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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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
RICHEY ELECTRONICS, INC.
- --------------------------------------------------------------------------------
(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.
/ / $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(i)(l), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.001 per share of
Richey Electronics, Inc.
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(2) Aggregate number of securities to which transaction applies:
9,148,613
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$10.50/share
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(4) Proposed maximum aggregate value of transaction:
$96,060,436
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(5) Total fee paid:
$19,212
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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[LOGO]
December 4, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Richey Electronics, Inc., a Delaware corporation
("Richey"), to be held on Wednesday, January 6, 1999, at 10:00 a.m., at Richey's
principal executive offices located at 7441 Lincoln Way, Garden Grove,
California 92841, at which you will be asked (i) to consider and vote on a
proposal (the "Merger Proposal") to approve and adopt an Agreement and Plan of
Merger, dated as of September 30, 1998, by and among Arrow Electronics, Inc., a
New York corporation ("Arrow"), Lear Acquisition Corp., a Delaware corporation
("Acquisition Corp.") and Richey (as amended by the Amendment to Agreement and
Plan of Merger, dated as of October 21, 1998, by and among Arrow, Acquisition
Corp. and Richey, the "Merger Agreement") and (ii) to consider and act upon such
other business as may properly come before the Special Meeting or any
adjournment or postponement thereof. Pursuant to the Merger Agreement,
Acquisition Corp. will be merged with and into Richey (the "Merger") and Richey
will become a wholly owned subsidiary of Arrow. The Merger Agreement provides,
among other things, that each issued and outstanding share of common stock,
$0.001 par value, of Richey ("Richey Common Stock") (other than (a) shares held
directly or indirectly by Richey or Arrow and (b) shares which have not been
voted in favor of the Merger Proposal and with respect to which appraisal rights
have been perfected in accordance with Delaware General Corporation Law) will be
converted into the right to receive cash in the amount of $10.50 (the "Merger
Consideration") on, and subject to, the terms and conditions contained in the
Merger Agreement.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF RICHEY HAS DETERMINED
THAT THE MERGER PROPOSAL IS FAIR AND IN THE BEST INTERESTS OF RICHEY AND HOLDERS
OF RICHEY COMMON STOCK ("RICHEY STOCKHOLDERS") AND UNANIMOUSLY RECOMMENDS THAT
THE RICHEY STOCKHOLDERS VOTE "FOR" THE MERGER PROPOSAL. Jefferies and Company,
Inc., Richey's financial advisor, has delivered to the Board of Directors of
Richey its opinion, dated September 29, 1998, that the Merger Consideration is
fair, from a financial point of view, to the Richey Stockholders.
It is important that your shares be represented and voted at the Special
Meeting regardless of the number of shares you own and whether or not you plan
to attend the Special Meeting. The affirmative vote of the holders of a majority
of the Richey Common Stock outstanding as of November 10, 1998 is required for
approval of the Merger Proposal. Your failure to vote for the Merger Proposal
has the same effect as a vote against the Merger Proposal. Therefore, we urge
you to sign, date and mail the enclosed proxy. If you decide to attend the
Special Meeting and wish to vote in person, you may withdraw your proxy at that
time.
<TABLE>
<S> <C> <C>
Sincerely,
/s/ WILLIAM C. CACCIATORE
William C. Cacciatore
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE>
RICHEY ELECTRONICS, INC.
7441 LINCOLN WAY
GARDEN GROVE, CALIFORNIA 92841
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 6, 1999
------------------------
TO THE STOCKHOLDERS OF RICHEY ELECTRONICS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (the "Special
Meeting") of Richey Electronics, Inc., a Delaware corporation ("Richey"), has
been called by the Board of Directors of Richey and will be held on Wednesday,
January 6, 1999, at 10:00 a.m., at Richey's principal executive offices located
at 7441 Lincoln Way, Garden Grove, California 92841, for the following purposes:
(1) To consider and vote on a proposal (the "Merger Proposal") to
approve and adopt an Agreement and Plan of Merger, dated as of September 30,
1998, by and among Arrow Electronics, Inc., a New York corporation
("Arrow"), Lear Acquisition Corp., a Delaware corporation ("Acquisition
Corp.") and Richey (as amended by the Amendment to Agreement and Plan of
Merger, dated as of October 21, 1998, by and among Arrow, Acquisition Corp.
and Richey, the "Merger Agreement"). Pursuant to the Merger Agreement,
Acquisition Corp. will be merged with and into Richey (the "Merger") and
Richey will become a wholly owned subsidiary of Arrow. The Merger Agreement
provides, among other things, that each issued and outstanding share of
common stock, $0.001 par value, of Richey ("Richey Common Stock") (other
than (a) shares held directly or indirectly by Richey or Arrow and (b)
shares which have not been voted in favor of the Merger Proposal and with
respect to which appraisal rights have been perfected in accordance with
Delaware General Corporation Law) will be converted into the right to
receive cash in the amount of $10.50 (the "Merger Consideration") on, and
subject to, the terms and conditions contained in the Merger Agreement; and
(2) To consider and act upon such other business as may properly come
before the Special Meeting or any adjournment or postponement thereof.
The terms of the Merger Proposal are described in detail in the accompanying
Proxy Statement. To ensure that your vote will be counted, please complete, date
and sign the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope, whether or not you plan to attend the Special Meeting.
You may revoke your proxy in the manner described in the accompanying Proxy
Statement at any time before it is voted at the Special Meeting.
Only holders of Richey Common Stock of record at the close of business on
November 10, 1998 (the "Record Date"), will be entitled to notice of, and to
vote at, the Special Meeting or at any postponements or adjournments thereof.
The affirmative vote of the holders of a majority of the shares of Richey Common
Stock outstanding as of the Record Date is required to approve the Merger
Proposal.
Stockholders of Richey may be entitled to exercise appraisal rights and to
receive cash in an amount equal to the fair value of their shares of Richey
Common Stock as determined pursuant to Delaware law in lieu of receiving the
Merger Consideration by complying with certain procedures specified by Delaware
law. See "Appraisal Rights" in the accompanying Proxy Statement.
By Order of the Board of Directors
/s/ RICHARD N. BERGER
Richard N. Berger
SECRETARY
Garden Grove, California
December 4, 1998
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY CARD
IN THE POSTAGE-PAID ENVELOPE PROVIDED TO ASSURE THAT YOUR SHARES ARE REPRESENTED
AT THE SPECIAL MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN
PERSON IF YOU WISH TO DO SO EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.
<PAGE>
RICHEY ELECTRONICS, INC.
----------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
January 6, 1999
------------------------
This Proxy Statement and the accompanying Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and Quarterly Report on Form 10-Q for the
quarter ended October 2, 1998 are being furnished by Richey Electronics, Inc., a
Delaware corporation ("Richey"), to the stockholders of Richey ("Richey
Stockholders") in connection with the solicitation of proxies by the Board of
Directors of Richey for use at a Special Meeting of Stockholders to be held on
Wednesday, January 6, 1999 and at any adjournments and postponements thereof
(the "Special Meeting").
At the Special Meeting, the Richey Stockholders will be asked to consider
and vote on a proposal (the "Merger Proposal") to approve and adopt an Agreement
and Plan of Merger, dated as of September 30, 1998, by and among Arrow
Electronics, Inc., a New York corporation ("Arrow"), Lear Acquisition Corp., a
Delaware corporation ("Acquisition Corp.") and Richey (as amended by the
Amendment to Agreement and Plan of Merger, dated as of October 21, 1998, by and
among Arrow, Acquisition Corp. and Richey, the "Merger Agreement"). Pursuant to
the Merger Agreement, Acquisition Corp. will be merged with and into Richey (the
"Merger") and Richey will become a wholly owned subsidiary of Arrow. A copy of
the Merger Agreement is attached as Annex A to this Proxy Statement and is
incorporated herein by reference. As a result of the Merger, Richey will become
a wholly owned subsidiary of Arrow. The Merger Agreement provides, among other
things, that each issued and outstanding share of common stock, $0.001 par
value, of Richey ("Richey Common Stock") (other than (a) shares held directly or
indirectly by Richey or Arrow and (b) shares which have not been voted in favor
of the Merger Proposal and with respect to which appraisal rights have been
perfected in accordance with Delaware General Corporation Law) will be converted
into the right to receive cash in the amount of $10.50 on, and subject to, the
terms and conditions contained in the Merger Agreement. See "The Merger
Agreement--Conversion of Richey Common Stock."
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF RICHEY HAS DETERMINED
THAT THE MERGER PROPOSAL IS FAIR AND IN THE BEST INTERESTS OF RICHEY AND RICHEY
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE RICHEY STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER. Jefferies & Company, Inc.,
Richey's financial advisor, has delivered to the Board of Directors of Richey
its opinion, dated September 29, 1998, that the Merger Consideration is fair,
from a financial point of view, to the Richey Stockholders. See "The
Merger--Opinion of Financial Advisor; Analysis of Richey."
IN ORDER FOR ANY RICHEY STOCKHOLDER TO EXERCISE APPRAISAL RIGHTS, A WRITTEN
NOTICE MUST BE SENT BY SUCH STOCKHOLDER AND RECEIVED BY RICHEY ON OR BEFORE
JANUARY 6, 1999, AND ANY SUCH STOCKHOLDER MUST NOT VOTE IN FAVOR OF THE APPROVAL
OF THE MERGER PROPOSAL. SEE "APPRAISAL RIGHTS."
THIS PROXY STATEMENT AND THE RELATED PROXIES AND OTHER MATERIALS ARE FIRST
BEING FURNISHED TO RICHEY STOCKHOLDERS ON OR ABOUT DECEMBER 4, 1998.
THE DATE OF THIS PROXY STATEMENT IS DECEMBER 4, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY.................................................................................................... 3
The Companies............................................................................................ 3
Special Meeting of Richey Stockholders................................................................... 3
The Merger............................................................................................... 5
Certain Federal Income Tax Consequences.................................................................. 7
Governmental and Regulatory Approvals.................................................................... 7
Appraisal Rights......................................................................................... 7
The Merger Agreement..................................................................................... 7
Selected Financial Data.................................................................................. 11
SPECIAL MEETING............................................................................................ 13
Date, Time, Place and Purpose............................................................................ 13
Record Date; Vote Required; Quorum....................................................................... 13
Voting of Proxies........................................................................................ 13
Solicitation of Proxies; Expenses........................................................................ 14
THE MERGER................................................................................................. 14
Background of the Merger................................................................................. 14
Reasons for the Merger................................................................................... 21
Opinion of Financial Advisor; Analysis of Richey......................................................... 22
Recommendation of the Richey Board of Directors.......................................................... 27
Effective Time of the Merger............................................................................. 27
Exchange of Certificates for Merger Consideration........................................................ 27
Interests of Certain Persons in the Merger............................................................... 28
Indemnification of Directors and Officers................................................................ 28
Accounting Treatment..................................................................................... 29
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................................................. 30
Tax Treatment of the Richey Stockholders................................................................. 30
Backup Withholding....................................................................................... 30
GOVERNMENTAL AND REGULATORY APPROVALS...................................................................... 31
APPRAISAL RIGHTS........................................................................................... 31
THE MERGER AGREEMENT....................................................................................... 33
The Merger............................................................................................... 33
Certificate of Incorporation and By-laws................................................................. 33
Conversion of Richey Common Stock........................................................................ 33
Options and Warrants; Convertible Notes.................................................................. 33
Representations and Warranties........................................................................... 34
Conduct of Richey's Business Pending the Merger.......................................................... 34
Employee Matters......................................................................................... 35
Conditions to the Merger................................................................................. 35
No Solicitation.......................................................................................... 36
Termination.............................................................................................. 36
Fees and Expenses........................................................................................ 37
HIGH AND LOW STOCK PRICES.................................................................................. 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 38
STOCKHOLDER PROPOSALS...................................................................................... 41
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 41
AVAILABLE INFORMATION...................................................................................... 41
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 41
</TABLE>
LIST OF ANNEXES
<TABLE>
<S> <C>
Annex A-- Agreement and Plan of Reorganization and Merger
Annex B-- Opinion of Jefferies & Company, Inc.
Annex C-- Section 262 of the DGCL
</TABLE>
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT. THIS SUMMARY DOES NOT CONTAIN A COMPLETE STATEMENT OF
ALL MATERIAL ELEMENTS OF THE PROPOSALS TO BE VOTED ON AND IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROXY
STATEMENT AND IN THE INFORMATION AND DOCUMENTS ANNEXED HERETO. COPIES OF
RICHEY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
(THE "RICHEY 10-K") AND QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
OCTOBER 2, 1998 (THE "RICHEY 10-Q") ACCOMPANY THIS PROXY STATEMENT.
THE COMPANIES
ARROW.
Arrow Electronics, Inc., a New York corporation ("Arrow"), is the world's
largest distributor of electronic components and computer products, with 1997
sales of $7.8 billion. Arrow's executive offices are located at 25 Hub Drive,
Melville, NY 11747. It's telephone number is (516) 391-1300.
ACQUISITION CORP.
Lear Acquisition Corp., a Delaware corporation ("Acquisition Corp."), is a
wholly owned subsidiary of Arrow that has been organized solely to facilitate
the Merger and has conducted no business other than entering into the Merger
Agreement (as defined herein). Its address and telephone number are the same as
those of Arrow.
RICHEY.
Richey Electronics, Inc., a Delaware corporation ("Richey"), is a leading
specialty distributor of interconnect, electromechanical and passive electronic
components and a provider of related value-added services. Richey's executive
offices are located at 7441 Lincoln Way, Garden Grove, California, 92841. Its
telephone number is (714) 898-8288.
SPECIAL MEETING OF RICHEY STOCKHOLDERS
DATE, TIME, PLACE AND PURPOSE.
The Special Meeting of Stockholders (the "Special Meeting") of Richey will
be held at the corporate offices of Richey located at 7441 Lincoln Way, Garden
Grove, California, 92841, on Wednesday, January 6, 1999, at 10:00 a.m., local
time. At the Special Meeting, stockholders of Richey (the "Richey Stockholders")
will consider and vote on a proposal (the "Merger Proposal") to approve and
adopt an Agreement and Plan of Merger, dated as of September 30, 1998, by and
among Arrow, Acquisition Corp. and Richey (as amended by the Amendment to
Agreement and Plan of Merger, dated as of October 21, 1998, by and among Arrow,
Acquisition Corp. and Richey, the "Merger Agreement"). Pursuant to the Merger
Agreement, Acquisition Corp. will be merged with and into Richey (the "Merger")
and Richey will become a wholly owned subsidiary of Arrow. Richey Stockholders
may also consider and act upon such other business as may properly come before
the Special Meeting or an adjournment or postponement thereof. See "Special
Meeting--Date, Time, Place and Purpose."
RECORD DATE; VOTE REQUIRED; QUORUM.
Under Delaware law and the charter documents of Richey, only Richey
Stockholders holding Richey Common Stock of record at the close of business on
November 10, 1998 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. Approval of the Merger requires the affirmative vote of
holders of a majority of the outstanding shares of Richey Common Stock entitled
to vote at the Special Meeting. Thus, a failure to vote or abstention will have
the same legal effect as a vote cast against approval of the Merger. In
addition, brokers who hold shares of Richey Common Stock as nominees will
3
<PAGE>
not have discretionary authority to vote such shares in the absence of
instructions from the beneficial owners. The holders of a majority of the
outstanding shares entitled to vote at the Special Meeting must be present in
person or represented by proxy to constitute a quorum for the transaction of
business at the Special Meeting. See "Special Meeting--Record Date; Vote
Required; Quorum."
As of the Record Date, there were 1,376 stockholders of record of Richey
Common Stock and 9,148,613 shares of Richey Common Stock outstanding.
VOTING OF PROXIES.
All shares of Richey Common Stock that are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting and not duly and timely revoked will be voted at
the Special Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted for
the approval of the Merger.
If any other matters are properly presented for consideration at the Special
Meeting, including, among other things, consideration of a motion to adjourn or
postpone the Special Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed form of proxy and voting thereunder will have the discretion to
vote on such matters in accordance with their best judgment, except that proxies
which instruct a vote against the Merger will not be voted for adjournment in
order to solicit proxies to approve the Merger.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing a
written notice of revocation bearing a later date than the proxy with the
Secretary of Richey at or before the taking of the vote at the Special Meeting;
(ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Richey at or before the taking of the vote at
the Special Meeting or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Richey at 7441 Lincoln Way, Garden
Grove, California, 92841, Attention: Secretary, or hand-delivered to the
Secretary of Richey, in each case at or before the taking of the vote at the
Special Meeting. See "Special Meeting--Voting of Proxies."
Because the required vote of Richey Stockholders for approval of the Merger
is based on the number of outstanding shares rather than upon the shares
actually voted in person or by proxy at the Special Meeting, the failure of a
holder to submit a proxy or to vote in person at the Special Meeting (including
abstentions and broker non-votes) will have the same effect as a vote against
approval of the Merger.
SOLICITATION OF PROXIES; EXPENSES.
The cost of the solicitation of proxies of Richey Stockholders will be borne
by Richey. Proxies may be solicited by certain Richey directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
In addition, Richey has engaged D.F. King & Co., Inc. ("D.F. King") to assist in
soliciting proxies in connection with the Special Meeting on behalf of Richey.
The fee to be paid by Richey is $5,000 plus an additional fee of $3.00 for each
outgoing telephone contact with a Richey Stockholder. Richey will reimburse D.F.
King for all reasonable expenses, costs and disbursements incurred by D.F. King
in connection with the solicitation of proxies for Richey. Richey has agreed to
hold harmless and indemnify D.F. King, its controlling persons, officers,
directors employees and agents from and against all liabilities incurred by D.F.
King arising out of its services except in cases of gross negligence, bad faith
or willful misconduct. See "Special Meeting-- Solicitation of Proxies;
Expenses."
4
<PAGE>
THE MERGER
The following discussion summarizes the proposed Merger. The following is
not, however, a complete statement of all provisions of the Merger Agreement and
related agreements. Detailed terms of and conditions to the Merger are contained
in the Merger Agreement, a copy of which is attached to this Proxy Statement as
Annex A. Statements made in this Proxy Statement with respect to the terms of
the Merger are qualified in their respective entireties by reference to, and
Richey Stockholders are urged to read the more detailed information set forth
in, the Merger Agreement and the other documents annexed hereto.
REASONS FOR THE MERGER.
The Board of Directors of Richey has determined that the Merger Proposal is
advisable and in the best interests of Richey and Richey Stockholders and has
unanimously approved the Merger Agreement. RICHEY'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE RICHEY STOCKHOLDERS VOTE "FOR" THE MERGER
PROPOSAL. In reaching its conclusion to approve the Merger Agreement and
recommend approval of the Merger Proposal to Richey Stockholders, the Board of
Directors of Richey based its decision on a number of factors more fully
described herein. See "The Merger--Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR; ANALYSIS OF RICHEY.
Jefferies & Company, Inc., Richey's financial advisor ("Jefferies"), has
delivered to the Board of Directors of Richey its opinion (the "Opinion"), dated
September 29, 1998, that the Merger Consideration is fair, from a financial
point of view, to the Richey Stockholders. See "The Merger--Opinion of Financial
Advisor; Analysis of Richey."
RECOMMENDATION OF THE RICHEY BOARD OF DIRECTORS.
The Richey Board of Directors has determined that the Merger is fair and in
the best interests of Richey and Richey Stockholders and has unanimously
approved the Merger. Accordingly, the Board of Directors unanimously recommends
that the Richey Stockholders vote "FOR" the Merger Proposal. Each of Richey's
directors has granted to Arrow an irrevocable proxy to vote the shares of Richey
Common Stock beneficially owned by him to approve the Merger. As of the Record
Date, Richey's directors beneficially own approximately 25.01% of the
outstanding Richey Common Stock (excluding shares subject to stock options
unexercised as of the Record Date). See "The Merger--Recommendation of the
Richey Board of Directors."
EFFECTIVE TIME OF THE MERGER.
The Merger Agreement provides that the Merger will become effective (the
"Effective Time") upon the filing of a Certificate of Merger with the Secretary
of State of Delaware in accordance with the Delaware General Corporation Law
(the "DGCL"). It is anticipated that if all conditions of the Merger have been
fulfilled or waived, the Effective Time will occur on or about January 6, 1999,
or on a date as soon as practicable thereafter. See "The Merger--Effective Time
of the Merger."
EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION.
At the Effective Time, Arrow shall make available to Richey for deposit with
a bank or trust company designated by Arrow (and reasonably acceptable to
Richey)(the "Exchange Agent"), an amount of cash equal to the aggregate Merger
Consideration issuable pursuant to the Merger Agreement (the "Exchange Fund").
As soon as reasonably practicable thereafter, the Exchange Agent will mail to
each Richey Stockholder of record immediately prior to the Effective Time a
letter of transmittal with instructions for use in effecting the surrender of
shares of Richey Common Stock in exchange for the Merger Consideration. Each
Richey Stockholder shall be entitled to receive a check in the amount equal to
the Merger Consideration which such holder has the right to receive pursuant to
the Merger Agreement upon
5
<PAGE>
surrender for cancellation of the certificate representing the shares of Richey
Common Stock held by such holders, and the properly completed letter of
transmittal. In the event of a transfer of ownership of the Richey Common Stock
which is not registered in the transfer records of Richey, a check for the
appropriate amount of cash may be issued to a transferee if the certificate
representing the Richey Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. See "The
Merger--Exchange of Certificates for Merger Consideration."
INTERESTS OF CERTAIN PERSONS IN THE MERGER.
In considering the recommendation of the Richey Board of Directors with
respect to the Merger, Richey Stockholders should be aware that certain members
of the Richey Board of Directors and management have certain interests in the
Merger that are in addition to the interests of Richey Stockholders generally.
The Richey Board of Directors was aware of these interests and considered them,
among other factors, in approving the Merger Agreement. William Cacciatore,
Richey's Chairman of the Board of Directors, President and Chief Executive
Officer, will receive a termination bonus in the amount of $1,000,000. Richard
N. Berger, Richey's Vice President, Chief Financial Officer, Treasurer and
Secretary, will receive a termination bonus in the amount of $450,000. Norbert
W. St. John, Richey's Executive Vice President--Marketing, will receive a
termination bonus in the amount of $250,000. The existing Service and Management
Agreement (the "Management Agreement") between Palisades Associates, Inc.
("Palisades") and Richey will be terminated and all remaining payments
thereunder will be accelerated. The current term of the Management Agreement
expires on December 31, 1999. Greg A. Rosenbaum, a director and Assistant
Secretary of Richey, is President of Palisades, and owns 60% of Palisades. Mr.
Rosenbaum's wife owns the remaining 40% of Palisades. The current management fee
pursuant to the Management Agreement is $175,000 per year, payable in 12 equal
installments on the first day of each month. Therefore, assuming a closing of
the Merger during January 1999, $160,416.67 would be accelerated and paid to
Palisades. Messrs. Cacciatore, St. John and Berger and Charles Mann, Vice
President-- Value-Added Services, may be entitled to certain severance payments
if their existing employment agreements are terminated by Richey without cause
or by the employee for "Good Reason." "Good Reason" includes a reduction in the
employee's compensation or benefits or a change in his position, powers,
authority, duties, responsibilities, or reporting chain of supervision. If the
Merger results in such a termination, the employee would be entitled to (i) a
prorated bonus for the year of termination, and (ii) an additional 12 months'
base salary and bonus. The current respective base salaries for Messrs.
Cacciatore, St. John, Berger and Mann are $313,500, $192,500, $155,000, and
$155,000. The bonus amounts which would be payable, if any, cannot be determined
at this time. See "The Merger--Interests of Certain Persons in the Merger."
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Merger Agreement provides that, from and after the Effective Time, Arrow
and Richey shall indemnify, defend and hold harmless any present or former
officer or director of Richey against certain liabilities based on or arising
out of the fact that such person is or was a director or officer of Richey and
certain liabilities based on, or arising out of, or pertaining to the Merger
Agreement or the transactions contemplated thereby, in each case to the full
extent such corporation is permitted to indemnify its own directors and officers
under the DGCL or the Business Corporation Law of the State of New York, its
Certificate of Incorporation or Bylaws as in effect on the date of the Merger
Agreement. The Merger Agreement also requires Arrow to cause to be maintained in
effect for six years the policies of directors' and officers' liability
insurance maintained by Richey as were in effect at the date of the Merger
Agreement, with respect to claims arising from facts or events that occurred
before the Effective Time. See "The Merger--Indemnification of Directors and
Officers."
6
<PAGE>
ACCOUNTING TREATMENT.
The Merger will be accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles. See "The
Merger--Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange of Richey Common Stock for cash in the Merger will be fully
taxable to the holders of such stock. Consequently, a holder of Richey Common
Stock will recognize taxable gain or loss for Federal income tax purposes equal
to the difference between the amount of Merger Consideration received for such
shares in the Merger and the stockholder's adjusted tax basis in his or her
shares. Each holder of Richey Common Stock should consult his or her tax advisor
with respect to the individual tax consequences of the Merger. See "Certain
Federal Income Tax Consequences."
GOVERNMENTAL AND REGULATORY APPROVALS
Consummation of the Merger is subject to compliance with the
Hart-Scott-Rodino Act, as amended (the "HSR Act"). The notifications required
under the HSR Act have been furnished to the Federal Trade Commission and the
Antitrust Division of the Department of Justice. The specified waiting period
under the HSR Act has expired. See "Governmental and Regulatory Approvals."
APPRAISAL RIGHTS
Holders of record of Richey Common Stock who do not vote in favor of the
proposed Merger and who otherwise comply with the applicable statutory
procedures summarized herein will be entitled to appraisal rights under Section
262 of the DGCL ("Section 262"). A person having a beneficial interest in shares
of Richey Common Stock held of record in the name of another person, such as a
broker or nominee, must act promptly to cause the record holder to follow the
steps in Section 262 to properly, and in a timely manner, perfect appraisal
rights. See "Appraisal Rights."
THE MERGER AGREEMENT
THE MERGER.
The Merger Agreement provides that, following the approval of the Merger by
the Richey Stockholders and the satisfaction or waiver of the other conditions
to the Merger, Acquisition Corp. will be merged with and into Richey. As a
result of the Merger, Richey will become a wholly owned subsidiary of Arrow. The
Effective Time will occur upon the effectiveness of the filing with the
Secretary of State of the State of Delaware of a duly executed Certificate of
Merger or at such later time as is specified in such Certificate of Merger. The
closing of the Merger (the "Closing") will take place on a date to be specified
by Arrow and Richey (the "Closing Date").
CERTIFICATE OF INCORPORATION AND BY-LAWS.
The Merger Agreement provides that the Certificate of Incorporation of
Acquisition Corp. as in effect immediately prior to the Effective Time will be
the Certificate of Incorporation of Richey, except that the name of the
corporation as provided in such Certificate of Incorporation will be changed to
"Richey Electronics, Inc." The By-laws of Acquisition Corp. as in effect
immediately prior to the Effective Time will be the By-laws of Richey. See "The
Merger Agreement--Certificate of Incorporation and By-laws."
CONVERSION OF RICHEY COMMON STOCK.
At the Effective Time, each issued and outstanding share of Richey Common
Stock (other than (a) shares held directly or indirectly by Richey or Arrow and
(b) shares which have not been voted in favor of the Merger Proposal and with
respect to which appraisal rights have been perfected in accordance with
7
<PAGE>
the DGCL) will be converted into the right to receive cash in the amount of
$10.50 in accordance with the Merger Agreement. See "The Merger
Agreement--Conversion of Richey Common Stock."
OPTIONS AND WARRANTS.
Each unexpired and unexercised option to purchase shares of Richey Common
Stock under Richey's Amended and Restated 1992 Stock Option Plan (each a "Richey
Stock Option") shall be deemed to be automatically converted into an option to
purchase shares of Arrow common stock, $1.00 par value per share (the "Arrow
Common Stock"). See "The Merger Agreement--Options and Warrants; Convertible
Notes."
REPRESENTATIONS AND WARRANTIES.
The Merger Agreement includes various customary representations and
warranties of the parties thereto. See "The Merger Agreement--Representations
and Warranties."
CONDUCT OF RICHEY'S BUSINESS PENDING THE MERGER.
Pursuant the Merger Agreement, Richey has agreed, during the period from the
date of the Merger Agreement and continuing until the earlier of the termination
of the Merger Agreement or the Effective Time, except as contemplated by the
Merger Agreement, to carry on its business in the usual, regular and ordinary
course consistent with prior practice. See "The Merger Agreement--Conduct of
Richey's Business Pending the Merger."
EMPLOYEE MATTERS.
Each employee benefit plan, program, policy or arrangement provided as of
the Closing by Arrow to Continuing Employees (as defined in the Merger
Agreement) shall give full credit, to the extent credited under a comparable
Benefit Plan (as defined in the Merger Agreement), for each Continuing
Employee's period of service prior to the Closing Date for purposes of
determining eligibility and vesting of benefits. Each employee welfare benefit
plan provided by Arrow to the Continuing Employees from and after the Closing
Date shall (i) give full credit for deductibles and out-of-pocket expenses under
the Benefit Plans with respect to current plan year toward any deductibles for
the remainder of the plan year during which the Closing occurs, and (ii) shall
waive any pre-existing condition limitation for any such Continuing Employee to
the extent that such limitation would not apply to such Continuing Employee
under the applicable Benefit Plan. See "The Merger Agreement--Employee Matters."
CONDITIONS TO THE MERGER.
Consummation of the Merger is subject to the satisfaction of various
conditions, including: (i) approval of the Merger by the Richey Stockholders;
(ii) expiration of the waiting period imposed by the HSR Act (which has
occured); (iii) no injunctions or legal restraints, (iv) no governmental
actions; and (v) Richey and Arrow having entered into such supplemental
indentures as are required under the Indenture relating to Richey's outstanding
convertible subordinated debt as a result of the Merger.
In addition, the obligations of Richey to consummate the Merger are further
subject to a number of conditions including: (i) the truth of the
representations and warranties of Arrow and Acquisition Corp. contained in the
Merger Agreement (except as would not have a material adverse effect on Arrow);
(ii) Arrow and Acquisition Corp. having performed or complied in all material
respects with all agreements and conditions required by the Merger Agreement;
(iii) Arrow having obtained the consent or approval of each person whose consent
or approval is required in connection with the transactions contemplated by the
Merger Agreement under certain agreements and instruments; and (iv) the
resolutions adopted by Arrow's Board of Directors on September 27, 1998 not
having been amended, modified, rescinded or repealed. See "The Merger
Agreement--Conditions to the Merger."
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<PAGE>
The obligations of Arrow and Acquisition Corp. to consummate the Merger are
also subject to further conditions including: (i) the truth of the
representations and warranties of Richey contained in the Merger Agreement
(except, in most cases, as would not have a material adverse effect on Richey);
(ii) Richey having performed or complied in all material respects with all
agreements and conditions required by the Merger Agreement; (iii) no pending
action, suit or proceeding before any court or governmental or regulatory
authority seeking to restrain, prevent or change the transactions contemplated
by the Merger Agreement or questioning the legality or validity of any such
transactions or seeking damages in connection with any such transactions; (iv)
Richey having obtained certain consents, approvals and waivers contemplated in
the Merger Agreement; (v) the absence of a moratorium or other limitation on
commercial bank lending declared by any Federal or New York State regulatory
authority or other circumstances or state of facts constituting a disruption in
the financial markets causing banks and other financial institutions generally
not to extend credit; (vi) the absence of any events, changes or occurrences
which have had, or are reasonably likely to have, individually or in the
aggregate, a material adverse effect on the financial condition, assets,
liabilities, results of operation, business or business prospects of Richey and
its subsidiaries, taken as a whole; (vii) the resolutions adopted by Richey's
Board of Directors on September 29, 1998 not having been amended, modified,
rescinded or repealed; and (viii) the aggregate number of Dissenting Shares (as
defined in the Merger Agreement) not exceeding 10% of the total number of shares
of Richey Common Stock outstanding on the Closing Date. See "The Merger
Agreement--Conditions to the Merger."
NO SOLICITATION.
The Merger Agreement provides that, until the earlier of the Effective Time
or the date of termination of the Merger Agreement, except under certain
circumstances, Richey shall not: (i) solicit, initiate or encourage, or take any
other action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Takeover Proposal (as
defined in the Merger Agreement); or (ii) agree to or endorse any Takeover
Proposal. See "The Merger Agreement--No Solicitation."
TERMINATION.
The Merger Agreement may be terminated under certain circumstances,
including, without limitation, the following: (i) by mutual consent of Arrow and
Richey; (ii) by either Arrow or Richey, if, without fault of the terminating
party, the Closing shall not have occurred on or before February 15, 1999; (iii)
by Arrow, if Richey shall breach any of its representations, warranties or
obligations under the Merger Agreement and such breach shall not have been cured
or waived and Richey shall not have provided reasonable assurance that such
breach will be cured on or before the Closing Date; (iv) by Richey, if Arrow or
Acquisition Corp. shall breach any of their respective representations,
warranties or obligations under the Merger Agreement and such breach shall not
have been cured or waived and Arrow shall not have provided reasonable assurance
that such breach will be cured on or before the Closing Date; (v) by either
Arrow or Richey if a Takeover Proposal shall have occurred and the Board of
Directors of Richey in connection therewith, after consultation with its legal
counsel, withdraws or modifies its approval and recommendation of the Merger
Agreement and the transactions contemplated thereby; and (vi) by either Arrow or
Richey if any permanent injunction or other order of a court or other competent
authority preventing the consummation of the Merger shall have become final and
nonappealable or if the required vote of Richey Stockholders to approve the
Merger Proposal is not obtained. See "The Merger Agreement--Termination."
FEES AND EXPENSES.
Generally, whether or not the Merger is consummated, all costs and expenses
incurred in connection with the Merger Agreement shall be paid by the party
incurring such expenses, except that expenses
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<PAGE>
incurred in connection with printing, registration and filing of this Proxy
Statement and fees, costs and expenses associated with compliance with
applicable state securities laws in connection with the Merger shall be shared
equally by Arrow and Richey.
In certain circumstances, if the Merger Agreement is terminated and there
shall have been a Trigger Event or a Takeover Proposal (both as defined in the
Merger Agreement) with respect to Richey, Richey is obligated to reimburse Arrow
for costs and expenses incurred by Arrow in the amount of $1,500,000 and to pay
Arrow the sum of $5,500,000. If Richey or Arrow terminates the Merger Agreement
due to a willful breach of the Merger Agreement by the non-terminating party,
the non-terminating party shall reimburse the terminating party for actual
expenses incurred by the terminating party. See "The Merger Agreement--Fees and
Expenses."
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<PAGE>
SELECTED FINANCIAL DATA
The following selected consolidated financial data of Richey as of and for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 is derived from the
consolidated financial statements that have been audited by McGladrey & Pullen,
LLP, independent auditors. Richey's consolidated financial statements for the
nine month periods ended September 26, 1997 and October 2, 1998 are unaudited.
However, in the opinion of Richey, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation have been made. Interim
results are subject to significant seasonal variations and are not indicative of
the results of operations to be expected for a full fiscal year. This financial
data should be read in conjunction with Richey's consolidated financial
statements and the notes thereto included in the Richey 10-K and the Richey 10-Q
which accompany this Proxy Statement.
<TABLE>
<CAPTION>
YEARS ENDED(1) NINE MONTHS ENDED
------------------------------------------------------------------------- --------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 26, OCTOBER 2,
1993 1994 1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- ------------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
STATEMENT DATA:
Net sales.................. $ 64,995 $ 90,266 $ 117,057 $ 226,215 $ 250,236 $ 181,231 $ 189,964
Cost of goods sold......... 48,741 68,176 89,080 168,664 189,647 135,912 143,326
------------- ------------- ------------- ------------- ------------- ------------- -----------
Gross profit............... 16,254 22,090 27,977 57,551 60,589 45,319 46,638
Selling, warehouse general
and administrative and
amortization............. 13,889 17,318 20,874 41,070 45,134 32,654 33,912
Restructuring costs........ -- -- 1,450(2) -- -- -- 1,000(3)
------------- ------------- ------------- ------------- ------------- ------------- -----------
Operating income........... 2,365 4,772 5,653 16,481 15,455 12,665 11,726
Interest expense........... 1,198 1,606 867 5,569 6,041 4,294 4,773
Income tax expense(4)...... 460 1,273 1,918 4,376 2,462 3,364 2,871
Net income................. $ 707 $ 1,893 $ 2,868 $ 6,536 $ 6,952 $ 5,007 $ 4,082
------------- ------------- ------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- ------------- ------------- -----------
Earnings per common
share(5)
Basic.................... $ 0.14 $ 0.32 $ 0.36 $ 0.72 $ 0.77 $ 0.55 $ 0.45
------------- ------------- ------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- ------------- ------------- -----------
Diluted.................. 0.14 0.32 0.36 0.70 0.73 0.53 0.45
------------- ------------- ------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- ------------- ------------- -----------
Weighted average number of
shares outstanding(5)
Basic.................... 5,085 5,889 8,036 9,060 9,065 9,064 9,132
Diluted.................. 5,085 5,889 8,036 12,376 13,012 13,011 13,171
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 26, OCTOBER 2,
1993 1994 1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital............ $ 6,888 $ 5,317 $ 34,076 $ 43,033 $ 45,565 $ 53,605 $ 49,384
Total assets............... 30,918 35,013 118,941 124,761 150,870 148,602 147,671
Short-term debt............ 6,995 10,443 835 4,012 14,278 4,459 12,139
Long-term debt............. 8,151 3,594 61,652 65,205 67,854 75,804 66,667
Stockholder's equity....... 6,898 8,785 27,392 33,953 41,439 39,553 45,278
Book Value per Share(6).... 1.17 1.49 3.03 3.75 4.57 4.36 4.95
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------------------------------------------- --------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 26, OCTOBER 2,
1993 1994 1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- ------------- ------------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(7).................. $ 3,362 $ 5,537 $ 6,565(8) $ 19,581 $ 18,962 $ 15,199 $ 14,709
EBITDA margin(7)........... 5.2% 6.1% 5.6%(8) 8.7% 7.6% 8.4% 7.7%
Depreciation and
amortization............. $ 997 $ 765 $ 912 $ 3,100 $ 3,507 $ 2,534 $ 2,983
Inventory turnover
ratio(9)................. 4.4x 4.9x 5.0x 4.4x 4.2x 4.0x 3.3x
Days sales outstanding in
accounts receivable(9)... 43 42 42 44 45 48 46
</TABLE>
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<PAGE>
FOOTNOTES TO SELECTED FINANCIAL DATA
(1) In the period from 1993 through 1997, the following transactions were
completed. On April 6, 1993, RicheyImpact Electronics, Inc. ("RicheyImpact")
merged with Brajdas Corporation, a California corporation ("Brajdas"), with
Brajdas as the surviving legal entity (the "Richey-Brajdas Merger"). Brajdas
subsequently changed its name to Richey Electronics, Inc. and reincorporated
in Delaware. The Richey-Brajdas Merger was recorded as a reverse purchase
acquisition with RicheyImpact as the accounting acquirer. Thereafter, Richey
acquired the businesses of the following companies on the following dates:
the In-Stock products division of Anchor Group, Inc. on April 4, 1994,
Inland Empire Interconnects on August 16, 1995, Deanco, Inc. ("Deanco") on
December 20, 1995, MS Electronics on March 19, 1996, Summit Distributors on
December 5, 1996 and Simmonds Technologies Inc. on June 13, 1997. See Note 2
of Notes to Consolidated Financial Statements for pro forma information with
respect to acquisitions included in the Richey 10-K. Unless otherwise
indicated, the information in the above table of Selected Financial Data
excludes the results of operations of Brajdas prior to the Richey-Brajdas
Merger and excludes the results of operations of each such business acquired
in the period from 1994 through 1997 prior to the date on which it was
acquired.
(2) Consists of restructuring costs associated with the consolidation of the
operations of Deanco into Richey, including Richey's closure of certain of
its facilities and other costs associated with the consolidation. The
acquisition-related restructuring charge consisted of $400,000 for lease
obligations for Richey facilities that were consolidated in the acquired
operations, severance costs of $100,000 for Richey employees, Richey
supplier termination costs of $200,000, computer conversion costs of
$250,000, disposal of Richey's redundant property and equipment costs of
$150,000 and other costs of $350,000.
(3) Richey's operating expenses for the nine months ended October 2, 1998
reflect a $1,000,000 pre-tax restructuring charge incurred in the second
quarter of 1998 relating to a reduction of Richey's selling, general,
administrative and value-added functions. Richey's second quarter
restructuring charge of $1,000,000 consisted of $550,000 for employee
severance and separation costs, $350,000 for lease termination costs as a
result of facility consolidation and $100,000 for other costs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Richey 10-Q for further discussion.
(4) Richey has net operating loss carryforwards which reduce its cash tax
payments. See Note 8 of Notes to Consolidated Financial Statements included
in the Richey 10-K.
(5) The Richey-Brajdas Merger was accounted for as a reverse purchase
acquisition with RicheyImpact being the accounting acquirer. Per share data
for all periods from January 1, 1993 through April 6, 1993, the date of the
Richey-Brajdas Merger, are based upon the weighted average number of shares
of Brajdas indirectly acquired by the former stockholders of RicheyImpact.
(6) Book Value per Share is computed by dividing stockholders' equity by the
number of common shares outstanding.
(7) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization. Richey has included EBITDA data (which is not a measure of
financial performance under generally accepted accounting principles)
because it understands such data is used by certain investors. EBITDA margin
represents EBITDA as a percentage of net sales. Because of the significant
amortization of intangible assets and non-cash income tax expense incurred
as a result of the Richey's net operating losses, Richey believes that
EBITDA may be a meaningful measure of its financial performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Deferred Tax Assets" in the Richey 10-Q.
(8) Excluding the restructuring reserve of approximately $1.4 million, which is
an operating expense, EBITDA would have been approximately $8.0 million and
EBITDA margin would have been 6.8% for the year ended December 31, 1995.
(9) Inventory turnover ratio and days sales outstanding in accounts receivable
calculations are based upon Richey's annualized sales and cost of sales for
the fourth quarter and accounts receivable and inventory balances at
year-end. The calculation for the year ended December 31, 1995 excludes the
effect of the acquisition of Deanco.
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<PAGE>
SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE.
The Special Meeting will be held at the corporate offices of Richey located
at 7441 Lincoln Way, Garden Grove, California, 92841, on Wednesday, January 6,
1999, at 10:00 a.m., local time. At the Special Meeting, Richey Stockholders
will consider and vote upon a proposal to approve the principal terms of the
Merger of Acquisition Corp. with and into Richey, pursuant to the Merger
Agreement. As a result of the Merger, Richey will become a wholly owned
subsidiary of Arrow. Richey Stockholders may also consider and act upon such
other business as may properly come before the Special Meeting or an adjournment
or postponement thereof.
RECORD DATE; VOTE REQUIRED; QUORUM.
Under Delaware law and the charter documents of Richey, only Richey
Stockholders holding Richey Common Stock of record at the close of business on
the Record Date are entitled to notice of and to vote at the Special Meeting.
Approval of the Merger requires the affirmative vote of holders of a majority of
the outstanding shares of Richey Common Stock entitled to vote at the Special
Meeting. Thus, a failure to vote or abstention will have the same legal effect
as a vote cast against approval of the Merger. In addition, brokers who hold
shares of Richey Common Stock as nominees will not have discretionary authority
to vote such shares in the absence of instructions from the beneficial owners.
The holders of a majority of the outstanding shares entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business at the Special Meeting.
As of the Record Date, there were 1,376 stockholders of record of Richey
Common Stock and 9,148,613 shares of Richey Common Stock outstanding.
VOTING OF PROXIES.
All shares of Richey Common Stock that are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting and not duly and timely revoked will be voted at
the Richey Special Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted for
the approval of the Merger.
If any other matters are properly presented for consideration at the Special
Meeting, including, among other things, consideration of a motion to adjourn or
postpone the Special Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed form of proxy and voting thereunder will have the discretion to
vote on such matters in accordance with their best judgment, except that proxies
which instruct a vote against the Merger will not be voted for adjournment in
order to solicit proxies to approve the Merger.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing a
written notice of revocation bearing a later date than the proxy with the
Secretary of Richey at or before the taking of the vote at the Special Meeting;
(ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Richey at or before the taking of the vote at
the Special Meeting or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Richey at 7441 Lincoln Way, Garden
Grove, California, 92841, Attention: Secretary, or hand-delivered to the
Secretary of Richey, in each case at or before the taking of the vote at the
Special Meeting.
Because the required vote of Richey Stockholders for approval of the Merger
is based on the number of outstanding shares rather than upon the shares
actually voted in person or by proxy at the Special Meeting, the failure of a
holder to submit a proxy or to vote in person at the Special Meeting (including
abstentions and broker non-votes) will have the same effect as a vote against
approval of the Merger.
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<PAGE>
SOLICITATION OF PROXIES; EXPENSES.
The cost of the solicitation of proxies of Richey Stockholders will be borne
by Richey. Proxies may be solicited by certain Richey directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
In addition, Richey has engaged D.F. King to assist in soliciting proxies in
connection with the Special Meeting on behalf of Richey. The fee to be paid by
Richey is $5,000 plus an additional fee of $3.00 for each outgoing telephone
contact with a Richey Stockholder. Richey will reimburse D.F. King for all
reasonable expenses, costs and disbursements incurred by D.F. King in connection
with the solicitation of proxies for Richey. Richey has agreed to hold harmless
and indemnify D.F. King, its controlling persons, officers, directors employees
and agents from and against all liabilities incurred by D.F. King arising out of
its services except in cases of gross negligence, bad faith or willful
misconduct.
THE MERGER
The following discussion summarizes all material terms of the proposed
Merger and related transactions. The following is not, however, a complete
statement of all provisions of the Merger Agreement and related agreements.
Detailed terms of and conditions to the Merger and certain related transactions
are contained in the Merger Agreement, a conformed copy of which is attached to
this Proxy Statement as Annex A. Statements made in this Proxy Statement with
respect to the terms of the Merger and such related transactions are qualified
in their respective entireties by reference to, and Richey Stockholders are
urged to read the more detailed information set forth in, the Merger Agreement.
BACKGROUND OF THE MERGER.
On December 25, 1997, Greg Rosenbaum, a director and Assistant Secretary of
Richey, met with Fred Warnock, a former client and colleague of his and current
executive of Arrow, for a family holiday visit. During the visit, Mr. Rosenbaum
and Mr. Warnock discussed business conditions in the electronics distribution
industry and the continuing trend toward consolidation among distributors. Mr.
Warnock related his experience during 1997 working with Arrow's PEMCO group, the
organization within Arrow responsible for sales of products similar to Richey's.
Mr. Rosenbaum expressed his view that 1998 would be an important year for
Richey, during which it would either need to make substantial acquisitions to
maintain growth or align itself with a much larger distribution company. Mr.
Warnock expressed the view that the timing might be right for Richey to consider
aligning itself with Arrow, as he understood Arrow planned to place significant
emphasis on growth of its PEMCO group in 1998. Mr. Warnock said that he would be
attending Arrow management meetings in January and would mention their
discussion to Steve Kaufman, Arrow's Chairman of the Board of Directors and
Chief Executive Officer, at that time.
On February 3, 1998, Mr. Rosenbaum and Mr. Warnock spoke again, by
telephone. Mr. Warnock stated that he had been at Arrow's management meetings in
late January and had mentioned their prior discussion to Mr. Kaufman. Mr.
Kaufman seemed interested in following up on that discussion, Mr. Warnock said,
and would call Mr. Rosenbaum directly; however, Mr. Rosenbaum should not expect
a call until after both Arrow and Richey had closed their 1997 books and
announced results to the public.
On February 26, 1998, Mr. Kaufman telephoned Mr. Rosenbaum and left a voice
mail message. Mr. Rosenbaum returned the call later that day and Mr. Rosenbaum
and Mr. Kaufman had a discussion concerning industry conditions and the
prospects of a transaction between Arrow and Richey. Mr. Kaufman indicated that
he was committed to strengthening Arrow's market position in the passive,
electromechanical and interconnect segments of the electronics distribution
industry during 1998, both through internal growth and acquisition. While he had
followed Richey's growth through reports in the trade press and his managers'
comments, he was not completely familiar with Richey's financial statements. Mr.
Rosenbaum offered to fax Richey's press release containing year end 1997
financial statements to Mr. Kaufman that day and follow up by sending Mr.
Kaufman copies of Richey's publicly available
14
<PAGE>
financial information, including its Annual Report on Form 10-K for 1996, its
Quarterly Report for the quarter ended September 26, 1997 on Form 10-Q, its
prospectus for the sale of convertible debt from 1996, and its prospectus for
the sale of stock from 1995. Mr. Rosenbaum sent such material to Mr. Kaufman on
March 6, 1998.
During the last week in March, Mr. Rosenbaum had further telephone
conversations with both Mr. Warnock and Mr. Kaufman, in which Mr. Kaufman
expressed an interest in proceeding with a more detailed review of Richey as a
potential acquisition candidate for Arrow. Mr. Kaufman listed information he
would require to take his evaluation further. Mr. Rosenbaum indicated that he
could not provide confidential information to Mr. Kaufman concerning Richey
without a confidentiality agreement between the companies and the knowledge and
approval of Richey's Board of Directors, including certain members of
management. Mr. Kaufman indicated a willingness to sign a confidentiality
agreement and urged Mr. Rosenbaum to seek the approval of Richey's Board of
Directors.
During the first week of April, Mr. Rosenbaum contacted members of Richey's
Board of Directors and Richard Berger, Richey's Vice President, Finance by
telephone and email, explaining the developments with Arrow to date and seeking
their advice. William Cacciatore, Chairman of Richey's Board of Directors,
President and Chief Executive Officer, stated that other distributors besides
Arrow might be interested in acquiring Richey and the Board of Directors
authorized him to look into those possibilities while Mr. Rosenbaum continued
discussions with Arrow.
Between April 7 and April 29, Richey and Arrow negotiated the terms of a
confidentiality agreement which contained a provision for non-solicitation of
Richey employees and a "standstill" agreement concerning the non-negotiated
purchase of shares of Richey Common Stock by Arrow and which Mr. Cacciatore
signed on behalf of Richey on April 29. Mr. Rosenbaum forwarded the signed copy
of the agreement to Robert Klatell, Arrow's Executive Vice President, by fax on
April 30 and Mr. Klatell returned a signed copy by fax on May 1 to Mr.
Rosenbaum.
With approximately the same timing, under Mr. Cacciatore's oversight, Richey
entered into a confidentiality agreement with another potential acquiror of
Richey. Discussions between Richey management and management of that potential
acquiror were to continue throughout the late spring and summer of 1998. At the
regularly scheduled meeting of Richey's Board of Directors on May 4, which Mr.
Rosenbaum attended by telephone, Mr. Rosenbaum reported to the Board on the
status of discussions with Arrow and Mr. Cacciatore reported on the status of
discussions with the other potential acquiror. Also, during May 1998, Edward
Gelbach, a member of Richey's Board of Directors, referred two other
distributors who had expressed some interest in acquiring Richey to Mr.
Rosenbaum. During a number of phone conversations and with the exchange of
publicly available information, it became apparent to Mr. Rosenbaum and Mr.
Gelbach that neither of these prospective acquirors would be prepared to
complete a transaction with Richey on favorable terms and they so informed the
Richey's Board of Directors.
On May 13, Mr. Rosenbaum forwarded certain confidential and publicly
available information to Mr. Kaufman, including Richey's first quarter 1998
press release, Richey's 1997 Annual Report on Form 10-K, Richey's proxy
statement for its 1998 annual meeting of stockholders, supplier data, headcount
data, customer data and a lease analysis.
On May 29, a lengthy conference call was held to review any questions Arrow
had concerning the data that Richey had submitted. Participating in the call
were Mr. Kaufman, Mr. Klatell, Mr. Cacciatore, Norbert W. St. John, Richey's
Executive Vice President, Mr. Berger and Mr. Rosenbaum. During that call, Richey
management representatives answered Arrow management representatives' questions,
discussed general business conditions, and responded to requests for further
information. Mr. Kaufman also indicated that he would like to meet in person
with Mr. Cacciatore and Mr. Berger the following week. Following up on the
conference call, Mr. Rosenbaum sent Mr. Kaufman certain additional confidential
information on June 3.
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On June 3, Mr. Kaufman met with Mr. Cacciatore and Mr. Berger at the Hilton
Hotel at Los Angeles International Airport. Their discussions centered on the
potential cost savings achievable by combining Richey and Arrow, business
prospects, and an overview of how Richey might transition to become a member of
the Arrow group of businesses. Later that day, Mr. Kaufman accompanied Mr.
Berger to Richey's value-added assembly facility in Sun Valley, California,
where Mr. Kaufman observed the range of activities undertaken by Richey in its
value-added business. Throughout the month of June, Mr. Rosenbaum had several
telephone calls with Mr. Klatell and Mr. Kaufman concerning the progress of
their evaluation of Richey. Mr. Rosenbaum also kept Richey's Board of Directors
informed of those discussions by telephone and email.
On June 22, Richey issued a press release indicating that business
conditions in the electronics distribution industry had deteriorated from the
first quarter and that it would not meet analyst expectations for second quarter
earnings. In response to deteriorating conditions, Richey announced that it was
undertaking a cost reduction program which was intended to reduce costs of
operations by $12 million annually from first quarter levels. Mr. Rosenbaum sent
a copy of this press release to Arrow.
On July 1, Mr. Kaufman phoned Mr. Rosenbaum and suggested that he, Mr.
Klatell and Mr. Rosenbaum meet at a convenient place and time. On July 6, Mr.
Rosenbaum telephoned Mr. Kaufman and Mr. Klatell to inform them that he and
Thomas W. Blumenthal, a member of Richey's Board of Directors, would be
available to meet in Baltimore on July 9.
On July 9, Mr. Rosenbaum and Mr. Blumenthal met with Mr. Klatell and Mr.
Kaufman at the Hyatt Regency Hotel in Baltimore. Mr. Kaufman presented his
analysis that the value of Richey to Arrow was approximately $10 per Richey
share and he reviewed his Economic Value Added model for combining the two
businesses. Mr. Rosenbaum and Mr. Blumenthal responded that they believed Mr.
Kaufman had overlooked some of the synergies which might result from combining
the two businesses and that a higher valuation than that proposed would be
required for a transaction to get approval from Richey's Board of Directors.
They suggested that a price at or close to the $14.125 per share conversion
price for Richey's bonds would be assured of the support of Richey's Board of
Directors and indicated that something between $10 and $14 might be supportable,
depending upon the structure of the transaction. Mr. Kaufman and Mr. Klatell
asked Mr. Rosenbaum to gather any additional data that might support his and Mr.
Blumenthal's rationale and forward it to them. Mr. Blumenthal then returned
home, while Mr. Kaufman and Mr. Klatell had further discussions with Mr.
Rosenbaum later that evening. Mr. Rosenbaum proposed that one way to bridge the
apparent gap between the two sides would be to supplement any cash price paid
with a warrant to purchase Arrow Common Stock at an "out-of-the-money" strike
price.
On July 14, Mr. Rosenbaum telephoned Mr. Klatell to inform him that he would
be soon sending out the information requested by Arrow on July 9. On July 16,
Mr. Rosenbaum sent Mr. Kaufman the additional information and a proposed
transaction structure designed to bridge the gap between Arrow's economic value
added model and Richey's preferred valuation. Mr. Rosenbaum's proposal called
for Arrow to pay $12.50 per share of Richey Common Stock in cash, issue 1/21 of
a share of Arrow Common Stock for each share of Richey Common Stock and issue a
five year warrant to purchase 1/2 share of Arrow Common Stock at $27.50 per
share for each share of Richey Common Stock. Mr. Rosenbaum said he anticipated
this proposal to be valued at $14.50 per Richey share both for fairness opinion
and purchase accounting purposes. On July 17, Mr. Rosenbaum telephoned Mr.
Klatell to confirm receipt of this information and proposal by Arrow. Mr.
Klatell informed Mr. Rosenbaum that given the difference in the bid and ask
prices under discussion and Mr. Rosenbaum's proposal to bridge that gap by the
issuance of Arrow securities, he and Mr. Kaufman would like to have discussions
with the rest of the Arrow Board of Directors concerning valuation and the
advisability of moving forward with a transaction.
On July 20 and 21, Richey's Board of Directors met for its regularly
scheduled Board of Directors and committee meetings. Mr. Rosenbaum and Mr.
Blumenthal briefed Richey's Board of Directors on the status of the discussions
with Arrow, including a description of Arrow's proposed valuation and the Richey
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proposal issued in response thereto. Mr. Cacciatore informed Richey's Board of
Directors that the potential acquiror he was discussing a possible transaction
with had informally proposed an all stock transaction in which each share of
Richey Common Stock would be exchanged for shares of the acquiror's common stock
having a value between $11 and $13 per share of Richey Common Stock. Such a
transaction would be structured as a "pooling of interests" and be tax-free to
Richey Stockholders. Richey's Board of Directors instructed Mr. Cacciatore to
attempt to firm up this proposal into a formal offer and instructed Mr.
Rosenbaum to consider this alternative when having further discussions with
Arrow. Given the potential for a transaction involving the sale of the company
during 1998, the compensation committee of the Board considered the need for
incentives to senior management, in addition to their contractual rights under
employment agreements, to assist in negotiating and closing a transaction and
manage Richey through a smooth transition to new ownership. As a result, the
compensation committee approved the payment of "stay" bonuses, or change in
control payments, to Mr. Cacciatore, Mr. Berger and Mr. St. John, in the amounts
of $1,000,000, $450,000 and $250,000, respectively, in the event such a
transaction was agreed to prior to the automatic two-year renewal of their
employment agreements.
On July 28, Mr. Rosenbaum telephoned Mr. Klatell to inform him that he would
be sending a copy of Richey's second quarter 1998 earnings press release, a
sensitivity analysis and earnings model for Richey's third quarter and copies of
analyst reports commenting on Richey's second quarter release. Mr. Rosenbaum
sent this material by fax to Mr. Klatell on July 29. During the following week,
Mr. Rosenbaum and Mr. Klatell had several conversations. Mr. Klatell informed
Mr. Rosenbaum that Arrow's Board of Directors had considered the potential
acquisition of Richey and that, while Arrow's Board of Directors saw the
strategic benefit of the business combination, it could not support the proposal
Mr. Rosenbaum had made, particularly in light of the industry's difficult
conditions as evidenced in Richey's earnings release. Mr. Klatell said that
Arrow's Board of Directors understood Richey's desire to obtain a price near its
1997 high sales price of $14 1/8, but that Arrow shouldn't even consider issuing
securities which did not take into account Arrow's own high stock price for a
similar period. On August 4, Mr. Klatell faxed Mr. Rosenbaum a proposal for
Arrow to purchase Richey at a price of $11 cash and 1/10 of a share of Arrow
Common Stock per share of Richey Common Stock. Mr. Klatell explained that by
valuing Arrow at its 52 week high, the proposal had a value to Richey
Stockholders equal to Richey's 52 week high. On August 5, Mr. Rosenbaum and Mr.
Klatell discussed a counter-proposal by Mr. Rosenbaum to strike a deal with more
cash and a warrant to purchase Arrow stock at Arrow's 52 week high of
approximately $35 per share.
During the week of August 10, Mr. Rosenbaum and Mr. Klatell had several
telephone conversations, during which Mr. Klatell expressed concern that the
cost reduction program Richey had undertaken late in the second quarter targeted
many of the same costs that Arrow had counted upon in its analysis of the cost
savings from merging the two companies. Mr. Rosenbaum assured Mr. Klatell that
there was some but, in his opinion, insubstantial overlap between the two cost
savings potentials. On August 12, Mr. Klatell repeated his proposal to Mr.
Rosenbaum that Arrow acquire Richey for $11 in cash plus 1/10 of a share of
Arrow Common Stock per share of Richey Common Stock which, based upon the
closing price of Arrow Common Stock on such date ($19 3/16), would have
represented a total consideration value of $12.92 per share. Mr. Rosenbaum told
Mr. Klatell that Richey was still looking for more potential upside and asked
him to consider including a warrant for shares of Arrow Common Stock in his
offer. On August 14, Mr. Klatell proposed to Mr. Rosenbaum that Arrow acquire
Richey for $11.50 in cash plus a warrant to purchase 1/2 share of Arrow Common
Stock per share of Richey Common Stock for five years at a $35 strike price. Mr.
Rosenbaum asked Mr. Klatell if that proposal was instead of, or an alternative
to, the proposal of August 4 and 12. Mr. Klatell said that he was responding to
Mr. Rosenbaum's expressed interest in a warrant to provide Richey Stockholders
with upside potential and had therefore removed any stock issuance from the
deal. Mr. Rosenbaum related to Mr. Klatell that certain Richey Stockholders
might prefer a fractional share of stock now to an out of the money warrant for
1/2 share of Arrow stock in the future. He asked if he could take both the
August 12 and August 14 proposals to Richey's Board of
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Directors. Mr. Klatell asked for the weekend to think about Mr. Rosenbaum's
request and telephoned Mr. Rosenbaum on August 17 to inform him that either
proposal would be acceptable to Arrow.
At the time of the discussions between Mr. Rosenbaum and Mr. Klatell
concerning the price of any transaction, Mr. Rosenbaum discussed the matter of
cost savings overlap with Mr. Berger by telephone. Mr. Berger then forwarded to
Mr. Rosenbaum a detailed analysis of the cost savings to be achieved under
Richey's cost reduction program versus those which he and Mr. Kaufman had agreed
on June 3 could be achieved by a combination of Richey with Arrow. Mr. Rosenbaum
faxed this analysis to Mr. Klatell on August 17.
On August 17, Mr. Cacciatore convened a special meeting of Richey's Board of
Directors via telephone conference. Mr. Rosenbaum informed Richey's Board of
Directors of the status of his discussions with Mr. Klatell and stated that he
believed a transaction could be done with Arrow on either the $11.50 cash 1/2
warrant or $11.00 cash 1/10 share basis. He presented Richey's Board of
Directors with an analysis of the value of each proposal over the next five
years at various assumed prices for shares of Arrow Common Stock. Mr. Cacciatore
informed Richey's Board of Directors that due to changes in the price of the
stock of the other potential acquiror with whom he had been discussing a merger,
the value of any deal with that acquiror would be currently valued at less than
$11 per share. Mr. Cacciatore also discussed with Richey's Board of Directors
the issues involved in any formal consideration by Richey's Board of Directors
of an offer to sell Richey, including the legal requirements of Richey's
organizational documents and securities laws and regulations. Mr. Cacciatore
asked Mr. Rosenbaum to discuss these issues with Dewey Ballantine LLP ("Dewey
Ballantine"), Richey's outside counsel, and report back to Richey's Board of
Directors. Mr. Berger briefed Richey's Board of Directors on the issue of cost
savings overlap and reviewed the analysis he had prepared which Mr. Rosenbaum
forwarded to Mr. Klatell. Richey's Board of Directors asked Mr. Rosenbaum and
Mr. Blumenthal to contact Mr. Klatell, clarify certain issues related to the
proposed transaction and, if they found such clarification acceptable, indicate
Richey's Board of Directors preference for proceeding toward a transaction
involving $11 cash and 1/10 of a share of Arrow stock for each share of Richey
Common Stock.
On August 18, Mr. Rosenbaum and Mr. Blumenthal spoke with Mr. Klatell by
telephone. They discussed a number of issues concerning a potential transaction,
including timing, costs, transition, employee options and benefits, among other
items. Mr. Blumenthal and Mr. Rosenbaum received satisfactory responses to these
issues from Mr. Klatell and informed him that Richey's Board of Directors would
be ready to proceed toward a transaction for $11 cash and 1/10 of a share of
Arrow Common Stock for each share of Richey Common Stock. Mr. Klatell told Mr.
Rosenbaum and Mr. Blumenthal that he would ask his outside counsel to begin
drafting a purchase agreement reflecting that proposal, but that he and Mr.
Kaufman would be traveling outside the country for much of the next two weeks,
so he wouldn't be in a position to present such a draft to Richey until early
September. Mr. Klatell further suggested that certain executives of Arrow
present a due diligence list to Mr. Berger and Mr. Cacciatore and that
comprehensive due diligence begin while he and Mr. Kaufman were traveling.
On August 26 and 27, Cathy Morris, President of PEMCO, and Charles Boehlke,
Arrow's North American Controller, met Mr. Berger at the Pasadena, California
offices of McGladrey & Pullen, LLP, Richey's outside auditors, to review
materials which Richey had prepared in response to Arrow's due diligence
request. Mr. Cacciatore and Mr. St. John joined the group for lunch on August 27
to answer further questions about the business, suppliers, customers and
industry conditions. On August 28, a representative of Ernst & Young, Arrow's
outside auditors, met with representatives of McGladrey & Pullen in Pasadena to
review audit work papers.
On August 31, the stock market suffered a severe decline. Arrow Common Stock
traded down to close at $13.125, while Richey Common Stock closed three days
later at $4.625. Mr. Rosenbaum attempted to contact Mr. Klatell by telephone to
determine if the stock market turmoil would have any impact on the proposed
transaction. Mr. Klatell was out of the country and Mr. Rosenbaum left a message
for Mr. Klatell to call him upon his return. On September 8, Mr. Klatell called
Mr. Rosenbaum and informed him that the
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stock market's reduced valuation of both Arrow and Richey made the previously
acceptable proposal now unacceptable. Arrow's Board of Directors did not wish to
issue stock at what it viewed as a depressed valuation and it further could not
justify paying more than $12 per share in value for Richey Common Stock which
was then trading in the open market for about $5. Mr. Klatell informed Mr.
Rosenbaum that, under the circumstances, the best Arrow could offer was $10 in
cash plus 1/10 of a share of Arrow Common Stock for each share of Richey Common
Stock. Mr. Rosenbaum asked Mr. Klatell if this was a final offer and then
proceeded to contact members of Richey's Board of Directors to discuss the
situation. In those discussions, it was decided that Mr. Rosenbaum should call
Mr. Klatell and inform him that Richey's Board of Directors could accept $10 in
cash plus 1/8 of a share of Arrow Common Stock for each share of Richey Common
Stock. Mr. Rosenbaum called Mr. Klatell on September 9 and presented Richey's
Board of Directors' position. Mr. Klatell agreed to the proposal and Mr.
Rosenbaum so informed members of Richey's Board of Directors by telephone later
that day.
On September 10, Mr. Cacciatore convened a special meeting of Richey's Board
of Directors via telephone conference. Mr. Rosenbaum formally presented the
Arrow agreement to Richey's Board of Directors' proposal, reviewed the activity
of both companies' stock prices and laid out a potential timetable for a
transaction to occur. Mr. Rosenbaum informed Richey's Board of Directors that it
would need to obtain a fairness opinion from an investment bank to support its
recommendation of a sale of the company. He informed Richey's Board of Directors
that he and Mr. Blumenthal had approached Jefferies concerning such an opinion.
The Board then formally authorized Mr. Cacciatore, Mr. Blumenthal and Mr.
Rosenbaum to negotiate a purchase agreement with Arrow and Mr. Blumenthal to
negotiate the retention of Jefferies for the purpose of providing a fairness
opinion.
On September 11, Milbank, Tweed, Hadley & McCloy LLP ("Milbank"), Arrow's
outside counsel, distributed a draft purchase agreement to the parties. After
consultation with Mr. Rosenbaum and Mr. Blumenthal, Dewey Ballantine marked up
the Milbank draft and returned it to Milbank on September 15. During the next
several days, Mr. Rosenbaum expressed to Mr. Klatell certain reservations Richey
had concerning the Milbank draft, particularly those provisions related to a
post-closing purchase price adjustment based upon a physical inventory and the
proposed definition of a material adverse change and related closing conditions.
Mr. Rosenbaum urged Mr. Klatell to take whatever time was needed to complete due
diligence and then sign an agreement, rather than ask Richey to sign such an
open ended document as had been proposed.
On September 22, representatives of Richey and Arrow met at the offices of
Milbank in New York. When Richey representatives again stated their concerns
regarding a potential purchase price adjustment and the definition of material
adverse effect as it related to closing conditions, Mr. Klatell agreed to have
Ms. Morris meet with Mr. Berger later in the week to resolve all outstanding due
diligence issues. Richey agreed to undertake unscheduled inventory cycle counts
in each of its warehouses under the direction of McGladrey & Pullen LLP with
observers from Arrow. Mr. Blumenthal, Mr. Rosenbaum and Mr. Klatell then agreed
upon a framework for addressing the material adverse change issue in the
agreement.
On September 24, Ms. Morris and Mike Calabria of Arrow met Mr. Berger and
Mr. St. John of Richey at the Red Carpet Club at Denver International Airport to
review all open due diligence items, including items which Richey had included
in its September 23 draft Disclosure Memorandum to the Merger Agreement. Milbank
also circulated a new draft purchase agreement which Richey still found
unacceptable. On September 25, Mr. Klatell called Mr. Rosenbaum and informed him
that, in light of continuing pressure on the price of both companies' stock,
Richey's insistence on a relatively ironclad purchase agreement, and the
elimination of any post closing purchase price adjustment based upon continuing
due diligence, Arrow could accept Richey's contract terms but only at a purchase
price which did not include any Arrow stock. He formally proposed a purchase
price of $10 per share in cash. Mr. Rosenbaum informed Mr. Klatell that, at that
price, there could be no transaction. Mr. Rosenbaum proceeded to contact members
of Richey's Board of Directors by telephone and explain to them the
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breakdown in negotiations. He suggested that the previously scheduled meeting of
Richey's Board of Directors by telephone conference be held that day for further
review of the Richey's options.
Mr. Cacciatore convened a special meeting of Richey's Board of Directors via
telephone conference on September 25. In addition to the members of the Board,
also participating in the meeting were representatives of Dewey Ballantine and
Jefferies along with Mr. Berger. Mr. Rosenbaum reviewed the week's negotiations
and informed Richey's Board of Directors that he had rejected Arrow's latest
proposed offer of $10 per share in cash together with a purchase agreement which
would have allowed Arrow to not close the transaction in the event of a
nonmaterial breach of a representation or warranty. Representatives of Jefferies
who had been prepared to report to the Board on the fairness of Arrow's prior
offer of $10 in cash and 1/8 share of Arrow Common Stock per share of Richey
Common Stock, informed Richey's Board of Directors that they were not, at that
time, prepared to opine to the fairness of $10 per share in cash. Thereupon,
Richey's Board of Directors passed a resolution endorsing Mr. Rosenbaum's
rejection of Arrow's offer. After further discussion, Richey's Board of
Directors formally requested that representatives of Jefferies contact Mr.
Klatell to determine if there was room for any negotiation of both the price and
terms of any transaction between Richey and Arrow.
Late in day of September 25, a representative of Jefferies spoke with Mr.
Klatell and indicated that Richey would be willing to do a transaction at $11
per share in cash. Mr. Klatell indicated that $10 was not his final price, but
that the final price would turn on the terms of the agreement and Arrow's
comfort with Richey's financial position and prospects. On September 27, Mr.
Klatell and Mr. Kaufman had a telephone conversation with Mr. Berger, in which
they attempted to come to closure on any outstanding concerns they may have had
with Richey's financial position and business prospects, including items in the
draft Disclosure Memorandum to the Merger Agreement.
On September 28, Mr. Klatell and Mr. Rosenbaum spoke by telephone several
times in an attempt to reach agreement on the transaction. As a result, Arrow
agreed to pay $10.50 in cash per share of Richey Common Stock and also agreed in
concept to a definition of material adverse change that would allow Arrow not to
close the transaction. Throughout the day of September 29, revised drafts of the
agreement were negotiated and exchanged.
Late in the day on September 29, Mr. Cacciatore convened a special meeting
of Richey's Board of Directors via telephone conference. Also participating in
the meeting were Mr. Berger, representatives of Jefferies, Dewey Ballantine and
McGladrey & Pullen LLP. Mr. Rosenbaum reported to Richey's Board of Directors
that, since the last meeting of September 25, three issues had been isolated
with respect to the Arrow transaction: arriving at a final price, a fair
definition of what constitutes a material adverse change and agreeing upon a fee
which would be paid to Arrow in the event another bidder emerged for Richey and
Richey's Board of Directors agreed to accept such other bid. Mr. Rosenbaum
informed Richey's Board of Directors that a price of $10.50 per share had been
agreed to, Richey's definition of material adverse change had been accepted, and
a breakup fee of $5.5 million plus $1.5 million for expenses had been set.
Representatives from Jefferies then presented to Richey's Board of Directors
an analysis that concluded that the price of $10.50 per share in cash was fair,
from a financial point of view, to Richey's Stockholders. Richey's Board of
Directors carefully considered the Jefferies analysis and asked a number of
questions concerning its methodology. Richey's Board of Directors passed a
formal resolution retaining Jefferies and accepting its fairness opinion and
then passed a formal resolution authorizing the execution of the definitive
purchase agreement with Arrow, subject to approval of the final form of the
Agreement by Messrs. Blumenthal, Cacciatore and Rosenbaum. Following such
meetings, Mr. Blumenthal, Mr. Klatell, Dewey Ballantine and Milbank had numerous
phone conversations to resolve final language for the agreement. Final
adjustments were made to the documents during the day of September 30 and the
merger agreement was executed after sundown on that day. Subsequently, certain
minor corrections were made by amendment dated as of October 21.
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REASONS FOR THE MERGER.
The Board of Directors of Richey has determined that the Merger Proposal is
fair and in the best interests of Richey and Richey Stockholders and has
unanimously approved the Merger Agreement. RICHEY'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE RICHEY STOCKHOLDERS VOTE "FOR" THE MERGER
PROPOSAL. In reaching its conclusion to approve the Merger Agreement and
recommend approval of the Merger Proposal to Richey Stockholders, the Board of
Directors of Richey based its decision on all of the following material reasons
and considered the following factors (which constitute all of the material
factors considered by the Board of Directors):
(i) The Merger Consideration is substantially higher than the recent market
prices for shares of Richey Common Stock. The last sales price of a share of
Richey Common Stock on September 29, prior to signing the Merger Agreement, was
$6.50 per share and the last sales price on September 30, prior to announcement
of the Merger Agreement, was $6.875. During the month prior to the announcement
of the Merger Agreement, shares of Richey Common Stock sold in a range of $4.50
to $7.125 per share. The Merger Consideration of $10.50 per share represents a
premium of 61.5% over the last sales price on the day before the Merger
Agreement was signed and 52.7% over the last sales price on the day before the
public announcement of the Merger Agreement. Furthermore, the Merger
Consideration represents a premium over the high and low sales prices of shares
of Richey Common Stock in the month preceding the Merger Agreement of 47.3% and
133.3%, respectively. Additionally, the Merger Consideration is equal to the
$10.50 high sales price of Richey Common Stock during the 52 weeks prior to the
signing of the Merger Agreement.
(ii) The Opinion of Jefferies that the Merger Consideration to be received
by holders of shares of Richey Common Stock pursuant to the Merger Agreement is
fair to such holders from a financial point of view. The Board of Directors has
relied upon such Opinion since the Opinion valued Richey's equity, using various
valuation methodologies, in a range of $5.88 to $12.55 per share, with an
average valuation of $9.37 per share. The Board of Directors considered the
Opinion as a whole and did not weigh each individual component of the Opinion,
including the accompanying report.
(iii) The terms and conditions of the Merger Agreement include a restrictive
definition of the changes in Richey's business or market conditions which might
constitute a material adverse change and limit what might prevent the
transaction from closing. Furthermore, the Merger Agreement includes a
relatively standard break-up fee payable to Arrow in the event a higher bid is
received by Richey from another bidder and permits the Board of Directors of
Richey to duly consider such a bid.
(iv) During the period of discussions with Arrow concerning the transaction,
Richey considered alternative acquirors who were either sought out by Richey or
brought to Richey's attention. In the final analysis, either these potential
acquirors declined to make formal proposals for the purchase of Richey or could
not offer consideration in excess of that offered by Arrow. Furthermore, the
Board of Directors of Richey considered the depressed operating conditions in
the industry and turmoil in world financial markets to be deterrents to anyone
making an unsolicited bid for Richey at a higher price than that offered by
Arrow.
(v) Due to continuing pressures from both customers and suppliers in the
electronic components distribution industry, there has been a marked trend
toward consolidation of distributors for the last 10 years. Richey has been a
leading consolidator of distributors in the passive, electromechanical and
interconnect segments of the industry, but remains a small company relative to
the industry leaders despite several acquisitions in the past few years. Faced
with continuing pressure to consolidate, a shortage of acquisition candidates of
sufficient size to propel Richey into the ranks of the largest competitors in
the industry, and constraints on the availability of capital for acquisitions
due both to Richey's leveraged balance sheet and turmoil in world capital
markets, Richey's ability to make further meaningful acquisitions in the near
future was severely limited. As a result, it made sense for Richey to affiliate
with one of
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the industry's larger players, of which Arrow is the largest, in order to
provide its suppliers and customers with the service and capabilities they
demand.
(vi) The electronics component distribution industry has faced difficult
market conditions for much of the past two years. Each time industry conditions
brightened during this period, Richey's financial results improved and its stock
price rose accordingly. Each time industry conditions worsened, Richey's
financial results also worsened and its stock price declined. Richey management
determined during the second quarter of 1998 that the industry had weakened
severely with the worst market conditions prevalent that senior managers had
seen in more than 20 years. Worse still, management had little confidence that
an upturn in business was imminent. As a result, management undertook a massive
cost reduction program with the objective of reducing costs in line with revenue
declines, so as to maintain levels of profitability. Unfortunately, revenues
have continued to decline at a rate much faster than could be compensated for by
cost reductions. As such, the company's profitability has been under pressure
and may remain so for several quarters. In this market environment, Richey's
Board of Directors determined that the likelihood the company would generate
sufficient earnings in the near future to boost its stock price to a level at or
above the Merger Consideration was remote.
OPINION OF FINANCIAL ADVISOR; ANALYSIS OF RICHEY.
Richey engaged Jefferies to render the Opinion to the Richey Board of
Directors as to the fairness, from a financial point of view, to the Richey
Stockholders, of the consideration to be received by such stockholders in
connection with the acquisition of Richey pursuant to the Merger Agreement.
Richey selected Jefferies to render such opinion because of Jefferies'
reputation as an internationally recognized investment banking firm. As part of
its investment banking business, Jefferies is regularly engaged in the
evaluation of capital structures and the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, financial restructurings and other
financial services.
On September 29, 1998, Jefferies delivered its oral presentation to the
Richey Board of Directors and followed this presentation with the Opinion to the
Richey Board of Directors, dated September 29, 1998, to the effect that, as of
such date and based upon procedures and subject to the assumptions set forth in
the Opinion, the consideration to be received by the Richey Stockholders
pursuant to the Merger Agreement is fair from a financial point of view to said
stockholders. Except as set forth below or in the Opinion, no limitations were
imposed by the Richey Board of Directors on the scope of Jefferies'
investigations or procedures to be followed by it in rendering its Opinion.
Jefferies was not requested to opine as to, and the Opinion did not address, the
underlying business decision of the Richey Board of Directors to proceed with or
to effect the Merger.
THE FULL TEXT OF THE OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO
THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. RICHEY
STOCKHOLDERS ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. THE
SUMMARY OF THE OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE OPINION, WHICH IS
ADDRESSED BY THE RICHEY BOARD OF DIRECTORS, IS DIRECTED ONLY TO THE FAIRNESS
FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY THE RICHEY
STOCKHOLDERS IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
RICHEY STOCKHOLDER (OR ANY OTHER PERSON) AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE SPECIAL MEETING.
The Opinion notes that: (i) the consummation of the Merger is conditioned
upon the approval of the Richey Stockholders, and Jefferies is not recommending
that Richey, the Richey Board of Directors, any of its security holders or any
other person should take any specific action in connection with the Merger;
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(ii) Jefferies was not requested to solicit, nor did Jefferies solicit, any
third party indications of interest in acquiring all or any part of Richey,
(iii) such opinion does not constitute a recommendation of the Merger over any
alternative transactions which may be available to Richey, and does not address
Richey's underlying business decision to effect the Merger; (iv) Jefferies has
no obligation to advise any person of any change in any fact or matter affecting
the Opinion of which Jefferies becomes aware after the date of such Opinion; and
(v) such Opinion is for the use and benefit of the Richey Board of Directors, as
one element in the Richey Board of Directors' consideration of the Merger.
In connection with the provision of the Opinion, Jefferies, among other
things, (i) reviewed a draft of the Merger Agreement dated September 28, 1998
(including any schedules and exhibits thereto, which were provided by Richey)
and certain financial and other information that was publicly available or
furnished to Jefferies by Richey, including certain internal financial analyses,
budgets, reports and other information prepared by Richey's management; (ii)
held discussions with various members of Richey's senior management concerning
its historical and current operations, financial conditions and prospects, as
well as the strategic and operational benefits anticipated from the business
combination; and (iii) conducted such other reviews, analyses and inquiries
relating to Richey as it considered appropriate for the purposes of rendering
the Opinion. Jefferies has not been requested to and did not perform any due
diligence on Arrow other than a review of publicly available information.
In Jefferies' review and analysis in rendering the Opinion, Jefferies relied
upon, without independent investigation or verification, the accuracy,
completeness and fair presentation of all financial and other information that
was provided to Jefferies by Richey, or that was publicly available (including,
without limitation, the information described above and the financial
projections prepared by Richey regarding the estimated future performance of
Richey before and after giving effect to the Merger). The Opinion is expressly
conditioned upon all such information (whether written or oral) being complete,
accurate and fair in all respects.
With respect to the financial projections provided by Richey to or obtained
and examined by, Jefferies, Jefferies noted that projecting future results of
any company is inherently subject to vast uncertainty. However, Richey's
management informed Jefferies, and Jefferies assumed, that such projections were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of Richey's management as to the future performance of
Richey. All financial projections with respect to Arrow's operations which were
used by Jefferies were obtained by Jefferies from publicly available historical
financial information and analyst research reports. In addition, although
Jefferies performed sensitivity analyses thereon in rendering the Opinion,
Jefferies assumed, with the permission of Richey's management, that each company
will perform in accordance with such projections for all periods specified
therein. Although such projections constituted one of many items that Jefferies
employed in the formation of the Opinion, changes to such projections could
affect the Opinion. In addition, Jefferies assumed, with the permission of
Richey's management, that the Merger will be accounted for under the "purchase"
method of merger accounting. Jefferies has disclaimed any undertaking or
obligation to advise any person of any change in any fact or matter affecting
the Opinion of which it becomes aware after the date of the Opinion.
Jefferies was not requested to, and did not make an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of Richey or
Arrow, nor was Jefferies furnished with any such evaluations or appraisals.
The Opinion is based on economic, monetary, political, market and other
conditions existing and which could be evaluated as of the date of the Opinion
(including, without limitation, the current market price of shares of Richey
Common Stock and the terms of the Merger Agreement as of such date). The Opinion
expressly noted that such conditions, however, are subject to rapid and
unpredictable change and such changes could affect the conclusions expressed in
the Opinion. Jefferies did not make an independent investigation of any legal
matters affecting Richey or Arrow, and assumed the correctness of all legal and
accounting advice given to such parties and their respective boards of
directors, including (without
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limitation) advice as to the accounting and tax consequences of the Merger to
Richey, Arrow and Richey Stockholders.
In rendering the Opinion, Jefferies also assumed that: (i) the terms and
provisions contained in the definitive Merger Agreement (including the schedules
and exhibits thereto) will not differ materially from those contained in the
draft of those documents Jefferies reviewed; (ii) the conditions to the
consummation of the Merger set forth in the Merger Agreement will be satisfied
without material expense; and (iii) there is not now, and there will not as a
result of the consummation of the transactions contemplated by the Merger
Agreement be, any default, or event of default, under any indenture, credit
agreement or other material agreement or instrument to which Richey, Arrow or
any of their respective subsidiaries or affiliates is a party.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analyses and the
application of those methods to particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at the Opinion, Jefferies did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
as to the significance of each analysis and factor. Accordingly, Jefferies'
analyses must be considered as a whole. Considering any portion of such analyses
and of the factors considered, without considering all analyses and factors,
could create a misleading or incomplete view of the process underlying the
Opinion. In its analyses, Jefferies made many assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the merging companies. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein and herein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
The following summarizes the material financial and comparative analyses
presented by Jefferies to the Richey Board of Directors in connection with
providing the Opinion. The information presented below is based on the financial
condition of Richey as of July 3, 1998 and share price information of Richey
Common Stock through the close of the market on September 28, 1998. The
following does not purport to be a complete description of the analyses
performed or the matters considered by Jefferies in arriving at the Opinion.
Jefferies noted that the aggregate implied purchase price for Richey was
approximately $180.3 million, which is comprised of (i) the assumption of
approximately $81.8 million of Richey's net debt, (ii) the payment of a
redemption premium on Richey's Convertible Subordinated Notes of approximately
$0.6 million and (ii) the cash payment of $10.50 per share of Richey Common
Stock, valued in aggregate at approximately $98.0 million.
CURRENT MARKET VALUATION. Jefferies examined the range of implied total
enterprise value ("Total Enterprise Value" or "TEV") of Richey using its trading
range over the 52 weeks preceding September 28, 1998. Based on a September 28,
1998 closing bid price of $6.50, a 52-week high price of $10.50 and a 52-week
low price of $4.50, the implied Total Enterprise Values ranged from $123.0
million to $177.8 million. Jefferies also noted that Richey's average trading
price per share since Richey's last equity offering on April 20, 1995 was
approximately $9.86 and the average year-to-date in 1998 was approximately
$8.67.
COMPARABLE PUBLICLY-TRADED COMPANY ANALYSIS. Using public information, as
part of its analysis, Jefferies calculated the implied equity value per share of
Richey based on (i) Richey's latest twelve months ("LTM") historical information
and (ii) the current Institutional Broker's Estimate System ("I/B/E/S/") mean
earnings estimates for Richey in calendar years 1998 and 1999. Jefferies
calculated these values using the multiples of TEV/LTM revenue, TEV/LTM earnings
before interest, taxes, depreciation and amortization ("EBITDA"), TEV/LTM
earnings before interest and taxes ("EBIT"), TEV/free cash flow (defined as
EBITDA minus capital expenditures), market value/book value, price/calendarized
1998 I/B/E/S/ estimated earnings per share ("EPS") and price/calendarized 1999
I/B/E/S/ estimated EPS. The ten comparable
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companies examined were: Arrow Electronics, Inc., Avnet, Inc., Marshall
Industries, Pioneer-Standard Electronics, Inc., Kent Electronics Corporation,
Bell Industries, Inc., Richardson Electronics, Ltd., Reptron Electronics, Inc.,
Bell Microproducts Inc. and Jaco Electronics, Inc.
The resulting multiples from these comparables; were as follows: TEV/LTM
revenue (trimmed average: 0.4x, average: 0.4x, and range: 0.2x-0.6x); TEV/LTM
EBITDA (trimmed average: 7.2x, average: 7.3x, and range: 4.7x-11.1x); TEV/LTM
EBIT (trimmed average: 9.0x, average: 10.3x, and range: 5.9x-25.0x); TEV/LTM
free cash flow (trimmed average: 10.5x, average: 10.5x, and range: 5.7x-15.2x);
market value/book value (trimmed average: 0.8x, average: 0.8x, and range:
0.4x-1.1x); price/1998 I/B/E/S/ estimated EPS (trimmed average: 9.7x, average:
10.7x, and range: 6.6x-21.2x); and price/1999 I/B/E/S/ estimated EPS (trimmed
average: 9.4x, average: 10.0x, and range: 5.6x-19.0x). Trimmed average is
defined as the average of the values, excluding the high and the low values.
Jefferies applied the trimmed average multiples of these ten comparable
companies to the analogous operating statistics for Richey. This analysis
indicated implied equity value per share for Richey of between approximately
$1.72 and $10.84, with the average of approximately $6.73. In comparison, Arrow
offered $10.50 in cash per share of Richey Common Stock.
None of the companies used in the above analysis is exactly identical to
Richey. Because of the inherent differences between the operations of Richey and
its comparable companies, a purely quantitative comparable company analysis is
not particularly meaningful. An appropriate use of a comparable company analysis
in this instance necessarily involves qualitative judgments concerning, among
other things, differences between the financial and operating characteristics of
Richey and the selected comparable companies that could affect the public
trading values of Richey and such companies.
COMPARABLE MERGER AND ACQUISITION TRANSACTION ANALYSIS. Jefferies reviewed
the consideration paid in the following seven transactions that Jefferies
believed were the only reasonably comparable transactions completed after
January 1, 1993 for which sufficient public data was available as screened by
Securities Data Company (target/acquirer): Sterling Electronics
Corporation/Marshall Industries (January 1998); Wyle Electronics/Raab Karcher AG
(August 1997); Milgray Electronics, Inc./Bell Industries, Inc. (January 1997);
Premier Industrial Corporation/Farnell Electronics plc (April 1996); Anthem
Electronics, Inc./ Arrow Electronics, Inc. (April 1995); Gates/FA Distributing,
Inc./Arrow Electronics, Inc. (August 1994); and Hall-Mark Electronics
Corporation/Avnet, Inc. (July 1993). Jefferies analyzed the consideration paid
in such transactions as a multiple of the target companies' sales, EBITDA, EBIT
and free cash flow. Such analysis yielded trimmed average multiplies of 0.6x LTM
sales, 10.1x LTM EBITDA, 11.4x LTM EBIT and 11.3x LTM free cash flow. When the
trimmed averages of the purchase multiples of the comparable transactions were
applied to Richey's current operating results, an average implied equity value
of $11.25 per share resulted. Jefferies noted that this average equity value per
share was approximately 6.7% above the $10.50 per share offer by Arrow.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were diverse and because of the inherent differences
between the operations of Richey and the companies engaged in the selected
transactions, Jefferies believes that a purely quantitative comparable
transaction analysis is not particularly meaningful. An appropriate use of a
comparable transaction analysis in this instance necessarily involves complex
considerations and qualitative judgments concerning, among other things,
differences between the characteristics of these transactions and the Merger
that could affect the acquisition value of the companies to which Richey is
being compared.
PREMIUMS PAID ANALYSIS. Jefferies examined the premiums paid in the
comparable transactions referenced above. The mean premiums paid in these
completed transactions based on the target's stock price one day, one week and
four weeks prior to the announcement were 24.3%, 32.6% and 35.0%, respectively.
In the proposed Merger, the assumed cash offer price of $10.50 per share of
Richey Common Stock represents (based on the closing bid prices of $6.50, $6.25
and $6.00 per share of Richey Common Stock on September 28, 1998, September 21,
1998, and August 31, 1998, respectively) an approximate premium of 61.5%, 68.0%
and 75.0%, respectively. In preparing its overall valuation analysis, Jefferies
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considered the fact that the cash offer price of $10.50 per share of Richey
Common Stock was equal to the 52-week high, but no specific comparison was made
to premiums paid in comparable transactions for a period in excess of four weeks
prior to announcement.
DISCOUNTED CASH FLOW ANALYSIS. Jefferies applied a discounted cash flow
analysis to Richey's financial forecasts for fiscal years 1998 through 2002. In
conducting its discounted cash flow analysis, Jefferies first calculated the
estimated future streams of cash flows that Richey would produce through fiscal
year 2002. These future streams of cash flows were calculated by taking the
projected net income of Richey and performing the following cash flow
adjustments: (i) adding back depreciation and amortization, (ii) subtracting
capital expenditures, changes in working capital and changes in other non-cash
items, and (iii) adding back after-tax interest expense. These projections were
based on financial models provided by Richey's management, which incorporated
numerous assumptions with respect to industry performance and general business
and economic conditions and other matters, many of which are beyond Richey's
control. With respect to industry performance and general business and economic
conditions, the assumptions reflected modest increases in inflation and economic
activity. In particular, the models assumed that industry sales in the passive
electronic, electromechanical and interconnect market would continue to slow and
gross margins would be pressured downward for the remainder of 1998 and then
begin a recovery in 1999. Consequently, net sales for Richey were expected to
remain relatively flat for 1998 and then grow by 10-15% from 1999 through 2002.
The models assumed that gross margins would decline to 24.0% in 1998 and then
rebound to 24.3% in 1999 and 24.5% thereafter. Selling, general and
administrative expenses were assumed to be 17.3% of net sales in 1998 and would
improve by 0.2% annually thereafter. The net effect of these and other
assumptions on net income growth (decline) was (23.0)% in 1998, 44.2% in 1999,
30.8% in 2000, 29.6% in 2001 and 24.7% in 2002. In addition, Jefferies applied
various terminal EBITDA multiples, ranging from 5.0x to 7.0x to Richey's
projected 2002 EBITDA for terminal valuation purposes. Finally, Jefferies
discounted such cash flow streams to present values using discount rates ranging
from 8.0% to 12.0%, calculated using a weighted average cost of capital
methodology for Richey. Based on this discounted cash flow analysis and the
projections provided, the range of equity values per share for Richey were $7.86
to $16.01 with an average of $11.69. These values imply a range of Total
Enterprise Values for Richey of between $153.7 million to $228.2 million.
LEVERAGED BUYOUT/CHANGE OF CONTROL ANALYSIS. Jefferies examined an implied
range of equity values for Richey based on a potential leveraged buyout of
Richey. This analysis is intended to provide an independent enterprise, or
stand-alone, valuation of Richey based upon its cash flow as an indication of a
valuation which might be placed upon the company by a potential purchaser not in
a position to take advantage of the synergies which might be achieved by
combining the operations of Richey with another existing operation. The analysis
performed assumes that a purchaser could leverage Richey by 5.0x its LTM EBITDA
and then determines the amount of cash equity that such a purchaser would be
required to infuse in order to earn a range of equity rates of return upon a
sale of Richey in four and a half years (or December 31, 2002). Based on a range
of terminal EBITDA multiples for Richey's projected 2002 EBITDA from 6.0x to
8.0x and a purchaser's required return on equity range of 26% to 34%, the
resulting implied equity values per share of Richey ranged from $5.98 to $10.00
with an average value of $7.80.
SUMMARY OF ANALYSES. Jefferies noted that the average of the values derived
from each of the valuation methodologies performed resulted in a range of
implied equity values per share of approximately $5.88 to $12.55 with an overall
average of $9.37 for Richey. In addition, Jefferies noted that the implied
purchase price of Richey of $10.50 per share was at the upper end of the average
valuation range.
Based on the foregoing analyses and factors, Jefferies arrived at the
Opinion; however, the summary set forth above does not propose to be a complete
description of the analyses performed and the factors considered by Jefferies in
arriving at the Opinion.
For the services of Jefferies in connection with rendering the Opinion,
pursuant to an engagement letter dated September 29, 1998, Richey agreed to pay
Jefferies in cash (i) a non-refundable fee of
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$275,000 (which was paid upon delivery of the Opinion) and (ii) an additional
fee of $500,000 if at least a majority interest in Richey is acquired (or such
acquisition is commenced) within one year of the date of the engagement letter
or within twelve months of Jefferies' services being terminated. Richey has also
agreed to pay to, or on behalf of, Jefferies, all reasonable out-of-pocket
expenses incurred by Jefferies, including the fees and disbursements of its
counsel and to indemnify Jefferies against certain liabilities, including
certain liabilities arising under the federal securities laws. Jefferies has
provided certain investment banking and advisory services to Richey in the past
for which it received customary compensation.
Jefferies has advised Richey that, in the ordinary course of its business as
a full-service securities firm, Jefferies may, from time to time, effect
transactions for its own account and for the accounts of customers, and hold
positions in securities or options on securities of Richey and Arrow.
RECOMMENDATION OF THE RICHEY BOARD OF DIRECTORS.
The Richey Board of Directors has determined that the Merger and the Merger
Agreement are advisable and in the best interests of Richey and its stockholders
and has unanimously approved the Merger. Accordingly, the Board of Directors
unanimously recommends that the Richey Stockholders vote "FOR" approval of the
proposed Merger. Each of Richey's directors has granted to Arrow an irrevocable
proxy to vote the shares of Richey Common Stock beneficially owned by such
person to approve the Merger. As of the Record Date, Richey's directors
beneficially own approximately 25.01% of the outstanding Richey Common Stock
(excluding shares subject to stock options unexercised as of the Record Date).
EFFECTIVE TIME OF THE MERGER.
The Merger Agreement provides that the Merger will become effective upon the
filing of a Certificate of Merger with the Secretary of State of Delaware in
accordance with the DGCL. It is anticipated that if all conditions of the Merger
have been fulfilled or waived, the Effective Time will occur on or about January
6, 1999, or on a date as soon as practicable thereafter.
EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION.
At the Effective Time, Arrow shall make the Exchange Fund available to
Richey for deposit with the Exchange Agent. As soon as reasonably practicable
thereafter, the Exchange Agent will mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Richey Common Stock (the "Certificates") whose
shares were converted pursuant to the Merger Agreement into the right to receive
the Merger Consideration a letter of transmittal with instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor a check in
the amount equal to the Merger Consideration which such holder has the right to
receive pursuant to the Merger Agreement, and the Certificate so surrendered
shall be canceled. In the event of a transfer of ownership of the Richey Common
Stock which is not registered in the transfer records of Richey, a check for the
appropriate amount of cash may be issued to a transferee if the Certificate
representing the Richey Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid.
The Merger Consideration paid upon the surrender for exchange of shares of
Richey Common Stock in accordance with the terms hereof shall be deemed to have
been paid in full satisfaction of all rights pertaining to such shares of Richey
Common Stock, and there shall be no further registration of transfers on the
stock transfer books of Richey of the shares of Richey Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to Richey for any reason, they shall be
cancelled and exchanged as provided in the Merger Agreement.
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Any portion of the Exchange Fund made available to the Exchange Agent which
remains undistributed to the Richey Stockholders for six months after the
Effective Time shall be delivered to Arrow, upon demand, and any Richey
Stockholders who have not theretofore complied with the exchange provisions of
the Merger Agreement shall thereafter look only to Arrow for payment of their
claim for the Merger Consideration. Neither Arrow nor Richey shall be liable to
any holder of shares of Richey Common Stock for the Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER.
In considering the recommendation of the Richey Board of Directors with
respect to the Merger, Richey Stockholders should be aware that certain members
of the Richey Board of Directors and management have certain interests in the
Merger that are in addition to the interests of Richey Stockholders generally.
The Richey Board of Directors was aware of these interests and considered them,
among other factors, in approving the Merger Agreement. William Cacciatore,
Richey's Chairman of the Board of Directors, President and Chief Executive
Officer, will receive a termination bonus in the amount of $1,000,000. Richard
N. Berger, Richey's Vice President, Chief Financial Officer, Treasurer and
Secretary, will receive a termination bonus in the amount of $450,000. Norbert
W. St. John, Richey's Executive Vice President--Marketing, will receive a
termination bonus in the amount of $250,000.
The existing Management Agreement between Palisades and Richey will be
terminated and all remaining payments thereunder will be accelerated. The
current term of the Management Agreement expires on December 31, 1999. Greg A.
Rosenbaum, a director and Assistant Secretary of Richey, is President of
Palisades, and owns 60% of Palisades. Mr. Rosenbaum's wife owns the remaining
40% of Palisades. The current management fee pursuant to the Management
Agreement is $175,000 per year, payable in 12 equal installments on the first
day of each month. Therefore, assuming a closing of the Merger during January
1999, $160,916.67 would be accelerated and paid to Palisades.
Messrs. Cacciatore, St. John and Berger are parties to employment agreements
with Richey which expire on April 6, 1999. Charles Mann, Vice
President--Value-Added Services, is party to an employment agreement with Richey
which expires on April 1, 1999. Each of the employment agreements provides that
the employee is entitled to a severance payment in the event of a termination of
the agreement by Richey without cause or a Termination For Good Reason by the
employee. An employee would be entitled to declare a "Termination For Good
Reason" in the event of (i) a reduction in the current level of his
compensation, entitlement to expense reimbursement or benefits, (ii) a material
diminishment in his position, powers, authority, duties or responsibilities,
(iii) a material diminishment in the business operations to which those powers,
authority, duties or responsibilities apply, or (iv) a change in his current
reporting chain of supervision. Therefore, the employees may be entitled to
severance payments if they are terminated without cause following the Merger or
if as a result of the Merger they are entitled to declare a Termination For Good
Reason. The amount of the severance payment would be equal to (i) a prorated
bonus for the year of termination (calculated pro rata for the then current
bonus period), and (ii) an additional 12 months' base salary and bonus (based
upon the pro rata bonus determined for the year of termination). The current
respective base salaries for Messrs. Cacciatore, St. John, Berger and Mann are
$313,500, $192,500, $155,000, and $155,000. The bonus amounts which would be
payable, if any, can not be determined at this time and would be subject to
performance of Richey during the period from January 1, 1999 until the date of
termination.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Merger Agreement provides that, from and after the Effective Time, Arrow
and Richey shall indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date of the Merger Agreement or who becomes
prior to the Effective Time, an officer or director of Richey against (i) all
losses, claims, damages, costs, expenses, liabilities or judgments or amounts
that are paid in
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settlement with the approval of the indemnifying party of or in connection with
any claim, action, suit, proceeding or investigation based on or arising out of
the fact that such person is or was a director or officer of Richey, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether reasserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities") and (ii) all Indemnified Liabilities based on, or
arising out of, or pertaining to the Merger Agreement or the transactions
contemplated thereby, in each case to the full extent such corporation is
permitted under the DGCL or the Business Corporation Law of the State of New
York, its Certificate of Incorporation or Bylaws, in each case as in effect on
the date of the Merger Agreement, to indemnify its own directors and officers.
The Merger Agreement also requires Arrow to cause to be maintained in effect for
six years the policies of directors' and officers' liability insurance
maintained by Richey as were in effect at the date of the Merger Agreement, with
respect to claims arising from facts or events that occurred before the
Effective Time.
ACCOUNTING TREATMENT.
The Merger will be accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material Federal income tax
consequences of the Merger to Richey Stockholders under the Internal Revenue
Code of 1986, as amended (the "Code"), the applicable Treasury Department
regulations thereunder, judicial authority and current administrative rulings
and practice, all as in effect as of the date hereof. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Future legislation,
regulations, administrative rulings or court decisions could significantly
change such authorities and/or consequences either prospectively or
retroactively.
Because the following discussion does not describe all the potentially
relevant tax considerations, each Richey Stockholder should consult his or her
own tax advisor regarding the tax consequences of the Merger in light of such
holder's own situation, including the application and effect of any state, local
or foreign law. In particular, the discussion set forth below may not be
applicable to special classes of Federal income taxpayers including, without
limitation, foreign persons, financial institutions, insurance companies,
tax-exempt entities, dealers in securities, persons who acquired Richey Common
Stock pursuant to the exercise of an employee option or otherwise as
compensation, persons holding Richey Common Stock as "qualified small business
stock," or persons holding Richey Common Stock as part of an integrated
investment (including a "straddle") comprised of shares of Richey Common Stock
and one or more other positions. This discussion assumes that any Richey Common
Stock exchanged in the Merger is held as a capital asset.
TAX TREATMENT OF THE RICHEY STOCKHOLDERS.
THE EXCHANGE OF RICHEY COMMON STOCK FOR CASH IN THE MERGER WILL BE FULLY
TAXABLE TO THE HOLDERS OF SUCH STOCK. Consequently, a Richey Stockholder will
recognize taxable capital gain or loss for Federal income tax purposes equal to
the difference between the amount of Merger Consideration received for such
stockholder's shares in the Merger and the stockholder's adjusted tax basis in
his or her shares. Any such capital gain or loss recognized with respect to
Richey Common Stock generally will constitute long-term capital gain or loss if
the Richey Common Stock has been held by the Richey Stockholder for more than
one year at the Effective Time. The deductibility of capital losses is subject
to limitations.
BACKUP WITHHOLDING.
Backup withholding at the rate of 31% may apply on payments of cash to a
holder who exchanges his or her Richey Common Stock in the Merger unless the
recipient either (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii) provides the payor
of such cash with its correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A Richey Shareholder
that does not provide Arrow its correct taxpayer identification number may be
subject to penalties imposed by the IRS. Any amounts withheld under the backup
withholding rules may be allowed as a refund or credit against the Richey
Stockholder's Federal income tax liability, provided that certain required
information is furnished to the IRS.
THE FOREGOING GENERAL DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
IS NOT TAX ADVICE AND MAY NOT APPLY TO ALL RICHEY SHAREHOLDERSS. ACCORDINGLY,
EACH RICHEY STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT
TO THE TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICABILITY
AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
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GOVERNMENTAL AND REGULATORY APPROVALS
Consummation of the Merger is subject to compliance with the HSR Act. The
notifications required under the HSR Act have been furnished to the Federal
Trade Commission and the Antitrust Division of the Department of Justice. The
specified waiting period under the HSR Act has expired.
APPRAISAL RIGHTS
Holders of record of Richey Common Stock who do not vote in favor of the
Merger and who otherwise comply with the requirements of Section 262 summarized
herein will be entitled to appraisal rights under the DGCL. A person having a
beneficial interest in shares of Richey Common Stock held of record in the name
of another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS ANNEX C. ALL
REFERENCES IN SECTION 262 AND THIS SUMMARY TO A "STOCKHOLDER" OR "HOLDER" ARE TO
THE RECORD HOLDER OF THE SHARES OF RICHEY COMMON STOCK AS TO WHICH APPRAISAL
RIGHTS ARE ASSERTED.
Under the DGCL, holders of shares of Richey Common Stock who follow the
procedures set forth in Section 262 will be entitled to have their shares of
Richey Common Stock (the "Appraisal Shares") appraised by the Delaware Chancery
Court and to receive payment in cash of the "fair value" of such Appraisal
Shares, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, as
determined by such court.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders who was such on the record
date for such meeting with respect to shares to which appraisal rights are
available, that appraisal rights are so available, and must include in such
notice a copy of Section 262.
This Proxy Statement constitutes such notice to the holders of Appraisal
Shares and the applicable statutory provisions of the DGCL are attached to this
Proxy Statement as Annex C. Any Richey Stockholder who wishes to exercise such
appraisal rights or who wishes to preserve his right to do so should review the
following discussion and Annex C carefully, because failure to comply timely and
properly with the procedures specified will result in the loss of appraisal
rights under the DGCL.
A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL
RIGHTS MUST (A) NOT VOTE IN FAVOR OF THE MERGER AND (B) DELIVER TO RICHEY PRIOR
TO THE VOTE ON THE MERGER AT THE SPECIAL MEETING TO BE HELD ON JANUARY 6, 1999,
A WRITTEN DEMAND FOR APPRAISAL OF SUCH HOLDER'S APPRAISAL SHARES. A HOLDER OF
APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL RIGHTS MUST BE THE
RECORD HOLDER OF SUCH APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR
APPRAISAL IS MADE AND MUST CONTINUE TO HOLD SUCH APPRAISAL SHARES OF RECORD
UNTIL THE CONSUMMATION OF THE MERGER. ACCORDINGLY, A HOLDER OF APPRAISAL SHARES
WHO IS THE RECORD HOLDER OF APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR
APPRAISAL IS MADE, BUT WHO THEREAFTER TRANSFERS SUCH APPRAISAL SHARES PRIOR TO
THE CONSUMMATION OF THE MERGER, WILL LOSE ANY RIGHT TO APPRAISAL IN RESPECT OF
SUCH APPRAISAL SHARES.
Only a holder of record of Appraisal Shares is entitled to assert appraisal
rights for the Appraisal Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificates. If
the Appraisal Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the Appraisal Shares are owned of record by more than one
person as in a joint tenancy or tenancy in common, the demand should be executed
by or on behalf of all joint owners. An authorized agent, including one or more
joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the
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record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is agent for such owner or owners. A record holder such as a
broker who holds Appraisal Shares as nominee for several beneficial owners may
exercise appraisal rights with respect to the Appraisal Shares held for one or
more beneficial owners while not exercising such rights with respect to the
Appraisal Shares held for other beneficial owners; in such case, the written
demand should set forth the number of Appraisal Shares as to which appraisal is
sought. When no number of Appraisal Shares is expressly mentioned the demand
will be presumed to cover all Appraisal Shares held in the name of the record
owner. Stockholders who hold their Appraisal Shares in brokerage accounts or
other nominee forms and who wish to exercise appraisal rights are urged to
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO RICHEY
ELECTRONICS, INC., 7441 LINCOLN WAY, GARDEN GROVE, CALIFORNIA 92841, ATTENTION:
SECRETARY.
Within 10 days after the consummation of the Merger, Richey will notify each
stockholder who has properly asserted rights under Section 262 and has not voted
in favor of the Merger Agreement of the date the Merger became effective.
Within 120 days after the consummation of the Merger but not thereafter,
Richey or any stockholder who has complied with the statutory requirements
summarized above may file a petition in the Delaware Chancery Court demanding a
determination of the fair value of the Appraisal Shares. Accordingly, it is the
obligation of the stockholders to initiate all necessary action to perfect their
appraisal rights within the time prescribed in Section 262.
Within 120 days after the consummation of the Merger, any stockholder who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from Richey a statement setting forth
the aggregate number of Appraisal Shares not voted in favor of adoption of the
principal terms of the Merger and with respect to which demands for appraisal
have been received and the aggregate number of holders of such Appraisal Shares.
Such statements must be mailed within 10 days after a written request therefor
has been received by Richey.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the fair value of their Appraisal Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Richey Stockholders considering
seeking appraisal should be aware that the fair value of their Appraisal Shares
as determined under Section 262 could be more than, the same as or less than the
value of the consideration they would receive pursuant to the Merger Agreement
if they did not seek appraisal of their Appraisal Shares and that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262. The Delaware Supreme
Court has stated that proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court should be considered in the appraisal proceedings.
The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose Appraisal Shares
have been appraised. The costs of the action may be determined by the Delaware
Chancery Court and taxed upon the parties as the Delaware Chancery Court deems
equitable. The Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with an appraisal,
including, without limitation, reasonable attorneys fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who had duly demanded an appraisal in
compliance with Section 262 will not, after the consummation of the Merger, be
entitled to vote the Appraisal Shares subject to such demand for any purpose or
be entitled to the payment of dividends or other distributions on those
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Appraisal Shares (except dividends or other distributions payable to holders of
record of Appraisal Shares as of a record date prior to the consummation of the
Merger).
If any stockholder who properly demands appraisal of his Appraisal Shares
under Section 262 fails to perfect, or effectively withdraws or loses, his right
to appraisal, as provided in the DGCL, the Appraisal Shares of such stockholder
will be converted into the right to receive the consideration receivable with
respect to such Appraisal Shares in accordance with the Merger Agreement. A
stockholder will fail to perfect, or effectively lose or withdraw, his right to
appraisal if, among other things, no petition for appraisal is filed within 120
days after the consummation of the Merger, or if the stockholder delivers to
Richey a written withdrawal of his demand for appraisal. Any such attempt to
withdraw an appraisal demand more than 60 days after the consummation of the
Merger will require the written approval of Richey.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A STOCKHOLDER WILL
BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH RESPECT TO SUCH
APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT). IN VIEW OF THE
COMPLEXITY OF THE PROVISIONS OF SECTION 262, RICHEY STOCKHOLDERS WHO ARE
CONSIDERING DISSENTING FROM THE MERGER SHOULD CONSULT THEIR OWN LEGAL ADVISORS.
THE MERGER AGREEMENT
The following is a brief summary of all material provisions of the Merger
Agreement, which is attached as Annex A to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement.
THE MERGER.
The Merger Agreement provides that, following the approval of the Merger by
the Richey Stockholders and the satisfaction or waiver of the other conditions
to the Merger, Acquisition Corp. will be merged with and into Richey. As a
result of the Merger, Richey will become a wholly owned subsidiary of Arrow. The
Effective Time will occur upon the effectiveness of the filing with the
Secretary of State of the State of Delaware of a duly executed Certificate of
Merger or at such later time as is specified in such Certificate of Merger.
CERTIFICATE OF INCORPORATION AND BY-LAWS.
The Merger Agreement provides that the Certificate of Incorporation of
Acquisition Corp. as in effect immediately prior to the Effective Time will be
the Certificate of Incorporation of Richey except that the name of the
corporation as provided in such Certificate of Incorporation will be changed to
"Richey Electronics, Inc." The By-laws of Acquisition Corp. as in effect
immediately prior to the Effective Time will be the By-laws of Richey.
CONVERSION OF RICHEY COMMON STOCK.
At the Effective Time, each issued and outstanding share of Richey Common
Stock (other than (a) shares held directly or indirectly by Richey or Arrow and
(b) shares which have not been voted in favor of the proposed Merger and with
respect to which appraisal rights have been perfected in accordance with
Delaware General Corporation Law) will be converted into the right to receive
cash in the amount of $10.50 on, and subject to, the terms and conditions
contained in the Merger Agreement.
OPTIONS AND WARRANTS; CONVERTIBLE NOTES.
Each unexpired and unexercised Richey Stock Option shall be deemed to be
automatically converted into an option to purchase the number of shares of Arrow
Common Stock (an "Arrow Option") equal to the number of shares of Richey Common
Stock that could have been purchased under such Richey Stock
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Option multiplied by a fraction, the numerator of which is $10.50 and the
denominator of which is the average of the closing prices per share on the New
York Stock Exchange (the "NYSE") of Arrow Common Stock for the five trading days
immediately preceding the Closing Date (with the resulting number of shares
rounded down to the nearest whole share)(the "Option Conversion Ratio"), at a
price per share of Arrow Common Stock equal to the exercise price of such Richey
Stock Option divided by the Option Conversion Ratio and the result thereof
rounded up to the nearest whole cent. At the Effective Time, Arrow shall (i)
assume all of Richey's obligations with respect to Richey Stock Options, (ii)
reserve for issuance the number of shares of Arrow Common Stock that will become
subject to Arrow Options pursuant to the Merger Agreement, (iii) from and after
the Effective Time, upon exercise of the Arrow Options in accordance with the
terms thereof, make available for issuance all shares of Arrow Common Stock
covered thereby, and (iv) as soon as practicable after the Effective Time, issue
to each holder of an outstanding Richey Stock Option a document evidencing the
foregoing assumption by Arrow and file a registration statement covering the
shares of Arrow Common Stock that may be issued upon the exercise of Richey
Stock Options (converted to Arrow Options pursuant to the Merger Agreement) and
use its best efforts to (A) cause the offer and sale of such shares to be
registered under the Securities Act of 1933, as amended, (B) maintain such
registration in effect until the exercise or termination of the Richey Stock
Options (converted to Arrow Options pursuant to the Merger Agreement), (C) cause
such shares of Arrow Common Stock to be authorized for listing on the NYSE and
(D) make all necessary blue sky law filings in connection therewith.
The Holder (as defined in the Warrant to Purchase Common Stock of Richey
Electronics, Inc., dated June 13, 1997 (the "Simmonds Warrant")) shall be
entitled to receive the aggregate Merger Consideration with respect to the
number of shares of Richey Common Stock that the Holder shall be deemed to have
received pursuant to Article VI of the Simmonds Warrant. Promptly after
surrender of the Simmonds Warrant to Arrow, the Holder shall receive in exchange
therefor a check in the amount equal to the Merger Consideration which the
Holder has the right to receive pursuant to the Merger Agreement. In no event
shall the Holder be entitled to receive interest on any such funds.
Richey's outstanding 7% Convertible Subordinated Notes due 2006 (the
"Notes") may be converted into Richey Common Stock at a conversion price of
$14.125 per share at any time prior to the Effective Time. Following the
Effective Time, the Notes will be convertible into the Merger Consideration and
Richey will continue to be liable for payment of principal and interest on the
Notes. Holders of the Notes will have a right to require repurchase of their
Notes by Richey at 101% of their outstanding principal amount on the date
determined in accordance with, and subject to the terms and conditions of, the
Indenture governing the Notes.
REPRESENTATIONS AND WARRANTIES.
The Merger Agreement contains various customary representations and
warranties by Richey, Arrow and Acquisition Corp. relating to, among other
things: (i) due organization and good standing; (ii) corporate authority to
enter into the Merger Agreement; (iii) capital structure of Richey and its
subsidiaries; (iv) compliance of the Merger with charter documents, other
agreements and applicable law; (v) compliance with respect to filing
requirements of the Securities and Exchange Commission; (vi) financial
statements; (vii) absence of any undisclosed liabilities or obligations; (viii)
inventory, accounts receivable and title to property; (ix) tax matters; (x)
employee and labor matters; (xi) absence of material changes or events; (xii)
absence of litigation; (xiii) compliance with applicable health, safety and
environmental laws; (xiv) insurance; (xv) affiliate interests; (xvi) customers
and suppliers; (xvii) absence of questionable payments; (xviii) information
supplied; (xix) fairness opinion; and (xx) information supplied in connection
with this Proxy Statement.
CONDUCT OF RICHEY'S BUSINESS PENDING THE MERGER.
Pursuant to the Merger Agreement, Richey has agreed that, prior to the
Closing Date, Richey and its subsidiaries will carry on their respective
businesses only in the usual, regular and ordinary course
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consistent with prior practice. Specifically, Richey has agreed, among other
things, that neither it nor any of its subsidiaries will, without Arrow's prior
written consent: (a)(i) amend or propose to amend their respective certificates
or articles of incorporation or bylaws, (ii) incur any obligation or liability,
except in the ordinary course, (iii) mortgage, pledge or encumber any of their
respective properties, businesses or assets, except in the ordinary course, (iv)
except in the ordinary course, sell, transfer lease or loan any of their
respective assets, (v) suffer any material losses, (vi) make capital
expenditures in excess of $1,000,000, (vii) institute any litigation, action or
proceeding before any court, except in the ordinary course, (viii) split,
combine or reclassify any of their respective capital stock, or declare or pay
any dividend, (ix) acquire any business or any corporation, partnership,
association or other business organization, (x) increase the compensation of any
employee, (xi) except in the ordinary course increase promotional or advertising
expenditures, (xii) materially change any financial, tax or accounting policy,
(xiii) amend any tax return; (b) issue, deliver or sell any shares of their
respective capital stock, voting debt, convertible securities, rights, warrants,
calls, subscriptions or options (except pursuant to, and in accordance with the
terms of, the options outstanding on the date of the Merger Agreement created
pursuant to Richey's Amended and Restated 1992 Stock Option Plan, the Indenture
governing Richey's convertible debt and the Simmonds Warrant); (c) increase,
decrease or modify the authorized capital of Richey except pursuant to the
exercise of options or warrants or convertible securities; (d) create or enter
into an agreement or benefit plan except as required under COBRA; (e) maintain
or provide benefits under any life, medical or health plan for retirees; (f)
take or permit any affiliate of Richey to take any action that would or is
reasonably likely to result in any of Richey's representations and warranties
not to be true; (g) modify, change, increase or decrease Richey's equity
interest or investment in any of its subsidiaries other than in the ordinary
course; (h) negotiate or enter into any collective bargaining agreement; or (i)
enter into any agreement or contract with any affiliate of Richey or any of its
subsidiaries.
In addition, Richey has agreed that prior to the Closing Date, (a) Richey
and its subsidiaries shall preserve their respective business organizations and
Richey shall use its best efforts to keep available the services of employees
and to preserve its good will with suppliers, customers, and others having
business relations with the Company; (b) it shall maintain in force certain of
its insurance policies; (c) it shall use its best efforts to pursue certain of
its rights; (d) no employee plan, fund or arrangement will be terminated or
materially amended.
EMPLOYEE MATTERS.
Each employee benefit plan, program, policy or arrangement provided as of
the Closing by Arrow to employees of Richey who are employed by Richey as of the
Closing (the "Continuing Employees") shall give full credit, to the extent
credited under a comparable Benefit Plan (as defined in the Merger Agreement),
for each Continuing Employee's period of service prior to the Closing Date for
purposes of determining eligibility and vesting of benefits. Each employee
welfare benefit plan provided by Arrow to the Continuing Employees from and
after the Closing Date shall (i) give full credit for deductibles and out-
of-pocket expenses under the Benefit Plans with respect to current plan year
toward any deductibles for the remainder of the plan year during which the
Closing occurs, and (ii) shall waive any pre-existing condition limitation for
any such Continuing Employee to the extent that such limitation would not apply
to such Continuing Employee under the applicable Benefit Plan.
CONDITIONS TO THE MERGER.
Consummation of the Merger is subject to the satisfaction of various
conditions, including: stockholder approval; expiration of the waiting period
imposed by the HSR Act (which has occured); no injunctions or legal restraints;
no governmental actions; and Richey and Arrow having entered into such
supplemental indentures as are required under the Indenture between Richey and
First Trust of California, National Association, dated as of February 15, 1996,
as a result of the Merger. See "Merger Agreement-- Options and Warrants;
Convertible Notes."
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In addition, the obligations of Richey to consummate the Merger are further
subject to a number of conditions including: the truth of the representations
and warranties of Arrow and Acquisition Corp. contained in the Merger Agreement
(except as would not have a material adverse effect on Arrow); Arrow and
Acquisition Corp. having performed or complied in all material respects with all
agreements and conditions required by the Merger Agreement; Arrow having
obtained the consent or approval of each person whose consent or approval is
required in connection with the transactions contemplated by the Merger
Agreement under certain agreements and instruments; and the resolutions adopted
by Arrow's Board of Directors on September 27, 1998 not having been amended,
modified, rescinded or repealed.
The obligations of Arrow and Acquisition Corp. to consummate the Merger are
also subject to further conditions including: the truth of the representations
and warranties of Richey contained in the Merger Agreement (except, in most
cases, as would not have a material adverse effect on Richey); Richey having
performed or complied in all material respects with all agreements and
conditions required by the Merger Agreement; no pending action, suit or
proceeding before any court or governmental or regulatory authority seeking to
restrain, prevent or change the transactions contemplated by the Merger
Agreement or questioning the legality or validity of any such transactions or
seeking damages in connection with any such transactions; Richey having obtained
certain consents, approvals and waivers contemplated in the Merger Agreement;
the absence of a moratorium or other limitation on commercial bank lending
declared by any Federal or New York State regulatory authority or other
circumstances or state of facts constituting a disruption in the financial
markets causing banks and other financial institutions generally not to extend
credit; the absence of any events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a material adverse
effect on the financial condition, assets, liabilities, results of operation,
business or business prospects of Richey and its subsidiaries, taken as a whole;
the resolutions adopted by Richey's Board of Directors on September 29, 1998 not
having been amended, modified, rescinded or repealed; and the aggregate number
of Dissenting Shares (as defined in the Merger Agreement) shall not exceed 10%
of the total number of shares of Richey Common Stock outstanding on the Closing
Date.
NO SOLICITATION.
The Merger Agreement provides that, until the earlier of the Effective Time
or the date of termination of the Merger Agreement, except under certain
circumstances, Richey shall not: (i) solicit, initiate or encourage, or take any
other action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Takeover Proposal; or
(ii) agree to or endorse any Takeover Proposal. As defined in the Merger
Agreement, "Takeover Proposal" means any tender or exchange offer, proposal for
a merger, consolidation or other business combination involving Richey or Richey
Common Stock and made by a person (other than Arrow) or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial portion
of the assets of, Richey other than the transactions contemplated by the Merger
Agreement.
TERMINATION.
The Merger Agreement may be terminated under certain circumstances,
including, without limitation, the following: by mutual consent of Arrow and
Richey; by either Arrow or Richey, if, without fault of the terminating party,
the Closing shall not have occurred on or before February 15, 1999; by Arrow, if
Richey shall breach any of its representations, warranties or obligations under
the Merger Agreement and such breach shall not have been cured or waived and
Richey shall not have provided reasonable assurance that such breach will be
cured on or before the Closing Date; by Richey, if Arrow or Acquisition Corp.
shall breach any of their respective representations, warranties or obligations
under the Merger Agreement and such breach shall not have been cured or waived
and Arrow shall not have provided reasonable assurance that such breach will be
cured on or before the Closing Date; by either Arrow or Richey if a Takeover
Proposal shall have occurred and the Board of Directors of Richey in connection
therewith, after consultation with its legal counsel, withdraws or modifies its
approval and recommendation of the Merger
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Agreement and the transactions contemplated thereby; and by either Arrow or
Richey if any permanent injunction or other order of a court or other competent
authority preventing the consummation of the Merger shall have become final and
nonappealable or if the required vote of Richey stockholders to approve the
Merger is not obtained.
FEES AND EXPENSES.
Generally, whether or not the Merger is consummated, all costs and expenses
incurred in connection with the Merger Agreement shall be paid by the party
incurring such expenses, except that expenses incurred in connection with
printing, registration and filing of this Proxy Statement and fees, costs and
expenses associated with compliance with applicable state securities laws in
connection with the Merger shall be shared equally by Arrow and Richey.
In certain circumstances, if the Merger Agreement is terminated and there
shall have been a Trigger Event or a Takeover Proposal (both as defined in the
Merger Agreement) with respect to Richey, Richey is obligated to reimburse Arrow
for costs and expenses incurred by Arrow in the amount of $1,500,000 and to pay
Arrow the sum of $5,500,000. As used in the Merger Agreement, a "Trigger Event"
occurs if any person (i) acquires (other than for investment) securities
representing 10% or more of the voting power of Richey (or a person already
holding 10% or more of the voting power of Richey acquires an additional 1% or
more of the voting power of Richey) or (ii) commences a tender or exchange offer
following the successful consummation of which the offeror and its affiliates
would beneficially own securities representing 25% or more of the voting power
of Richey. If Richey or Arrow terminates the Merger Agreement due to a willful
breach of the Merger Agreement by the non-terminating party, the non-terminating
party shall reimburse the terminating party for actual expenses incurred by the
terminating party.
HIGH AND LOW STOCK PRICES
Richey Common Stock is being traded on Nasdaq under the symbol "RCHY."
The following table sets forth, for the periods indicated, the high and low
sales prices of Richey Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
STOCK PRICE
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
CALENDAR YEAR 1996:
First quarter.................................................................................. $ 13 1/4 $ 9 1/2
Second quarter................................................................................. 16 10 3/8
Third quarter.................................................................................. 13 1/4 7 1/4
Fourth quarter................................................................................. 12 8 1/4
CALENDAR YEAR 1997:
First quarter.................................................................................. $ 14 1/8 $ 10 3/8
Second quarter................................................................................. 11 3/8 5 3/4
Third quarter.................................................................................. 11 1/8 6 3/4
Fourth quarter................................................................................. 10 3/8 8
CALENDAR YEAR 1998:
First quarter.................................................................................. $ 10 1/2 $ 8
Second quarter................................................................................. 10 1/4 6 1/4
Third quarter.................................................................................. 10 1/4 4 1/2
Fourth quarter (through December 2)............................................................ 10 1/4 9 5/8
</TABLE>
On September 30, 1998, the last full trading day prior to the public
announcement of the Merger Agreement, the high and low sales prices for Richey
Common Stock were $6.875 and $6.375, respectively.
37
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, the beneficial owners
of more than 5% of Richey Common Stock, Richey's only class of voting
securities, as known to Richey. In addition, the table sets forth the beneficial
ownership of Richey Common Stock by (i) each of Richey 's directors and
executive officers and (ii) all directors and executive officers of Richey as a
group. In each instance, information as to the number of shares owned and the
nature of the ownership has been provided by the individual or entity described
and is not within the direct knowledge of Richey. The number of shares
beneficially owned by each director and executive officer is determined under
rules of the Securities and Exchange Commission and such information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares as to which the individual has
the sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within 60 days of the Record Date,
through the exercise of any stock option or other right. Unless otherwise
indicated, to Richey's knowledge, each person has sole voting and investment
power (or shares such powers with his or her spouse) with respect to the shares
set forth in the following table. Unless otherwise indicated, the address of
each person is the address of Richey set forth above.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS*
- ----------------------------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
Arrow Electronics, Inc.(2)......................................................... 3,173,667 31.3%
William C. Cacciatore(3)(4)........................................................ 627,086 6.83%
Norbert W. St. John(3)(4)(5)....................................................... 372,365 4.06%
Greg A. Rosenbaum(3)(6)............................................................ 294,612 3.22%
Donald I. Zimmerman(3)............................................................. 528,459 5.78%
Thomas W. Blumenthal(3)(7)......................................................... 129,044 1.41%
Edward L. Gelbach(3)(8)............................................................ 252,410 2.77%
Richard N. Berger(9)............................................................... 50,170 **
Charles W. Mann(9)(10)............................................................. 52,470 **
William Class(9)................................................................... 33,129 **
Deborah Levy(11)................................................................... 876,488 9.58%
The Kaufmann Fund(12).............................................................. 500,000 5.47%
Kern Capital Management, LLC(13)................................................... 620,800 6.79%
Palisade Capital Management, L.L.C.(14)............................................ 987,357 10.80%
Ryback Management Corporation(15).................................................. 1,335,266 14.80%
The Northwestern Mutual Life Insurance Company(16)................................. 502,656 5.50%
Wanger Asset Management(17)........................................................ 538,000 5.88%
Wellington Management(18).......................................................... 602,200 6.58%
All directors and executive officers as a group (9 persons)........................ 2,339,745 25.01%
</TABLE>
- ------------------------
FOOTNOTES TO BENEFICIAL OWNERSHIP TABLE
* In computing the percentage of shares beneficially owned, the number of
shares which the person or group has the right to acquire within 60 days of
the Record Date are deemed outstanding for the purpose of computing the
percentage of Richey Common Stock beneficially owned by such person or
group, but are not deemed outstanding for the purpose of computing the
percentage of shares beneficially owned by any other person.
38
<PAGE>
** Less than one percent.
(1) The term "beneficial owner" includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship
or otherwise, has or shares: (a) voting power, which includes the power to
vote, or to direct the voting power, of such security; and/or (b)
investment power, which includes the power to dispose, or to direct the
disposition of, such security. The term "beneficiary owner" also includes
any person who has the right to acquire beneficial ownership of such
security as defined above within 60 days of the Record Date. Ownership
includes vested stock options and warrants exercisable within 60 days.
(2) Arrow (whose address is 25 Hub Drive, Melville, New York 11747) has filed a
Schedule 13D dated September 30, 1998 under the Securities Exchange Act of
1934, as amended (the "Exchange Act") stating that Arrow held sole voting
power and sole dispositive power with respect to 976,991 shares of Richey
Common Stock to be issued upon conversion of the $13,800,000 principle
amount of Notes, assuming conversion of such principle amount of Notes, and
shared voting power with respect to 2,196,676 shares of Richey Common Stock
with respect to which the directors of Richey have granted to Arrow
irrevocable proxies to vote to approve the Merger. Beneficial ownership of
73,832 shares of Richey Common Stock was reported solely as a result of
certain stock options held by the directors. Such stock options have not
been exercised and Arrow expressly disclaims beneficial ownership of such
shares. The 2,196,676 shares of Richey Common Stock with respect to which
Arrow holds shared voting power are also shown as being owned by the
respective directors who granted proxies with respect to such shares in
connection with the Merger.
(3) Such director has granted to Arrow an irrevocable proxy to vote all his
shares in favor of the Merger Proposal.
(4) Includes 33,066 shares which are issuable upon the exercise of outstanding
options exercisable within 60 days.
(5) Such shares are owned indirectly as Trustee for The Norbert W. St. John
Trust.
(6) Includes 255,252 shares which are owned by Palisades Associates, Inc. Mr.
Rosenbaum, a director of Richey, owns 60% of Palisades with his wife, who
owns 40% of Palisades. Mr. Rosenbaum may be deemed to beneficially own the
shares owned by Palisades. Also includes the following: (a) 13,120 shares
which are held as Custodian for Eli S. Rosenbaum; (b) 13,120 shares which
are held as Custodian for Elliott J. Rosenbaum; and (c) 13,120 shares which
are held as Custodian for Eve H. Rosenbaum. Mr. Rosenbaum has sole voting
and dispositive power as to these shares held as Custodian for his
children.
(7) Includes 15,000 shares which are issuable upon the exercise of outstanding
options exercisable within 60 days.
(8) Such shares are owned indirectly as general partner of ELG, Limited.
(9) Includes 44,170 shares which are issuable upon the exercise of outstanding
options exercisable within 60 days.
(10) Includes 2,400 shares as to which Mr. Mann has sole voting and investment
power, 2,000 shares as to which Mr. Mann has shared voting and investment
power with his wife, and 3,200 shares as to which Mr. Mann's wife has sole
voting and investment power.
(11) Address is 300 Drakes Landing Road, Suite 100, Greenbrae, California 94904.
(12) The Kaufmann Fund, Inc. (whose address is 140 E. 45th Street, 43rd Floor,
New York, New York 10017) has filed a Schedule 13G Amendment No. 3 dated
February 27, 1998 under the Exchange Act stating that it held sole voting
power and sole dispositive power with respect to 500,000 shares of Richey
Common Stock.
39
<PAGE>
(13) Kern Capital Management, LLC, together with its controlling members Robert
E. Kern Jr., and David G. Kern (whose addresses are 144 West 47th Street,
Suite 1926, New York, New York 10036) have filed a Schedule 13G dated
February 13, 1998 under the Exchange Act stating that Kern Capital
Management, LLC held sole voting power and sole dispositive power with
respect to 620,800 shares of Richey Common Stock. Robert E. Kern Jr., and
David G. Kern state that as controlling members of Kern Capital Management,
LLC they may be deemed to be the beneficial owner of Richey Common Stock
owned by Kern Capital Management, LLC but beneficial ownership of Richey
Common Stock is denied by each of them.
(14) Palisade Capital Management, L.L.C. (whose address is One Bridge Plaza,
Suite 695, Fort Lee, New Jersey 07024) has filed a Schedule 13G Amendment
No. 1 dated March 10, 1998 under the Exchange Act, stating that as of
February 28, 1998 it held sole voting power and sole dispositive power with
respect to 987,357 shares (representing 680,100 shares of issued and
outstanding Richey Common Stock and 307,257 shares of Richey Common Stock
issuable upon the conversion of the 7% Convertible Subordinated Notes due
2006 of the Company). The 307,257 shares of Richey Common Stock issuable
upon such conversion are treated as outstanding for purposes of computing
the percent of class of Palisade Capital Management, L.L.C. but are not
treated as outstanding for purposes of computing the percent of class of
any other persons.
(15) Ryback Management Corporation (whose address is 7711 Carondelet Ave., Box
16900, St. Louis, Missouri 63105) has filed a Schedule 13G Amendment No. 1
dated January 23, 1998 under the Exchange Act, stating that it held sole
voting power and sole dispositive power with respect to 1,335,266 shares of
Richey Common Stock (representing 125,000 shares of issued and outstanding
Richey Common Stock managed by Ryback Management Corporation and 1,210,266
shares of Richey Common Stock issuable upon the conversion of the 7%
Convertible Subordinated Notes due 2006 of Richey held by Lindner Dividend
Fund). The 1,210,266 shares of Richey Common Stock issuable upon such
conversion are treated as outstanding for purposes of computing the percent
of class of Ryback Management Corporation and Lindner Dividend Fund but are
not treated as outstanding for purposes of computing the percent of class
of any other persons.
(16) The Northwestern Mutual Life Insurance Company (whose address is 720 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202) has filed a Schedule 13G
dated February 11, 1998 under the Exchange Act, stating that it has sole
voting and dispositive power with respect to 495,576 shares of Richey
Common Stock issuable upon the conversion of the 7% Convertible
Subordinated Notes due 2006 of Richey held by The Northwestern Mutual Life
Insurance Company and shared voting and dispositive power with respect to
7,080 shares of Richey Common Stock issuable upon the conversion of the 7%
Convertible Subordinated Notes due 2006 of Richey held by The Northwestern
Mutual Life Insurance Company Group Annuity Separate Account.
(17) Wanger Asset Management, L.P. together with its general partner Wanger
Management Ltd. (whose addresses are 227 West Monroe Street, Suite 3000,
Chicago, Illinois 60606) has filed a Schedule 13G Amendment No. 1 dated
February 6, 1998 under the Exchange Act, stating that as of December 31,
1997 it held shared voting power and shared dispositive power with respect
to 538,000 shares of Richey Common Stock.
(18) Wellington Management Company, LLP (whose address is 75 State Street,
Boston, Massachusetts 02109) has filed a Schedule 13G Amendment No. 1 dated
January 17, 1998 under the Exchange Act, stating that as of December 31,
1997 it held shared voting power with respect to 497,200 shares of Richey
Common Stock and shared dispositive power with respect to 602,200 shares of
Richey Common Stock.
40
<PAGE>
STOCKHOLDER PROPOSALS
Richey's annual meeting of stockholders is normally held in May of each
year. If the proposal to approve the Merger is approved at the Special Meeting,
there will be no 1999 annual meeting of stockholders. If the proposal to approve
the Merger is not approved at the Special Meeting, the 1999 annual meeting of
stockholders will be held in May 1999. In accordance with Securities and
Exchange Commission (the "SEC") Rule 14a-8, proposals of Richey Stockholders
intended to be presented at the next annual meeting of Richey Stockholders (i)
must be received by Richey at its offices at 7441 Lincoln Way, Garden Grove,
California 92841 no later than November 25, 1998 and (ii) must satisfy the
conditions established by the SEC for stockholder proposals to be included in
Richey's proxy statement for that meeting. If timely notice of such a proposal
is not given to Richey, management proxy holders will be allowed to exercise
their discretionary voting authority when the proposal is raised at the annual
meeting, without any discussion of the matter in Richey's proxy statement for
that meeting. Notice of a stockholder proposal submitted outside the processes
of Rule 14a-8 will be considered "untimely" unless received by Richey on or
before February 15, 1999.
INDEPENDENT PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP ("McGladrey & Pullen"), serve as independent public
accountants for Richey. Representatives of McGladrey & Pullen are expected to be
present at the Special Meeting, will have the opportunity to make a statement if
they so desire and will be available to respond to appropriate questions at the
Special Meeting.
AVAILABLE INFORMATION
Richey is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's regional offices located at Seven World Trade Center, 13th Floor, New
York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60601-2511. Copies of such material may be obtained by mail from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Richey Common Stock is quoted on
the Nasdaq National Market ("Nasdaq"), and such reports, proxy statements and
other information can also be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, D.C. 20006. The SEC maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference documents not included
herein. Such documents relating to Richey, excluding exhibits unless
specifically incorporated herein, are available without charge, to any person,
including any beneficial owner, to whom this Proxy Statement is delivered, on
written or oral request to Richey at 7441 Lincoln Way, Garden Grove, California
92841, Attention: Richard N. Berger, Secretary. Telephone requests may be
directed to Mr. Berger at (714) 898-8288. Such documents will be provided to
such person by first class mail or other equally prompt means within one
business day of receipt of such request. In order to insure delivery of the
documents prior to the Special Meeting, requests should be received by December
21, 1998.
The following documents filed with the SEC by Richey (file number 0-9788)
are incorporated herein by reference:
(a) Richey's Annual Report on Form 10-K for the fiscal year ended December
31, 1997;
41
<PAGE>
(b) Richey's 1998 Proxy Statement;
(c) Current Report on Form 8-K, dated September 30, 1998, reporting
execution of the Merger Agreement;
(d) Richey's Quarterly Reports on Form 10-Q for the quarters ended April 3,
July 3 and October 2, 1998.
All documents and reports filed by Richey pursuant to Section 13(a) or 15(d)
of the Exchange Act subsequent to the date hereof and prior to the Special
Meeting shall be deemed to be incorporated herein by reference and to be a part
hereof from the date of such filing and any statement contained herein or in a
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated herein by reference, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part hereof, except as so modified or superseded.
42
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ARROW ELECTRONICS, INC.,
LEAR ACQUISITION CORP.
AND
RICHEY ELECTRONICS, INC.
DATED AS OF SEPTEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
ARTICLE 1 THE MERGER...................................................................................... A-1
1.1 Effective Time of The Merger............................................................... A-1
1.2 Closing.................................................................................... A-1
1.3 Effects of The Merger...................................................................... A-1
1.4 Directors and Officers of The Surviving Corporation........................................ A-2
1.5 Further Assurances......................................................................... A-2
ARTICLE 2 CONVERSION OF SECURITIES........................................................................ A-2
2.1 Conversion of Capital Stock................................................................ A-2
2.2 Exchange of Certificates................................................................... A-3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................... A-4
3.1 Corporate Organization and Authority of the Company........................................ A-4
3.2 Capitalization............................................................................. A-5
3.3 No Violation; Consents and Approvals....................................................... A-6
3.4 SEC Reports and Financial Statements of the Company........................................ A-7
3.5 Absence of Undisclosed Liabilities......................................................... A-8
3.6 Inventory.................................................................................. A-8
3.7 Accounts Receivable........................................................................ A-9
3.8 Title to Property.......................................................................... A-9
3.9 Intellectual Property...................................................................... A-9
3.10 Tax Matters................................................................................ A-10
3.11 Employee Matters........................................................................... A-11
3.12 Labor Matters.............................................................................. A-13
3.13 No Material Change......................................................................... A-14
3.14 Absence of Change or Event................................................................. A-14
3.15 Litigation................................................................................. A-15
3.16 Compliance With Law and Other Instruments.................................................. A-15
3.17 Insurance.................................................................................. A-18
3.18 Affiliate Interests........................................................................ A-19
3.19 Customers and Suppliers.................................................................... A-19
3.20 Absence of Questionable Payments........................................................... A-19
3.21 Information Supplied....................................................................... A-20
3.22 Opinion of Financial Advisor............................................................... A-20
3.23 Vote Required.............................................................................. A-20
3.24 Company Not an Interested Shareholder or a 30% Shareholder................................. A-20
3.25 Section 203 of the DGCL Not Applicable..................................................... A-20
3.26 Disclosure................................................................................. A-20
3.27 The Company's Knowledge.................................................................... A-20
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB................................................ A-21
4.1 Organization and Authority................................................................. A-21
4.2 No Violation; Consents and Approvals....................................................... A-21
4.3 SEC Reports and Financial Statements of Parent............................................. A-22
4.4 Information Supplied....................................................................... A-22
4.5 Litigation................................................................................. A-22
4.6 Parent's Knowledge......................................................................... A-22
ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY AND PARENT......................................
A-23
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
5.1 Conduct of The Company's Business Prior to The Closing Date................................ A-23
5.2 Conduct of Business of Sub................................................................. A-24
5.3 Preparation of The Proxy Statement......................................................... A-24
5.4 Legal Conditions to Merger................................................................. A-25
5.5 Stockholder's Meeting...................................................................... A-25
5.6 Fees and Expenses.......................................................................... A-25
5.7 Broker's and Finder's Fees................................................................. A-26
5.8 Takeover Statutes.......................................................................... A-26
5.9 Access to Information and Confidentiality.................................................. A-27
5.10 Indemnification............................................................................ A-27
5.11 Additional Agreements; Best Efforts........................................................ A-28
5.12 No Solicitation............................................................................ A-28
5.13 Advice of Changes; Government Filings...................................................... A-28
5.14 Press Releases............................................................................. A-28
5.15 Company Option Plans....................................................................... A-29
5.16 Notice and Cure............................................................................ A-29
5.17 Canadian Subsidiary........................................................................ A-30
5.18 Observance of Operations of The Business................................................... A-30
5.19 Certain Company Employees.................................................................. A-30
5.20 Company Bank Debt.......................................................................... A-30
5.21 Employee Matters........................................................................... A-30
ARTICLE 6 CONDITIONS PRECEDENT............................................................................ A-30
6.1 Conditions to Each Party's Obligation to Effect The Merger................................. A-30
6.2 Conditions to Obligations of Parent and Sub................................................ A-31
6.3 Conditions to Obligations of The Company................................................... A-32
ARTICLE 7 TERMINATION AND AMENDMENT....................................................................... A-33
7.1 Termination................................................................................ A-33
7.2 Effect of Termination...................................................................... A-33
7.3 Extension; Waiver.......................................................................... A-33
7.4 Amendment and Modification................................................................. A-33
ARTICLE 8 GENERAL PROVISIONS.............................................................................. A-34
8.1 Nonsurvival of Representations, Warranties and Agreements.................................. A-34
8.2 Notices.................................................................................... A-34
8.3 Governing Law.............................................................................. A-35
8.4 Interpretation............................................................................. A-35
8.5 Counterparts............................................................................... A-35
8.6 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership........................ A-35
8.7 No Remedy in Certain Circumstances......................................................... A-35
8.8 Severability............................................................................... A-35
8.9 Assignment................................................................................. A-35
8.10 Headings................................................................................... A-35
8.11 Enforcement of Agreement................................................................... A-36
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 30, 1998, by and among
ARROW ELECTRONICS, INC., a New York corporation ("Parent"), LEAR ACQUISITION
CORP., a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"),
and RICHEY ELECTRONICS, INC., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
deem it advisable and in the best interests of their respective stockholders to
consummate, and have approved, the business combination transaction provided for
herein in which Sub would merge with and into the Company and the Company would
become a wholly owned subsidiary of Parent (the "Merger");
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent and Sub to enter into this Agreement each of the directors
of the Company named on Exhibit A hereto has on the date hereof granted to
Parent an irrevocable proxy to vote the shares of the common stock, par value
$.001 per share, of the Company (the "Company Common Stock") owned by such
person to approve the Merger; and
WHEREAS, Parent, Sub and the Company desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement, a certificate of merger (the "Certificate of Merger") shall be duly
prepared, executed and acknowledged by the Surviving Corporation (as defined in
Section 1.3) and thereafter delivered to the office of the Secretary of State of
the State of Delaware, for filing and thereafter recorded, as provided in the
Delaware General Corporation Law (the "DGCL"), as soon as practicable on or
after the Closing Date (as defined in Section 1.2). The Merger shall become
effective upon the filing of the Certificate of Merger with the office of the
Secretary of State of the State of Delaware or at such time thereafter as is
provided in the Certificate of Merger (the "Effective Time").
1.2 CLOSING. The closing of the Merger (the "Closing") will take place at
the offices of Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New
York, New York, at 10:00 A.M. (local time) on a date to be specified by Parent
and the Company, which shall be no later than the third business day after
satisfaction or waiver of the latest to occur of the conditions set forth in
Article 6 (other than Sections 6.2(a)(i) and 6.3(a)(i) and the delivery of the
officer's certificates referred to in Sections 6.2(a) and 6.3(a)) (the "Closing
Date") or at such other place, time and date as may be agreed upon in writing by
Parent and the Company. At the Closing there shall be delivered to Parent, Sub
and the Company the certificates and other documents and instruments required to
be delivered hereunder.
1.3 EFFECTS OF THE MERGER. (a) At the Effective Time (i) the separate
existence of Sub shall cease and Sub shall be merged with and into the Company
(Sub and the Company are sometimes referred to herein as the "Constituent
Corporations" and the Company is sometimes referred to herein as the "Surviving
Corporation"), (ii) the Certificate of Incorporation of Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, except that the name of the
Surviving Corporation as provided in such Certificate of Incorporation shall be
"Richey Electronics, Inc." and (iii) the By-laws of Sub as in effect immediately
prior to the Effective Time shall be the By-laws of the Surviving Corporation.
A-1
<PAGE>
(b) The Merger shall have the effects set forth in this Agreement, the
Certificate of Merger and the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, at and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers,
immunities and franchises, of a public as well as of a private nature, and be
subject to all the restrictions, disabilities and duties of each of the
Constituent Corporations; and all and singular rights, privileges, powers,
immunities and franchises of each of the Constituent Corporations, and all
property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, including subscriptions to shares
and all other choses in action, and all and every other interest of or belonging
to or due to each of the Constituent Corporations, shall be taken and deemed to
be transferred to and vested in the Surviving Corporation, and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts and liabilities had been
incurred by it.
1.4 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors and
officers of Sub immediately prior to the Effective Time shall, from and after
the Effective Time, be the directors and officers, respectively, of the
Surviving Corporation until their successors shall have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
By-laws.
1.5 FURTHER ASSURANCES. Each party hereto will, either prior to or after
the Effective Time, execute such further documents, instruments, deeds, bills of
sale, assignments and assurances and take such further actions as may be
reasonably requested by one or more of the others to consummate the Merger, to
vest the Surviving Corporation with full title to all assets, properties,
privileges, rights, approvals, immunities and franchises of either of the
Constituent Corporations or to effect the other purposes of this Agreement.
ARTICLE 2
CONVERSION OF SECURITIES
2.1 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any further action on the part of the holder of any shares of
Company Common Stock or capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $0.01 per share, of the
Surviving Corporation ("Surviving Corporation Common Stock"). Each
certificate representing outstanding shares of Sub Common Stock shall at the
Effective Time represent an equal number of shares of Surviving Corporation
Common Stock.
(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. All shares
of the Company Common Stock that are owned by the Company as treasury stock
and any shares of the Company Common Stock owned by Parent, Sub or any
wholly owned Subsidiary of the Company or Parent shall be canceled and
retired and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor. All shares of Common
Stock, par value $1.00 per share, of Parent (the "Parent Common Stock" ), if
any, owned by the Company shall remain unaffected by the Merger. As used in
this Agreement, the word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated,
of which (i) such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority of
the voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing
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similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or
more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
(c) MERGER CONSIDERATION FOR THE COMPANY COMMON STOCK. Each issued and
outstanding share of the Company Common Stock (other than shares to be
canceled in accordance with Section 2.1(b) and other than Dissenting Shares
as defined in Section 2.1(e)) shall be converted into the right to receive
$10.50 in cash (the "Merger Consideration"). All such shares of the Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration.
(d) SIMMONDS WARRANT. The Holder (as defined in the Warrant to
Purchase Common Stock of Richey Electronics, Inc., dated June 13, 1997 (the
"Simmonds Warrant")) shall be entitled to receive the aggregate Merger
Consideration with respect to the number of shares of Company Common Stock
that the Holder shall be deemed to have received pursuant to Article VI of
the Simmonds Warrant. Promptly after surrender of the Simmonds Warrant to
Parent, the Holder shall receive in exchange therefor a check in the amount
equal to the Merger Consideration which the Holder has the right to receive
pursuant to this Section 2.1(d). In no event shall the Holder be entitled to
receive interest on any such funds.
(e) DISSENTING SHARES. (i) Notwithstanding any provision of this
Agreement to the contrary, each outstanding share of Company Common Stock
the holder of which has not voted in favor of the Merger, has perfected such
holder's right to an appraisal of such holder's shares in accordance with
the applicable provisions of the DGCL and has not effectively withdrawn or
lost such right to appraisal (a "Dissenting Share"), shall not be converted
into or represent a right to receive the Merger Consideration pursuant to
Section 2.1(c), but the holder thereof shall be entitled only to such rights
as are granted by the applicable provisions of the DGCL; provided, however,
that any Dissenting Share held by a person at the Effective Time who shall,
after the Effective Time, withdraw the demand for appraisal or lose the
right of appraisal, in either case pursuant to the DGCL, shall be deemed to
be converted into, as of the Effective Time, the right to receive the Merger
Consideration pursuant to Section 2.1(c).
(ii) The Company shall give Parent (x) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to the applicable provisions of the DGCL
relating to the appraisal process received by the Company and (y) the
opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company will not voluntarily make
any payment with respect to any demands for appraisal and will not, except
with the prior written consent of Parent, settle or offer to settle any such
demands.
2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, Parent shall make
available to the Surviving Corporation for deposit with a bank or trust
company designated by Parent (and reasonably acceptable to the Company) (the
"Exchange Agent"), for the benefit of the holders of shares of the Company
Common Stock, for exchange in accordance with this Article 2, through the
Exchange Agent, an amount of cash equal to the aggregate Merger
Consideration (such cash, together with earnings thereon, being hereinafter
referred to as the "Exchange Fund") in each case issuable pursuant to
Section 2.1 in exchange for outstanding shares of the Company Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of the Company Common Stock (the
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"Certificates") whose shares were converted pursuant to Section 2.1 into the
right to receive the Merger Consideration (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as the Surviving
Corporation may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent and Sub, together with such
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a check in the amount equal to the
Merger Consideration which such holder has the right to receive pursuant to the
provisions of this Article 2, and the Certificate so surrendered shall forthwith
be canceled. In no event shall the holder of any Certificate be entitled to
receive interest on any funds to be received in the Merger. In the event of a
transfer of ownership of the Company Common Stock which is not registered in the
transfer records of the Company, a check for the appropriate amount of cash may
be issued to a transferee if the Certificate representing the Company Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration.
(c) NO FURTHER OWNERSHIP RIGHTS IN THE COMPANY COMMON STOCK. The
Merger Consideration paid upon the surrender for exchange of shares of
the Company Common Stock in accordance with the terms hereof shall be
deemed to have been paid in full satisfaction of all rights pertaining to
such shares of the Company Common Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of the Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in this
Article 2.
(d) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
made available to the Exchange Agent which remains undistributed to the
stockholders of the Company for six months after the Effective Time shall
be delivered to Parent, upon demand, and any stockholders of the Company
who have not theretofore complied with this Article 2 shall thereafter
look only to Parent for payment of their claim for the Merger
Consideration.
(e) NO LIABILITY. Neither Parent nor the Company shall be liable to
any holder of shares of the Company Common Stock for the Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
3.1 CORPORATE ORGANIZATION AND AUTHORITY OF THE COMPANY.
(a) Each of the Company and its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to
own, lease and operate its properties and to carry on its business as now
being conducted, and, is duly licensed or qualified and in good standing as
a foreign corporation in each jurisdiction in which the nature of the
activities conducted by it or the character of the properties owned, leased
or operated by it requires it to be so licensed or so qualified, except
where the failure to be so licensed or so qualified would not be reasonably
likely to result in a Company Material Adverse Effect (as defined below).
The Company's Disclosure Memorandum furnished to Parent on the date
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hereof (the "Disclosure Memorandum") with specific reference to this Section
sets forth (A) the name and jurisdiction of incorporation of each Subsidiary
of the Company, (B) its authorized capital stock, (C) the number of issued
and outstanding shares of capital stock and (D) the record owners of such
shares. Except for interests in the Subsidiaries of the Company and as
disclosed in the Disclosure Memorandum with specific reference to this
Section, the Company does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity (other
than (i) non-controlling investments in the ordinary course of business,
(ii) any such interest received in the ordinary course of business as a
settlement of indebtedness, (iii) corporate partnering, development,
cooperative marketing and similar undertakings and arrangements entered into
in the ordinary course of business and (iv) other investments of less than
$25,000). The Company has heretofore delivered to Parent complete and
correct copies of the certificate of incorporation and bylaws of the Company
and its Subsidiaries (or other comparable charter documents), as currently
in effect. For the purposes of this Agreement, "Company Material Adverse
Effect" shall mean a material adverse effect on the financial condition,
assets, liabilities (contingent or otherwise), results of operation,
business or business prospects of the Company and its Subsidiaries, if any,
taken as a whole. For purposes of this Agreement, a Company Material Adverse
Effect shall not include a material adverse effect on the financial
condition, assets, liabilities (contingent or otherwise), results of
operation, business or business prospects of the Company as a result of (i)
the transactions contemplated hereby or the public announcement hereof, or
(ii) changes in the conditions or prospects of the Company and its
Subsidiaries taken as a whole which are consistent with general economic
conditions or general changes affecting the electronic component
distribution or electronics assembly industries, or (iii) any matter
disclosed in the Company SEC Documents (as defined in Section 3.4) or in the
Disclosure Memorandum.
(b) The Company has full corporate power and authority to enter into
this Agreement and, subject to approval of this Agreement by the
stockholders of the Company in accordance with the applicable provisions of
the DGCL (the "Company Stockholders' Approval"), to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Company, the Board of Directors of the Company has
recommended adoption of this Agreement by the stockholders of the Company
and directed that this Agreement be submitted to the stockholders of the
Company for their consideration, and no other corporate proceedings on the
part of the Company or its stockholders are necessary to authorize the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby, other
than obtaining the Company Stockholders' Approval. This Agreement has been
duly executed and delivered by the Company, and (assuming due execution and
delivery by Parent and Sub) this Agreement constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally, and except
that the availability of equitable remedies, including specific performance,
is subject to the discretion of the court before which any proceeding
therefor may be brought, and except as indemnification may be limited by
public policy.
3.2 CAPITALIZATION. As of the date hereof, the authorized capital stock of
the Company consists of 30,000,000 shares of the Company Common Stock and 10,000
shares of Preferred Stock, par value $0.001 per share ("Company Preferred
Stock"). As of the date hereof, 9,146,113 shares of the Company Common Stock are
issued and outstanding, and 1,300,000 shares of the Company Common Stock are
reserved for issuance in the aggregate pursuant to the Company's Amended and
Restated 1992 Stock Option Plan (the "Company Option Plan"), no more than
3,947,256 shares of the Company Common Stock are reserved for issuance under the
Indenture by and between the Company and First Trust, of California, National
Association, as Trustee dated February 15, 1996 (the "Indenture") and 200,000
shares
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of the Company Common Stock are reserved for issuance pursuant to the Simmonds
Warrant. As of the date hereof, no shares of Company Preferred Stock are issued
and outstanding. All such issued and outstanding shares of the Company Common
Stock have been, and any shares of the Company Common Stock which may be issued
pursuant to the Company Option Plans, the Indenture and the Simmonds Warrant
will be, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as disclosed in the Disclosure Memorandum with
specific reference to this Section, there are no (a) outstanding options
obligating the Company or any of its Subsidiaries to issue or sell any shares of
capital stock of any Subsidiary of the Company or to grant, extend or enter into
any such option or (b) voting trusts, proxies or other commitments,
understandings, restrictions or arrangements in favor of any person other than
the Company or a Subsidiary wholly owned, directly or indirectly, by the Company
with respect to the voting of or the right to participate in dividends or other
earnings on any capital stock of any Subsidiary of the Company. Except as
disclosed in the Disclosure Memorandum with specific reference to this Section,
and except for (i) the rights created pursuant to this Agreement, (ii) the
rights outstanding on the date hereof created pursuant to the Company Option
Plan, the Indenture or the Simmonds Warrant and (iii) the issued and outstanding
shares of the Company Common Stock set forth herein, as of the date hereof,
there are no (x) outstanding shares of capital stock, or any notes, bonds,
debentures or other indebtedness having the right to vote (or convertible into
or exchangeable for securities having the right to vote) ("Voting Debt"), of the
Company, (y) outstanding options, warrants, calls, subscriptions or other rights
of any kind to acquire, or agreements or commitments in effect to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
is bound obligating the Company or any Subsidiary to issue or sell, or cause to
be issued or sold, any additional shares of capital stock or any Voting Debt of
the Company or any Subsidiary, or granting any rights to obtain any benefit
measured by the value of the Company's capital stock (including without
limitation, stock appreciation rights granted under the Company's 1993 Stock
Appreciation Rights Plan (the "Company Stock Appreciation Rights Plan")) or (z)
outstanding securities convertible into or exchangeable for, or which otherwise
confer on the holder thereof any right to acquire, any such additional shares or
Voting Debt. Except pursuant to the preceding sentence, neither the Company nor
any of its Subsidiaries is committed to issue any such option, warrant, call,
subscription, right or security, and after the Effective Time, there will be no
such option, warrant, call, subscription, right, agreement, commitment or
security. There are no contracts, commitments or agreements relating to voting,
purchase or sale of the Company's or any of its Subsidiary's capital stock or
Voting Debt (including, without limitation, any redemption by the Company
thereof) (A) between or among the Company, any Subsidiary of the Company and any
of its stockholders and (B) to the Company's knowledge, between or among any of
the Company's stockholders, except for the proxies set forth on Exhibit A.
3.3 NO VIOLATION; CONSENTS AND APPROVALS. Except as disclosed in the
Disclosure Memorandum with specific reference to this Section, neither the
Company nor its Subsidiaries or any of their respective properties or assets are
subject to or bound by any provision of:
(a) to the Company's knowledge, any law, statute, rule, regulation,
ordinance or judicial or administrative decision;
(b) any articles or certificate of incorporation, bylaws, or similar
organizational document;
(c) any (i) credit or loan agreement, mortgage, deed of trust, note,
bond, indenture, license, concession, franchise, permit, trust,
custodianship, other restriction, (ii) instrument, lease, obligation,
contract or agreement (including, without limitation, any plan, fund or
arrangement contemplated by Section 3.11(a)) or (iii) instruments,
obligations, contracts or agreements (including, without limitation, plans,
funds or arrangements contemplated by Section 3.11(a)), other than those
which do not involve the payment or receipt by the Company or its
Subsidiaries of an amount in excess of $250,000, individually or $500,000 in
the aggregate; or
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(d) any judgment, order, writ, injunction or decree; that would impair,
prohibit or prevent, or would be violated or breached by, or would result in
the creation of any pledges, liens, charges, encumbrances, easements,
defects, security interests, claims, options and restrictions of every kind
("Encumbrance") as a result of, or under which there would be a material
default (with or without notice or lapse of time, or both) or right of
termination, cancellation or acceleration of any material obligation or the
loss of a material benefit as a result of, the execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby, except where, (i) as of the date hereof
such event or occurrence is not reasonably likely to result in losses,
liabilities, costs or expenses (including but not limited to attorneys fees
and expenses), damage or decline in value to the business, condition or
properties of the Company and its Subsidiaries, taken as a whole, or to
Parent (collectively, "Losses") in excess of $250,000 individually or
$500,000 in the aggregate, or (ii) between the date hereof and the Closing
Date would not, individually or in the aggregate, reasonably be likely to
have a Company Material Adverse Effect. Except as disclosed in the
Disclosure Memorandum with specific reference to this Section, the merger,
consolidation or amalgamation of the Surviving Corporation or any or all of
its Subsidiaries with or into Parent or its affiliates or, the transfer of
any or all of the assets of the Surviving Corporation or any of its
Subsidiaries to Parent or its affiliates will not, with or without the
giving of notice or the passage of time or both, conflict with, result in a
default, right to accelerate or loss of rights under, or result in the
creation of any Encumbrance, under any provision of any material mortgage,
deed of trust, lease, license, or agreement (including any debt instrument)
to which the Company, or any of its Subsidiaries is a party or by which any
of them may be bound or affected. Except as disclosed in the Disclosure
Memorandum with specific reference to this Section and other than (i) the
filing of the Certificate of Merger as provided in Section 1.1, (ii) the
filing with the Securities and Exchange Commission (the "SEC") and Nasdaq of
the Proxy Statement (as defined in Section 3.21), (iii) such consents,
orders, approvals, authorizations, registrations, declarations and filings
as may be required under the Investment Canada Act and the Competition Act
(Canada) and applicable state securities laws and the securities laws of any
foreign country, (iv) such filings as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") and (v) such local consents, orders, approvals, authorizations,
registrations, declarations and filings which, if not obtained or made, (x)
as of the date hereof would not reasonably be likely to result in Losses in
excess of $250,000 individually or $500,000 in the aggregate, or (y) between
the date hereof and the Closing Date would not, individually or in the
aggregate, reasonably be likely to have a Company Material Adverse Effect,
and that would not impair, prohibit or prevent the consummation of the
transactions contemplated hereby, no consent, order, approval or
authorization of, or declaration, notice, registration or filing with, any
court, administrative agency or commission or other governmental authority
or instrumentality (each a "Governmental Entity" ), individual, corporation,
partnership, trust or unincorporated organization (together with
Governmental Entities, each a "Person") is required by or with respect to
the Company in connection with the execution, delivery and performance by
the Company of this Agreement and the consummation of the transactions
contemplated hereby.
3.4 SEC REPORTS AND FINANCIAL STATEMENTS OF THE COMPANY. The Company and
its Subsidiaries have filed with the SEC, and have made available to Parent true
and complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by the Company and its Subsidiaries since January
1, 1993 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or the Securities Act of 1933, as amended (the "Securities Act") (as such
documents have been amended since the time of their filing, collectively, the
"Company SEC Documents"). The Company has heretofore provided to Parent true and
complete copies of the interim financial statements for the eight (8) months
ending August 28, 1998 (the "Management Accounts"). Except as disclosed in the
Disclosure Memorandum with specific reference to this Section, the Company SEC
Documents, including without limitation any financial statements and schedules
included therein, at the time filed or, if subsequently amended, as so amended,
(i) did not contain any untrue statement of a material fact or omit to state a
material fact
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required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. Except as disclosed
in the Disclosure Memorandum with specific reference to this Section, the
audited consolidated financial statements and unaudited interim consolidated
financial statements (including, in each case, the notes, if any, thereto) of
the Company included in the Company SEC Documents comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of the unaudited
statements, to customary year-end audit adjustments) the consolidated financial
position of the Company and its consolidated Subsidiaries as at the respective
dates thereof and the consolidated results of their operations and cash flows
for the respective periods then ended. Except as set forth in the Disclosure
Memorandum with specific reference to this Section, the Management Accounts are
the only Management Accounts of the Company prepared by the Company with respect
to the periods covered thereby and have been prepared in the ordinary course of
business from the books and records of the Company and its Subsidiaries in
accordance with GAAP, consistently applied and maintained throughout the period
indicated. Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, each Subsidiary of the Company is treated as a
consolidated subsidiary of the Company in the financial statements of the
Company for all relevant periods covered thereby.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent set
forth in the Company's Annual Report on Form 10-K for the year ended December
31, 1997, or as disclosed in the Form 10-Q for the quarterly period ended July
3, 1998, or as disclosed in the Disclosure Memorandum with specific reference to
this Section, as of July 3, 1998, neither the Company nor its Subsidiaries had
any liabilities or obligations of any nature, whether or not accrued, contingent
or otherwise, that would be required by GAAP to be reflected on the consolidated
balance sheet of the Company and its consolidated subsidiaries (including the
notes thereto) as of such date. Since July 3, 1998, neither the Company nor any
of its Subsidiaries have incurred any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, not in the ordinary course of
business or which, individually or in the aggregate, would be reasonably likely
to result in a Company Material Adverse Effect.
3.6 INVENTORY. Except as disclosed in the Disclosure Memorandum with
specific reference to this Section, the inventories of the Company disclosed in
the Company SEC Documents as of July 3, 1998 and in any subsequently filed
Company SEC Documents are stated consistently with the audited consolidated
financial statements of the Company and its consolidated subsidiaries, such
presentation appropriately reflects current Company practice which is supported
historically by cost reductions received from vendors and is appropriate based
upon the relationship with the Company's vendors, and due provision was made to
provide for all slow-moving, obsolete, or unusable inventories to their
estimated useful or scrap values and such inventory reserves are adequate to
provide for such slow-moving, obsolete or unusable inventory and inventory
shrinkage. Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, since July 3, 1998, due provision was made on the
books of the Company and its Subsidiaries in the ordinary course of business
consistent with past Company practices to provide for all slow-moving, obsolete,
or unusable inventories to their estimated useful or scrap values and such
inventory reserves are adequate to provide for such slow-moving, obsolete or
unusable inventory and inventory shrinkage. Except as set forth in the
Disclosure Memorandum with specific reference to this Section, to the extent
that any items of inventory intended to be sold to the military are, in order to
meet military or similar specifications, required to be accompanied by (or the
seller thereof is required to maintain) traceability, testing or other
documentation, all such documentation has been so maintained and is in the
possession of the Company or its Subsidiaries at one of their respective
offices.
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3.7 ACCOUNTS RECEIVABLE. The accounts receivable disclosed in the Company
SEC Documents as of July 3, 1998, and, with respect to accounts receivable
created since such date, disclosed in any subsequently filed Company SEC
Documents, or as accrued on the books of the Company in the ordinary course of
business consistent with past practices in accordance with GAAP since the last
filed Company SEC Documents, represent and will represent bona fide claims
against debtors for sales and other charges, are not subject to discount except
for normal cash and immaterial trade discounts, and the amount carried for
doubtful accounts and allowances disclosed in each of such Company SEC Documents
or accrued on such books is sufficient to provide for any losses which may be
sustained on realization of the receivables.
3.8 TITLE TO PROPERTY.
(a) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, the Company and its Subsidiaries have good and
valid title to all of their respective properties, assets and other rights
that do not constitute real property, free and clear of all Encumbrances,
except for such Encumbrances securing indebtedness that is not, in the
aggregate, greater than $250,000. Except as disclosed in the Disclosure
Memorandum with specific reference to this Section, the Company and its
Subsidiaries own, have leasehold interests in or contractual rights to use,
all of the assets, tangible and intangible, used by, or necessary for the
conduct of the business of, the Company and its Subsidiaries taken as a
whole.
(b) The machinery, tools, equipment and other tangible physical assets
of the Company and its Subsidiaries (other than items of inventory) are in
good working order, except for normal wear and tear, and are in an operating
condition sufficient to conduct the business of the Company and its
Subsidiaries taken as a whole as now being conducted.
(c) Neither the Company nor any of its Subsidiaries owns any real
estate. The Disclosure Memorandum sets forth with specific reference to this
Section each and every parcel of real property or interest in real estate,
held under a lease or used by, or necessary for the conduct of the business
of, the Company and its Subsidiaries taken as a whole (the "Real Property").
(d) Except as disclosed in the Disclosure Memorandum with specific
reference to Section 3.8(d), the Company or a Subsidiary:
(i) is in peaceful and undisturbed possession of the Real Property
under each lease under which it is a tenant, and there are no material
defaults by it as tenant thereunder; and
(ii) has good and valid rights of ingress and egress to and from all
the Real Property from and to the public street systems for all usual
street, road and utility purposes.
(e) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, all of the buildings, structures, improvements
and fixtures used by or useful in the business of the Company, owned or
leased by the Company, are in a good state of repair, maintenance and
operating condition and, except as so disclosed and, except for normal wear
and tear, there are no defects with respect thereto which would materially
impair the day-to-day use of any such buildings, structures, improvements or
fixtures or which would subject the Company to material liability under
applicable law.
3.9 INTELLECTUAL PROPERTY. Except as disclosed in the Disclosure
Memorandum with specific reference to this Section, to the Company's knowledge
the Company or a Subsidiary owns or has valid rights to use all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights,
copyrights, service marks, trade secrets, applications for trademarks and for
service marks, know-how and other proprietary rights and information used or
held for use in connection with the business of the Company and its Subsidiaries
taken as a whole as currently conducted or as contemplated to be conducted and
to the Company's knowledge there is no assertion or claim challenging the
validity of any of the foregoing which, individually or in the aggregate, would
be reasonably likely to have a Company Material Adverse Effect.
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Except as disclosed in the Disclosure Memorandum with specific reference to this
Section, to the Company's knowledge, the conduct of the business of the Company
and its Subsidiaries as currently conducted does not conflict in any way with
any patent, patent right, license, trademark, trademark right, trade name, trade
name right, service mark or copyright of any third party that, individually or
in the aggregate, would be reasonably likely to result in a Company Material
Adverse Effect. Except as disclosed in the Disclosure Memorandum with specific
reference to this Section and to the Company's knowledge, there are no
infringements of any proprietary rights owned by the Company or a Subsidiary
which, individually or in the aggregate, would be reasonably likely to have a
Company Material Adverse Effect.
3.10 TAX MATTERS. Except as set forth in the Disclosure Memorandum with
specific reference to this Section or as would not be reasonably likely to have
a Company Material Adverse Effect:
(a) The Company (or any predecessor) and any consolidated, combined,
unitary, affiliated or aggregate group for Tax purposes of which the Company
(or any predecessor) is or has been a member (a "Consolidated Group") has
timely filed all Tax Returns required to be filed by it, has paid all Taxes
shown to be due on any Tax Return and has provided adequate reserves in its
financial statements for any Taxes that are due and have not been paid,
whether or not shown as being due on any Tax Returns. All Taxes owed by any
of the Company and its Subsidiaries (whether or not shown on any Tax Return)
have been paid or accrued. None of the Company and its Subsidiaries
currently is the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a
jurisdiction where any of the Company and its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There
are no security interests on any of the assets of any of the Company and its
Subsidiaries that arose in connection with any failure (or alleged failure)
to pay any Tax. Except as disclosed to Parent in the event of changes in
circumstances between the date hereof and the Closing Date which have
occurred in the ordinary course of business and, individually or in the
aggregate, would not be reasonably likely to result in a Company Material
Adverse Effect (i) no material claim for unpaid Taxes that are due and
payable has become a lien against the property of the Company or is being
asserted against the Company, (ii) no audit of any Tax Return of the Company
is being conducted by a Tax authority, and (iii) no extension of the statute
of limitations on the assessment of any Taxes has been granted by the
Company and is currently in effect. As used herein, "Taxes" shall mean all
taxes of any kind, including, without limitation, those on or measured by or
referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, value added, property or windfall profits taxes,
customs, duties or similar fees, similar assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any governmental authority, domestic or
foreign. As used herein, "Tax Return" shall mean any return, report or
statement required to be filed with any governmental authority with respect
to Taxes.
(b) To the Company's knowledge, each of the Company and its Subsidiaries
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(c) There is no dispute or claim concerning any Taxes of any of the
Company and its Subsidiaries either (i) claimed or raised by any authority
in writing or (ii) as to which any of the Company directors and officers
(and employees responsible for Tax matters) of the Company and its
Subsidiaries has knowledge based upon personal contact with any agent of the
taxing authority. The Disclosure Memorandum with specific reference to this
Section lists, or other information provided to Parent within twenty (20)
days after the date hereof will list, all federal, state, local, and foreign
income Tax Returns filed with respect to any of the Company and its
Subsidiaries for taxable periods ended on or
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after December 31, 1990, indicates, or will indicate, those Tax Returns that
have been audited, and indicates, or will indicate, those Tax Returns that
currently are the subject of audit. The Company has made available to Parent
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any of the Company
and its Subsidiaries since January 1, 1991.
(d) None of the Company and its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(e) None of the Company and its Subsidiaries has filed a consent under
Section 341(f) of the Internal Revenue Code of 1986, as amended ("Code")
concerning collapsible corporations. None of the Company and its
Subsidiaries has made any payments, is obligated to make any payments, or is
a party to any agreement that by reason of the transactions contemplated
hereby obligate it to make any payments that will not be deductible under
Code Section 280G. None of the Company and its Subsidiaries has been a
United States real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). Each of the Company and its Subsidiaries has disclosed on
its federal income tax returns all positions taken therein that could give
rise to a substantial under statement of federal income tax within the
meaning of Code Section 6662. None of the Company and its Subsidiaries is a
party to any Tax allocation or sharing agreement. None of the Company and
its Subsidiaries (i) has been a member of an Affiliated Group (as defined in
Code Section 1504) filing a consolidated federal income Tax Return (other
than a group the common parent of which was the Company) or (ii) has any
Losses for the Taxes of any Person (other than any of the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(f) The information with respect to the Company and each of its
Subsidiaries that has been, or prior to Closing will be, provided to Parent
setting forth (i) the tax basis for the United States and Canadian income
tax purposes of the Company or any Subsidiary in its assets; (ii) the basis
of the stockholder(s) of the Subsidiary in its stock; (iii) the amount of
any net operating loss, net capital loss, unused investment or other credit,
unused foreign tax, or excess charitable contribution allocable to the
Company or Subsidiary; and (iv) the amount of any deferred gain or loss
allocable to the Company or any Subsidiary arising out of any intercompany
transaction is materially correct.
(g) The unpaid Taxes of the Company and its Subsidiaries (i) did not, as
of July 3, 1998, exceed the reserve for Taxes (rather than any reserve for
deferred Taxes established to reflect timing differences between book and
Tax income) set forth in the July 3, 1998 balance sheet (rather than in any
notes thereto) and (ii) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom
and practice of the Company and its Subsidiaries in filing their Tax
Returns.
3.11 EMPLOYEE MATTERS. (a) With respect to each Benefit Plan, the Company
has made available to Parent a true and correct copy of (i) the most recent
annual report (Form 5500 and Schedules thereto) filed with the Internal Revenue
Service, (ii) such Benefit Plan, (iii) each trust agreement and group annuity
contract, if any, relating to such Benefit Plan and any predecessor plans
referred to therein, service provider agreements, insurance contracts, and
agreements with investment managers, including all amendments thereto (iv)
current summary plan descriptions of each Benefit Plan subject to ERISA and any
similar descriptions of all other Benefit Plans, (v) the most recent
determination of the IRS with respect to the qualified status of each Benefit
Plan that is intended to qualify under Section 401(a) of the Code (a "Qualified
Plan"), and (vi) the most recent accountings with respect to any Benefit Plan
funded through a trust.
(b) Neither the Company nor any of its Subsidiaries maintains or is
obligated to provide benefits under any life, medical or health plan which
provides benefits to retirees or other terminated employees
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other than benefit continuation rights under the Consolidated Omnibus Budget
Reconciliation of 1985, as amended ("COBRA").
(c) Neither the Company, its Subsidiaries nor any ERISA Affiliate has at any
time contributed to any "multiemployer plan", as that term is defined in Section
4001 of ERISA.
(d) Neither the Company nor any of its Subsidiaries or any ERISA Affiliate
or any predecessor thereof maintains, has maintained at any time during the
five-year period preceding the date of this Agreement, or is obligated to
provide benefits under any pension plan subject to Part 3 of Title I of ERISA,
Section 412 of the Code, or Title IV of ERISA.
(e) No rights have been granted to any person under the Company Stock
Appreciation Rights Plan.
(f) Except as disclosed in the Disclosure Memorandum with specific reference
to this Section, each Benefit Plan covers only employees and directors who are
employed by, or a director of, the Company or a Subsidiary (or former employees,
directors or beneficiaries with respect to service with the Company or a
Subsidiary), so that the transactions contemplated by this Agreement will
require no spin-off of assets and liabilities or other division or transfer of
rights with respect to any such plan.
(g) Each of the Benefit Plans is, and its administration is and has been
since inception, in all material respects in compliance with, and neither the
Company nor any Subsidiary has received any claim or notice that any such
Benefit Plan is not in compliance with, all applicable laws, regulations,
orders, and prohibited transactions exemptions, including the requirements of
ERISA, the Code, the Age Discrimination in Employment Act, the Equal Pay Act and
Title VII of the Civil Rights Act of 1964. Each Qualified Plan is qualified
under Section 401(a) of the Code, and, if applicable, complies with the
requirements of Section 401(k) of the Code. Each Benefit Plan which is intended
to provide for the deferral of income, the reduction of salary or other
compensation or to afford other tax benefits complies with the requirements of
the applicable provisions of the Code or other laws required in order to provide
such tax benefits.
(h) No event has occurred, and, to the knowledge of the Company, there
exists no condition or set of circumstances in connection with any Benefit Plan,
under which the Company or any Subsidiary, directly or indirectly (through any
indemnification agreement or otherwise), could reasonably be expected to be
subject to any risk of material liability under Section 409 of ERISA, Section
502(l) of ERISA, Title IV of ERISA or Section 4975 of the Code.
(i) No employer securities, employer real property or other employer
property is included in the assets of any Benefit Plan.
(j) With respect to the Benefit Plans, individually and in the aggregate, no
event has occurred, and to the knowledge of the Company, there exists no
condition or set of circumstances, other than as disclosed in the Disclosure
Memorandum with specific reference to this Section, in connection with which the
Company or any of its Subsidiaries could be subject to any liability that, (i)
as of the date hereof is reasonably likely to result in Losses in excess of
$250,000 individually or $750,000 in the aggregate, or (ii) between the date
hereof and the Closing Date would, individually or in the aggregate, be
reasonably likely to have a Company Material Adverse Effect (except liability
for benefits claims and funding obligations payable in the ordinary course),
under ERISA, the Code or any other applicable law. Neither the Company nor any
of its Subsidiaries has scheduled or agreed upon future increases of benefit
levels (or creations of new benefits) with respect to any Benefit Plan, and no
such increases or creation of benefits have been proposed, made the subject of
representations to employees or requested or demanded by employees under
circumstances which make it reasonable to expect that such increases will be
granted.
(k) Except as set forth in the Disclosure Memorandum with specific reference
to this Section, with respect to the Benefit Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued in accordance with GAAP and there are no
unfunded benefit obligations which have not been accounted for by reserves, or
otherwise properly
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footnoted in accordance with GAAP, on the consolidated financial statements of
the Company and its consolidated subsidiaries, which obligations, (i) as of the
date hereof could result in Losses in excess of $250,000 individually or
$750,000 in the aggregate, or (ii) between the date hereof and the Closing Date
would, individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect.
(l) Except as set forth in the Disclosure Memorandum with specific reference
to this Section, and except as described in Sections 5.15 and 3.18 hereof,
neither the Company nor any Subsidiary is a party to any oral or written (i)
consulting agreement not terminable on 60 days or less notice, (ii) agreement
with any director, executive officer or key employee of the Company or any
Subsidiary the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
of the nature contemplated by this Agreement, or agreement with respect to any
executive officer of the Company or any Subsidiary providing any term of
employment or compensation guarantee extending for a period longer than one
year, or (iii) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(m) The following terms shall be defined as follows:
"Benefit Plan" means any of the following established by the Company or any
of its Subsidiaries, or any ERISA Affiliate of any of the foregoing, existing at
the Closing Date or prior thereto, to which the Company or any of its
Subsidiaries contributes or has contributed, or under which any employee, former
employee or director of the Company or any Subsidiary or any beneficiary thereof
is covered, is eligible for coverage or has benefit rights: any employment,
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock appreciation rights, stock purchase, stock option,
phantom stock, retirement, vacation, severance, layoff, change of control,
disability, sick leave, death benefit, hospitalization, day or dependent care,
cafeteria, worker compensation or other employee-related insurance or other
plan, arrangement or understanding, whether or not legally binding, whether
written or oral, including, but not limited to any "employee benefit plan"
within the meaning of Section 3(3) of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any person who is in the same controlled group of
corporations or who is under common control with the Company or, before the
Closing, the Company or any of its Subsidiaries within the meaning of Section
414 of the Code.
3.12 LABOR MATTERS. Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement with any labor union, confederation
or association and there are no discussions, negotiations, demands or proposals
that are pending or have been conducted or made with or by any labor union,
confederation or association. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement or in the Disclosure Memorandum with
specific reference to this Section, there are no material controversies pending
or, to the knowledge of the Company, threatened between the Company or any of
its Subsidiaries and any representatives of its employees and, to the knowledge
of the Company, there are no material organizational efforts presently being
made involving Subsidiaries. Since January 1, 1991, there has been no work
stoppage, strike or other concerted action by employees of the Company or any of
its Subsidiaries. During that period, the Company and its Subsidiaries have
complied in all material respects with all applicable laws relating to the
employment of labor, including, without limitation those relating to wages,
hours and collective bargaining. Except as set forth in the Disclosure
Memorandum with specific reference to this Section, there is no present or
former employee, manager or director of the Company or any of its Subsidiaries
who has made any claim since January 1, 1998 against the Company or any of its
Subsidiaries (whether under law, any employment agreement or otherwise) on
account of or for: (i) overtime pay, other than overtime pay for the current
payroll period; (ii) wages or salaries, other than wages or salaries for the
current payroll period; (iii) vacations, sick leave, time off or pay in lieu of
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<PAGE>
vacation, sick leave or time off, other than vacation, sick leave or time off
(or pay in lieu thereof) earned in the twelve-month period immediately preceding
the date of this Agreement; or (iv) termination of employment, and to the
Company's knowledge, there is no basis for any such claim.
3.13 NO MATERIAL CHANGE. Except as set forth in the Disclosure Memorandum
with specific reference to this Section, since July 3, 1998, there have been no
events, changes or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect.
3.14 ABSENCE OF CHANGE OR EVENT. Except as contemplated by this Agreement
or as disclosed in the Disclosure Memorandum with specific reference to this
Section, since July 3, 1998, the Company and its Subsidiaries have conducted
their respective businesses only in the ordinary course and consistent with
prior practice and have not:
(a) amended or proposed to amend their respective certificates or
articles of incorporation or bylaws (or other comparable corporate charter
documents);
(b) incurred any obligation or liability, absolute, accrued, contingent
or otherwise, whether due or to become due, except liabilities or
obligations incurred in the ordinary course of business and consistent with
prior practice;
(c) mortgaged, pledged or subjected to lien, restriction or any other
Encumbrance any of their respective properties, businesses or assets,
tangible or intangible, of the Company or its Subsidiaries, except for liens
arising in the ordinary course of business and consistent with prior
practice to secure debt incurred for the purpose of financing all or part of
the purchase price or the cost of construction or improvement of the
equipment or other property subject to such liens, provided that (i) the
principal amount of any debt secured by such lien does not exceed 100% of
such purchase price or cost, (ii) such lien does not extend to or cover any
other property other than such item of property and any improvements on such
item and (iii) the incurrence of such debt was in the ordinary course of
business and consistent with prior practice;
(d) except in the ordinary course of business and consistent with prior
practice, sold, transferred, leased or loaned to others or otherwise
disposed of any of their respective assets (or committed to do any of the
foregoing), including the payment of any loans owed to any affiliate, except
for inventory sold to customers or returned to vendors in the ordinary
course of business and consistent with prior practice, or canceled, waived,
released or otherwise compromised any debt or claim, or any right of
significant value;
(e) suffered any damage, destruction or loss (whether or not covered by
insurance) which, (i) as of the date hereof, is reasonably likely to result
in Losses in excess of $500,000 in the aggregate, or, (ii) from the date
hereof until the Closing Date, would, individually or in the aggregate, be
reasonably likely to result in a Company Material Adverse Effect;
(f) made or committed to make any capital expenditures or capital
additions or betterments in excess of $1,000,000 in the aggregate;
(g) encountered any labor union organizing activity, had any actual or
threatened employee strikes, or any work stoppages, slow-downs or lock-outs
related to any labor union organizing activity or any actual or threatened
employee strikes;
(h) instituted any litigation, action or proceeding before any court,
governmental body or arbitration tribunal relating to it or its property,
except for litigation, actions or proceedings instituted in the ordinary
course of business and consistent with prior practice;
(i) split, combined or reclassified any of their respective capital
stock, or declared or paid any dividend or made any other payment or
distribution in respect of their respective capital stock, or directly or
indirectly redeemed, purchased or otherwise acquired any of their respective
capital stock;
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(j) acquired, or agreed to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
or otherwise acquired, or agreed to acquire, any assets which are material,
individually or in the aggregate, to the Company and its Subsidiaries taken
as a whole, except for purchases of inventory in the ordinary course of
business and consistent with prior practice;
(k) increased, or agreed or promised to increase, the compensation of
any officer, employee or agent of the Company or any Subsidiary, directly or
indirectly, including by means of any bonus, pension plan, profit sharing,
deferred compensation, savings, insurance, retirement, or any other employee
benefit plan, except in the ordinary course of business and consistent with
prior practice;
(l) except in the ordinary course of business and consistent with prior
practice, increased promotional or advertising expenditures or otherwise
changed their respective policies or practices with respect thereto;
(m) except to the extent required by applicable law, permitted any
material change in (A) any pricing, marketing, purchasing, investment,
accounting, financial reporting, inventory, credit, allowance or tax
practice or policy or (B) any method of calculating any bad debt contingency
or other reserve for accounting, financial reporting or tax purposes;
(n) made or changed any material election concerning Taxes or Tax
Returns, changed an annual accounting period or adopted or changed any
accounting method;
(o) except in the ordinary course of business and consistent with prior
practice, filed any amended Tax Return or extended the applicable statute of
limitations for any taxable period, entered into any closing agreement with
respect to Taxes, settled or compromised any material Tax claim or
assessment or surrendered any right to claim a refund of Taxes or obtained
or entered into any Tax ruling, agreement, or contract, or, except to the
extent promptly disclosed to Parent upon the receipt thereof, received
notification of an examination, audit or pending assessment with respect to
Taxes; or
(p) entered into a contract to do or engage in any of the foregoing
after the date hereof.
3.15 LITIGATION. Except as disclosed in the Disclosure Memorandum with
specific reference to this Section or in the Company SEC Documents filed prior
to the date hereof, there is no (i) outstanding consent, order, judgment, writ,
injunction, award or decree of any Governmental Entity or arbitration tribunal
against or involving the Company or any of its Subsidiaries or any of their
respective properties or assets, (ii) action, suit, claim, counterclaim,
litigation, arbitration, dispute or proceeding pending or, to the Company's
knowledge, threatened against or involving the Company or any of its
Subsidiaries or any of their respective properties or assets or (iii) to the
Company's knowledge, investigation or audit pending or threatened against or
relating to the Company or any of its Subsidiaries or any of their respective
properties or assets or any of its officers or directors (in their capacities as
such) (collectively, "Proceedings") which, (x) as of the date hereof is
reasonably likely to result in Losses in excess of $500,000 in the aggregate, or
(y) between the date hereof and the Closing Date would, individually or in the
aggregate, reasonably be likely to have a Company Material Adverse Effect, or
would impair, prohibit or prevent the consummation of the transactions
contemplated hereby. To the Company's knowledge, there are no existing facts or
circumstances which could form a basis for any Proceeding which, if commenced,
would be reasonably likely to result in a Company Material Adverse Effect, or
would impair, prohibit or prevent the consummation of the transactions
contemplated hereby.
3.16 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. (a) Except as disclosed in
the Disclosure Memorandum with specific reference to this Section, the Company
and its Subsidiaries and their respective properties, assets, operations and
activities, have complied and are in compliance in all respects with all
applicable federal, state and local laws, rules, regulations, ordinances,
orders, judgments and decrees including, without limitation, health and safety
statutes and regulations and all Environmental
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Laws (as defined herein), including, without limitation, all restrictions,
conditions, standards, limitations, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws or contained in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except, with respect
to laws, rules, regulations, ordinances, orders, judgments and decrees other
than those relating to Environmental Laws, the Foreign Corrupt Practices Act and
applicable criminal statutes, where the failure to have complied or be in
compliance is not, individually or in the aggregate, reasonably likely to result
in a Company Material Adverse Effect, or that would impair, prohibit or prevent
the consummation of the transactions contemplated hereby. Neither the Company
nor any Subsidiary is in violation of or in default under any terms or
provisions of (i) their respective articles or certificates of incorporation,
bylaws or similar organizational documents, (ii) any credit or loan agreement,
mortgage or security agreement, deed of trust, note, bond or indenture, or (iii)
any other instrument, obligation, contract or agreement to which it is subject
or by which it is bound, except, in the case of clauses (ii) and (iii), for
violations or defaults which are not, individually or in the aggregate,
reasonably likely to result in a Company Material Adverse Effect.
(b) Except as disclosed in the Disclosure Memorandum with specific reference
to this Section, (i) the Company and its Subsidiaries have obtained all Permits
that are (A) required under all federal, state and local laws, rules,
regulations, ordinances, orders, judgments and decrees, including, without
limitation, the Environmental Laws, for the ownership, construction, use and
operation of each property, facility or location owned, operated or leased by
the Company or any Subsidiary (the "Property") or (B) otherwise necessary in the
conduct of the business of the Company, except for failures to obtain Permits
(other than those that would result in the imposition of criminal sanctions)
which are not, individually or in the aggregate, reasonably likely to result in
a Company Material Adverse Effect and (ii) all such Permits are in effect, no
appeal nor any other action is pending to revoke any such Permit, and the
Company and its Subsidiaries are in full compliance with all terms and
conditions of all such Permits, except for failures to be in compliance which
are not, individually or in the aggregate, reasonably likely to result in a
Company Material Adverse Effect.
(c) The Company has heretofore delivered to Parent true and complete copies
of all environmental studies in the Company's possession relating to the
Property or any other property or facility previously owned, operated or leased
by the Company or any Subsidiary.
(d) Except as disclosed in the Disclosure Memorandum with specific reference
to this Section, there is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding, notice
or demand letter pending relating to the Company, any Subsidiary or the Property
(or any other property or facility formerly owned, operated or leased by the
Company or any Subsidiary) or, to the Company's knowledge, threatened relating
to the Company, any Subsidiary or the Property (or any other such property of
facility) and relating in any way to the Environmental Laws or any regulation,
code, plan, Permits, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except for such
actions, suits, demands, claims, hearings, notices of violation, proceedings,
notices or demand letters which are not, individually or in the aggregate,
reasonably likely to result in a Company Material Adverse Effect.
(e) Neither the Company nor any Subsidiary or any other Person has, Released
(as defined herein), placed, stored, buried or dumped any Hazardous Substances,
Oils, Pollutants or Contaminants or any other wastes produced by, or resulting
from, any business, commercial, or industrial activities, operations, or
processes, on, beneath, or adjacent to the Property (or any other property or
facility formerly owned, operated or leased by the Company or any Subsidiary)
except for inventories of such substances to be used, and wastes generated
therefrom, in the ordinary course of business of the Company and its
Subsidiaries (which inventories and wastes, if any, were and are stored or
disposed of in accordance with applicable laws and regulations and in a manner
such that there has been no Release of any such substances into the
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environment), except where such Releases, placement, storage, burial or dumping
of Hazardous Substances, Oils, Pollutants or Contaminants are not, individually
or in the aggregate, reasonably likely to result in a Company Material Adverse
Effect.
(f) Except as disclosed in the Disclosure Memorandum with specific reference
to this Section, no Release or Cleanup occurred at the Property (or any other
property or facility formerly owned, operated or leased by the Company or any
Subsidiary) which could result in the assertion or creation of a lien on the
Property by any Governmental Entity with respect thereto, nor has any such
assertion of a lien been made by any Governmental Entity with respect thereto,
except for such Releases, Cleanups or assertions of liens which are not,
individually or in the aggregate, reasonably likely to result in a Company
Material Adverse Effect.
(g) Except as disclosed in the Disclosure Memorandum with specific reference
to this Section, no employee of the Company or any Subsidiary in the course of
his or her employment with the Company or any Subsidiary has been exposed to any
Hazardous Substances, Oils, Pollutants or Contaminants or any other substance,
generated, produced or used by the Company or any Subsidiary which could give
rise to any claim against the Company or any Subsidiary, except for such claims
which are not, individually or in the aggregate, reasonably likely to result in
a Company Material Adverse Effect.
(h) Except as disclosed in the Disclosure Memorandum with specific reference
to this Section, neither the Company nor any Subsidiary has received any notice
or order from any Governmental Entity or private or public entity advising it
that the Company or any Subsidiary is responsible for or potentially responsible
for Cleanup or paying for the cost of Cleanup of any Hazardous Substances, Oils,
Pollutants or Contaminants or any other waste or substance, and neither the
Company nor any Subsidiary has entered into any agreements concerning such
Cleanup, nor is the Company or any Subsidiary aware of any facts which might
reasonably give rise to such notice, order or agreement, except for such
notices, orders or agreements which are not, individually or in the aggregate,
reasonably likely to result in a Company Material Adverse Effect.
(i) Except as disclosed in the Disclosure Memorandum with specific reference
to this Section, and except for such items which are not reasonably likely to
result in a Company Material Adverse Effect, the Property does not contain any:
(i) underground storage tanks; (ii) asbestos; (iii) equipment using PCBs; (iv)
underground injection wells; or (v) septic tanks in which process wastewater or
any Hazardous Substances, Oils, Pollutants or Contaminants have been disposed.
(j) Except as disclosed in the Disclosure Memorandum with specific reference
to this Section, with regard to the Company, its Subsidiaries and the Property
(or any other property or facility formerly owned, operated or leased by the
Company or any Subsidiary), and except where the following are not reasonably
likely to result in a Company Material Adverse Effect, there are no past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent compliance or
continued compliance with the Environmental Laws as in effect on the date hereof
or with any regulation, code, plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder, or which
may give rise to any common law or legal liability under the Environmental Laws,
or otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, notice of violation, study or investigation, based on or related to the
manufacture, generation, processing, distribution, use, treatment, storage,
place of disposal, transport or handling, or the Release or threatened Release
into the indoor or outdoor environment by the Company, any Subsidiary or a
present or former facility of the Company or any Subsidiary taken as a whole, of
any Hazardous Substances, Oils, Pollutants or Contaminants.
(k) Except as disclosed in the Disclosure Memorandum with specific reference
to this section, neither the Company nor any Subsidiary has entered into any
agreement that may require it to pay to, reimburse, guaranty, pledge, defend,
indemnify or hold harmless any person for or against Environmental Liabilities
and Costs.
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(l) The following terms shall be defined as follows:
"Cleanup" means all actions required to: (1) cleanup, remove, treat or
remediate Hazardous Substances, Oils, Pollutants or Contaminants in the indoor
or outdoor environment; (2) prevent the Release of Hazardous Substances, Oils,
Pollutants or Contaminants so that they do not migrate, endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; (3)
perform pre-remedial studies and investigations and post-remedial monitoring and
care; or (4) respond to any government requests for information or documents in
any way relating to cleanup, removal, treatment or remediation or potential
cleanup, removal, treatment or remediation of Hazardous Substances, Oils,
Pollutants or Contaminants in the indoor or outdoor environment.
"Environmental Laws" means all foreign, federal, state and local laws,
regulations, rules and ordinances relating to pollution or protection of the
environment, including, without limitation, laws relating to Releases or
threatened Releases of Hazardous Substances, Oils, Pollutants or Contaminants
into the indoor or outdoor environment (including, without limitation, ambient
air, surface water, groundwater, land, surface and subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, Release, transport or handling of Hazardous Substances, Oils,
Pollutants or Contaminants, and all laws and regulations with regard to
recordkeeping, notification, disclosure and reporting requirements respecting
Hazardous Substances, Oils, Pollutants or Contaminants.
"Environmental Liabilities and Costs" means all liabilities, obligations,
responsibilities, obligations to conduct Cleanup, losses, damages, deficiencies,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigations and feasibility studies
and responding to government requests for information or documents), fines,
penalties, restitution and monetary sanctions, interest, direct or indirect,
known or unknown, absolute or contingent, past, present or future, resulting
from any claim or demand, by any Person, whether based in contract, tort,
implied or express warranty, strict liability, joint and several liability,
criminal or civil statute, including any Environmental Law, or arising from
environmental, health or safety conditions, involving the Release or threatened
Release of Hazardous Substances, Oils, Pollutants or Contaminants into the
environment, as a result of past or present ownership, leasing or operation of
any properties, owned, leased or operated by the Company or any Subsidiary,
including, without limitation, any of the foregoing incurred in connection with
the conduct of any Cleanup.
"Hazardous Substances, Oils, Pollutants or Contaminants" means all
substances defined as such in the National Oil and Hazardous Substances
Pollution Contingency Plan, 40 C.F.R. sec. 300.5, or defined as such by, or
regulated as such under, any Environmental Law.
"Release" means, when used as a noun, any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater, and surface or subsurface
strata) or into or out of any property, including the movement of Hazardous
Substances, Oils, Pollutants or Contaminants through or in the air, soil,
surface water, groundwater or property, and when used as a verb, the occurrence
of any Release.
3.17 INSURANCE. Except as disclosed in the Disclosure Memorandum with
specific reference to this Section, the insurance policies in force with respect
to the business and properties of the Company and its Subsidiaries are in full
force and effect, all premiums with respect thereto covering all periods up to
and including the Closing Date have been paid, and no notice of cancellation or
termination has been received with respect to any such policy. Such policies are
sufficient for material compliance with all requirements of law and all
agreements to which the Company or any Subsidiary is a party; are valid,
outstanding and enforceable policies; and provide adequate insurance coverage
for the assets and operations of the Company and its Subsidiaries. Such
insurance policies are placed with financially sound and reputable insurers and,
in light of the respective business, operations and assets and properties of the
Company and
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its Subsidiaries, are in amounts and have coverages that are reasonable and
customary for persons engaged in such businesses and operations and having such
assets and properties. Neither the Company nor any Subsidiary or the Person to
whom such policy has been issued has received notice that any insurer under any
policy referred to in this Section is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause.
3.18 AFFILIATE INTERESTS. (a) Except as disclosed by the Company SEC
Documents and except for services provided by the directors and executive
officers of the Company and its Subsidiaries in their capacities as such and the
compensation paid therefor, the Disclosure Memorandum with specific reference to
this Section, sets forth all amounts paid (or deemed for accounting purposes to
have been paid) and services provided by the Company and its Subsidiaries to, or
received by the Company and its Subsidiaries from, any affiliate of the Company
or any Subsidiary since December 31, 1993 and all such amounts currently owed by
the Company or any Subsidiary to, or to the Company or any Subsidiary by, any
affiliate of the Company or any Subsidiary. For purposes of this Agreement, the
term "affiliate" shall have the meaning ascribed thereto in Rule 405 of the
Securities Act.
(b) Each contract, agreement, plan or arrangement between the Company or any
Subsidiary on the one hand, and any affiliate of the Company or any Subsidiary
or affiliate thereof, on the other hand ("Affiliate Arrangements") is disclosed
in the Disclosure Memorandum with specific reference to this Section or Section
3.18(a). Except as disclosed in the Disclosure Memorandum with specific
reference to this Section or Section 3.18(a), each of the transactions described
in Section 3.18(a) and each of the Affiliate Arrangement was entered into in the
ordinary course of business and on commercially reasonable terms and conditions.
3.19 CUSTOMERS AND SUPPLIERS. Except as set forth in the Disclosure
Memorandum with specific reference to this Section, as of the date hereof, no
customer which individually accounted for more than 1% of the gross revenues of
the Company and all its Subsidiaries during the 12 month period preceding the
date hereof, and no supplier of the Company and all its Subsidiaries, has
canceled or otherwise terminated, or made any written threat to the Company or
any Subsidiary to cancel or otherwise terminate, its relationship with the
Company or any Subsidiary, or has at any time on or after July 3, 1998 decreased
materially its services or supplies to the Company and all its Subsidiaries in
the case of any such supplier, or its usage of the services or products of the
Company and all its Subsidiaries in the case of any such customer, and to the
knowledge of the Company no such supplier or customer intends to cancel or
otherwise terminate its relationship with the Company or any Subsidiary or to
decrease materially its services or supplies to the Company and all its
Subsidiaries or its usage of the services or products of the Company and all its
Subsidiaries, as the case may be. From and after the date hereof, no customer
which individually accounted for more than 5% of the gross revenues of the
Company and all its Subsidiaries during the 12 month period preceding the
Closing Date, has canceled or otherwise terminated, or made any written threat
to the Company to cancel or otherwise terminate, for any reason, including
without limitation the consummation of the transactions contemplated hereby, its
relationship with the Company and all Subsidiaries, and no such customer intends
to cancel or otherwise terminate its relationship with the Company and all its
Subsidiaries or to decrease materially its usage of the services or products of
the Company and all its Subsidiaries. Neither the Company nor any Subsidiary has
breached, so as to provide a benefit to the Company or any Subsidiary that was
not intended by the parties, any agreement with, or engaged in any fraudulent
conduct with respect to, any customer or supplier of the Company or any
Subsidiary. The Disclosure Memorandum with specific reference to this Section,
sets forth the dates of each audit conducted since January 1, 1995 by each
material supplier of the Company and its Subsidiaries and summaries of the
results of such audits.
3.20 ABSENCE OF QUESTIONABLE PAYMENTS. To the Company's knowledge, neither
the Company nor any Subsidiary or any director, officer, agent, employee or
other Person acting on behalf of the Company or any Subsidiary has used, or
authorized the use of, any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating to
political
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activity to government officials or others or established or maintained any
unlawful or unrecorded funds in violation of Section 30A of the Exchange Act. To
the Company's knowledge, the directors, employees and independent commission
agents of the Company and its Subsidiaries are in compliance with ethical
standards and other trading practices mandated by applicable laws and
contractual arrangements and have not made payments to any third parties other
than in the ordinary course of business pursuant to contracts.
3.21 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by or on behalf of the Company or any Subsidiary for inclusion or
incorporation by reference in (i) the proxy statement in definitive form
relating to the meeting of the Company's stockholders to be held in connection
with the Merger (the "Proxy Statement") will, at the date first mailed to
stockholders, contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of
circumstances under which they are made, not misleading and (ii) the Proxy
Statement or any amendment thereof or supplement thereto will, at the time of
the meeting of the Company's stockholders to be held in connection with the
Merger, contain any untrue statement of a material fact, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for such meetings of stockholders.
The Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
3.22 OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of
Jefferies & Company, Inc., dated as of September 29, 1998, to the effect that,
as of such date, from a financial point of view, the Merger Consideration to be
offered to the stockholders of the Company in the Merger is fair to such
stockholders, a copy of which opinion has been delivered to Parent.
3.23 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the outstanding shares of the Company Common Stock is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
3.24 COMPANY NOT AN INTERESTED SHAREHOLDER OR A 30% SHAREHOLDER. As of the
date hereof, neither the Company nor any Subsidiary or any of their respective
affiliates is an "interested shareholder" of Parent as such term is defined in
Section 912 of the New York Business Corporation Law or a "30% Shareholder" of
Parent as such term is defined in Article TENTH of Parents' Restated Certificate
of Incorporation.
3.25 SECTION 203 OF THE DGCL NOT APPLICABLE. The provisions of Section 203
of the DGCL will not, prior to the termination of this Agreement, apply to this
Agreement, the Merger or the other transactions contemplated hereby.
3.26 DISCLOSURE. No representation or warranty by the Company in this
Agreement, including the Disclosure Memorandum, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in light of the circumstances under which it was made, to make
the statements herein or therein not misleading. There is no fact known to the
Company and its Subsidiaries taken as a whole which could have a material
adverse effect on the financial condition, results of operations, prospects or
business of the Company and its Subsidiaries taken as a whole, which has not
been set forth in the Company SEC Documents or in this Agreement, including the
Disclosure Memorandum.
3.27 THE COMPANY'S KNOWLEDGE. The term "the Company's knowledge" or words
of similar import shall mean the actual knowledge after due inquiry of any of
the Company's directors and officers.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
4.1 ORGANIZATION AND AUTHORITY. Each of Parent and Sub is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and, is duly licensed or qualified and in good standing as a foreign
corporation in each jurisdiction in which the nature of the activities conducted
by it or the character of the properties owned, leased or operated by it
requires it to be so licensed or so qualified, except where the failure to be so
licensed or so qualified would not have a material adverse effect on Parent and
its Subsidiaries taken as a whole (a "Parent Material Adverse Effect"). Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated hereby.
(b) Each of Parent and Sub has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Parent
and Sub and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly and validly approved by its Board of
Directors and by Parent in its capacity as the sole stockholder of Sub; and
no other corporate proceedings on the part of the either Parent or Sub or
their stockholders are necessary to authorize the execution, delivery and
performance of this Agreement by Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Parent and Sub, and (assuming
due execution and delivery by the Company) this Agreement constitutes a
valid and binding obligation of each of Parent and Sub, enforceable in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of
the court before which any proceeding therefor may be brought, and except as
indemnification may be limited by public policy.
4.2 NO VIOLATION; CONSENTS AND APPROVALS. Neither Parent, Sub nor any of
their respective properties or assets, is subject to or bound by any provision
of:
(a) to Parent's knowledge, any law, statute, rule, regulation, ordinance
or judicial or administrative decision;
(b) any articles or certificate of incorporation or by-laws;
(c) any (i) credit or loan agreement, mortgage, deed of trust, note,
bond, indenture, license, concession, franchise, permit, trust,
custodianship, other restriction, or (ii) instrument, lease, obligation,
contract or agreement; or
(d) any judgment, order, writ, injunction or decree;
that would impair, prohibit or prevent, or would be violated or breached by, or
under which there would be a material default (with or without notice or lapse
of time, or both) as a result of, the execution, delivery and performance by
each of Parent and Sub of this Agreement and the consummation of the
transactions contemplated hereby, except where such event or occurrence is not,
individually or in the aggregate, reasonably likely to have a Parent Material
Adverse Effect. Other than (i) the filing of the Certificate of Merger as
provided in Section 1.1, (ii) the filing with the SEC and Nasdaq of the Proxy
Statement, (iii) such consents, orders, approvals, authorizations,
registrations, declarations and filings as may be required under the Investment
Canada Act, the Competition Act (Canada), applicable state securities laws and
the securities laws of any foreign country, (iv) such filings as may be required
under the HSR Act and (v) such local consents, orders, approvals,
authorizations, registrations, declarations and filings which, if not
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obtained or made, would not, individually or in the aggregate, reasonably be
likely to have a Parent Material Adverse Effect on and that would not impair,
prohibit or prevent the consummation of the transactions contemplated hereby, no
consent, order, approval or authorization of, or declaration, notice,
registration or filing with, any Person is required by or with respect to the
execution, delivery and performance by Parent and Sub of this Agreement and the
consummation of the transactions contemplated hereby.
4.3 SEC REPORTS AND FINANCIAL STATEMENTS OF PARENT. Parent has filed with
the SEC, and has heretofore provided to the Company true and complete copies of,
all forms, reports, schedules, statements and other documents required to be
filed by it since December 31, 1993 under the Exchange Act or the Securities Act
(as such documents have been amended since the time of their filing,
collectively, the "Parent SEC Documents"). The Parent SEC Documents, including
without limitation any financial statements and schedules included therein, at
the time filed or, if subsequently amended, as so amended, (i) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. The financial
statements of Parent included in the Parent SEC Documents comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present (subject, in the case of the unaudited statements, to customary
year-end audit adjustments) the consolidated financial position of the Company
and its consolidated Subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows.
4.4 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by or on behalf of Parent or Sub for inclusion or incorporation by
reference from documents filed by Parent or any of its Subsidiaries with the SEC
in (i) the Proxy Statement will, at the date first mailed to stockholders,
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of circumstances under
which they are made, not misleading and (ii) the Proxy Statement or any
amendment thereof or supplement thereto will, at the time of the meeting of the
Company's stockholders to be held in connection with the Merger, contain any
untrue statement of a material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for such meetings of stockholders. All such
documents filed by Parent or Sub with the SEC under the Exchange Act will comply
as to form in all material respect with the requirements of the Exchange Act.
4.5 LITIGATION. There is no (i) outstanding consent, order, judgment,
writ, injunction, award or decree of any Governmental Entity or arbitration
tribunal against or involving Parent or Sub or any of their respective
properties or assets, (ii) action, suit, claim, counterclaim, litigation,
arbitration, dispute or proceeding pending or, to Parent's knowledge, threatened
against or involving Parent or Sub or any of their respective properties or
assets or (iii) to Parent's knowledge, investigation or audit pending or
threatened against or relating to Parent or Sub or any of their respective
properties or assets or any of their respective officers or directors (in their
capacities as such) (collectively, "Parent Proceedings") which is, individually
or in the aggregate, reasonably likely to impair, prohibit or prevent the
consummation of the transactions contemplated hereby. To Parent's knowledge,
there are no existing facts or circumstances which could form a basis for any
Parent Proceeding which, if commenced, would be reasonably likely to impair,
prohibit or prevent the consummation of the transactions contemplated hereby.
4.6 PARENT'S KNOWLEDGE. The term "Parent's knowledge" or words of similar
import shall mean the actual knowledge after due inquiry of any of Parent's
directors and executive officers.
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ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
OF THE COMPANY AND PARENT
5.1 CONDUCT OF THE COMPANY'S BUSINESS PRIOR TO THE CLOSING DATE. The
Company agrees as to itself and its Subsidiaries that, between the date hereof
and the Closing Date:
(a) Except as contemplated by this Agreement, as disclosed in the
Disclosure Memorandum with specific reference to this Section or Section
3.14 or as permitted by the prior written consent of Parent, the Company and
its Subsidiaries shall operate their respective businesses only in the
usual, regular and ordinary course consistent with prior practice, and the
Company and its Subsidiaries shall not:
(i) take any action of the nature referred to in Section 3.14,
except as expressly permitted therein;
(ii) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of their respective capital stock (except
pursuant to, and in accordance with the terms of, the options outstanding
on the date hereof created pursuant to the Company Option Plan, the
Indenture and the Simmonds Warrant) or any Voting Debt, or any securities
convertible into or exchangeable for, or any rights, warrants, calls,
subscriptions or options to acquire, any shares of their respective
capital stock or any Voting Debt;
(iii) increase, decrease or modify, or authorize or propose the
increase, decrease or modification of, the authorized capital of the
Company or the number of issued and outstanding shares of Company Common
Stock except such increases, decreases or modifications as may occur upon
the issuance of capital stock of the Company pursuant to the exercise of
options or warrants, or the conversion of securities or instruments
convertible into the capital stock of the Company, which options,
warrants and convertible securities or instruments are outstanding as of
the date hereof;
(iv) modify or amend, or authorize or propose to modify or amend,
the Company's or any Subsidiary's certificate or articles of
incorporation, bylaws or similar organizational documents;
(v) except as required by law, create or enter into an agreement or
benefit plan which, if existing as of the date hereof would constitute a
Benefit Plan, or modify an existing Benefit Plan;
(vi) maintain or provide, or agree to maintain or provide, benefits
under any life, medical or health plan for retirees or other terminated
employees of the Company other than benefit continuation rights under
COBRA;
(vii) take or permit any affiliate thereof to take any action that
would or is reasonably likely to result in any of the Company's
representations and warranties set forth in this Agreement not to be true
as of the date made (to the extent so limited) or in any of the
conditions to the Merger set forth in Article 6 not being satisfied;
(viii) modify, change, increase or decrease the Company's equity
interest or investment in any of the Company's Subsidiaries other than
intercompany transfers in the ordinary course as part of the Company's
cash management arrangements;
(ix) except as required by law, negotiate or enter into any
collective bargaining agreement; or
(x) enter into any agreement or contract with any Affiliate of the
Company or any of its Subsidiaries or modify or amend, or authorize or
propose to modify or amend, any existing agreement or contract with any
Affiliate of the Company of its Subsidiaries.
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(b) The Company shall preserve the business organization of the Company
and its Subsidiaries intact and shall use its best efforts to keep available
to Parent the services of the present officers and employees of the Company
and its Subsidiaries and to preserve for Parent the good will of the
Company's suppliers, customers, and others having business relations with
the Company; PROVIDED, THAT the Company shall not be required to incur any
additional expenses with regard to such officers and employees, except for
such expenses that are mutually agreed upon by the parties. Except with the
prior written consent of Parent (not to be unreasonably withheld), the
Company shall not terminate or cause to be terminated any distribution
agreement to which it is a party.
(c) The Company and its Subsidiaries shall maintain in force the
insurance policies referred to in Section 3.17 or insurance policies
providing the same or substantially similar coverage; provided, however,
that the Company will notify Parent prior to the expiration of any of such
insurance policies.
(d) The Company shall use its best efforts to pursue its rights with
respect to the matters listed in the Disclosure Memorandum with respect to
Section 3.14(h) and the Proceedings contemplated by Section 3.15.
(e) Except as contemplated by this Agreement or permitted by the prior
written consent of Parent, no plan, fund, or arrangement referred to in
Section 3.11, or any option or award agreement thereunder, has been or will
be:
(i) terminated by the Company or any Subsidiary;
(ii) amended (except as expressly required by law) in any manner
which would directly or indirectly increase the benefits accrued, or
which may be accrued, by any participant thereunder; or
(iii) amended in any manner which would materially increase the cost
to Parent of maintaining such plan, fund, or arrangement.
5.2 CONDUCT OF BUSINESS OF SUB. Prior to the Effective Time, except as may
be required by applicable law and subject to the other provisions of this
Agreement, Parent shall cause Sub to (a) perform its obligations under this
Agreement in accordance with its terms, (b) not incur directly or indirectly any
liabilities or obligations other than those incurred in connection with the
Merger, (c) not engage directly or indirectly in any business or activities of
any type or kind and not enter into any agreements or arrangements with any
person, or be subject to or bound by any obligation or undertaking, which is not
contemplated by this Agreement and (d) not create, grant or suffer to exist any
lien upon its properties or assets which would attach to any properties or
assets of the Surviving Corporation after the Effective Time.
5.3 PREPARATION OF THE PROXY STATEMENT. The Company shall promptly prepare
and file with the SEC the Proxy Statement and shall use its best efforts to (i)
have the Proxy Statement cleared by the SEC and (ii) cause the Proxy Statement
to be mailed to the stockholders of the Company at the earliest practicable
date. Parent, Sub and the Company shall cooperate with each other in the
preparation of the Proxy Statement, and the Company shall notify Parent of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information, and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC with respect to the Proxy Statement. The Company shall give Parent and its
counsel the opportunity to review the Proxy Statement and all responses to
requests for additional information by and replies to comments of the SEC before
their being filed with, or sent to, the SEC. Each of the Company, Parent and Sub
agrees to use its best efforts, after consultation with the other parties
hereto, to respond promptly to all such comments of and requests by the SEC and
to cause the Proxy Statement to be mailed to the holders of Company Common Stock
entitled to vote at the Company Stockholders' Meeting at the earliest
practicable time.
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5.4 LEGAL CONDITIONS TO MERGER. Each of the Company, Parent and Sub will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information required
in connection with approvals of or filing with any Governmental Entity) and will
promptly cooperate with each other and furnish information to each other in
connection with any such requirements imposed upon any of them or any of their
Subsidiaries in connection with the Merger. Each of the Company, Parent and Sub
will, and will cause its Subsidiaries to, take all reasonable actions necessary
to (a) obtain (and will cooperate with each other in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity or other public or private third party, required to be obtained or made
by Parent, the Company or any of their respective Subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement and (b) provide such other information and communications to such
Governmental Entities or other public or private third parties as the other
party or such Governmental or Regulatory Authorities or other public or private
third parties may reasonably request in connection therewith. In addition to and
not in limitation of the foregoing, each of the parties will (x) take promptly
all actions necessary to make the filings required of Parent and the Company or
their affiliates under the HSR Act, (y) comply at the earliest practicable date
with any request for additional information received by such party or its
affiliates from the Federal Trade Commission (the "FTC") or the Antitrust
Division of the Department of Justice (the "Antitrust Division") pursuant to the
HSR Act, and (z) cooperate with the other party in connection with such party's
filings under the HSR Act and in connection with resolving any investigation or
other inquiry concerning the Merger or the other matters contemplated by this
Agreement commenced by either the FTC or the Antitrust Division or state
attorneys general.
5.5 STOCKHOLDER'S MEETING. The Company shall call a meeting of its
stockholders to be held as promptly as practicable for the purpose of voting
upon the adoption of this Agreement. The Company will, through its Board of
Directors, unanimously recommend to its stockholders adoption of this Agreement
and will solicit proxies in favor of the adoption of this Agreement, and shall
take all other action reasonably necessary or advisable to secure the vote or
consent of stockholders required to effect the Merger; provided, however, that
the Board of Directors of the Company shall not be obligated to recommend
approval of this Agreement to its stockholders if such Board of Directors,
acting with the advice of its counsel and financial advisors, determines that
such recommendation would not be consistent with its fiduciary obligations
imposed by applicable law. In the event that the Company Stockholders' Approval
is not obtained on the date on which the Company Stockholders' Meeting is
initially convened, the Board of Directors of the Company agrees to adjourn such
Company Stockholders' Meeting at least twice for the purpose of obtaining the
Company Stockholders' Approval and to use its best efforts during any such
adjournments to obtain the Company Stockholders' Approval.
5.6 FEES AND EXPENSES. (a) Except as set forth in Section 5.6(b), whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense, except that expenses incurred in connection
with printing the Proxy Statement, registration and filing fees incurred in
connection with the Proxy Statement, and fees, costs and expenses associated
with compliance with applicable state securities laws in connection with the
Merger shall be shared equally by Parent and the Company.
(b) In the event that (i) either Parent or the Company shall terminate
this Agreement pursuant to Section 7.1(e), (ii) either Parent or the Company
shall terminate this Agreement pursuant to Section 7.1(f)(ii) and, prior to
the time of the meeting of the Company's stockholders, there shall have been
(A) a Trigger Event with respect to the Company or (B) a Takeover Proposal
(as defined in Section 5.12) with respect to the Company which at the time
of the meeting of the Company's stockholders shall not have been (x)
rejected by the Company and (y) withdrawn by the third party, or (iii)
Parent shall terminate this Agreement pursuant to Section 7.1(c), due in
whole or in part to any failure by the Company to use its best efforts to
perform and comply with all agreements and
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conditions required by this Agreement to be performed or complied with by
the Company prior to or on the Closing Date or any failure by the Company's
affiliates to take any actions required to be taken hereby, and prior
thereto there shall have been (A) a Trigger Event with respect to the
Company or (B) a Takeover Proposal with respect to the Company which shall
not have been (x) rejected by the Company and (y) withdrawn by the third
party, then in each case, the Company shall reimburse Parent for costs and
expenses incurred by Parent in the amount of $1,500,000, without any
requirement that Parent account for actual costs or expenses, and, in
addition, the Company shall promptly pay to Parent the sum of $5,500,000. In
the event that Parent or the Company shall terminate this Agreement pursuant
to Section 7.1(c) or (d), as applicable, due to a willful breach of this
Agreement by the non-terminating party, the non-terminating party shall
reimburse the terminating party for actual expenses incurred within a
reasonable time after presentment by the terminating party to the
non-terminating party of documentary evidence that such expenses were
incurred and paid; provided, however, that notwithstanding such
reimbursement, the terminating party may seek such additional remedies for
damages against the non-terminating party with respect to such willful
breach as are available at law or in equity. As used herein, a "Trigger
Event" shall occur if any Person (A) acquires securities representing 10% or
more of the voting power of the Company (PROVIDED that if any Person
beneficially owns 10% or more of the voting power of the Company on the date
hereof, a Trigger Event shall occur if such Person acquires additional
securities representing 1% or more of all voting power of the Company), or
(B) commences a tender or exchange offer following the successful
consummation of which the offeror and its affiliates would beneficially own
securities representing 25% or more of the voting power of the Company;
PROVIDED, HOWEVER, that a Trigger Event shall not be deemed to include the
acquisition by any Person of securities representing 10% or more (or 10%
owner acquiring 1% or more) of the Company if such Person has acquired such
securities not with the purpose nor with the effect of changing or
influencing the control of the Company, nor in connection with or as a
participant in any transaction having such purpose or effect, including
without limitation not in connection with such Person (i) making any public
announcement with respect to the voting of such shares at any meeting to
consider any merger, consolidation, sale of substantial assets or other
business combination or extraordinary transaction involving the Company,
(ii) making, or in any way participating in, any "solicitation" of "proxies"
(as such terms are defined or used in Regulation 14A under the Exchange Act)
to vote any voting securities of the Company (including, without limitation,
any such solicitation subject to Rule 14a-11 under the Exchange Act) or
seeking to advise or influence any Person with respect to the voting of any
voting securities of the Company, (iii) forming, joining or in any way
participating in any "group" within the meaning of Section 13(d)(3) of the
Exchange Act with respect to any voting securities of the Company or (iv)
otherwise acting, alone or in concert with others, to seek control of the
Company or to seek to control or influence the management or policies of the
Company.
5.7 BROKER'S AND FINDER'S FEES. Each of Parent, Sub and the Company
represents, as to itself, its Subsidiaries, and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement,
except Jefferies & Co., Inc., whose fees and expenses will be paid by the
Company in accordance with the Company's agreement with such firm (copies of
which have been delivered by the Company to Parent on or prior to the date of
this Agreement).
5.8 TAKEOVER STATUTES. If any "fair price", "moratorium", "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and the members
of the Board of Directors of the Company shall grant such approvals and take
such actions as are reasonably necessary so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
hereby and thereby and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated hereby and thereby.
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5.9 ACCESS TO INFORMATION AND CONFIDENTIALITY. The Company agrees that
Parent and Sub may conduct such reasonable investigation with respect to the
business, business prospects, assets, liabilities (contingent or otherwise),
results of operations, employees and financial condition of the Company as will
permit Parent and Sub to evaluate their interest in the transactions
contemplated by this Agreement. Each parties' obligations under that certain
confidentiality agreement, dated as of April 29, 1998 (the "Confidentiality
Agreement"), which are hereby adopted, and incorporated by reference herein,
shall apply to all confidential information furnished to it by the other party
pursuant to this Agreement. No later than the Closing, the Company will cause
all books and records of the Company (including those relating to Taxes) to be
physically located at one of the offices of the Company.
5.10 INDEMNIFICATION. (a) Each of the Constituent Corporations shall, and
from and after the Effective Time Parent and the Surviving Corporation shall,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of such Constituent Corporation (the "Indemnified Parties")
against (i) all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party of or in connection with any claim, action, suit, proceeding
or investigation based on or arising out of the fact that such person is or was
a director or officer of such Constituent Corporation, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
reasserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities") and (ii) all Indemnified Liabilities based on, or arising out of,
or pertaining to this Agreement or the transactions contemplated hereby, in each
case to the full extent such corporation is permitted under the DGCL or the
Business Corporation Law of the State of New York, its Certificate of
Incorporation or Bylaws, in each case as in effect on the date hereof, to
indemnify its own directors and officers, as the case may be (and each of the
Constituent Corporations, Parent and the Surviving Corporation, as the case may
be, will pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law;
PROVIDED that the person to whom expenses are advanced provides any undertaking
required by applicable law to repay such advance if it is ultimately determined
that such person is not entitled to indemnification). Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them and such Constituent Corporation (or them, Parent and the
Surviving Corporation after the Effective Time); (ii) such Constituent
Corporation (or after the Effective Time, Parent and the Surviving Corporation)
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; and (iii) such Constituent
Corporation (or after the Effective Time, Parent and the Surviving Corporation)
will use all reasonable efforts to assist in the vigorous defense of any such
matter, provided that neither such Constituent Corporation nor Parent or the
Surviving Corporation shall be liable for any settlement of any claim effected
without its written consent, which consent, however, shall not be unreasonably
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 5.10, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Constituent Corporation (or after the Effective
Time, Parent or the Surviving Corporation) (but the failure so to notify a party
shall not relieve such party from any liability which it may have under this
Section 5.10 except to the extent such failure prejudices such party). The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each such matter unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties, in which case they may retain such
number of law firms as is necessary to address such conflict.
(b) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (provided that
Parent may substitute therefor policies of substantially the same coverage
and amounts containing terms and conditions which are no less advantageous)
with respect to claims arising from facts or events that occurred before the
Effective Time.
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(c) The provisions of this Section 5.10 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
5.11 ADDITIONAL AGREEMENTS; BEST EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use best
efforts to take, or cause to be taken, all action 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, subject to the appropriate vote of the stockholders of the Company
described in Section 5.5, and to satisfy the conditions to Closing set forth in
Article VI including cooperation fully with the other party, including by
provision of information and making all necessary filings in connection with,
among other things, any approvals required from Governmental Entities. In case
at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
5.12 NO SOLICITATION. The Company shall not, and shall not authorize or
permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
to, (a) solicit, initiate or encourage (including by way of furnishing
information), or take any other action to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, any Takeover Proposal (as hereinafter defined), or (b) agree to or endorse
any Takeover Proposal. Notwithstanding the immediately preceding sentence, if
the Company shall not have breached the covenant provided by clause (a) of the
immediately preceding sentence and a Takeover Proposal, or a written expression
of interest that can reasonably be expected to lead to a Takeover Proposal,
shall occur, then, upon the good faith determination of the Board of Directors
of the Company, acting upon the advice of its legal and financial advisors, that
the Takeover Proposal is a better offer than the transactions contemplated by
this Agreement and consistent with the fiduciary obligations under applicable
law of the Company's Board of Directors, the Company and its officers,
directors, employees, investment bankers, financial advisors, attorneys,
accountants and other representatives retained by it may furnish in connection
therewith information (including non-public information, but only pursuant to a
confidentiality agreement in customary form, including customary standstill
provisions) and take such other actions as are consistent with the fiduciary
obligations of the Company's Board of Directors, and such actions shall not be
considered a breach of this Section 5.12 or any other provision of this
Agreement; provided, however, that the Company shall not, and shall not permit
any of its officers, directors, employees or other representatives to, agree to
or endorse any Takeover Proposal unless the Company shall have terminated this
Agreement pursuant to Section 7.1(e) and paid to Parent all amounts payable to
Parent pursuant to Section 5.6(b). The Company shall promptly advise Parent
orally and in writing of any inquiries or Takeover Proposals and keep Parent
informed of the status and material information with respect to such inquiries
or Takeover Proposals. As used in this Agreement, "Takeover Proposal" shall
mean any tender or exchange offer, proposal for a merger, consolidation or other
business combination involving the Company or the Company Common Stock and made
by a Person other than Parent or any proposal or offer to acquire in any manner
a substantial equity interest in, or a substantial portion of the assets of, the
Company other than the transactions contemplated by this Agreement.
5.13 ADVICE OF CHANGES; GOVERNMENT FILINGS. The Company shall confer on a
regular and frequent basis with Parent, report on operational matters and
promptly advise Parent of any change or event having, or which, insofar as can
reasonably be foreseen, could result in a Company Material Adverse Effect. Each
party shall promptly provide the other (or its counsel) copies of all filings
made by such party with any state or Federal Governmental Entity in connection
with this Agreement and the transactions contemplated hereby and thereby.
5.14 PRESS RELEASES. Prior to the Effective Time, the Company and Parent
shall consult with each other as to the form and substance of any press release
or other public disclosure related to this Agreement or any of the transactions
contemplated hereby; provided, however, that nothing in this Section 5.14 or any
other provision of this Agreement shall be deemed to prohibit any party from
making
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any disclosure which its legal counsel deems necessary or advisable in order to
satisfy such disclosure obligations under applicable laws or regulations.
5.15 COMPANY OPTION PLANS. (a) At the Effective Time, each unexpired and
unexercised option to purchase shares of Company Common Stock (each a "Company
Option") under the Company Option Plan shall be deemed to be automatically
converted into an option to purchase the number of shares of Parent Common Stock
(a "Parent Option") equal to the number of shares of Company Common Stock that
could have been purchased under such Company Option multiplied by a fraction,
the numerator of which is $10.50 and the denominator of which is the average of
the closing prices per share on the New York Stock Exchange of Parent Common
Stock for the five trading days immediately preceding the Closing Date (with the
resulting number of shares rounded down to the nearest whole share) (the "Option
Conversion Ratio"), at a price per share of Parent Common Stock equal to the
exercise price of such Company Option divided by the Option Conversion Ratio and
the result thereof rounded up to the nearest whole cent; PROVIDED, HOWEVER,
that, in case any Company Option intended to qualify as an incentive stock
option under Section 422 of the Code (or a predecessor thereto) is deemed
converted into a Parent Option as provided above, the option price, the number
of shares of Parent common stock that may be purchased pursuant to such Parent
Option and the terms and conditions of such Parent Option shall be determined in
order to comply with Section 424(a) of the Code. Such Parent Option shall
otherwise be subject to the same terms and conditions as the Company Option. The
date of grant of the substituted Parent Option shall be the date on which the
corresponding Company Option was granted. The Board of Directors of the Company
shall take such actions as are necessary or advisable to effect the transactions
contemplated by this Section 5.15.
(b) At the Effective Time, Parent shall (i) assume all of the Company's
obligations with respect to Company Options as contemplated by Section
5.15(a) above, (ii) reserve for issuance the number of shares of Parent
Common Stock that will become subject to Parent Options pursuant to this
Section 5.15, (iii) from and after the Effective Time, upon exercise of the
Parent Options in accordance with the terms thereof, make available for
issuance all shares of Parent Common Stock covered thereby, and (iv) as soon
as practicable after the Effective Time, issue to each holder of an
outstanding Company Option a document evidencing the foregoing assumption by
Parent.
(c) The Company Stock Appreciation Rights Plan shall be terminated
effective as of the Effective Time and the Company shall not grant any
rights under said plan prior to its termination.
(d) As promptly as practicable after the Effective Time, Parent shall
file a registration statement covering the shares of Parent Common Stock
that may be issued upon the exercise of Company Options (converted to Parent
Options pursuant to this Section 5.15) and shall use its best efforts to
cause the offer and sale of such shares to be registered under the
Securities Act, and to maintain such registration in effect until the
exercise or termination of the Company Options. Parent shall also use its
best efforts to cause such shares of Parent Common Stock to be authorized
for listing on the NYSE and shall make all necessary blue sky law filings in
connection therewith.
5.16 NOTICE AND CURE. Each of Parent and the Company will notify the other
of, and will use all commercially reasonable efforts to cure before the Closing,
any event, transaction or circumstance, as soon as practicable after it becomes
known to such party, that causes or will cause any covenant or agreement of
Parent or the Company under this Agreement to be breached or that renders or
will render untrue any representation or warranty of Parent or the Company
contained in this Agreement. Each of Parent and the Company also will notify the
other in writing of, and will use all commercially reasonable efforts to cure,
before the Closing, any violation or breach, as soon as practicable after it
becomes known to such party, of any representation, warranty, covenant or
agreement made by Parent or the Company. No notice given pursuant to this
Section shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein.
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5.17 CANADIAN SUBSIDIARY. Immediately prior to and conditioned upon the
Closing, the Company shall sell all of the issued and outstanding shares of
Richey Electronics Limited, the Company's Canadian subsidiary, to Parent or a
Subsidiary of Parent designated by Parent for a purchase price of US$730,001.
5.18 OBSERVANCE OF OPERATIONS OF THE BUSINESS. From the date hereof until
the Closing Date, Parent may, at its election, without unduly interfering with
the management or operations of the Company, have a reasonable number of
representatives at the facilities of the Company and its Subsidiaries to observe
and consult with representatives of the Company and its Subsidiaries with
respect to the management of the operations of the Company. Notwithstanding
anything in this Agreement to the contrary, all rights of Parent or its
representatives to access to or inspection of such business operations of the
Company or to obtain information with respect to the Company pursuant to
Sections 5.1, 5.9 and 5.18 shall be effected solely through the representatives
of the Company set forth on the Disclosure Memorandum with specific reference to
this Section and shall be subject to the right of a representative of the
Company to accompany Parent or its representative in connection therewith.
5.19 CERTAIN COMPANY EMPLOYEES. The Company shall provide notice of the
non-renewal of the employment agreements listed on the Disclosure Memorandum
with specific reference to this Section in accordance with the terms of such
agreements, in each case prior to the date after which such agreement will be
extended or renewed in accordance with its terms.
5.20 COMPANY BANK DEBT. Parent agrees to cause the repayment at the
Closing of the outstanding indebtedness under the Loan Agreement, dated as of
December 20, 1995 among the Company, the banks named therein and First
Interstate Bank of California, as Agent, as amended.
5.21 EMPLOYEE MATTERS. Each employee benefit plan, program, policy or
arrangement provided as of the Closing by Parent to employees of the Company who
are employed by the Surviving Corporation (the "Continuing Employees") shall
give full credit, to the extent credited under a comparable Benefit Plan, for
each Continuing Employee's period of service (as recognized by the Company as of
the Closing) prior to the Closing Date for purposes of determining eligibility
and vesting of benefits (but not for benefit accrual purposes). Each employee
welfare benefit plan provided by Parent to the Continuing Employees from and
after the Closing Date shall (i) give full credit for deductibles and
out-of-pocket expenses under the Benefit Plans with respect to the current plan
year toward any deductibles for the remainder of the plan year during which the
Closing occurs, and (ii) shall waive any pre-existing condition limitation for
any such Continuing Employee to the extent that such limitation would not apply
to such Continuing Employee under the applicable Benefit Plan; provided,
however, that if a Continuing Employee's pre-existing condition is a condition
which is not currently covered under Parent's group health plan, such exclusion
of condition shall not be waived and Parent shall have no obligation or
liability therefor except as required by law.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been adopted by the
affirmative vote of the holders of a majority of the outstanding shares of
the Company Common Stock entitled to vote on the Merger.
(b) OTHER APPROVALS. All authorizations, consents, orders or approvals
of, or declarations or filings with, or expirations or terminations of
waiting periods imposed by, any Governmental Entity the failure to obtain
which would have a material adverse effect on the Surviving Corporation,
including, without limitation, such approvals, waivers and consents as may
be required under the Securities Act and the HSR Act, shall have been filed,
occurred or been obtained.
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(c) NO INJUNCTIONS OR LEGAL RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction"), and no law, statute, rule, regulation, ordinance or judicial
or administrative decision, preventing the consummation of the Merger shall
be in effect.
(d) NO GOVERNMENTAL ACTIONS. No investigation by any Governmental
Entity shall have been commenced, and no action, suit or proceeding by any
Governmental Entity shall have been threatened, against Parent, Sub, the
Company or any Subsidiary thereof or any of the principals, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the legality or validity of
any such transactions or seeking damages in connection with any such
transactions.
(e) INDENTURE. The Surviving Corporation and Parent shall have entered
into such supplemental indentures as are required under the Indenture as a
result of the Merger.
6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The obligations of Parent
and Sub to effect the Merger are subject to the satisfaction of the following
conditions, unless waived by Parent and Sub:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. Except
as otherwise contemplated or permitted by this Agreement, (i) the
representations and warranties of the Company contained in this Agreement or
in any certificate or document delivered to Parent pursuant hereto shall as
of the Closing Date, (x) to the extent qualified by Company Material Adverse
Effect, be true in all respects and (y) to the extent not qualified by
Company Material Adverse Effect, be true in all respects; PROVIDED, HOWEVER,
that for purposes of clause (y) of this paragraph, such representations and
warranties, with respect to the period of time between the date of this
Agreement and the Closing Date, shall be deemed to be true in all respects
for such period unless failure or failures of such representations and
warranties to be true in all respects, either individually or in the
aggregate, and without giving effect to any qualification as to materiality
set forth in such representations or warranties, would have a Company
Material Adverse Effect, except for those representations and warranties
contained in (1) Section 3.1(b) and (2) the third sentence of Section 3.4 up
to, but not including, clause (ii) of such sentence, which representations
and warranties shall be true in all respects, and (ii) the Company shall
have performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by
the Company prior to or on the Closing Date, and Parent shall have been
furnished with a certificate of an appropriate officer of the Company, dated
the Closing Date, certifying to the effect of clauses (i) and (ii) hereof.
(b) NO ACTIONS. No action, suit or proceeding before any court or
governmental or regulatory authority shall be pending (other than those
referred to in Section 6.1(d)), against Parent, Sub, the Company, any
Subsidiary thereof or any of the principals, officers or directors of any of
them, seeking to restrain, prevent or change the transactions contemplated
hereby or questioning the legality or validity of any such transactions or
seeking damages in connection with any such transactions.
(c) CONSENTS UNDER AGREEMENTS. The Company shall have obtained the
consent or approval of each Person (other than the Governmental Entities
referred to in Section 6.1(b) and of the Company's suppliers under franchise
agreements) whose consent or approval shall be required in order to permit
the succession by the Surviving Corporation pursuant to the Merger to any
obligation, right or interest of the Company or the Company's Subsidiary
under any loan or credit agreement, note, mortgage, indenture, lease or
other agreement or instrument, except those disclosed in the Disclosure
Memorandum with specific reference to this Section and those for which
failure to obtain such consents and approvals would not, individually or in
the aggregate, have a Company Material Adverse Effect or impair, prohibit or
prevent the consummation of the transactions contemplated hereby.
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(d) LENDING MORATORIUM. There shall be no moratorium or other
limitation on commercial bank lending declared by any Federal or New York
State regulatory authority or other circumstances or state of facts
constituting a disruption in the financial markets causing banks and other
financial institutions generally not to extend credit.
(e) MATERIAL ADVERSE CHANGE. Since the date hereof, there shall not
have been any events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect.
(f) NO AMENDMENTS TO RESOLUTIONS. Neither the Board of Directors of the
Company nor any committee thereof shall have amended, modified, rescinded or
repealed the resolutions adopted by the Board of Directors on September 29,
1998 (accurate and complete copies of which have been provided to Parent)
and shall not have adopted any other resolutions in connection with this
Agreement and the transactions contemplated hereby inconsistent with such
resolutions.
(g) DISSENTING SHARES. The aggregate number of Dissenting Shares shall
not exceed 10 % of the total number of shares of Company Common Stock
outstanding on the Closing Date.
6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to effect the Merger is subject to satisfaction of the following
conditions, unless waived by the Company:
(a) Representations and Warranties; Performance of Obligations. Except
as otherwise contemplated or permitted by this Agreement, (i) the
representations and warranties of Parent and Sub contained in this Agreement
or in any certificate or document delivered to the Company pursuant hereto
shall as of the Closing Date, (x) to the extent qualified by Parent Material
Adverse Effect, be true in all respects and (y) to the extent not qualified
by Parent Material Adverse Effect, be true in all respects; PROVIDED,
HOWEVER, that for purposes of clause (y) of this paragraph, such
representations and warranties, with respect to the period of time between
the date of this Agreement and the Closing Date, shall be deemed to be true
in all respects for such period unless failure or failures of such
representations and warranties to be true in all respects, either
individually or in the aggregate, and without giving effect to any
qualification as to materiality set forth in such representations or
warranties, would have a Parent Material Adverse Effect, and (ii) Parent and
Sub shall have performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or
complied with by them prior to or on the Closing Date, and the Company shall
have been furnished a certificate of an appropriate officer of Parent, dated
the Closing Date, certifying to the effect of clauses (i) and (ii) hereof.
(b) CONSENTS UNDER AGREEMENTS. Parent shall have obtained the consent
or approval of each Person (other than the Governmental Entities referred to
in Section 6.1(c)) whose consent or approval shall be required in connection
with the transactions contemplated hereby under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or
instrument, except those for which failure to obtain such consents and
approvals would not, prohibit or prevent the consummation of the
transactions contemplated hereby.
(c) NO AMENDMENTS TO RESOLUTIONS. Neither the Board of Directors of
Parent nor any committee thereof shall have amended, modified, rescinded or
repealed the resolutions adopted by the Board of Directors on September 27,
1998 (accurate and complete copies of which have been provided to the
Company) and shall not have adopted any other resolutions in connection with
this Agreement and the transactions contemplated hereby inconsistent with
such resolutions.
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ARTICLE 7
TERMINATION AND AMENDMENT
7.1 TERMINATION. At any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of the Company or Sub, this Agreement may be terminated:
(a) by mutual consent of Parent and the Company;
(b) by either Parent or the Company, if, without fault of the
terminating party, the Closing shall not have occurred on or before February
15, 1999 (or such later date as may be agreed upon in writing by the parties
hereto);
(c) by Parent, if the Company shall breach any of its representations,
warranties or obligations hereunder and such breach shall not have been
cured or waived and the Company shall not have provided reasonable assurance
that such breach will be cured on or before the Closing Date; PROVIDED,
HOWEVER, that Parent shall not have the right to so terminate this Agreement
if such breach, if it existed as of the Closing Date, would not result in
the Company's failure to satisfy the conditions set forth in Section 6.2(a);
(d) by the Company, if Parent or Sub shall breach any of their
respective representations, warranties or obligations hereunder and such
breach shall not have been cured or waived and Parent shall not have
provided reasonable assurance that such breach will be cured on or before
the Closing Date;
(e) by either Parent or the Company if a Takeover Proposal shall have
occurred and the Board of Directors of the Company in connection therewith,
after consultation with its legal counsel, withdraws or modifies its
approval and recommendation of this Agreement and the transactions
contemplated hereby after determining that to cause the Company to proceed
with the transactions contemplated hereby would not be consistent with the
Board of Directors' fiduciary duty to the stockholders of the Company; or
(f) by either Parent or the Company (i) if any permanent Injunction or
other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable or (ii)
if any required approval of the stockholders of the Company shall not have
been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of stockholders or at any adjournment
thereof.
7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Parent or the Company as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of Parent, Sub or the Company or their respective officers or directors except
(i) with respect to Section 5.6, 5.7, and 5.9, (ii) to the extent that such
termination results from the willful breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this Agreement
except as provided in Section 8.7 and (iii) this Section 7.2 shall survive such
termination.
7.3 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action duly taken, may, to the extent legally allowed, (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 contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party.
7.4 AMENDMENT AND MODIFICATION. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after adoption of the Agreement by the
stockholders of Parent or the Company, but after any such adoption, no amendment
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<PAGE>
shall be made which by law requires further approval by such stockholders
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
ARTICLE 8
GENERAL PROVISIONS
8.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Section 2.1, 2.2, 5.10, 5.15, 5.21
and the last sentence of Section 7.4 and Article 8.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given upon receipt of: hand
delivery, overnight courier, certified or registered mail, return receipt
requested, or facsimile transmission with confirmation of receipt:
(i) If to the Company, to:
Richey Electronics, Inc.
7441 Lincoln Way, Suite 100
Garden Grove, California 92642
Facsimile: (714) 897-7887
Telephone: (714) 898-8288
Attention: Richard N. Berger
(with a copy to)
Dewey Ballantine LLP
333 South Hope Street
Los Angeles, California 90071-1406
Facsimile: (213) 625-0562
Telephone: (213) 626-3399
Attention: Alan M. Albright, Esq.
(ii) If to Parent, to:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
Facsimile: (516) 391-1683
Telephone: (516) 391-1830
Attention: Robert E. Klatell
(with a copy to)
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Facsimile: (212) 530-5219
Telephone: (212) 530-5000
Attention: Howard S. Kelberg, Esq.
Such names and addresses may be changed by written notice to each person
listed above.
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<PAGE>
8.3 GOVERNING LAW. Except to the extent that the DGCL is mandatorily
applicable to the Merger and the rights of the stockholders of the Constituent
Corporations, this Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to a contract executed and
performed in such State, without giving effect to the conflicts of law
principles thereof.
8.4 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
8.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP. (a) This Agreement (including the documents and the instruments
referred to herein) (a) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof other than the Confidentiality
Agreement, which shall survive the execution and delivery of this Agreement in
accordance with its terms, and (b) except as otherwise contemplated by Sections
2.1, 2.2 and 5.10 (which covenants shall be enforceable by the persons affected
thereby following the Effective Time), is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder. The parties
hereby acknowledge that, except as hereafter agreed to in writing, no party
shall have the right to acquire or shall be deemed to have acquired shares of
common stock of the other party pursuant to the Merger until consummation
thereof.
(b) The Company Disclosure Letter, the Parent Disclosure Letter and any
Exhibit attached to this Agreement and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
8.7 NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take any action required herein, the other party
shall not be entitled to specific performance of such provision or part hereof
or thereof or to any other remedy, including but not limited to money damages,
for breach hereof or thereof or of any other provision of this Agreement or part
hereof as a result of such holding or order.
8.8 SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so be broad as is enforceable.
8.9 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, except that Sub may assign, in its sole discretion, any or all of its
rights, interests and obligations hereunder to Parent or to any direct or
indirect wholly owned Subsidiary of Parent. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
8.10 HEADINGS. The Headings used in this Agreement have been inserted for
convenience of reference only and do not define, modify or limit the provisions
hereof.
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<PAGE>
8.11 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specified terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
<S> <C> <C>
By: /s/ ROBERT E. KLATELL
-----------------------------------------
Name: Robert E. Klatell
Title: EXECUTIVE VICE PRESIDENT
LEAR ACQUISITION CORP.
By: /s/ ROBERT E. KLATELL
-----------------------------------------
Name: Robert E. Klatell
Title: VICE PRESIDENT
RICHEY ELECTRONICS, INC.
By: /s/ RICHARD N. BERGER
-----------------------------------------
Name: Richard N. Berger
Title:
</TABLE>
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<PAGE>
EXHIBIT A
PROXIES
Thomas W. Blumenthal
William C. Cacciatore
Edward L. Gelbach
Greg A. Rosenbaum
Norbert W. St. John
Donald I. Zimmerman
<PAGE>
ANNEX B
[LETTERHEAD]
September 29, 1998
Board of Directors
RICHEY ELECTRONICS, INC.
7441 Lincoln Grove
Garden Grove, CA 92642
To the Members of the Board of Directors:
We understand Arrow Electronics, Inc., a New York corporation (the "Arrow"
or "Parent"), and a wholly owned subsidiary of Parent (the "Sub or Purchaser")
has offered to enter into an Agreement and Plan of Merger (the "Merger
Agreement") with Richey Electronics, Inc., a Delaware corporation, ("Richey" or
the "Company") pursuant to which, subject to the terms and conditions therein
set forth, (i) the Purchaser will acquire any and all of the issued and
outstanding common stock, $0.001 par value, of the Company (the "Common Stock")
for $10.50 per share in cash (the "Offer Price") and (ii) the Purchaser will be
merged with and into the Company and the issued and outstanding Common Stock
(except Dissenting Shares, as defined in the Merger Agreement, and Common Stock
held in the treasury of the Company or owned by the Purchaser or any direct or
indirect wholly owned subsidiary of the Purchaser) will be canceled and
extinguished and converted into the right to receive the Offer Price (the
"Transaction").
You asked us to render our opinion as to whether the Offer Price is fair,
from a financial point of view, to the holders of the Common Stock (the
"Fairness Opinion").
Jefferies & Company, Inc. ("Jefferies"), as part of its investment banking
business, is regularly engaged in the evaluation of capital structures and the
valuations of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, financial
restructurings and other financial services. In the ordinary course of our
business, Jefferies may trade the securities of Richey and Arrow for our own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in those securities.
In connection its engagement, Jefferies will receive a fee for providing the
Fairness Opinion to the Company and will also receive a success fee upon
consummation of the Transaction. In addition, Jefferies has received customary
investment banking fees from Richey for selling securities including the
Company's 7% Convertible Subordinated Notes offering on February 21, 1996 as
well as a secondary public offering of three million shares of Common Stock on
April 20, 1995.
In conducting our analysis and arriving at the opinion expressed herein, we
have reviewed a draft of the Merger Agreement, dated September 28, 1998
(including any schedules and exhibits thereto which were provided by the
Company) and certain financial and other information that was publicly available
or furnished to us by Richey, including the financial terms of the Transaction,
certain internal financial
B-1
<PAGE>
analyses, projections, budgets, reports and other information prepared by the
Company's management. We have also held discussions with various members of
senior management of the Company concerning historical and current operations,
financial conditions and prospects, as well as the strategic and operating
benefits anticipated from the business combination. In addition, we have
conducted such other reviews, analyses and inquiries relating to the Company as
we considered appropriate in rendering this opinion. In accordance with our
engagement by the Company, Jefferies has not performed any due diligence on
Arrow other than a review of its publicly available information. The financial
projections for Arrow were based upon the historical financial performance of
Arrow and analyst research reports, both of which are publicly available
information.
In our review and analysis and in rendering the Fairness Opinion, we have
relied upon, but have not independently investigated or verified, the accuracy,
completeness and fair presentation of the financial and other information that
was provided to us by the Company, or that was publicly available to us
(including, without limitation, the information described above, the financial
projections prepared by the Company regarding the estimated future performance
of Richey before and after giving effect to the Transaction and the financial
projections for Arrow). The Fairness Opinion is expressly conditioned upon such
information (whether written or oral) being complete, accurate and fair in all
respects.
With respect to the financial projections provided to or obtained and
examined by us, we note that projecting future results of any company is
inherently subject to vast uncertainty. You have informed us, however, and we
have assumed with your permission, that the Company's projections were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of Richey management as to the future performance of
the Company. In addition, although we have performed sensitivity analyses
thereon, in rendering the Fairness Opinion we have assumed, with your
permission, that the Company will perform in accordance with such projections
for all periods specified therein. We have also assumed with your permission
that Arrow will perform in accordance with the financial projections for Arrow
referenced above. Although such projections constituted one of many items that
we employed in the formation of our opinion, changes to Richey's or Arrow's
financial projections could affect the Fairness Opinion rendered herein. We have
assumed, with your permission, that the Transaction will be accounted for under
the "purchase" accounting method.
We have not been requested to, and did not solicit third party indications
of interest in acquiring all or any part of the Company; or make any independent
evaluation or appraisal of the assets or liabilities of, nor conduct a
comprehensive physical inspection of any of the assets of, the Company or Arrow,
nor have we been furnished with any such appraisals. Our opinion is based on
economic, monetary, political, market and other conditions existing and which
can be evaluated as of the date of this opinion (including, without limitation,
current market prices of the common stock of the Company and Arrow); HOWEVER,
such conditions are subject to rapid and unpredictable change and such changes
could affect the conclusions expressed herein. We have made no independent
investigation of any legal matters affecting the Company or Arrow, and we have
assumed the correctness of all legal and accounting advice given to such parties
and their respective boards of directors, including (without limitation) advice
as to the accounting and tax consequences of the Transaction to the Company,
Arrow and their respective stockholders.
In rendering this opinion we have also assumed, with your permission, that:
(i) the terms and provisions contained in the Merger Agreement (including any
schedules and exhibits thereto) will not differ from those contained in the
drafts of those documents we have heretofore reviewed with respect to any matter
material to our opinion expressed herein; (ii) the conditions to the
consummation of the Transaction set forth in the Merger Agreement will be
satisfied without material expense; and (iii) there is not now, and there will
not as a result of the consummation of the transactions contemplated by the
Merger Agreement be, any default, or event of default, under any indenture,
credit agreement or other material agreement or instrument to which the Company,
Arrow or any of their respective subsidiaries or affiliates is a party.
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<PAGE>
Moreover, in rendering the opinion set forth below we note that the
consummation of the Transaction is conditioned upon the approval of the holders
of the Common Stock, and we are not recommending that the Company, its Board of
Directors, any of its security holders or any other person should take any
specific action in connection with the Transaction. Our opinion does not
constitute a recommendation of the Transaction over any alternative transactions
which may be available to the Company, and does not address the Company's
underlying business decision to effect the Transaction. Finally, we are not
opining as to the market value of the Offer Price to be received by the holders
of the Common Stock or the prices at which any of the securities of Arrow may
trade upon and following the consummation of the Transaction.
Based upon and subject to the foregoing, and upon such other matters as we
consider relevant, it is our opinion as investment bankers that, as of the date
hereof, the Offer Price to be received by the holders of the Common Stock is
fair from a financial point of view.
It is understood and agreed that this opinion is provided for the use and
benefit of the Board of Directors of the Company as one element in the Board's
consideration of the Transaction. We expressly disclaim any undertaking or
obligation to advise any person of any change in any fact or matter affecting
the Fairness Opinion of which we become aware after the date hereof. The
Fairness Opinion may be referred to, summarized and reproduced in full in any
proxy statement mailed to holders of the Common Stock in connection with the
Transaction but may not otherwise be disclosed publicly in any manner without
our prior written approval.
Sincerely,
JEFFERIES & COMPANY, INC
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<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to Section Section 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent
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<PAGE>
corporation or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in subsections (d) and (e)
of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each consitutent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constitutent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constitutent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constitutent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constitutent corporation
may fix, in advance, a record date that shall be not more than 10 days prior to
the date the notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the
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<PAGE>
value of the stock of all such stockholders. Notwithstanding the foregoing, at
any time within 60 days after the effective date of the merger or consolidation,
any stockholder shall have the right to withdraw his demand for appraisal and to
accept the terms offered upon the merger or consolidation. Within 120 days after
the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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<PAGE>
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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<PAGE>
RICHEY ELECTRONICS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
JANUARY 6, 1999
The undersigned hereby nominates, constitutes and appoints William C.
Cacciatore, Greg A. Rosenbaum and Donald I. Zimmerman or any of them, with full
power of substitution, to vote all shares of common stock, $0.001 par value, of
Richey Electronics, Inc. ("Richey") which the undersigned is entitled to vote at
the Special Meeting of Stockholders to be held on Wednesday, January 6, 1999 or
any postponement or adjournment thereof and upon such other business as may
properly come before the Special Meeting or any adjournment or postponement
thereof, with all the powers the undersigned would possess if personally present
as follows:
1. To approve and adopt an Agreement and Plan of Merger, dated as of
September 30, 1998, by and among Arrow Electronics, Inc., a New York corporation
("Arrow"), Lear Acquisition Corp., a Delaware corporation ("Acquisition Corp.")
and Richey (as amended by the Amendment to Agreement and Plan of Merger, dated
as of October 21, 1998, by and among Arrow, Acquisition Corp. and Richey)
pursuant to which, Acquisition Corp. will be merged with and into Richey and
Richey will become a wholly owned subsidiary of Arrow
/ / FOR / / AGAINST / / ABSTAIN
Please mark your votes as indicated in (x) this example.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting and any adjournment or
postponement thereof.
PLEASE SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL
MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE WITH
THE RECOMMENDATIONS OF THE PROXIES.
Please date this Proxy and sign your name exactly as it appears on your
stock certificates. Executors, administrators, trustees, officers of a
corporation, fiduciaries, etc., should give their full title as such.
Partnerships should sign in the partnership name by an authorized person. For
shares held jointly, each joint owner should personally sign. If the undersigned
hold(s) any of the shares of common stock of Richey in a fiduciary, custodial or
joint capacity or capacities, this Proxy is signed by the undersigned in every
such capacity as well as individually. Attendance of the undersigned at the
Special Meeting will not be deemed to revoke this Proxy unless the undersigned
shall affirmatively indicate at the meeting the intention of the undersigned to
vote in person.
DATED: __________________________________
SIGNATURE: ______________________________
(signature)
SIGNATURE: ______________________________
(signature, if held jointly)
______________________________
(title or authority, if applicable)
PLEASE SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
