notice of and to vote at the meeting at which a plan
specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be voted on,
are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be available
without regard to the exception provided in that paragraph in the case of:
(i) Shares converted by a plan if the shares are not converted solely into
shares of the acquiring, surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles, the plan
or the terms of the transaction entitle all shareholders of the class to vote
thereon and require for the adoption of the plan or the effectuation of the
transaction the affirmative vote of a majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c) (relating to
dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation and
with or without the intervention of another corporation or other person, shall
not be entitled to the rights and remedies of dissenting shareholders provided
in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholder to dissenters rights.
(d) Notice of dissenters rights.--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
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(1) A statement of the proposed action and a statement that the shareholders
have a right to dissent and obtain payment of the fair value of their shares by
complying with the terms of this subchapter; and
(2) A copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall also be applicable
to any transaction described in any statute other than this part that makes
reference to this subchapter for the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective.--This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to restriction on equitable
relief), 1904 (relating to de facto transaction doctrine abolished) and 2512
(relating to dissenters rights procedure).
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15 Pa.C.S.A. Section 1572
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1572 Definitions.--
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter before
the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation of
the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
"Interest." Interest from the effective date of the corporate action until the
date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
4
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15 Pa.C.S.A. Section 1573
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1573 Record and beneficial holders and owners.--
(a) Record holders of shares.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
5
<PAGE>
15 Pa.C.S.A. Section 1574
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1574 Notice of intention to dissent.--
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
6
<PAGE>
15 Pa.C.S.A. Section 1575
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1575 Notice to demand payment.--
(a) General rule.--If the proposed corporate action is approved by the required
vote at a meeting of shareholders of a business corporation, the corporation
shall mail a further notice to all dissenters who gave due notice of intention
to demand payment of the fair value of their shares and who refrained from
voting in favor of the proposed action. If the proposed corporate action is to
be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and certificates
for certificated shares must be deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what extent transfer of shares
will be restricted from the time that demand for payment is received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
7
<PAGE>
15 Pa.C.S.A. Section 1576
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1576 Failure to comply with notice to demand payment, etc.--
(a) Effect of failure of shareholder to act.--A shareholder who fails to timely
demand payment, or fails (in the case of certificated shares) to timely deposit
certificates, as required by a notice pursuant to section 1575 (relating to
notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not represented by
certificates, the business corporation may restrict their transfer from the time
of receipt of demand for payment until effectuation of the proposed corporate
action or the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
8
<PAGE>
15 Pa.C.S.A. Section 1577
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1577 Release of restrictions or payment for shares.--
(a) Failure to effectuate corporate action.--Within 60 days after the date set
for demanding payment and depositing certificates, if the business corporation
has not effectuated the proposed corporate action, it shall return any
certificates that have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.--When uncertificated shares have been
released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of the
shares held or owned by the dissenter for a fiscal year ending not more than 16
months before the date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the shares.
(3) A notice of the right of the dissenter to demand payment or supplemental
payment, as the case may be, accompanied by a copy of this subchapter.
(d) Failure to make payment.--If the corporation does not remit the amount of
its estimate of the fair value of the shares as provided by subsection (c), it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation
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<PAGE>
may make a notation on any such certificate or on the records of the corporation
relating to any such uncertificated shares that such demand has been made. If
shares with respect to which notation has been so made shall be transferred,
each new certificate issued therefor or the records relating to any transferred
uncertificated shares shall bear a similar notation, together with the name of
the original dissenting holder or owner of such shares. A transferee of such
shares shall not acquire by such transfer any rights in the corporation other
than those that the original dissenter had after making demand for payment of
their fair value.
10
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15 Pa.C.S.A. Section 1578
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1578 Estimate by dissenter of fair value of shares.--
(a) General rule.--If the business corporation gives notice of its estimate of
the fair value of the shares, without remitting such amount, or remits payment
of its estimate of the fair value of a dissenter's shares as permitted by
section 1577(c) (relating to payment of fair value of shares) and the dissenter
believes that the amount stated or remitted is less than the fair value of his
shares, he may send to the corporation his own estimate of the fair value of the
shares, which shall be deemed a demand for payment of the amount or the
deficiency.
(b) Effect of failure to file estimate.--Where the dissenter does not file his
own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
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<PAGE>
15 Pa.C.S.A. Section 1579
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1579 Valuation proceedings generally.--
(a) General rule.--Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575 (relating to
notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever residing, whose
demands have not been settled shall be made parties to the proceeding as in an
action against their shares. A copy of the application shall be served on each
such dissenter. If a dissenter is a nonresident, the copy may be served on him
in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the court shall be plenary
and exclusive. The court may appoint an appraiser to receive evidence and
recommend a decision on the issue of fair value. The appraiser shall have such
power and authority as may be specified in the order of appointment or in any
amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be entitled
to recover the amount by which the fair value of his shares is found to exceed
the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
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may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
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15 Pa.C.S.A. Section 1580
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1580 Costs and expenses of valuation proceedings.--
(a) General rule.--The costs and expenses of any proceeding under section 1579
(relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
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15 Pa.C.S.A. Section 1906
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 19. FUNDAMENTAL CHANGES
SUBCHAPTER A. PRELIMINARY PROVISIONS
Current through Act 1997-50
1906 Special treatment of holders of shares of same class or series.--
(a) General rule.--Except as otherwise restricted in the articles, an amendment
or plan may contain a provision classifying the holders of shares of a class or
series into one or more separate groups by reference to any facts or
circumstances that are not manifestly unreasonable and providing mandatory
treatment for shares of the class or series held by particular shareholders or
groups of shareholders that differs materially from the treatment accorded other
shareholders or groups of shareholders holding shares of the same class or
series (including a provision modifying or rescinding rights previously created
under this section) if:
(1)(i) such provision is specifically authorized by a majority of the votes
cast by all shareholders entitled to vote on the amendment or plan, as well as
by a majority of the votes cast by any class or series of shares any of the
shares of which are so classified into groups, whether or not such class or
series would otherwise be entitled to vote on the amendment or plan; and
(ii) the provision voted on specifically enumerates the type and extent of
the special treatment authorized; or
(2) under all the facts and circumstances, a court of competent jurisdiction
finds such special treatment is undertaken in good faith, after reasonable
deliberation and is in the best interest of the corporation.
(b) Statutory voting rights upon special treatment.--Except as provided in
subsection (c), if an amendment or plan contains a provision for special
treatment, each group of holders of any outstanding shares of a class or series
who are to receive the same special treatment under the amendment or plan shall
be entitled to vote as a special class in respect to the plan regardless of any
limitations stated in the articles or bylaws on the voting rights of any class
or series.
(c) Dissenters rights upon special treatment.--If any amendment or plan
contains a provision for special treatment without requiring for the adoption of
the amendment or plan the statutory class vote required by subsection (b), the
holder of any outstanding shares the statutory class voting rights of which are
so denied, who objects to the
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amendment or plan and complies with Subchapter D of Chapter 15 (relating to
dissenters rights), shall be entitled to the rights and remedies of dissenting
shareholders provided in that subchapter.
(d) Exceptions.--This section shall not apply to:
(1) The creation or issuance of securities, contracts, warrants or other
instruments evidencing any shares, option rights, securities having conversion
or option rights or obligations authorized by section 2513 (relating to
disparate treatment of certain persons).
(2) A provision of an amendment or plan that offers to all holders of shares
of a class or series the same option to elect certain treatment.
(3) An amendment or plan that contains an express provision that this section
shall not apply or that fails to contain an express provision that this section
shall apply. The shareholders of a corporation that proposes an amendment or
plan to which this section is not applicable by reason of this paragraph shall
have the remedies contemplated by section 1105 (relating to restriction on
equitable relief).
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APPENDIX D
WHEREAS, the Board of Directors has determined that it is
advisable and in the best interests of the shareholders of the Corporation that
the Corporation amend its Articles of Incorporation to discontinue the
applicability of Subchapter E of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988;
WHEREAS, the Board of Directors has determined that such
amendment to the Company's Articles of Incorporation should not be made
effective unless the Agreement and Plan of Merger, dated as of March 4, 1998
(the "Merger Agreement"), by and between the Xerox Corporation, TDC Subsidiary
Corporation, a wholly-owned subsidiary of Xerox, TDC Two Subsidiary Corporation,
a wholly-owned subsidiary of Xerox, XLConnect and Intelligent Electronics, Inc.
is approved and adopted by the shareholders of the Company;
RESOLVED, that the Corporation's Articles of Incorporation, as
amended, be amended by adding thereto the following Article:
"8. Control Transactions. Subchapter E - "Control
Transactions" of Chapter 25 of the Pennsylvania Business Corporation Law of 1988
as existing on the date of adoption of this Article 8 or as may be thereafter
amended, shall not be applicable to the Corporation."
RESOLVED, that the foregoing resolution be of no force and
effect and that the amendment of the Articles of Incorporation of the
Corporation not be made effective in the event that the Merger Agreement has not
been approved and adopted by the shareholders of the Corporation.
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APPENDIX E
15 Pa.C.S.A. Section 2541
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE C. DOMESTIC BUSINESS CORPORATION ANCILLARIES
CHAPTER 25. REGISTERED CORPORATIONS
SUBCHAPTER E. CONTROL TRANSACTIONS
Current through Act 1997-50
2541 Application and effect of subchapter.--
(a) General rule.--Except as otherwise provided in this section, this
subchapter shall apply to a registered corporation unless:
(1) the registered corporation is one described in section 2502(1)(ii) or (2)
(relating to registered corporation status):
(2) the bylaws, by amendment adopted either:
(i) by March 23, 1984; or
(ii) on or after March 23, 1988, and on or before June 21, 1988;
and, in either event, not subsequently rescinded by an article amendment,
explicitly provide that this subchapter shall not be applicable to the
corporation in the case of a corporation which on June 21, 1988, did not have
outstanding one or more classes or series of preference shares entitled, upon
the occurrence of a default in the payment of dividends or another similar
contingency, to elect a majority of the members of the board of directors (a
bylaw adopted on or before June 21, 1988, by a corporation excluded from the
scope of this paragraph by the restriction of this paragraph relating to certain
outstanding preference shares shall be ineffective unless ratified under
paragraph (3));
(3) the bylaws of which explicitly provide that this subchapter shall not be
applicable to the corporation by amendment ratified by the board of directors on
or after December 19, 1990, and on or before March 19, 1991, in the case of a
corporation:
(i) which on June 21, 1988, had outstanding one or more classes or series of
preference shares entitled, upon the occurrence of a default in the payment of
dividends or another similar contingency, to elect a majority of the members of
the board of directors; and
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(ii) the bylaws of which on that date contained a provision described in
paragraph (2); or
(4) the articles explicitly provide that this subchapter shall not be
applicable to the corporation by a provision included in the original articles,
by an article amendment adopted prior to the date of the control transaction and
prior to or on March 23, 1988, pursuant to the procedures then applicable to the
corporation, or by an article amendment adopted prior to the date of the control
transaction and subsequent to March 23, 1988, pursuant to both:
(i) the procedures then applicable to the corporation; and
(ii) unless such proposed amendment has been approved by the board of
directors of the corporation, in which event this subparagraph shall not be
applicable, the affirmative vote of the shareholders entitled to cast at least
80% of the votes which all shareholders are entitled to cast thereon.
A reference in the articles or bylaws to former section 910 (relating to right
of shareholders to receive payment for shares following a control transaction)
of the act of May 5, 1933 (P.L. 364, No. 106), known as the Business Corporation
Law of 1933, shall be a reference to this subchapter for the purposes of this
section. See section 101(c) (relating to references to prior statutes).
(b) Inadvertent transactions.--This subchapter shall not apply to any person or
group that inadvertently becomes a controlling person or group if that
controlling person or group, as soon as practicable, divests itself of a
sufficient amount of its voting shares so that it is no longer a controlling
person or group.
(c) Certain subsidiaries.--This subchapter shall not apply to any corporation
that on December 23, 1983, was a subsidiary of any other corporation.
2
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15 Pa.C.S.A. Section 2542
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE C. DOMESTIC BUSINESS CORPORATION ANCILLARIES
CHAPTER 25. REGISTERED CORPORATIONS
SUBCHAPTER E. CONTROL TRANSACTIONS
Current through Act 1997-50
2542 Definitions.--
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Control transaction." The acquisition by a person or group of the status of a
controlling person or group.
"Controlling person or group." A controlling person or group as defined in
section 2543 (relating to controlling person or group).
"Fair value." A value not less than the highest price paid per share by the
controlling person or group at any time during the 90-day period ending on and
including the date of the control transaction plus an increment representing any
value, including, without limitation, any proportion of any value payable for
acquisition of control of the corporation, that may not be reflected in such
price.
"Partial payment amount." The amount per share specified in section 2545(c)(2)
(relating to contents of notice).
"Subsidiary." Any corporation as to which any other corporation has or has the
right to acquire, directly or indirectly, through the exercise of all warrants,
options and rights and the conversion of all convertible securities, whether
issued or granted by the subsidiary or otherwise, voting power over voting
shares of the subsidiary that would entitle the holders thereof to cast in
excess of 50% of the votes that all shareholders would be entitled to cast in
the election of directors of such subsidiary, except that a subsidiary will not
be deemed to cease being a subsidiary as long as such corporation remains a
controlling person or group within the meaning of this subchapter.
"Voting shares." The term shall have the meaning specified in section 2552
(relating to definitions).
3
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15 Pa.C.S.A. Section 2543
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE C. DOMESTIC BUSINESS CORPORATION ANCILLARIES
CHAPTER 25. REGISTERED CORPORATIONS
SUBCHAPTER E. CONTROL TRANSACTIONS
Current through Act 1997-50
2543 Controlling person or group.--
(a) General rule.--For the purpose of this subchapter, a "controlling person or
group" means a person who has, or a group of persons acting in concert that has,
voting power over voting shares of the registered corporation that would entitle
the holders thereof to cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the corporation.
(b) Exceptions generally.--Notwithstanding subsection (a):
(1) A person or group which would otherwise be a controlling person or group
within the meaning of this section shall not be deemed a controlling person or
group unless, subsequent to the later of March 23, 1988, or the date this
subchapter becomes applicable to a corporation by bylaw or article amendment or
otherwise, that person or group increases the percentage of outstanding voting
shares of the corporation over which it has voting power to in excess of the
percentage of outstanding voting shares of the corporation over which that
person or group had voting power on such later date, and to at least the amount
specified in subsection (a), as the result of forming or enlarging a group or
acquiring, by purchase, voting power over voting shares of the corporation.
(2) No person or group shall be deemed to be a controlling person or group at
any particular time if voting power over any of the following voting shares is
required to be counted at such time in order to meet the 20% minimum:
(i) Shares which have been held continuously by a natural person since
January 1, 1983, and which are held by such natural person at such time.
(ii) Shares which are held at such time by any natural person or trust,
estate, foundation or other similar entity to the extent the shares were
acquired solely by gift, inheritance, bequest, devise or other testamentary
distribution or series of these transactions, directly or indirectly, from a
natural person who had acquired the shares prior to January 1, 1983.
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(iii) Shares which were acquired pursuant to a stock split, stock dividend,
reclassification or similar recapitalization with respect to shares described
under this paragraph that have been held continuously since their issuance by
the corporation by the natural person or entity that acquired them from the
corporation or that were acquired, directly or indirectly, from such natural
person or entity, solely pursuant to a transaction or series of transactions
described in subparagraph (ii), and that are held at such time by a natural
person or entity described in subparagraph (ii).
(iv) Control shares as defined in section 2562 (relating to definitions)
which have not yet been accorded voting rights pursuant to section 2564(a)
(relating to voting rights of shares acquired in a control-share acquisition).
(v) Shares, the voting rights of which are attributable to a person under
subsection (d) if:
(A) the person acquired the option or conversion right directly from or
made the contract, arrangement or understanding or has the relationship directly
with the corporation; and
(B) the person does not at the particular time own or otherwise
effectively possess the voting rights of the shares.
(vi) Shares acquired directly from the corporation or an affiliate or
associate, as defined in section 2552 (relating to definitions), of the
corporation by a person engaged in business as an underwriter of securities who
acquires the shares through his participation in good faith in a firm commitment
underwriting registered under the Securities Act of 1933.
(3) In determining whether a person or group is or would be a controlling
person or group at any particular time, there shall be disregarded voting power
arising from a contingent right of the holders of one or more classes or series
of preference shares to elect one or more members of the board of directors upon
or during the continuation of a default in the payment of dividends on such
shares or another similar contingency.
(c) Certain record holders.--A person shall not be a controlling person under
subsection (a) if the person holds voting power, in good faith and not for the
purpose of circumventing this subchapter, as an agent, bank, broker, nominee or
trustee for one or more beneficial owners who do not individually or, if they
are a group acting in concert, as a group have the voting power specified in
subsection (a), or who are not deemed a controlling person or group under
subsection (b).
(d) Existence of voting power.--For the purposes of this subchapter, a person
has voting power over a voting share if the person has or shares, directly or
indirectly, through any option, contract, arrangement, understanding, conversion
right or relationship, or by acting jointly or in concert or otherwise, the
power to vote, or to direct the voting of, the voting share.
5
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15 Pa.C.S.A. Section 2544
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE C. DOMESTIC BUSINESS CORPORATION ANCILLARIES
CHAPTER 25. REGISTERED CORPORATIONS
SUBCHAPTER E. CONTROL TRANSACTIONS
Current through Act 1997-50
2544 Right of shareholders to receive payment for shares.--
Any holder of voting shares of a registered corporation that becomes the
subject of a control transaction who shall object to the transaction shall be
entitled to the rights and remedies provided in this subchapter.
6
<PAGE>
15 Pa.C.S.A. Section 2545
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE C. DOMESTIC BUSINESS CORPORATION ANCILLARIES
CHAPTER 25. REGISTERED CORPORATIONS
SUBCHAPTER E. CONTROL TRANSACTIONS
Current through Act 1997-50
2545 Notice to shareholders.--
(a) General rule.--Prompt notice that a control transaction has occurred shall
be given by the controlling person or group to:
(1) Each shareholder of record of the registered corporation holding voting
shares.
(2) The court, accompanied by a petition to the court praying that the fair
value of the voting shares of the corporation be determined pursuant to section
2547 (relating to valuation procedures) if the court should receive pursuant to
section 2547 certificates from shareholders of the corporation or an equivalent
request for transfer of uncertificated securities.
(b) Obligations of the corporation.--If the controlling person or group so
requests, the corporation shall, at the option of the corporation and at the
expense of the person or group, either furnish a list of all such shareholders
to the person or group or mail the notice to all such shareholders.
(c) Contents of notice.--The notice shall state that:
(1) All shareholders are entitled to demand that they be paid the fair value
of their shares.
(2) The minimum value the shareholder can receive under this subchapter is the
highest price paid per share by the controlling person or group within the
90-day period ending on and including the date of the control transaction, and
stating that value.
(3) If the shareholder believes the fair value of his shares is higher, that
this subchapter provides an appraisal procedure for determining the fair value
of such shares, specifying the name of the court and its address and the caption
of the petition referenced in subsection (a)(2), and stating that the
information is provided for the possible use by the shareholder in electing to
proceed with a court-appointed appraiser under section 2547.
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There shall be included in, or enclosed with, the notice a copy of this
subchapter.
(d) Optional procedure.--The controlling person or group may, at its option,
supply with the notice referenced in subsection (c) a form for the shareholder
to demand payment of the partial payment amount directly from the controlling
person or group without utilizing the court-appointed appraiser procedure of
section 2547, requiring the shareholder to state the number and class or series,
if any, of the shares owned by him, and stating where the payment demand must be
sent and the procedures to be followed.
8
<PAGE>
15 Pa.C.S.A. Section 2546
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE C. DOMESTIC BUSINESS CORPORATION ANCILLARIES
CHAPTER 25. REGISTERED CORPORATIONS
SUBCHAPTER E. CONTROL TRANSACTIONS
Current through Act 1997-50
2546 Shareholder demand for fair value.--
(a) General rule.--after the occurrence of the control transaction, any holder
of voting shares of the registered corporation may, prior to or within a
reasonable time after the notice required by section 2545 (relating to notice to
shareholders) is given, which time period may be specified in the notice, make
written demand on the controlling person or group for payment of the amount
provided in subsection (c) with respect to the voting shares of the corporation
held by the shareholder, and the controlling person or group shall be required
to pay that amount to the shareholder pursuant to the procedures specified in
section 2547 (relating to valuation procedures).
(b) Contents of demand.--The demand of the shareholder shall state the number
and class or series, if any, of the shares owned by him with respect to which
the demand is made.
(c) Measure of value.--A shareholder making written demand under this section
shall be entitled to receive cash for each of his shares in an amount equal to
the fair value of each voting share as of the date on which the control
transaction occurs, taking into account all relevant factors, including an
increment representing a proportion of any value payable for acquisition of
control of the corporation.
(d) Purchases independent of subchapter.--The provisions of this subchapter
shall not preclude a controlling person or group subject to this subchapter from
offering, whether in the notice required by section 2545 or otherwise, to
purchase voting shares of the corporation at a price other than that provided in
subsection (c), and the provisions of this subchapter shall not preclude any
shareholder from agreeing to sell his voting shares at that or any other price
to any person.
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15 Pa.C.S.A. Section 2547
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE C. DOMESTIC BUSINESS CORPORATION ANCILLARIES
CHAPTER 25. REGISTERED CORPORATIONS
SUBCHAPTER E. CONTROL TRANSACTIONS
Current through Act 1997-50
2547 Valuation procedures.--
(a) General rule.--If, within 45 days (or such other time period, if any, as
required by applicable law) after the date of the notice required by section
2545 (relating to notice to shareholders), or, if such notice was not provided
prior to the date of the written demand by the shareholder under section 2546
(relating to shareholder demand for fair value), then within 45 days (or such
other time period, if any, required by applicable law) of the date of such
written demand, the controlling person or group and the shareholder are unable
to agree on the fair value of the shares or on a binding procedure to determine
the fair value of the shares, then each shareholder who is unable to agree on
both the fair value and on such a procedure with the controlling person or group
and who so desires to obtain the rights and remedies provided in this subchapter
shall, no later than 30 days after the expiration of the applicable 45-day or
other period, surrender to the court certificates representing any of the shares
that are certificated shares, duly endorsed for transfer to the controlling
person or group, or cause any uncertificated shares to be transferred to the
court as escrow agent under subsection (c) with a notice stating that the
certificates or uncertificated shares are being surrendered or transferred, as
the case may be, in connection with the petition referenced in section 2545 or,
if no petition has theretofore been filed, the shareholder may file a petition
within the 30-day period in the court praying that the fair value (as defined in
this subchapter) of the shares be determined.
(b) Effect of failure to give notice and surrender certificates.--Any
shareholder who does not so give notice and surrender any certificates or cause
uncertificated shares to be transferred within such time period shall have no
further right to receive, with respect to shares the certificates of which were
not so surrendered or the uncertificated shares which were not so transferred
under this section, payment under this subchapter from the controlling person or
group with respect to the control transaction giving rise to the rights of the
shareholder under this subchapter.
(c) Escrow and notice.--The court shall hold the certificates surrendered and
the uncertificated shares transferred to it in escrow for, and shall promptly,
following the expiration of the time period during which the certificates may be
surrendered and the uncertificated shares transferred, provide a notice to the
controlling person or group of the number of shares so surrendered or
transferred.
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(d) Partial payment for shares.--The controlling person or group shall then
make a partial payment for the shares so surrendered or transferred to the
court, within ten business days of receipt of the notice from the court, at a
per-share price equal to the partial payment amount. The court shall then make
payment as soon as practicable, but in any event within ten business days, to
the shareholders who so surrender or transfer their shares to the court of the
appropriate per-share amount received from the controlling person or group.
(e) Appointment of appraiser.--Upon receipt of any share certificate
surrendered or uncertificated share transferred under this section, the court
shall, as soon as practicable but in any event within 30 days, appoint an
appraiser with experience in appraising share values of companies of like nature
to the registered corporation to determine the fair value of the shares.
(f) Appraisal procedure.--The appraiser so appointed by the court shall, as
soon as reasonably practicable, determine the fair value of the shares subject
to its appraisal and the appropriate market rate of interest on the amount then
owed by the controlling person or group to the holders of the shares. The
determination of any appraiser so appointed by the court shall be final and
binding on both the controlling person or group and all shareholders who so
surrendered their share certificates or transferred their shares to the court,
except that the determination of the appraiser shall be subject to review to the
extent and within the time provided or prescribed by law in the case of other
appointed judicial officers. See 42 Pa.C.S. ss.ss. 5105(a)(3) (relating to right
to appellate review) and 5571(b) (relating to appeals generally).
(g) Supplemental payment.--Any amount owed, together with interest, as
determined pursuant to the appraisal procedures of this section shall be payable
by the controlling person or group after it is so determined and upon and
concurrently with the delivery or transfer to the controlling person or group by
the court (which shall make delivery of the certificate or certificates
surrendered or the uncertificated shares transferred to it to the controlling
person or group as soon as practicable but in any event within ten business days
after the final determination of the amount owed) of the certificate or
certificates representing shares surrendered or the uncertificated shares
transferred to the court, and the court shall then make payment, as soon as
practicable but in any event within ten business days after receipt of payment
from the controlling person or group, to the shareholders who so surrendered or
transferred their shares to the court of the appropriate per-share amount
received from the controlling person or group.
(h) Voting and dividend rights during appraisal proceedings.--Shareholders who
surrender their shares to the court pursuant to this section shall retain the
right to vote their shares and receive dividends or other distributions thereon
until the court receives payment in full for each of the shares so surrendered
or transferred of the partial payment amount (and, thereafter, the controlling
person or group shall be entitled to vote such shares and receive dividends or
other distributions thereon). The fair value (as determined by the appraiser) of
any dividends or other distributions so received by the shareholders shall be
subtracted from any amount owing to such shareholders under this section.
(i) Powers of the court.--The court may appoint such agents, including the
transfer agent of the corporation, or any other institution, to hold the share
certificates so surrendered and the shares surrendered or transferred under this
section, to effect any necessary change in record ownership of the shares after
the payment by the controlling person or group to the court of the amount
specified in subsection (h), to receive and disburse dividends or other
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<PAGE>
distributions, to provide notices to shareholders and to take such other actions
as the court determines are appropriate to effect the purposes of this
subchapter.
(j) Costs and expenses.--The costs and expenses of any appraiser or other
agents appointed by the court shall be assessed against the controlling person
or group. The costs and expenses of any other procedure to determine fair value
shall be paid as agreed to by the parties agreeing to the procedure.
(k) Jurisdiction exclusive.--The jurisdiction of the court under this
subchapter is plenary and exclusive and the controlling person or group, and all
shareholders who so surrendered or transferred their shares to the court shall
be made a party to the proceeding as in an action against their shares.
(l) Duty of corporation.--The corporation shall comply with requests for
information, which may be submitted pursuant to procedures maintaining the
confidentiality of the information, made by the court or the appraiser selected
by the court. If any of the shares of the corporation are not represented by
certificates, the transfer, escrow or retransfer of those shares contemplated by
this section shall be registered by the corporation, which shall give the
written notice required by section 1528(f) (relating to uncertificated shares)
to the transferring shareholder, the court and the controlling shareholder or
group, as appropriate in the circumstances.
(m) Payment under optional procedure.--Any amount agreed upon between the
parties or determined pursuant to the procedure agreed upon between the parties
shall be payable by the controlling person or group after it is agreed upon or
determined and upon and concurrently with the delivery of any certificate or
certificates representing such shares or the transfer of any uncertificated
shares to the controlling person or group by the shareholder.
(n) Title to shares.--Upon full payment by the controlling person or group of
the amount owed to the shareholder or to the court, as appropriate, the
shareholder shall cease to have any interest in the shares.
12
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15 Pa.C.S.A. Section 2548
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE C. DOMESTIC BUSINESS CORPORATION ANCILLARIES
CHAPTER 25. REGISTERED CORPORATIONS
SUBCHAPTER E. CONTROL TRANSACTIONS
Current through Act 1997-50
2548 Coordination with control transaction.--
(a) General rule.--A person or group that proposes to engage in a control
transaction may comply with the requirements of this subchapter in connection
with the control transaction, and the effectiveness of the rights afforded in
this subchapter to shareholders may be conditioned upon the consummation of the
control transaction.
(b) Notice.--The person or group shall give prompt written notice of the
satisfaction of any such condition to each shareholder who has made demand as
provided in this subchapter.
13
