<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
INTELLICELL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
2,500,000
- --------------------------------------------------------------------------------
(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):
$5.8125, the average of the high and low prices of Intellicell Corp.
common stock on the Nasdaq SmallCap Market on August 4, 1999.
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$19,531,250
- --------------------------------------------------------------------------------
(5) Total fee paid:
$3,907
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
INTELLICELL CORP.
9314 ETON AVENUE
CHATSWORTH, CALIFORNIA 91311
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 29, 1999
Notice is hereby given that the Annual Meeting of Stockholders of
Intellicell Corp. ("Intellicell") will be held at Intellicell's executive
offices, located at 9314 Eton Avenue, Chatsworth, California 91311, on
Wednesday, September 29, 1999 at 10:00 A.M. for the following purposes, as more
fully described in the attached Proxy Statement:
(1) To elect five directors to serve until our next annual meeting of
stockholders or until their successors are duly elected.
(2) To approve the issuance of shares of our common stock to the
stockholders of Cellular Wholesalers, Inc. ("CWI"), in accordance with the
Agreement and Plan of Merger dated as of July 23, 1999, as amended, among
Intellicell, CWI, the principal stockholders of CWI, and a wholly owned
subsidiary of Intellicell called Intellicell Merger Sub, Inc. ("Merger Sub"),
pursuant to which CWI will be merged with and into Merger Sub, with Merger Sub
surviving as a wholly owned subsidiary of Intellicell.
(3) To approve an amendment to our certificate of incorporation to
change our name to "Focus Affiliates, Inc."
(4) To approve an amendment to our certificate of incorporation to
increase the number of shares of common stock we are authorized to issue.
(5) To approve an amendment to our 1998 Stock Option Plan to increase
the number of shares of common stock we can issue upon the exercise of options
granted under the plan.
(6) To ratify the appointment by the Board of Directors of Hollander,
Lumer & Co. LLP as our independent auditors for the fiscal year ending December
31, 1999.
(7) To transact such other business as may properly be brought before
the Annual Meeting or any and all adjournments thereof.
The Board of Directors has fixed the close of business on Friday, August
13, 1999 as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting. Only stockholders at the close of
business on the record date are entitled to vote at the Annual Meeting.
Please sign, date and complete the enclosed proxy and return it promptly in
the accompanying pre-addressed envelope, whether or not you expect to attend the
Annual Meeting. A majority of the outstanding shares of common stock must be
represented (in person or by proxy) at the Annual Meeting in order that business
may be transacted. Therefore, your promptness in returning the enclosed proxy
will help to ensure a quorum is present. If you execute and return the
accompanying proxy, you may revoke it at any time before it is voted at the
Annual Meeting by following the procedures set forth in the attached Proxy
Statement.
By Order of the Board of Directors
Michael Hedge
August ___, 1999 Chief Executive Officer
PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE
<PAGE>
INTELLICELL CORP.
9314 ETON AVENUE
CHATSWORTH, CALIFORNIA 91311
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 29, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Outstanding Securities and Voting Rights. . . . . . . . . . . . . . . . . 1
Proxy Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Revocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Solicitation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PROPOSAL NO. 1--ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . 2
Nominees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Management of Intellicell . . . . . . . . . . . . . . . . . . . . . . . . 3
Arrangements and Understandings with Directors. . . . . . . . . . . . . . 4
Board Meetings and Committees . . . . . . . . . . . . . . . . . . . . . . 5
Board Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Compensation Committee Interlocks and Insider Participation . . . . . . . 5
PROPOSAL NO. 2--APPROVAL OF ISSUANCE OF SHARES IN CWI MERGER . . . . . . . . . 5
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Mechanics of the CWI Merger . . . . . . . . . . . . . . . . . . . . . . . 6
Background of the CWI Merger. . . . . . . . . . . . . . . . . . . . . . . 6
Reasons for the CWI Merger; Recommendation of the Board . . . . . . . . . 7
Complementary Product Offerings . . . . . . . . . . . . . . . . . . 7
Complementary Customer Bases and Service Offerings. . . . . . . . . 7
Larger Direct Sales Force . . . . . . . . . . . . . . . . . . . . . 8
Greater Visibility in the Investment Community. . . . . . . . . . . 8
Enhanced Financial Resources. . . . . . . . . . . . . . . . . . . . 8
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Fairness Opinion of Financial Advisor . . . . . . . . . . . . . . . 9
Terms of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . 11
Consideration for Shares of CWI Stock . . . . . . . . . . . . . . . 11
Issuance of Shares to CWI Stockholders. . . . . . . . . . . . . . . 12
Representations and Warranties. . . . . . . . . . . . . . . . . . . 12
Conduct of Business Pending the CWI Merger. . . . . . . . . . . . . 13
Conditions Precedent to the CWI Merger. . . . . . . . . . . . . . . 14
Indemnification by CWI and Principal CWI Stockholders . . . . . . . 17
Indemnification by Intellicell. . . . . . . . . . . . . . . . . . . 18
Election of Directors and Appointment of Officers
Following the CWI Merger. . . . . . . . . . . . . . . . . . . . . 18
Operation of Facilities Following the CWI Merger. . . . . . . . . . 19
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 19
Termination Prior to the Closing Date . . . . . . . . . . . . . . . 19
<PAGE>
Absence of Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . 20
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . 20
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Antitrust Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Description of Intellicell. . . . . . . . . . . . . . . . . . . . . . . . 20
Description of CWI. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Risks Related to the CWI Merger . . . . . . . . . . . . . . . . . . . . . 25
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Intellicell Selected Financial Data . . . . . . . . . . . . . . . . . . . 27
CWI Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 29
Selected Unaudited Pro Forma Combined Financial Data. . . . . . . . . . . 30
Comparative Per Share Data of Intellicell and CWI . . . . . . . . . . . . 31
Dividends and Price Range of Common Stock . . . . . . . . . . . . . . . . 32
PROPOSAL NO. 3--APPROVAL OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO CHANGE INTELLICELL'S NAME TO "FOCUS AFFILIATES,INC.". . . . . 33
Reason for Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
PROPOSAL NO. 4--APPROVAL OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK. . . . . . . . . . . . . 34
Current Use of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Rights of Additional Common Stock . . . . . . . . . . . . . . . . . . . . 34
Effect of Proposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Reason for Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
PROPOSAL NO. 5--APPROVAL OF AMENDMENT TO THE 1998 STOCK OPTION PLAN. . . . . . 35
Summary of the 1998 Plan. . . . . . . . . . . . . . . . . . . . . . . . . 36
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . 36
Participation in the 1998 Plan. . . . . . . . . . . . . . . . . . . . . . 37
PROPOSAL NO. 6--RATIFICATION OF INDEPENDENT AUDITORS . . . . . . . . . . . . . 37
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . 39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . 40
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Summary Compensation Table. . . . . . . . . . . . . . . . . . . . . . . . 40
Stock Option Grants and Exercises in 1998 . . . . . . . . . . . . . . . . 41
Aggregate Fiscal Year-End Option Values . . . . . . . . . . . . . . . . . 41
Ten-Year Repricing of Options . . . . . . . . . . . . . . . . . . . . . . 42
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Stock Option Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION . . . . . . . . . . 43
PERFORMANCE GRAPH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 . . . . . 45
<PAGE>
STOCKHOLDER PROPOSALS AT THE NEXT ANNUAL MEETING OF STOCKHOLDERS . . . . . . . 46
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . . . . . . . . 46
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS . . . . . . . . . . 47
APPENDIX A--MERGER AGREEMENT
APPENDIX B--FAIRNESS OPINION
APPENDIX C--FINANCIAL STATEMENTS OF CWI
APPENDIX D--UNAUDITED COMBINED PRO FORMA FINANCIAL INFORMATION
</TABLE>
<PAGE>
INTELLICELL CORP.
9314 ETON AVENUE
CHATSWORTH, CALIFORNIA 91311
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 29, 1999
INTRODUCTION
The enclosed proxy is solicited by the Board of Directors (the "Board")
of Intellicell Corp., a Delaware corporation ("Intellicell"), for use at our
Annual Meeting of Stockholders (the "Annual Meeting") to be held at 10:00 A.M.
on Wednesday, September 29, 1999, at Intellicell's executive offices, located at
9314 Eton Avenue, Chatsworth, California 91311, and at any adjournment or
postponement thereof. This Proxy Statement, the accompanying proxy card and
Intellicell's Annual Report are first being mailed to the stockholders of
Intellicell on or about August ___, 1999.
OUTSTANDING SECURITIES AND VOTING RIGHTS
Only holders of record of Intellicell's common stock (the "Common Stock")
at the close of business on August 13, 1999 will be entitled to vote at the
Annual Meeting. On that date, Intellicell had 7,014,893 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote at the Annual
Meeting with respect to each matter to be voted on. Holders of Common Stock are
not entitled to cumulate votes in the election of directors. Under applicable
law and Intellicell's certificate of incorporation and bylaws, if a quorum is
present at the Annual Meeting: (i) the five nominees for election to the Board
who receive the greatest number of votes cast for the election of directors by
the shares present in person or represented by proxy will be elected directors,
(ii) matters 2, 5 and 6 listed in the accompanying Notice of Annual Meeting of
Stockholders will be approved if a majority of the votes cast on those matters
are cast in favor of the matters and (iii) matters 3 and 4 listed in the
accompanying Notice of Annual Meeting of Stockholders will be approved if a
majority of the outstanding shares of Common Stock entitled to vote are cast in
favor of the matters.
The presence at the Annual Meeting, either in person or by proxy, of the
holders of a majority of the shares of Common Stock outstanding on the record
date is necessary to constitute a quorum for the transaction of business.
Abstentions will be counted for purposes of determining the presence of a quorum
and will have the same effect as negative votes. Broker non-votes also will
count towards establishing a quorum. Broker non-votes will not affect the
outcome of matters 2, 5 and 6, but will have the same effect as a negative vote
for matters 3 and 4. Neither abstentions nor broker non-votes will have any
effect upon the outcome of voting with respect to the election of directors.
PROXY VOTING
Shares for which proxy cards are properly executed and returned will be
voted at the Annual Meeting in accordance with the directions noted thereon, or
in the absence of directions to the contrary, will be voted "FOR" the following:
(1) the election of the nominees to the Board named herein;
1
<PAGE>
(2) the proposal to approve the issuance of shares of our Common Stock
to the stockholders of Cellular Wholesalers, Inc. ("CWI"), in accordance with
the Agreement and Plan of Merger dated as of July 23, 1999, as amended (the
"Merger Agreement"), among Intellicell, CWI, the principal stockholders of CWI,
and a wholly owned subsidiary of Intellicell called Intellicell Merger Sub
("Merger Sub"), pursuant to which CWI will be merged with and into Merger Sub
(the "CWI Merger"), with Merger Sub surviving the CWI Merger as a wholly owned
subsidiary of Intellicell;
(3) the proposal to approve an amendment to our certificate of
incorporation to change our name to "Focus Affiliates, Inc.;"
(4) the proposal to approve an amendment to our certificate of
incorporation to increase the number of shares of Common Stock we are authorized
to issue;
(5) the proposal to approve an amendment to our 1998 Stock Option Plan
to increase the number of shares of Common Stock that we can issue upon the
exercise of options granted under the plan; and
(6) the proposal to ratify the appointment by the Board of Hollander,
Lumer & Co. LLP as our independent auditors for the fiscal year ending December
31, 1999.
We do not expect that any matter other than those referred to in this
Proxy Statement will be brought before the Annual Meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their discretion with respect to such matters.
REVOCATION
If you give us a proxy, you may revoke it at any time before we use it by
either delivering to the Secretary a written notice of revocation or a duly
executed proxy card bearing a later date, or by attending the Annual Meeting and
voting in person (attendance at the Annual Meeting without voting, by itself,
will not serve to revoke a proxy). If, however, your shares are held of record
by a broker, bank or other nominee and you wish to vote in person at the Annual
Meeting, you must obtain from the record holder a proxy issued in your name.
SOLICITATION EXPENSES
We will pay for the cost of this solicitation, including the cost of
preparing and mailing the Notice of Annual Meeting, this Proxy Statement, the
enclosed proxy and the Annual Report. We expect to reimburse brokerage houses,
fiduciaries, nominees and others for their out-of-pocket expenses in forwarding
proxy materials to beneficial owners of stock held in their names. Our
directors, officers or employees may solicit proxies by telephone or in person
but we will not pay them any additional compensation for doing so.
RISK FACTORS
Please see page 25 for a discussion of the risk factors associated with
the Proposal No. 2--Approval of Issuance of Shares in CWI Merger.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
PROXY STATEMENT OR DETERMINED IF THIS PROXY STATEMENT IS ACCURATE OR INADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
2
<PAGE>
NOMINEES
At the Annual Meeting, five directors, who will constitute the entire
Board, are to be elected to serve until the next Annual Meeting of Stockholders
or until their successors are elected. As discussed in Proposal No. 2, the
Board will be expanded to eight members if the CWI Merger is consummated. All
nominees for the Board have consented to being named herein and have agreed to
serve if elected. The nominees are as follows:
Michael Hedge
John Swinehart
J. Sherman Henderson
Mark M. Laisure
Vinay Sharma
We will vote the proxies "FOR" the election of all of the above named
nominees unless you indicate that the proxy should not be voted for all or any
one of the nominees. Nominees receiving the highest number of affirmative votes
cast, up to the number of directors to be elected, will be elected as directors.
If for any reason any nominee should, prior to the Annual Meeting, become
unavailable for election as a director, an event not now anticipated, the
proxies will be voted for a substitute nominee, if any, that is recommended by
management. In no event, however, will the proxies be voted for a greater
number of persons than the number of nominees named.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE FIVE
PERSONS NOMINATED FOR DIRECTOR HEREIN
MANAGEMENT OF INTELLICELL
The following table sets forth certain information regarding the executive
officers and directors of Intellicell:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- --- ------------------------------------------
Executive Officers and Directors:
<S> <C> <C>
Michael Hedge.............. 42 President, Chief Executive Officer and Director
John Swinehart............. 42 Chairman of the Board and Chief Operating
Officer
David Kane................. 36 Chief Financial Officer and Secretary
Mark Fruehan............... 38 Executive Vice President of Business
Development
Michael King............... 35 Vice President of Marketing and Business
Development
J. Sherman Henderson(1)(2). 56 Director
Mark M. Laisure(1)(2)...... 29 Director
Vinay Sharma............... 51 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the committee administering grants to executive officers under
Intellicell's stock option plans.
Michael Hedge has served as President, Chief Executive Officer and as a
director of Intellicell since April 1999. Prior to that, he served as
Intellicell's Executive Vice President between January 1999 and April 1999.
From 1987 to January 1999, Mr. Hedge was employed by Cellstar Corporation, a
leader in telecommunications products distribution ("Cellstar"). He served in
increasingly senior positions at Cellstar, including Vice President of U.S.
Sales and Marketing and as a director.
3
<PAGE>
John Swinehart has served as a director of Intellicell since November
1998 and as Chief Executive Officer between November 1998 and April 1999. Mr.
Swinehart assumed the role of Chairman of the Board and Chief Operating Officer
in April 1999. Mr. Swinehart has also been serving as President and Chief
Financial Officer of Biltmore Homes, a midwestern homebuilder and developer,
since March 1996. From 1986 to March 1996, Mr. Swinehart served as Vice
President of Allied Broadcast Equipment, an international broadcast-equipment
distribution company. In 1980, Mr. Swinehart received his certified public
accountant certificate.
David Kane has served as Chief Financial Officer of Intellicell since
August 1998. Prior to joining Intellicell, Mr. Kane was Chief Financial Officer
of Grand Havana Enterprises from January 1997 to February 1998. From July 1995
to November 1996, Mr. Kane was the Director of Finance for Virgin Records
America. From May 1994 to June 1995, he was the controller of Hemdale Home
Video. Prior to that time, Mr. Kane was a certified public accountant with
Arthur Andersen & Co.
Mark Fruehan has served as Executive Vice President of New Business
Development and Strategic Planning of Intellicell since May 1999. Prior to
joining Intellicell, Mr. Fruehan was Cellstar's Vice President of Global Service
and U.S. Sales and Marketing from July 1996 to April 1999. From June 1991 to
June 1996, Mr. Fruehan was National Sales Manager-America Region of Fujitsu
Network Transmission Systems.
Michael King has served as Vice President of Marketing and Business
Development of Intellicell since January 1999. Prior to joining Intellicell,
Mr. King served in various positions at several telecommunications companies,
most recently as Accessory Strategic Director for Philips Consumer Commerce from
July 1998 to January 1999. Prior to joining Philips, Mr. King acted as Director
of Marketing at Cellstar Corporation from February 1994 to June 1998 and as an
account manager for Motorola, Inc. from May 1988 to January 1994.
J. Sherman Henderson has been a director of Intellicell since February
1998. Since 1993, Mr. Henderson has been President and CEO of UniDial
Communications, a long-distance phone service reseller and full service
distributor of telecommunications products and services founded by Mr.
Henderson.
Mark M. Laisure has been a director of Intellicell since November 1998.
Since 1995, Mr. Laisure has been a Vice President of Shields & Company, an
investment brokerage firm. In addition, Mr. Laisure has acted as a consultant to
(a) Inktomi Corporation, a developer and marketer of network information and
infrastructure applications, since June 1996, (b) Milcom, a technology
development company which invests in new technology companies, since September
1997, (c) Stat Health Care, a provider of emergency room management services,
since June 1991 and (d) Starstruck Records since August 1995. From 1994 to 1995,
Mr. Laisure was a senior investment manager at Paine Webber.
Vinay Sharma has been a director of Intellicell since October 1996. Mr.
Sharma has been a partner with the law firm Sharma & Herron since March 1992.
Mr. Sharma received his Masters in Business Administration in June 1974 and
Juris Doctor degree in May 1982 from the University of California at Berkeley.
Directors serve until the next annual meeting or until their successors
are elected and qualified, or appointed. Officers are elected by and serve at
the discretion of the Board. There are no family relationships among the
officers or directors of Intellicell.
ARRANGEMENTS AND UNDERSTANDINGS WITH DIRECTORS
Intellicell agreed in connection with its initial public offering, until
December 17, 1999, if so requested by Sands Brothers & Co., Ltd. ("Sands
Brothers"), the representative of the underwriters in
4
<PAGE>
Intellicell's initial public offering and Intellicell's financial advisor, to
nominate and use its best efforts to elect a designee of Sands Brothers as a
director, or at Sands Brothers' option as a non-voting advisor to the Board.
Sands Brothers exercised its right to designate Alan M. Bluestine, a managing
director of Sands Brothers, as a non-voting advisor to the Board on June 6,
1997. Through December 17, 1999, Sands Brothers continues to have the right
to designate a director in lieu of its non-voting advisor.
In connection with a private placement of notes in November 1998 (the
"Note Offering"), Intellicell agreed to appoint two persons designated by the
investors in the Note Offering to the Board. In November 1998, Intellicell
appointed John Swinehart and Mark M. Laisure (the persons designated by the
investors in the Note Offering) to the Board.
As described below under "Proposal No. 2--Terms of the Merger
Agreement--Election of Intellicell Directors Following the CWI Merger,"
Intellicell has agreed to increase the size of its Board and use its
commercially reasonable best efforts to cause the election of three designees of
the CWI stockholders following the closing of the CWI Merger.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 1998, the Board met 13 times. No
director attended fewer than 75% of the total number of meetings of the Board or
committees of the Board held in 1998.
Intellicell has a standing audit committee. The audit committee reviews
the scope of the audit and other accounting related matters. Intellicell's audit
committee currently consists of Messrs. Henderson and Laisure. The audit
committee met once during 1998. Intellicell has also formed a committee of
"outside directors" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), comprised of Messrs.
Henderson and Laisure, to make grants of options to executive officers under
Intellicell's stock option plans. This committee did not meet during 1998.
Intellicell has no other committees of its Board.
BOARD COMPENSATION
Directors do not currently receive any cash compensation for serving on
the Board. Directors are eligible to participate in Intellicell's stock option
plans with grants to directors who are not officers of Intellicell being made by
the entire Board. During 1998, Intellicell granted J. Sherman Henderson and
Vinay Sharma each options to purchase 100,000 shares of Common Stock with an
exercise price of $3.81 per share. These options were later repriced to an
exercise price of $1.00 per share. During 1998, Intellicell also granted options
to purchase 200,000 shares of Common Stock to Mark M. Laisure with an exercise
price of $1.00 per share. Intellicell also granted stock options to John
Swinehart and Stephen Jarrett, who each served as both an officer and director
of Intellicell during 1998. See "Executive Compensation."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, the full Board decided
all matters related to compensation. Ben Neman, Vinay Sharma, Stephen Jarrett,
J. Sherman Henderson, John Swinehart, Mark M. Laisure and James E. Bunting each
served as a director for all or part of 1998 and participated in deliberations
concerning executive officer compensation. There are no interlocks between
Intellicell and other entities involving Intellicell's executive officers and
directors who served as executive officers or directors of other entities.
PROPOSAL NO. 2
APPROVAL OF ISSUANCE OF SHARES IN CWI MERGER
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INTRODUCTION
This section of the Proxy Statement describes the material aspects of the
CWI Merger and the Merger Agreement. The following description does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement, which is attached as Appendix A to this Proxy Statement and is
incorporated herein by reference. You should read the Merger Agreement
carefully.
MECHANICS OF THE CWI MERGER
Intellicell has recently formed Merger Sub (a Delaware corporation) as a
wholly owned subsidiary that currently has no assets, liabilities, or business
operations. Upon effectiveness of the CWI Merger, CWI will be merged with and
into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of
Intellicell. The certificate of incorporation and bylaws of Merger Sub will be
the certificate of incorporation and bylaws of the surviving corporation. As a
result of the CWI Merger, the separate corporate existence of CWI will cease and
Merger Sub will succeed to all the rights and be responsible for all the
obligations of CWI. Subject to the terms and conditions of the Merger
Agreement, each share of CWI common stock outstanding immediately prior to the
effectiveness of the CWI Merger will be converted into a combination of cash and
shares of Intellicell Common Stock. As a result, the current stockholders of
CWI (the "CWI Stockholders") will become stockholders of Intellicell. The
status of the current stockholders and option and warrant holders of Intellicell
will remain the same. The CWI Merger will become effective (the "Closing") upon
the date of filing and acceptance of an agreement of merger with the Secretary
of State of both Illinois and Delaware (the "Closing Date").
BACKGROUND OF THE CWI MERGER
Prior to 1998, Intellicell had procured handsets from other distributors
that were based on analog signal technology. Starting in 1998, in conjunction
with the introduction of digital-based technologies, manufacturers selected
distributors that did not include Intellicell. As a result of its inability to
procure digital product, which was gaining significant market share, Intellicell
began to suffer a dramatic decrease in revenues in 1998. In May 1998,
Intellicell downsized its operations and hired key marketing and sales personnel
to develop a new business plan. As a result of Intellicell's downsizing efforts
and its lack of purchasing power, management adopted a strategy of focusing on
products and services that could generate higher profit margins and expansion
through acquisition of other companies.
In January 1999, representatives of Intellicell, including Ben Neman
(then President), David Kane (Chief Financial Officer), Stephen Jarrett (then
Executive Vice President of Sales) and John Swinehart (then Chief Executive
Officer) met at the Consumer Electronics Show, an industry trade show, with
representatives of CWI, including Ronald Goldberg (President) and Cary Maimon
(Vice-President/General Manager) to discuss the possibility of a potential
combination of the companies. On several prior encounters at other industry
trade shows, Mr. Neman and Mr. Goldberg had informal conversations concerning a
possible combination or other strategic alliance between the companies, but none
of these prior discussions resulted in any substantive discussions between the
companies.
However, in February 1999, Intellicell successfully recruited Michael
Hedge, from Cellstar, a large competitor of both CWI and Intellicell. Mr.
Hedge's reputation in the wireless industry generated significant interest by
CWI to further discuss a merger. Soon after Mr. Hedge's employment, CWI and
Intellicell signed a non-disclosure agreement. Upon executing this agreement on
February 9, 1999, the companies exchanged some financial information, including
CWI's financial statements. After a preliminary analysis of the financial data,
CWI and Intellicell agreed to meet on March 24, 1999 at CWI's offices in
Lincolnshire, Illinois. Attending the meeting from Intellicell were Mr. Neman,
Mr. Hedge, Mr. Kane, Mr. Swinehart and
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Paul Skojt, an investor in Intellicell's November 1998 private placement, and
from CWI, Mr. Goldberg, Mr. Maimon and Mel Cohen (Chief Financial Officer). The
agenda of the meeting was to discuss Mr. Hedge's corporate strategy and the
business plan he intended to implement and how he envisioned a merger would help
execute this strategy and business plan.
As a result of the March 24, 1999 meeting, CWI requested that Intellicell
provide a further presentation of Mr. Hedge's corporate strategy and business
plan. On April 8, 1999, Mr. Kane and Mr. Hedge met Mr. Goldberg and Mr. Maimon
and gave them an oral presentation of the business plan and a preliminary term
sheet describing how the merger of the two companies would be structured
operationally and financially. Mr. Maimon and Mr. Goldberg then discussed the
business plan and rationale for the merger with Philip Leavitt and Sherwin
Geitner, other stockholders of CWI. On April 12, 1999, Mr. Hedge and Mr. Kane
met with Mr. Goldberg, Mr. Leavitt, Mr. Geitner, Mr. Maimon and Mr. Cohen to
discuss various matters concerning the operational structure of the combined
companies and financial consideration to the CWI Stockholders. The CWI
representatives at this meeting advised the Intellicell representatives that
they would need to discuss the proposed transaction among themselves further and
would then respond to Mr. Hedge directly.
On April 19, 1999, Mr. Goldberg had a telephone conversation with Mr.
Hedge indicating that the CWI Stockholders approved the merger, in principle. As
a result of this conversation, Mr. Hedge requested Intellicell's attorneys to
draft a letter of intent. The terms of this letter of intent were negotiated by
Intellicell and CWI and their attorneys, and the letter of intent was executed
on May 27, 1999. Under the terms of this letter of intent, Intellicell and CWI
agreed to use their best efforts to negotiate and execute a definitive merger
agreement.
Over the next several weeks, the companies then completed their
respective due diligence reviews. Mr. Hedge and Mr. Kane and the CWI
Stockholders negotiated the financial and operational issues, including the
number of shares to be issued and cash paid in exchange for CWI and roles of
various personnel. Intellicell's Board met on Friday, July 23, 1999, and
approved the terms of the Merger Agreement. The definitive Merger Agreement was
executed later on Friday, July 23, 1999, and an amendment to the Merger
Agreement, which was effective as of July 23, 1999, was also executed by the
parties.
REASONS FOR THE CWI MERGER; RECOMMENDATION OF THE BOARD
The Board believes that the CWI Merger is consistent with and will play a
major role in executing Intellicell's current business plan. The Board also
believes that the CWI Merger offers the following significant strategic and
financial benefits to Intellicell and its stockholders:
COMPLEMENTARY PRODUCT OFFERINGS
By combining two companies with complementary product lines, the Board
believes that the CWI Merger will create one of the nation's leading
distributors of wireless products and services, allowing it to compete with
larger distributors to take advantage of business prospects and greater market
diversification than either company could accomplish alone. The Board believes
that through Intellicell's and CWI's combined customer relationships, technical
expertise, sales forces and cross knowledge in the wireless handset market, the
combined organization will be better able to provide value to its customer base.
COMPLEMENTARY CUSTOMER BASES AND SERVICE OFFERINGS
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While the Board believes that Intellicell's management has strong
relationships with certain key personnel of manufacturers of wireless handsets,
the Board believes that a combined Intellicell and CWI will provide a stronger
foundation to develop these business opportunities. CWI has developed products
and expertise in the area of selling to the dealers and agents of network
operators commonly known in the wireless industry as the indirect distribution
channel. This expertise, which includes a trained and well managed sales force
and purchasing department, will be offered to Intellicell's existing customers.
Additionally, Intellicell's management has extensive experience in creating new
business opportunities. With CWI's management managing the day-to-day operations
of the indirect distribution channel, Intellicell's management team will be
better able to focus on new business opportunities.
LARGER DIRECT SALES FORCE
As described above, Intellicell significantly downsized its sales force
in May 1998. CWI, on the other hand, has had increasing sales since 1996 and
has increased the size of its sales force. In addition, CWI has a purchasing
department that has been successful in obtaining digital-based products, which
has helped CWI to maintain a gross profit margin nearly twice that of
Intellicell. The Board expects the combination of the sales forces and
purchasing departments of the two companies to allow the combined company to
continue to sell products to CWI's existing customers and introduce new products
to Intellicell's customers. The Board further believes that to generate growth,
Intellicell would otherwise have to recruit a sales force and purchasing agents
similar to those currently employed by CWI.
GREATER VISIBILITY IN THE INVESTMENT COMMUNITY
The Board believes that the increased market capitalization, revenue base
and competitiveness of the combined company will create greater visibility in
the investment community, thereby enhancing the stock's attractiveness to
current and prospective stockholders.
ENHANCED FINANCIAL RESOURCES
The Board believes that the combined company's increased revenue base
will enhance the combined company's ability to fund future growth from either
internally generated potential cash flow or financing from third parties.
SUMMARY
In reaching its decision to approve the CWI Merger and to recommend the
CWI Merger to Intellicell stockholders for approval, the Board considered the
factors described above, as well as the presentation and the fairness opinion of
its financial advisor. The Board did not assign any relative or specific weights
to the various factors considered, and individual directors may have given
differing weights to different factors. The only negative factors considered
significant by the Board are the need to incur significant additional debt in
order to finance the CWI Merger and the combined operations thereafter and the
dilutive effect of the CWI Merger on the net tangible book value per share of
Intellicell's Common Stock. At March 31, 1999, the net tangible book value per
share of Intellicell Stock was $0.49. On a pro forma basis assuming completion
of the CWI Merger, the book value per share of the combined company at March 31,
1999 was ($0.05). The Board concluded, however, that the potential future
benefits of the CWI Merger outweigh these negative factors.
The foregoing discussion of the Board's reasons for the CWI Merger
includes forward-looking statements about possible or assumed future results of
Intellicell's operations and the performance of the combined company after the
CWI Merger. For a discussion of factors that could affect these future results,
see "Cautionary Statement Concerning Forward-Looking Statements" on page 47 and
"Risk Factors" on page 25.
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FAIRNESS OPINION OF FINANCIAL ADVISOR
Sands Brothers has acted as financial advisor to Intellicell in
connection with the CWI Merger. Sands Brothers was selected by Intellicell
based on Sands Brothers' experience, expertise and familiarity with Intellicell
and its business. In connection with Sands Brothers' engagement, Intellicell
requested that Sands Brothers evaluate the fairness of the consideration to be
paid by Intellicell in the CWI Merger from a financial point of view. On July
23, 1999, the date on which the Merger Agreement was executed, Sands Brothers
rendered to the Board a written opinion to the effect that, as of such date and
based upon and subject to certain matters stated in such opinion, the
consideration to be paid was fair to Intellicell from a financial point of view.
The full text of Sands Brothers' written opinion to the Board, dated July
23, 1999, which sets forth the procedures followed, assumptions made, matters
considered and limitations on the review undertaken in connection with such
opinion, is attached as Appendix B to this Proxy Statement and is incorporated
herein by reference. Sands Brothers has consented to the inclusion of its
opinion letter in this Proxy Statement and references thereto under this
section. In giving such consent, Sands Brothers does not admit that Sands
Brothers comes within the category of persons whose consent is required under,
and Sands Brothers does not admit that it is an "expert" with respect to any
part of this Proxy Statement for purposes of, the Securities Act of 1933 and the
rules and regulations thereunder. Stockholders of Intellicell are urged to read
Sands Brothers' opinion carefully in its entirety. Sands Brothers' opinion is
directed to the Board and relates only to the fairness of the consideration to
be paid the CWI Stockholders from a financial point of view to Intellicell, does
not address any other aspect of the proposed merger and does not constitute a
recommendation to any stockholder as to how such stockholder should vote at the
Intellicell Annual Meeting. The summary of the opinion of Sands Brothers set
forth in this Proxy Statement describes the material aspects of such opinion and
is qualified in its entirety by reference to the full text of such opinion.
In arriving at its opinion, Sands Brothers reviewed the Merger Agreement
and held discussions with certain senior officers, directors and other
representatives and advisors of Intellicell concerning the business, operations
and proposed business strategy of Intellicell, and certain trends within the
wireless communications industry, specifically within the logistics services
industry segment. Sands Brothers also discussed the terms of the Merger
Agreement with the management of both Intellicell and CWI, and reviewed the
Board minutes approving the merger transaction. Representatives of Sands
Brothers visited CWI to review current operations and meet firsthand with
members of the management team. Sands Brothers also reviewed Intellicell's
public SEC filings, including its audited and interim financial statements for
1997, 1998 and 1999. In conjunction with its review of the financial
statements, Sands Brothers reviewed the financial performance and financial
ratios relating to Intellicell's operations. Sands Brothers also reviewed the
financial projections provided by Intellicell, and discussed these projections
with various members of the management team to determine the feasibility of
achieving such projections. Sands Brothers also reviewed and analyzed the
financial statements of CWI as provided to it by Intellicell, including audited
financial statements for the fiscal years 1997 and 1998, and interim statements
for 1999. In addition, Sands Brothers reviewed financial projections prepared
by CWI and furnished to it by Intellicell, and discussed these projections with
various members of management at both CWI and Intellicell to determine the
feasibility of achieving such projections. Sands Brothers held discussions with
the management of CWI to discuss the business, operations, historical financial
results and future prospects of CWI and the proposed combined company. Sands
Brothers evaluated possible levels of performance for Intellicell both
continuing as a stand-alone company and as the combined company resulting from
the proposed merger. Sands Brothers reviewed CWI's contribution to revenues and
earnings of the combined company, and evaluated the pro-forma effects of the
transaction on Intellicell's forecasted business plan. In reviewing these
projections, Sands Brothers evaluated the potential future performance of
Intellicell's stock based on the potential financial performance of Intellicell
both with and without completion of the proposed
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merger. Sands Brothers compared the consideration to be paid for CWI in the
proposed transaction, in terms of financial ratios, with the current valuation
of Intellicell's publicly-traded equity. Sands Brothers also looked at the
valuation of comparable companies in the wireless communications industry, in
relation to both the current and potential future valuation of Intellicell's
stock, and, in consideration of Intellicell's proposed business strategy, also
reviewed the valuation of certain publicly-traded companies in the
business-to-business electronic commerce industry segment. Sands Brothers also
reviewed the terms of other public acquisitions in the wireless communications
industry, and compared the valuation of such companies under these acquisitions
to the consideration being paid for CWI in the proposed transaction. In
conjunction with the above-mentioned analyses, Sands Brothers considered the
historical performance of Intellicell's stock, both independently and in
relation to other comparable companies. It also discussed potential market
reaction to the transaction with Intellicell's management.
In rendering its opinion, Sands Brothers assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Sands Brothers. Sands Brothers did not make and
was not provided with an independent evaluation or appraisal of the assets of
CWI.
In preparing its opinion, Sands Brothers performed a variety of financial
and comparative analyses, including those described above. The summary of such
analyses does not purport to be a complete description of the analyses
underlying Sands Brothers' opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Sands Brothers
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and opinion. In its analyses, Sands Brothers made
numerous assumptions with respect to Intellicell, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Intellicell. The estimates contained in such
analyses and the valuation ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. No company,
transaction or business used in the above-referenced analyses as a comparison is
identical to CWI, Intellicell or the proposed acquisition of CWI by Intellcell.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather it involves complex considerations and judgements
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading or other values of the
selected companies, selected transactions or the business segment, company or
transaction to which they are being compared. Sands Brothers' opinion and
analyses should not be viewed as determinative of the views of the Board of
Directors or management of Intellicell with respect to the merger consideration
or the proposed merger.
Sands Brothers has advised Intellicell that, in the ordinary course of
business, Sands Brothers makes a market in the common stock of Intellicell, and
Sands Brothers and its affiliates may actively trade or hold the securities of
Intellicell for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
Sands Brothers is a recognized investment banking firm and was selected
by Intellicell based on its experience and expertise. Sands Brothers regularly
engages in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bids,
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secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes.
TERMS OF THE MERGER AGREEMENT
It is presently anticipated that the CWI Merger will be consummated on
September 30, 1999, assuming all the conditions set forth in the Merger
Agreement have been satisfied or waived, if waivable. Nevertheless, it is
possible that the CWI Merger will be consummated later.
CONSIDERATION FOR SHARES OF CWI STOCK
On the Closing Date, each share of issued and outstanding CWI capital
stock (the "CWI Stock"), will be converted into the right to receive cash and
shares of Intellicell Common Stock (the "Merger Consideration"). The total
consideration to be received by the CWI Stockholders in connection with the
conversion of all of the then outstanding capital stock of CWI in connection
with the Merger shall be $14,000,000 (the "Base Consideration"), plus an
additional amount (the "Additional Consideration") in the event the total
stockholders' equity of CWI as of the Closing Date (the "Closing Date Equity")
exceeds $177,667. The Base Consideration shall consist of $5,000,000 in cash
and $9,000,000 of shares of Intellicell common stock, $.01 par value per share
(the "Intellicell Common Stock"), valued as hereinafter described (the
$9,000,000 of shares of Intellicell Common Stock being hereinafter referred to
as the "Base Shares").
For purposes of the Merger Agreement, the shares of Intellicell Common
Stock shall have a value (the "Share Value") equal to $4 per share. The
Share Value of $4 was negotiated by the parties based on the trading price of
Intellicell's Common Stock during the period preceeding the execution of the
letter of intent on May 27, 1999 (which approximated $4), and the negotiated
price also reflected that the Intellicell Common Stock to be issued to the
CWI Stockholders will not be registered under the Securities Act of 1933.
The Additional Consideration, if any, shall consist of an additional number
of shares of Intellicell Common Stock (the "Additional Shares") as equals (i)
the amount by which the Closing Date Equity exceeds $177,667, divided by (ii)
$4. Notwithstanding the foregoing, the cash portion of the Base Consideration
will be reduced by the amount, if any, by which the Closing Date Equity is
less than $1,177,667, although as set forth in the preceding sentence
Additional Shares will then be issued in an amount equal to (i) the amount,
if any, by which the Closing Date Equity exceeds $177,667, divided by (ii)
$4. The Closing Date Equity shall be determined within 30 days following the
Closing Date by Intellicell's and CWI's independent certified public
accountants in accordance with generally accepted accounting principles,
using assumptions that are mutually acceptable to such accountants and
including a reserve against accounts receivable that is acceptable to
Intellicell and CWI, and such determination shall be binding on all of the
parties to the Merger Agreement. At the Closing, all of the issued and
outstanding shares of CWI Stock shall, by virtue of the CWI Merger and
without any action on the part of the holders thereof, be converted pro rata
into and thereafter represent the number of Base Shares described above
($9,000,000 divided by the Share Value) and the holders of such shares shall
concurrently receive the Base Shares on a pro rata basis (unless directed
otherwise as described below) and shall concurrently receive on a pro rata
basis (unless directed otherwise as described below) $4,500,000 of the cash
portion of the Base Consideration. The Additional Shares and the remaining
cash portion of the Base Consideration, if any, will be distributed pro rata
(unless directed otherwise as described below) to the holders of the Base
Shares as of the Closing Date within 15 days following the determination of
the Closing Date Equity. Notwithstanding the foregoing, the Base Shares,
Additional Shares and cash portion of the Base Consideration will be
allocated among the CWI Stockholders in accordance with a written allocation
agreement signed by all of the CWI Stockholders, provided that a copy of this
allocation agreement is delivered to Intellicell at least three
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business days prior to the Closing. Fractional shares shall not be issued, and
in lieu thereof Intellicell shall pay cash in an amount equal to the Share Value
times the applicable fraction of a share.
Of the Base Consideration, $500,000 of the cash portion will not be
distributed at the Closing but will be held in escrow with an escrow agent,
pending determination of the Closing Date Equity. In the event the Closing Date
Equity is determined to exceed $677,667, a portion of the escrowed funds (up to
the entire $500,000) equal to the amount by which such equity exceeds $677,667
will be delivered to the CWI Stockholders and the remainder of such escrowed
funds will be returned to Intellicell. In the event the Closing Date Equity is
determined to not exceed $677,667, all of the escrowed funds will be returned to
Intellicell and the CWI Stockholders will be required to pay Intellicell in cash
an amount equal to (i) $677,667 less (ii) the amount of the Closing Date Equity,
with such payment to be made within 15 days following the determination.
ISSUANCE OF SHARES TO CWI STOCKHOLDERS
EXCHANGE OF CERTIFICATES. After the Closing, any holder of an
outstanding certificate or certificates (the "CWI Stock Certificates")
representing any of the shares of CWI Stock, upon surrender to Intellicell or
the transfer agent for Intellicell Common Stock, will be entitled to receive in
exchange a certificate or certificates representing the appropriate number of
shares of Intellicell Common Stock. Until so surrendered, the outstanding CWI
Stock Certificates will be deemed for all purposes, other than the payment of
dividends or other distributions, if any, in respect of Intellicell Common
Stock, to represent the applicable number of shares of Intellicell Common Stock
appropriate upon conversion. No dividend or distribution, if any, payable to
holders of shares of Intellicell Common Stock will be paid to the holders of CWI
Stock Certificates until surrender and exchange of such CWI Stock Certificates.
The record holders of the Intellicell stock certificate or certificates issued
in exchange will be paid dividends or other distributions, without interest, if
any, which subsequent to the Closing have been declared and become payable with
respect to the number of whole shares of Intellicell Common Stock into which the
shares of CWI Stock are convertible.
INTELLICELL TO RESERVE SHARES. At or prior to the Closing Date,
Intellicell will reserve for the benefit of the holders of the CWI Stock
Certificates the number of shares of Intellicell Common Stock that are required
for conversion of CWI Stock in accordance with the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
CWI, Intellicell and the Merger Sub relating, among other things, to the
following:
o due incorporation, existence, good standing and similar corporate
matters
o corporate power and authority to enter into the Merger Agreement and
related matters
o capital and corporate structure
o financial statements
o absence of material changes or events since April 30, 1999 (by CWI)
and March 31, 1999 (by Intellicell)
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o real estate rights, title to properties and condition of properties
o pending or threatened litigation
o intellectual property matters
o the absence of conflicts, violations and defaults under their
certificate/articles of incorporation, bylaws and other agreements
and documents
o tax matters
o material contracts
o compliance with laws and other regulations
o employee benefit and employment matters
o year 2000 compliance
o the documents and reports filed with the SEC and the accuracy and
completeness of the information contained therein (by Intellicell
only)
The Merger Agreement also contains representations and warranties of CWI
and Ronald Goldberg, Philip Leavitt, Sherwin Geitner and Cary Maimon (if Mr.
Maimon is a stockholder on the Closing Date), who together are anticipated to
own more than 99% of the outstanding shares of CWI immediately prior to the
Closing (the "CWI Principal Stockholders") related to the ownership of CWI
shares and the status of the CWI Stockholders as accredited or sophisticated
investors who are acquiring the shares of Intellicell Common Stock solely for
investment purposes and not with a view to their distribution.
All of the representations and warranties will survive the Closing for 18
months.
CONDUCT OF BUSINESS PENDING THE CWI MERGER
Intellicell and CWI have agreed that pending the Closing, unless the
other consents in writing, each will:
o not take or omit to take any action which would render any
representation or warranty untrue
o use commercially reasonable efforts to preserve intact its business
organization and goodwill
o conduct its business operations according to its usual, regular and
ordinary course and manner consistent with past practice
o maintain its books, accounts and records in the usual, regular and
ordinary manner and on a basis consistent with prior years
o not amend its charter or bylaws, make any change in its authorized
capital stock, merge or consolidate with any other entity or change
the character of its business
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o not, with certain exceptions described in the Merger Agreement,
issue any shares of capital stock or grant any option, warrant, or
other right to purchase or to convert any obligation into shares of
capital stock
o not, with certain exceptions described in the Merger Agreement,
increase the compensation or employment benefits to management
o not, with certain exceptions described in the Merger Agreement,
declare, make or pay any dividend or other distribution; purchase,
redeem or otherwise acquire any shares of its common stock; or
transfer, distribute or pay any assets or properties to any
stockholders
o make available to the other party and its representatives for
inspection at all reasonable times all of assets, properties,
facilities, records, agreements and financial statements
o not reveal any confidential information
o satisfy, with certain exceptions described in the Merger Agreement,
all obligations and liabilities as they mature
Intellicell has also agreed that, unless CWI consents in writing, it
will:
o except to the extent required by fiduciary duty under applicable
law, not modify its action approving the CWI Merger and recommending
approval of the CWI Merger by the Intellicell stockholders
o use commercially reasonable efforts to consummate and make effective
the transactions contemplated by the Merger Agreement, including the
preparation of a proxy statement and the compliance with state
securities laws (CWI has likewise agreed to assist Intellicell with
these undertakings)
o cause the Merger Sub to provide employees of the Merger Sub with
employee benefits, which are no less favorable in the aggregate than
those generally provided by CWI to its employees
o use commercially reasonable efforts to cause Intellicell
stockholders, owning a specified number of shares of Intellicell
Common Stock, to enter into a voting trust or similar agreement with
the Principal CWI Stockholders covering the election of
Intellicell's directors
o intend to operate Merger Sub using a significant portion of CWI's
assets in its business and not intend or plan to dispose of more
than an insignificant portion of CWI's assets or to liquidate or
merge Merger Sub into Intellicell
CONDITIONS PRECEDENT TO THE CWI MERGER
The obligations of Intellicell, Merger Sub and CWI under the Merger
Agreement are subject to the satisfaction of conditions precedent on or before
the Closing. Each of the parties may waive the unfulfilment of conditions
precedent to its own obligations. These conditions precedent include:
o accuracy of representations and warranties on and as of the Closing
o performance in all material respects of the Merger Agreement by the
other parties
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o all necessary action on the part of the other party's stockholders
in adopting the Merger Agreement and approving the transactions
contemplated will have been taken
o no material adverse change in the business, properties, prospects or
financial condition of the other party
o no action or proceeding before any court or governmental agency will
have been instituted or threatened which would enjoin, restrain or
prohibit, or might result in substantial damages in respect of the
Merger Agreement or the consummation of the transactions
contemplated by the Merger Agreement, and would in the party's
reasonable judgment make it inadvisable to consummate such
transactions, and no court order will have been entered in any
action or proceeding instituted by any other party which enjoins,
restrains or prohibits the Merger Agreement or the consummation of
the transactions contemplated by the Merger Agreement
o at the Closing, each party will have received from the other
certificates, certifying the representations and warranties and the
performance and compliance with all agreements, covenants and
conditions
o all proceedings taken by it and all instruments executed and
delivered by it on or prior to the Closing Date in connection with
the transactions will be reasonably satisfactory in form and
substance to counsel for the other party
o all other documents required to be delivered by it on or prior to
the Closing Date will be delivered or will be tendered by the
Closing Date.
o each will have obtained all consents and approvals necessary to the
performance by it of the transactions and each will have made all
necessary government filings
o Intellicell or the Merger Sub will have entered into employment
agreements with Ronald Goldberg and Cary Maimon, made employment
arrangements with other CWI employees and approved severance
arrangements with other CWI employees
o the average closing price on Nasdaq of the Intellicell Common Stock
for any five consecutive trading day period ending at least three
trading days prior to the Closing Date will not be below $2.50 per
share; provided that each party may only terminate the Merger
Agreement pursuant to this condition by giving written notice of
termination within three business days of the end of the five day
trading period
o Intellicell will have received the approval from its current lender,
Nationscredit Commercial Corporation ("Nationscredit"), to the
Merger Agreement and will have obtained an additional line of credit
on terms acceptable to Intellicell and CWI in their sole discretion
for at least $15,000,000 from either Nationscredit, American
National Bank (CWI's current lender) or another commercially
recognized lender. Intellicell will also have obtained additional
debt or equity financing on terms acceptable to Intellicell and CWI
in their reasonable discretion for at least $5,500,000 (exclusive of
the exercise of any currently outstanding warrants or options to
purchase Intellicell Common Stock)
The obligations of Intellicell and the Merger Sub under the Merger
Agreement are subject to the satisfaction of these additional conditions
precedent on or before the Closing Date. Intellicell may waive the unfulfilment
of these conditions precedent. These conditions precedent include:
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o Sands Brothers, the financial advisor to Intellicell, will have
delivered to Intellicell its written opinion to the effect that the
CWI Merger is fair to the Intellicell stockholders from a financial
point of view
o no CWI Stockholder will have exercised any appraisal right with
respect to the CWI Merger
o CWI and Intellicell will have entered into agreements with Leavitt
Communications, Inc. ("LCI"), Continental Mobile Telephone Company,
Inc. ("CMT") and any other parties related to CWI covering LCI's
right of first refusal to purchase any CWI computer hardware or
software that may be sold by Merger Sub, LCI's and CMT's tenancy,
management and LCI's and CMT's access to Merger Sub's resources and
any other existing relationships between CWI and any of its related
parties, all on terms acceptable to Intellicell in its sole
discretion
o Philip Leavitt and Sherwin Geitner will have terminated their
employment with CWI as of the Closing Date
o at the Closing, Intellicell will have received an opinion of
Kamensky & Rubinstein, counsel for CWI, dated the date of the
Closing Date, in form and substance reasonably satisfactory to
Intellicell and its counsel, to the effect set forth below. In
rendering the opinions below, such counsel may rely on opinions of
other counsel and certificates of officers and employees of CWI
delivered in connection with the Merger Agreement
- CWI's due incorporation, existence, good standing and requisite
power
- corporate approval and authorization of the Merger Agreement
and CWI Merger and binding effect of the Merger Agreement
- absence of known litigation and proceedings that would
materially affect the CWI Merger
The obligations of CWI under the Merger Agreement are subject to the
satisfaction of the following additional conditions precedent on or before the
Closing Date. CWI may waive the unfulfilment of these conditions precedent.
o on or before the Closing Date, Intellicell will have amended its
certificate of incorporation to increase the number of shares of
Common Stock it is authorized to issue to 25,000,000 and to change
Intellicell's name to Focus Affiliates, Inc. or other similar name
as may be determined by the Board
o Intellicell will have amended its Bylaws to increase the authorized
number of seats on its Board to eight, and three designees of CWI
(who will be reasonably acceptable to Intellicell and at least one
of whom is not an officer, director, employee or significant CWI
Stockholder) will have been duly elected to the Intellicell Board
o execution and delivery of a voting trust or similar agreement with
the Principal CWI Stockholders signed by Intellicell stockholders
owning a specified number of shares of Intellicell Common Stock
covering the election of Intellicell directors, including the
designees of the CWI Stockholders
o at the Closing, CWI will have received an opinion of Troy & Gould
Professional Corporation, counsel for Intellicell, dated the Closing
Date, in form and substance reasonably satisfactory to
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CWI and its counsel, to the effect set forth below. In rendering
the opinions below, such counsel may rely on opinions of other
counsel and certificates of officers and employees of Intellicell
delivered in connection with the Merger Agreement.
- Intellicell's and its subsidiaries' due incorporation,
existence, good standing and requisite power
- corporate approval and authorization of the Merger Agreement
and CWI Merger and binding effect of the Merger Agreement
- absence of known litigation and proceedings that would
materially affect the CWI Merger
- the shares of Intellicell Common Stock to be issued in
accordance with the Merger Agreement are duly authorized, and
will be, upon the effectiveness of the CWI Merger, validly
issued, fully paid and nonassessable
- the method of computing Share Value will not violate federal
securities laws and regulations or rules and regulations of the
National Association of Securities Dealers, Inc.
- no filing is required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976
- the CWI Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code
- the Intellicell stockholders will not have any appraisal rights
- the transactions contemplated by the Merger Agreement will not
violate the registration requirements of the Securities Act of
1933
INDEMNIFICATION BY CWI AND PRINCIPAL CWI STOCKHOLDERS.
Subject to the terms and conditions of the Merger Agreement, CWI, jointly
and severally with the Principal CWI Stockholders, and the Principal CWI
Stockholders, pro rata (based on their proportionate ownership of CWI Stock
prior to the Closing), have agreed to indemnify Intellicell and its affiliates
against any and all losses and damages (including reasonable legal fees and
expenses) which Intellicell or its affiliates may incur that are caused by or
arise out of any inaccuracy in or breach of any of the representations,
warranties or covenants made by CWI or the Principal CWI Stockholders in the
Merger Agreement. However, (a) the indemnification will not include lost
profits or other consequential damages and (b) following completion of the
Merger, the indemnification (including CWI's representations and warranties)
will be provided solely by the Principal CWI Stockholders pro rata (based on
their proportionate ownership of CWI Stock prior to the Closing).
The liability of CWI and the Principal CWI Stockholders will be limited
as follows: (i) the maximum aggregate liability for all claims will not exceed
$2,500,000; and (ii) CWI and the Principal CWI Stockholders will only be
obligated with respect to any claim of indemnification to the extent the
aggregate liability exceeds $100,000, in which case CWI and the Principal CWI
Stockholders will be obligated for all liability up to the $2,500,000 maximum.
The obligation of the Principal CWI Stockholders to indemnify Intellicell
and its affiliates is subject to the condition that the Principal CWI
Stockholders will have received a claim within 18 months of the Closing Date.
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INDEMNIFICATION BY INTELLICELL
Subject to the terms and conditions contained in the Merger Agreement,
Intellicell has agreed to indemnify CWI, its stockholders and its affiliates
against any and all losses and damages (including reasonable legal fees and
expenses) which any of them may incur that are caused by or arise out of any
inaccuracy in or breach of any of the representations, warranties or covenants
made by Intellicell in the Merger Agreement. However, the indemnification will
not include lost profits or other consequential damages, and Intellicell will
have no liability or obligation if the transactions contemplated by the Merger
Agreement do not qualify for nonrecognition treatment under the Internal Revenue
Code for any reason.
The liability of Intellicell will be limited as follows: (i) the maximum
liability of Intellicell for all claims will not exceed $2,500,000; and (ii)
Intellicell will only be obligated with respect to any claim of indemnification
to the extent the aggregate liability exceeds $100,000, in which case
Intellicell will be obligated for all liability up to the $2,500,000 maximum.
The obligation of Intellicell to indemnify CWI, its stockholders and its
affiliates is subject to the condition that Intellicell will have received a
claim within 18 months of the Closing Date.
ELECTION OF DIRECTORS AND APPOINTMENT OF OFFICERS FOLLOWING THE CWI MERGER
The bylaws of Intellicell currently provide for a Board consisting of
between two and six members, with the number fixed by resolution of the Board.
The Board intends to amend the bylaw provision to permit a greater number of
directors if the CWI Merger is consummated. During the two-year period
following the Closing Date, Intellicell and Merger Sub each will have an
eight-member Board of Directors and will use their commercially reasonable best
efforts to cause the election of three persons to the Intellicell Board of
Directors and Merger Sub Board of Directors who have been designated by the CWI
Stockholders (at least one whom was not an officer, director, employee or
significant CWI Stockholder and all of whom will be reasonably acceptable to
Intellicell). Thereafter, Intellicell and Merger Sub each will have a
seven-member Board of Directors and will use their commercially reasonable best
efforts to cause the election of two persons to the Intellicell Board of
Directors and Merger Sub Board of Directors who have been designated by the CWI
Stockholders (and who are reasonably acceptable to Intellicell), provided that
the CWI Stockholders continue to own in the aggregate at least 50% of the shares
of Intellicell Common Stock issued to them by Intellicell in connection with the
Merger, including Base Shares and Additional Shares.
The CWI Stockholders have expressed their intention to designate Ronald
Goldberg, Cary Maimon and David Segneri for appointment to Intellicell's and
Merger Sub's Boards of Directors following the Closing Date. On the Closing
Date, Intellicell has also agreed to appoint several current CWI officers as the
following officers of Intellicell and Merger Sub: Ronald Goldberg (Senior Vice
President--U.S. Operations), Mel Cohen (Vice President - Finance and
Administration) and Cary Maimon (Vice President - General Manager).
Ronald Goldberg, age 51, is a founder of CWI and has served as its
president since 1987. Prior to 1987, Mr. Goldberg was co-founder of Continental
Mobile Telephone Company, a Chicago airtime reseller, and Continental
Communications, which owned and operated as many as 23 retail stores.
Melvyn Cohen, age 52, has served as CWI's Chief Financial Officer since
November 1989. Mr. Cohen received his certified public accountant certificate
in 1981.
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Cary Maimon, age 44, has served as Vice-President/General Manager of CWI
since 1996. From 1986 to 1993, he was employed by Cellular
One-Chicago/Southwestern Bell Mobile Systems where he served in increasingly
senior positions, including Vice-President of Sales & Marketing. From 1994 to
1996, Mr. Maimon was the General Sales Manager of Mobile Media Paging, a
national provider of paging services.
David Segneri, age 46, has been the owner and president of TeleCourier
Communications, in Bloomington, Illinois since 1981. TeleCourier provides
telecommunications services, such as cellular, paging, two-way radio, business
telephone systems, and computer networks.
OPERATION OF FACILITIES FOLLOWING THE CWI MERGER
It is currently contemplated that Intellicell's Chatsworth, California,
facility will serve as its West Coast warehousing facility and the headquarters
for Intellicell's corporate functions; Intellicell's Chief Executive Officer,
Chief Financial Officer and Marketing and Business Development functions will be
based in Dallas, Texas; and CWI's current Chicago area and Miami facilities will
continue to be maintained, all subject to the discretion of Intellicell's Board
of Directors.
FEES AND EXPENSES
Whether or not the CWI Merger is consummated, Intellicell will bear all
of its costs and expenses incurred in connection with the Merger Agreement and
related matters, including this Proxy Statement. The Principal CWI Stockholders
will bear all of the costs and expenses of CWI and the Principal CWI
Stockholders, except (i) the Principal CWI Stockholders will not be required to
reimburse CWI for expenses relating to the CWI Merger that are incurred by CWI
and paid before the Closing and (ii) subject to certain limitations, Intellicell
will reimburse CWI for up to 50% of any payments made by CWI to its independent
certified public accountants for preparing the audited financial statements for
this Proxy Statement, with the amount of this reimbursement to in no event
exceed $25,000.
TERMINATION PRIOR TO THE CLOSING DATE
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the Intellicell stockholders, by any
of the following:
o by mutual consent of CWI and Intellicell
o by either CWI or Intellicell, if the CWI Merger is not consummated
before October 30, 1999 (unless the failure to consummate the CWI
Merger is due to the action or failure to act of the party seeking
to terminate the Merger Agreement)
o by either CWI or Intellicell, if (a) the conditions to the party's
obligations have become commercially impracticable to satisfy; or
(b) any permanent injunction or other order of a court or other
competent authority preventing the consummation of the CWI Merger
will have become final and non-appealable
o by either CWI or Intellicell, if the issuance of the shares of
Intellicell Common Stock in connection with the CWI Merger is not
duly approved by the Intellicell stockholders.
o by either CWI or Intellicell if (a) an SEC or Nasdaq proceeding is
pending or threatened against Intellicell or (b) the financing
commitments described in the Merger Agreement have not been
obtained.
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ABSENCE OF APPRAISAL RIGHTS
Under the General Corporation Law of the State of Delaware, the
stockholders of Intellicell are not entitled to appraisal rights with respect to
the CWI Merger. The Principal CWI Stockholders have approved the CWI Merger and
have expressly waived any appraisal rights. It is a condition precedent to
Intellicell's obligation to complete the CWI Merger that no CWI Stockholder will
have exercised any appraisal right that he may have with respect to the CWI
Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is anticipated that, for federal income tax purposes, (i) the CWI
Merger will constitute a "reorganization" within the meaning of Sections
368(a)(1)(A) and (a)(2)(D) of the Internal Revenue Code of 1986, as amended, and
(ii) no taxable gain or loss will be recognized by Intellicell, Merger Sub or
CWI. The CWI Merger will have no tax impact on Intellicell's current
stockholders.
ACCOUNTING TREATMENT
For accounting purposes, the CWI Merger will be accounted for as a
purchase. The purchase accounting method will require Intellicell to write up
the book value of CWI's assets following the CWI Merger to at least the purchase
price paid by Intellicell in the Merger. Assets acquired and liabilities
assumed will be recorded at their estimated fair values, with the excess of the
purchase price over the estimated fair values of CWI's net assets to be
allocated to goodwill, which will create significant goodwill for Intellicell
for accounting purposes.
ANTITRUST MATTERS
The CWI Merger is not subject to the pre-filing requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 because CWI, on the one
hand, and Merger Sub and Intellicell, on the other hand, do not meet the minimum
size of person thresholds under this statute.
At any time before or after the Closing Date, the Federal Trade
Commission, the Department of Justice or others could take action under the
antitrust laws with respect to the CWI Merger, including seeking to enjoin the
consummation of the CWI Merger, to rescind the CWI Merger or to require the
divestiture of substantial assets of Intellicell, Merger Sub or CWI. While
Intellicell believes that the CWI Merger is legal under the antitrust laws,
there can be no assurance that a challenge to the CWI Merger on antitrust
grounds will not be made or, if such a challenge is made, that it would not be
successful.
DESCRIPTION OF INTELLICELL
Intellicell is engaged in the wholesale distribution of wireless
communications products. Intellicell offers wireless telephones and accessories
from leading manufacturers, featuring brand names such as AT&T, Audiovox,
Ericsson, Mitsubishi, Motorola, Nokia, NEC, Panasonic, Qualcomm, Samsung and
Sony. Intellicell has developed a customer base of more than 2,100 wholesalers,
carriers, agents, dealers and retailers. Intellicell has historically acquired
most of its inventory products from, and has sold a substantial portion of this
inventory to, other distributors.
Intellicell's objective is to capitalize on wireless communications
opportunities in markets in which Intellicell believes it can achieve
significant growth. Intellicell intends to implement its business strategy by
(i) strategically aligning with certain key manufacturers and network operators
to provide value-added services,
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(ii) transitioning to a company offering a broad selection of services related
to distribution, including "just in time" delivery of wireless handsets and
accessories, purchasing, selling, warehousing, picking, packing and shipping and
value added services, including inventory management, marketing, kitting and
customized packaging, private labeling, light assembly, accounts receivable
management, end user support services and warranty servicing. As part of this
strategy, Intellicell is targeting emerging foreign markets and may seek to
expand through acquisitions of companies in businesses related to that of
Intellicell.
DESCRIPTION OF CWI
GENERAL
CWI is engaged in the wholesale distribution of wireless communication
products. CWI offers wireless telephone, accessories, pagers and other
electronic products, including two-way radios from leading manufacturers
featuring brand names such as Audiovox, Motorola and Nokia. CWI has developed
a customer base of more than 3,000 wholesalers, agents, dealers and retailers.
CWI was founded in 1987 as an Illinois Corporation by Sherwin Geitner,
Ronald Goldberg and a third individual no longer affiliated with CWI. In 1983,
these individuals also started Continental Mobile Communication Services, Inc.
("CMCS"), a Chicago area retailer of cellular mobile phones and airtime. CWI
was formed to supply wireless products on a wholesale basis to dealers and
agents, including CMCS. By supplying products to this distribution channel of
network operators, it created value by distributing product on behalf of
manufacturers and servicing the dealers and agents of network operators with
approved and in demand inventory. CWI was one of the early value-added
distributors of the cellular and wireless industry.
In April 1987, Philip Leavitt became a stockholder of CMCS and CWI, and
CMCS was renamed Continental Leavitt Communications, Inc. ("CLC"). By being one
of the earliest providers of cellular technology, CLC grew to become one of the
largest Cellular One agents in the Chicago metropolitan area, and one of CWI's
most significant customers. CLC sold most of its assets in 1999.
From its inception, CWI's objective was to capitalize on wireless
communications opportunities by providing dealers, agents and retailers (the
"indirect" distribution channel) with wireless product and by developing new
distribution channels. CWI has historically provided this service by
implementing its business strategy of (i) strategically aligning with certain
key manufacturers and network operators to provide value-added services, (ii)
transitioning to a service-based company offering a broad selection of services
related to distribution, including "just in time" delivery of wireless handsets
and accessories, purchasing, selling, warehousing, picking, packing and shipping
and value added services, including inventory management, marketing, kitting and
customized packaging, private labeling, light assembly, accounts receivable
management, end user support services and warranty servicing. As part of its
business strategy, CWI also targeted emerging foreign markets and opened a
facility in Miami, Florida to service the Latin America market. In addition, CWI
committed to an investment of over $2,000,000 to build-out the information
technology systems required to implement its business strategy.
RECENT DEVELOPMENTS
CWI experienced a significant increase in revenues from 1996 to 1998,
which grew from $40,135,000 for the fiscal year ended September 30, 1996 to
$81,031,000 for the fiscal year ended September 30, 1998. The increase in
revenues and the resulting increase in net income of CWI are attributable to
various factors, including the relationships with certain suppliers, including
Motorola. The
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Motorola relationship is a direct result of the efforts of Ronald Goldberg
(CWI's current President) and Cary Maimon (CWI's current Vice President-General
Manager).
For the year ended September 30, 1998, CWI's revenue consisted of four
main categories: phones ($61,595,000 or 77% of total product sales), phone
accessories ($8,992,000 or 11% of total product sales), pagers and pager
accessories ($4,215,000 or 5% of total product sales) and two-way radios
($4,918,000 or 6% of total product sales). Other miscellaneous sales
represented approximately 1% of CWI's total product sales for the year ended
September 30, 1998.
In an effort to manage its growth, CWI moved in February 1999 to a
60,000-square foot office and warehouse facility in Lincolnshire, Illinois.
This facility is nearly twice the size of its previous location which was based
in Skokie, Illiniois. This new facility is owned by 600 Knightsbridge
LLC, an entity owned by three of CWI's Principal Stockholders.
Starting in 1997, the wireless industry began a shift to digital-based
technologies. CWI's supplier relationships, including its relationship with
Motorola, and CWI's ability to procure other digital wireless products from
Audiovox and Sony, to name a few, has enabled CWI to consistently supply its
customer base with the in-demand product containing the digital technology.
CWI maintains non-exclusive distribution agreements with Motorola, Sony,
Audiovox and Nokia (for accessories only), pursuant to which CWI has been able
to distribute analog and cellular digital telephones and accessories to its
customer base. CWI also purchases products as they become available from other
sources, such as excess inventory from network operators or other distributors.
In addition, CWI distributes hand-held radios manufactured by Motorola, Audiovox
and Kenwood. Recently, Sony announced that it will cease manufacturing wireless
products, thus eliminating one supplier of both CWI and Intellicell. Management
of CWI believes Sony's decision to cease supplying wireless products will not
have a material adverse effect on the operating results of CWI.
The wide acceptance of the digital technology in wireless handsets, which
included personal communications services ("PCS"), TDMA and CDMA formats has had
no adverse effect on the demand for products sold by CWI. However, there can be
no assurance that CWI will be able to maintain the strategic relationships with
manufacturers of digital wireless products or secure any additional strategic
relationships allowing it to access digital products directly. CWI's future
financial results will be adversely affected if it is unable to continue to
secure and maintain (i) supplier relationships with manufacturers of analog and
digital wireless products and (ii) a consistent supply of digital products at
commercially competitive rates.
CUSTOMERS
CWI has developed a customer base of more than 3,000 agents, dealers and
retailers. CWI believes that this segment of the industry will continue to be
the primary purchasers of CWI's products.
For the fiscal years ended September 30, 1997 and 1998, sales of
cellular products to the CWI's five largest customers accounted for
approximately 11.9% and 13.7%, respectively, of revenues. For the fiscal year
ended September 30, 1997, sales to its largest customer and second largest
customer accounted for approximately 2.9% and 2.9%, respectively, of CWI's
revenues. For the fiscal year ended September 30, 1998, sales to its largest
customer and second largest customer accounted for approximately 4.4% and 2.7%,
respectively, of the CWI's revenues.
CWI generally sells its products pursuant to customer purchase orders and
ships product orders received by 4:00 P.M. local time the same day. Unless
otherwise requested, substantially all of CWI's
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products are delivered within a few days of receipt of customer orders by
common carrier. Because orders are filled shortly after receipt, backlog is not
material to CWI's business. CWI does not sell its products to customers in
foreign markets, instead it sells to brokers or exporters who then sell to
customers in foreign markets.
SUPPLIERS
CWI has established relationships with leading manufacturers and
distributors of wireless products. CWI generally negotiates directly with
suppliers in an effort to obtain adequate inventories of popular brand name
products on favorable pricing terms. Inventory purchases are based on quality,
price, service, customer demand, product availability and brand name
recognition. Product manufacturers typically provide warranties, which CWI
extends to its customers.
CWI has entered into non-exclusive arrangements with Motorola, Sony,
Audiovox, and Nokia (for accessories only) pursuant to which CWI distributes
wireless telephones and accessories to carriers, retailers and, with the
exception of Sony products, wholesalers. Such arrangements are terminable on
short notice. CWI purchases products from the above manufacturers and other
distributors pursuant to purchase orders placed from time to time in the
ordinary course of business. CWI believes that its relationships with its
suppliers are satisfactory.
CWI generally places orders to its suppliers by facsimile on a daily
basis. Purchase orders are typically filled within one to seven days and
wireless products are shipped to the CWI's warehouses by common carrier.
SALES, MARKETING AND DISTRIBUTION
CWI's executive officers and sales staff are responsible for all of the
sales efforts. The sales personnel are paid a base salary plus commission
(generally between 8% and 15% of gross profit represented by their sales).
CWI's sales staff consists of 22 account executives and support staff.
Account executives are responsible for maintaining all customer relations with
their assigned group of customers. Because of the service-oriented nature of the
business, CWI's executive officers devote a substantial amount of time to
developing and maintaining continuing personal relationships with CWI's
customers. CWI's ability to expand its customer base may be limited by the
number of marketing personnel and will be largely dependent upon the efforts of
such individuals.
In an effort to increase its sales in foreign markets, primarily Latin
America, CWI opened a facility in Miami, Florida in 1995. To accomodate its
growth, in July 1998, CWI assumed a lease from Intellicell on a larger
12,800-square foot warehouse and office facility in Miami, Florida that
Intellicell had originally leased in November 1997.
CWI believes that product recognition by customers and consumers is an
important factor in the marketing of the products sold by CWI. Accordingly, CWI
promotes its product lines through advertising in trade publications, special
promotions and attendance at national and regional trade shows. CWI's
manufacturers and dealers use a variety of methods to promote their products
directly to consumers, including print and media advertising.
MANAGEMENT INFORMATION SYSTEMS
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CWI believes its ability to grow its operations to date have been due in
part to the substantial investment that it has made in information systems.
CWI's management believes these systems are an important factor in providing
customers with competitive prices and rapid delivery of variety of products.
Accordingly, in 1998, CWI commenced a project to upgrade its information
systems, including making these systems Year 2000 compliant. CWI currently
maintains, and will continue its financial, accounting and management controls
for its operations through the use of a centralized accounting system and a
computerized management information system. CWI maintains a Windows NT
client-server environment, which interfaces with its Hewlett Packard (HP3000)
mainframe to host its various applications. CWI's management information system
is designed to enable CWI to market and to adapt to new product developments and
to enhance corporate productivity through the integration of sales inventory
controls, purchasing and financial and credit control. CWI believes that the
system allows CWI to provide value to its customers through general efficiency,
and timely and accurate product and pricing information. Internally, the system
provides management and other key employees with detailed account information,
including buying and credit histories and current account status, as well as
pricing and product availability information.
In 1998 CWI commenced a project (the "Project") that addressed the Year
2000 readiness of its information technology as well as its non-information
technology systems (e.g., alarm systems, office machines, etc.) which have
embedded technology (collectively referred to as Systems). Additionally, the
Project includes assessment of the Year 2000 readiness of CWI's significant
suppliers and customers. The Project is divided into four separate phases -
Planning and Awareness, Inventory, Assessment and Renovation.
The Planning and Awareness phase has been completed and included: (i)
development and approval of the Project charter, (ii) formation of a Project
management team to carry out the Project charter, (iii) identification and
assessment of overall Project risks and (iv) development of a Project budget.
CWI has implemented and completed the Inventory phase of the Project,
which involved: (i) identification of significant systems to be assessed and
(ii) identification of all significant suppliers and customers. Because CWI does
not believe that its customers' Year 2000 compliance issues will have a
significant impact on CWI, it has been conducting informal conversations about
Year 2000 issues with its customers.
The Assessment phase also has been completed. This phase involved (i)
contacting vendors of significant systems to assess the Year 2000 readiness
of those systems, (ii) testing of the assertions made by significant systems
vendors, (iii) contacting significant suppliers, customers and wireless
network operators in order to ascertain their state of Year 2000 readiness,
(iv) assessment of assertions made by significant suppliers and customers,
(v) determination of the extent to which renovation will be required to
insure Year 2000 readiness and (vi) development of contingency plans to the
extent considered necessary.
The Renovation phase is underway for CWI's management information systems
identified as not Year 2000 compliant. The Renovation phase is expected to be
completed during the fourth quarter of 1999. The activities that have been and
will be performed during Renovation include (i) installation of new hardware and
software for CWI's management information systems (ii) testing and validation of
renovated Systems and (iii) establishment and completion of action plans to
address any Year 2000 issues with significant customers and suppliers.
CWI believes that the Project will meets its Year 2000 objectives in a
timely manner. In the event the CWI Merger is consummated and CWI's management
information systems are not Year 2000 compliant by December 31, 1999, the
contingency plan of CWI and Intellicell is to utilize
24
<PAGE>
Intellicell's systems (which currently are believed to be Year 2000 compliant)
to meet CWI's needs until CWI's systems are Year 2000 compliant. CWI has
completed a number of the significant portions of the Project. The ability of
suppliers and customers with which CWI transacts to timely convert their systems
to be Year 2000 compliant is uncertain. Lastly, disruptions in the economy
generally resulting from Year 2000 issues could also have an adverse affect on
CWI's operations. Such failures could materially and adversely affect the CWI's
results of operations, liquidity and financial position.
CWI is dependent on wireless equipment manufacturers for supply of
wireless handsets and accessories. Additionally, demand for CWI's products
(wireless handsets and accessories) by CWI's customers is dependent on the
ability of network operators to provide wireless network services to the
end-users of those products. Failure in the products and/or systems of the
wireless equipment manufacturers or network operators, including those resulting
from a lack of Year 2000 compliance, could have a material adverse effect on
CWI.
The estimated completion dates for the various phases and estimated costs
are dependent upon management's assumptions of certain future events, such as
compliance efforts, the availability of personnel and ability to locate and
install systems. There can be no assurance that third parties which CWI
significantly relies upon will succeed in their Year 2000 compliance efforts or
that failure by third parties would not have a material adverse effect on CWI's
results of operations or financial condition.
EMPLOYEES
On May 31, 1999, CWI had 88 employees, of which six are in executive
positions, 22 are engaged in sales, two in marketing, four in purchasing, seven
in information technology, 19 in warehouse operations, 11 in its Miami office,
four in administrative and human resources and 13 engaged in accounting and
finance activities. There are no employees covered by a collective bargaining
agreement. CWI believes that its relations with its employees are satisfactory.
As a condition to Intellicell's obligation to consummate the CWI Merger, Mr.
Geitner and Mr. Leavitt, both vice presidents of CWI, will resign from CWI.
RISKS RELATED TO THE CWI MERGER
Some of the operating risks associated with Intellicell's business are
described under "Risk Factors" in Item 1 of Intellicell's enclosed Annual Report
for the year ended December 31, 1998 on Form 10-K. In addition to those ongoing
risks and the other material risks described in this Proxy Statement, you should
carefully consider the following risk factors in evaluating whether or not to
approve the CWI Merger.
IF INTELLICELL AND CWI CANNOT EFFECTIVELY INTEGRATE THEIR OPERATIONS, THEN
POTENTIAL BENEFITS OF THE CWI MERGER WILL NOT BE REALIZED.
Intellicell and CWI will have to integrate their management teams as well
as their manufacturing and sales and marketing efforts. If the companies are
not successful in this integration, then the results of operations of the
combined company could be adversely affected, employee morale could decline, key
employees could leave, and customers could choose other distributors. In
addition, until CWI's existing customers have had the opportunity to determine
how well the combined companies will operate, they may choose other
distributors. If the combined operations do not meet the expectations of CWI's
existing customers, then these customers may reduce their future orders or cease
doing business with the combined company altogether.
25
<PAGE>
THE COSTS ASSOCIATED WITH THE CWI MERGER ARE DIFFICULT TO ESTIMATE, MAY BE
HIGHER THAN EXPECTED AND MAY HARM THE FINANCIAL RESULTS OF THE COMBINED
COMPANIES.
Intellicell and CWI estimate that they will incur aggregate direct
transaction costs of approximately $1,308,000 associated with the CWI Merger,
nominal indirect severance costs, and additional costs associated with
consolidation and integration of operations, which cannot be estimated
accurately at this time. If the total costs of the merger exceed estimates or
the benefits of the CWI Merger do not exceed the total costs of the merger, then
the financial results of the combined companies could be adversely affected.
THE MARKET PRICE OF INTELLICELL COMMON STOCK COULD DECLINE AS A RESULT OF THE
CWI MERGER.
The market price of Intellicell's Common Stock may decline significantly
as a result of the CWI Merger if:
o the integration of Intellicell's and CWI's operations is not
successful;
o the combined company does not experience the benefits of the CWI
Merger as quickly or to the extent as may be expected by financial
analysts; or
INTELLICELL INTENDS TO INCUR ADDITIONAL DEBT
Intellicell intends to incur additional indebtedness which is a mutual
condition of the obligation to consummate the CWI Merger. Intellicell has
received a preliminary commitment from Nationscredit for an additional
$15,000,000 line of credit. This preliminary commitment is subject to
completion of Nationscredit's due diligence, and there can be no assurance
that Intellicell will be able to obtain a binding commitment for the line of
credit from Nationscredit or any other lender. If obtained, this indebtedness
could:
o make it difficult to obtain necessary financing for growth, capital
expenditures, debt service requirements or other purposes
o limit the flexibility in planning for, or reacting to, changes in
business and competition
o make it more difficult to react in the event of an economic downturn
Intellicell may not be able to meet its debt service obligations. If cash
flow is inadequate to meet debt obligations as they come due, Intellicell may
face substantial liquidity problems. If Intellicell is unable to generate
sufficient cash flow or obtain funds for required payments, or if Intellicell
fails to comply with other covenants in the indebtedness, there will be a
default. This would permit creditors to accelerate the maturity of the
indebtedness.
INTELLICELL INTENDS TO RAISE ADDITIONAL EQUITY OR DEBT FINANCING
Intellicell intends to raise at least $5,500,000 in additional equity or
debt financing, which is a mutual condition of the obligation to consummate the
CWI Merger. Intellicell anticipates this financing to be in the form of equity.
Nevertheless, Intellicell has not yet obtained a commitment from any third party
to provide such financing, and there can be no assurance that Intellicell will
be able to obtain the this addition financing. If obtained, this financing may
result in additional dilution to or reduced voting control of existing
stockholders of Intellicell. To the extent that options, warrants or other
conversion rights to purchase Intellicell Common Stock are exercised or issued
in the future, there will be future dilution.
THE PURCHASE METHOD OF ACCOUNTING MAY HAVE A NEGATIVE EFFECT ON FUTURE REPORTED
EARNINGS.
26
<PAGE>
The CWI Merger will be accounted for under the purchase method of
accounting. The total estimated purchase price relating to the CWI Merger has
been allocated on a preliminary basis to the assets acquired and liabilities
assumed based on Intellicell's estimates of their respective fair values. To the
extent this purchase price exceeds the fair value of the net tangible assets
acquired at the Closing Date, Intellicell will allocate the purchase price,
based on an independent valuation, to goodwill. While the amortization of
goodwill will have no effect on Intellicell's operating cash flow, such
amortization is expected to have an adverse effect on Intellicell's reported
earnings per share. The allocation of purchase price is subject to change
pending a final determination of the purchase price paid by Intellicell and
analysis of the value of the assets acquired and liabilities assumed. However, a
significant amount of goodwill is expected to be generated in connection with
the CWI Merger
CWI HAS SIGNIFICANT TRANSACTIONS WITH AFFILIATES
CWI leases its headquarters and principal facility from 600 Knightsbridge
LLC, an Illinois limited liability company, the members of which are CWI
Principal Stockholders. Philip Leavitt, one of the Principal CWI Stockholders,
is at least a 90% owner of LCI. LCI and CMT, related parties to CWI, have a
sublease arrangement with CWI. In addition, CWI's personnel provide management
functions to LCI and CMT, such as accounting, support for information systems
and human resources. These services are expected to be provided by Merger Sub to
LCI and CMT after the Closing pursuant to an agreement that will be subject to
Intellicell's approval prior to the Closing. This contemplated agreement will
require determinations of relative use among these entities in order to allocate
costs to the respective parties. Although CWI has not previously had any
significant disputes with LCI or CMT concerning these arrangements, there can be
no assurance that disputes will not arise under the new contemplated
arrangement. Moreover, if CMT or LCI terminates its sublease, Intellicell's
general and administrative costs would correspondingly increase from their
currently anticipated levels.
CWI IS IMPLEMENTING A NEW COMPUTER SYSTEM
CWI is in the process of designing and implementing a Year 2000 compliant
information system. This project (including amounts already expended) will
utilize a significant amount of capital. The estimated costs following the
Closing to complete this project by December 31, 1999, is estimated at
approximately $400,000. If this project is not completed by December 31, 1999 or
if the costs following the CWI Merger are significantly higher than $400,000,
this could have a materially adverse effect on Intellicell's ability to conduct
business and its financial condition.
SELECTED FINANCIAL DATA
INTELLICELL SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for
Intellicell for each of the five years in the period ended December 31, 1998 and
the three month period ended March 31, 1999. Such data have been derived from
and should be read in conjunction with, the audited financial statements and
other financial information contained in Intellicell's annual report on Form
10-K/A No. 2 for the year ended December 31, 1998, and the unaudited financial
statements and other information contained in Intellicell's Form 10-Q for the
three month period ended March 31, 1999, including the notes thereto,
incorporated by reference herein.
INTELLICELL CORP.
SELECTED FINANCIAL DATA
(in thousands, except share and per share data)
27
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Three Months
December December 31, December 31, December December 31, Ended March
31, 1994 1995 1996 31, 1997 1998 31, 1999
(audited) (audited) (audited) (audited) (audited) (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $56,447 $69,850 $81,225 $81,401 $27,787 $6,666
- ----------------------------------------------------------------------------------------------------------------------------------
Cost of Sales 54,402 67,485 77,555 77,862 26,152 6,201
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Profit 2,045 2,365 3,670 3,539 1,635 465
- ----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative
expenses 1,505 1,877 2,747 7,630 4,167 953
- ----------------------------------------------------------------------------------------------------------------------------------
Non-recurring legal, auditing and
professional fees - - - 1,300 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 540 488 923 (5,391) (2,532) (488)
- ----------------------------------------------------------------------------------------------------------------------------------
Other income (expense) (103) (86) (392) (391) (237) (5)
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense
(benefit) 437 402 531 (5,782) (2,769) (493)
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) - - (308) 334 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net (loss) income-historical 437 402 839 (6,116) (2,769) (493)
- ----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss)(1) 257 236 315 (6,116) (2,769) (493)
- ----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) per share
(basic and diluted)(2) $0.13 $0.12 $0.15 ($1.37) ($0.63) ($0.08)
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding (basic) 2,030,000 2,030,000 2,113,674 4,451,182 4,415,902 6,093,500
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding (diluted) 2,030,000 2,030,000 2,114,641 4,451,182 4,415,902 6,093,500
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
December December 31, December 31, December December 31, March 31,
31, 1994 1995 1996 31, 1997 1998 1999
(audited) (audited) (audited) (audited) (audited) (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
PERIOD END):
- ----------------------------------------------------------------------------------------------------------------------------------
Working capital (deficiency) ($175) ($243) $8,432 $3,596 $2,490 $3,015
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 7,250 8,604 16,025 11,414 4,178 5,563
- ----------------------------------------------------------------------------------------------------------------------------------
Short-term debt 445 2,490 - 3,402 - 2,208
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 7,392 8,590 7,216 7,381 1,329 2,208
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (capital deficiency) (142) 14 8,809 4,033 2,849 3,355
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
- ------------------------------------
(1) Includes pro forma adjustments for income taxes. See Note 9 to Notes to
Intellicell's Financial Statements.
(2) Based on pro forma net income and the weighted average number of shares
of Common Stock outstanding.
CWI SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for CWI
for the year ended July 31, 1994, the fourteen-month period ended September 30,
1995 and the years ended September 30, 1996, 1997 and 1998, and the six months
ended March 31, 1999. Such data have been derived from, and should be read in
conjunction with, the audited financial statements and other financial
information contained in CWI's audited financial statements for the years ended
September 30, 1998, 1997 and 1996, including the notes thereto, which are
attached to this Proxy Statement as Appendix C.
CELLULAR WHOLESALERS, INC.
SELECTED FINANCIAL DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
14 months Six Months
Year Ended Ended Year Ended Year Ended Year Ended Ended
July 31, September September September September March 31,
1994 30, 1995 30, 1996 30, 1997 30, 1998 1999
(unaudited) (unaudited) (audited) (audited) (audited) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Sales $61,593 $62,992 $40,135 $53,265 $81,031 $39,772
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of Sales 57,117 59,662 36,014 47,673 73,138 35,837
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Profit 4,476 3,330 4,120 5,592 7,893 3,935
- -----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative
expenses 3,604 5,620 3,365 4,043 5,843 2,990
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 872 (2,290) 756 1,549 2,051 944
- -----------------------------------------------------------------------------------------------------------------------------------
Other income (expense) (437) (919) (506) (122) (892) (219)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense
(benefit) 435 (3,209) 250 1,427 1,159 726
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) - - (13) - 15 -
- -----------------------------------------------------------------------------------------------------------------------------------
Net (loss) income 435 (3,209) 263 1,427 1,144 726
- -----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss)(1) 435 (3,209) 263 1,427 1,144 726
- -----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) per share
(basic and diluted)(2) $543.27 ($4,011.66) $328.34 $1,783.94 $1,429.77 $906.94
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding (basic) 800 800 800 800 800 800
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding (diluted) 800 800 800 800 800 800
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
September September September September March 31,
July 31, 1994 30, 1995 30, 1996 30, 1997 30, 1998 1999
(unaudited) (unaudited) (audited) (audited) (audited) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
Working capital (deficiency) $136 ($3,211) ($2,488) ($1,092) $6,092 ($1,243)
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 15,464 7,913 7,368 9.002 15,585 15,696
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term debt 14,449 10,164 9,050 9,170 8,260 14,865
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 14,983 10,642 9,834 10,040 15,480 14,865
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (capital deficiency) 481 (2,728) (2,466) (1,039) 105 831
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth selected unaudited pro forma combined
financial data for Intellicell for the year ended December 31, 1998, and for the
three-month period ended March 31, 1999, which are presented to reflect the
estimated impact on the historical financial statements of Intellicell of the
CWI Merger, which will be accounted for using the purchase method, and the
issuance of 2,413,388 shares of Intellicell Common Stock and approximately
$4,653,000 in cash as merger consideration (the total consideration that would
be payable if CWI's total stockholders' equity on the Closing Date is equal to
CWI's total stockholder's equity as of March 31, 1999). The income statement
data assume that the CWI Merger had been consummated at the beginning of the
earliest period presented, combining the annual statement of operations of
Intellicell for the year ended December 31, 1998 and CWI for the year ended
September 30, 1998, and the interim statements of operations of Intellicell
for the three months ended March 31, 1999 and CWI for the three months ended
December 31, 1998. The balance sheet data assume that the CWI Merger had been
consummated on March 31, 1999. The unaudited pro forma combined financial
data do not reflect any cost savings and other synergies nor merger related
expenses anticipated by Intellicell management as a result of the CWI Merger
and are not necessarily indicative of the results of operations or the
financial position which would have occurred had the CWI Merger been
consummated at the beginning of the earliest period presented, nor are they
necessarily indicative of Intellicell's future results of operations or
financial position. The unaudited pro forma combined financial data should be
read in conjunction with the historical financial statements, including the
notes thereto, of Intellicell and CWI and the Unaudited Pro Forma Combined
Financial Information, which is attached hereto as Appendix D.
SELECTED PRO FORMA DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three
Fiscal Year Months
Ended Ended
December March 31,
31, 1998 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
- --------------------------------------------------------------------------------
Net Sales $108,818 $28,078
- --------------------------------------------------------------------------------
Cost of Sales 99,290 25,537
- --------------------------------------------------------------------------------
Gross Profit 9,528 2,541
- --------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
Selling, general and administrative expenses 10,009 2,422
- --------------------------------------------------------------------------------
Amortization of Goodwill 1,348 339
- --------------------------------------------------------------------------------
Income (loss) from operations (1,829) (220)
- --------------------------------------------------------------------------------
Other income (expense) (1,129) (216)
- --------------------------------------------------------------------------------
Income (loss) before income tax expense
(benefit) (2,958) (436)
- --------------------------------------------------------------------------------
Income tax expense (benefit) 15 -
- --------------------------------------------------------------------------------
Net (loss) income (2,973) (436)
- --------------------------------------------------------------------------------
Pro forma net income (loss) per share (0.44) (0.05)
- --------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 6,829,290 8,506,888
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
BALANCE SHEET DATA March 31,
1999
- --------------------------------------------------------------------------------
<S> <C>
Working capital (deficiency) ($2,881)
- --------------------------------------------------------------------------------
Total assets 34,735
- --------------------------------------------------------------------------------
Total liabilities 21,726
- --------------------------------------------------------------------------------
Stockholders' equity 13,009
- --------------------------------------------------------------------------------
</TABLE>
COMPARATIVE PER SHARE DATA OF INTELLICELL AND CWI
The following table sets forth certain earnings and net tangible book
value per share data for Intellicell and CWI on historical and pro forma
bases. The pro forma combined earnings per share data are derived from the
Unaudited Pro Forma Combined Statements of Operations appearing elsewhere
herein, which give effect to the CWI Merger using the purchase accounting
method as if the CWI Merger had been consummated at the beginning of the
earliest period presented. There were no cash dividends declared in the
periods indicated. Book value data for all pro forma presentations is based
upon the weighted average number of outstanding shares of Intellicell Common
Stock, adjusted to include the estimated number of shares of Intellicell
Common Stock to be issued in the CWI Merger. The information set forth below
should be read in conjunction with the historical financial statements of
Intellicell and of CWI and the Unaudited Pro Forma Combined Financial
Information, including the notes thereto, incorporated by reference or
appearing elsewhere in this Proxy Statement.
The pro forma data do not reflect any cost savings and other synergies or
merger related expenses anticipated by Intellicell management as a result of the
CWI Merger.
31
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
INTELLICELL: Intellicell Pro forma
March 31, March 31,
1999 1998
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEET DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $3,355 $13,009
- -----------------------------------------------------------------------------------------------------------------------------------
Less Goodwill - 13,476
- -----------------------------------------------------------------------------------------------------------------------------------
Net tangible book value (deficit) 3,355 (467)
- -----------------------------------------------------------------------------------------------------------------------------------
Number of issued and outstanding shares of
common stock 6,914,893 9,328,281
- -----------------------------------------------------------------------------------------------------------------------------------
Net tangible book value (deficit) per share $0.49 ($0.05)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Pro forma
Intellicell Three
Intellicell Pro forma Three Months
Year Ended Year Ended Months Ended
December December Ended March 31,
31, 1998 31, 1998 March 31, 1999
(audited) (unaudited) (unaudited) (unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
- --------------------------------------------------------------------------------------------------------
Net loss ($2,769) ($2,980) ($493) ($436)
- --------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 4,415,902 6,829,290 6,093,500 8,506,888
- --------------------------------------------------------------------------------------------------------
Basic and diluted loss per share ($0.63) ($0.44) ($0.08) ($0.05)
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CWI: Equivalent Pro
CWI March 31, forma March 31,
1999 1999
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEET DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $831
- -----------------------------------------------------------------------------------------------------------------------------------
Number of issued and outstanding shares of
common stock 800
- -----------------------------------------------------------------------------------------------------------------------------------
Net tangible book value (deficit) per share $1,038.75
- -----------------------------------------------------------------------------------------------------------------------------------
Net pro forma tangible book value (deficit)
per share ($0.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Multiply by exchange ratio 3,017
- -----------------------------------------------------------------------------------------------------------------------------------
Equivalent pro forma net tangible book
value per share ($151.03)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
OPERATING DATA:
- ----------------------------------------------------------------------------------------------------------------
Equivalent Pro
Equivalent Pro CWI Three forma Three
CWI Year Ended forma Year Ended Months Ended Months Ended
September 30, September 30, December 31, December 31,
1998 1998 1998 1998
(audited) (unaudited) (unaudited) (unaudited)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $1,144 $396
- ----------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 800 800
- ----------------------------------------------------------------------------------------------------------------
Basic earnings per share $1,430.00 $495.00
- ----------------------------------------------------------------------------------------------------------------
Net pro forma earnings (loss) per share ($0.44) ($0.05)
- ----------------------------------------------------------------------------------------------------------------
Multiply by exchange ratio 3,017 3,017
- ----------------------------------------------------------------------------------------------------------------
Equivalent pro forma earnings (loss) per
share ($1,316.37) ($154.62)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
DIVIDENDS AND PRICE RANGE OF COMMON STOCK
Intellicell has never paid any cash dividends on its Common Stock.
Shares of Intellicell Common Stock are traded on the Nasdaq SmallCap Market
under the symbol "FONE." As of August 13, 1999, the record date for the Annual
Meeting, there were approximately ___ holders of record of Intellicell Common
Stock and 7,014,893 shares of Intellicell Common Stock outstanding.
On July 23, 1999, the last full trading day prior to the public
announcement of the signing of the Merger Agreement, the closing price on the
Nasdaq SmallCap Market of the Intellicell Common Stock was $7.0625 per share.
On August ___, 1999, the most recent practicable date prior to the printing of
this Proxy Statement, the closing price on the Nasdaq SmallCap Market of the
Intellicell Common Stock was $_____ per share.
The following table sets forth the range of high and low closing price
information of shares of Intellicell Stock as reported on the Nasdaq SmallCap
Market for the calendar quarters indicated.
32
<PAGE>
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
First Quarter $9.38 $6.25
Second Quarter $7.88 $4.25
Third Quarter $9.75 $7.13
Fourth Quarter $7.75 $2.75
YEAR ENDED DECEMBER 31, 1998
First Quarter $5.50 $3.00
Second Quarter $3.25 $0.50
Third Quarter $1.88 $0.13
Fourth Quarter $6.88 $0.50
CURRENT YEAR (ENDING DECEMBER 31, 1999)
First Quarter $4.75 $2.34
Second Quarter $6.00 $2.88
Third Quarter (through 8/__/99) $____ $____
</TABLE>
Shares of CWI common stock are not publicly traded, and no broker
maintains a public market for CWI common stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ISSUANCE OF
INTELLICELL COMMON STOCK TO THE CWI STOCKHOLDERS IN ACCORDANCE WITH THE
MERGER AGREEMENT
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO CHANGE INTELLICELL'S NAME TO "FOCUS AFFILIATES, INC."
In July 1999, the Board adopted, subject to the approval of Intellicell's
stockholders, an amendment to Intellicell's certificate of incorporation which
would change the corporate name of Intellicell from "Intellicell Corp." to
"Focus Affiliates, Inc." If this proposal is approved by the stockholders, it
will become effective upon filing of a certificate of amendment to Intellicell's
certificate of incorporation with the Secretary of the State of Delaware.
REASON FOR PROPOSAL
The Board believes that the proposed name change is advisable because
Intellicell has recently changed the name under which it is conducting its
business operations to Focus Wireless Communications. The Board believes the
new name better reflects Intellicell's new business plan, which includes
providing value added services to the indirect distribution channels of
manufacturers of wireless products and network operators. The new name assists
management in presenting its new business plan, which calls for directed or
focused distribution services to manufacturers of wireless handsets and network
operators to manage their indirect distribution channel and develop alternative
distribution channels. Furthermore, the new name creates the opportunity for
Intellicell's management to create a new corporate image for the post-CWI Merger
entity.
The change in Intellicell's corporate name to Focus Affiliates, Inc. will
more closely align Intellicell's corporate name with the name under which it is
currently conducting its operations. The Board was unable to select the name
Focus Wireless Communications, because that name was not available under
Delaware state law.
33
<PAGE>
As discussed in Proposal No. 2, the name change prior to the Closing Date
is a condition precedent to the obligations of Intellicell and CWI to consummate
the CWI Merger. If the name change is not approved by the Intellicell
stockholders, Intellicell and CWI may, in their sole discretion, choose to waive
this condition precedent and proceed with the CWI Merger.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
PROPOSAL NO. 4
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED COMMON STOCK
In July 1999, the Board adopted, subject to the approval of the
Intellicell stockholders, an amendment to Intellicell's certificate of
incorporation to increase the number of authorized shares of Common Stock from
15,000,000 shares to 25,000,000 shares. If this proposal is approved, it will
become effective upon filing of a certificate of amendment to Intellicell's
certificate of incorporation with the Secretary of the State of Delaware. The
certificate of incorporation of Intellicell currently authorizes the issuance of
16,000,000 total shares, which includes 15,000,000 shares of Common Stock, $.01
par value, and 1,000,000 shares of Preferred Stock, $.01 par value, which may be
issued in one or more series.
CURRENT USE OF SHARES
As of August 13, 1999, 7,014,893 shares of Common Stock were outstanding,
and the Board had reserved an aggregate of 4,447,823 additional shares for
future issuance, including the following: (a) 3,098,073 shares reserved for
issuance upon exercise of outstanding warrants and warrants that have been
approved for issuance by the Board; (b) 684,750 shares reserved for issuance
upon exercise of outstanding options granted or to be granted under the 1996 and
1998 stock option plans; and (c) 665,000 shares reserved for issuance upon the
exercise of outstanding options granted outside the 1996 and 1998 stock option
plans. As a result, Intellicell currently has approximately 3,537,284
authorized but unissued and unreserved shares of Common Stock available for
future issuance. Pursuant to the CWI Merger, a minimum of 2,250,000 shares of
Common Stock will be issued to the CWI Stockholders. As of the date of this
Proxy Statement, there are no shares of Preferred Stock issued or outstanding.
If the CWI Merger is consummated, a significant number of the remaining
unissued shares that are not already reserved for other specified purposes will
be issued to the CWI Stockholders Moreover, in conjunction with the CWI Merger,
Intellicell is required to obtain additional debt or equity financing for at
least $5,500,000, which is a condition precedent to Intellicell's and CWI's
obligations to proceed with the CWI Merger. Although Intellicell has not yet
obtained this financing commitment, it anticipates that any financing would
involve the issuance of a significant number of shares of Intellicell Common
Stock or other securities that are convertible into a significant number of
shares.
RIGHTS OF ADDITIONAL COMMON STOCK
The additional Common Stock to be authorized would have rights identical
to currently outstanding Common Stock. Approval of this proposal would not
affect the rights of the holders of currently outstanding Common Stock, except
for effects incidental to increasing the number of shares of Common Stock
outstanding upon any issuance of these additional shares, such as potential
dilution of earnings per share and voting rights of current holders of Common
Stock. The Common Stock has no preemptive rights.
34
<PAGE>
EFFECT OF PROPOSAL
If this proposal is approved, the increased number of authorized shares
of Common Stock will be available for issuance, from time to time, for such
purposes and consideration and on such terms as the Board may approve, and no
further vote of Intellicell's stockholders will be sought except as required by
applicable law or by the rules of the Nasdaq Stock Market, on which the Common
Stock is traded. Pursuant to the requirements of the Nasdaq Stock Market,
stockholder approval is required (in addition to the initial authorization of
the shares) for the issuance of shares of Common Stock (or securities
convertible into Common Stock) under certain circumstances. These circumstances
include, among other things, the issuance, in connection with an acquisition, of
a number of shares equal to 20% or more of the number of shares outstanding
before such issuance, the adoption of certain types of stock option or purchase
plans or other arrangements in which stock may be acquired by Intellicell's
officers or directors, and certain issuances that would result in Intellicell
undergoing a change of control.
The existence of additional authorized shares of Common Stock could have
the effect of rendering more difficult or discouraging hostile takeover
attempts. The Board is not aware of any existing or planned effort to accumulate
material amounts of Common Stock, or to acquire Intellicell by means of a
merger, tender offer, solicitation of proxies in opposition to management, or
otherwise, or to change Intellicell's management, nor is the Board aware of any
person having made any offer to acquire Intellicell's Common Stock or assets.
REASON FOR PROPOSAL
The Board believes that the limited number of currently authorized but
unissued and unreserved shares of Common Stock unduly restricts Intellicell's
ability to respond to business needs and opportunities, given that a substantial
number of the remaining shares are anticipated to be issued in conjunction with
the CWI Merger. The availability of additional shares of Common Stock for
issuance will afford Intellicell flexibility in the future by increasing the
number of authorized but unissued shares of Common Stock available for possible
acquisitions, financing requirements, stock splits, and other corporate
purposes. As discussed above, the increase in the authorized Common Stock prior
to the Closing Date is one condition precedent to the obligations of Intellicell
and CWI to consummate the CWI Merger. If the increase is not approved by the
stockholders, Intellicell and CWI may, in their sole discretion, choose to waive
the condition precedent and proceed with the CWI Merger.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
PROPOSAL NO. 5
APPROVAL OF AMENDMENT TO THE 1998 STOCK OPTION PLAN
The 1998 Stock Option Plan (the "1998 Plan") was originally adopted by
the Board in February 1998 and approved by the Intellicell stockholders in
December 1998. Currently, 540,000 shares of Common Stock are authorized to be
issued under the 1998 Plan, with 45,000 shares available for future option
grants. Intellicell also has a 1996 Stock Option Plan (the "1996 Plan") with
460,000 shares authorized, and 170,250 shares available for future option
grants.
In July 1999, the Board approved an amendment to the 1998 Plan, to
increase the number of shares of Common Stock which are authorized to be issued
under the 1998 Plan from 540,000 to 1,040,000. The affirmative vote of a
majority of the shares present, in person or by proxy, and entitled to vote at
the Annual Meeting is required to approve this amendment. Additional shares are
needed for use in the 1998 Plan so that stock option grants can continue to be
made to attract and retain key employees (including grants anticipated
35
<PAGE>
to be made to current CWI officers and employees if the CWI Merger is
consummated). If this amendment to the 1998 Plan is not approved by the
Intellicell stockholders, no further grants of options will be possible under
the 1998 Plan once options covering the currently available shares are granted.
SUMMARY OF THE 1998 PLAN
The 1998 Plan provides for the grant of options to officers, directors,
other key employees and consultants of Intellicell to purchase up to an
aggregate of 540,000 shares of Common Stock. The 1998 Plan is to be administered
by the Board or a committee of the Board, and is currently administered by the
Board, which has complete discretion to select the optionees and to establish
the terms and conditions of each option, subject to the provisions of the 1998
Plan. Intellicell has formed a committee consisting of two outside directors
which may determine the grants, including the terms and conditions, of options
to executive officers. Options granted under the 1998 Plan may be "incentive
stock options" as defined in Section 422 of the Code, or nonqualified options,
and will be designated as such. Options covering no more than 432,000 shares of
Common Stock may be granted to any one employee in any twelve month period.
The exercise price of incentive stock options may not be less than 100%
of the fair market value of Intellicell's Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns more than
10% of the total combined voting power of all classes of capital stock of
Intellicell). The Code currently limits to $100,000 the aggregate value of
Common Stock that may become exercisable in any one year pursuant to incentive
stock options under the 1998 Plan or any other option plan adopted by
Intellicell. Nonqualified options may be granted under the 1998 Plan at an
exercise price less than the fair market value of the Common Stock on the date
of grant. Nonqualified options also may be granted without regard to any
restriction on the amount of Common Stock that may be acquired upon exercise of
such options in any one year.
In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 90 days (one year in the case of termination by reason of death
or disability) following termination of employment.
Options may not be exercised more than ten years after the grant (five
years after the grant if the grant is an incentive stock option to an employee
who owns more than 10% of the total combined voting power of all classes of
capital stock of Intellicell). Options granted under the 1998 Plan are not
transferable and may be exercised only by the respective grantees during their
lifetime or by their heirs, executors or administrators in the event of death.
Under the 1998 Plan, shares subject to cancelled or terminated options are
reserved for subsequently granted options. The number of options outstanding and
the exercise price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock
dividends. The 1998 Plan is effective for ten years, unless sooner terminated or
suspended.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Incentive stock options under the 1998 Plan are afforded favorable
federal income tax treatment under the Code. If an option is treated as an
incentive stock option, the optionee will recognize no income upon grant or
exercise of the option unless the alternative minimum tax rules apply. Upon an
optionee's sale of the shares (assuming that the sale occurs at least two years
after grant of the option and at least one year after exercise of the option),
any gain will be taxed to the optionee as long-term capital gain. If the
optionee disposes of the shares prior to the expiration of the above holding
periods, then the optionee will recognize ordinary income in an amount generally
measured as the difference between the exercise price and the lower of the fair
market value of the shares at the exercise date or the sale price of the shares.
Any gain or loss
36
<PAGE>
recognized on such a premature sale of the shares in excess of the amount
treated as ordinary income will be characterized as capital gain or loss.
All other options granted under the 1998 Plan are nonstatutory stock
options and will not qualify for any special tax benefits to the optionee. An
optionee will not recognize any taxable income at the time he or she is granted
a nonstatutory stock option. However, upon exercise of the nonstatutory stock
option, the optionee will recognize ordinary income for federal income tax
purposes in an amount generally measured as the excess of the then fair market
value of each share over its exercise price. Upon an optionee's resale of such
shares, any difference between the sale price and the fair market value of such
shares on the date of exercise will be treated as capital gain or loss and will
generally qualify for long-term capital gain or loss treatment if the shares
have been held for more than one year. Recently enacted legislation provides for
reduced tax rates for long-term capital gains based on the taxpayer's income and
the length of the taxpayer's holding period.
Subject to the limits on deductibility of employee remuneration under
Section 162(m) of the Code, Intellicell will generally be entitled to a tax
deduction in the amount that an optionee recognizes as ordinary income with
respect to an option. Options granted to executive officers under the 1998 Plan
are intended to qualify as performance-based compensation for purposes of
Section 162(m) of the Code, and Intellicell will generally be entitled to a tax
deduction in the amount recognized by such officers upon exercise of the
options. No tax authority or court has ruled on the applicability of Section
162(m) to the 1998 Plan and any final determination of the deductibility of
amounts realized upon exercise of an option granted under the 1998 Plan could
ultimately be made by the Internal Revenue Service or a court having final
jurisdiction with respect to the matter. Intellicell retains the right to grant
options under the 1998 Plan in accordance with the terms of the 1998 Plan
regardless of any final determination as to the applicability of Section 162(m)
of the Code to these grants.
The Board may suspend, terminate, modify or amend the 1998 Plan, provided
that any amendment that would increase the aggregate number of shares which may
be issued under the 1998 Plan, materially increase the benefits accruing to
participants under the 1998 Plan, or materially modify the requirements as to
eligibility for participation in the 1998 Plan, will be subject to the approval
of Intellicell's stockholders, except that any such increase or modification
that may result from anti-dilution adjustments does not require stockholder
approval. No suspension, termination, modification or amendment of the 1998 Plan
may, without the consent of the participant to whom an option has already been
granted, affect the rights of such participant under such option.
The foregoing does not purport to be a complete summary of the federal
income tax considerations that may be relevant to holders of options or to
Intellicell. It also does not reflect provisions of the income tax laws of any
municipality, state or foreign country in which an optionee may reside, nor does
it reflect the tax consequences of an optionee's death.
PARTICIPATION IN THE 1998 PLAN
In considering whether to vote for approval of the amendment to the 1998
Plan, you should be aware that Intellicell directors and executive officers are
eligible for option grants under the 1998 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE AMENDMENT TO THE 1998 PLAN
PROPOSAL NO. 6
RATIFICATION OF INDEPENDENT AUDITORS
37
<PAGE>
The Board has appointed Hollander, Lumer & Co. LLP as independent
auditors of Intellicell's financial statements for the fiscal year ending
December 31, 1999, subject to ratification by the stockholders. A representative
of Hollander, Lumer & Co. LLP is expected to be available at the Annual Meeting
to respond to appropriate questions or make other statements such representative
deems appropriate.
Stockholder ratification of the selection of Hollander, Lumer & Co. LLP
as Intellicell's independent auditors is not required by Intellicell's bylaws or
otherwise. If the stockholders fail to ratify the selection, the Board will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board determines
that such a change would be in the best interests of Intellicell and its
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF HOLLANDER,
LUMER & CO. LLP AS INDEPENDENT AUDITORS
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On April 9, 1997, Richard A. Eisner & Company, LLP ("Eisner"), the
accounting firm that audited Intellicell's financial statements at December 31,
1994 and 1995, and for the years ended December 31, 1993, 1994 and 1995,
resigned as Intellicell's independent auditor. The report of Eisner for the
fiscal years ended December 31, 1993, 1994 and 1995 did not contain an adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles. During the audit period for
the fiscal years ended December 31, 1993, 1994 and 1995, and during the interim
period prior to Eisner's resignation, there were no disagreements with Eisner on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure. However, in its letter of resignation addressed
to Intellicell's Board of Directors, Eisner concluded that it was "unable to
rely on the integrity of management." In a subsequent letter filed as an Exhibit
to Intellicell's Current Report on Form 8-K, Eisner stated that its resignation
followed an expanded scope investigation in response to allegations with respect
to the 1996 financial statements made to Eisner by Intellicell's controller, and
that during Eisner's investigation evidence came to its attention that
contradicted statements made to Eisner by management. The investigation was
resolved favorably by independent auditors hired by Intellicell's audit
committee.
Effective April 19, 1997, Intellicell engaged BDO Seidman, LLP ("BDO
Seidman") as independent auditors to audit Intellicell's annual financial
statements. During Intellicell's two fiscal years and the subsequent interim
period prior to the engagement of BDO Seidman, neither Intellicell nor any
person acting on behalf of Intellicell consulted BDO Seidman regarding (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
Intellicell's financial statements or (ii) any matters that were either the
subject of a disagreement or a reportable event.
On May 20, 1998, the Audit Committee of Intellicell and BDO Seidman
agreed that BDO Seidman would not stand for reelection as Intellicell's
independent accountants. Intellicell's decision was in furtherance of its cost
cutting strategies. BDO Seidman's report on Intellicell's financial statements
during the two most recent fiscal years contained no adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During the last two fiscal years, there
were no disagreements between Intellicell and BDO Seidman on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
BDO Seidman would have caused it to make a reference to the subject matter of
the disagreements in connection with its reports.
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<PAGE>
On May 20, 1998, Intellicell engaged the services of Hollander, Lumer &
Co. LLP as independent auditors to audit Intellicell's financial statements.
The financial statements for 1996 and 1997 were reaudited by Hollander, Lumer
and filed as part of Intellicell's annual report on Form 10-K/A No. 2 for the
year ended December 31, 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Intellicell's Common Stock as of July 31, 1999, by (i)
each person who is known by Intellicell to own beneficially more than 5% of
Intellicell's outstanding Common Stock; (ii) each named executive officer (as
defined below) who continued to serve as an officer as of July 31, 1999; (iii)
each of Intellicell's directors; and (iv) all executive officers and directors
of Intellicell as a group.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Name and Address(1) Ownership Ownership(9)
- ------------------------------------------- ---------------- ------------
<S> <C> <C>
Ben Neman................................... 1,375,000(2) 19.6%
Paul Skojdt................................. 1,116,667(3) 15.5%
Michael Hedge............................... -- --
John Swinehart.............................. 200,000(4) 2.8%
J. Sherman Henderson........................ 120,000(5) 1.7%
Mark M. Laisure............................. 200,000(6) 2.8%
Vinay Sharma................................ 100,000(7) 1.4%
All executive officers and directors
as a group (8 persons)..................... 646,666(8) 8.5%
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the address of each stockholder is c/o
Intellicell at 9314 Eton Avenue, Chatsworth, California 91311.
(2) Mr. Neman's address is 2180 Stradella Road, Los Angeles, California 90077.
(3) Includes 200,000 shares issuable upon the exercise of currently exercisable
stock options. Mr. Skojdt's address is 25 West 9th Street, Indianapolis,
Indiana 96204.
(4) Includes 200,000 shares issuable upon the exercise of currently exercisable
stock options.
(5) Includes 100,000 shares issuable upon the exercise of currently exercisable
stock options. Mr. Henderson's address is 9931 Corporate Campus Drive,
Louisville, Kentucky 40223.
(6) Includes 200,000 shares issuable upon the exercise of currently exercisable
stock options.
(7) Includes 100,000 shares issuable upon the exercise of currently exercisable
stock options.
(8) Includes 626,666 shares issuable upon the exercise of currently exercisable
options and warrants.
(9) Based on 7,014,893 shares of Common Stock outstanding on July 31, 1999.
Shares issuable pursuant to currently exercisable stock options or warrants are
added to the number of outstanding shares for the purpose of calculating each
individual's percentage of ownership.
39
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Cellular Specialists, a company controlled by Ben Neman's brother, has
been a customer of Intellicell. For the year ended December 31, 1998,
Intellicell sold $307,696 of wireless products to this Company. As of June 30,
1999, $109,320 remains unpaid and is over 300 days past due.
Digicell International Inc. ("Digicell"), a company controlled by two of
Mr. Neman's cousins, is a customer and a supplier to Intellicell. For the year
ended December 31, 1998, Intellicell sold to Digicell $1,577,000 and purchased
from Digicell $817,000 of cellular products on terms no less favorable to
Intellicell than could be obtained from an unaffiliated third party.
Vinay Sharma, a director of Intellicell, is a partner with the law firm
Sharma & Herron, one of Intellicell's attorneys. Intellicell paid the firm
approximately $28,518 during the year ended December 31, 1998, for legal
services rendered. In March 1998, options to purchase an aggregate of 100,000
shares of Common Stock at $3.81 per share were granted to Mr. Sharma under the
1998 Plan and later repriced to $1.00 per share. At the time, options to
purchase 50,000 shares of Common Stock (3,000 shares at $5.00 granted in 1996,
and 47,000 shares at $8.25 granted in 1997) under the 1996 Plan were canceled.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for the years ended
December 31, 1996, 1997 and 1998 paid by Intellicell to its chief executive
officers and to one other executive officer of Intellicell who received
compensation in excess of $100,000 for the year ended December 31, 1998 (the
"named executive officers"). No other executive officers received compensation
exceeding $100,000 during the last fiscal year.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation(1) Awards
---------------------- ------------
Other Securities
Name and Annual Underlying
Principal Position Fiscal Year Salary($) Bonus Compensation Options (#)
------------------ ----------- --------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C>
Ben Neman 1998 70,170 -- -- --
Chairman of the Board, 1997 72,000 -- -- --
President, and Chief 1996 72,000 -- -- 12,000(4)
Executive Officer(2)
John Swinehart 1998 5,210 -- -- 200,000(5)
Chief Executive Officer
and Director(3)
Stephen Jarrett 1998 115,000 20,000 -- 100,000(6)
Executive Vice President
</TABLE>
- ----------------------
(1) The compensation described in this table does not include medical
insurance, retirement benefits and other benefits received by the executive
officers which are available generally to all employees of Intellicell and
perquisites and other personal benefits received by these executive officers of
Intellicell, the value of which does not exceed the lesser of $50,000 or 10% of
the executive officer's cash compensation in the table.
(2) Mr. Neman served in the capacity of Chief Executive Officer only through
November 1998.
(3) Mr. Swinehart became Chief Executive Officer in November 1998.
40
<PAGE>
(4) The options have an exercise price of $5.50 per share and vest one-third
each year for three years. These options expired in July 1999.
(5) The options have an exercise price of $1.00 per share. Of these options,
166,666 were immediately exercisable and 33,334 were to vest upon exercise of
the warrants issued upon the conversion of the notes offered in the November
1998 private placement. These warrants were exercised in full in March 1999,
making all of these options currently exercisable.
(6) The options were granted in two separate grants of options to purchase
50,000 shares of Common Stock. The first grant was made with an exercise price
of $4.375, a ten year expiration, and vesting one-third each year for three
years. These options were later repriced to $1.00. The second grant was made
with an exercise price of $0.375 per share, a five year expiration, and vesting
one-third each year for three years. In April 1999, Intellicell accelerated the
vesting of all these options, which were then exercised by Mr. Jarrett.
STOCK OPTION GRANTS AND EXERCISES IN 1998
The following table sets forth the grants of stock options to the named
executive officers during 1998.
<TABLE>
<CAPTION>
Percentage
of Total
Number of Options Potential Realizable Value at
Securities Granted to Assumed Annual Rates of Stock Price
Underlying Employees Exercise Appreciation for Option Term(3)
Options During Price Per Expiration ------------------------------------
Name Granted 1998 Share Date 0% 5% 10%
- ------ ---------- ---------- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ben Neman.......... 0 -- -- -- -- -- --
John Swinehart(1).. 200,000 50% $1.00 10/14/08 $50,000 $207,224 $448,436
Stephen Jarrett(2). 50,000 12.5% $1.00 1/08/08 $168,750(4) $306,321(4) $517,381(4)
50,000 12.5% $0.375 10/14/03 $43,750 $61,018 $81,907
</TABLE>
(1) The options have an exercise price of $1.00 per share and were granted on
October 14, 1998. Of these options, 166,666 were immediately exercisable and
33,334 were to vest upon exercise of the warrants issued upon the conversion of
the notes offered in the November 1998 private placement. These warrants were
exercised in full in March 1999, making all of these options currently
exercisable.
(2) The options were granted in two separate grants of options to purchase
50,000 shares of Common Stock. The first grant was made on January 9, 1998 with
an exercise price of $4.375, a ten year expiration, and vesting one-third each
year for three years. These options were later repriced to $1.00. The second
grant was made on October 14, 1998 with an exercise price of $0.375 per share, a
five year expiration, and vesting one-third each year for three years. In April
1999, Intellicell accelerated the vesting of all of these options, which were
then exercised by Mr. Jarrett.
(3) Potential realizable values are computed by multiplying the number of
shares of Common Stock subject to a given option by the closing market price on
the date of grant for a share of Common Stock, assuming that the aggregate stock
value derived from that calculation compounds at the annual 5% or 10% rate shown
in the table for the entire five or ten-year term of the option and subtracting
from that result the aggregate option exercise price. The 5% and 10% assumed
annual rates of stock price appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent Intellicell's estimate
or projection of future Common Stock prices.
(4) Although these options were granted at the fair market value of $4.375 on
January 8, 1998, these numbers assume that the exercise price was $1.00 on
January 8, 1998 in order to reflect the value of the repricing.
There were no stock options exercised by Messrs. Neman, Swinehart, or
Jarrett during 1998.
AGGREGATE FISCAL YEAR-END OPTION VALUES
41
<PAGE>
The following table sets forth information concerning the value of
unexercised stock options held by the named executive officers as of December
31, 1998:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options At
Held At Fiscal Year-End(#) Fiscal Year-End ($) (1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ben Neman 8,000 4,000 $0 $0
John Swinehart 200,000 0 $400,000 $0
Stephen Jarrett 0 100,000 $0 $231,250
</TABLE>
- -------------------
(1) Based on the difference between the exercise price and the fair market
value (the closing price of $3.00 reported by the Nasdaq SmallCap Market on
December 31, 1998).
TEN-YEAR REPRICING OF OPTIONS
The following table sets forth certain information concerning the
repricing of the options of any executive officer during the last ten fiscal
years:
<TABLE>
<CAPTION>
Length
Number of of Original
Securities Market Price Exercise Option Term
Underlying of Stock at Price at New Remaining at
Options Time of Time of Exercise Date of
Name Date Repriced(#) Repricing($) Repricing Price Repricing
- ---------------- ----- ------------ ------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Jarrett 10/14/98 50,000 1.25 $4.375 $1.00 9.2 years
</TABLE>
EMPLOYMENT AGREEMENTS
Intellicell entered into a three-year employment agreement with Ben
Neman, Intellicell's then Chairman of the Board, Chief Executive Officer and
President, effective December 1996, which was automatically renewable and
provided for an annual base salary of $72,000 per year and bonus as determined
by the Board. In November 1998, Intellicell entered into a new employment
agreement with Mr. Neman (the "Neman Agreement") that superseded the prior
employment agreement. Pursuant to the Neman Agreement, Mr. Neman was to serve as
the Chairman of the Board and President of Intellicell, but no longer serve as
its Chief Executive Officer. Mr. Neman was to receive an annual salary of
$72,000 and bonuses as determined by the Board. The term of the Neman Agreement
was to expire in November 2001; provided, however, that the Neman Agreement
could be terminated by Intellicell under certain circumstances. Upon a
termination without cause as defined in the Neman Agreement, Intellicell would
be obligated to make a severance payment to Mr. Neman of $500,000.
On April 21, 1999, Intellicell and Mr. Neman entered into an agreement
pursuant to which Mr. Neman resigned as Chairman of the Board and President, and
the parties terminated Mr. Neman's existing employment agreement. Intellicell
paid Mr. Neman $250,000 upon signing of the termination agreement and will pay
him 24 monthly payments of $14,583,33 each, with the first payment commencing on
May 1, 1999. The termination agreement also provides for some limitations on
Mr. Neman's public sales of the balance of his shares of Intellicell Common
Stock.
Intellicell entered into a two-year employment agreement with Stephen
Jarrett, effective January 1998, for employment as Vice President of Business
Development, with automatic renewals for successive one year periods, unless
either party gave notice Under the agreement, Mr. Jarrett received a salary of
$120,000 per year and incentive bonuses/commissions based on quantity purchase
criteria.
42
<PAGE>
On April 30, 1999, Intellicell and Mr. Jarrett entered into an agreement
pursuant to which Mr. Jarrett resigned as an officer and director, and the
parties terminated Mr. Jarrett's existing employment agreement. Intellicell
paid Mr. Jarrett $68,750, accelerated the vesting of Mr. Jarrett's stock options
to purchase 100,000 shares of Intellicell Common Stock, loaned Mr. Jarrett
$20,000 to assist him with taxes, and deferred repayment of $10,000 that he owed
Intellicell for expense advances. Mr. Jarrett granted an irrevocable proxy to
the Chief Executive Officer of Intellicell until April 30, 2000 for his shares
of Common Stock. The termination agreement also provides for certain
limitations on Mr. Jarrett's public sales of shares he obtained upon the
exercise of the foregoing stock options.
Intellicell entered into a three-year employment agreement with Michael
Hedge, effective January 1999, for employment as Executive Vice
President--General Manager for a period of three years. Under the agreement,
Mr. Hedge will receive a salary of $150,000 per year. In addition, he received
a $36,000 signing bonus and Intellicell agreed to loan him up to $500,400 to
assist him in the exercise of stock options from his previous employer, with
the loan to be repaid upon the earlier of the sale of these shares acquired
or February 28, 2000. To date, Intellicell has loaned Mr. Hedge approximately
$150,000 under this arrangement. In April 1999, Mr. Hedge became the
President and Chief Executive Officer of Intellicell, with all of the other
provisions of his employment agreement continuing in effect.
STOCK OPTION PLANS
Pursuant to the 1996 Plan and 1998 Plan, 460,000 and 540,000 shares of
Common Stock, respectively, were authorized for issuance upon the exercise of
options designated as either (1) options intended to constitute incentive stock
options under the Internal Revenue Code of 1986, as amended or (2) non-qualified
options. Under the 1996 Plan and the 1998 Plan, incentive stock options may be
granted to employees and officers of Intellicell. Non-qualified options may be
granted to consultants, directors (whether or not they are employees), employees
or officers of Intellicell.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
INTELLICELL'S PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT") THAT MIGHT INCORPORATE THIS
PROXY STATEMENT OR FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION,
IN WHOLE OR IN PART, THE FOLLOWING REPORT AND THE PERFORMANCE GRAPH WHICH
FOLLOWS WILL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY SUCH FILING.
The following Report of the Board on Executive Compensation describes the
compensation policies and rationale applicable to Intellicell's executive
officers with respect to compensation paid to such executive officers for the
year ended December 31, 1998. It has not been updated to discuss events after
December 31, 1998, including the subsequent resignations of Mr. Neman and Mr.
Jarrett.
The full Board decided all matters related to the compensation of the
executive officers of Intellicell, except for grants of options to
executive officers under Intellicell's stock option plans that were made
after formation of a committee to oversee such grants. The current Board
consists of Ben Neman, John Swinehart, Vinay Sharma, Stephen Jarrett, J.
Sherman Henderson and Mark M. Laisure. Messrs. Swinehart and Laisure
became directors in November 1998, Mr. Jarrett became a director in March
1998 and Mr. Henderson became a director in February 1998. Mr. Neman
served as the Chairman of the Board and President of Intellicell. Mr.
Swinehart served as the Chief Executive Officer of Intellicell. Mr.
Jarrett served as Executive Vice President of Intellicell.
Intellicell entered into a three-year employment agreement with Ben
Neman, Intellicell's then Chairman of the Board, Chief Executive Officer
and President, effective December 1996 (the "1996 Agreement"). Mr.
Neman's compensation for 1997 was governed by such agreement, which
agreement was superseded by a new three-year employment agreement in
November 1998. Under the
43
<PAGE>
1996 Agreement, Mr. Neman received an annual salary of $72,000 per year
and such bonus as determined by the Board. In determining the salary and
bonus for the Chief Executive Officer, the Board based its decisions upon
the performance of Intellicell, as well as a review of the performance of
the Chief Executive Officer. During 1998, Intellicell performed
substantially below its performance during 1997, and the Board did not
award any bonus to Mr. Neman for 1998. Mr. Neman did not participate in
any decisions by the Board concerning his compensation.
Intellicell entered into a three-year employment agreement with
James Bunting, Intellicell's then Chief Operating Officer and Executive
Vice President, effective July 1996. Mr. Bunting's compensation for 1998
was governed by agreement, which provided for an annual salary of
$70,000 per year and such bonus as determined by the Board. In
determining the salary and bonus for the Chief Operating Officer, the
Board based its decisions upon the performance of Intellicell, as well as
a review of the performance of the Chief Operating Officer. During 1998,
Intellicell performed substantially below its performance during 1997,
and the Board did not award Mr. Bunting any bonus for 1998. Mr. Bunting
did not participate in any decisions by the Board concerning his
compensation. In March 1998, Mr. Bunting's employment as Chief Operating
Officer and Executive Vice President terminated and he resigned from the
Board.
Intellicell entered into a three-year employment agreement with John
C. Snyder II, Intellicell's then Chief Financial Officer and Vice
President, effective April 1997. Mr. Snyder's compensation for 1997 was
governed by such agreement, which provided for an annual salary of
$70,000 per year and an annual bonus of $50,000. In providing for this
salary and bonus for the Chief Financial Officer, the Board based its
decisions upon the market rate of compensation for chief financial
officers in similarly situated companies and upon the experience and
qualifications of Mr. Snyder. In March 1998, Mr. Snyder's employment as
Chief Financial Officer terminated.
Intellicell entered into a two-year employment agreement with
Stephen Jarrett, effective January 1998, for employment as Vice President
of Business Development with automatic renewals for successive one year
periods, unless either party gives notice otherwise. Under the
agreement, Mr. Jarrett will receive a salary of $120,000 per year and
incentive bonuses/commissions based on quantity purchase criteria. The
repricing of the exercise price for 50,000 of Mr. Jarrett's options on
October 14, 1998 from $4.375 to $1.00 was intended to provide an
appropriate incentive to Mr. Jarrett, because the Board believed his
salary was below the comparable industry level.
Intellicell believes that equity ownership by executive officers
provides an incentive to build stockholder value and aligns the interests
of executive officers with the interests of stockholders. Upon the hiring
of executive officers and other key employees, the Board will typically
recommend stock option grants to those persons under Intellicell's stock
option plans, subject to applicable vesting periods. Thereafter, the
Board will consider awarding grants on a periodic basis. The Board
believes that these additional grants will provide an incentive for
executive officers to remain with Intellicell. Generally, options will be
granted at the market price of the Common Stock on the date of grant and,
consequently, will have value only if the price of the Common Stock
increases over the exercise price. In determining the size of the
periodic grants, the Board will consider various factors, including the
amount of any prior option grants, the executive's or employee's
performance during the current fiscal year and his or her expected
contributions during the succeeding fiscal year.
Section 162(m) of the Code, enacted in 1993, generally disallows a
tax deduction to publicly held companies for compensation exceeding $1
million paid to certain of the corporation's executive officers. However,
compensation which qualifies as "performance-based" is excluded from the
$1 million limit if, among other requirements, the compensation is
payable upon attainment of pre-established, objective performance goals
under a plan approved by the stockholders.
44
<PAGE>
The compensation paid to Intellicell's executive officers for the
year ended December 31, 1998 did not exceed the $1 million limit per
officer, nor is it expected that the compensation to be paid to
Intellicell's executive officers for 1999 will exceed that limit. Because
it is very unlikely that the cash compensation payable to any of
Intellicell's executive officers in the foreseeable future will approach
the $1 million limit, the Board has decided at this time not to take any
action to limit or restructure the elements of cash compensation payable
to Intellicell's executive officers. The Board will continue to monitor
the compensation levels potentially payable under Intellicell's cash
compensation programs, but intends to retain the flexibility necessary to
provide total cash compensation in line with competitive practice,
Intellicell's compensation philosophy and Intellicell's best interests.
The foregoing report on executive compensation is provided by the Board
in connection with Intellicell's Form 10-K/A, which was filed with the SEC on
April 29, 1999. The report was prepared by the following directors: John
Swinehart, Michael Hedge, Stephen Jarrett, J. Sherman Henderson, Mark M. Laisure
and Vinay Sharma.
PERFORMANCE GRAPH
The chart below sets forth a line graph comparing the performance of
Intellicell's Common Stock against Nasdaq Market Index and the Media General
Financial Service's Electronics Wholesale Index ("MG Group Index") for the
period from December 18, 1996 (the date on which the market price of the
Company's shares was first quoted by the Nasdaq SmallCap Market following
Intellicell's initial public offering) through December 31, 1998. The indices
assume that the value of an investment in Intellicell's Common Stock and each
index was 100 on December 18, 1996 and that dividends, if any, were reinvested.
[GRAPHIC INSERTED FOR PRINTED VERSION]
<TABLE>
<CAPTION>
12/18/96 12/31/96 12/31/97 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intellicell Corp. 100.00 111.32 75.47 45.28
- --------------------------------------------------------------------------------
MG Group Index 100.00 100.00 108.94 89.74
- --------------------------------------------------------------------------------
Nasdaq Market Index 100.00 100.00 122.32 172.52
- --------------------------------------------------------------------------------
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
Intellicell's directors and certain of its officers, and persons who own more
than 10% of a registered class of Intellicell's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, directors and greater than 10%
stockholders are required by the Commission's regulations to furnish Intellicell
with copies of all Section 16(a) forms they file. Based solely upon a
review of the copies of the forms furnished to Intellicell and the
representations made by the reporting persons to Intellicell, Intellicell
believes that during the year ended December 31, 1998, its directors,
officers and 10% stockholders complied with all filing requirements under
Section 16(a) of the Exchange Act, with the exception of the following:
Stephen Jarrett made two late filings reporting four transactions, Michael King
made one late filing reporting one transaction, Michael Hedge made one late
filing reporting one transaction, Paul Skojdt made one late filing reporting one
transaction, Mark M. Laisure made two late filings reporting his initial
beneficial ownership and one transaction, John Swinehart made two late filings
reporting his initial beneficial ownership and one transaction, David Kane made
two late filings reporting two
45
<PAGE>
transactions, J. Sherman Henderson made one late filing reporting three
transactions, and Vinay Sharma made one late filing reporting four transactions.
STOCKHOLDER PROPOSALS AT THE NEXT ANNUAL MEETING OF STOCKHOLDERS
Stockholder proposals submitted for inclusion in Intellicell's Proxy
Statement and form of proxy relating to Intellicell's 2000 Annual Meeting of
Stockholders must be received by ___________, 2000. Stockholders submitting
proposals should direct them to David Kane of Intellicell, and utilize certified
mail, return-receipt requested in order to ensure timely delivery.
EXPERTS
The financial statements of Intellicell as of December 31, 1998 and
December 31, 1997, and for each of the years in the three-year period ended
December 31, 1998, and the related schedule, have been incorporated by reference
in this Proxy Statement in reliance upon the reports of Hollander, Lumer & Co.
LLP, independent auditors, and upon their authority as experts in accounting and
auditing.
The financial statements of CWI as of September 30, 1998 and September
30, 1997, and for each of the years in the three-year period ended September 31,
1998, and the related schedule, have been incorporated by reference in this
Proxy Statement in reliance upon the reports of Altschuler, Melvoin and Glasser
LLP, independent auditors, and upon their authority as experts in accounting and
auditing.
OTHER MATTERS
Intellicell knows of no other matters that are likely to be brought
before the Annual Meeting. If, however, other matters not now known or
determined properly come before the Annual Meeting, the persons named as proxies
in the enclosed proxy card or their substitutes will vote such proxy in
accordance with their discretion with respect to such matters.
WHERE YOU CAN FIND MORE INFORMATION
Intellicell files annual, quarterly and special reports, proxy statements
and other information with the SEC. Stockholders may read and copy any reports,
statements or other information that Intellicell files at the SEC's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Intellicell's public filings are also available from
commercial document retrieval services and at the Internet web site maintained
by the SEC at http://www.sec.gov.
The SEC allows Intellicell to "incorporate by reference" information into
this Proxy Statement, which means that Intellicell can disclose important
information to stockholders by referring them to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this Proxy Statement, except for any information superseded by
information contained directly herein. This Proxy Statement incorporates by
reference the documents set forth below that Intellicell has previously filed
with the SEC. These documents contain important information about Intellicell
and its financial condition.
o the Intellicell Annual Report on Form 10-K/A No. 2 for the year
ended December 31, 1998.
o the Intellicell Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
46
<PAGE>
o the Intellicell Current Reports on Form 8-K, filed on February 8,
1999, April 20, 1999, April 28, 1999 and August 6, 1999.
Additional documents that Intellicell may file with the SEC between the
date of this Proxy Statement and the date of the Annual Meeting are also
incorporated by reference. These include any periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as any proxy statements.
You can obtain any of the documents incorporated by reference in, but not
included with, this Proxy Statement from Intellicell without charge, excluding
all exhibits unless Intellicell has specifically incorporated by reference an
exhibit in this Proxy Statement, by requesting them in writing or by telephone
from the following address:
Intellicell Corp.
Attn: David Kane
9314 Eton Avenue
Chatsworth, California 91311
Telephone: (818) 709-2300
STOCKHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE THEIR SHARES AT THE SPECIAL MEETING.
NO ONE HAS BEEN AUTHORIZED TO PROVIDE ANY INFORMATION THAT IS DIFFERENT FROM
WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED AUGUST
___, 1999. STOCKHOLDERS SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THE
PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE
MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS NOR THE ISSUANCE OF INTELLICELL
STOCK IN THE CWI MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS
When used in this Proxy Statement with respect to Intellicell, the words
"estimate," "project," "intend," "expect" and similar expressions are intended
to identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this Proxy Statement. Such statements are subject to risks and uncertainties
that could cause actual results to differ materially from those contemplated in
such forward-looking statements. Such risks and uncertainties include those
risks, uncertainties and risk factors identified under the heading "Proposal No.
2--Risks Related to the Merger." Intellicell does not undertake any obligation
to publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
THE STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
Michael Hedge
Chief Executive Officer
August ___, 1999
47
<PAGE>
INTELLICELL CORP.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, SEPTEMBER 29, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby revokes all prior proxies, appoints Michael Hedge
and David Kane, and each or either of them, as proxy holders with power to
appoint his substitute and hereby authorizes the proxy holders to represent and
vote, as designated below, all the shares of Intellicell Corp. held of record by
the undersigned on August 13, 1999 at the Annual Meeting of Stockholders to be
held on September 29, 1999 at 10:00 A.M. or any and all adjournments thereof.
1. ELECTION OF DIRECTORS:
|_| FOR all nominees listed below (except as marked to the
contrary below).
|_| WITHHOLD AUTHORITY to vote for all nominees listed below.
(INSTRUCTION: To withhold authority to vote for any nominee, draw a line
through such nominee's name.)
Michael Hedge
John Swinehart
J. Sherman Henderson
Mark M. Laisure
Vinay Sharma
2. Proposal to approve the issuance of shares of Intellicell common
stock to the stockholders of Cellular Wholesalers, Inc. ("CWI"), in
accordance with the Agreement and Plan of Merger dated as of July
23, 1999, among Intellicell, CWI, the principal stockholders of
CWI, and a wholly owned subsidiary of Intellicell called
Intellicell Merger Sub, Inc. ("Merger Sub"), pursuant to which CWI
will be merged with and into Merger Sub, with Merger Sub surviving
as a wholly owned subsidiary of Intellicell.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To approve an amendment to Intellicell's certificate of
incorporation to change Intellicell's name to "Focus Affiliates,
Inc."
|_| FOR |_| AGAINST |_| ABSTAIN
4. To approve an amendment to Intellicell's certificate of
incorporation to increase the number of shares of common stock
Intellicell is authorized to issue.
|_| FOR |_| AGAINST |_| ABSTAIN
<PAGE>
5. To approve an amendment to Intellicell's 1998 Stock Option Plan to
increase the number of shares of common stock Intellicell can issue
upon the exercise of options granted under the plan.
|_| FOR |_| AGAINST |_| ABSTAIN
6. To ratify the appointment by the Board of Directors of Hollander,
Lumer & Co. LLP as Intellicell's independent auditors for the
fiscal year ending December 31, 1999.
|_| FOR |_| AGAINST |_| ABSTAIN
7. In their discretion, the proxy holders are authorized to vote upon
such other business as may properly be brought before the Annual
Meeting or any and all adjournments thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, FOR THE
ELECTION OF THE NOMINEES, FOR PROPOSALS 2, 3, 4, 5 AND 6 AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND
ANY AND ALL ADJOURNMENTS THEREOF. IN THE EVENT ANY OF THE NOMINEES IS
UNAVAILABLE FOR ELECTION OR UNABLE TO SERVE, THE SHARES REPRESENTED BY THIS
PROXY MAY BE VOTED FOR A SUBSTITUTE NOMINEE SELECTED BY THE BOARD OF DIRECTORS.
Dated: ________________, 1999
--------------------------------------------
Signature
--------------------------------------------
(Signature, if held jointly)
Please sign exactly as your name appears
hereon. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
If a corporation, please sign in full
corporate name by the President or other
authorized officer. If a partnership, please
sign in partnership name by an authorized
partner.
PLEASE PROMPTLY MARK, SIGN, DATE, AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
among
INTELLICELL CORP.
INTELLICELL MERGER SUB,
CELLULAR WHOLESALERS, INC.
AND
PRINCIPAL CWI STOCKHOLDERS
Dated as of July 23, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
I. CWI MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Certificate of Incorporation and Bylaws of the
Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Directors of the Surviving Corporation; Voting Trust
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Officers of the Surviving Corporation. . . . . . . . . . . . . . . . 2
1.7 Conversion of CWI Shares . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 Merger Sub Common Stock Represents Surviving
Corporation Common Stock . . . . . . . . . . . . . . . . . . . . . . 4
1.10 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . 4
1.11 Intellicell to Reserve Shares. . . . . . . . . . . . . . . . . . . . 4
1.12 Further Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13 Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
II. INTELLICELL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Directors of Intellicell . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Officers of Intellicell. . . . . . . . . . . . . . . . . . . . . . . 5
III. BOARD AND SHAREHOLDER APPROVALS . . . . . . . . . . . . . . . . . . . . . . 5
3.1 CWI Board and Stockholder Approval . . . . . . . . . . . . . . . . . 5
3.2 Merger Sub Board and Shareholder Approval. . . . . . . . . . . . . . 5
3.3 Intellicell Board and Stockholder Approval . . . . . . . . . . . . . 5
3.4 Intellicell Proxy Statement. . . . . . . . . . . . . . . . . . . . . 6
IV. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Representations and Warranties of CWI. . . . . . . . . . . . . . . . 6
(a) Due Incorporation, Good Standing and Qualification. . . . . . 6
(b) Corporate Authority . . . . . . . . . . . . . . . . . . . . . 7
(c) Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Options, Warrants and Rights. . . . . . . . . . . . . . . . . 7
(e) Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 7
(f) Financial Statements. . . . . . . . . . . . . . . . . . . . . 7
(g) Actions in the Ordinary Course of Business. . . . . . . . . . 8
(h) No Material Adverse Change. . . . . . . . . . . . . . . . . . 8
(i) Real Estate Rights. . . . . . . . . . . . . . . . . . . . . . 8
(j) Title to Properties . . . . . . . . . . . . . . . . . . . . . 9
(k) Condition of Assets and Properties. . . . . . . . . . . . . . 9
(l) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 9
(m) Intellectual Property . . . . . . . . . . . . . . . . . . . . 9
(n) Consents and Approvals; No Violation. . . . . . . . . . . . 10
(o) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(p) Accounts Receivable . . . . . . . . . . . . . . . . . . . . 10
(q) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 10
(r) Compliance with Law and Other Regulations . . . . . . . . . 11
(s) Employee Benefit and Employment Matters . . . . . . . . . . 12
(t) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 13
(u) Conflicting Interest. . . . . . . . . . . . . . . . . . . . 13
<PAGE>
(v) No Payments to Directors, Officers, Stockholders
or Others . . . . . . . . . . . . . . . . . . . . . . . . . 13
(w) No Prohibited Payments. . . . . . . . . . . . . . . . . . . 14
(x) Minute Books. . . . . . . . . . . . . . . . . . . . . . . . 14
(y) Accuracy of Statements. . . . . . . . . . . . . . . . . . . 14
(z) Information Supplied for Proxy Statement. . . . . . . . . . 14
(aa) Brokers and Finders . . . . . . . . . . . . . . . . . . . . 14
(ab) Related Party Transactions. . . . . . . . . . . . . . . . . 15
(ac) Year 2000 Compliance. . . . . . . . . . . . . . . . . . . . 15
(ad) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Representations and Warranties of CWI and the
Principal CWI Stockholders . . . . . . . . . . . . . . . . . . . . 15
(a) Ownership of Shares . . . . . . . . . . . . . . . . . . . . 15
(b) Investment Representations. . . . . . . . . . . . . . . . . 16
(c) Appraisal Rights. . . . . . . . . . . . . . . . . . . . . . 16
4.3 Representations and Warranties of Intellicell and
Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Due Incorporation, Good Standing and Qualification. . . . . 16
(b) Corporate Authority . . . . . . . . . . . . . . . . . . . . 16
(c) Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 17
(d) Options, Warrants and Rights. . . . . . . . . . . . . . . . 17
(e) Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 17
(f) Intellicell SEC Reports . . . . . . . . . . . . . . . . . . 17
(g) Financial Statements. . . . . . . . . . . . . . . . . . . . 18
(h) Actions in the Ordinary Course of Business. . . . . . . . . 18
(i) No Material Adverse Change. . . . . . . . . . . . . . . . . 19
(j) Real Estate Rights. . . . . . . . . . . . . . . . . . . . . 19
(k) Title to Properties . . . . . . . . . . . . . . . . . . . . 19
(l) Condition of Assets and Properties. . . . . . . . . . . . . 20
(m) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 20
(n) Intellectual Property . . . . . . . . . . . . . . . . . . . 20
(o) Consents and Approvals; No Violation. . . . . . . . . . . . 20
(p) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(q) Accounts Receivable . . . . . . . . . . . . . . . . . . . . 21
(r) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 21
(s) Compliance with Law and Other Regulations . . . . . . . . . 22
(t) Employee Benefit and Employment Matters . . . . . . . . . . 22
(u) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 24
(v) Conflicting Interest. . . . . . . . . . . . . . . . . . . . 24
(w) No Payments to Directors, Officers, Stockholders
or Others . . . . . . . . . . . . . . . . . . . . . . . . . 24
(x) No Prohibited Payments. . . . . . . . . . . . . . . . . . . 24
(y) Minute Books. . . . . . . . . . . . . . . . . . . . . . . . 24
(z) Accuracy of Statements. . . . . . . . . . . . . . . . . . . 25
(aa) The Proxy Statement . . . . . . . . . . . . . . . . . . . . 25
(ab) Brokers and Finders . . . . . . . . . . . . . . . . . . . . 25
(ac) Status of Intellicell Common Stock to be Issued . . . . . . 25
(ad) No Activities . . . . . . . . . . . . . . . . . . . . . . . 25
(ae) Year 2000 Compliance. . . . . . . . . . . . . . . . . . . . 25
(af) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 25
V. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.1 Covenants of CWI . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Truth of Representations and Warranties . . . . . . . . . . 26
(b) Preservation of Business. . . . . . . . . . . . . . . . . . 26
(c) Ordinary Course . . . . . . . . . . . . . . . . . . . . . . 26
(d) Books and Records . . . . . . . . . . . . . . . . . . . . . 27
(e) No Organic Change . . . . . . . . . . . . . . . . . . . . . 27
(f) No Issuance by CWI of Shares, Options, or
Other Securities. . . . . . . . . . . . . . . . . . . . . . 27
(g) Compensation. . . . . . . . . . . . . . . . . . . . . . . . 27
<PAGE>
(h) Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 27
(i) Right of Inspection . . . . . . . . . . . . . . . . . . . . 27
(j) Confidentiality . . . . . . . . . . . . . . . . . . . . . . 28
(k) Satisfaction of Obligations and Liabilities . . . . . . . . 28
(l) Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . 28
5.2 Covenants of Intellicell . . . . . . . . . . . . . . . . . . . . . 29
(a) Truth of Representations and Warranties . . . . . . . . . . 29
(b) Preservation of Business. . . . . . . . . . . . . . . . . . 29
(c) Ordinary Course . . . . . . . . . . . . . . . . . . . . . . 29
(d) Books and Records . . . . . . . . . . . . . . . . . . . . . 29
(e) No Organic Change . . . . . . . . . . . . . . . . . . . . . 30
(f) No Issuance by Intellicell of Shares, Options
or Other Securities . . . . . . . . . . . . . . . . . . . . 30
(g) Compensation. . . . . . . . . . . . . . . . . . . . . . . . 30
(h) Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 30
(i) Right of Inspection . . . . . . . . . . . . . . . . . . . . 30
(j) Confidentiality . . . . . . . . . . . . . . . . . . . . . . 31
(k) Satisfaction of Obligations and Liabilities . . . . . . . . 31
(l) Recommendation of Board of Directors. . . . . . . . . . . . 31
(m) Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . 31
(n) Employee Benefits . . . . . . . . . . . . . . . . . . . . . 32
(o) Third Party Beneficiaries . . . . . . . . . . . . . . . . . 32
(p) Voting Trust Agreement. . . . . . . . . . . . . . . . . . . 32
(q) Operation of Merger Sub . . . . . . . . . . . . . . . . . . 32
VI. CONDITIONS PRECEDENT TO OBLIGATIONS . . . . . . . . . . . . . . . . . . . 32
6.1 Conditions Precedent to the Obligations of Intellicell
and Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Accuracy of Representations and Warranties. . . . . . . . . 33
(b) Performance of Agreements . . . . . . . . . . . . . . . . . 33
(c) Opinion of Financial Advisor. . . . . . . . . . . . . . . . 33
(d) Stockholder Approvals . . . . . . . . . . . . . . . . . . . 33
(e) Opinion of Counsel for CWI. . . . . . . . . . . . . . . . . 33
(f) No Material Adverse Change. . . . . . . . . . . . . . . . . 34
(g) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 34
(h) Certificate of CWI. . . . . . . . . . . . . . . . . . . . . 34
(i) Proceedings Satisfactory to Counsel . . . . . . . . . . . . 34
(j) Consents and Approvals. . . . . . . . . . . . . . . . . . . 34
(k) Delivery of Documents . . . . . . . . . . . . . . . . . . . 35
(l) Employment Agreement. . . . . . . . . . . . . . . . . . . . 35
(m) Intellicell Common Stock Trading Price. . . . . . . . . . . 35
(n) Additional Financing. . . . . . . . . . . . . . . . . . . . 35
(o) Related Party Agreements. . . . . . . . . . . . . . . . . . 35
(p) Insurance Letter. . . . . . . . . . . . . . . . . . . . . . 35
6.2 Conditions Precedent to the Obligations of CWI . . . . . . . . . . 36
(a) Accuracy of Representations and Warranties. . . . . . . . . 36
(b) Performance of Agreements . . . . . . . . . . . . . . . . . 36
(c) Stockholder Approval. . . . . . . . . . . . . . . . . . . . 36
(d) Opinion of Counsel for Intellicell. . . . . . . . . . . . . 36
(e) No Material Adverse Change. . . . . . . . . . . . . . . . . 38
(f) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 38
(g) Certificates of Intellicell and Merger Sub. . . . . . . . . 38
(h) Proceedings Satisfactory to Counsel . . . . . . . . . . . . 38
(i) Delivery of Documents . . . . . . . . . . . . . . . . . . . 38
(j) Consents and Approvals. . . . . . . . . . . . . . . . . . . 38
(k) Amendment to Certificate of Incorporation . . . . . . . . . 39
(l) Amendment to Bylaws; Election of Directors. . . . . . . . . 39
(m) Intellicell Common Stock Trading Price. . . . . . . . . . . 39
(n) Employment Agreements . . . . . . . . . . . . . . . . . . . 39
(o) Voting Trust Agreement. . . . . . . . . . . . . . . . . . . 39
<PAGE>
(p) Additional Financing. . . . . . . . . . . . . . . . . . . . . 39
(q) Insurance Letter. . . . . . . . . . . . . . . . . . . . . . 39
VII. AMENDMENT, WAIVER, TERMINATION. . . . . . . . . . . . . . . . . . . . . . 40
7.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.3 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.4 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . 41
VIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.1 Survival of Representations and Warranties . . . . . . . . . . . . 41
8.2 Indemnification by CWI and Principal CWI Stockholders. . . . . . . 41
8.3 Indemnification by Intellicell . . . . . . . . . . . . . . . . . . 42
8.4 Procedures for Indemnification . . . . . . . . . . . . . . . . . . 42
8.5 Defense of Third Party Claims. . . . . . . . . . . . . . . . . . . 43
8.6 Settlement of Third Party Claims . . . . . . . . . . . . . . . . . 43
IX. OPERATION OF INTELLICELL FOLLOWING MERGER . . . . . . . . . . . . . . . . 44
9.1 Election of Directors. . . . . . . . . . . . . . . . . . . . . . . 44
9.2 Operational Facilities . . . . . . . . . . . . . . . . . . . . . . 44
X. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 44
10.2 Indemnity Against Finders. . . . . . . . . . . . . . . . . . . . . 44
10.3 Controlling Law. . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.5 Binding Nature of Agreement; No Assignment . . . . . . . . . . . . 47
10.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.7 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . 47
10.9 Construction of Agreement. . . . . . . . . . . . . . . . . . . . . 47
10.10 Documents and Exhibits . . . . . . . . . . . . . . . . . . . . . . 47
10.11 Indulgences, Not Waivers . . . . . . . . . . . . . . . . . . . . . 47
10.12 Execution in Counterparts. . . . . . . . . . . . . . . . . . . . . 48
10.13 Provisions Separable . . . . . . . . . . . . . . . . . . . . . . . 48
10.14 Number of Days . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.15 Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . 48
10.16 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . 48
10.17 Nonsolicitation. . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered
into as of July 23, 1999, by and among Intellicell Corp., a Delaware
corporation ("INTELLICELL"), Intellicell Merger Sub, Inc., a Delaware
corporation ("MERGER SUB"), Cellular Wholesalers, Inc., an Illinois corporation
("CWI"), and Ronald Goldberg, Philip Leavitt, Sherwin Geitner, and Cary Maimon
(the "PRINCIPAL CWI STOCKHOLDERS") with reference to the following facts and
subject to the condition that Cary Maimon will only continue for purposes of
this Agreement to be one of the Principal CWI Stockholders if he is a
shareholder of CWI at the time of the merger of CWI into the Merger Sub:
WHEREAS, Intellicell has formed Merger Sub as a wholly-owned subsidiary
for the purpose of effectuating the merger of CWI with and into Merger Sub as
provided herein; and
WHEREAS, the respective Boards of Directors of Intellicell, Merger Sub,
and CWI (collectively, the "COMPANIES") deem it to be in the best interests of
the Companies and their respective stockholders that CWI merge with and into
Merger Sub on the terms and subject to the conditions set forth in this
Agreement (the "Merger"); and
WHEREAS, the Principal CWI Stockholders approve of the Merger and desire
to facilitate the Merger by their agreements contained herein; and
WHEREAS, the parties intend that the transactions contemplated hereby
qualify for nonrecognition treatment under the provisions of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "CODE");
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, the parties agree
as follows:
I. CWI MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as hereinafter defined), CWI shall be merged
with and into Merger Sub, with Merger Sub as the corporation (the "SURVIVING
CORPORATION") surviving the Merger, and the separate existence of CWI shall
cease.
1.2 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of Chapter 805 of the
Illinois Compiled Statutes (the "ILLINOIS ACT") and Subchapter IX of the
Delaware General Corporation Law (the "DELAWARE ACT").
1.3 CLOSING. Subject to Article VI, the consummation of the
transactions contemplated hereby (the "CLOSING") shall take place at the offices
of Kamensky & Rubinstein, 7250 North Cicero Avenue, Suite 200, Lincolnwood,
Illinois 60646-1693, or such other place as the parties hereto shall agree, at
10:00 A.M. on September 30, 1999 or such other time and date as shall be
determined by the parties (the "CLOSING DATE"). Contemporaneously with the
Closing, the Companies shall cause an agreement of merger between Merger Sub and
CWI, in a form that is acceptable to each of the Companies and otherwise
conforms to the requirements of the Illinois Act (the "AGREEMENT OF MERGER"), to
be filed with the Secretary of State of the State of Illinois as provided in
Sections 5/11.25 and 5/11.35 of Chapter 805 of the Illinois Act and with the
Secretary of State of the State of Delaware as provided in Section 252 of
Subchapter IX of the Delaware Act. The Agreement of Merger shall specify that
the Merger shall become effective on the Closing Date or such other time as the
parties shall agree (the "EFFECTIVE TIME").
<PAGE>
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. The Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation. The Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation. The Certificate of Incorporation and Bylaws of Merger
Sub shall be provided to CWI's counsel prior to the Closing Date and shall be
reasonably acceptable to such counsel.
1.5 DIRECTORS OF THE SURVIVING CORPORATION; VOTING TRUST AGREEMENT.
As of the Effective Time, the individuals identified on Exhibit A to the
Agreement shall be elected by Intellicell as the directors of the Surviving
Corporation (the "INITIAL SURVIVING CORPORATION DIRECTORS"), in each case to
serve until their respective successors are elected or appointed in accordance
with the Bylaws of the Surviving Corporation. The Initial Surviving Corporation
Directors shall be the individuals who are all of Intellicell's directors
immediately following the appointment of additional Intellicell directors
pursuant to Section 2.1. Subject to Article VI, at the Closing the Principal
CWI Stockholders shall enter into the Voting Trust Agreement referred to in
Section 5.2(p).
1.6 OFFICERS OF THE SURVIVING CORPORATION. As of the Effective Time,
the individuals identified on Exhibit B to this Agreement shall be appointed as
the officers of the Surviving Corporation, to serve in each case until their
respective successors are appointed in accordance with the Bylaws of the
Surviving Corporation.
1.7 CONVERSION OF CWI SHARES. The total consideration to be received
by the shareholders of CWI in connection with the conversion of all of the then
outstanding capital stock of CWI in connection with the Merger shall be
$11,000,000 (the "BASE CONSIDERATION"), plus an additional amount (the
"ADDITIONAL CONSIDERATION") in the event the total stockholders' equity of CWI
as of the Closing Date (the "Closing Date Equity") exceeds $177,667. The Base
Consideration shall consist of $5,000,000 in cash and $6,000,000 of shares of
Intellicell common stock, $.01 par value per share (the "INTELLICELL COMMON
STOCK"), valued as hereinafter described (the $6,000,000 of shares of
Intellicell Common Stock being hereinafter referred to as the "BASE SHARES").
For purposes of this Agreement, the shares of Intellicell Common Stock shall
have a value (the "SHARE VALUE") equal to $2.666666 per share. The Additional
Consideration, if any, shall consist of an additional number of shares of
Intellicell Common Stock (the "ADDITIONAL SHARES") as equals (i) the amount by
which the Closing Date Equity exceeds $177,667, divided by (ii) $4.
Notwithstanding the foregoing, the cash portion of the Base Consideration will
be reduced by the amount, if any, by which the Closing Date Equity is less than
$1,177,667, although Additional Shares will then be issued in an amount equal to
(i) the amount, if any, by which the Closing Date Equity exceeds $177,667,
divided by (ii) $4. The Closing Date Equity shall be determined within 30 days
following the Closing Date by Intellicell's and CWI's independent certified
public accountants in accordance with generally accepted accounting principles,
using assumptions that are mutually acceptable to such accountants and including
a reserve against accounts receivable that is acceptable to Intellicell and CWI,
and such determination shall be binding on all of the parties to this Agreement.
At the Effective Time, all of the issued and outstanding shares of capital stock
of CWI ("CWI STOCK") shall, by virtue of the Merger and without any action on
the part of the holders thereof, be converted pro rata into and thereafter
represent the number of Base Shares described above ($6,000,000 divided by the
Share Value) and the holders of such shares shall concurrently receive on a pro
rata basis (unless directed otherwise as described below) $4,500,000 of the cash
portion of the Base Consideration. The Additional Shares and, subject to
Section 1.8, the remaining cash portion of the Base Consideration, if any, will
be distributed pro rata (unless directed otherwise as described below) to the
holders
<PAGE>
of the Base Shares as of the Closing Date within 15 days following the
determination of the Closing Date Equity. Fractional shares shall not be
issued, and in lieu thereof Intellicell shall pay cash in an amount equal to the
Share Value times the applicable fraction of a share. Notwithstanding the
foregoing, the Base Shares, Additional Shares and cash portion of the Base
Consideration will be allocated among the CWI stockholders in accordance with a
written allocation agreement signed by all of the CWI stockholders, provided
that a copy of this allocation agreement is delivered to Intellicell at least 10
days prior to the Closing.
1.8 ESCROW. $500,000 of the cash portion of the Base Consideration
shall not be distributed at the Closing but shall be held in escrow with an
escrow agent and on such terms as shall be agreed to by the parties to this
Agreement (the "Escrow Agreement"), pending determination of the Closing Date
Equity. In the event the Closing Date Equity is determined to exceed $677,667,
a portion of the escrowed funds (up to the entire $500,000) equal to the amount
by which such equity exceeds $677,667 shall be delivered to the CWI stockholders
and the remainder of such escrowed funds will be returned to Intellicell. In
the event the Closing Date Equity is determined to not exceed $677,667, all of
the escrowed funds shall be returned to Intellicell and the CWI stockholders
shall be required to pay Intellicell in cash an amount equal to (i) $677,667
less (ii) the amount of the Closing Date Equity, with such payment to be made
within 15 days following the determination of such equity.
1.9 MERGER SUB COMMON STOCK REPRESENTS SURVIVING CORPORATION COMMON
STOCK. At the Effective Time, each share of common stock, $.01 par value, of
Merger Sub issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of Intellicell as the
holder thereof, represent one share of common stock, $.01 par value, of the
Surviving Corporation.
1.10 EXCHANGE OF CERTIFICATES. After the Effective Time, any holder of
an outstanding certificate or certificates (the "CWI STOCK CERTIFICATES")
theretofore representing any of the shares of CWI Stock, upon surrender thereof
to Intellicell or the transfer agent for Intellicell Common Stock, shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of Intellicell Common Stock as provided in
Section 1.7. Until so surrendered, the outstanding CWI Stock Certificates shall
be deemed for all purposes, other than the payment of dividends or other
distributions, if any, in respect of Intellicell Common Stock, to represent that
certain number of shares of Intellicell Common Stock as set forth in Section
1.7. No dividend or distribution, if any, payable to holders of shares of
Intellicell Common Stock shall be paid to the holders of CWI Stock Certificates;
provided, however, that upon surrender and exchange of such CWI Stock
Certificates, there shall be paid to the record holders of the stock certificate
or certificates issued in exchange therefor, the amount, without interest
thereon, of dividends or other distributions, if any, which theretofore but
subsequent to the Effective Time have been declared and become payable with
respect to the number of whole shares of Intellicell Common Stock into which the
shares of CWI Stock theretofore represented thereby shall have been converted.
1.11 INTELLICELL TO RESERVE SHARES. At or prior to the Closing Date,
Intellicell shall reserve for the benefit of the holders of the CWI Stock
Certificates such number of shares of Intellicell Common Stock as shall be
required for conversion of CWI Stock in accordance with this Agreement.
1.12 FURTHER DOCUMENTS From time to time, on and after the Closing
Date (i), as and when requested by Intellicell, the appropriate officers and
directors of CWI as of the Closing Date shall, for and on behalf and in the name
of CWI, execute and deliver all such instruments, and shall take or cause to be
taken such further or other actions as Intellicell may reasonably request in
order to confirm of record or otherwise to Intellicell title to all of the
outstanding shares of CWI and otherwise to carry out fully the provisions and
purposes of this Agreement, and (ii) as and when requested by CWI's counsel,
Intellicell shall
<PAGE>
execute and deliver all such instruments and shall take or
cause to be taken such further or other actions as CWI's counsel may reasonably
request in order to carry out fully the provisions and purposes of this
Agreement.
1.13 REORGANIZATION. This Agreement constitutes a plan of
reorganization within the meaning of the Treasury Regulations under the Code and
has been duly adopted by each party hereto as such. The parties hereto intend
that the transactions contemplated by this Agreement shall qualify for
nonrecognition treatment under Section 368(a) of the Code, and each party hereto
will take all commercially reasonable actions in order to accomplish such
intent.
II. INTELLICELL
2.1 DIRECTORS OF INTELLICELL. At or prior to the Closing, Intellicell
shall cause the authorized number of directors of Intellicell to be increased
from six to eight and shall elect or appoint, or cause to be elected or
appointed, of the eight directors three individuals (at least one of whom is not
an officer, director, employee or significant shareholder of CWI) designated by
CWI in writing at least ten days prior to the Closing, provided that each such
designated director shall be reasonably acceptable to Intellicell. It is
currently contemplated that the three CWI designees will be Cary Maimon, Ronald
Goldberg and David Segneri. The authorized number of directors of Intellicell
will be fixed at eight by Intellicell's Board of Directors and the five
incumbent directors of Intellicell will then fill the vacancies with the CWI
designees at a meeting of Intellicell's Board of Directors that will be held on
or before the Closing Date.
2.2 OFFICERS OF INTELLICELL. At or prior to the Closing, Intellicell
shall cause the persons indicated on Schedule 2.2 hereto to be appointed to the
offices of Intellicell set forth on Schedule 2.2.
III. BOARD AND SHAREHOLDER APPROVALS
3.1 CWI BOARD AND STOCKHOLDER APPROVAL. CWI hereby represents that
its Board of Directors has duly authorized the execution and delivery of this
Agreement and approved this Agreement, the Merger and related matters, and all
of the stockholders of CWI have executed and delivered to CWI their written
consents under Sections 5/11.20 and 5/7.10 of Chapter 805 of the Illinois Act
approving the execution, delivery and performance by CWI of this Agreement, the
Merger and related matters.
3.2 MERGER SUB BOARD AND SHAREHOLDER APPROVAL. Merger Sub hereby
represents that its Board of Directors has duly authorized the execution and
delivery of this Agreement and approved this Agreement, the Merger and related
matters, and Intellicell, in its capacity as the sole shareholder of Merger Sub,
has executed and delivered to the Merger Sub a written consent under Section 252
of Subchapter IX of the Delaware Act approving the execution, delivery and
performance by Merger Sub of the Agreement of Merger and the approval of this
Agreement.
3.3 INTELLICELL BOARD AND STOCKHOLDER APPROVAL. Intellicell hereby
represents that its Board of Directors has duly authorized the execution and
delivery of this Agreement and approved this Agreement, the Merger and related
matters. As soon as is practicable following the execution of this Agreement,
Intellicell shall duly call, give notice of, convene and hold a meeting (the
"INTELLICELL STOCKHOLDERS MEETING") of the stockholders of Intellicell (the
"INTELLICELL STOCKHOLDERS") for the purpose of voting upon this Agreement, the
Merger and related matters. Intellicell shall, through its Board of Directors,
recommend that the Intellicell Stockholders approve of such matters and shall
use its commercially reasonable best efforts to hold such meeting as soon as
practicable after the date hereof and secure the approval of the Intellicell
Stockholders of the transactions contemplated herein.
<PAGE>
3.4 INTELLICELL PROXY STATEMENT. As promptly as practicable after the
execution of this Agreement, Intellicell shall prepare and file with the
Securities and Exchange Commission (the "SEC") a proxy statement (the "PROXY
STATEMENT") and related proxy materials to be used in connection with the
Intellicell Stockholders Meeting. CWI shall furnish Intellicell for inclusion
in the Proxy Statement such information regarding CWI as may be reasonably
necessary to comply with the provisions of the Securities Exchange Act of 1934,
as amended (the "1934 ACT"), and the rules and regulations of the SEC
thereunder. If, at any time prior to the Closing Date, it shall be necessary to
amend or supplement the Proxy Statement to correct any statement or omission
with respect to CWI in order to comply with any applicable legal requirements,
CWI shall, at the request of Intellicell or its counsel, promptly supply the
necessary information to Intellicell or its counsel. Intellicell's Board of
Directors shall recommend in the Proxy Statement that the Merger be approved by
the Intellicell stockholders.
IV. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF CWI. CWI hereby represents and
warrants to Intellicell, subject to such exceptions as are specifically
disclosed by CWI to Intellicell in the disclosure letter of even date herewith
relating to this Agreement and delivered by CWI to Intellicell herewith (the
"CWI DISCLOSURE LETTER"), the matters set forth below. Any representation made
to the "knowledge" of CWI shall be limited to the actual knowledge of Melvyn
Cohen, Ronald Goldberg and Cary Maimon.
(a) DUE INCORPORATION, GOOD STANDING AND QUALIFICATION. CWI is
a corporation or other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
with all requisite power and authority to own, operate and lease its properties
and to carry on its business as now being conducted. CWI is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so qualified or licensed and in good
standing would not, in the aggregate, have a Material Adverse Effect. As used
in this Agreement, "MATERIAL ADVERSE EFFECT" means, with respect to CWI or
Intellicell, a material adverse effect on the business, operations, prospects,
or condition, financial or otherwise, of CWI or Intellicell, as the case may be,
and their respective subsidiaries, if any, taken as a whole. Section 4.1(a) of
the CWI Disclosure Letter sets forth, as of the date of this Agreement, each
jurisdiction in which CWI is qualified to do business. CWI has heretofore
delivered to Intellicell accurate and complete copies of the charter and
by-laws, as currently in effect, of CWI.
(b) CORPORATE AUTHORITY. CWI has the corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. This Agreement and the Merger have been approved by all of
the stockholders of CWI. This Agreement has been duly authorized, executed and
validly delivered by CWI, and constitutes a valid and binding agreement of CWI,
enforceable against CWI in accordance with its terms.
(c) CAPITAL STOCK. CWI has an authorized capital stock
consisting of 10,000 shares of CWI Stock, of which 800 shares are issued and
outstanding as of the date of this Agreement. All of the issued and outstanding
shares of CWI Stock are owned by the persons identified on Schedule 4.1(c) to
this Agreement in the amounts shown thereon, and there are no commitments or
other agreements to which CWI is a party or by which it is bound relating to the
issuance or sale by CWI of any of its securities. All of the issued and
outstanding shares of capital stock of CWI have been validly authorized and
issued and are fully paid and nonassessable and free of preemptive or similar
rights.
<PAGE>
(d) OPTIONS, WARRANTS AND RIGHTS. There are no outstanding
convertible securities, options, warrants or other rights to purchase or to
convert any obligation into any shares of the capital stock of CWI or any
subsidiary of CWI or commitments or agreements to issue any such securities,
options, warrants or other rights.
(e) SUBSIDIARIES. CWI does not have any subsidiaries, which
for purposes of this Agreement shall include every other corporation,
partnership, joint venture or other business association in which CWI directly,
or indirectly through another entity or entities more than 50% owned by CWI,
owns or controls at least 50% of the securities or other equity interests.
(f) FINANCIAL STATEMENTS. The balance sheets of CWI as of
September 30, 1998 and 1997, the statements of operations, stockholders' equity
and cash flows of CWI for each of the three years ended September 30, 1998, and
all related schedules and notes to the foregoing, copies of which are attached
to the CWI Disclosure Letter, were prepared in accordance with generally
accepted accounting principles and fairly and accurately present the financial
position, results of operations and changes in financial position of CWI as of
their respective dates and for the periods indicated. The foregoing for the
three-year period ended September 30, 1998 has been audited by independent
public accountants; and each of the foregoing financial statements for the
three-month period ended December 31, 1998 and the seven-month period ended
April 30, 1999 have been certified by the principal financial officer of CWI.
To CWI's knowledge, CWI does not have any material liabilities or obligations of
a type which would be included in a balance sheet prepared in accordance with
generally accepted accounting principles, whether related to tax or non-tax
matters, accrued or contingent, due or not yet due, liquidated or unliquidated,
or otherwise, except as and to the extent disclosed or reflected in the balance
sheet of CWI as of April 30, 1999 or incurred since April 30, 1999 in the
ordinary course of business.
(g) ACTIONS IN THE ORDINARY COURSE OF BUSINESS. Except as set
forth in Section 4.1(g) of the CWI Disclosure Letter, since April 30, 1999 CWI
has not: (i) to CWI's knowledge taken any action outside the ordinary and usual
course of business; (ii) borrowed any money or, to CWI's knowledge, become
contingently liable for any obligations or liability of another; (iii) to CWI's
knowledge, failed to pay all of its debts and obligations as they become due or
prior to the imposition of any penalties or interest; (iv) incurred any debt or,
to CWI's knowledge, any other liability or obligation of any nature to any party
except for obligations arising from the purchase of goods or the rendition of
services in the ordinary course of business, none of which aggregate more than
$100,000 with respect to the same supplier or customer; (v) failed to use
commercially reasonable efforts to preserve its business organization intact, to
keep available the services of its employees and independent contractors, or to
preserve its relationships with its customers, suppliers and others with which
it deals; (vi) increased or committed to increase the salary or compensation of
any officer; or (vii) made any material change in its practices, operations or
policies with respect to the method for selling goods or services, or other
method for accounting for sales, the conduct of accounts receivable collection
or accounts payable payment activities or the maintenance of inventory levels.
(h) NO MATERIAL ADVERSE CHANGE. Since April 30, 1999, there
has not been and, to the knowledge of CWI, there is not threatened (i) any
material adverse change in the financial condition, business, properties, assets
or results of operations of CWI; (ii) any loss or damage (whether or not covered
by insurance) to any of the assets or properties of CWI which materially affects
or impairs its ability to conduct its business; (iii) any event or condition of
any character which has materially and adversely affected the business or
prospects (financial or otherwise) of CWI; or (iv) any mortgage or pledge of any
material amount of the assets or properties of CWI, or any indebtedness incurred
by CWI
<PAGE>
other than indebtedness, not material in the aggregate, incurred in the
ordinary course of business. Notwithstanding the foregoing, Intellicell
acknowledges that CWI's revenues between October 1, 1998 and June 30, 1999 were
approximately $58,000,000 and that this does not constitute a material adverse
change in the business condition of CWI.
(i) REAL ESTATE RIGHTS. Section 4.1(i) of the CWI Disclosure
Letter contains a list of each piece of real property owned, leased or occupied
by CWI, including in each case the location thereof and a description of the use
to which it is put by CWI. CWI has delivered to Intellicell a true and accurate
copy of each deed, mortgage, lease, and other documents (collectively, the "CWI
REAL ESTATE DOCUMENTS") pursuant to which CWI owns, leases, or otherwise
occupies each of its real estate properties (collectively, the "CWI
PROPERTIES"). CWI does not have any interest as owner, lessor, lessee, or
otherwise in any real estate, other than as set forth in the CWI Disclosure
Letter. CWI has not received notice from any mortgagee or landlord of any of
the CWI Properties that CWI is in default of any terms, conditions, or
provisions of any mortgage ("CWI MORTGAGE") or lease ("CWI LEASE") relating to
any of the CWI Properties. The CWI Mortgages and CWI Leases are in good
standing and, to the knowledge of CWI, no condition exists which, with the
passage of time, giving of notice, or both, would lead to a default under any
CWI Mortgage or CWI Lease.
(j) TITLE TO PROPERTIES. To CWI's knowledge, it has good and
marketable title to all of its real and personal properties, including the CWI
Properties and all other properties reflected in CWI's balance sheet as of April
30, 1999, or acquired subsequent to April 30, 1999 (except properties disposed
of subsequent to that date in the ordinary course of business). Except as
disclosed in CWI's balance sheet as of April 30, 1999, such assets and
properties are not, to CWI's knowledge, subject to any mortgage, pledge, lien,
claim, encumbrance, charge, security interest or title retention or other
security arrangement, except for liens for the payment of federal, state and
other taxes, the payment of which is neither delinquent nor subject to
penalties, and except for other liens and encumbrances incidental to the conduct
of the business of CWI or the ownership of its assets or properties which were
not incurred in connection with the borrowing of money or the obtaining of
advances, and which do not in the aggregate materially detract from the value of
the assets or properties of CWI or materially impair the use thereof in the
operation of its business.
(k) CONDITION OF ASSETS AND PROPERTIES. To CWI's knowledge,
the buildings, equipment, fixtures, furniture, furnishings, office equipment and
all other tangible personal assets and properties of CWI presently used in CWI's
business do not require any material repairs other than normal maintenance and
are in good operating condition, reasonable wear and tear excepted.
(l) LITIGATION. There are no actions, suits, proceedings or
other litigation pending or, to the knowledge of CWI, threatened against CWI or
any of its officers, directors or material vendors or customers, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality which, if
determined adversely to CWI, would individually or in the aggregate be
reasonably likely to have a Material Adverse Effect.
(m) INTELLECTUAL PROPERTY. No claim is pending or, to the
knowledge of CWI, threatened to the effect that the present or past operations
of CWI infringes upon or conflicts with the rights of others with respect to any
intellectual property (including, without limitation, licenses, patents, patent
rights, patent applications, trademarks, trademark applications, trade names,
copyrights, drawings, trade secrets, know-how and computer software) necessary
to permit CWI to conduct its business as now operated (the "CWI INTELLECTUAL
PROPERTY") and no claim is pending or, to the knowledge of CWI, threatened to
the effect that any of the CWI Intellectual Property is invalid or
<PAGE>
unenforceable. The CWI Disclosure Letter contains a list of all licenses,
patents, patent rights, patent applications, trademarks, trademark applications,
trade names, copyrights, and service marks of CWI. No contract, agreement or
understanding between CWI and any other party exists which would impede or
prevent the continued use by CWI of the entire right, title and interest of CWI
in and to the CWI Intellectual Property.
(n) CONSENTS AND APPROVALS; NO VIOLATION. Except for
recordation of the Agreement of Merger as required by the Illinois Act and
Delaware Act, no filing with, and no permit, authorization, consent or approval
of, any governmental entity is necessary for the consummation by CWI of the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by CWI and the consummation of the transactions contemplated hereby
will not violate or result in a breach by CWI of, or constitute a default under,
or conflict with, or cause any acceleration of any material obligation with
respect to (i) any material provision or restriction of any charter, bylaw,
loan, indenture or mortgage of CWI; or (ii) any provision or restriction of any
lien, lease agreement, contract, instrument, order, judgment, award, decree,
ordinance or regulation or any other restriction of any kind or character to
which any assets or properties of CWI is subject or by which CWI is bound.
Neither CWI, nor its ultimate parent entity and all entities which it controls
directly or indirectly (within the meaning of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "H-S-R ACT"), has total assets or
annual net sales of $100,000,000 or more.
(o) TAXES. CWI has filed all Federal, state, foreign, local
and any other applicable tax returns and reports required to be filed, and have
paid in full all taxes and assessments shown due thereon (together with all
interest, penalties, assessments and deficiencies assessed in connection
therewith due through the date hereof). To the knowledge of CWI, such tax
returns and reports are correct in all material respects. Federal tax returns
of CWI have not been audited by the Internal Revenue Service within the previous
three years. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Federal or state income tax
returns of CWI. No claim or assertion has been made against CWI by any tax
authority in any jurisdiction in which CWI has not filed any tax return that CWI
is or may be subject to taxation of any sort in that jurisdiction or is required
to file a tax return in such jurisdiction.
(p) ACCOUNTS RECEIVABLE. To CWI's knowledge, the accounts
receivable of CWI have been acquired in the ordinary course of business, and are
subject to no known defenses, set-offs or counterclaims, except to the extent of
the reserve reflected in the financial statements of CWI. Subject to the
foregoing and to Section 1.8, CWI is not guaranteeing the collectibility of its
receivables nor is CWI representing or warranting that any of the receivables
will actually be collected.
(q) CONTRACTS. CWI is not a party to (i) any lease,
installment purchase agreement or other contract with respect to any real
property, used or proposed to be used in its operations, except, in each case,
items reflected in CWI's April 30, 1999 financial statements; (ii) any contract
or agreement for the purchase of any personal property, commodity, material,
fixed asset or equipment in excess of $100,000; (iii) any mortgage, lease,
contract or agreement creating an obligation of $100,000 or more; (iv) any
contract or agreement involving payments in excess of $100,000 which by its
terms does not terminate or is not terminable without penalty to it within one
year after the date hereof; (v) any loan agreement, indenture, promissory note,
conditional sales agreement or other similar type of arrangement; (vi) any
material license agreement; or (vii) any contract which could be reasonably be
expected to result in a material loss or obligation to CWI. To the knowledge of
CWI, each of the foregoing mortgages, leases, contracts, agreements and other
arrangements to which CWI is a party are valid and enforceable in accordance
with their terms,
<PAGE>
except as such enforceability may be limited by (i) bankruptcy
laws and other similar laws affecting creditors' rights generally and
(ii) general principles of equity, whether asserted in a proceeding in equity or
at law. CWI, and, to CWI's knowledge, all other parties to each of the
foregoing mortgages, leasing contracts, agreements and other arrangements have
performed all material obligations required to be performed to date thereunder;
neither CWI, nor, to CWI's knowledge, any such other party is in default or in
arrears under the terms of any of the foregoing, except as set forth in Section
4.1(q) of the CWI Disclosure Letter with respect to CWI's line of credit with
American National Bank where CWI is out of compliance with the terms of such
line of credit as of the date of this Agreement but will be in compliance as of
the Closing Date; and, to CWI's knowledge, no condition exists or event has
occurred which, with the giving of notice or lapse of time or both, would
constitute a default under any of them.
(r) COMPLIANCE WITH LAW AND OTHER REGULATIONS. To CWI's
knowledge, CWI is in compliance with all requirements (including those relating
to environmental matters) of Federal, state or local law, and all requirements
of all governmental bodies and agencies having jurisdiction over it, the conduct
of its business, the use of its assets and properties and all premises occupied
by it, except where the failure to comply would not be reasonably likely to have
a Material Adverse Effect. To CWI's knowledge, there is no environmental
contamination, toxic waste or other discharge, spill, construction component,
structural element or condition, other than cleaning solvents and other
substances normally used in day-to-day operations which is reasonably likely to
have a Material Adverse Effect, nor has CWI received any official notice or
citation that the CWI Properties in any way contravene any Federal, state or
local law or regulation relating to environmental, health or safety matters,
including without limitation any requirements of the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA") or any OSHA requirements.
Without limiting the foregoing, to CWI's knowledge, CWI has properly filed all
reports, paid all monies and obtained all licenses, permits, certificates and
authorizations needed or required and material to the conduct of its business
and the use of its assets and properties and the premises occupied by it in
connection therewith and is in compliance in all material respects with all
conditions, restrictions and provisions of all of the foregoing. CWI has not
received any notice from any Federal, state or local authority or any insurance
or inspection body that any of its assets, properties, facilities, equipment or
business procedures or practices fails to comply with any applicable law,
ordinance, regulation, building or zoning law, or requirement of any public
authority or body.
(s) EMPLOYEE BENEFIT AND EMPLOYMENT MATTERS. CWI and its
"ERISA Affiliates" (as determined under Section 414(b), (c), (m) or (o) of the
Code) (i) maintain, administer or contribute to, or at any time during the past
six years have maintained, administered or contributed to, only those employee
pension benefit plans (as defined in Section 3(2) of the Employment Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Subtitles of ERISA) described in Section
4.1(s) of the CWI Disclosure Letter (the "CWI Pension Plans"); and (ii)
maintain, administer or contribute to only those employee welfare benefit plans
(as defined in Section 3(l) of ERISA, whether or not excluded from coverage
under specific Titles or Subtitles of ERISA) described in Section 4.1(s) of the
Disclosure Letter (the "CWI Welfare Plans"). CWI and all ERISA Affiliates
maintain, administer or contribute to only those bonus, deferred compensation,
stock purchase, stock option, severance plan, insurance or similar arrangements
described in Section 4.1(s) of the CWI Disclosure Letter (the "CWI EMPLOYEE
BENEFIT PLANS"). The Internal Revenue Service has determined that each CWI
Pension Plan intended to be "qualified" under Section 401(a) of the Code is so
qualified and that the trust forming a part thereof is tax exempt under Section
501(a) of the Code from the date of its establishment until the date hereof, and
CWI does not know of any matter which would adversely affect such qualified or
tax exempt status of such plan or trust. Full payment has been made, or will be
made in accordance with
<PAGE>
Sections 404(a)(6) and 412 of the Code, of all amounts which either CWI or
any ERISA Affiliate is required to pay under the terms of each of the CWI
Pension Plans and CWI Welfare Plans and all such amounts are properly accrued
on CWI's April 30, 1999 consolidated balance sheet; and none of the CWI
Pension Plans or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in Sections 302 of the ERISA and
412 of the Code), whether or not waived, as of the last day of the most
recent fiscal year of each of such Plans ended prior to the date of this
Agreement. Neither any CWI Pension Plan or CWI Welfare Plan nor any CWI
Pension Plan or CWI Welfare Plan fiduciary has engaged in any transaction in
violation of Section 406 of ERISA or any "prohibited transaction" (as defined
in Section 4975(c)(1) of the Code) other than any such transaction which is
exempt under Section 408 of ERISA or Section 4975(d) of the Code. CWI has
furnished to Intellicell true and complete copies of each CWI Pension Plan,
CWI Welfare Plan, and CWI Employee Benefit Plan and related trust agreements
or annuity contracts, Internal Revenue Service determination letters and
summary plan descriptions; all of the foregoing plans, agreements and
commitments are valid, binding, in full force and effect, and there are no
defaults thereunder; and none of the rights of CWI or any of its ERISA
Affiliates thereunder will be impaired by this Agreement or the consummation
of the transactions contemplated by this Agreement. CWI is not a party to
any collective bargaining agreement and there is no request for union
representation pending or, to the knowledge of CWI, threatened against CWI.
Neither CWI nor any of its ERISA Affiliates has incurred any liability to the
Pension Benefit Guaranty Corporation (the "PBGC") as a result of the
voluntary or involuntary termination of any CWI Pension Plan subject to Title
IV of ERISA; there is currently no active filing by CWI or any of its ERISA
Affiliates with the PBGC (and no proceeding has been commenced by the PBGC to
terminate any CWI Pension Plan subject to Title IV of ERISA maintained or
funded, in whole or in part, by CWI or any of its ERISA Affiliates); and
neither CWI nor any of its ERISA Affiliates has made a complete or partial
withdrawal from a multi-employer plan, as such term is defined in Section
3(37) of ERISA, resulting in "withdrawal liability," as such term is defined
in Section 4201 of ERISA (without regard to subsequent reduction or waiver of
such liability under either Section 4207 or 4208 of ERISA). The employment
of each employee of CWI and its Subsidiaries is terminable at will, subject
to applicable law; and no officer, director or employee of CWI is entitled to
any severance payment upon termination of his or her employment with CWI, and
any severance arrangement described in Section 4.1(s) of the CWI Disclosure
Letter shall apply only in the event such termination is effected by CWI
without cause. CWI has complied in all material respects with all other
applicable Federal, state and local laws relating to the employment of labor
including, but not limited to, the provisions thereof relative to wages,
hours, collective bargaining, working conditions and payment of taxes of any
kind, and CWI is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing or has any
obligations for any vacation, sick leave or other compensatory time. All
officers and independent contractors of CWI are paid salaries or other
compensation in accordance with the amounts set forth in Section 4.1(s) of
the CWI Disclosure Letter, and Section 4.1(s) of the CWI Disclosure Letter
correctly and accurately sets forth all salaries, expenses and personal
benefits paid to or accrued for all directors, officers and principal
stockholders of CWI as of the date of this Agreement, all of which are
reflected as appropriate in CWI's financial statements as of April 30, 1999.
(t) INSURANCE. CWI maintains in full force and effect
insurance coverage on its assets, properties, premises, operations and personnel
in such amounts and against such risks and losses as are set forth in Section
4.1(t) of the CWI Disclosure Letter.
(u) CONFLICTING INTEREST. Except as set forth in Section
4.1(u) of the CWI Disclosure Letter, no director or officer of CWI (i) has any
pecuniary interest in any supplier or customer of CWI or in any other business
with which CWI conducts business or with which CWI is in competition other than
holdings
<PAGE>
of the publicly-traded securities of such entities; or (ii) is indebted to CWI
for borrowed money.
(v) NO PAYMENTS TO DIRECTORS, OFFICERS, STOCKHOLDERS OR OTHERS.
Except as contemplated by Sections 5.1(c) and 5.1(h), there has not been, since
April 30, 1999, any purchase or redemption of any shares of capital stock of CWI
or any transfer, distribution or payment by CWI directly or indirectly, of any
assets or properties to any director or officer or other person other than the
payment of compensation for services actually rendered at rates not in excess of
the rates prevailing on April 30, 1999 and amounts paid in the normal course in
reimbursement of reasonable expenses incurred on behalf of CWI.
(w) NO PROHIBITED PAYMENTS. To the knowledge of CWI, no
officer, director, employee, independent contractor or agent acting on behalf of
CWI, has at any time (i) made any contributions to any candidate for political
office in violation of law, or failed to disclose fully any contributions to any
candidate for political office in accordance with any applicable statute, rule,
regulation or ordinance requiring such disclosure; (ii) made any payment to any
local, state, Federal or foreign governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or allowed by applicable law; (iii) made any payment outside the
ordinary course of business to any purchasing or selling agent or person charged
with similar duties of any entity to which CWI sells products or renders
services or from which CWI buys products or services for the purpose of
influencing such agent or person to buy products or services from or sell
products or services to CWI; or (iv) engaged in any transaction, maintained any
bank account or used any corporate funds except for transactions, bank accounts
and funds which have been and are reflected in the normally maintained books and
records of CWI.
(x) MINUTE BOOKS. CWI has furnished to Intellicell all minute
books of CWI reflecting actions taken by its stockholders and directors and, to
CWI's knowledge, such minute books are complete and correct in all material
respects.
(y) ACCURACY OF STATEMENTS. Except to the extent specifically
qualified herein as being only to CWI's knowledge, neither this Agreement nor
any statement, list, certificate, document or other information furnished or to
be furnished by CWI to Intellicell in connection with this Agreement or any of
the transactions contemplated hereby contains or will contain an untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein, in the light of
circumstances under which they are made, not misleading.
(z) INFORMATION SUPPLIED FOR PROXY STATEMENT. The information
supplied or to be supplied by CWI as required by the 1934 Act and applicable SEC
regulations for inclusion in the Proxy Statement, including any amendments and
supplements thereto, will not, either at the date mailed to the Intellicell
Stockholders or at the time of the Intellicell Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(aa) BROKERS AND FINDERS. Neither CWI nor any of its directors,
officers or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
similar payments in connection with the transactions contemplated by this
Agreement.
(ab) RELATED PARTY TRANSACTIONS. Since September 30, 1998,
there have been no transactions that CWI would have been required to disclose
under Item 404 of Regulation S-K under the Securities Act of 1933, as amended
(the "1933 ACT"), had CWI been subject to such regulations.
<PAGE>
(ac) YEAR 2000 COMPLIANCE. All of the computer hardware,
software and information systems, including without limitation the financial,
operational and manufacturing systems, used by CWI are, or prior to December
31, 1999 will be, Year 2000 Compliant, provided that Intellicell makes the
remediation expenditures in accordance with the budget set forth in Section
4.1(ac) of the CWI Disclosure Letter. For purposes of this Agreement, "Year
2000 Compliant" shall mean that such systems: (1) are prior to, during, and
after calendar year 2000 A.D. capable of operating without errors relating to
date data, including errors relating to date data which represents or
references different calendar centuries or more than one century, and of
providing all date related functionalities, interfaces and data fields,
including the indication of century; (ii) are able to accurately manage and
process date and date-related data (including, but not limited to,
calculating, comparing, sequencing and sorting) from, into and between the
twentieth and twenty-first centuries, including single and multiple centuries
and leap years; and (iii) shall not abnormally terminate or provide invalid
or incorrect results due to date or date-related data, specifically including
date data which represents or references different centuries or more than one
century. CWI has not been informed by any of its vendors that any of the
products sold by CWI are not Year 2000 Compliant.
(ad) INVENTORY. With respect to inventories listed on CWI's
balance sheet as of April 30, 1999, as of the date of such balance sheet: (i)
inventories are stated at lower of cost or market, cost being determined on
the basis of FIFO and consistent with the prior year, and due provision was
made to reduce all slow-moving, obsolete or unusable inventories to their
estimated useful or scrap values; (ii) inventory quantities were determined
from CWI's perpetual inventory records, which have been adjusted on the basis
of physical counts taken by competent employees; (iii) liabilities, if
unpaid, for all items included in inventories are recorded, and all
quantities billed to customers are excluded from the inventory balances; (iv)
commitments for future purchases are for quantities not in excess of
anticipated requirements and at prices which will not result in loss; and (v)
adequate provision has been made for any material loss to be sustained in the
fulfillment of, or from the inability to fulfill, any commitment.
4.2 REPRESENTATIONS AND WARRANTIES OF CWI AND THE PRINCIPAL CWI
STOCKHOLDERS. Each of the Principal CWI Stockholders as to himself and CWI
as to all of the Principal CWI Stockholders hereby represents and warrants to
Intellicell as follows:
(a) OWNERSHIP OF SHARES. Each of the shares of CWI Common
Stock is owned by each of the CWI stockholders free and clear of any lien,
pledge, charge, adverse claim, security interest, encumbrance (including any
imposed by law in any jurisdiction), title retention agreement, option or
right to purchase of any kind.
(b) INVESTMENT REPRESENTATIONS. Each of the CWI
stockholders is either an "accredited investor" as defined under Rule 501 of
Regulation D under the 1933 Act, or, alone or with his representative(s) has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of an investment in Intellicell,
and in any case is acquiring the Intellicell Common Stock solely for the
purpose of investment and not with a view to, or for sale in connection with,
any distribution thereof. Each of the Principal CWI Stockholders
acknowledges that the Intellicell Common Stock will not be registered under
the Securities Act or any state securities laws, and that such Intellicell
Common Stock may not be transferred or sold except pursuant to the
registration provisions of the 1933 Act, or pursuant to an applicable
exemption therefrom and pursuant to state securities laws and regulations, as
applicable. Each of the Principal CWI Stockholders acknowledges that the
certificate or certificates evidencing the Intellicell Common Stock will bear
a legend or legends referring to the restrictions on the transferability
thereof and any other legends required by applicable law.
<PAGE>
(c) APPRAISAL RIGHTS. Each of the Principal CWI
Stockholders hereby acknowledges and agrees that by signing this Agreement he
is approving the Merger and is waiving his appraisal rights with respect to
the Merger under the Illinois Act.
4.3 REPRESENTATIONS AND WARRANTIES OF INTELLICELL AND MERGER SUB.
Except as disclosed in the Intellicell SEC Reports (as hereinafter defined)
and subject to such exceptions as are specifically disclosed in the
disclosure letter of even date herewith relating to this Agreement and
delivered by Intellicell to CWI herewith (the "INTELLICELL DISCLOSURE
LETTER"), Intellicell and Merger Sub jointly and severally represent and
warrant to CWI the matters set forth below. Any representation made to the
"knowledge" of Intellicell or Merger Sub shall be limited to the actual
knowledge of Michael Hedge, John Swinehart and David Kane.
(a) DUE INCORPORATION, GOOD STANDING AND QUALIFICATION.
Intellicell and each of its subsidiaries is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization with all requisite
power and authority to own, operate and lease its properties and to carry on
its business as now being conducted. Each of Intellicell and its
subsidiaries is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary, except in such jurisdictions where the failure to be
so qualified or licensed and in good standing would not, in the aggregate,
have a Material Adverse Effect. Intellicell has heretofore delivered to CWI
accurate and complete copies of the charter and bylaws, as currently in
effect, of Intellicell and each of its subsidiaries.
(b) CORPORATE AUTHORITY. Each of Intellicell and Merger Sub
has the corporate power and authority (subject to the requisite approval of
the Intellicell Stockholders) to carry out the transactions contemplated
hereby. The Boards of Directors of each of Intellicell and Merger Sub, and
Intellicell, as the sole stockholder of Merger Sub, have duly authorized the
execution, delivery and performance of this Agreement. This Agreement has
been duly and validly executed and delivered by each of Intellicell and
Merger Sub and constitutes a valid and binding agreement of each of
Intellicell and Merger Sub, enforceable against Intellicell and Merger Sub in
accordance with its terms.
(c) CAPITAL STOCK. As of the date of this Agreement,
Intellicell has an authorized capital stock consisting of 15,000,000 shares
of Intellicell Common Stock, $.01 par value per share, of which 7,014,893
shares are issued and outstanding, and 1,000,000 shares of preferred stock,
$.01 par value per share, none of which shares have been issued or are
outstanding. As of the date of this Agreement, an aggregate of 4,417,985
shares of Intellicell Common Stock were reserved for issuance upon (i) the
exercise of outstanding Intellicell stock options or stock options that may
be issued in the future under Intellicell's stock option plans, and (ii) the
exercise of outstanding warrants to purchase shares of Intellicell Common
Stock. Section 4.3(c) of the Intellicell Disclosure Letter sets forth a
complete schedule of all the outstanding options and warrants or other rights
to purchase Intellicell Common Stock. All of the issued and outstanding
shares of capital stock of Intellicell and each of its Subsidiaries have been
validly authorized and issued and are fully paid and nonassessable and free
of preemptive or similar rights.
(d) OPTIONS, WARRANTS AND RIGHTS. As of the date of this
Agreement, neither Intellicell nor any of its Subsidiaries (as defined in
Section 4.3(e)) has outstanding any options, warrants, or other rights to
purchase or convert any obligation into any shares of the capital stock of
Intellicell or any Subsidiary of Intellicell, other than those referred to in
Section 4.3(c).
(e) SUBSIDIARIES. Section 4.3(e) of the Intellicell Disclosure
<PAGE>
Letter sets forth, as of the date of this Agreement, (i) the name,
jurisdiction of incorporation and list of stockholders of each Subsidiary of
Intellicell; and (ii) the name and a description of every other person,
corporation, partnership, joint venture or other business association in
which Intellicell directly, or indirectly through another entity or entities
more than 50% owned by Intellicell, owns or controls at least 50% of the
securities or other equity interests. (The subsidiaries, corporations,
partnerships, joint ventures or other business associations listed, or
required to be listed in Section 4.3(e) of the Intellicell Disclosure Letter
are herein referred to as the "Subsidiaries" of Intellicell.) The
outstanding shares of capital stock and other equity securities of the
Subsidiaries of Intellicell owned by Intellicell or any of its Subsidiaries
are owned free and clear of all claims, liens, charges and encumbrances.
(f) INTELLICELL SEC REPORTS. Intellicell has furnished to
CWI all forms, reports, and documents filed by Intellicell with the SEC since
June 30, 1998 (collectively, the "INTELLICELL SEC REPORTS"). Each
Intellicell SEC Report at the time filed (or, if amended or superseded by a
subsequent filing, then on the date of such filing), (i) complied in all
material respects with the applicable requirements of the 1933 Act or the
1934 Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder; and (iii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated herein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of
Intellicell's Subsidiaries is required to file any forms, reports or other
documents with the SEC.
(g) FINANCIAL STATEMENTS. The consolidated balance sheets
of Intellicell and its consolidated Subsidiaries as of December 31, 1998 and
1997, the consolidated statements of operations, stockholders' equity and
cash flows of Intellicell and its consolidated Subsidiaries for each of the
three years ended December 31, 1998 and for the three months ended March 31,
1999 and all related schedules and notes to the foregoing, as contained in
the Intellicell SEC Reports, complied as to form in all material respects
with the regulations of the SEC, were prepared in accordance with generally
accepted accounting principles which were applied on a consistent basis, and
fairly and accurately present the financial position, results of operations
and changes in financial position of Intellicell and its consolidated
Subsidiaries as of their respective dates and for the periods indicated. The
foregoing financial statements as for the three years ended December 31, 1998
have been audited by Hollander, Lumer & Co. LLP, independent public
accountants, and the foregoing financial statements as of March 31, 1999 and
for the three months ended March 31, 1999, have been certified by the
principal financial officer of Intellicell. To Intellicell's knowledge,
neither Intellicell nor any of its Subsidiaries has any material liabilities
or obligations of a type which would be included in a balance sheet prepared
in accordance with generally accepted accounting principles, whether related
to tax or non-tax matters, accrued or contingent, due or not yet due,
liquidated or unliquidated, or otherwise, except as and to the extent
disclosed or reflected in the consolidated balance sheet of Intellicell and
its consolidated Subsidiaries as of March 31, 1999, or incurred since March
31, 1999 in the ordinary course of business.
(h) ACTIONS IN THE ORDINARY COURSE OF BUSINESS. Except for
the debt and equity financings contemplated by Section 6.1(n), since March
31, 1999, neither Intellicell nor any of its Subsidiaries has: (i) to
Intellicell's knowledge, taken any action outside the ordinary and usual
course of business; (ii) borrowed any money or, to Intellicell's knowledge,
become contingently liable for any obligations or liability of another; (iii)
to Intellicell's knowledge, failed to pay all of its debts and obligations as
they become due or prior to the imposition of any penalties or interest; (iv)
incurred any debt or, to Intellicell's knowledge, any other liability or
obligation of any nature to any party except for obligations arising from the
purchase of goods or the rendition of services in the ordinary
<PAGE>
course of business, none of which aggregate more than $100,000 with respect
to the same supplier or customer; (v) failed to use commercially reasonable
efforts to preserve its business organization intact, to keep available the
services of its employees and independent contractors, or to preserve its
relationships with its customers, suppliers and others with which it deals;
(vi) increased or committed to increase the salary or compensation of any
officer; or (vii) made any material change in its practices, operations or
policies with respect to the method for selling goods or services, or other
method for accounting for sales, the conduct of accounts receivable
collection or accounts payable payment activities or the maintenance of
inventory levels.
(i) NO MATERIAL ADVERSE CHANGE. Since March 31, 1999, there
has not been and, to the knowledge of Intellicell, there is not threatened
(i) any material adverse change in the financial condition, business,
properties, assets or results of operations of Intellicell and its
Subsidiaries, taken as a whole; (ii) any loss or damage (whether or not
covered by insurance) to any of the assets or properties of Intellicell or
its Subsidiaries which materially affects or impairs their ability to conduct
their respective businesses; (iii) any event or condition of any character
which has materially and adversely affected the business or prospects
(financial or otherwise) of Intellicell or any of its Subsidiaries; or (iv)
any mortgage or pledge of any material amount of the assets or properties of
Intellicell or any of its Subsidiaries, or any indebtedness incurred by
Intellicell or any of its Subsidiaries, other than indebtedness, not material
in the aggregate, incurred in the ordinary course of business.
(j) REAL ESTATE RIGHTS. Section 4.3(j) of the Intellicell
Disclosure Letter contains a list of each piece of real property owned,
leased or occupied by Intellicell and its Subsidiaries. Intellicell has
delivered to CWI a true and accurate copy of each deed, mortgage, lease, and
other documents (collectively, the "INTELLICELL REAL ESTATE DOCUMENTS")
pursuant to which Intellicell owns, leases, or otherwise occupies each of its
properties (the "INTELLICELL PROPERTIES"). Neither Intellicell nor any of
its Subsidiaries has any interest as owner, lessor, lessee, or otherwise in
any real estate other than as set forth in Section 4.3(j) of the Intellicell
Disclosure Letter. Intellicell has not received notice from any mortgagee or
landlord of any of the Intellicell Properties that Intellicell or any of its
Subsidiaries is in default of any terms, conditions, or provisions of any
mortgage ("INTELLICELL MORTGAGE") or lease ("INTELLICELL LEASE") relating to
any of the Intellicell Properties. The Intellicell Mortgages and Intellicell
Leases are in good standing and, to the knowledge of Intellicell, no
condition exists which, with the passage of time, giving of notice, or both,
would lead to a default under any Intellicell Mortgage or Intellicell Lease.
(k) TITLE TO PROPERTIES. To Intellicell's knowledge,
Intellicell and its Subsidiaries have good and marketable title to all of
their respective real and personal properties, including the Intellicell
Properties and all other properties reflected in Intellicell's consolidated
balance sheet as of March 31, 1999, or acquired subsequent to March 31, 1999
(except property disposed of subsequent to that date in the ordinary course
of business). Except as disclosed in Intellicell's consolidated balance
sheet as of March 31, 1999, such assets and properties are not, to
Intellicell's knowledge, subject to any mortgage, pledge, lien, claim,
encumbrance, charge, security interest or title retention or other security
arrangement except for liens for the payment of federal, state and other
taxes, the payment of which is neither delinquent nor subject to penalties,
and except for other liens and encumbrances incidental to the conduct of the
business of Intellicell and its Subsidiaries or the ownership of their assets
or properties which were not incurred in connection with the borrowing of
money or the obtaining of advances, and which do not in the aggregate
materially detract from the value of the assets or properties of Intellicell
and its Subsidiaries taken as a whole or materially impair the use thereof in
the operation of their respective businesses.
(l) CONDITION OF ASSETS AND PROPERTIES. To Intellicell's
<PAGE>
knowledge, the buildings, equipment, fixtures, furniture, furnishings, office
equipment and all other tangible personal assets and properties of
Intellicell and its Subsidiaries presently used in Intellicell's business, do
not require any material repairs other than normal maintenance and are in
good operating condition, reasonable wear and tear excepted.
(m) LITIGATION. There are no actions, suits, proceedings or
other litigation pending or, to the knowledge of Intellicell, threatened
against Intellicell or any of its Subsidiaries, or any of their officers,
directors or material vendors or customers, at law or in equity, or before or
by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality which, if determined
adversely to Intellicell or its Subsidiaries, would individually or in the
aggregate be reasonably likely to have a Material Adverse Effect.
(n) INTELLECTUAL PROPERTY. No claim is pending or, to the
knowledge of Intellicell, threatened to the effect that the present or past
operations of Intellicell or any Subsidiary of Intellicell infringes upon or
conflicts with the rights of others with respect to any intellectual property
(including, without limitation, licenses, patents, patent rights, patent
applications, trademarks, trademark applications, trade names, copyrights,
drawings, trade secrets, know-how and computer software) necessary to permit
Intellicell and its Subsidiaries to conduct their businesses as now operated
(the "INTELLICELL INTELLECTUAL PROPERTY") and no claim is pending or, to the
knowledge of Intellicell, threatened to the effect that any of the
Intellicell Intellectual Property is invalid or unenforceable. Section
4.3(n) of the Intellicell Disclosures Letter contains a list of all licenses,
patents, patent rights, patent applications, trademarks, trademark
applications, trade names, copyrights, and service marks of Intellicell and
each of its Subsidiaries. No contract, agreement or understanding between
Intellicell or any of its Subsidiaries and any other party exists which would
impede or prevent the continued use by Intellicell and its Subsidiaries of
the entire right, title and interest of Intellicell and its Subsidiaries in
and to the Intellicell Intellectual Property.
(o) CONSENTS AND APPROVALS; NO VIOLATION. Except for
applicable requirements of the 1934 Act, state blue sky laws, and the filing
and recordation of the Agreement of Merger, as required by the Illinois Act
and Delaware Act, no filing with, and no permit, authorization, consent or
approval of, any governmental entity is necessary for the consummation by
Intellicell and Merger Sub of the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Intellicell and
the consummation of the transactions contemplated hereby will not violate or
result in a breach by Intellicell or any of its Subsidiaries of, or
constitute a default under, or conflict with or cause any acceleration of any
obligation with respect to (i) any material provision or restriction of any
charter, bylaw, loan, indenture or mortgage of Intellicell or any of its
Subsidiaries; or (ii) any material provision or restriction of any lien,
lease agreement, contract, instrument, order, judgment, award, decree,
ordinance or regulation or any other restriction of any kind or character to
which any assets or properties of Intellicell or any of its Subsidiaries is
subject or by which Intellicell or any of its Subsidiaries is bound. To
Intellicell's knowledge based, in part, upon CWI's representation set forth
in the last sentence of Section 4.1(n), no filing under the H-S-R Act is
required in connection with this Agreement or the Merger.
(p) TAXES. Intellicell and its Subsidiaries have filed all
federal, state, foreign, local and any other applicable tax returns and
reports required to be filed, and have paid in full or adequately reserved
for all taxes shown due thereon (together with all interest, penalties,
assessments and deficiencies assessed in connection therewith due through the
date hereof). To the knowledge of Intellicell, such tax returns and reports
are correct in all material respects. Federal tax returns of Intellicell and
its Subsidiaries have not been audited by the Internal Revenue Service.
There are no outstanding agreements
<PAGE>
or waivers extending the statutory period of limitation applicable to any
federal or state income tax returns of Intellicell or any of its Subsidiaries
within the three previous years.
(q) ACCOUNTS RECEIVABLE. To Intellicell's knowledge, the
accounts receivable of Intellicell and its Subsidiaries have been acquired in
the ordinary course of business, and are subject to no known defenses,
setoffs or counterclaims, except to the extent of the reserve reflected in
the consolidated financial statements of Intellicell and its Subsidiaries.
Subject to the foregoing, Intellicell is not guaranteeing the collectibility
of its receivables or the receivables of its Subsidiaries nor is Intellicell
representing that any of those receivables will actually be collected.
(r) CONTRACTS. Except for the transactions contemplated by
Section 6.1(n), neither Intellicell nor any of its Subsidiaries is a party to
(i) any lease, installment purchase agreement or other contract with respect
to any real property used or proposed to be used in its operations, except,
in each case, items reflected in Intellicell's March 31, 1999 financial
statements; (ii) any contract or agreement for the purchase of any personal
property, commodity, material, fixed asset or equipment in excess of $100,000
(iii) any mortgage, lease, contract or agreement creating an obligation of
$100,000 or more; (iv) any contract or agreement involving payments in excess
of $100,000 which by its terms does not terminate or is not terminable
without penalty to it within one year after the date hereof; (v) any loan
agreement, indenture, promissory note, conditional sales agreement or other
similar type of arrangement; (vi) any material license agreement; or (vii)
any contract which could be reasonably be expected to result in a material
loss or obligation to Intellicell and its Subsidiaries. To the knowledge of
Intellicell, each of the foregoing mortgages, leases, contracts, agreements
and other arrangements to which Intellicell or any of its Subsidiaries is a
party are valid and enforceable in accordance with their terms, except as
such enforceability may be limited by (i) bankruptcy laws and other similar
laws affecting creditors' rights generally and (ii) general principles of
equity, whether asserted in a proceeding in equity or at law. Intellicell,
its Subsidiaries and, to Intellicell's knowledge, all other parties to each
of the foregoing mortgages, leases, contracts, agreements and other
arrangements have performed all material obligations required to be performed
to date thereunder; neither Intellicell, nor any of its Subsidiaries nor, to
Intellicell's knowledge, any such other party is in default or in arrears
under the terms of any of the foregoing; and, to Intellicell's knowledge, no
condition exists or event has occurred which, with the giving of notice or
lapse of time or both, would constitute a default under any of them.
(s) COMPLIANCE WITH LAW AND OTHER REGULATIONS. Intellicell
and each of its Subsidiaries is in compliance with all requirements
(including those relating to environmental matters) of Federal, state or
local law, and all requirements of all governmental bodies and agencies
having jurisdiction over it, the conduct of its business, the use of its
assets and properties and all premises occupied by it except where the
failure to comply would not be reasonably likely to have a Material Adverse
Effect. There is no environmental contamination, toxic waste or other
discharge, spill, construction component, structural element or condition,
other than cleaning solvents and other substances normally used in day-to-day
operations which is reasonably likely to have a Material Adverse Effect, nor
has Intellicell received any official notice or citation that the Intellicell
Properties in any way contravene any Federal, state or local law or
regulation relating to environmental, health or safety matters, including
without limitation any requirements of CERCLA or any OSHA requirements.
Without limiting the foregoing, each of Intellicell and its Subsidiaries have
properly filed all reports, paid all monies and obtained all licenses,
permits, certificates and authorizations needed or required and material to
the conduct of its business and the use of its assets and properties and the
premises occupied by it in connection therewith and is in compliance in all
material respects with all conditions, restrictions and provisions of all of
the foregoing. Neither Intellicell nor any of its Subsidiaries
<PAGE>
has received any notice from any Federal, state or local authority or any
insurance or inspection body that any of its assets, properties, facilities,
equipment or business procedures or practices fails to comply with any
applicable law, ordinance, regulation, building or zoning law, or requirement
of any public authority or body.
(t) EMPLOYEE BENEFIT AND EMPLOYMENT MATTERS. Intellicell
and its "ERISA Affiliates" (as determined under Section 414(b), (c), (m) or
(o) of the Code) (i) maintain, administer or contribute to, or at any time
during the past six years have maintained, administered or contributed to,
only those employee pension benefit plans (as defined in Section 3(2) of
ERISA, whether or not excluded from coverage under specific Titles or
Subtitles of ERISA) described in Section 4.3(t) of the Intellicell Disclosure
Letter (the "INTELLICELL PENSION PLANS"); and (ii) maintain, administer or
contribute to only those employee welfare benefit plans (as defined in
Section 3(1) of ERISA, whether or not excluded from coverage under specific
Titles or Subtitles of ERISA) described in Section 4.3(t) of Intellicell
Disclosure Letter (the "INTELLICELL WELFARE PLANS"). Intellicell and all
ERISA Affiliates maintain, administer or contribute to only those bonus,
deferred compensation, stock purchase, stock option, severance plan,
insurance or similar arrangements described in Section 4.3(t) of the
Intellicell Disclosure Letter (the "INTELLICELL EMPLOYEE BENEFIT PLANS").
The Internal Revenue Service has determined that each Intellicell Pension
Plan intended to be "qualified" under Section 401(a) of the Code is so
qualified and that the trust forming a part thereof is tax exempt under
Section 501(a) of the Code from the date of its establishment until the date
hereof, and Intellicell does not know of any matter which would adversely
affect such qualified or tax-exempt status of such plan or trust. Full
payment has been made, or will be made in accordance with Sections 404(a)(6)
and 412 of the Code, of all amounts which either Intellicell or any ERISA
Affiliate is required to pay under the terms of each of the Intellicell
Pension Plans and Intellicell Welfare Plans and all such amounts are properly
accrued on Intellicell's March 31, 1999 consolidated balance sheet; and none
of the Intellicell Pension Plans or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Sections 302 of
ERISA and 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of each of such Plans ended prior to the date of this
Agreement. Neither any Intellicell Pension Plan or Intellicell Welfare Plan
nor any Intellicell Pension Plan or Intellicell Welfare Plan fiduciary has
engaged in any transaction in violation of Section 406 of ERISA or any
"prohibited transaction" (as defined in Section 4975(c)(1) of the Code) other
than any such transaction which is exempt under Section 408 of ERISA or
Section 4975(d) of the Code. Intellicell has furnished to CWI true and
complete copies of each Intellicell Pension Plan, Intellicell Welfare Plan,
and Intellicell Employee Benefit Plan and related trust agreements or annuity
contracts, Internal Revenue Service determination letters and summary plan
descriptions; all of the foregoing plans, agreements and commitments are
valid, binding, in full force and effect, and there are no defaults
thereunder; and none of the rights of Intellicell or any of its ERISA
Affiliates thereunder will be impaired by this Agreement or the consummation
of the transactions contemplated by this Agreement. Neither Intellicell nor
any of its Subsidiaries is a party to any collective bargaining agreement and
there is no material request for union representation pending or, to the
knowledge of Intellicell, threatened against Intellicell or any of its
Subsidiaries. Neither Intellicell nor any of its ERISA Affiliates has
incurred any liability to the PBGC as a result of the voluntary or
involuntary termination of any Intellicell Pension Plan subject to Title IV
of ERISA; there is currently no active filing by Intellicell or any of its
ERISA Affiliates with the PBGC (and no proceeding has been commenced by the
PBGC to terminate any Intellicell Pension Plan subject to Title IV of ERISA
maintained or funded, in whole or in part, by Intellicell or any of its ERISA
Affiliates); and neither Intellicell nor any of its ERISA Affiliates has made
a complete or partial withdrawal from a multi-employer plan, as such term is
defined in Section 3(37) of ERISA, resulting in "withdrawal liability," as
such term is defined in Section 4201 of ERISA (without regard to subsequent
reduction or waiver of such liability under either Section 4207 or 4208 of
ERISA). The
<PAGE>
employment of each employee of Intellicell and its Subsidiaries is terminable
at will, subject to applicable law. Each of Intellicell and its Subsidiaries
has complied in all material respects with all other applicable Federal,
state and local laws relating to the employment of labor including, but not
limited to, the provisions thereof relative to wages, hours, collective
bargaining, working conditions and payment of taxes of any kind, and neither
Intellicell nor any of its Subsidiaries is liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing or has
any obligations for any vacation, sick leave or other compensatory time.
(u) INSURANCE. Intellicell and each of its Subsidiaries
maintains in full force and effect insurance coverage on their respective
assets, properties, premises, operations and personnel in such amounts and
against such risks and losses as are set forth on Section 4.3(u) of the
Intellicell Disclosure Letter.
(v) CONFLICTING INTEREST. No director, officer or principal
stockholder of Intellicell or any of its Subsidiaries (i) has any pecuniary
interest in any supplier or customer of Intellicell or any of its
Subsidiaries or in any other business with which Intellicell and its
Subsidiaries conducts business or with which Intellicell and its Subsidiaries
is in competition other than holdings of the publicly traded securities of
such entities; or (ii) is indebted to Intellicell and its Subsidiaries for
borrowed money.
(w) NO PAYMENTS TO DIRECTORS, OFFICERS, STOCKHOLDERS OR
OTHERS. Since March 31, 1999, there has not been any purchase or redemption
of any shares of capital stock of Intellicell or any of its Subsidiaries or
any transfer, distribution or payment by Intellicell and its Subsidiaries,
directly or indirectly, of any assets or properties to any director, officer,
principal stockholder or other person other than the payment of compensation
for services actually rendered at rates not in excess of the rates prevailing
on March 31, 1999 and amounts paid in the normal course in reimbursement of
reasonable expenses incurred on behalf of Intellicell.
(x) NO PROHIBITED PAYMENTS. Neither Intellicell or its
Subsidiaries nor, to the knowledge of Intellicell, any officer, director,
employee, independent contractor or agent acting on behalf of Intellicell or
its Subsidiaries has at any time (i) made any contributions to any candidate
for political office in violation of law, or failed to disclose fully any
contributions to any candidate for political office in accordance with any
applicable statute, rule, regulation or ordinance requiring such disclosure;
(ii) made any payment to any local, state, Federal or foreign governmental
officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or allowed by applicable
law; (iii) made any payment outside the ordinary course of business to any
purchasing or selling agent or person charged with similar duties of any
entity to which Intellicell and its Subsidiaries sells products or renders
services or from which Intellicell and its Subsidiaries buys products or
services for the purpose of influencing such agent or person to buy products
or services from or sell products or services to Intellicell and its
Subsidiaries; or (iv) engaged in any transaction, maintained any bank account
or used any corporate funds except for transactions, bank accounts and funds
which have been and are reflected in the normally maintained books and
records of Intellicell and its Subsidiaries.
(y) MINUTE BOOKS. Intellicell has furnished CWI all minute
books of Intellicell and each of its Subsidiaries reflecting actions taken by
their respective stockholders and directors.
(z) ACCURACY OF STATEMENTS. Except to the extent
specifically qualified herein as being only to Intellicell's knowledge,
neither this Agreement nor any statement, list, certificate, document or
other information furnished or to be furnished by Intellicell to CWI in
connection with this Agreement or any of the transactions contemplated hereby
contains or will contain an untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the
<PAGE>
statements contained herein or therein, in the light of the circumstances
under which they are made, not misleading.
(aa) THE PROXY STATEMENT. The Proxy Statement, including any
amendments and supplements thereto, will not, either at the date mailed to
the Intellicell Stockholders or at the time of the meeting of the Intellicell
Stockholders to be held in connection with the transactions contemplated by
this Agreement, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The Proxy Statement will comply as to form
in all material respects with all applicable laws, including the provisions
of the 1934 Act and the rules and regulations promulgated thereunder, except
that no representation is made by Intellicell with respect to information
supplied by CWI for inclusion therein.
(ab) BROKERS AND FINDERS. Neither Intellicell or any of its
Subsidiaries nor any of their respective directors, officers or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or similar payments in connection
with the transactions contemplated by this Agreement, except for
Intellicell's agreement, dated June 2, 1999, with Sands Brothers & Co., Ltd.
("SANDS").
(ac) STATUS OF INTELLICELL COMMON STOCK TO BE ISSUED. The
shares of Intellicell Common Stock into which the shares of CWI Common Stock
will be converted pursuant to this Agreement will be, when issued, validly
authorized and issued, fully paid, nonassessable and not subject to any
preemptive rights.
(ad) NO ACTIVITIES. Merger Sub has not conducted any
operations or incurred any liabilities or obligations other than in
connection with its formation and the transactions contemplated hereby.
(ae) YEAR 2000 COMPLIANCE. To Intellicell's knowledge, all
of the computer hardware, software and information systems, including without
limitation the financial, operational and manufacturing systems, used by
Intellicell and each of its Subsidiaries are, or on or before December 31,
1999 will be, Year 2000 Compliant. To Intellicell's knowledge, products sold
by Intellicell to customers are Year 2000 Compliant.
(af) INVENTORY. With respect to inventories listed on
Intellicell's balance sheet as of March 31, 1999, as of the date of such
balance sheet: (i) inventories are stated at lower of cost or market, cost
being determined on the basis of FIFO and consistent with the prior year, and
due provision was made to reduce all slow-moving, obsolete or unusable
inventories to their estimated useful or scrap values; (ii) inventory
quantities were determined from Intellicell's perpetual inventory records,
which have been adjusted on the basis of physical counts taken by competent
employees; (iii) liabilities, if unpaid, for all items included in
inventories are recorded, and all quantities billed to customers are excluded
from the inventory balances; (iv) commitments for future purchases are for
quantities not in excess of anticipated requirements and at prices which will
not result in loss; and (v) adequate provision has been made for any material
loss to be sustained in the fulfillment of, or from the inability to fulfill,
any commitment.
V. COVENANTS
5.1 COVENANTS OF CWI. CWI agrees that, unless Intellicell
otherwise consents in writing, prior to the Closing:
(a) TRUTH OF REPRESENTATIONS AND WARRANTIES. CWI and CWI's
Subsidiaries shall not take or suffer or permit any action which would render
untrue any of the representations or warranties of CWI herein contained, and
CWI shall not omit to take any action, the omission of which would render
untrue any such representation or warranty.
<PAGE>
(b) PRESERVATION OF BUSINESS. CWI shall use commercially
reasonable efforts to (i) preserve intact the present business organization
of CWI; (ii) preserve the present goodwill and advantageous relationships of
CWI with vendors, customers and all other persons having business dealings
with CWI; and (iii) preserve and maintain in force all CWI Intellectual
Property. CWI shall not enter into any employment agreements with any of its
officers or management personnel which may not be cancelled without penalty
upon notice not exceeding 90 days, except for those severance agreements with
specified individuals described in Section 5.1(b) of the CWI Disclosure
Letter. CWI shall maintain in force all property, casualty, directors and
officers and other forms of insurance which it is presently carrying and
shall refrain from making any change in any insurance coverage.
(c) ORDINARY COURSE. CWI shall operate its business only in
the usual, regular and ordinary course and manner consistent with past
practice. Without limiting the foregoing, CWI shall not (i) encumber or
mortgage any property or assets; (ii) except for those severance agreements
described in Section 5.1(b) of the CWI Disclosure Letter, incur any
obligation (contingent or otherwise), or purchase or acquire, or transfer or
convey, any material assets or properties or enter into any transaction or
make or enter into any contract or commitment except in the ordinary course
of business or, whether or not in the ordinary course of business, which
involve obligations in excess of $100,000 or which extend beyond six months
from the date of this Agreement; (iii) amend, modify or terminate any
presently existing lease, contract, agreement or other obligation; or (iv)
acquire any stock or other equity interest in any corporation, trust or other
entity. CWI will retain its $1,500,000 term loan with American National Bank
and will continue to make payments on this loan through the Closing Date in
the ordinary course of business. Notwithstanding the foregoing, CWI may make
distributions, issue shares of CWI Stock as contemplated by this Agreement or
pay compensation to its officers, directors and shareholders that are not in
the ordinary course of business, provided that such distributions or payments
do not result in CWI having total stockholders' equity as of the Closing Date
of less than $1,177,667.
(d) BOOKS AND RECORDS. CWI shall maintain its books,
accounts and records in the usual, regular and ordinary manner, and on a
basis consistent with prior years.
(e) NO ORGANIC CHANGE. Except as contemplated by this
Agreement, CWI shall not (i) amend its charter or bylaws; (ii) make any
change in its capital stock by reclassification, subdivision, reorganization
or otherwise; or (iii) merge or consolidate with any other corporation, trust
or entity or change the character of its business.
(f) NO ISSUANCE BY CWI OF SHARES, OPTIONS, OR OTHER
SECURITIES. CWI shall not (i) issue any shares of capital stock (except for
issuances to its existing officers, directors and shareholders); or (ii)
grant any option, warrant or other right to purchase or to convert any
obligation into shares of capital stock.
(g) COMPENSATION. CWI shall not (i) increase the
compensation payable to any elected officer or to other management personnel
from the amount payable as of the date of this Agreement; or (ii) introduce
or change any pension or profit sharing plan, or any other employee benefit
arrangement, except as a result of collective bargaining negotiations, except
for insubstantial changes necessary to comply with the minimum requirements
of the Code or ERISA.
(h) DIVIDENDS. CWI shall not (i) declare, make or pay any
dividend or other distribution with respect to shares of CWI Common Stock or
otherwise; (ii) purchase, redeem or otherwise acquire any shares of CWI
Common Stock; or (iii) transfer, distribute or pay, directly or indirectly,
any assets
<PAGE>
or properties to any stockholders of CWI or its Subsidiaries or to any other
person, except as permitted by this Agreement. Notwithstanding the
foregoing, CWI may pay or prepay CWI stockholder loans and other
related-party indebtedness, pay dividends, redeem or repurchase shares of CWI
Common Stock, or make other distributions to or cancel obligations owing from
its shareholders, provided that such payments, prepayments, dividends,
redemptions, repurchases, distributions or cancellations do not violate any
covenants or restrictions under any agreement with American National Bank or
other contract or agreement of CWI and do not result in CWI having total
stockholders' equity as of the Closing Date of less than $1,177,667.
(i) RIGHT OF INSPECTION. Subject to the confidentiality
agreement, dated February 9, 1999, entered into by and between Intellicell
and CWI (the "CONFIDENTIALITY AGREEMENT"), CWI shall make available to
Intellicell and its representatives for inspection at all reasonable times
all of the assets, properties, facilities, records, agreements (including all
documents of any description evidencing any right or obligation of CWI) and
the financial statements of CWI and allow Intellicell and its representatives
the right to make whatever copies of such materials they require, and CWI
shall permit Intellicell and its independent accountants to audit or make
such audit tests respecting the accounts of CWI as Intellicell or its
accountants consider appropriate.
(j) CONFIDENTIALITY. CWI shall not reveal, orally or in
writing, to any person, other than Intellicell and its representatives and
CWI's own officers, directors, agents, representatives and employees, any of
the business procedures or practices followed by it in the conduct of its
business or any other information of a confidential nature. All information
obtained by CWI from Intellicell, shall be kept confidential in accordance
with the Confidentiality Agreement.
(k) SATISFACTION OF OBLIGATIONS AND LIABILITIES. CWI shall
(i) pay or cause to be paid all of the obligations and liabilities arising
out of its business as they mature, except for those obligations and
liabilities as to which nonpayment will not result in any interest or
penalties and those which are disputed in good faith with the written
approval of Intellicell, which approval shall not be unreasonably withheld
and shall be presumed to be given by Intellicell unless objection is
delivered by Intellicell within three business days after CWI's written
request for approval delivered in accordance with the notice requirement of
Section 10.4; (ii) maintain in all material respects and perform its
obligations under all agreements and contracts to which it is bound in
accordance with their terms; and (iii) comply in all material respects with
all requirements of applicable federal, state and local laws, regulations and
rules.
(l) REASONABLE EFFORTS. Subject to the terms and conditions
of this Agreement, CWI shall use its commercially reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
including, without limitation, (i) assisting Intellicell with the prompt
preparation and filing with the SEC of the Proxy Statement; (ii) assisting
Intellicell with such actions as may be required to have the Proxy Statement
cleared by the SEC as promptly as practicable, including by consulting with
Intellicell as to any SEC comments with respect thereto; (iii) assisting
Intellicell with such actions as may be required to be taken under applicable
state securities or Blue Sky laws in connection with the issuance of the
shares of Intellicell Common Stock contemplated hereby; and (iv) the
preparation and filing of all other forms, registrations and notices required
to be filed to consummate the transactions contemplated hereby and the taking
of such actions as are necessary to obtain any requisite approvals, consents,
orders, exemptions, and waivers by any public or private third parties.
Intellicell shall reimburse CWI for reasonable out-of-pocket expenses
incurred by CWI in assisting Intellicell with any filings required to be made
by Intellicell, provided that Intellicell's obligations to
<PAGE>
reimburse CWI under this Section 5.1(l) and under Section 10.1 shall not
exceed in the aggregate $25,000, or 50% of the cost to CWI to obtain the
audited financial statements to be prepared by its independent public
accountants for the Proxy Statement and to satisfy SEC regulations, whichever
is less, and except that no such reimbursement shall be required if
Intellicell terminates this Agreement due to CWI's breach of any of its
covenants under this Agreement or CWI's failure to satisfy any condition
precedent for the benefit of Intellicell by no later than October 30, 1999.
In this regard, Intellicell agrees that it shall be responsible for all SEC
filing fees in connection with the Proxy Statement.
5.2 COVENANTS OF INTELLICELL. Intellicell agrees that, unless CWI
otherwise consents in writing, prior to the Closing:
(a) TRUTH OF REPRESENTATIONS AND WARRANTIES. Intellicell
and its Subsidiaries shall not take or suffer or permit any action which
would render untrue any of the representations or warranties of Intellicell
herein contained, and Intellicell shall not omit to take any action, the
omission of which would render untrue any such representation or warranty.
(b) PRESERVATION OF BUSINESS. Intellicell shall use
commercially reasonable efforts to (i) preserve intact the present business
organization of Intellicell and its Subsidiaries; (ii) preserve the present
goodwill and advantageous relationships of Intellicell and its Subsidiaries
with investors and all other persons having business dealings with
Intellicell and its Subsidiaries; and (iii) preserve and maintain in force
all Intellicell Intellectual Property. Intellicell and its Subsidiaries
shall maintain in force all property, casualty, directors and officers and
other forms of insurance which they are presently carrying and shall refrain
from making any change in any insurance coverage.
(c) ORDINARY COURSE. Intellicell and its Subsidiaries shall
operate their businesses only in the usual, regular and ordinary course and
manner consistent with past practice. Without limiting the foregoing,
Intellicell shall not, except in connection with the transactions
contemplated by Section 6.1(n) (i) encumber or mortgage any material property
or assets; (ii) incur any obligation (contingent or otherwise), or purchase
or acquire, or transfer or convey, any material assets or properties or enter
into any transaction or make or enter into any contract or commitment except
in the ordinary course of business or, whether or not in the ordinary course
of business, which involve obligations in excess of $100,000 or which extend
beyond six months from the date of this Agreement; (iii) amend, modify or
terminate any presently existing material lease, contract, agreement or other
obligation; or (iv) acquire any stock or other equity interest in any
corporation, trust or other entity.
(d) BOOKS AND RECORDS. Intellicell and its Subsidiaries
shall maintain their books, accounts and records in the usual, regular and
ordinary manner, and on a basis consistent with prior years.
(e) NO ORGANIC CHANGE. Except as contemplated by this
Agreement, neither Intellicell nor its Subsidiaries shall (i) amend their
charter or bylaws; (ii) make any change in their capital stock by
reclassification, subdivision, reorganization or otherwise; or (iii) merge or
consolidate with any other corporation, trust or entity or change the
character of their business.
(f) NO ISSUANCE BY INTELLICELL OF SHARES, OPTIONS OR OTHER
SECURITIES. Except for (i) shares of Intellicell Common Stock issued upon
the exercise of any options or warrants that are outstanding on the date of
this Agreement, (ii) grants of options under stock option plans or similar
arrangements in effect on the date hereof, (iii) the distribution of warrants
to the Intellicell Stockholders approved by the Intellicell Stockholders in
December 1998, or (iv) the issuance of any shares, options or other
securities in connection with the transactions contemplated by Section
6.1(n), neither Intellicell nor its Subsidiaries shall issue any shares of
capital stock or grant any option, warrant or other right to purchase or to
convert any obligation into shares of capital stock.
<PAGE>
(g) COMPENSATION. Except as set forth in Section 4.3(g) of
the Intellicell Disclosure Letter, Neither Intellicell nor its Subsidiaries
shall (i) increase the compensation payable to any elected officer or to
other management personnel from the amount payable as of the date of this
Agreement, except in accordance with normal and customary practice; or (ii)
introduce or change any pension or profit sharing plan, or any other employee
benefit arrangement (other than as a result of collective bargaining
negotiations), except for insubstantial changes necessary to comply with the
minimum requirements of the Code or ERISA and a contemplated increase of
500,000 in the number of shares covered by options that may be granted under
Intellicell's qualified option plans pursuant to either an amendment to the
existing plans or the adoption of a new plan. Any options granted with
respect to such increase in the number of shares available under
Intellicell's option plans shall be described in Schedule 4.3(d) of the
Intellicell Disclosure Letter.
(h) DIVIDENDS. Intellicell shall not (i) declare, make or
pay any dividend or other distribution with respect to shares of Intellicell
Common Stock; (ii) purchase, redeem or otherwise acquire any shares of
Intellicell Common Stock; or (iii) transfer, distribute or pay, directly or
indirectly, any assets or properties to any stockholders of Intellicell or
its Subsidiaries or to any other person, except for the distribution of
warrants to the Intellicell Stockholders approved by the Intellicell
Stockholders in December 1998 and described in Section 5.2(h) of the
Intellicell Disclosure Letter and as otherwise permitted by this Agreement.
(i) RIGHT OF INSPECTION. Intellicell shall make available
to CWI and its representatives for inspection at all reasonable times all of
the assets, properties, facilities, records, agreements (including all
documents of any description evidencing any right or obligation of
Intellicell or any of its Subsidiaries) and the financial statements of
Intellicell and allow CWI and its representatives the right to make whatever
copies of such materials they require, and Intellicell shall permit CWI and
its independent accountants to audit or make such audit tests respecting the
accounts of Intellicell and its Subsidiaries as CWI or its accountants
consider appropriate.
(j) CONFIDENTIALITY. Neither Intellicell nor any of its
Subsidiaries shall reveal, orally or in writing, to any person, other than
CWI and its representatives, any of the business procedures or practices
followed by it in the conduct of its business or any other information of a
confidential nature. All information obtained by Intellicell and its
Subsidiaries from CWI, other than information obtained for inclusion in the
Proxy Statement, shall be kept confidential in accordance with the
Confidentiality Agreement.
(k) SATISFACTION OF OBLIGATIONS AND LIABILITIES. Intellicell
and each of its Subsidiaries shall (i) pay or cause to be paid all of the
obligations and liabilities arising out of its business as they mature,
except for those which are in good faith disputed with the written approval
of CWI; (ii) maintain in all material respects and perform its obligations
under all agreements and contracts to which it is bound in accordance with
their terms; and (iii) comply in all material respects with all requirements
of applicable Federal, state and local laws, regulations and rules.
(l) RECOMMENDATION OF BOARD OF DIRECTORS. Except to the
extent required by fiduciary duty under applicable law, the Board of
Directors of Intellicell shall not modify its action taken on or prior to the
date of this Agreement approving the Merger and recommending approval of the
Merger by the Intellicell Stockholders, except that no such recommendation
shall be required if Intellicell terminates this Agreement due to CWI's
breach of any of its covenants under this Agreement or CWI's failure to
satisfy any condition precedent for the benefit of Intellicell by no later
than October 30, 1999.
<PAGE>
(m) REASONABLE EFFORTS. Subject to the terms and conditions
of this Agreement, Intellicell shall use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement including, without limitation, (i) with the assistance of CWI,
the prompt preparation and filing with the SEC of the Proxy Statement; (ii)
with the assistance of CWI, such actions as may be required to have the Proxy
Statement cleared by the SEC as promptly as practicable, including by
consulting with CWI as to, and responding promptly to, any SEC comments with
respect thereto; (iii) with the assistance of CWI, such actions as may be
required to be taken under applicable state securities or Blue Sky laws in
connection with the issuance of the shares of Intellicell Common Stock
contemplated hereby; and (iv) the preparation and filing of all other forms,
registrations and notices required to be filed to consummate the transactions
contemplated hereby and the taking of such actions as are necessary to obtain
any requisite approvals, consents, orders, exemptions, and waivers by any
public or private third parties. Notwithstanding the foregoing, Intellicell
shall not be required to agree, as a condition to any governmental approval
of or consents to the transactions contemplated hereby, to divest itself of
any Subsidiary, division or business units which is material to Intellicell
and its Subsidiaries taken as a whole, or the divestiture of which would be
reasonable likely to have a Material Adverse Effect.
(n) EMPLOYEE BENEFITS. Intellicell shall cause the
Surviving Corporation and its subsidiaries to provide employees of the
Surviving Corporation and its subsidiaries with benefits, including 401(k),
deferred compensation, health and welfare and paid time-off benefits, which
are no less favorable in the aggregate than those generally provided by CWI
to its employees. To the extent that any employees of CWI become eligible to
participate in any employee benefit plan of Intellicell after the Closing,
Intellicell, the Surviving Corporation and their subsidiaries, to the extent
such employee benefit plan permits, shall credit such employee's service with
CWI for purposes of determining such employee's eligibility to participate in
and vesting under, and for purposes of calculating the benefits under, such
employee benefit plan.
(o) THIRD PARTY BENEFICIARIES. The provisions of Section
5.2(n) will survive the consummation of the Merger, are intended to benefit
and may be enforced by each of the persons who participate in any of the
employee benefits plans referred to therein, and will be binding on all
successors and assigns of Intellicell and Surviving Corporation.
(p) VOTING TRUST AGREEMENT. Intellicell shall use its
commercially reasonable efforts to cause officers, directors, and
shareholders of Intellicell (the "MINIMUM HOLDERS") who own, in the
aggregate, a specified minimum number of shares of Intellicell Common Stock
that will be agreed to by Intellicell and CWI to enter into a Voting Trust
Agreement, with the Principal CWI Stockholders (the "VOTING TRUST
AGREEMENT"), with the terms of such agreement to be agreed to by Intellicell
and CWI prior to the Closing.
(q) OPERATION OF MERGER SUB. With the exception of CWI's
computer hardware and software systems, Merger Sub intends to use a
significant portion of CWI's assets in its business and, with the exception
of such hardware and software, Merger Sub currently does not intend or plan
to dispose of more than an insignificant portion of CWI's assets or to
liquidate or merge Merger Sub into Intellicell.
VI. CONDITIONS PRECEDENT TO OBLIGATIONS
6.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF INTELLICELL AND
MERGER SUB. The obligations of Intellicell and Merger Sub under this
Agreement are subject to the satisfaction of the following conditions on or
before the Closing, which may be waived in whole or in part by Intellicell
and Merger Sub at their
<PAGE>
sole discretion:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of CWI and the Principal CWI Stockholders
herein contained shall have been true and correct in all material respects
when made, and, in addition, shall be true and correct in all material
respects on and as of the Closing with the same force and effect as though
made on and as of the Closing, except as specifically affected by
transactions contemplated hereby.
(b) PERFORMANCE OF AGREEMENTS. CWI shall have in all
material respects performed all obligations and agreements and complied in
all material respects with all covenants and conditions contained in this
Agreement to be performed and complied with by it on or prior to the Closing.
(c) OPINION OF FINANCIAL ADVISOR. Sands, the financial
advisor to Intellicell, shall have delivered to Intellicell its written
opinion to the effect that the Merger is fair to the stockholders of
Intellicell from a financial point of view.
(d) STOCKHOLDER APPROVALS. All necessary action on the part
of the CWI's stockholders adopting this Agreement and approving the
transactions contemplated hereby shall have been taken, and no stockholder of
CWI shall have exercised any appraisal right that he may have with respect to
the Merger.
(e) OPINION OF COUNSEL FOR CWI. At the Closing, Intellicell
shall have received an opinion of Kamensky & Rubinstein, counsel for CWI,
dated the Closing Date, in form and substance reasonably satisfactory to
Intellicell and its counsel, to the effect that:
(i) CWI is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its
incorporation, and has all requisite corporate power under the laws of such
state to own, lease and operate its properties, to carry on its business as
currently conducted and to consummate the Merger;
(ii) All necessary corporate proceedings of the Board
of Directors of CWI to approve and adopt this Agreement and to authorize the
execution and delivery of this Agreement and the consummation of the Merger
have been duly and validly taken;
(iii) CWI has the corporate power to execute and
deliver this Agreement, and this Agreement has been duly authorized, executed
and delivered by CWI and constitutes its legal, valid and binding obligation
except that the enforceability thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally; and (ii) general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law); and
(iv) Except as disclosed in the CWI Disclosure Letter,
such counsel knows of no actions, suits or proceedings pending or threatened
against or affecting CWI, at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency, or instrumentality that relate to the transactions contemplated by
this Agreement, or would, if determined adversely to CWI, individually or in
the aggregate have a Material Adverse Effect.
In rendering the above opinions, such counsel may rely on opinions of
other counsel and certificates of officers and employees of CWI delivered in
connection with this Agreement, with copies of such opinions and certificates
to be furnished to Intellicell.
(f) NO MATERIAL ADVERSE CHANGE. There shall be no material
adverse change in the business, properties, prospects or financial condition
of
<PAGE>
CWI.
(g) LITIGATION. No action or proceeding before any court or
governmental agency shall have been instituted or threatened which would
enjoin, restrain or prohibit, or might result in substantial damages in
respect of this Agreement or the consummation of the transactions
contemplated by this Agreement, and would in the reasonable judgment of
Intellicell make it inadvisable to consummate such transactions, and no court
order shall have been entered in any action or proceeding instituted by any
other party which enjoins, restrains or prohibits this Agreement or the
consummation of the transactions contemplated by this Agreement.
(h) CERTIFICATE OF CWI. At the Closing, Intellicell shall
have received from CWI a certificate of the chairman or president and the
secretary of CWI, dated the date of the Closing, certifying that all
representations and warranties set forth in this Agreement are true, complete
and correct in all material respects at and as of the Closing as if made at
that time, and that CWI has performed and complied with all agreements,
covenants and conditions required by this Agreement to be performed or
complied with by CWI on or prior to the Closing.
(i) PROCEEDINGS SATISFACTORY TO COUNSEL. All proceedings
taken by CWI and all instruments executed and delivered by CWI on or prior to
the Closing in connection with the transactions herein contemplated shall be
reasonably satisfactory in form and substance to counsel for Intellicell.
(j) CONSENTS AND APPROVALS. CWI shall have obtained all
consents and approvals of other persons, mortgagees, lessors, and
governmental authorities necessary to the performance by CWI of the
transactions hereunder. CWI shall have made all filings, applications,
statements and reports to all Federal, state, and local governmental agencies
or entities required to be made prior to the Closing by or on behalf of CWI
pursuant to any statute, rule or regulation in connection with the
transactions contemplated hereunder.
(k) DELIVERY OF DOCUMENTS. All other documents required to
be delivered by CWI on or prior to the Closing shall be delivered or shall be
tendered by the Closing.
(l) EMPLOYMENT AGREEMENT. Intellicell or the Surviving
Corporation shall have entered into employment agreements with Ronald
Goldberg and Cary Maimon and made any other severance or employment
arrangements with other CWI employees that Intellicell deems necessary on
terms that are acceptable to Intellicell in its sole discretion and to such
employees. Philip Leavitt and Sherwin Geitner shall have terminated their
employment with CWI as of the Closing Date.
(m) INTELLICELL COMMON STOCK TRADING PRICE. The average
closing price on Nasdaq of the Intellicell Common Stock for any five
consecutive trading day period ending at least three trading days prior to
the Closing Date shall not be below $2.50 per share; provided that
Intellicell may only terminate this Agreement pursuant to this Section 6.1(m)
by giving written notice of such termination to CWI within three business
days following the end of such five-day trading period.
(n) ADDITIONAL FINANCING. Intellicell shall have received
the approval from its current lender, Nationscredit Commercial Corporation
("NATIONSCREDIT"), to this Agreement and shall have obtained an additional
line of credit on terms acceptable to Intellicell in its sole discretion for
at least $15,000,000 from either Nationscredit, CWI's current lender or
another commercially recognized lender. Intellicell shall also have obtained
additional debt or equity financing on terms acceptable to Intellicell in its
reasonable
<PAGE>
discretion for at least $5,500,000 (exclusive of the exercise price of any
currently outstanding warrants or options to purchase Intellicell Common
Stock).
(o) RELATED PARTY AGREEMENTS. CWI and Intellicell shall
have entered into agreements with Leavitt Communications, Inc. ("LCI"),
Continental Mobile Telephone Company, Inc. and any other parties related to
CWI covering LCI's right of first refusal to purchase any CWI computer
hardware or software that may be sold by CWI, LCI's tenancy, management and
LCI's access to CWI's resources and any other existing relationships between
CWI and any of its related parties, all on terms acceptable to Intellicell in
its sole discretion.
(p) INSURANCE LETTER. Intellicell shall have received a
letter from CWI's insurance carrier confirming that the insurance coverage
described in Section 4.1(t) of the CWI Disclosure Letter is customary for the
business engaged in by CWI.
6.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CWI. The
obligations of CWI under this Agreement are subject to the satisfaction of
the following conditions on or before the Closing, which may be waived in
whole or in part by CWI at its sole discretion:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Intellicell and Merger Sub herein contained
shall have been true and correct in all material respects when made, and, in
addition, shall be true and correct in all material respects on and as of the
Closing with the same force and effect as though made on and as of the
Closing, except as specifically affected by transactions contemplated hereby.
(b) PERFORMANCE OF AGREEMENTS. Intellicell and Merger Sub
shall have in all material respects performed all obligations and agreements
and complied in all material respects with all covenants and conditions
contained in this Agreement to be performed and complied with by them on or
prior to the Closing.
(c) STOCKHOLDER APPROVAL. All necessary action on the part
of the Intellicell Stockholders adopting this Agreement and approving the
transactions contemplated hereby shall have been taken.
(d) OPINION OF COUNSEL FOR INTELLICELL. At the Closing, CWI
shall have received an opinion of Troy & Gould Professional Corporation,
counsel for Intellicell, dated the Closing Date, in form and substance
reasonably satisfactory to CWI and its counsel, to the effect that:
(i) Intellicell is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power under the laws of such state
to own, lease and operate its properties, to carry on its business as
described in the Proxy Statement, and to consummate the Merger;
(ii) Each of the Subsidiaries of Intellicell is a
corporation, partnership or joint venture incorporated, validly existing and
in good standing under the laws of the state of its incorporation or
organization, and has all requisite corporate power under the laws of such
state to own, lease and operate its properties and to carry on its business
as described in the Proxy Statement and, with respect to Merger Sub, to
consummate the Merger.
(iii) All necessary corporate proceedings of the Boards
of Directors and the stockholders of Intellicell and Merger Sub to approve
and adopt this Agreement and to authorize the execution and delivery of this
Agreement and the consummation of the Merger have been duly and validly taken;
<PAGE>
(iv) Each of Intellicell and Merger Sub has the corporate
power to execute and deliver this Agreement, and this Agreement has been duly
authorized, executed and delivered by each of Intellicell and Merger Sub and
constitutes its legal, valid and binding obligation except that the
enforceability thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally; and (ii) general principles of equity
(regardless of whether such enforcement is sought in a proceeding in equity or
at law);
(v) Except as disclosed in the Intellicell Disclosure
Letter, such counsel knows of no actions, suits or proceedings pending or
threatened against or affecting Intellicell or any of its Subsidiaries, at law
or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
that would, if determined adversely to Intellicell, individually or in the
aggregate, have a Material Adverse Effect, or which would require disclosure in
the Proxy Statement pursuant to the 1934 Act or the rules and regulations
promulgated thereunder;
(vi) The shares of Intellicell Common Stock to be issued
in accordance with this Agreement are duly authorized, and will be, upon the
effectiveness of the Merger, validly issued, fully paid and nonassessable.
(vii) The method of computing the Share Value set forth in
Section 1.7 will not violate the 1933 Act, the 1934 Act or any rules or
regulations promulgated thereunder or any rules or regulations of the National
Association of Securities Dealers, Inc.
(viii) Based solely upon the representations of Intellicell
and CWI, no filing is required by the parties to this Agreement under the H-S-R
Act.
(ix) The Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code.
(x) The Intellicell Stockholders will not have any
appraisal rights in connection with the Merger.
(xi) The transactions contemplated by this Agreement will
not violate the registration requirements of the 1933 Act.
In rendering the above opinions, such counsel may rely on opinions of
other counsel and certificates of officers and employees of Intellicell
delivered in connection with this Agreement, with copies of such opinions and
certificates to be delivered to CWI.
(e) NO MATERIAL ADVERSE CHANGE. There shall be no material
adverse change in the business, properties, prospects or financial condition of
Intellicell and its Subsidiaries, taken as a whole.
(f) LITIGATION. No action or proceeding before any court or
governmental agency shall have been instituted or threatened which would enjoin,
restrain or prohibit, or might result in substantial damages in respect of this
Agreement or the consummation of the transactions contemplated by this
Agreement, and would in the reasonable judgment of CWI make it inadvisable to
consummate such transactions, and no court order shall have been entered in any
action or proceeding instituted by any other party which enjoins, restrains or
prohibits this Agreement or the consummation of the transactions contemplated by
this Agreement.
(g) CERTIFICATES OF INTELLICELL AND MERGER SUB. At the
Closing, CWI shall have received from Intellicell and Merger Sub certificates of
the
<PAGE>
president and secretary of Intellicell and Merger Sub, dated the Closing
Date, certifying that all representations and warranties set forth in this
Agreement are true, complete and correct in all material respects at and as of
the Closing Date as if made at that time, and that Intellicell and Merger Sub
each has performed and complied with all agreements, covenants and conditions
required by this Agreement to be performed or complied with by Intellicell and
Merger Sub, respectively, on or prior to the Closing.
(h) PROCEEDINGS SATISFACTORY TO COUNSEL. All proceedings taken
by Intellicell and Merger Sub and all instruments executed and delivered by
Intellicell and Merger Sub on or prior to the Closing in connection with the
transactions herein contemplated shall be reasonably satisfactory in form and
substance to counsel for CWI.
(i) DELIVERY OF DOCUMENTS. All other documents required to be
delivered by Intellicell or Merger Sub on or prior to the Closing shall be
delivered or shall be tendered by the Closing.
(j) CONSENTS AND APPROVALS. Intellicell and Merger Sub shall
have obtained all consents and approvals of other persons, mortgagees, lessors,
and governmental authorities necessary to the performance by Intellicell and
Merger Sub of the transactions hereunder. Intellicell and Merger Sub shall have
made all filings, applications, statements and reports to all Federal, state,
and local governmental agencies or entities required to be made prior to the
Closing by or on behalf of Intellicell or its Subsidiaries pursuant to any
statute, rule or regulation in connection with the transactions contemplated
hereunder.
(k) AMENDMENT TO CERTIFICATE OF INCORPORATION. On or before
the Closing, Intellicell shall have amended its Certificate of Incorporation to
increase the number of shares of Common Stock it is authorized to issue to
25,000,000 and to change Intellicell's name to Focus Affiliates, Inc. or such
other similar name as may be determined by Intellicell's Board of Directors.
(l) AMENDMENT TO BYLAWS; ELECTION OF DIRECTORS. Intellicell
shall have amended its Bylaws to increase the authorized number of seats on its
Board of Directors to eight, and three designees of CWI (who shall be reasonably
acceptable to Intellicell and at least one of whom is not an officer, director,
employee or significant shareholder of CWI) shall have been duly elected to the
Intellicell Board of Directors.
(m) INTELLICELL COMMON STOCK TRADING PRICE. The average
closing price on Nasdaq of the Intellicell Common Stock for any five consecutive
trading day period ending at least three trading days prior to the Closing Date
shall not be below $2.50 per share; provided that CWI may only terminate this
Agreement pursuant to this Section 6.2(m) by giving written notice of such
termination to Intellicell within three business days of such five-day trading
period.
(n) EMPLOYMENT AGREEMENTS. Intellicell or the Surviving
Corporation shall have entered into employment agreements with Ronald Goldberg
and Cary Maimon and made such other severance or employment arrangements with
other CWI employees on terms that are acceptable to CWI in its sole discretion
and to such employees.
(o) VOTING TRUST AGREEMENT. The Voting Trust Agreement shall
have been executed and delivered to the Principal CWI Shareholders by not less
than the Minimum Holders.
(p) ADDITIONAL FINANCING. Intellicell shall have received the
approval of Nationscredit to this Agreement and shall have obtained an
additional line of credit on terms acceptable to CWI in its sole discretion for
at least $15,000,000 from either Nationscredit, CWI's current lender or another
<PAGE>
commercially recognized lender. Intellicell shall also have obtained additional
debt or equity financing on terms acceptable to CWI in its reasonable discretion
for at least $5,500,000 (exclusive of the exercise price of any currently
outstanding warrants or options to purchase Intellicell Common Stock).
(q) INSURANCE LETTER. CWI shall have received a letter from
Intellicell's insurance carrier confirming that the insurance coverage described
in Section 4.2(u) of the Intellicell Disclosure Letter is customary for the
business engaged in by Intellicell.
VII. AMENDMENT, WAIVER, TERMINATION
7.1 AMENDMENT. This Agreement may be amended by the parties hereto at
any time before or after approval hereof by the Intellicell Stockholders,
provided that after any such approval, no amendment shall be made which (i)
increases the number of shares of Intellicell Common Stock or improves the
formula that determines the number of shares to be received by the stockholders
of CWI pursuant to this Agreement; (ii) in any way materially adversely affects
the rights of the Intellicell Stockholders; or (iii) changes any of the
principal terms of this Agreement, in each case without the further approval of
such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
7.2 WAIVER. At any time prior to the Closing, the parties hereto may
(i) extend the time for the performance of any of the obligations or other acts
of the other parties hereto; (ii) waive any inaccuracies in the representations
and warranties of the other parties contained herein or in any document
delivered pursuant hereto; and (iii) waive compliance with any of the agreements
or conditions of the other parties contained herein. Any agreement on the part
of a party hereto to any extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party.
7.3 TERMINATION. This Agreement may be terminated at any time prior
to the Closing, whether before or after approval of the matters presented in
connection with the Merger by the Intellicell Stockholders:
(i) by mutual consent of CWI and Intellicell;
(ii) by either CWI or Intellicell, if the Merger shall not have
been consummated before October 30, 1999 (unless the failure to consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate this Agreement);
(iii) by either CWI or Intellicell, if (a) the conditions to such
party's obligations shall have become commercially impracticable to satisfy and
such conditions have not been waived; or (b) any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
Merger shall have become final and non-appealable;
(iv) by either CWI or Intellicell, if the issuance of the shares
of Intellicell Common Stock issuable in connection with the Merger is not duly
approved by the Intellicell Stockholders; or
(v) by either CWI or Intellicell if (a) an SEC or Nasdaq
proceeding is pending or threatened against Intellicell or (b) the financing
commitments described in Sections 6.1(n) and 6.2(p) have not been obtained.
7.4 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.3 hereof, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party hereto
or its affiliates, directors, officers or stockholders. Nothing contained in
this Section 7.4 shall relieve any party from liability for any willful breach
of this
<PAGE>
Agreement.
VIII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. If the Merger occurs,
all of the representations and warranties contained in Article IV shall survive
the Closing for a period of 18 months from the Closing Date.
8.2 INDEMNIFICATION BY CWI AND PRINCIPAL CWI STOCKHOLDERS.
(a) Subject to the terms and conditions herein, CWI, jointly
and severally with the Principal CWI Stockholders, and the Principal CWI
Stockholders, pro rata (based on their proportionate ownership of CWI Stock
prior to the Closing), agree to indemnify, defend and hold harmless Intellicell,
its stockholders, officers, directors and employees, the Merger Sub, and its
officers, directors and employees (all such persons and entities being
collectively referred to as the "INTELLICELL GROUP") from, against, for and in
respect of any and all losses, damages, costs and expenses (including reasonable
legal fees and expenses) which any member of the Intellicell Group may sustain
or incur which are caused by or arise out of any inaccuracy in or breach of any
of the representations, warranties or covenants made by CWI or the Principal CWI
Stockholders in this Agreement (collectively, the "INTELLICELL LOSSES");
provided, however, that (a) the foregoing indemnification shall not include lost
profits or other consequential damages and (b) following completion of the
Merger, the foregoing indemnification (including without limitation with respect
to CWI's representations and warranties) shall be provided solely by the
Principal CWI Stockholders pro rata (based on their proportionate ownership of
CWI Stock prior to the Closing), and the foregoing indemnified parties shall
neither be permitted nor required to seek indemnification from CWI.
(b) The obligations of CWI and the Principal CWI Stockholders
to indemnify members of the Intellicell Group with respect to any Intellicell
Loss is subject to the condition that CWI and the Principal CWI Stockholders
shall have received a claim for such Intellicell Loss prior to the expiration of
18 months following the Closing Date.
(c) Notwithstanding any term or condition of this Section 8.2,
the liability of CWI and the Principal CWI Stockholders shall be limited as
follows: (i) the maximum aggregate liability of CWI and the Principal CWI
Stockholders for all claims pursuant to this Section 8.2 shall not exceed
$2,500,000; and (ii) CWI and the Principal CWI Stockholders shall only be
obligated with respect to any claim of indemnification pursuant to this Section
8.2 to the extent the aggregate Intellicell Losses exceed $100,000, in which
case CWI and the Principal CWI Stockholders shall be obligated for all
Intellicell Losses up to the $2,500,000 maximum.
8.3 INDEMNIFICATION BY INTELLICELL.
(a) Subject to the terms and conditions contained herein,
Intellicell agrees to indemnify, defend and hold harmless CWI, its stockholders,
officers, directors, and employees (all such persons being collectively referred
to as the "CWI GROUP") from, against, for and in respect of any and all losses,
damages, costs and expenses (including reasonable legal fees and expenses) which
any member of the CWI Group may sustain or incur which are caused by or arise
out of any inaccuracy in or breach of any of the representations, warranties or
covenants made by Intellicell in this Agreement (collectively, the "CWI
LOSSES"); provided however, that the foregoing indemnification shall not include
lost profits or other consequential damages. Intellicell, however, shall have
no liability or obligation to CWI or any of CWI's stock holders should the
transactions contemplated by this Agreement not qualify for nonrecognition
treatment under the Code for any reason.
<PAGE>
(b) The obligation of Intellicell to indemnify members of the
CWI Group with respect to any CWI Loss is subject to the condition that
Intellicell shall have received a claim for such CWI Loss prior to the
expiration of 18 months following the Closing Date.
(c) Notwithstanding any term or conditions of this Section 8.3,
the liability of Intellicell shall be limited as follows: (i) the maximum
liability of Intellicell for all claims pursuant to this Section 8.3 shall not
exceed $2,500,000; and (ii) Intellicell shall only be obligated with respect to
any claim of indemnification pursuant to this Section 8.3 to the extent the
aggregate CWI Losses exceed $100,000, in which case Intellicell shall be
obligated for all CWI Losses up to the $2,500,000 maximum.
8.4 PROCEDURES FOR INDEMNIFICATION.
(a) As used in this Article VIII, the term "INDEMNITOR" means
the party or parties against whom indemnification hereunder is sought, and the
term "INDEMNITEE" means the party or parties seeking indemnification hereunder.
(b) A claim for indemnification hereunder (an "INDEMNIFICATION
CLAIM") shall be made by Indemnitee by delivery of a written notice to
Indemnitor requesting indemnification and specifying the basis on which
indemnification is sought in reasonable detail (and shall include relevant
documentation related to the Indemnification Claim), the amount of the asserted
Intellicell Losses or CWI Losses, as the case may be, and, in the case of a
Third Party Claim (as defined in Section 8.5), containing (by attachment or
otherwise) such other information as Indemnitee shall have concerning such Third
Party Claim.
(c) If the Indemnification Claim involves a Third Party Claim,
the procedures set forth in Section 8.5 hereof shall be observed by Indemnitee
and Indemnitor.
8.5 DEFENSE OF THIRD PARTY CLAIMS. Should any claim be made or any
suit or proceeding instituted by a third party against Indemnitee which, if
prosecuted successfully, would be a matter for which Indemnitee would be
entitled to indemnification under this Article VIII (a "THIRD PARTY CLAIM"), the
obligations and liabilities of the parties hereunder with respect to such Third
Party Claim shall be subject to the following terms and conditions:
(a) Indemnitee shall give Indemnitor written notice of any such
Third Party Claim promptly after receipt by Indemnitee of notice thereof, and
Indemnitor will undertake control of the defense thereof by counsel of its own
choosing reasonably acceptable to Indemnitee. Indemnitee may participate in the
defense through its own counsel at its own expense. If Indemnitor fails or
refuses to undertake the defense of such Third Party Claim within 15 days after
written notice of such claim has been delivered to Indemnitor by Indemnitee,
Indemnitee shall have the right to undertake the defense, compromise and,
subject to Section 8.6, settlement of such Third Party Claim with counsel of its
own choosing. In the circumstances described in the preceding sentence,
Indemnitee shall, promptly upon its assumption of the defense of such Third
Party Claim, make an Indemnification Claim as specified in Section 8.4(b), which
shall be deemed an Indemnification Claim that is not a Third Party Claim for the
purposes of the procedures set forth herein. Failure of Indemnitee to furnish
written notice to Indemnitor of a Third Party Claim shall not release Indemnitor
from Indemnitor's obligations hereunder, except to the extent Indemnitor is
prejudiced by such failure.
(b) Indemnitee and Indemnitor shall cooperate with each other
in all reasonable respects in connection with the defense of any Third Party
Claim, including making available records relating to such claim and furnishing
employees of Indemnitee as may be reasonably necessary for the preparation of
<PAGE>
the defense of any such Third Party Claim or for testimony as witness in any
proceeding relating to such claim.
8.6 SETTLEMENT OF THIRD PARTY CLAIMS. Unless Indemnitor has failed to
fulfill its obligations under this Article VIII, no settlement by Indemnitee of
a Third Party Claim shall be made without the prior written consent by or on
behalf of Indemnitor, which consent shall not be unreasonably withheld or
delayed. If Indemnitor has assumed the defense of a Third Party Claim as
contemplated by Section 8.5(a), no settlement of such Third Party Claim may be
made by Indemnitor without the prior written consent by or on behalf of
Indemnitee, unless such settlement includes a complete release of all claims
against Indemnitee.
IX. OPERATION OF INTELLICELL FOLLOWING MERGER
9.1 ELECTION OF DIRECTORS. During the two-year period following the
Closing Date, Intellicell and Merger Sub each shall have an eight-member Board
of Directors and will use their commercially reasonable best efforts to cause
the election of three persons to the Intellicell Board of Directors and Merger
Sub Board of Directors who have been designated by the CWI stockholders (at
least one whom was not an officer, director, employee or significant stockholder
of CWI and all of whom shall be reasonably acceptable to Intellicell).
Thereafter, Intellicell and Merger Sub each shall have a seven-member Board of
Directors and will use their commercially reasonable best efforts to cause the
election of two persons to the Intellicell Board of Directors and Merger Sub
Board of Directors who have been designated by the CWI stockholders (and who are
reasonably acceptable to Intellicell), provided that the CWI stockholders
continue to own in the aggregate at least 50% of the shares of Intellicell
Common Stock issued to them by Intellicell in connection with the Merger,
including Base Shares and Additional Shares.
9.2 OPERATIONAL FACILITIES. It is currently contemplated that
Intellicell's Chatsworth, California, facility will serve as its West Coast
warehousing facility and the headquarters for Intellicell's corporate functions;
Intellicell's Chief Executive Officer, Chief Financial Officer and Marketing and
Business Development functions will be based in Dallas, Texas; and CWI's current
Chicago area and Miami facilities will continue to be maintained, all subject to
the discretion of Intellicell's Board of Directors.
X. GENERAL
10.1 FEES AND EXPENSES. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, including the costs and expenses incurred in
connection with preparing, printing and mailing of the Proxy Statement, shall be
borne separately by Intellicell for its costs and expenses and by the Principal
CWI Stockholders for the expenses of CWI and the Principal CWI Stockholders;
provided, however, that (i) the Principal CWI Stockholders will not be required
to reimburse CWI for expenses relating to the Merger that are incurred by CWI
and paid before the Closing and (ii) subject to the limitations set forth in
Section 5.1(l), Intellicell shall reimburse CWI for up to 50% of any payments
made by CWI to its independent certified public accountants for preparing the
audited financial statements for the Proxy Statement and to satisfy SEC
regulations.
10.2 INDEMNITY AGAINST FINDERS. Each party hereto shall indemnify and
hold the other party harmless against any claim for finders' fees based on
alleged retention of a finder by it.
10.3 CONTROLLING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by and
construed in accordance with the laws of the State of Delaware, notwithstanding
any Delaware or other conflict-of-law provisions to the contrary.
<PAGE>
10.4 NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when delivered against
receipt, upon receipt of a facsimile transmission or three days following
deposit in the United States mails, first class postage prepaid, addressed as
set forth below:
If to Intellicell or Merger Sub:
Intellicell Corp.
9314 Eton Street
Chatsworth, California 91311
Facsimile: (818) 882-2707
Attention: Chief Executive Officer
with a copy given in the manner prescribed above, to:
Troy & Gould Professional Corporation
1801 Century Park East
Suite 1600
Los Angeles, California 90067
Facsimile: (310) 201-4746
Attention: Sanford J. Hillsberg, Esq.
If to CWI:
Cellular Wholesalers, Inc.
600 Knightsbridge Parkway
P.O. Box 1492
Lincolnshire, Illinois 60069-1492
Facsimile: (847) 955-2447
Attention: Melvyn Cohen
If to CWI Principal Stockholders:
Melvyn Cohen
600 Knightsbridge Parkway
P.O. Box 1492
Lincolnshire, Illinois 60069-1492
Facsimile: (847) 955-2447
Ronald Goldberg
11 Lakewood
Bannockburn, IL 60015
Facsimile: (847) 676-8889
Philip Leavitt
65 South Deere Park
Highland Park, IL 60035
Facsimile: (847) 676-8744
Sherwin Geitner
3239 Maple Leaf Drive
Glenview, IL 60025
Facsimile: (847) 676-8866
Cary Maimon
1819 Brandywyn
Buffalo Grove, IL 60089
Facsimile: (847) 955-2428
in every case, with a copy given in the manner prescribed above, to:
<PAGE>
Kamensky & Rubinstein
7250 North Cicero Avenue
Suite 200
Lincolnwood, Illinois 60646-1693
Facsimile: (847) 982-1676
Attention: Sherwin Rubinstein, Esq.
and in the case of a CWI Principal Stockholder, with a copy given in the
manner prescribed above, to:
Melvyn Cohen
600 Knightsbridge Parkway
P.O. Box 1492
Lincolnshire, Illinois 60069-1492
Facsimile: (847) 955-2447
Any party may alter the address to which communications or copies are to
be sent by giving notice to the other parties of such change of address in
conformity with the provisions of this paragraph for the giving of notice.
10.5 BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that no party may assign or transfer
its rights or obligations under this Agreement without the prior written consent
of the other parties hereto.
10.6 ENTIRE AGREEMENT. Except as set forth in the Confidentiality
Agreement, this Agreement contains the entire understanding between the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof.
10.7 SECTION HEADINGS. The section headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
10.8 PUBLIC ANNOUNCEMENTS. Except as contemplated by this Agreement or
as may be required, in the opinion of Intellicell's counsel, by applicable law
or the rules and regulations or the SEC or the National Association of
Securities Dealers, Inc., none of the parties hereto shall make any press
release or other public announcement or filings with respect to this Agreement
or the transactions contemplated hereby without the prior approval of both
Intellicell and CWI, which approvals shall not be unreasonably withheld or
delayed.
10.9 CONSTRUCTION OF AGREEMENT. Each party and counsel for each party
(including the Principal CWI Stockholders) has reviewed and cooperated in the
drafting and preparation of this Agreement. As a jointly produced document,
this Agreement and its language shall in all cases be simply construed according
to its fair meaning and not strictly for or against any party or the drafter
hereof.
10.10 DOCUMENTS AND EXHIBITS. All documents, schedules, writings and
exhibits referred to herein or delivered pursuant hereto are hereby incorporated
by reference into, and made a part of, this Agreement.
10.11 INDULGENCES, NOT WAIVERS. Neither the failure nor any delay on
the part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or any other right, remedy, power or privilege, nor shall
any
<PAGE>
waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
10.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories. Any photographic or xerographic copy of this Agreement, with all
signatures reproduced on one or more sets of signature pages, shall be
considered for all purposes as if it were an executed counterpart of this
Agreement.
10.13 PROVISIONS SEPARABLE. The provisions of this Agreement are
independent and separable from each other, and no provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for any reason any
other or others of them may be invalid or unenforceable in whole or in part,
provided, however, that the provisions of this Agreement are not separable to
the extent that doing so would materially deprive any party of the benefit of
its bargain as provided for by this Agreement.
10.14 NUMBER OF DAYS. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or holiday.
10.15 LIQUIDATED DAMAGES. In the event CWI or Intellicell and Merger
Sub fail to complete the Merger for any reason (except if such party is in
compliance with the terms and conditions of this Agreement), (i) the sole remedy
for Intellicell and Merger Sub in the case of such a failure by CWI will be a
cash payment by CWI to Intellicell of $175,000 and (ii) the sole remedy of CWI
in the case of such a failure by Intellicell or Merger Sub will be a cash
payment by Intellicell to CWI of $175,000. The foregoing payment is intended to
serve as a liquidated damages penalty by the defaulting party.
10.16 DISPUTE RESOLUTION. In the event of any dispute under the terms
of this Agreement, such dispute shall be resolved by binding arbitration under
the rules of the American Arbitration Association in Los Angeles, California.
The prevailing party in any arbitration shall be entitled to recover its
reasonable attorneys fees and costs.
10.17 NONSOLICITATION. If this Agreement is terminated for any reason
(including with cause), Intellicell and CWI shall not solicit at any time prior
to June 1, 2001 for employment any current officer or employee who is in a
policy making role or is responsible or shares responsibility for the execution
of any marketing, sales, finance or other signification function of the other
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INTELLICELL CORP.
By: /s/ Michael Hedge
---------------------
Name: Michael Hedge
Title: Chief Executive Officer
<PAGE>
INTELLICELL MERGER SUB, INC.
By: /s/ Michael Hedge
---------------------
Name: Michael Hedge
Title: Chief Executive Officer
CELLULAR WHOLESALERS, INC.
By: /s/ Melvyn Cohen
--------------------
Name: Melvyn Cohen
Title: Secretary-Treasurer
<PAGE>
/s/ Ronald Goldberg*
--------------------
Ronald Goldberg
/s/ Philip Leavitt*
-------------------
Philip Leavitt
/s/ Sherwin Geitner*
--------------------
Sherwin Geitner
/s/ Cary Maimon
---------------
Cary Maimon
* By Melvyn Cohen pursuant to a power of
attorney
<PAGE>
EXHIBIT A
INTELLICELL, INC.
Post-Merger
DIRECTORS
John Swinehart - Chairman
Michael Hedge
Sherman Henderson
Vinay Sharma
Mark Laisure
Ronald Goldberg - CWI appointee
Cary Maimon - CWI appointee
David Segneri - CWI appointee
<PAGE>
EXHIBIT B
INTELLICELL CORP.
Post-Merger
OFFICERS
Michael Hedge - Chief Executive Officer, President
John Swinehart - Chief Operating Officer
Ronald Goldberg - Senior Vice President - U.S. Operations
David M. Kane - Chief Financial Officer
Mark Fruehan - Executive Vice President - Business Development
and Strategic Planning
Mel Cohen - Vice President Finance and Administration
Cary Maimon - Vice President - General Manager
Michael King - Vice President - Sales and Marketing
<PAGE>
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger (this "Amendment") is made
and entered into as of July 23, 1999 by and among Intellicell Corp., a Delaware
Corporation ("Intellicell"), Intellicell Merger Sub, Inc., a Delaware
corporation ("Merger Sub"), Cellular Wholesalers, Inc., an Illinois corporation
("CWI"), and Ronald Goldberg, Philip Leavitt, Sherwin Geitner, and Cary Maimon
(the "Principal CWI Stockholders") with reference to the following facts and
subject to the condition that Cary Maimon will only continue for purposes of
this Amendment to be one of the Principal CWI Stockholders if he is a
shareholder of CWI at the time of the merger of CWI into the Merger Sub:
Whereas, the parties to this Amendment entered into an Agreement and Plan
of Merger, dated as of July 23, 1999 (the "Agreement"); and
Whereas, the parties to this Amendment desire to amend Section 1.7 of the
Agreement to increase the Share Value (as defined in Section 1.7 of the
Agreement) and to correspondingly increase the Base Consideration (as defined in
Section 1.7 of the Agreement);
Now, therefore, in consideration of the premises and the mutual agreements
contained herein, the parties agree as follows:
1. AMENDMENT TO SECTION 1.7 Section 1.7 of the Agreement is hereby
amended to read in full as follows:
"1.7 CONVERSION OF CWI SHARES. The total consideration to be
received by the shareholders of CWI in connection with the conversion
of all of the then outstanding capital stock of CWI in connection with
the Merger shall be $14,000,000 (the "BASE CONSIDERATION"), plus an
additional amount (the "ADDITIONAL CONSIDERATION") in the event the
total stockholders' equity of CWI as of the Closing Date (the "Closing
Date Equity") exceeds $177,667. The Base Consideration shall consist
of $5,000,000 in cash and $9,000,000 of shares of Intellicell common
stock, $.01 par value per share (the "INTELLICELL COMMON STOCK"),
valued as hereinafter described (the $9,000,000 of shares of
Intellicell Common Stock being hereinafter referred to as the "BASE
SHARES"). For purposes of this Agreement, the shares of Intellicell
Common
<PAGE>
Stock shall have a value (the "SHARE VALUE") equal to $4 per share.
The Additional Consideration, if any, shall consist of an additional
number of shares of Intellicell Common Stock (the "ADDITIONAL SHARES")
as equals (i) the amount by which the Closing Date Equity exceeds
$177,667, divided by (ii) $4. Notwithstanding the foregoing, the cash
portion of the Base Consideration will be reduced by the amount, if
any, by which the Closing Date Equity is less than $1,177,667,
although Additional Shares will then be issued in an amount equal to
(i) the amount, if any, by which the Closing Date Equity exceeds
$177,667, divided by (ii) $4. The Closing Date Equity shall be
determined within 30 days following the Closing Date by Intellicell's
and CWI's independent certified public accountants in accordance with
generally accepted accounting principles, using assumptions that are
mutually acceptable to such accountants and including a reserve
against accounts receivable that is acceptable to Intellicell and CWI,
and such determination shall be binding on all of the parties to this
Agreement. At the Effective Time, all of the issued and outstanding
shares of capital stock of CWI ("CWI STOCK") shall, by virtue of the
Merger and without any action on the part of the holders thereof, be
converted pro rata into and thereafter represent the number of Base
Shares described above ($9,000,000 divided by the Share Value) and the
holders of such shares shall concurrently receive the Base Shares on a
pro rata basis (unless directed otherwise as described below) and
shall concurrently receive on a pro rata basis (unless directed
otherwise as described below) $4,500,000 of the cash portion of the
Base Consideration. The Additional Shares and, subject to Section
1.8, the remaining cash portion of the Base Consideration, if any,
will be distributed pro rata (unless directed otherwise as described
below) to the holders of the Base Shares as of the Closing Date within
15 days following the determination of the Closing Date Equity.
Notwithstanding the foregoing, the Base Shares, Additional Shares and
cash portion of the Base Consideration will be allocated among the CWI
stockholders in accordance with a written allocation agreement signed
by all of the CWI stockholders, provided that a copy of this
allocation agreement is delivered to Intellicell at least three
business days prior to the Closing. Fractional shares shall not be
issued, and in lieu thereof Intellicell shall pay cash in an amount
equal to the Share Value times the applicable fraction of a share."
2. AGREEMENT IN FULL FORCE AND EFFECT. The Agreement, as modified
pursuant to Section 1 above, shall continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
INTELLICELL CORP.
By: /s/ Michael Hedge
-------------------------------------
Name: Michael Hedge
Title: Chief Executive Officer
INTELLICELL MERGER SUB, INC.
By: /s/ Michael Hedge
-------------------------------------
Name: Michael Hedge
Title: Chief Executive Officer
CELLULAR WHOLESALERS, INC.
By: /s/ Ronald Goldberg
-------------------------------------
Name: Ronald Goldberg
Title: President
/s/ Ronald Goldberg
----------------------------------------
Ronald Goldberg
/s/ Philip Leavitt
----------------------------------------
Philip Leavitt
/s/ Sherwin Geitner
----------------------------------------
Sherwin Geitner
/s/ Cary Maimon
----------------------------------------
Cary Maimon
<PAGE>
APPENDIX B
SANDS BROTHERS & CO., LTD.
INVESTMENT BANKERS
MEMBER NYSE
90 PARK AVENUE, NEW YORK, N.Y. 10016
(212) 697-5200 Toll Free (800) 866-6116 Fax (212) 697-1096
July 23, 1999
The Board of Directors
Intellicell Corp.
9314 Eton Avenue
Chatsworth, California 91311
Gentlemen:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to Intellicell Corp. ("Intellicell" or the "Company")
of the consideration to be paid by the Company pursuant to the Transaction (as
hereinafter defined) with Cellular Wholesalers, Inc. ("CWI"). For the purposes
of this opinion, the "Transaction" means the transaction described in the
Agreement and Plan of Merger dated July 23, 1999 (the "Agreement") by and among
the Company, CWI, Principal CWI Stockholders and Intellicell Merger Sub, a
wholly-owned subsidiary of the Company.
As more specifically set forth in the Agreement, and subject to certain terms
and conditions thereof, the Company has agreed to acquire CWI, through a merger
of CWI with and into Intellicell Merger Sub. In the Merger, the Company will pay
to the shareholders of CWI total consideration expected to be approximately
$16.3 million, consisting of cash of approximately $5 million, stock of
approximately $10 million, and the assumption of certain debt. The stock
consideration of $10 million includes an estimated amount of $1 million (the
"Additional Consideration"), the exact amount of which will be determined by the
net worth of CWI at closing. This estimated amount of Additional Consideration
has been derived from estimates provided to us by the Company of CWI's expected
net worth at closing, and the actual purchase price paid by Intellicell for CWI
may differ from the amount stated above, as per the terms set forth in the
Agreement.
In the ordinary course of its business, Sands Brothers & Co., Ltd. ("Sands
Brothers") is regularly engaged in the valuation and pricing of businesses and
their securities and in advising corporate securities issuers on related
matters.
In arriving at our opinion, Sands Brothers has:
(1) reviewed the Agreement and discussed with the Company's management the
terms of the Agreement and the proposed Transaction;
<PAGE>
The Board of Directors
Intellicell Corp.
July 23, 1999
Page 2 of 4
(2) reviewed the board minutes of the Company with respect to the Transaction;
(3) discussed the proposed Transaction with members of management at CWI;
(4) held discussions with certain senior officers, directors and other
representatives and advisors of the Company regarding its business,
operations, and proposed business strategy;
(5) discussed with management of the Company trends within the wireless
communications industry, specifically within the logistics services
industry segment;
(6) visited the offices of CWI to observe its operations and meet firsthand
with members of the management team;
(7) held meetings and discussions with the management of CWI and the Company
to discuss the business, operations, historical financial results and
future prospects of CWI, the Company and the combined company;
(8) reviewed certain financial and other data with respect to CWI provided by
the Company, including audited financial statements for the fiscal years
ended September 30, 1997 and 1998, and certain other relevant financial
and operating data of CWI, including financial ratios;
(9) reviewed certain financial and other data with respect to the Company
provided by management, including audited and interim financial
statements for the years 1997 and 1998, certain publicly available filings
with the Securities and Exchange Commission, and certain other relevant
financial and operating data of the Company, including financial ratios;
(10) reviewed financial projections furnished to us by the Company, including,
among other things, the capital structure, sales, net income, cash flow,
capital requirements and other data of Intellicell we deemed relevant,
and discussed at length the assumptions behind said projections in detail
with the Company's management to determine the realism and achievability
of said projections;
(11) reviewed financial projections furnished to us by CWI and reviewed by the
Company, including, among other things, the capital structure, sales, net
income, cash flow, capital requirements and other data of CWI we deemed
relevant, and discussed at length the assumptions behind said projections
with management of CWI to determine the realism and achievability of said
projections;
<PAGE>
The Board of Directors
Intellicell Corp.
July 23, 1999
Page 3 of 4
(12) evaluated possible levels of financial performance for the Company, both
continuing as a stand-alone company and operating as the combined company
upon completion of the Transaction;
(13) reviewed the pro-forma effects of the Transaction on Intellicell's
forecasted business plan;
(14) reviewed CWI's contribution to revenues and earnings of the combined
company;
(15) reviewed the trading history of the Company's publicly-traded equity
securities, and evaluated the possible future performance of the Company's
stock both continuing as a stand-alone company and operating as the
combined company upon completion of the Transaction;
(16) reviewed and analyzed the valuation of companies in the wireless
communications industry that we deemed comparable;
(17) reviewed and analyzed the valuation of companies in the electronic
commerce business-to-business industry segment to assess valuations that
might be comparable to the future operations of the combined company upon
implementation of its proposed business strategy;
(18) compared the purchase price of CWI from a financial point of view,
including the evaluation of purchase price multiples, with the recent
stock price of Intellicell and the associated financial ratios at which
Intellicell's stock is trading;
(19) compared the purchase price of CWI from a financial point of view with the
recent public market statistics of certain other publicly traded companies
deemed comparable;
(20) compared the financial terms of the Transaction contemplated by the
Agreement with the financial terms, to the extent publicly available, of
other similar transactions deemed to be comparable in whole or in part;
(21) discussed with management of the Company potential market reaction to the
Transaction; and
(22) conducted such other studies, analyses, inquiries and examinations and
considered such other financial, economic and market data as we deemed
appropriate.
In arriving at our opinion, we have relied upon the accuracy and completeness of
the financial and other information as described above without assuming any
responsibility for independent verification of such information. In arriving at
our opinion, we have not obtained any evaluations or appraisals of the assets of
CWI, nor have we conducted a physical inspection of
<PAGE>
The Board of Directors
Intellicell Corp.
July 23, 1999
Page 4 of 4
the properties or facilities of CWI. Our opinion is necessarily based upon
information and conditions as they exist and can be evaluated as of the date of
this letter.
We are engaged as a financial advisor to the Board of Directors and will receive
a fee for our services in acting as an advisor in this Transaction and in
rendering this opinion, contingent upon the consummation of the transaction. In
the ordinary course of business, Sands Brothers makes a market in the equity
securities of the Company and, accordingly, it may at any time hold a long or
short position in such securities.
On the basis of our review and analysis, as described above, it is our opinion
as investment bankers that, as of the date hereof, the consideration paid
pursuant to the Transaction is fair, from a financial point of view, to the
Company. This opinion is directed to and may be relied upon only by the
addressees hereto and may not be provided to or relied on by any other person
without the prior written consent of Sands Brothers & Co., Ltd.
Sincerely,
Sands Brothers & Co., Ltd.
----------------------
By: Alan M. Bluestine
Managing Director
Investment Banking
<PAGE>
APPENDIX C
CELLULAR WHOLESALERS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheets, September 30, 1998 and 1997
(Exhibit A) F-3
Statements of Operations, Fiscal Years Ended
September 30, 1998, 1997 and 1996 (Exhibit B) F-4
Statements of Changes in Stockholders' Equity (Deficiency),
Fiscal Years Ended September 30, 1998, 1997 and 1996
(Exhibit C) F-5
Statements of Cash Flows, Fiscal Years Ended
September 30, 1998, 1997 and 1996 (Exhibit D) F-6
Notes to the Financial Statements F-7 - F-12
</TABLE>
F-1
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Cellular Wholesalers, Inc.
We have audited the accompanying balance sheets of CELLULAR WHOLESALERS, INC. as
of September 30, 1998 and 1997, and the related statements of operations,
changes in stockholders' equity (deficiency) and cash flows for each of the
three years in the period ended September 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cellular Wholesalers, Inc. as
of September 30, 1998 and 1997, and the results of its operations and cash flows
for each of the three years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles.
ALTSCHULER, MELVOIN AND GLASSER LLP
/s/ Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
June 22, 1999
F-2
<PAGE>
Exhibit A
CELLULAR WHOLESALERS, INC.
Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
Assets (Pledged--Notes 3, 4 and 5) 1998 1997
------------------ ------------------
<S> <C> <C>
Current Assets:
Cash $ 743,879 $ 295,048
Receivables (net of allowance for doubtful accounts of $424,163
and $179,461, respectively) 7,186,282 3,907,306
Inventories (Note 1) 6,077,978 3,806,063
Investment (Note 1) 25,534 0
Due from related parties (Note 2) 236,226 12,077
Other current assets 81,610 58,515
----------------- -----------------
14,351,509 8,079,009
Property and Equipment (net of accumulated
depreciation and amortization--Note 3) 1,055,616 884,033
Other Assets 178,209 39,044
----------------- -----------------
$ 15,585,334 $ 9,002,086
----------------- -----------------
----------------- -----------------
Liabilities and Stockholders' Equity (Deficiency)
Current Liabilities:
Accounts payable and accrued expenses $ 7,466,490 $ 5,450,227
Current portion of long-term debt (Note 5) 450,743 22,227
Due to related parties (Note 2) 342,931 3,698,246
----------------- -----------------
8,260,164 9,170,700
----------------- -----------------
Long-term Liabilities:
Long-term debt (net of current portion) (Note 5) 7,120,000 770,029
Deferred compensation (Note 7) 100,000 100,000
----------------- -----------------
7,220,000 870,029
----------------- -----------------
Stockholders' Equity (Deficiency):
Common stock (authorized 10,000 shares, $1 par value, 800 shares
issued and outstanding) 800 800
Retained earnings (deficit) (Exhibit C) 104,370 (1,039,443)
----------------- -----------------
105,170 (1,038,643)
----------------- -----------------
$ 15,585,334 $ 9,002,086
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
Exhibit B
CELLULAR WHOLESALERS, INC.
Statements of Operations
Fiscal Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Net Sales $ 81,031,293 $ 53,265,009 $ 40,134,595
Cost of Sales 73,137,796 47,673,246 36,014,101
------------------ ----------------- -----------------
Gross Profit 7,893,497 5,591,763 4,120,494
Selling, General and Administrative Expenses 5,842,584 4,042,970 3,364,754
------------------ ----------------- -----------------
Income from Operations 2,050,913 1,548,793 755,740
------------------ ----------------- -----------------
Other Expense (Income):
Interest expense 856,707 658,445 518,698
Loss on disposition of equipment 8,360 0 0
Discretionary 401(k) contribution (Note 6) 40,000 16,400 0
Management fee income (Note 2) 0 (550,000) 0
Other income (net) ( 12,967) ( 3,206) ( 12,762)
------------------ ----------------- -----------------
892,100 121,639 505,936
------------------ ----------------- -----------------
Income before Provision (Benefit) for Income Taxes 1,158,813 1,427,154 249,804
Provision (Benefit) for Income Taxes 15,000 0 ( 12,870)
------------------ ----------------- -----------------
Net Income $ 1,143,813 $ 1,427,154 $ 262,674
------------------ ----------------- -----------------
------------------ ----------------- -----------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
Exhibit C
CELLULAR WHOLESALERS, INC.
Statements of Changes in Stockholders' Equity (Deficiency)
Fiscal Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Retained
Shares Earnings
Outstanding Amount (Deficit) Total
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Balances, October 1, 1995 800 $ 800 $( 2,729,271) $( 2,728,471)
Net Income for Fiscal Year 262,674 262,674
----------------- ------------------ ------------------ -----------------
Balances, September 30, 1996 800 800 ( 2,466,597) ( 2,465,797)
Net Income for Fiscal Year 1,427,154 1,427,154
----------------- ------------------ ----------------- ----------------
Balances, September 30, 1997 800 800 ( 1,039,443) ( 1,038,643)
Net Income for Fiscal Year 1,143,813 1,143,813
----------------- ------------------ ----------------- ----------------
Balances, September 30, 1998 800 $ 800 $ 104,370 $ 105,170
----------------- ------------------ ----------------- ----------------
----------------- ------------------ ----------------- ----------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
Exhibit D
CELLULAR WHOLESALERS, INC.
Statements of Cash Flows
Fiscal Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,143,813 $ 1,427,154 $ 262,674
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 203,454 113,536 122,157
Loss from disposition of property and
equipment 8,360 0 0
Deferred compensation 0 100,000 0
Increase (Decrease) in cash from
changes in:
Receivables (net) ( 3,278,976) ( 992,994) 533,071
Inventories ( 2,271,914) ( 645,468) 175,520
Investment ( 25,534) 0 0
Other assets ( 162,260) 106,876 ( 73,911)
Accounts payable and accrued
expenses 2,016,262 1,376,151 1,302,045
------------------ ----------------- -----------------
Net cash provided by (used in) operating
activities ( 2,366,795) 1,485,255 2,321,556
------------------ ----------------- -----------------
Cash Flows from Investing Activities:
Purchases of property and equipment ( 388,288) ( 200,824) ( 32,729)
Proceeds from sale of property and equipment 5,355 0 0
------------------ ----------------- -----------------
Net cash used in investing activities ( 382,933) ( 200,824) ( 32,729)
------------------ ----------------- -----------------
Cash Flows from Financing Activities:
Proceeds from long-term debt 0 0 320,000
Payments of long-term debt ( 21,977) ( 23,407) ( 47,915)
Increase in line of credit 6,800,000 0 0
Decrease in due to related parties (net) ( 3,579,464) ( 1,255,819) ( 2,380,291)
------------------ ----------------- -----------------
Net cash provided by (used in) financing
activities 3,198,559 ( 1,279,226) ( 2,108,206)
------------------ ----------------- -----------------
Net Increase in Cash 448,831 5,205 180,621
Cash, Beginning of Fiscal Year 295,048 289,843 109,222
------------------ ----------------- -----------------
Cash, End of Fiscal Year $ 743,879 $ 295,048 $ 289,843
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Supplemental Disclosures of Cash Flow
Information:
Cash paid during fiscal year for:
Interest $ 854,677 $ 658,419 $ 529,258
------------------ ----------------- -----------------
------------------ ----------------- -----------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
CELLULAR WHOLESALERS, INC.
Notes to the Financial Statements
September 30, 1998 and 1997
NOTE 1--NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Cellular Wholesalers, Inc. (the "Company") is a wholesaler of wireless
communications equipment and related supplies, serving customers primarily
throughout the United States from its Lincolnshire, Illinois and Miami, Florida
warehouses. The Company's operations are managed primarily from leased
facilities in Lincolnshire, Illinois (Notes 9 and 10).
Until February 1999, the Company had significant transactions with Continental
Mobile Telephone Company, Inc. d/b/a Continental Communications ("CMT") and
shared certain employees, space and other certain administrative costs with CMT,
with whom the Company had common ownership (Note 2). In February 1999,
substantially all the assets of CMT were sold to an unrelated party.
The Company has purchased approximately 60%, 62% and 53% of its purchases from
two vendors during each of the fiscal years ended September 30, 1998, 1997 and
1996. In addition, amounts outstanding to a vendor are secured by the inventory
purchased from this vendor.
In May 1999, the Company executed a letter of intent with Intellicell Corp., a
publicly traded company, whereby Intellicell Corp. intends to purchase all the
outstanding shares of stock of the Company. Such transaction is proposed to
close in August 1999.
A summary of significant accounting policies followed by the Company is as
follows:
REVENUE RECOGNITION--The Company recognizes (i) revenue as goods or
services are delivered and (ii) certain incentives and co-op advertising
as the items are earned.
INVENTORIES--Inventories, consisting primarily of finished goods, are
valued at the lower of cost (determined under specific identification or
the "first-in, first-out" (FIFO) basis) or market.
SHORT-TERM INVESTMENT--The Company has adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Management determines the appropriate
classification of its investments in equity securities at the time of
purchase and re-evaluates such determination at each balance sheet date.
The Company has classified all investments held at September 30, 1998,
consisting of certain mutual funds, as trading and, accordingly, they
are recorded at their market value. Income or loss from such investments
(originally acquired during fiscal 1998) is immaterial.
DEPRECIATION AND AMORTIZATION--Provisions for depreciation and
amortization of property and equipment are computed, for both financial
and income tax reporting purposes, primarily under accelerated methods
over the estimated useful lives of the assets. The Company has
determined that no permanent impairment of the value of long-lived
assets existed at September 30, 1998.
INCOME TAXES--The Company is not liable for federal or state income
taxes pursuant to its election as an S corporation under the Internal
Revenue Code, whereby taxable income is allocated to and included in the
individual returns of its stockholders. Accordingly, no provision for
federal or state income taxes is reflected in the financial statements.
However, the Company is subject to the Illinois Replacement Tax (based
on Illinois taxable income) which is reflected in the financial
statements.
All items of income and expense are accounted for in the same manner for
financial and income tax purposes, except for bad debts, capitalization
of certain inventory costs and deferred compensation. No deferred income
taxes have been recognized, because of the S corporation election.
Upon the proposed closing of the sale of the Company's stock (Note 1),
such S corporation election will be terminated.
F-7
<PAGE>
NOTE 1--NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ESTIMATES--In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
NOTE 2--RELATED-PARTY TRANSACTIONS
The Company shares certain administrative activities and costs with CMT (through
February, 1999--Note 1) and Leavitt Communications, Inc. ("Leavitt"), which is
owned by one of the Company's stockholders. Administrative expenses allocated
and charged directly to Leavitt by the Company amounted to $16,296 for fiscal
1998 and $0 each for fiscal 1997 and 1996. Subsequent to the sale of CMT to an
unrelated party, the expenses associated with some of the aforementioned shared
activities may be borne by the Company or shared on a new arrangement with
Leavitt.
In addition, management fee income from Leavitt was $550,000 during fiscal 1997.
The purchases from Leavitt approximated 2.8%, 3.8% and .8% of the the Company's
purchases during fiscal 1998, 1997 and 1996, respectively. The sales to Leavitt
approximated 1.3%, 0% and 2% of the Company's sales during fiscal 1998, 1997 and
1996, respectively.
At September 30, 1998 and 1997, amounts owed to the Company by Leavitt and
certain other related parties (Note 10) were $236,226 and $12,077,
respectively. At September 30, 1998 and 1997, the Company owed $342,931 and
$3,698,246 to CMT (Note 4), Leavitt and certain other related parties.
Subsequent to September 30, 1998, the Company borrowed funds from and loaned
funds to various related parties. At June 22, 1999, amounts due to all related
parties approximated $2,300,000 and amounts due from all related parties
approximated $3,000,000.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Land $ 117,962 $ 117,962
Building 684,000 684,000
Office equipment 339,535 291,181
Computer equipment and software 833,867 517,789
Warehouse equipment 66,255 43,809
Leasehold improvements 34,381 37,051
Property held under capital leases 0 15,783
---------------- ----------------
2,076,000 1,707,575
Less accumulated depreciation and
amortization 1,020,384 823,542
---------------- ----------------
$ 1,055,616 $ 884,033
---------------- ----------------
---------------- ----------------
</TABLE>
Subsequent to September 30, 1998, approximately $1,500,000 has been incurred for
equipment, furniture, leasehold improvements, certain data processing costs and
certain moving related costs in connection with the new Lincolnshire facility
(Note 10). These expenditures have been financed under a term loan agreement
(Note 4).
Additionally, the Company commenced a program, expected to cost $2,000,000, to
upgrade and improve its management information systems, including compliance
with the "year 2000 computer issue."
F-8
<PAGE>
NOTE 3--PROPERTY AND EQUIPMENT, CONTINUED
Depreciation and amortization of property and equipment for fiscal 1998, 1997
and 1996 amounted to $203,454, $113,536 and $122,157.
Land and building, which were pledged as collateral for a mortgage loan (Note
5), were sold subsequent to September 30, 1998 (Note 10). The remaining property
and equipment have been pledged to secure a bank line of credit (Note 4).
NOTE 4--BANK LOAN PAYABLE
On February 28, 1998, the Company entered into a line of credit agreement with
American National Bank and Trust Company of Chicago (the "Bank"). Prior to this
date, CMT (Note 1) had a line of credit with the Bank and would concurrently
loan amounts to the Company as funds were required.
At September 30, 1998, the Company was indebted to the Bank for an amount of
$6,800,000 under a $9,000,000 line of credit. The amounts outstanding were due
February 28, 1999. Since the line was extended at maturity to February 28, 2000,
the debt has been classified as long-term at September 30, 1998 (Note 5).
The Company's borrowings (including the mortgage loan described in Note 5) under
the credit agreement are limited to (i) 75% of eligible accounts receivable (as
defined) and (ii) 40% of eligible inventory (as defined) to a maximum of
$4,000,000, and bear interest at the Bank's prime rate. The line of credit is
secured by all the Company's assets and is guaranteed by the stockholders of the
Company.
During fiscal 1999, an additional $1,500,000 was borrowed from the Bank under a
term loan agreement requiring monthly principal payments of $41,667 plus
interest at the Bank's prime rate plus .5% with the final payment being due May,
2002. The loan is secured under the same agreement as described above. Such loan
was used to finance certain property and equipment (Note 3).
NOTE 5--LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------------- ---------------
<S> <C> <C>
Bank loan payable (Note 4) $ 6,800,000 $ 0
Mortgage loan payable to Bank in monthly installments of
$5,390, including interest of 7.75% per annum; repaid
in full in February 1999 upon sale of land and building
securing such loan (Note 10) 450,743 470,902
Unsecured demand notes payable to stockholders; bearing
interest at prime (see below) 320,000 320,000
---------------- --------------
Total, forward $ 7,570,743 $ 790,902
---------------- --------------
---------------- --------------
</TABLE>
F-9
<PAGE>
NOTE 5--LONG-TERM DEBT, CONTINUED
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Total, forwarded $ 7,570,743 $ 790,902
Capital lease obligations payable in monthly installments
of $10,202; final payments made during fiscal 1998;
secured by related equipment 0 1,354
------------ -------------
7,570,743 792,256
Less current portion 450,743 22,227
------------ -------------
$ 7,120,000 $ 770,029
------------ -------------
------------ -------------
</TABLE>
Since all of the holders of the unsecured demand notes to stockholders consider
the notes subordinate to outstanding bank debt and such note holders and the
Company have agreed that demand of the notes will not be made prior to fiscal
2000, such obligations have been classified as noncurrent at September 30, 1998
and 1997. The Company's buy/sell agreements (Note 8) provide for repayment of
certain stockholder and related party notes and loans as a result of a
triggering event (as defined) under the buy/sell agreements, including the
proposed sale of the Company's stock (Note 1).
Interest expense to stockholders and CMT (Note 1) amounted to $488,405, $611,626
and $467,040 during fiscal 1998, 1997 and 1996, respectively.
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Years
Ending
September 30, Amount
--------------- ------------------
<S> <C>
1999 $ 450,743
2000 6,800,000
2001 320,000
-----------------
$ 7,570,743
-----------------
-----------------
</TABLE>
NOTE 6--EMPLOYEE BENEFIT PLAN
The Company maintains a "401(k)" retirement plan for qualified employees.
Eligible employees may make contributions to the plan in amounts up to 15% of
their compensation to the allowable maximum. The Company further provides
discretionary matching contributions. During the plan's fiscal years ended July
31, 1998, 1997 and 1996, such discretionary contributions of $40,000, $16,400
and $0, respectively, were made by the Company.
F-10
<PAGE>
NOTE 7--DEFERRED COMPENSATION
During fiscal 1997, the Company entered into an equity appreciation rights plan
with a key employee. This plan entitles the employee (upon certain defined
events) to certain incentive compensation based upon the Company's financial
performance (as defined). Deferred compensation expense included in the
operating expenses of the Company for fiscal 1998 and 1997 was $0 and $100,000,
respectively.
Subsequent to September 30, 1998, the Company and key employee are expected to
cancel such plan and in lieu thereof, such employee will be issued shares of
Company stock. Such issuance is expected to be valued at approximately $500,000
with a charge to expense of $400,000 during fiscal 1999.
NOTE 8--BUY/SELL AGREEMENT
The Company has a buy/sell agreement with its stockholders. Depending upon the
nature of the event triggering a sale of stock (death, disability, termination
of employment or retirement of a shareholder or offer from an outside party),
either of the remaining stockholders or the Company has the option and/or the
requirement to purchase the stock. The purchase price of the Company's stock for
each stockholder's fractional ownership under each of the agreements is
determined by an annual valuation. The buy/sell agreements also refer to
repayment terms of any stockholder and related-party loans (Note 5). Such
agreements will be canceled upon the proposed closing of the sale of the
Company's stock (Note 1) and any stockholder loans will be repaid.
NOTE 9--COMMITMENTS AND CONTINGENCIES
The Company leased, until February 1999, its administrative and warehousing
facility in Skokie, Illinois from CMT (Note 1). In addition, the Company leases
a sales and warehouse facility in Miami, Florida under a lease expiring in
October 2002. Subsequent to September 30, 1998, the Company entered into a lease
for a new facility (Note 10). Rent expense for these facilities totaled
$181,171, $157,539 and $138,525 ($116,220, $113,475 and $99,810 to a related
party) during fiscal 1998, 1997 and 1996, respectively.
In addition, the Company entered into a computer hardware lease subsequent to
September 30, 1998. Such lease requires monthly installments of $11,620 for 36
months.
Future minimum lease payments under operating leases (inclusive of the leases
entered into subsequent to September 30, 1998, but exclusive of the terminated
Skokie lease) are as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending
September 30,
---------------
<S> <C>
1999 $ 542,000
2000 628,000
2001 628,000
2002 562,000
2003 423,000
Thereafter 2,264,000
--------------
$ 5,047,000
--------------
--------------
</TABLE>
At September 30, 1998, the Company was contingently liable under a letter of
credit issued by the Bank (Note 4) in the amount of $500,000 to ensure payments
to a vendor.
F-11
<PAGE>
NOTE 10--SUBSEQUENT EVENTS
Subsequent to September 30, 1998, the following events have occurred:
SALE OF BUILDING--During November 1998, the Company entered into a real
estate contract to sell its land and building. Such contract closed
during February 1999. Proceeds were used to repay the outstanding
mortgage (Note 5). Remaining proceeds were used for working capital
purposes.
LEASE OF NEW FACILITY--During November 1998, the Company entered into an
operating lease with a related company controlled by the stockholders of
the Company (Note 9). Such lease, expiring December 31, 2008, is for a
new facility located in Lincolnshire, Illinois. Annual rentals under
such lease are approximately $396,000. All sales, warehouse and
administrative activities of the Company were moved from the previous
Skokie, Illinois facilities during February 1999. During fiscal 1998,
$145,000 was advanced by the Company to the new lessor entity and is
included as a related-party receivable (Note 2).
F-12
<PAGE>
APPENDIX D
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Balance Sheet of Intellicell and CWI
as of March 31, 1999, and the Unaudited Pro Forma Combined Statements of
Operations for the year ended December 31, 1998, and the three months ended
March 31, 1999, have been prepared to reflect the effect on the historical
results of Intellicell of the acquisition of all issued and outstanding capital
stock of CWI.
The Unaudited Pro Forma Combined Balance Sheet has been prepared as if the
transactions occurred on March 31, 1999; the Unaudited Pro Forma Combined
Statements of Operations have been prepared as if the transactions occurred on
January 1, 1998. The pro forma financial information set forth below is
unaudited and not necessarily indicative of the results that would actually have
occurred if the transactions had been consummated as of March 31, 1999, or
January 1, 1998, or the results which may be obtained in the future.
The pro forma adjustments, as described in the Notes to the Unaudited Pro Forma
Combined Financial Information, are based on available information and upon
certain assumption that management believes are reasonable. The Unaudited Pro
Forma Combined Financial Information should be read in conjunction with
Intellicell and CWI historical financial statements, including the related notes
thereto.
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
INTELLICELL CELLULAR
CORP. WHOLESALERS, INC. PRO FORMA PRO FORMA
MARCH 31, 1999 MARCH 31, 1999 ADJUSTMENTS TOTALS
-------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,495,000 $ - $ 1,495,000
Accounts receivable, net 2,567,000 6,327,000 8,894,000
Inventories, net 518,000 5,652,000 6,170,000
Deposits for purchase of inventory 170,000 - 170,000
Rebates and price protection receivable - 608,000 608,000
Due from related parties - 840,000 840,000
Prepaid expenses and other current assets 473,000 195,000 668,000
------------- --------------- ------------
TOTAL CURRENT ASSETS 5,223,000 13,622,000 18,845,000
PROPERTY AND EQUIPMENT, Net 340,000 1,822,000 2,162,000
OTHER ASSETS
Goodwill - - 13,476,000 13,476,000
Deposits, investment and others - 252,000 252,000
------------- --------------- ------------
TOTAL OTHER ASSETS - 252,000 13,728,000
------------- --------------- ------------
$ 5,563,000 $ 15,696,000 $ 34,735,000
------------- --------------- ------------
------------- --------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash required to finance acquisition of CWI $ - $ - 4,653,000 $ 4,653,000
Accounts payable 2,027,000 4,558,000 6,585,000
Accrued expenses 181,000 153,000 334,000
Current portion of long-term debt - 7,554,000 7,554,000
Due to related parties - 2,427,000 2,427,000
Deferred compensation - 173,000 173,000
------------- --------------- ------------
TOTAL CURRENT LIABILITIES 2,208,000 14,865,000 21,726,000
SHAREHOLDERS' EQUITY
Preferred stock - - -
Common stock 69,000 1,000 23,000 93,000
Additional paid-in capital 12,368,000 - 9,630,000 21,998,000
Retained earnings (Accumulated deficit) (9,082,000) 830,000 (830,000) (9,082,000)
------------- --------------- ------------
TOTAL SHAREHOLDERS' EQUITY 3,355,000 831,000 13,009,000
------------- --------------- ------------
$ 5,563,000 $ 15,696,000 $ 34,735,000
------------- --------------- ------------
------------- --------------- ------------
</TABLE>
See accompanying notes.
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INTELLICELL CELLULAR
CORP. WHOLESALERS, INC.
YEAR ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, PRO FORMA PRO FORMA
1998 1998 ADJUSTMENTS TOTALS
------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
NET SALES $ 27,787,000 $ 81,031,000 $ 108,818,000
-
COST OF SALES 26,152,000 73,138,000 99,290,000
------------- ---------------- --------------
GROSS PROFIT 1,635,000 7,893,000 9,528,000
OPERATING EXPENSES
Selling, general and administrative expenses 4,167,000 5,842,000 10,009,000
Amortization of goodwill - - 1,348,000 1,348,000
------------- ---------------- --------------
TOTAL OPERATING EXPENSES 4,167,000 5,842,000 11,357,000
------------- ---------------- --------------
INCOME (LOSS) FROM OPERATIONS (2,532,000) 2,051,000 (1,829,000)
OTHER INCOME (EXPENSE) (237,000) (892,000) (1,129,000)
------------- ---------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES (2,769,000) 1,159,000 (2,958,000)
INCOME TAXES - 15,000 15,000
------------- ---------------- --------------
NET INCOME (LOSS) $ (2,769,000) $ 1,144,000 (1,348,000) $ (2,973,000)
------------- ---------------- --------------
------------- ---------------- --------------
PRO FORMA:
BASIC AND DILUTED LOSS PER SHARE $ (0.44)
--------------
--------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,829,290
--------------
--------------
</TABLE>
See accompanying notes.
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INTELLICELL CELLULAR
CORP. WHOLESALERS, INC.
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED DEC. 31, PRO FORMA PRO FORMA
1999 1998 ADJUSTMENTS TOTALS
--------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 6,666,000 $ 21,412,000 $ 28,078,000
-
COST OF SALES 6,201,000 19,336,000 25,537,000
--------------- ----------------- ---------------
GROSS PROFIT 465,000 2,076,000 2,541,000
OPERATING EXPENSES
Selling, general and administrative expenses 953,000 1,469,000 2,422,000
Amortization of goodwill - - 337,000 337,000
--------------- ----------------- ---------------
TOTAL OPERATING EXPENSES 953,000 1,469,000 2,759,000
--------------- ----------------- ---------------
INCOME (LOSS) FROM OPERATIONS (488,000) 607,000 (218,000)
OTHER INCOME (EXPENSE) (5,000) (211,000) (216,000)
--------------- ----------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES (493,000) 396,000 (434,000)
INCOME TAXES - - -
--------------- ----------------- ---------------
NET INCOME (LOSS) $ (493,000) $ 396,000 (337,000) $ (434,000)
--------------- ----------------- ---------------
--------------- ----------------- ---------------
PRO FORMA:
BASIC AND DILUTED LOSS PER SHARE $ (0.05)
---------------
---------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,506,888
---------------
---------------
</TABLE>
See accompanying notes.
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INTELLICELL CELLULAR
CORP. WHOLESALERS, INC.
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED DEC. 31, PRO FORMA PRO FORMA
1998 1997 ADJUSTMENTS TOTALS
-------------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
NET SALES $ 9,931,000 $ 19,575,000 $ 29,506,000
-
COST OF SALES 9,557,000 18,143,000 27,700,000
-------------- ----------------- -------------
GROSS PROFIT 374,000 1,432,000 1,806,000
OPERATING EXPENSES
Selling, general and administrative expenses 1,477,000 963,000 2,440,000
Amortization of goodwill - - 337,000 337,000
-------------- ----------------- -------------
TOTAL OPERATING EXPENSES 1,477,000 963,000 2,777,000
-------------- ----------------- -------------
INCOME (LOSS) FROM OPERATIONS (1,103,000) 469,000 (971,000)
OTHER INCOME (EXPENSE) (72,000) (166,000) (238,000)
-------------- ----------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (1,175,000) 303,000 (1,209,000)
INCOME TAXES - - -
-------------- ----------------- -------------
NET INCOME (LOSS) $ (1,175,000) $ 303,000 (337,000) $ (1,209,000)
-------------- ----------------- -------------
-------------- ----------------- -------------
PRO FORMA:
BASIC AND DILUTED LOSS PER SHARE $ (0.18)
--------------
--------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,829,290
--------------
--------------
</TABLE>
See accompanying notes.
<PAGE>
INTELLICELL CORP. AND CELLULAR WHOLESALERS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
1. DESCRIPTION OF MERGER
On the closing date, anticipated as of September 30, 1999, each share
of issued and outstanding capital stock of CWI will be exchanged for
cash and shares of Intellicell common stock. The total consideration to
be received by CWI stockholders will be $14,000,000 ("Base
Consideration"), plus an additional amount ("Additional Consideration")
in the event the total shareholders' equity of CWI as of the closing
date exceeds $177,667. The Base Consideration will consist of
$5,000,000 in cash and $9,000,000 of shares of Intellicell common
stock. For purposes of the merger, the shares will have a value of
$4.00, resulting to 2,250,000 shares of Intellicell common stock to be
issued to CWI shareholders. The Additional Consideration, if any, will
consist of an additional number of shares of Intellicell common stock
equal to (i) the amount by which the closing date equity exceeds
$177,667, divided by (ii) $4.00. However, the cash portion of the Base
Consideration will be reduced by the amount the closing date equity is
less than $1,177,667.
2. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements give effect to
the pending acquisition by Intellicell of 100% of the issued and
outstanding shares of common stock of CWI and are based on the
estimates and assumptions set forth herein. This pro forma information
has been prepared utilizing the historical financial statements of each
entity. The pro forma financial data is provided for comparative
purposes only and does not purport to be indicative of the results
which actually could have been obtained if the acquisition had been
effected on the date indicated or those results which may be obtained
in the future.
The Unaudited Pro Forma Combined Balance Sheet assumes that the
acquisition was consummated on March 31, 1999, combining the balance
sheets of Intellicell and CWI at March 31, 1999. The Unaudited Pro
Forma Combined Statements of Operations assume that the acquisition was
consummated on January 1, 1998, combining the annual statements of
operations of Intellicell for the year ended December 31, 1998 and CWI
for the year ended September 30, 1998, and the interim statements of
operations of Intellicell for the three months ended March 31, 1999 and
1998 and CWI for the three months ended December 31, 1998 and 1997.
<PAGE>
INTELLICELL CORP. AND CELLULAR WHOLESALERS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS, CONTINUED
The transaction will be accounted for under the purchase method of
accounting. At March 31, 1999, the pro forma Goodwill was calculated as
follows:
<TABLE>
<S> <C> <C>
Purchase price - Base Consideration $ 14,000,000
Adjustment to reduce cash portion of
Base Consideration:
Required equity $1,177,667
Equity at March 31, 1999 831,218 (346,449)
----------
Additional consideration:
Equity at March 31, 1999 $ 831,218
Required equity 177,667
----------
Excess 653,551
Divided by 4
----------
Additional common stock 163,388
Assigned value $4.00 653,551
----------- -------------
Adjusted purchase price 14,307,102
Net assets of CWI 831,218
-------------
Goodwill $ 13,475,884
-------------
-------------
</TABLE>
This Goodwill will be amortized on a straight-line basis over a
ten-year period. Annual amortization is approximately $1,347,588.
The pro forma adjustment on the combined balance sheet are as follows:
<TABLE>
<S> <C>
Goodwill recognized $ 13,476,000
-------------
Effect on total assets $ 13,476,000
-------------
-------------
Cash required to finance the acquisition $ 4,653,000
Common stock increased by 2,413,388 at $.01 par
value, less $1,000 CWI common stock 23,000
Additional paid-in capital increased 9,630,000
Retained earnings of CWI eliminated (830,000)
-------------
Effect on total liabilities and shareholders' equity $ 13,476,000
-------------
-------------
</TABLE>
The transaction will result in a cash deficit of $3,158,000 at March
31, 1999. One of the conditions precedent to the merger is Intellicell
will have received the approval from its current lender, Nationscredit
Commercial Corporation ("Nationscredit'), to the merger agreement and
will have obtained an additional line of credit on terms acceptable to
Intellicell and CWI in their sole discretion for at least $15,000,000
from Nationscredit, American National Bank, CWI's current lender or
another commercially recognized lender. Intellicell will also have
obtained additional debt or equity financing on terms acceptable to
Intellicell and CWI in their reasonable discretion for at least
$5,500,000 (exclusive of the
<PAGE>
INTELLICELL CORP. AND CELLULAR WHOLESALERS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS, CONTINUED
exercise of any currently outstanding warrants and options to
purchase Intellicell common stock). Intellicell has received a
preliminary commitment from Nationscredit for an additional
$15,000,000 line of credit, but has not yet obtained a commitment
from any third party to provide an additional equity or debt
financing of at least $5,500,000. The preliminary commitment from
Nationscredit is subject to completion of Nationscredit due
diligence, and there can be no assurance that Intellicell will be
able to obtain binding commitment for either a line of credit or the
additional equity or debt financing or be able to consummate either
of these transactions.
