<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
Filed by the registrant /x/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential for Use of the Com-
/x/ Definitive Proxy Statement mission Only (as permitted by
/ / Definitive additional materials Rule 14a-6(e)(2))
/ / Soliciting material pursuant to
Rule 14a-11(c) or Rule 14a-12
Bowline Corporation
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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, $.02 par value per share
(2) Aggregate number of securities to which transaction applies:
1,145,993
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
$1.32
(4) Proposed maximum aggregate value of transaction:
$1,512,710.76
(5) Total fee paid:
$302.54
/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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<PAGE>
BOWLINE CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 31, 1996
TO THE SHAREHOLDERS OF
BOWLINE CORPORATION:
NOTICE IS HEREBY GIVEN THAT a special meeting of shareholders (the
"Special Meeting") of Bowline Corporation (the "Company") will be held on May
31, 1996 at the Gramercy Park Hotel conference room, Two Lexington Avenue, New
York, New York at 9:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger, dated as of February 20, 1996 (the "Merger Agreement"), between
the Company and Arrowhead Holdings Corporation ("Arrowhead"), a copy of which is
attached as Annex A to, and is described in, the accompanying Proxy Statement,
and the transactions contemplated thereby. Pursuant to the Merger Agreement, the
Company will be merged with and into Arrowhead (the "Merger") and all shares of
the Company's common stock, $.02 par value per share (the "Common Shares"), that
are issued and outstanding at the effective time of the Merger (the "Effective
Time"), other than the 141,419 Common Shares owned of record by Arrowhead which
will be cancelled in the Merger and other than the Affiliate Exchange Stock (as
hereinafter defined), will be converted into the right to receive $1.32 per
share, in cash, without interest. Each of the 732,169 issued and outstanding
Common Shares beneficially owned by Arrowhead, Arrowhead's subsidiary, Vesper
Corporation ("Vesper"), and James Benenson, Jr., Chairman of the Board of the
Company and Chairman of the Board and President of Arrowhead and Vesper
(collectively with Arrowhead and Vesper, the "Affiliates") is hereinafter
referred to as the "Affiliate Stock." At the Effective Time, 590,750 shares of
the Affiliate Stock (the "Affiliate Exchange Stock") will be exchanged for
shares of Arrowhead common stock having an aggregate dollar value equal to the
product of (x) the number of shares of Affiliate Exchange Stock, and (y) $1.32.
All of the Affiliate Stock is controlled by James Benenson, Jr. See "THE MERGER
- - Special Factors - Interests of Certain Persons in the Merger."
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
These transactions and other related matters are more fully described
in the accompanying Proxy Statement and the Annexes and Schedules thereto.
The close of business on April 26, 1996 has been fixed as the record
date (the "Record Date") for the determination of (i) shareholders entitled to
receive notice of, and to vote at, the Special Meeting and any and all
adjournments and postponements thereof; and (ii) shareholders who will receive
Common Share certificate transmittal materials following consummation of the
Merger.
If the Merger is consummated, holders of Common Shares who do not vote
in favor of the Merger and who otherwise comply with Section 623 of the New York
Business Corporation Law, as amended (the "NYBCL"), will be entitled to
dissenters' appraisal rights pursuant to said Section. A holder of Common Shares
who desires to exercise dissenters' appraisal rights in connection with the
Merger must file with the Company a written notice of intention to demand fair
value for his Common Shares. Such notice must be filed before the commencement
of the vote of shareholders on the approval of the Merger Agreement at the
Special Meeting. Any shareholder who does not file such notice will not be able
to exercise his dissenters' appraisal rights. See "SUMMARY - Rights of
Dissenting Shareholders" and "RIGHTS OF DISSENTING SHAREHOLDERS" in the
accompanying Proxy Statement for a description of procedures required to be
followed to perfect appraisal rights and Annex C thereto for the text of Section
623.
Gerald J. Carroll
Secretary
Newtown Square, Pennsylvania
May 10, 1996
<PAGE>
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PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY WHETHER OR NOT YOU INTEND TO BE
PRESENT AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
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<PAGE>
PROXY STATEMENT
BOWLINE CORPORATION
3400 West Chester Pike, Suite 201
Newtown Square, Pennsylvania 19073
(610) 325-5332
SPECIAL MEETING OF SHAREHOLDERS
To be held on May 31, 1996
This Proxy Statement is being furnished to the shareholders of Bowline
Corporation, a New York corporation (the "Company"), in connection with the
solicitation by the Company's Board of Directors (the "Board of Directors") of
proxies from holders (the "Shareholders") of issued and outstanding shares of
the Company's common stock, $.02 par value per share (the "Common Shares") for
use at a Special Meeting of the Shareholders of the Company to be held at the
Gramercy Park Hotel conference room, Two Lexington Avenue, New York, New York,
on May 31, 1996 at 9:00 a.m., local time, and at any and all adjournments or
postponements thereof (the "Special Meeting"). This Proxy Statement and the form
of Proxy attached hereto are first being mailed to Shareholders on or about May
10, 1996.
At the Special Meeting, the Shareholders will consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of February 20,
1996 (the "Merger Agreement"), between the Company and Arrowhead Holdings
Corporation ("Arrowhead"). Pursuant to the Merger Agreement, the Company will be
merged with and into Arrowhead (the "Merger") and all shares of the Company's
common stock, $.02 par value per share (the "Common Shares"), that are issued
and outstanding at the effective time of the Merger (the "Effective Time"),
other than the 141,419 Common Shares owned of record by Arrowhead which will be
cancelled in the Merger and other than the Affiliate Exchange Stock (as
hereinafter defined), will be converted into the right to receive $1.32 per
share, in cash, without interest. Each of the 732,169 issued and outstanding
Common Shares beneficially owned by Arrowhead, Arrowhead's subsidiary, Vesper
Corporation ("Vesper"), and James Benenson, Jr., Chairman of the Board of the
Company and Chairman of the Board and President of Arrowhead and Vesper
(collectively with Arrowhead and Vesper, the "Affiliates") is hereinafter
referred to as the "Affiliate Stock." At the Effective Time, 590,750 shares of
the Affiliate Stock (the "Affiliate Exchange Stock") will be exchanged for
shares of Arrowhead common stock having an aggregate dollar value equal to the
product of (x) the number of shares Affiliate Exchange Stock, and (y) $1.32. For
additional information concerning the background and the terms and conditions of
the Merger, see "THE MERGER - Special Factors - Background of the Merger;
Purpose of the Merger."
Approval of the Merger Agreement will require the affirmative vote of
the holders of two-thirds of the outstanding Common Shares entitled to vote at
the Special Meeting. As of April 26, 1996, the Record Date for the Special
Meeting, the Affiliates beneficially owned 732,169 Common Shares (representing
approximately 56.9% of the total number of issued and outstanding Common Shares
as of such date). The Affiliates intend to vote such Common Shares in favor of
the Merger Agreement. Thus, approval of the Merger Agreement will require the
affirmative vote of non-affiliated Shareholders of the Company holding
approximately 10% of the outstanding Common Shares entitled to vote at the
Special Meeting.
The Board of Directors unanimously approved the Merger Agreement and
has determined that, in its judgment, the Merger is fair, from a financial point
of view, to the non-affiliated Shareholders, and in the best interests of the
Company, and recommends that Shareholders vote FOR approval of the Merger
Agreement.
Each Shareholder has the right to seek appraisal of his Common Shares
in connection with the Merger Agreement. See "SUMMARY - Rights of Dissenting
Shareholders" and "RIGHTS OF DISSENTING SHAREHOLDERS."
THE TRANSACTION DESCRIBED HEREIN HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Proxy Statement is May 10, 1996
<PAGE>
ADDITIONAL AVAILABLE INFORMATION
The Company is currently subject to the information and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and in accordance therewith files periodic reports, documents and other
information with the Securities and Exchange Commission (the "Commission")
relating to its business, financial statements and other matters (although the
Company will cease to be so subject to the requirements of the Exchange Act upon
consummation of the Merger and the deregistration of the Common Shares, which
the Company anticipates will occur promptly after the Merger). Such reports and
other information may be inspected at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
such reports and other information may also by obtained upon payment of the
Commission's prescribed rates by writing to the Commission's principal office at
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Company and
Arrowhead have filed with the Commission a Rule 13e-3 Transaction Statement, as
amended (the "13E-3 Statement"), furnishing certain additional information with
respect to the transactions described herein. Such statement and any amendments
thereto, including exhibits, may be inspected and copies may be obtained at the
Commission's principal office as set forth above.
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<PAGE>
TABLE OF CONTENTS
SUMMARY ................................................................... 5
INTRODUCTION................................................................ 9
General............................................................ 9
Matters to be Considered at the Special Meeting.................... 9
Voting at the Special Meeting...................................... 10
Proxies............................................................ 10
THE MERGER.................................................................. 11
General............................................................ 11
Effective Time of the Merger....................................... 11
Shareholder Approval............................................... 12
Payment for Common Shares.......................................... 12
Regulatory Matters................................................. 12
Conditions to Consummation of the Merger........................... 12
Termination........................................................ 13
Expenses........................................................... 13
Indemnification of Directors and Officers.......................... 13
Accounting Treatment of the Merger................................. 13
Special Factors.................................................... 13
Background of the Merger; Purpose of the Merger.................... 13
Fairness of the Merger; Recommendation of the Board of Directors .. 16
Fairness Opinion................................................... 17
The Affiliates' Belief as to Fairness.............................. 21
Interests of Certain Persons in the Merger......................... 21
Plans for the Company After the Merger............................. 23
FINANCING OF THE MERGER..................................................... 23
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................... 23
RIGHTS OF DISSENTING SHAREHOLDERS........................................... 24
MARKET PRICES OF THE COMMON SHARES AND RELATED SHAREHOLDER MATTERS ......... 27
BUSINESS OF THE COMPANY..................................................... 28
SELECTED FINANCIAL INFORMATION AND CERTAIN PER SHARE DATA
OF THE COMPANY.............................................................29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................... 31
Analysis of Operations............................................. 31
Liquidity and Capital Resources.................................... 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 33
CERTAIN INFORMATION REGARDING THE DIRECTORS AND
EXECUTIVE OFFICERS OF THE COMPANY.......................................... 34
COMMON SHAREHOLDER PROPOSALS................................................ 34
OTHER MATTERS............................................................... 34
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<PAGE>
ANNEXES
Annex A Agreement and Plan of Merger
Annex B Fairness Opinion and Valuation Analyses of
American Maple Leaf Financial Corp.
Annex C Section 623 of the New York Business Corporation Law
Annex D Consolidated Financial Statements
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<PAGE>
SUMMARY
Certain significant matters discussed in this Proxy Statement are
summarized below. This summary is not intended to be a complete discussion of
the matters contained herein, and is qualified in all respects by the detailed
information appearing elsewhere in this Proxy Statement and the Annexes hereto.
Shareholders are urged to review carefully this Proxy Statement and each of the
Annexes hereto.
The Special Meeting
The Special Meeting will be held at the Gramercy Park Hotel conference
room, Two Lexington Avenue, New York, New York on May 31, 1996 at 9:00 a.m.,
local time. At the Special Meeting, Shareholders will be asked to consider and
vote upon a proposal to approve the Merger Agreement pursuant to which the
Company will be merged with and into Arrowhead and all issued and outstanding
Common Shares, other than the 141,419 Common Shares owned of record by Arrowhead
which will be cancelled in the Merger and other than the Affiliate Exchange
Stock, will be converted into the right to receive $1.32 per share, in cash,
without interest. The Affiliate Exchange Stock will be exchanged for shares of
Arrowhead common stock having an aggregate dollar value equal to the product of
(x) the number of shares of Affiliate Exchange Stock, and (y) $1.32.
Only Shareholders of record at the close of business on April 26, 1996
(the "Record Date") are entitled to notice of and to vote at the Special
Meeting. At such date there were 1,287,412 Common Shares issued and outstanding
and entitled to vote held by approximately 4,219 holders of record.
Recommendation of the Board of Directors
The Board of Directors unanimously approved the Merger Agreement and
has determined that, in their judgment, the Merger is fair, from a financial
point of view, to the non-affiliated Shareholders, and in the best interests of
the Company, and recommends that Shareholders vote FOR adoption of the Merger
Agreement.
See "THE MERGER - Special Factors - Interests of Certain Persons in the
Merger" for a description of the interests of certain members of the Board of
Directors in the Merger.
Vote Required
A quorum for the Special Meeting requires the presence of Shareholders,
in person or by proxy, entitled to cast at least a majority of the votes that
all Shareholders are entitled to cast with respect to the Merger Agreement.
Shareholders may cast one vote per Common Share, either in person or by proxy,
on each matter to be voted on at the Special Meeting.
All Shares represented at the Special Meeting by properly executed
proxies received prior to or at the Special Meeting, and not revoked before
their use, will be voted in accordance with the instructions on such proxies. If
no instructions are given, proxies will be voted FOR the approval of the Merger
Agreement. A Shareholder who has given a proxy may revoke it at any time before
it is voted at the Special Meeting by filing with the Secretary of the Company
at the address of the Company set forth on the first page of this Proxy
Statement a written revocation bearing a later date than the proxy being
revoked, or by submission of a validly executed proxy bearing a later date than
the proxy being revoked, or by attending the Special Meeting and voting in
person (although attendance at the Special Meeting will not in and of itself
constitute revocation of a proxy).
Adoption of the Merger Agreement will require the affirmative
vote of the holders of two-thirds of all outstanding Common Shares
entitled to vote at the Special Meeting, which means that any Shareholder
who fails to return a proxy or vote in person at the Special
Meeting will be deemed, in effect, to have voted against approval of the
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<PAGE>
Merger Agreement. Abstentions will be counted as being present
for purposes of determining the presence or absence of a quorum and will,
in effect, constitute a vote cast against approval of the Merger. Brokers
who hold Common Shares in street name for customers are not expected to
be entitled to vote those Common Shares with respect to the adoption of the
Merger Agreement without specific instructions from such customers. The
Affiliate Stock represents approximately 56.9% of the Common Shares outstanding.
All such shares will be voted in favor of the approval of the Merger Agreement.
Thus, approval of the Merger Agreement will require the affirmative vote of
non-affiliated Shareholders of the Company holding approximately 10% of the
outstanding Common Shares entitled to vote at the Special Meeting. See "THE
MERGER - Special Factors - Interests of Certain Persons in the Merger."
Effective Time of the Merger
The Merger will become effective when a Certificate of Merger
concerning the consummation of the Merger is duly filed with the Secretary of
State of the State of New York and the Secretary of State of the State of
Delaware in accordance with the applicable provisions of law of each such
jurisdiction (the "Effective Time"). The required filing is expected to be made
promptly after the approval of the Merger Agreement by the Shareholders at the
Special Meeting. See "THE MERGER - Effective Time of the Merger."
Payment for Shares
In order to receive their $1.32 in cash per Common Share following the
consummation of the Merger, Shareholders must surrender their stock certificates
to Arrowhead. No interest will be paid or accrued on the cash payable upon the
surrender of such certificates between the Effective Time and the rendering of
payment following actual surrender of the certificates. Detailed instructions
with regard to the surrender of stock certificates, together with a letter of
transmittal, will be forwarded to Shareholders by Arrowhead as soon as
practicable after the Effective Time. Shareholders should not submit their stock
certificates until they have received such materials. The funds to be utilized
in connection with the Merger will not be placed into any escrow or trust and
will be disbursed directly by Arrowhead to each exchanging Shareholder upon
receipt by Arrowhead of the materials described above from such Shareholder.
Background of the Merger; Fairness of the Merger
The Board of Directors' decision to approve and cause the Company to
execute the Merger Agreement and to recommend the Merger Agreement for approval
by the Shareholders was based upon the Board of Directors' belief that, in its
judgment, the Merger is in the best interest of the Company and fair to the
non-affiliated Shareholders from both a substantive and a procedural standpoint.
The Board first considered the cost savings the Merger would allow since,
following the Merger, the merged entity would not be a publicly-traded company
subject to the independent accounting and public reporting requirements of the
federal securities laws. In addition, the Board considered the prevailing market
price of such Common Shares and the fact that the public trading market for such
Common Shares is not an active one. In reaching its determination as to the
fairness of the Merger, the Board of Directors considered the presentations and
the fairness opinion of American Maple Leaf Financial Corp. ("AML") referred to
herein. AML's fairness opinion was based on three different substantive
valuation analysis methods which it undertook (market price; liquidation; and
acquisition), all of which resulted in the conclusion that the Merger
consideration was fair, from a financial point of view, to all non-affiliated
Shareholders. In conducting its analyses and arriving at its opinion, AML
relied, in part, upon certain information provided to it by the Company and its
management. See "THE MERGER - Special Factors - Fairness Opinion." The Board of
Directors also considered certain adverse factors relating to the Merger,
including: the fact that the Merger will deprive Shareholders, other than
Arrowhead's affiliates, of the opportunity to participate in future increases,
if any, in the value of Arrowhead once the Company has been merged into
Arrowhead; the existence of certain conflicts of interest between Arrowhead (and
its affiliates) and the Company; and the fact that Arrowhead's affiliates will
have rights not accorded to other Shareholders in the Merger. The Board, in
reaching its conclusion as to the fairness of the Merger, determined that such
adverse factors did not materially impact on the fairness of the Merger.
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<PAGE>
From a procedural point of view, the Board considered a variety of
factors, including the fact that it had retained an independent financial
advisor, AML, to render an opinion as to the fairness of the Merger, from a
financial point of view, to the non-affiliated Shareholders and the existence of
dissenters' rights, in coming to the conclusion that the Merger is fair to all
non-affiliated Shareholders. Since all of the members of the Board of Directors
of the Company are affiliated with Arrowhead, it was not possible to establish
an independent committee to review the terms of the Merger. See "THE MERGER -
Special Factors - Background of the Merger; Purpose of the Merger" for a
description of events leading up to the signing of the Merger Agreement, the
financial analysis undertaken by AML, and the Board's analysis of the Merger.
See "THE MERGER - Special Factors - Background of the Merger; Purpose of the
Merger", "- Fairness of the Merger; Recommendation of the Board of Directors"
and "- Fairness Opinion."
Fairness Opinion
At a special meeting of the Board of Directors held on February 20,
1996, AML, as financial advisor to the Board of Directors, stated that, in its
opinion, as of February 20, 1996, the Merger was fair to all non-affiliated
Shareholders from a financial point of view. The opinion was confirmed in
writing at such meeting. The opinion sets forth the matters considered and the
scope of review undertaken in connection therewith, and is attached to this
Proxy Statement as Annex B. Shareholders are urged to read the opinion in its
entirety. AML also made a presentation at such meeting, discussing factors that
it considered and methodologies it employed in connection with the preparation
of its opinion. The bases for and the methodologies used by AML in reaching its
opinion are described herein under "THE MERGER - Special Factors - Fairness
Opinion."
For further information concerning the fairness opinion and AML's fee
and expense arrangements, see "THE MERGER - Special Factors - Fairness Opinion."
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors with
respect to the Merger, Shareholders should be aware that certain of the officers
and directors of the Company have certain interests that present them with
conflicts of interest in connection with the Merger.
The most significant of such conflicts are summarized as follows: James
Benenson, Jr. is the Chairman of the Board of the Company and is the Chairman of
the Board and President of Arrowhead and Vesper. He owns 100% of the voting
stock of Arrowhead which, in turn, owns approximately 99.8% of the voting stock
of Vesper which, in turn, owns approximately 17.7% of the Common Shares. Upon
completion of the Merger, the Company will have merged with and into Arrowhead
and, by virtue of the ownership structure discussed in the preceding sentence,
Mr. Benenson will control approximately 99.9% of the resulting entity. Mr.
Benenson, Arrowhead and Vesper are hereinafter sometimes collectively referred
to herein as "the Affiliates." Mr. Benenson beneficially owns, either directly
or indirectly through his ownership and control of Arrowhead and Vesper, all of
the Common Shares making up the Affiliate Stock.
In addition to the foregoing, Clifford J. Demarest is President, Chief
Executive Officer and a director of the Company; President, Chief Executive
Officer and a director of its wholly-owned subsidiary, Starboard Data Services,
Inc. ("Starboard"); and President, Industrial Products, of Vesper. Gerald J.
Carroll is Vice President, Secretary and a director of the Company; Secretary
and a director of Starboard; Vice President and Secretary of Arrowhead; Vice
President, Secretary and a director of Vesper; and Vice President and Secretary
of Penco Products, Inc., a wholly-owned subsidiary of Vesper ("Penco"). Michael
Boniello is Treasurer of the Company and is Vice President - Finance, Controller
and a director of Penco.
While the Board of Directors is of the view that the conflicts of
interest did not have any material effect upon the fairness of the
Merger from the viewpoint of the Shareholders, in that such conflicts did
not result in the terms of
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<PAGE>
the Merger being any less fair than those terms which could have been
negotiated with an unrelated third party, if one had been available,
Shareholders must determine for themselves what, if any, effect the existence of
these conflicts of interest had on the terms of the Merger. Shareholders may
conclude that the existence of the conflicts of interest did impact upon the
fairness of the Merger, or that the terms of the Merger were thereby rendered
less favorable than those which may have been negotiated with an unrelated third
party, if one had been available.
For a description of conflicts of interest of certain of the officers
and directors of the Company, see "THE MERGER - Special Factors - Interests of
Certain Persons in the Merger."
Conditions to Consummation of the Merger
The obligations of the Company and Arrowhead to consummate the Merger
are subject to a number of conditions, including approval of the Merger
Agreement by the Shareholders at the Special Meeting and compliance by the
Company and Arrowhead with certain other conditions contained in the Merger
Agreement. In addition, either party may terminate the Merger Agreement at any
time, in their discretion. See "THE MERGER - Conditions to Consummation of the
Merger" and "- Termination."
Expenses
The costs and expenses incurred by the Company in connection with the
Merger will be paid by the Company. Arrowhead will pay the costs and expenses it
incurs. See "THE MERGER - Expenses."
Financing of the Merger
The total amount of funds required to consummate the Merger and pay the
related fees and expenses is expected to be approximately $825,000. On a
combined basis, Arrowhead and the Company have cash and cash equivalents in
excess of such amount and will have cash and cash equivalents sufficient to fund
the aggregate cash consideration for the Common Shares in the Merger and to pay
related expenses. See "THE MERGER - Conditions to Consummation of the Merger."
Business of the Company
The Company, through its wholly-owned subsidiary, Starboard Data
Services, Inc. (the "Subsidiary"), located in Oaks, Pennsylvania, provides
data processing services primarily to Penco, a wholly-owned subsidiary
of Vesper. See "BUSINESS OF THE COMPANY."
Rights of Dissenting Shareholders
In connection with the consummation of the Merger, each Shareholder
will have the right to seek appraisal of his Common Shares, which right may be
exercised only if the Common Shareholder (i) files with the Company a written
notice of intention to demand "fair value" (as defined under the NYBCL) for his
Common Shares before the vote of Shareholders at the Special Meeting; (ii) does
not effect any change in the beneficial ownership of his Common Shares from the
date of such filing through the Effective Time; (iii) does not vote in favor of
the Merger Agreement or submit a proxy executed in blank in connection with the
Special Meeting; and (iv) complies with certain other procedures outlined in
Section 623 of the NYBCL, a description of which is provided under "RIGHTS OF
DISSENTING SHAREHOLDERS" and the full text of which is attached to this Proxy
Statement as Annex C. Failure to comply strictly with the statutory provisions
may result in the loss of such appraisal rights.
Under New York law, it has been previously determined that the board of
directors of a New York corporation owes a fiduciary duty to the corporation and
its shareholders and must discharge its duty in good faith. This duty applies
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<PAGE>
in the context of the consummation of the Merger. It has also been held that a
majority shareholder and its affiliates owe a duty to purchase minority shares
at a fair market value when undertaking to purchase such shares. Under the
NYBCL, these duties co-exist with the dissenters' rights of appraisal. See
"RIGHTS OF DISSENTING SHAREHOLDERS - Other."
Certain Federal Income Tax Consequences
The receipt of cash for Common Shares pursuant to the Merger or
pursuant to the exercise of dissenters' rights will be a taxable transaction for
United States federal income tax purposes and may also be a taxable transaction
for state, local, foreign and other tax purposes. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES." Common Shareholders are urged to consult their own tax
advisers.
Market Information
The Common Shares are traded in the over-the-counter market. The
following information with respect to prices of the Common Shares was reported
by the National Quotation Bureau, Inc. On February 16, 1996, the last full day
of trading prior to the public announcement of the proposed Merger, the average
of the high and low bid prices of the Common Shares was $.66 per share. On May
2, 1996, the last full trading day for which quotations were available at the
time of printing of this Proxy Statement, the average of the high and low bid
prices of the Common Shares was $.72 per share. The aggregate trading volume
during 1995 was only 23,900 Common Shares.
For historical information on prices for the Shares, see "MARKET PRICES
OF THE COMMON SHARES AND RELATED SHAREHOLDER MATTERS."
INTRODUCTION
General
This Proxy Statement is being furnished to Shareholders in connection
with the solicitation by the Board of Directors of the Company of proxies from
holders of Common Shares for use at the Special Meeting to be held at the
Gramercy Park Hotel conference room, Two Lexington Avenue, New York, New York on
May 31, 1996 at 9:00 a.m., local time, and at any and all adjournments or
postponements thereof. This Proxy Statement, the attached Notice of Special
Meeting and the enclosed form of proxy are first being mailed to the
Shareholders on or about May 10, 1996.
The Company's principal executive offices are located at 3400 West
Chester Pike, Suite 201, Newtown Square, Pennsylvania 19073 and its telephone
number is (610) 325-5332.
Matters to be Considered at the Special Meeting
At the Special Meeting, the Shareholders will consider and vote upon
only one proposal, to adopt the Merger Agreement. Pursuant to the Merger
Agreement, the Company will be merged with and into Arrowhead and all issued and
outstanding Common Shares (other than the 141,419 Common Shares owned of record
by Arrowhead which will be cancelled in the Merger and other than the Affiliate
Exchange Stock) will be converted into the right to receive $1.32 per share, in
cash, without interest. The Affiliate Exchange Stock will be exchanged for
shares of Arrowhead common stock having an aggregate dollar value equal to the
product of (x) the number of shares of Affiliate Exchange Stock, and (y) $1.32.
A copy of the Merger Agreement is attached to this Proxy Statement as Annex A.
For additional information concerning the terms and conditions of the Merger,
see "THE MERGER."
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The Board of Directors unanimously approved the Merger Agreement and
has determined that, in its judgment, the Merger is fair, from a financial point
of view, to all non-affiliated Shareholders, and in the best interests of the
Company, and recommends that Shareholders vote FOR adoption of the Merger
Agreement.
Certain of the officers and directors of the Company have certain
interests that present them with actual or potential conflicts of interests in
connection with the Merger. See "THE MERGER - Special Factors - Background of
the Merger; Purpose of the Merger," and "- Interests of Certain Persons in the
Merger."
Voting at the Special Meeting
The close of business on April 26, 1996 has been fixed as the Record
Date for determining the Shareholders entitled to notice of and to vote at the
Special Meeting. Accordingly, only holders of Shares of record on the books of
the Company at the close of business on the Record Date will be entitled to vote
at the Special Meeting. On the Record Date, there were 1,287,412 issued and
outstanding Common Shares held by approximately 4,219 holders of record. A
quorum for the Special Meeting requires the presence of Shareholders, in person
or by proxy, entitled to cast at least a majority of the votes that all
Shareholders are entitled to cast with respect to the Merger Agreement.
Shareholders may cast one vote per Common Share either in person or by proxy, on
each matter to be voted on at the Special Meeting.
Approval of the Merger Agreement will require the affirmative vote of
the holders of two-thirds of all outstanding Common Shares entitled to vote at
the Special Meeting, which means that any Shareholder who fails to return a
proxy or vote in person at the Special Meeting will be deemed, in effect, to
have voted against approval of the Merger Agreement. Abstentions will be counted
as being present for purposes of determining the presence or absence of a quorum
and will, in effect, constitute a vote cast against approval of the Merger.
Brokers who hold Common Shares in street name for customers are not expected to
be entitled to vote those Common Shares with respect to the adoption of the
Merger Agreement without specific instructions from such customers.
The Affiliates held approximately 56.9% of the Common Shares issued and
outstanding as of the Record Date and have indicated their intention to vote
such shares in favor of the approval of the Merger Agreement. Thus, approval of
the Merger Agreement will require the affirmative vote of non-affiliated
Shareholders of the Company holding approximately 10% of the outstanding Common
Shares entitled to vote at the Special Meeting. See "THE MERGER - Special
Factors - Interests of Certain Persons in the Merger."
Proxies
All Shares represented at the Special Meeting by properly executed
proxies received prior to or at the Special Meeting, and not revoked before
their use, will be voted in accordance with the instructions thereon. If no
instructions are given, properly executed proxies will be voted FOR the approval
of the Merger Agreement. If any other matters are properly presented at the
Special Meeting or any adjournments or postponements thereof, the persons named
in the enclosed form of proxy as acting thereunder will have discretion to vote
on such matters in accordance with their best judgment. Commission Rule
14a-4(c)(1) under the Exchange Act limits the discretionary authority of proxies
to matters which the persons making the solicitation do not know, as of a
reasonable time before the solicitation, are to be presented at the meeting. The
Company does not know of any matter other than the proposal to approve the
Merger Agreement that will be presented at the Special Meeting. A Shareholder
who has given a proxy may revoke it at any time before it is voted at the
Special Meeting by filing with the Secretary of the Company, at the address of
the Company set forth on the first page of this Proxy Statement, a written
revocation bearing a later date than the proxy being revoked, or by submission
of a validly executed proxy bearing a later date than the proxy being revoked,
or by attending the Special Meeting and voting in person (although attendance at
the Special Meeting will not in and of itself constitute revocation of a proxy).
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The Company will bear the cost of the Special Meeting and the cost of
soliciting proxies therefor, including the cost of printing and mailing the
proxy material. In addition to the solicitation of proxies by mail, the Company
may utilize the services of some of its directors, officers and regular
employees (who will receive no compensation therefor in addition to their
regular remuneration) to solicit proxies personally or by telephone, telegram or
other form of wire or facsimile communication. The Company intends to request
brokers and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of Shares held of record by such persons. The
Company will offer to reimburse such brokers and other custodians, nominees and
fiduciaries for their out-of-pocket expenses incurred in connection therewith.
THE MERGER CONSTITUTES A MATTER OF GREAT IMPORTANCE TO SHAREHOLDERS.
UPON ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE MERGER, THE
SHAREHOLDERS' OWNERSHIP INTERESTS IN THE COMPANY WILL CEASE. IN EXCHANGE FOR
THEIR OWNERSHIP INTERESTS, SUCH HOLDERS, OTHER THAN ARROWHEAD AND THE
AFFILIATES, WILL RECEIVE A CASH PAYMENT OF $1.32 PER COMMON SHARE UNLESS SUCH
PERSONS EXERCISE DISSENTERS' APPRAISAL RIGHTS. ACCORDINGLY, SHAREHOLDERS ARE
URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT.
THE MERGER
General
The following information with respect to the Merger is qualified in
its entirety by reference to the Merger Agreement, a copy of which is attached
to this Proxy Statement as Annex A.
The Merger Agreement sets forth the terms and conditions upon which the
Merger is to be effected. The Merger will be consummated only if the Merger
Agreement is approved by the Shareholders at the Special Meeting and if all
other conditions to the obligations of the parties thereto to consummate the
Merger are satisfied or waived.
The Merger Agreement provides that, at the Effective Time, the Company
will be merged with and into Arrowhead and all Common Shares that are issued and
outstanding at the Effective Time (other than the 141,419 Common Shares owned of
record by Arrowhead which will be cancelled in the Merger and other than the
Affiliate Exchange Stock) will be converted into the right to receive $1.32 per
share, in cash, without interest. Upon consummation of the Merger, Shareholders
(other than the Affiliates as to the Affiliate Exchange Stock, which will be
exchanged for shares of Arrowhead common stock having an aggregate dollar value
equal to the product of (x) the number of shares of Affiliate Exchange Stock,
and (y) $1.32) will possess no further interest in, or rights as Shareholders
of, the Company, other than their right to receive $1.32 per Common Share or to
exercise dissenters' appraisal rights.
Effective Time of the Merger
The Merger will become effective at such time as a Certificate of
Merger is duly filed with the Secretary of State of the State of New York and
the Secretary of State of the State of Delaware in accordance with the
applicable provisions of law of each such jurisdiction. The required filings are
expected to be made promptly following the adoption of the Merger Agreement by
the Shareholders at the Special Meeting.
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Shareholder Approval
The Merger Agreement requires that such Shareholder approval as is
required under the NYBCL and pursuant to the Company's Certificate of
Incorporation and By-Laws be obtained prior to the consummation of the Merger.
For a discussion of such requirements, see "INTRODUCTION - Voting at the Special
Meeting."
Payment for Common Shares
After consummation of the Merger, in order to receive the $1.32 per
Common Share due as a result of the Merger, Shareholders must surrender their
common stock certificates to Arrowhead. No interest will be paid or accrued on
the cash payable upon the surrender of such certificates. On a combined basis,
Arrowhead and the Company have sufficient cash and cash equivalents to satisfy
the monetary obligations under the Merger Agreement and to pay related expenses.
No escrow or payment fund will be established in connection with the Merger.
Arrowhead will make payments directly to Shareholders as certificates are
remitted as described elsewhere herein.
Detailed instructions with regard to the surrender of certificates,
together with a letter of transmittal, will be forwarded to former holders of
Common Shares as promptly as practicable following the Closing Date.
Shareholders should not submit their certificates until they have
received such materials. Payment for Common Shares will be made to former
Shareholders as promptly as practicable following receipt by Arrowhead of such
certificates and other required documents. Until stock certificates and other
required documents are received by Arrowhead, each Common Share certificate
representing Common Shares will represent solely (i) the right to receive $1.32
per Common Share, in cash or (ii) in the case of Shareholders who have properly
perfected dissenters' appraisal rights with respect to their Common Shares, the
right to seek payment pursuant to Section 623 of the NYBCL. See "RIGHTS OF
DISSENTING SHAREHOLDERS."
Regulatory Matters
There are no federal or state regulatory approvals or consents that
must be obtained in connection with the Merger.
Conditions to Consummation of the Merger
The respective obligations of the Company and Arrowhead to effect the
Merger are subject to the satisfaction or waiver (in some instances), at or
prior to the Effective Time, of certain conditions. If such conditions are not
satisfied, the Merger Agreement will automatically terminate, unless the
condition is specifically waived by either or both of the Company and Arrowhead,
if appropriate. The conditions include: (i) the accuracy of all representations
and warranties and the performance of all obligations and agreements, and
compliance with all covenants and conditions, in all material respects, prior to
the Closing Date; (ii) the Merger Agreement shall have been approved and adopted
by the requisite vote of the Shareholders under applicable law and the Company's
Certificate of Incorporation and By-laws; (iii) there shall be in effect no
preliminary or permanent injunction or other order issued which restrains or
prohibits the consummation of the Merger; and (iv) no statute, rule, regulation,
executive order, decree or order of any kind shall be in effect or enforced
which prohibits or restricts the consummation of the Merger.
In addition to those set forth above, the obligations of the Company to
effect the Merger are also conditioned upon the opinion of AML not having been
withdrawn by AML prior to the Effective Time.
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In addition to those set forth above, the obligations of Arrowhead to
effect the Merger are also subject to the satisfaction or waiver (in some
instances), of each of the following conditions: (i) the non-occurrence of (1)
any general suspension of trading in or limitation on prices for securities on
any national securities exchange or national over-the-counter market, (2) the
declaration of any banking moratorium or suspension of payments in respect of
banks in the United States, or (3) the commencement of a war declared by or upon
the United States; and (ii) the absence of any material adverse change in the
business, assets, liabilities, operations, prospects or conditions (financial or
otherwise) of the Company.
Termination
In addition to the foregoing conditions to the consummation of the
Merger, the Merger Agreement may be terminated and the Merger may be abandoned
by the Company or Arrowhead at any time prior to the Effective Time, whether
before or after approval of the Merger by the Shareholders.
Expenses
All costs and expenses incurred by the Company in connection with the
negotiation and execution of the Merger Agreement are to be paid by the Company.
Arrowhead will be responsible for its expenses incurred in connection with the
negotiation and execution of the Merger Agreement.
Indemnification of Directors and Officers
Arrowhead has agreed to maintain all rights to indemnification,
contribution, reimbursement or advancement of expenses created by the By-laws or
Certificate of Incorporation of the Company in favor of the directors, officers
and employees of the Company, arising under New York law or contained in any
contracts or other instruments with respect to acts or omissions of such
persons.
Accounting Treatment of the Merger
The Merger and related costs will be accounted for as a purchase by
Arrowhead. All of the Company's costs in connection with the negotiation and
execution of the Merger Agreement shall be expensed by the Company.
* * *
Special Factors
Background of the Merger; Purpose of the Merger
The Affiliates have owned in excess of one-half of the Company's Common
Shares since July 6, 1990. No acquisitions of Common Shares by the Affiliates
have occurred since June 7, 1993.
Based on the majority ownership of Common Shares by the Affiliates, the
limited public market for the Common Shares, the time expended and the expense
incurred by the Company in preparation of filings with the Securities and
Exchange Commission (the "Commission"), the time expended and the expense
incurred in other communications with or on account of Shareholders other
than the Affiliates, and the fact that, since January 1, 1994, the Company's
business has primarily consisted of providing services to Penco, Mr. James
Benenson, Jr. and certain of the executive officers of the Affiliates who
also serve as executive officers of the Company informally discussed, as
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early as March 1995, possible transactions pursuant to which the Company
would be acquired by Arrowhead or one of the entities controlled by
Arrowhead. Because all of the officers and directors of the Company also
serve as officers and/or directors of Arrowhead and/or Vesper
(see "- Interests of Certain Persons in the Merger: Other"), such informal
discussions did not constitute "negotiations", as such. Rather, such
discussions occurred as part of routine telephone conversations between
Mr. Benenson, Clifford J. Demarest, President, Chief Executive Officer
and a director of the Company, and Gerald J. Carroll, Vice President, Secretary
and a director of the Company, relating to the operations of the Company, Vesper
and Penco. Such discussions occurred during the first two weeks of March 1995.
During the first such discussion, it was recognized that the public market for
the Company's Common Shares was not an active one and that, since January 1994,
the Company's business has primarily consisted of providing services to Penco.
It was further recognized that, unless the Company was able to generate a
significant amount of business from customers other than Penco, the market for
the Common Shares was not likely to improve and, consequently, it did not make
sense for the Company to continue to incur the significant expenses associated
with the preparation and filing of reports with the Commission and in other
communications with or on account of Shareholders other than the Affiliates. In
subsequent conversations during such period of time, Messrs. Benenson, Demarest
and Carroll agreed that, in light of the Affiliates' ownership of a majority of
the outstanding Common Shares, the costs associated with the Company's status as
a "reporting company" under the Exchange Act could be eliminated through the
acquisition by the Affiliates of the Common Shares held by the public in a
merger or similar transaction involving the Company and Arrowhead or one of the
entities controlled by Arrowhead.
In light of the potential conflicts of interest resulting from the
overlapping management of the Company, Arrowhead and Vesper, the Board of
Directors recognized that it would need to retain an independent financial
advisor to render an opinion to the non-affiliated Shareholders of the Company
in connection with any such transaction. Consequently, in late March 1995, the
Board of Directors decided to retain AML to serve as its financial advisor and
to render an opinion as to the fairness of any such transaction, from a
financial point of view, to the non-affiliated Shareholders. In selecting its
financial advisor, the Board of Directors considered, among other things, the
advisor's expertise, experience, potential conflicts of interest and cost. The
Board of Directors requested proposals from two other investment banking firms
before deciding to retain AML, whose bid was the lowest. However, none of the
discussions among such persons resulted in an actual proposal or agreement
concerning such a transaction and, in August 1995, such persons determined to
delay consideration of such a transaction until a later date. Consequently, AML
was not called upon to render any fairness opinion at such time. Other than as
discussed above, during such period of time, no other contacts or discussions
took place relating to any such transaction involving the Company.
Over the course of the next five months, Mr. Benenson and Mr. Demarest
became convinced that the Company would not be able to generate significant
business from customers other than Penco. In addition, the Company had not
received any offers or proposals from any unaffiliated third parties regarding a
merger, purchase of assets or similar transaction at any time during the past 18
months. In light of these facts, and the fact that the Company's computer
equipment (both hardware and software) was becoming obsolete, Mr. Benenson and
Mr. Demarest did not believe that an unaffiliated third party would be
interested in purchasing the Company or its assets. Furthermore, because the
Company was the sole provider of data processing services to Penco, a subsidiary
of Vesper, none of the Affiliates would be in favor of such a sale, assuming
that such a transaction was possible.
Consequently, on February 14, 1996, Mr. Benenson, on behalf of
Arrowhead, for the reasons cited above, proposed to the Company a transaction
pursuant to which the Company would be merged with and into Arrowhead and all
Common Shares (other than the 141,419 Common Shares owned of record by Arrowhead
which will be cancelled in the Merger and other than the Affiliate Exchange
Stock which will be exchanged for shares of Arrowhead common stock having
an aggregate dollar value equal to the product of (x) the number of shares
of Affiliate Exchange Stock, and (y) $1.32) would be converted into the
right to receive $1.32 per share, in cash (the "Proposal"). Arrowhead and
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the Company estimate that the direct cost of the Company's compliance with
the Securities Exchange Act of 1934 and filings related thereto (i.e.,
filing fees, accountant fees, legal fees and printing costs), as well as
the cost of Shareholder related communications, is approximately $43,500
per year. In addition, a large amount of management time and effort is
expended on such tasks. It is the view of Arrowhead and the Company that
the indirect costs resulting from such management effort are much higher
than the direct dollar costs of these matters and that all such costs can be
eliminated as a result of the Merger.
The price of $1.32 per share represents the highest price Arrowhead
would be willing to pay to the Shareholders. Arrowhead did not undertake any
internal formal financial analyses in order to determine such price nor did it
commission any independent financial analyses. Rather, in determining such
price, Arrowhead considered the prevailing market price of such Common Shares
and the fact that the public trading market for such Common Shares is not an
active one. Arrowhead noted that the highest bid price for the Common Shares
during the past two years was $.6875 and that the Common Shares were thinly
traded. In addition, based upon management estimates of the projected costs of
liquidation and the projected liquidation value of the Company's fixed assets,
Arrowhead believed that a price of $1.32 per Common Share was equivalent to the
highest price which could be obtained if the Company were to liquidate its
assets. Based upon these factors, Arrowhead determined the price to be offered
in the Merger. See "- The Affiliates' Belief as to Fairness."
In view of its prior engagement of AML to render a fairness opinion in
connection with any proposed transaction with Arrowhead and the existence of
dissenters' rights for the non-affiliated Shareholders of the Company, the Board
of Directors did not consider it necessary to retain separate legal counsel on
behalf of the non-affiliated Shareholders for the purpose of negotiating the
terms of the Merger Agreement. In addition, given the fact that (i) the Company
has limited operations and no operating profits, (ii) the market value of the
Common Shares held by non-affiliated Shareholders is only approximately $360,000
and (iii) the aggregate value of the consideration to be paid to non-affiliated
Shareholders in the Merger is approximately $750,000, the Board of Directors did
not believe that it was economically prudent to increase the transactional costs
associated with the Merger by engaging separate counsel on behalf of the
non-affiliated Shareholders. Since all of the members of the Board of Directors
of the Company are affiliated with Arrowhead, it was not possible to establish
an independent committee to review the terms of the Merger.
During the period following delivery of the Proposal to the Board of
Directors, the Board of Directors met and had discussions with representatives
of AML to discuss in detail the nature and scope of the evaluation of the
Proposal. The Board of Directors did not place any limitations on the nature or
scope of AML's evaluation of the Proposal. AML was free to conduct such
investigations and review such information as it believed necessary to conduct
its analysis and render its opinion. Also during the same time period, AML
visited the Company's facilities and conducted interviews with the Company's
managers concerning the Company and its operations. In addition, AML reviewed
documents, financial statements, various internal financial budgets prepared by
Company management in the ordinary course of business as well as reports and
other materials provided by the Company. AML performed such additional
independent investigations and examinations as it deemed appropriate.
On February 20, 1996, AML met with the Board of Directors to
discuss the Proposal and to present the conclusions of its analyses. At this
time, AML presented its analyses and reviewed with the Board of Directors the
scope of its examination, the nature of its assumptions, the conclusions of its
valuation analyses and the methodologies which it utilized in researching such
conclusions. In the course of such presentation, AML stated that, in its
opinion, the Merger would be fair to the non-affiliated Shareholders from a
financial point of view. During the presentation, the Board of Directors
discussed with AML its examination, methodologies and conclusions. See
"-Fairness Opinion." The Board of Directors of the Company did not consider the
possibility of specifically adopting the fairness opinion of AML; but, based
principally upon the opinion of AML and the presentation made to it by AML, the
members of the
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Board of Directors, all of whom were present at the meeting, unanimously
approved the Merger Agreement. The Merger Agreement was executed by the
parties on February 20, 1996 and a public announcement concerning the Merger
Agreement was released later that day.
The Company has entered into the Merger Agreement because the Board of
Directors concluded that the Merger (i) was in the best interests of the Company
because it would permit the Company to avoid the time and expense incurred in
preparing periodic reports and other filings with the Commission and the time
and expense incurred in other communications with the Shareholders, and (ii)
based in part on AML's fairness opinion and the Board of Directors' own further
review of relevant matters, was fair to all Shareholders. For a discussion of
the analysis conducted by the Board of Directors and AML with respect to the
Merger, see "- Fairness of the Merger; Recommendation of the Board of Directors"
and "- Fairness Opinion."
Fairness of the Merger; Recommendation of the Board of Directors
On February 20, 1996, after considering the presentation made to it by
AML, the Board of Directors unanimously concluded that the Merger is fair, both
procedurally and substantively, to all non-affiliated Shareholders and approved
the Company's execution and delivery of the Merger Agreement. The Board of
Directors did not solicit any offers or proposals from any unaffiliated third
party regarding a possible merger, purchase of assets or similar transaction
prior to reaching its conclusion.
In arriving at its conclusion, the Board of Directors considered the
presentation made by, and fairness opinion of, AML. The conclusions of the Board
of Directors represent their overall view of the Merger, taking into account all
factors impacting on the question of whether the Merger is fair to the
Shareholders. Set forth below and elsewhere herein are discussions of the
individual elements of the analysis undertaken. While each of these elements are
set forth individually for the convenience of the Shareholders, it is the view
of the Board of Directors that these elements must be viewed collectively in
order to gain an understanding of the analysis which was undertaken in
determining to enter into the Merger Agreement. In particular, from a
substantive standpoint, the Board of Directors focused on the fact that the
minimum price per share which the Merger provides to the Shareholders is in
excess of prevailing market prices for the Common Shares. This factor was of
special import because of the fact that the public trading market for the Common
Shares is not an active one. In addition, the Board of Directors considered the
various factors discussed above under "- Background of the Merger; Purpose of
the Merger" which led to Mr. Benenson's decision to submit the Proposal to the
Company, including the fact that (i) the Company had been unable to generate
significant business from customers other than Penco; (ii) the Company had not
received any offers or proposals from any unaffiliated third party regarding a
possible merger, purchase of assets or similar transaction during the past 18
months; and (iii) the Company's computer equipment (both hardware and software)
was becoming obsolete. The Board of Directors also focused on the results of
AML's fairness analysis which showed the $1.32 per share to be paid in the
Merger to approximate or exceed the values calculated by AML in the course of
each of its three methods of analysis.
The Board of Directors noted the fact that the Company's book value per
share of $1.63 exceeds the $1.32 per share to be paid in the Merger, but
concluded that, based upon management's own estimates of the transactional and
other costs of liquidation and the projected liquidation value of the Company's
fixed assets, the Company would be unable to realize the book value if it were
to liquidate its assets. Rather, in the opinion of the Board of Directors, the
highest per share value which the Company could expect to realize upon
liquidation was equivalent to the $1.32 per share offered by Arrowhead. For a
detailed discussion of management's estimates of the transactional and other
costs of liquidation, see "- Fairness Opinion." Information concerning the
projected liquidation value of the Company's fixed assets and the bases for such
projections is also set forth below under "- Fairness Opinion; Liquidation
Analysis."
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The Board of Directors also considered certain adverse factors relating
to the Merger, including: the fact that the Merger will deprive Shareholders,
other than the Affiliates, of the opportunity to participate in future
increases, if any, in the value of Arrowhead once the Company has been merged
into it; the existence of certain conflicts of interest between the Company, the
Affiliates and the directors and officers of the Company; and the fact that the
Affiliates will have certain rights not accorded to other Shareholders in the
Merger. The Board, in reaching its conclusion as to the fairness of the Merger,
determined that such adverse factors did not materially impact on the fairness
of the Merger.
For instance, it is the view of the Board that the loss of potential
benefit from future increases, if any, in the value of the Common Shares is
outweighed or at least counterbalanced by the fact that the Shareholders who
receive cash in the context of the Merger will no longer have to bear the risk
of any future decline in the value of the Common Shares. Based in part on the
fact that the Common Shares seldom trade, it would be extremely difficult for a
Shareholder to limit such a risk by freely selling Common Shares in the open
market at a time of his choosing.
The Board of Directors also concluded that the procedures to be
employed in effecting the Merger are fair to all Shareholders. In reaching this
decision, the Board of Directors was aware of the fact that the Merger Agreement
did not require approval of a majority of the non-affiliated Shareholders and
that the interests of such Shareholders were not represented by a Special
Committee of independent directors. However, the Board of Directors believed
that these factors were outweighed by the availability to the Shareholders of
dissenters' appraisal rights.
In connection with the recommendation of the Board of Directors that
Shareholders approve the Merger Agreement, Shareholders should consider the fact
that the interests of the Affiliates in voting for adoption of the Merger
Agreement are not the same as those of the other Shareholders. See "- Interests
of Certain Persons in the Merger."
Fairness Opinion
On February 20, 1996, AML reported orally to the Board of Directors
that, in its opinion, the Merger is fair to all non-affiliated Shareholders from
a financial point of view and discussed the elements of its valuation analyses
utilized in reaching its conclusion as to the fairness of the Merger. A copy of
the written opinion of AML, addressed to the Board of Directors, dated February
20, 1996, confirming this oral opinion, as well as a copy of its valuation
analyses, is set forth as Annex B to this Proxy Statement. Shareholders are
urged to read such opinion, including a description of certain of the
information reviewed and assumptions made by AML in arriving at its opinion, and
the valuation analyses.
In rendering its opinion, AML was not instructed to and did not make or
seek to obtain independent appraisals of the Company's assets in connection with
its analyses of the Company. In addition, AML was not requested to and did not
solicit third parties who might be interested in acquiring all or any part of
the Company. Except as noted above, no limitations were imposed by the Board of
Directors upon AML with respect to the investigation made or the procedures
followed by AML in rendering its opinion. The Company and its management
cooperated fully with AML in connection with its investigation.
In delivering its opinion and making its presentations to the Board of
Directors, AML utilized certain financial comparative analyses (contained in the
valuation analyses attached as part of Annex B), and such other factors as it
deemed relevant, as more fully explained below.
In connection with certain of the valuation analyses conducted by
AML, AML based its analyses, in part, upon the financial condition of
the Company as reflected in the audited financial statements of the Company
for the fiscal year ended September 30, 1995. Such financial statements
represent the most recently available audited financial statements
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of the Company. AML has not been engaged to update its opinion based upon
unaudited financial statements of the Company as of a more recent date. The
Company does not believe that there have been any changes in its financial
condition since September 30, 1995 which would materially impact upon AML's
opinion. Information regarding the Company's financial condition and results
of operations as of March 31, 1996 and for the six month period then ended
is set forth herein under "SELECTED FINANCIAL INFORMATION AND CERTAIN PER
SHARE DATA OF THE COMPANY" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and in the Consolidated
Financial Statements of the Company attached hereto as Annex D.
In addition, as discussed elsewhere herein, in performing its analysis
AML relied upon certain assumptions and estimates of the Company and its
management. In particular, in discussions with representatives of AML,
management of the Company indicated that they did not expect the Company to
generate operating profits in fiscal 1996. This expectation was based on the
fact that the Company (i) had no operating profits in fiscal 1995, (ii) has
derived all of its revenues from one customer, Penco, since January 1994, (iii)
has no other significant operations and (iv) is not expected to have any other
significant operations or derive revenue from any source other than Penco in the
near future.
Methodologies. There are a variety of analyses that are customarily
undertaken by investment bankers in forming an opinion as to the fairness of a
transaction such as that described in the Proposal, including market price
analysis, analysis of comparable companies, discounted cash flow analysis,
liquidation analysis and acquisition analysis. However, given the fact that the
Company (i) has derived 100% of its revenues from one customer, Penco, since
January 1994, (ii) has no other significant operations, (iii) did not have
operating profits in fiscal 1995 and (iv) does not expect to have operating
profits in fiscal 1996, AML believed that there are only three relevant analyses
to be undertaken in forming an opinion as to the fairness of the Proposal: a
market price analysis, liquidation analysis and acquisition analysis. The
analyses and conclusions reached by AML are described more fully below.
Market Price Analysis. AML reviewed trading in the Common Shares on the
over-the-counter market which occurred between January 1, 1995 and December 31,
1995. During such period, the range of bid prices at which market makers in the
Common Shares offered to purchase such shares was $.500 to $.6875 per Common
Share. The aggregate trading volume during such period was only 23,900 Common
Shares. AML concluded that the market for the Common Shares was extremely thin,
that the Common Shares were very illiquid, and that the maximum any Shareholder
could have received for Common Shares in the market during such period was the
highest bid price, $.6875 per Common Share, and only in minimal quantities. Such
amount is substantially below the value of the consideration per Common Share to
be paid in the context of the Merger. During the period from January 1, 1996
through April 30, 1996, the highest bid price for the Common Shares was $.750
per Common Share.
Liquidation Analysis. AML prepared a liquidation analysis to determine
what values would be generated for Shareholders if the Company were to liquidate
its assets and pay its creditors from such proceeds. For analytic purposes, AML
assumed that (i) cash and accounts receivable could be liquidated at 100% of
their book value, $1,978,008 and $53,000, respectively, as of September 30,
1995; (ii) security deposits and prepaid rent could be used to offset any monies
due from the Company upon default of the Company's leases (because such
liquidation would constitute a default under the various leases), and,
therefore, could be liquidated at 100% of their aggregate book value, $6,963;
(iii) the Company's other current assets, consisting of prepaid postage and
advances to employees, could be utilized and/or used to offset liquidation
expenses, as applicable, and, therefore, were valued at 100% of their book
value, $1,275; and (iv) the Company's leasehold improvements, which are not
detachable and would have to be abandoned in the event of a liquidation of the
Company, have no liquidation value.
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AML also assumed that the Company's customized software system has no
liquidation value, since management of the Company stated that they had been
attempting unsuccessfully to sell such equipment since the first calendar
quarter of 1994. The customized software system was used by the Company's data
processing subsidiary in connection with direct mail processing work done for
former unaffiliated customers of the Company. Upon the loss of such customers,
throughout 1994 and into the first calendar quarter of 1995, the Company
contacted several independent parties who provide services to the direct mail
industry in an effort to identify a potential purchaser of the customized
software system. Such efforts were unsuccessful primarily because the customized
software system had become obsolete.
Based upon an independent appraisal obtained by the Company in February
1995, AML assumed that the Company's computer equipment has an aggregate
liquidation value of approximately $37,350, or 28% of book value. The appraisal
was obtained by the Company from Concept Computer Corporation ("Concept"), a
Canadian company engaged in the resale of computer equipment of the type owned
by the Company. Concept's valuation of such equipment was based on its knowledge
and experience regarding the market value of used equipment of similar type,
quality and condition. Concept did not receive any compensation from the Company
for rendering the appraisal, since Concept is in the business of valuing and
purchasing such equipment for its own account. The Company has had no prior
material relationship with Concept. The appraisal was deemed by AML to be
consistent with the weak demand for equipment of that type. Finally, AML assumed
that the Company's ten year old telephone system has an aggregate liquidation
value of $2,650 (although the book value of such equipment is zero). Other than
the appraisal rendered by Concept, no appraisals were available to, or sought
by, AML.
After subtracting the Company's liabilities and an allowance of
approximately $297,600 for administrative costs of liquidation, AML's analysis
indicated that the liquidation value of the Company is approximately $1,701,006,
or $1.32 per Common Share, a value approximating the consideration per Common
Share to be paid in the context of the Merger.
The allowance of $297,600 for administrative costs of liquidation was
based on estimates provided by management of the Company and includes: (i)
$33,000 for the preparation, printing, filing and distribution of proxy
materials, the cost of holding a special meeting of shareholders of the Company
for purposes of obtaining shareholder consent to a liquidation, and the cost of
related communications with or on account of shareholders; (ii) $32,400 in legal
and financial advisory fees in connection with a liquidation and dissolution of
the Company; (iii) $104,000 in general administrative fees, including salary and
expense of administrative employees (including officers of the Company who also
serve as officers of Arrowhead and/or Vesper), audit and accounting fees, rent
and utilities, insurance and general overhead during the approximately six month
period required to effect an orderly liquidation, dissolution and winding-up of
the Company's affairs; (iv) $8,400 for the storage of certain equipment of the
Company; (v) $15,000 for the buy-out of various maintenance agreements to which
the Company is a party; (vi) $46,500 for lease abandonment liability pursuant to
the terms of the Company's office leases; and (vii) $58,300 in severance payable
to employees (other than officers of the Company who also serve as officers of
Arrowhead and/or Vesper) in accordance with Company policy.
Such estimates were based, as applicable, on the terms of agreements to
which the Company is a party, existing Company policies, historical
administrative and operating expenses of the Company, historical costs of legal,
accounting and advisory services rendered in connection with previous
transactions involving the Company, and management's prior experience relating
to costs and expenses incurred in connection with transactions requiring the
solicitation of shareholder approval. Based upon the foregoing, management of
the Company considers such estimates to be reasonable.
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Acquisition Analysis. AML calculated the reasonable price which a third
party investor could be expected to pay to acquire the Company as a going
concern by adjusting the book values of the Company's assets and liabilities.
AML did not believe that a valuation of the Company based on multiples of
earnings, revenues or book value was appropriate given the fact that (i) the
Company's only customer is Penco, (ii) the Company did not have operating
profits in fiscal 1995, and (iii) the Company does not expect to generate
operating profits in the near future. Consequently, to arrive at the adjusted
book value, AML reduced the Company's book value of approximately $2,099,720 as
of September 30, 1995, to reflect the appraisal value of the Company's computer
equipment and telephone system as discussed above (a reduction of $104,482) and
the market value of the Company's leasehold improvements. This resulted in an
adjusted book value of the Company of approximately $1,978,599.
AML went on to conclude that, since the Affiliates control the Company
and have no present intention of selling their interest in the foreseeable
future, any prospective purchaser of Common Shares would necessarily be in a
minority shareholder position. Accordingly, AML applied a 25% discount to the
adjusted book value of the Company set forth above to reflect the minority
position and the illiquidity of the Common Shares. This resulted in a value of
approximately $1,483,949, or $1.15 per Common Share, a value below the value of
the consideration per Common Share to be paid in the context of the Merger. AML
believes that the 25% minority and illiquidity discount yields an aggressive
valuation for the Common Shares not owned by the Affiliates since an even
greater discount is arguably more appropriate.
AML's Opinion. In AML's opinion, its liquidation analysis, which
generated a value of approximately $1,701,006, or $1.32 per Common Share,
represents the most theoretically correct method of calculating the value of the
Common Shares. The other valuation analyses conducted by AML generated values
which were lower than the $1.32 per Common Share to be paid in the Merger and
therefore confirm the fairness, from a financial point of view, of the Proposal.
Based on the foregoing analyses, AML concluded that the Merger was fair
to the non-affiliated Shareholders from a financial point of view.
AML is a well regarded investment banking firm and is regularly engaged
in the valuation of businesses and securities in connection with mergers and
acquisitions, underwritings, private placements and for various other purposes.
Except for the opinion and related report of AML and the appraisal of
computer equipment rendered by Concept, the Company has not received any other
written financial reports, opinions or appraisals from any unaffiliated party
that are related in any way to the Merger.
The foregoing summary does not purport to be a complete description of
AML's written analyses, the full text of which are attached hereto as part of
Annex B.
For its services to the Board of Directors, AML has received a fee of
$6,000. Such fee was not contingent upon the conclusions reached by AML in its
opinion. In addition, AML will be reimbursed for its expenses incurred in
connection with its services performed. The Company has agreed to indemnify AML
against any losses, claims, damages and liabilities (including certain
liabilities under federal securities laws) in connection with the services
rendered by AML to the Company.
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The Affiliates' Belief as to Fairness
Arrowhead and its Affiliates believe that the substantive terms of the
Merger and the procedures to be employed in effecting the Merger are fair to all
Shareholders. The $1.32 price per Common Share to be paid in the Merger
represents the highest price Arrowhead would be willing to pay to non-affiliated
Shareholders.
In determining whether such price was fair to non-affiliated
Shareholders, Arrowhead considered the prevailing market price of the Company's
Common Shares and the fact that the public trading market for the Company's
Common Shares is not an active one. Arrowhead noted that the highest bid price
for the Common Shares during the two years prior to the date of the Proposal was
$.6875 and that the Common Shares were thinly traded. In addition, based upon
management's estimates of the projected costs of liquidation and the projected
liquidation value of the Company's fixed assets, Arrowhead believed that a price
of $1.32 per Common Share was equivalent to the highest price which could be
obtained if the Company were to liquidate its assets. Based upon these factors,
Arrowhead and its Affiliates believe that the terms of the Merger are fair to
the Company's non-affiliated Shareholders. Arrowhead did not undertake any
internal formal financial analyses other than as discussed above in order to
determine such price, nor did it commission any independent financial analyses
to reach such conclusion.
After reviewing the opinion of AML, Arrowhead and its Affiliates
believe that the AML opinion supports their initial determination of fairness.
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors with
respect to the Merger, Shareholders should be aware that certain members of the
Company's management and Board of Directors have certain interests that present
them with conflicts of interest in connection with the Merger.
Equity Ownership of Affiliates. James Benenson, Jr., the Chairman of
the Board of the Company, is also the Chairman of the Board and President of
Arrowhead and Vesper and beneficially owns all of the issued and outstanding
voting stock of Arrowhead. Arrowhead beneficially owns approximately 99.8% of
the issued and outstanding common stock of Vesper and approximately 68.2% of the
preferred stock of Vesper.
As of the Record Date, James Benenson, Jr. beneficially owned, either
directly or indirectly through his ownership and control of Arrowhead and
Vesper, approximately 56.9% of the issued and outstanding Common Shares. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Upon
consummation of the Merger, the Company will be merged with and into Arrowhead
and, by virtue of the ownership structure discussed in the preceding paragraph,
Mr. Benenson will control approximately 99.9% of the resulting entity.
Indemnification. Under the Merger Agreement, Arrowhead is required to
indemnify the directors, officers and employees of the Company with respect to
acts or omissions occurring at or prior to the Effective Time. See "THE MERGER
- -- Indemnification of Directors and Officers."
Treatment of Affiliate Stock. Of the 732,169 shares of Affiliate Stock,
141,419 Common Shares owned of record by Arrowhead will be cancelled in the
Merger and the remaining 590,750 shares of Affiliate Stock will be exchanged for
shares of Arrowhead common stock having an aggregate dollar value equal to the
product of (x) the number of shares of Affiliate Exchange Stock, and (y) $1.32.
As a result of the foregoing and the ownership structure discussed above, upon
consummation of the Merger, Mr. Benenson, either directly or indirectly through
his ownership and control of Arrowhead, will control approximately 99.9% of the
resulting entity.
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As a result of the Merger, the separate corporate existence of the
Company will cease and all of the assets and liabilities of the Company
(approximately $2,200,000 and $117,260, respectively, as of March 31, 1996) will
become assets and liabilities of Arrowhead. Approximately, $2.1 million of the
assets being acquired consists of cash, accounts receivable and other current
assets. In addition, certain tax benefits (consisting of approximately
$6,579,000 relating to net operating loss carryforwards and $255,000 in
investment tax credit carryforwards as of March 31, 1996) not included on the
Company's balance sheet will inure to the benefit of Arrowhead. However,
Arrowhead's ability to utilize such tax benefits is limited by the rules and
regulations promulgated under the Internal Revenue Code of 1986, as amended.
During the past five years, Arrowhead has had no income which could have been
offset by such tax benefits and it is not expected to report any such income in
the current fiscal year.
Upon consummation of the Merger, the non-affiliated Shareholders will
be entitled to receive payment, in cash, of $1.32 per Common Share or to
exercise dissenters' appraisal rights under Section 623 of the NYBCL. The
non-affiliated Shareholders, as of the Effective Time, will have no continuing
ownership interest in the Company, either directly or indirectly through
Arrowhead, and will no longer participate in any earnings and/or growth of the
Company. Similarly, such Shareholders will no longer face a risk of a decline in
value of their Common Shares. The Affiliates, by virtue of their receipt of
shares of Arrowhead common stock in exchange for their Common Shares, will have
a continuing equity interest in the Company and will continue to participate in
any earnings and/or growth of the Company.
The receipt of cash for Common Shares pursuant to either the Merger or
the exercise of dissenters' appraisal rights will be a taxable transaction for
federal income tax purposes and might also be a taxable transaction for state,
local, foreign and other tax purposes. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES."
Other. Since January 1, 1994, the Company's business has primarily
consisted of providing data processing services to Penco, for which the Company
is paid approximately $600,000 per year.
As previously stated, Mr. Benenson is also Chairman of the Board and
President of Arrowhead and Vesper. In addition, Clifford J. Demarest is
President, Chief Executive Officer and a director of the Company; President,
Chief Executive Officer and a director of Starboard; and President, Industrial
Products, of Vesper. Gerald J. Carroll is Vice President, Secretary and a
director of the Company; Secretary and a director of Starboard; Vice President
and Secretary of Arrowhead; Vice President, Secretary and a director of Vesper;
and Vice President and Secretary of Penco. Michael Boniello is Treasurer of the
Company and is Vice President - Finance, Controller and a director of Penco.
Mr. Demarest is paid $50,000 annually by the Company for services
rendered in his capacity as President and Chief Executive Officer of the
Company. The salary and benefits of certain of the officers and employees of the
Company who also serve as officers and employees of Vesper (including Mr.
Benenson, Mr. Carroll and two other people) are paid directly by Vesper, and
Vesper is reimbursed for the portion of such salary and benefits allocable to
time spent by such officers and employees in service of the Company. The
aggregate amount of such salaries and benefits allocable to the Company is
approximately $71,000 per year.
In addition to the foregoing, the Company and Vesper share certain
office space leased by the Company. Approximately $35,400 of the lease and
miscellaneous office expenses incurred by the Company each year are allocated to
Vesper. Vesper purchases property and casualty insurance on its behalf and on
behalf of the Company; $5,500 per year is allocated to the Company for the cost
of such insurance.
* * *
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Plans for the Company After the Merger
Following the Merger, the separate corporate existence of the Company
will cease and the business and operations of the Company will be conducted by
Arrowhead substantially as they are presently conducted. Arrowhead has no
intention to seek business from any party other than Penco after the Merger.
Other than changes which take place as a result of the Merger, neither the
Company nor Arrowhead have any plans or proposals that relate to or would result
in (i) an extraordinary transaction involving the Company's structure, business,
indebtedness or management (such as a reorganization or liquidation); (ii)
relocation of any operations of the Company; or (iii) sale or transfer of tax
benefits or of a material amount of the Company's assets (by dividend or
otherwise). As a result of the Merger, the present Board of Directors of the
Company will cease to exist.
Following the Merger, the Common Shares will cease to be included for
quotation on the over-the-counter market, the registration of the Common Shares
under the Exchange Act will be terminated and the Company will no longer be
required to file periodic reports under the Exchange Act with the Commission.
FINANCING OF THE MERGER
The estimated total amount of funds required to consummate the Merger
and pay the related fees and expenses is expected to be approximately $825,000.
These funds are expected to be paid out of available funds of Arrowhead and the
Company.
The fees and expenses paid and estimated to be paid by the Company in
connection with the Merger are estimated to be as follows:
Investment Banking/Fairness Opinion..........................$ 6,000
Legal........................................................$40,000
Printing and Distribution................................... $25,000
SEC Filing Fees..............................................$ 300
Miscellaneous................................................$ 5,000
--------
TOTAL.......................................................$76,300
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the federal income tax consequences of the
Merger is provided by the Company for general information purposes only.
Shareholders are urged to consult their own tax adviser as to the particular tax
consequences of the Merger to them, including the effect and applicability of
federal, state, local and foreign income and other tax laws.
Non-affiliated Shareholders. For federal income tax purposes,
Shareholders other than the Affiliates (and other than Shareholders who, under
Section 318 of the Internal Revenue Code of 1986, as amended (the "Code"), would
be treated as constructively owning any Common Shares owned by any Affiliate)
will recognize gain or loss on the exchange of their Common Shares for cash
pursuant to either the Merger or the exercise of dissenting Shareholders'
rights. Gain or loss will be measured by the difference between the amount of
cash that the Shareholder receives and the Shareholder's basis in the Common
Shares and will be capital gain or loss if the Shareholder held the Common
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Shares as a capital asset. Capital gain or loss will be long-term if the
Shareholder's holding period for the Common Shares is more than one year and
otherwise will be short term.
The foregoing discussion does not purport to be a complete listing of
all of the tax considerations that might be applicable to a non-affiliated
Shareholder. For example, it does not deal with (i) Shareholders who are neither
citizens nor residents of the United States, (ii) the numerous categories of
Shareholders that are subject to special treatment under federal income tax laws
or (iii) state, local or foreign taxes or federal taxes other than income taxes.
Affiliates. Affiliates who receive shares of Arrowhead common stock
in exchange for their Common Shares will not recognize gain or loss on
the exchange.
The Company and Arrowhead. It is anticipated that neither the Company
nor Arrowhead will recognize gain or loss for federal income tax purposes as a
result of the Merger.
RIGHTS OF DISSENTING SHAREHOLDERS
Section 623 of the NYBCL, a copy of which is attached to this Proxy
Statement as Annex C, entitles any non-affiliated Shareholder who objects to the
terms of the Merger, in lieu of receiving $1.32 in cash per Common Share, to
demand in writing that he be paid the "fair value" of his Common Shares. "Fair
value" is defined by the NYBCL as the fair value of the Common Shares
immediately before the Effective Time taking into account all relevant factors
but excluding any appreciation or depreciation in anticipation of the Merger.
The fair value is determined as described below.
Any Shareholder contemplating making demand for appraisal is urged to
review carefully the provisions of Section 623, particularly the procedural
steps required to perfect his appraisal rights thereunder. Appraisal rights will
be lost if the procedural requirements of Section 623 are not fully and
precisely satisfied. The following summary does not purport to be a complete
statement of the provisions of Section 623 of the NYBCL and is qualified in its
entirety by reference to Annex C.
Filing Notice of Intention to Demand Fair Value
Before the Shareholders' vote is taken on the Merger, the dissenting
Common Shareholder must deliver to the Company a written objection to such
action which shall include a notice of his election to dissent, his name and
residence address, the number of Common Shares as to which he dissents and a
demand that he be paid the fair value of his Common Shares if the Merger is
effected. Such written notice may be sent to the Secretary of the Company at
1838 Black Rock Turnpike, Fairfield, Connecticut 06432-3547. Neither the return
of a proxy by the dissenting Common Shareholder with instructions to vote the
Common Shares represented thereby against the Merger, nor a vote against the
Merger, is sufficient to satisfy the requirement of delivering a written notice
to the Company. In addition, the Common Shareholder must not effect any change
in the beneficial ownership of his Common Shares from the date of filing the
notice with the Company through the Effective Time and Common Shares for which
payment of fair value is sought must not be voted in favor of the Merger. The
submission of a signed blank proxy will serve to waive appraisal rights if not
revoked, but a failure to vote will not waive such rights, provided that the
required written notice described above is timely given. Proper revocation of a
signed blank proxy or a signed proxy instructing a vote for adoption of the
Merger will also preserve dissenters' rights under the NYBCL, provided that the
required written notice described above is timely given. See "INTRODUCTION --
Proxies." Failure by a dissenting Common Shareholder to comply with any of the
foregoing shall forfeit any right to payment of fair value for his Common
Shares.
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Record and Beneficial Owners
A record holder of Common Shares may assert dissenters' rights as to
fewer than all of the Common Shares registered in his name only if he dissents
with respect to all the Common Shares beneficially owned by any one person and
discloses the name and address of the person or persons on whose behalf he
dissents. A beneficial owner of Common Shares who is not the record holder may
assert dissenters' rights with respect to Common Shares held on his behalf if he
submits to the Company the written consent of the record holder not later than
the time of assertion of dissenters' rights. A beneficial owner may not dissent
with respect to less than all of the Common Shares owned by him, whether or not
such Common Shares are registered in his name.
Submission of Certificates
At the time of filing the notice of election to dissent or within
one (1) month thereafter, a holder of Common Shares represented by
certificates shall submit the certificates representing such Common Shares to
the Company which shall forthwith note conspicuously thereon that a notice of
election has been filed and shall return the certificates to such holder or
other person who submitted them on his behalf. Any holder of Common Shares
represented by certificates who fails to submit his certificates for such
notation shall, at the option of the Company, exercised by written notice to the
holder within forty-five (45) days from the date of filing of such notice of
election to dissent, lose his dissenter's rights unless a court, for good cause
shown, shall otherwise direct.
Notice to Shareholders
If the Merger is approved at the Special Meeting, the Company
shall send written notice of such approval by registered mail to each holder of
Common Shares who filed written notice of his intention to dissent. Such notice
shall be sent by the Company within ten (10) days after the Special Meeting.
Offer of Fair Value
Within fifteen (15) days after the Merger is consummated, or
within ninety (90) days from the date of the Special Meeting, whichever is
earlier, Arrowhead shall make a written offer by registered mail to each holder
of Common Shares who has filed a written notice of his election to dissent to
pay for such holder's Common Shares at a specified price which Arrowhead
considers to be the fair value of such shares. Such offer shall be accompanied
by a statement setting forth the aggregate number of shares with respect to
which dissenter's rights have been sought and the aggregate number of holders of
such Common Shares. If the Merger has been consummated, such offer shall also be
accompanied by (i) advance payment to each such dissenting Shareholder who has
submitted the certificates representing his Common Shares to the Company as
provided above of an amount equal to eighty (80%) percent of the price offered
by Arrowhead as the fair value of such Common Shares, or (ii) as to each holder
who has not yet submitted his certificates as provided above, a statement that
advanced payment to him of an amount equal to eighty (80%) percent of the price
offered by Arrowhead will be made by Arrowhead promptly upon submission of such
certificates. If the Merger has not yet been consummated at the time of the
making of such offer, such advance payment or statement as to advance payment
shall be sent to each dissenting Shareholder entitled thereto upon consummation
of the Merger. Every advance payment or statement as to advance payment shall
include advice to the dissenting Shareholder to the effect that acceptance of
such payment does not constitute a waiver of any dissenters' rights. If within
thirty (30) days after the making of such offer, Arrowhead and any dissenting
Shareholder agree upon the price to be paid for such Common Shares, payment
therefore shall be made within sixty (60) days after the making of such offer or
the consummation of the Merger, whichever is later, upon the surrender of the
certificates for any such Common Shares represented by such certificates.
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Valuation Proceedings
If within thirty (30) days after the dissemination of the offer
referred to above by Arrowhead to dissenting Shareholders, Arrowhead and
all such dissenting Shareholders have failed to agree upon the price to be paid
for their Common Shares, Arrowhead shall within twenty (20) days after the
expiration of such thirty (30) day period, institute a special proceeding in the
Supreme Court for the State of New York (the "Court") to determine the rights of
dissenting Shareholders and to fix the fair value of their Common Shares. If
Arrowhead fails to institute such a proceeding within such twenty (20) day
period, any dissenting Shareholder may institute such proceeding for the same
purpose not later than thirty (30) days after the expiration of such twenty (20)
day period. If such proceeding is not instituted by a dissenting Shareholder
within such thirty (30) day period, all dissenters' rights shall be lost unless
the Court, for good cause shown, shall otherwise direct. All dissenting
Shareholders, except for those who have already agreed with Arrowhead upon the
price to be paid for their Common Shares, shall be made parties to any such
proceedings. In fixing the fair value of the Common Shares, the Court shall
consider the nature of the Merger and its effects on the Company and its
Shareholders, the concepts and methods then customary and relevant in securities
and financial markets for determining the fair value of shares of a corporation
engaging in a similar transaction under comparable circumstances and all other
relevant factors. Upon the Court's determination of the fair value of the Common
Shares, each dissenting Shareholder shall be entitled to recover the amount by
which the fair value of his Common Shares is found to exceed the amount
previously remitted to each such holder by Arrowhead. Such dissenter shall also
be entitled to interest on such amount from the Effective Time until the date of
payment as is found equitable under the circumstances, taking into account all
relevant factors.
Costs and Expenses of Valuation Proceedings
Each party to any such valuation proceeding shall bear its own
costs and expenses, including the fees and expenses of its counsel and of any
experts employed by it. Notwithstanding the foregoing, the Court may, in its
discretion, apportion and assess all or any part of the costs, expenses and fees
incurred by Arrowhead against any or all of the dissenting Shareholders who are
parties to the proceeding, including any who have withdrawn their notices of
election, if the Court finds that the refusal to accept Arrowhead's offer was
arbitrary, vexatious or otherwise not in good faith. The Court may also, in its
discretion, apportion or assess all or any part of the costs, expenses and fees
incurred by any or all of the dissenting Shareholders who are parties to the
proceeding against Arrowhead if the Court finds any of the following: (i) that
the fair value of the Common Shares as determined materially exceeds the amount
which Arrowhead offered to pay; (ii) that no offer or required advance payment
was made by Arrowhead; (iii) that Arrowhead failed to institute the valuation
proceeding within the period specified therefor; or (iv) that the action of
Arrowhead in complying with its obligations was arbitrary, vexatious or
otherwise not in good faith.
Other
Courts have held that a New York corporation's board of directors
stands in a fiduciary relationship to the corporation and its shareholders
and must discharge its duties in good faith and with the diligence, care
and skill which ordinarily prudent persons would exercise in similar
circumstances. In addition, courts have held that the majority shareholder of a
New York corporation stands in a fiduciary relationship toward the minority
shareholders and that when the majority shareholder purchases shares held
by the minority, the majority shareholder is required by this duty to
purchase the shares at a fair market value. Section 623 of the NYBCL
provides in substance that the enforcement by a shareholder of his right to
receive payment for his shares in the manner provided in Section 623 shall
exclude the enforcement by such shareholder of any other right to which he
might otherwise be entitled by virtue of share ownership, except that such
section shall not exclude the right of such shareholder to bring or maintain
an appropriate action to obtain equitable relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him. Thus, in
addition to the statutory proceeding for appraisal of the value of a dissenting
shareholder's shares pursuant to Section 623, a shareholder may also seek
equitable relief based on an allegation of fraud and/or breach of a fiduciary
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duty. However, in the absence of any primary request for equitable relief, a
shareholder's sole remedy is the statutory proceeding for appraisal provided
for in Section 623.
Under certain circumstances, it is possible that Common Shareholders
who vote in favor of the Merger may, as a result of so voting, be estopped
from challenging the Merger on grounds of fairness at a later time.
MARKET PRICES OF THE COMMON SHARES AND RELATED SHAREHOLDER MATTERS
The Common Shares are traded in the over-the-counter market and are
quoted by the National Quotation Bureau, Inc. under the symbol "BOLN." The
public trading market for the Common Shares is not an active one. The aggregate
trading volume during 1995 was only 23,900 Common Shares. On February 16, 1996,
the last day of trading prior to the public announcement of the Merger, the
average of the high and low bid prices of the Common Shares was $.66 per Common
Share. On May 2, 1996, the last full day on which the Common Shares traded for
which quotations were available at the time of printing of this Proxy Statement,
the average of the high and low bid prices was $.72 per Common Share.
The following tables set forth the high and low bid quotations for the
Common Shares in each fiscal year (or if not quoted during such period, the day
closest thereto when quoted) during the last three fiscal years and during the
first two quarters of the Company's 1996 fiscal year. The quotations for the
Common Shares are as reported by the National Quotation Bureau, Inc.
Fiscal 1993
- -----------
Quarters Ended Bid Prices
-------------- ----------
High Bid Low Bid
-------- -------
December 31, 1992 $1.125 $1.000
March 31, 1993 1.125 1.000
June 30, 1993 1.375 1.125
September 30, 1993 1.250 1.000
Fiscal 1994
- -----------
Quarters Ended
--------------
December 31, 1993 $1.000 $0.250
March 31, 1994 0.500 0.250
June 30, 1994 0.625 0.250
September 30, 1994 0.625 0.500
-27-
<PAGE>
Fiscal 1995
- -----------
Quarters Ended Bid Prices
-------------- ----------
High Bid Low Bid
-------- -------
December 31, 1994 $0.625 $0.500
March 31, 1995 0.625 0.500
June 30, 1995 0.6875 0.500
September 30, 1995 0.6875 0.500
Fiscal 1996
- -----------
Quarters Ended
--------------
December 31, 1995 $0.6875 $0.625
March 31, 1996 $0.750 $0.6875
April 1 -- April 30, 1996 $0.750 $0.625
As of the Record Date, there were approximately 4,219 holders of record
of the Common Shares.
No dividends have been paid on the Common Shares in, at least, the last
15 years.
BUSINESS OF THE COMPANY
Through the end of the 1993 calendar year, the Company, through its
wholly-owned subsidiary, Starboard Data Services, Inc., located in Oaks,
Pennsylvania, provided data processing services to the direct marketing industry
and timesharing and consulting services to manufacturing companies. However,
having lost the business of its major unaffiliated customer in January, 1994,
the Company's business since such time has primarily consisted of providing data
processing services to Penco. Such services generate monthly revenue of
approximately $50,000 (approximately $600,000 annually).
No patents, trademarks, franchise rights or concessions are material to
the business of the Company, nor does the Company use any appreciable raw
materials in the conduct of its business. The Company's business is not affected
by federal, state or local environmental regulations; therefore, such
regulations have no effect upon capital expenditures, earnings or competitive
position.
The Company and its subsidiary had nine employees on December 31, 1995.
The Company's business is conducted from leased offices. The principal
executive office is located at 3400 West Chester Pike, Suite 201, Newtown
Square, Pennsylvania 19073, (610) 325-5332.
-28-
<PAGE>
SELECTED FINANCIAL INFORMATION AND CERTAIN PER SHARE DATA OF THE COMPANY
The following selected financial information, in part derived from the
audited financial statements of the Company, presents a summary of operations
and financial data of the Company and its subsidiaries for the five fiscal year
periods ended September 30, 1995, 1994, 1993, 1992 and 1991, and for the six
month periods ended March 31, 1996 and 1995. The selected financial data should
be read in conjunction with the financial information and accompanying notes
attached as Annex D hereto.
No pro forma financial information is included in this Proxy Statement.
Due to the nature of the Merger which is proposed, such information is not
deemed to be material to a Shareholder's decision hereunder.
-29-
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Six Month
Period Ended
March 31, Fiscal Year Ended September 30,
----------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Operating Revenues $300,000 $300,175 $600,000 $ 869,830 $ 2,336,803 $ 2,518,955 $ 1,975,501
Income (loss) before (16,618) (8,738) (5,302) 942 211,400 441,199 (564,519)
extraordinary items
Extraordinary items (1) --- --- --- --- 110,000 220,000 ---
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss) ($16,618) ($8,738) ($5,302) $ 942 $ 321,400 $ 661,199 ($564,519)
PER COMMON SHARE DATA:
Primary
Income (loss) before ($0.01) ($0.01) $ 0.00 $ 0.00 $ 0.16 $ 0.34 ($0.44)
extraordinary items
Income (loss) from --- --- --- --- 0.09 0.17 ---
extraordinary items ------------ ------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss) ($0.01) ($0.01) $ 0.00 $ 0.00 $ 0.25 $ 0.51 ($ 0.44)
Average number of common 1,287,412 1,287,412 1,287,412 1,287,412 1,287,412 1,287,412 1,287,412
shares outstanding
Common cash dividends --- --- --- --- --- --- ---
Book value per share(2) 1.63 1.63 1.63 1.64 1.63 1.38 0.81
FINANCIAL DATA
Current assets $2,075,960 $2,039,246 $1,924,748 $2,211,568 $2,004,458 $1,758,006
Total assets 2,200,362 2,200,367 2,165,620 2,473,588 2,096,247 2,075,623
Current liabilities 117,260 100,647 60,598 369,508 310,469 976,034
Long-term debt and capitalized --- --- --- --- --- 3,098 55,472
lease obligations
Net working capital 1,958,700 1,938,599 1,864,150 1,842,060 1,693,989 781,972
Shareholders' equity 2,083,102 2,099,720 2,105,022 2,104,080 1,782,680 1,044,117
</TABLE>
(1) The extraordinary items in 1992 and 1993 represent the utilization of
net operating losses carried forward.
(2) Represents total shareholders' equity as of such dates divided by the
total number of Common Shares outstanding as of such dates.
-30-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Analysis of Operations
Six months ended March 31, 1996 compared to six months ended March 31, 1995
Operating revenues for the six months ended March 31, 1996 were equal to
operating revenues for the six months ended March 31, 1995. The Company derives
operating revenue solely from the provision of data processing services to
Penco.
Selling and administrative expenses consist of operating expenses of the
Company's data processing center and corporate expenses. These expenses were
5.2% higher than in the prior year for the six month period ended March 31,
1996. This was due to legal fees related to the proposed Merger. Reductions in
salaries offset these higher legal costs for the three month period ended March
31, 1996.
Interest income increased by 7.9%, mostly a result of higher interest
rates.
Changes in Pennsylvania state income tax law, allowing carryover of
losses in prior years, reduced state income taxes to zero.
Fiscal years ended September 30, 1995, 1994 and 1993
Operating revenues for the fiscal year ended September 30, 1995
decreased 31% compared to revenues during the fiscal year ended September 30,
1994. The entire decrease resulted from a reduction in business with
unaffiliated customers. Revenues from Penco were consistent with the previous
fiscal year. Operating revenues for the fiscal year ended September 30, 1994
decreased 62.8% compared to revenues for the fiscal year ended September 30,
1993. This was a result of the loss of the Company's largest unaffiliated
customer.
Selling and administrative expenses related to servicing Penco in fiscal
1995 were consistent with the previous year. These same expenses were 14.8%
higher in 1994 compared to 1993. This was a result of ongoing fixed expenses,
after the decrease in unaffiliated revenue.
Selling and administrative expenses related to servicing non-affiliated
customers decreased to zero in 1995 as a result of generating no unaffiliated
revenue. These expenses had decreased 80.3% in 1994 compared to 1993. This was a
result of decreases in personnel upon the loss of the Company's major
unaffiliated customer.
Corporate expenses increased 20.9% during the fiscal year ended
September 30, 1995 compared to the fiscal year ended September 30, 1994. These
same expenses were 18% lower in 1994 compared to 1993. These fluctuations were a
result of varying degrees of legal and professional costs during the past three
years.
Interest income was $84,000 in 1995, compared to $49,000 in 1994 and
$42,000 in 1993. Interest is generated by cash balances held at various banks.
Increases in interest income were a result of higher interest rates.
The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," ("SFAS No. 109") beginning October 1, 1993. The
significant components of the Company's deferred taxes were Net
-31-
<PAGE>
Operating Losses Carried Forward ($6,579,000) and Investment Tax Credits
Carried Forward ($255,000). (See Note 6 to Consolidated Financial Statements
of the Company attached hereto as Annex D and incorporated herein by
reference.) Since the Company has no present means of utilizing these items,
a reserve has been recorded for 100% of their value. Therefore, the adoption
of SFAS No. 109 had no effect on the Company's results of operations for the
years ended September 30, 1995 and September 30, 1994.
Liquidity and Capital Resources
Six months ended March 31, 1996
Cash flow for the six months ended March 31, 1996 was positive $88,000.
This was primarily a result of operating profit before depreciation and faster
collection of accounts receivable.
The Company's business consists mainly of servicing Penco. Expenditures
have been reduced through reduction of personnel and relocating the Company's
computer center to a lower cost facility. No major capital expenditures are
planned and the Company believes its liquidity is adequate to finance its cash
requirements.
Fiscal years ended September 30, 1995, 1994 and 1993
The Company generated $187,000 in positive cash flow from operating
activities in fiscal 1995, compared to negative $14,000 in fiscal 1994 and
positive $654,000 in fiscal 1993. Cash was generated through the collection of
accounts receivable from unaffiliated customers and through other operating
activities of Starboard Data Services, Inc. in fiscal 1995. For the fiscal year
ended September 30, 1993, cash was generated from operating income of Starboard
Data Services, Inc.
There were no purchases of capital assets during the fiscal year ended
September 30, 1995. Purchases of capital assets during the fiscal year ended
September 30, 1994 were a result of relocating the Company's data center at a
cost of $48,000. This relocation saved the Company approximately $50,000 per
year. During the fiscal year ended September 30, 1993, the Company made a major
upgrade to its computer system totaling $200,000.
Cash used in financing activities was $3,000 in fiscal 1994 and $50,000
in fiscal 1993. These represent payments made on capitalized lease obligations
at the data processing subsidiary. These obligations were satisfied in fiscal
1994.
-32-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial share ownership of James
Benenson, Jr., Arrowhead and Vesper, the only known beneficial holders of in
excess of five (5%) percent of the Common Shares. No other director or executive
officer of the Company beneficially owns Common Shares. The ownership
percentages indicated are calculated in accordance with Rule 13d-3 under the
Exchange Act.
Percentage
Name, Position and Business Address No. of Common Shares of Class
- ----------------------------------- -------------------- ----------
James Benenson, Jr., Chairman of the 732,169(1)(2)(3)(4)(5) 56.9%
Board.
3400 West Chester Pike, Suite 201
Newtown Square, PA 19073
Arrowhead Holdings Corporation 369,242(6) 28.7%
3400 West Chester Pike, Suite 201
Newtown Square, PA 19073
Vesper Corporation
3400 West Chester Pike, Suite 201 227,823 17.7%
Newtown Square, PA 19073
===============================================================================
- --------------
1 Includes 60,000 shares held by the Benenson Pension Trust, of which
James Benenson, Jr. is sole trustee. Mr. Benenson has sole voting
power and sole investment power with respect to all such shares,
and, therefore, is deemed to be the beneficial owner of all such shares.
2 Includes 126,001 shares held by James Benenson, Jr. and Sharen
Benenson as joint custodians for James Benenson, III (63,001 shares)
and Clement Chambers Benenson (63,000 shares), which may be deemed
to be beneficially owned by Mr. and Mrs. Benenson, and 100 shares held
by Sharen Benenson as custodian for Clement Chambers Benenson, which
may be deemed to be beneficially owned by Mrs. Benenson.
3 Includes 141,419 shares held by Arrowhead. Mr. Benenson owns
beneficially 100% of the voting stock of Arrowhead and, therefore, may
be deemed to be the beneficial owner of such shares.
4 Includes 227,823 shares held by Vesper Corporation. Mr. Benenson is
Chairman of the Board and President of Vesper, owns beneficially 100% of
the voting stock of Arrowhead, its parent, and may, therefore, be
deemed to be the beneficial owner of such shares.
5 James Benenson, Jr. and Sharen Benenson are husband and wife and, as
such, each may be deemed to be the beneficial owner of the Common
Shares owned by the other; Mr. and Mrs. Benenson have each disclaimed
such beneficial ownership.
By reason of the foregoing either or both James Benenson, Jr. and
Sharen Benenson may be deemed to be a "parent" of the Company, as the
term is defined in the Regulations under the Securities Exchange Act.
Mr. and Mrs. Benenson have each disclaimed beneficial ownership of the
Common Shares owned by the other.
Mr. and Mrs. Benenson together may be deemed to beneficially own, in the
aggregate, approximately 56.9% of the Common Shares of the Company.
They, therefore, may be deemed to be controlling persons of the Company.
6 Includes 227,823 shares owned of record by Vesper.
-33-
<PAGE>
CERTAIN INFORMATION REGARDING THE DIRECTORS
AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information concerning the executive officers
and the directors of the Company. All of such persons are citizens of the United
States.
Positions with the Company, Principal
Name, Business Occupation, Business Experience and Director
Address & Age Certain Other Directorships Since
-------------- ----------------------------------- ---------
James Benenson, Jr. (59) Chairman of the Board of Directors 1974
3400 West Chester Pike of the Company. Chairman of the Board
Suite 201 and President of James Benenson
Newtown Square, PA & Co., Inc. (investment advisor).
19073 Chairman of the Board and President
of Arrowhead. Chairman of the Board
and President of Vesper.
Clifford J. Demarest (63) President, Chief Executive Officer 1989
3400 West Chester Pike and a director of the Company.
Suite 201 President, Chief Executive Officer
Newtown Square, PA and a director of Starboard. President,
19073 Industrial Products, of Vesper.
Gerald J. Carroll (61) Vice President, Secretary and a 1989
1838 Black Rock director of the Company. Secretary
Turnpike and a director of Starboard. Vice
Fairfield, CT 06432 President and Secretary of Arrowhead.
Vice President, Secretary and a
director of Vesper. Vice President and
Secretary of Penco.
Michael Boniello (40) Treasurer of the Company. Vice N/A
1 Brower Avenue President - Finance, Controller and
Oaks, PA 19456 a director of Penco.
COMMON SHAREHOLDER PROPOSALS
If for any reason the Merger is not consummated, the Annual Meeting of
Common Shareholders of the Company is expected to be held in October, 1996. Any
Common Shareholder who wishes to present a proposal for action at such meeting
must comply with the applicable rules and regulations of the Commission then in
effect and the Company's By-laws. Furthermore, such proposal must be received by
the Secretary for inclusion in the Company's proxy statement and in the form of
proxy relating to such meeting, no later than July 1, 1996.
OTHER MATTERS
The Company knows of no other business that will be presented for action
by the Shareholders at the Special Meeting. No other business may be transacted
at the Special Meeting unless written notice thereof is first given to
Shareholders in the manner prescribed by New York law and the Company's
Certificate of Incorporation and By-laws.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
-34-
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 20TH DAY OF FEBRUARY, 1996
BY AND BETWEEN
BOWLINE CORPORATION
AND
ARROWHEAD HOLDINGS CORPORATION
A-1
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . A-4
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . A-4
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . A-5
1.3 Directors and Officers of the Surviving Corporation A-5
1.4 Certificate of Incorporation and By-Laws of the
Surviving Corporation. . . . . . . . . . . . . . . . A-5
2. CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . A-6
2.1 Outstanding Bowline Common Stock . . . . . . . . . . A-6
3. REPRESENTATIONS AND WARRANTIES OF BOWLINE. . . . . . . . . A-7
3.1 Authority; Execution and Delivery. . . . . . . . . . A-7
3.2 Consents and Approvals; No Breach. . . . . . . . . . A-7
3.3 Organization, Standing and Authority . . . . . . . . A-8
3.4 Capitalization of Bowline. . . . . . . . . . . . . . A-8
3.5 Options or Other Rights. . . . . . . . . . . . . . . A-8
3.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . A-8
3.7 Financial Statements . . . . . . . . . . . . . . . . A-9
3.8 No Material Adverse Change . . . . . . . . . . . . . A-9
3.9 Compliance with Laws . . . . . . . . . . . . . . . . A-9
3.10 Permits and Licenses . . . . . . . . . . . . . . . . A-9
3.11 Litigation . . . . . . . . . . . . . . . . . . . . . A-10
3.12 Liens. . . . . . . . . . . . . . . . . . . . . . . . A-10
3.13 Employee Benefit Plans . . . . . . . . . . . . . . . A-10
3.14 Operations of Bowline. . . . . . . . . . . . . . . . A-10
3.15 Regulatory Filings . . . . . . . . . . . . . . . . . A-12
3.16 Liabilities. . . . . . . . . . . . . . . . . . . . . A-12
3.17 No Broker. . . . . . . . . . . . . . . . . . . . . . A-12
3.18 Taxes. . . . . . . . . . . . . . . . . . . . . . . . A-12
3.19 Related Transactions . . . . . . . . . . . . . . . . A-14
3.20 Intellectual Property. . . . . . . . . . . . . . . . A-14
3.21 Environmental. . . . . . . . . . . . . . . . . . . . A-14
3.22 Insurance. . . . . . . . . . . . . . . . . . . . . . A-14
3.23 Contracts, Leases, Agreements and Other Commitments. A-15
3.24 Labor and Employment . . . . . . . . . . . . . . . . A-15
3.25 Statements and Other Documents Not Misleading. . . . A-15
4. REPRESENTATIONS AND WARRANTIES OF ARROWHEAD. . . . . . . . A-16
4.1 Authority, Execution and Delivery. . . . . . . . . . A-16
4.2 Consents and Approvals; No Breach. . . . . . . . . . A-16
4.3 Organization, Standing and Authority . . . . . . . . A-16
4.4 No Brokers . . . . . . . . . . . . . . . . . . . . . A-16
4.5 Reorganization . . . . . . . . . . . . . . . . . . . A-17
A-2
<PAGE>
5. COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . A-17
5.1 Conduct of Business. . . . . . . . . . . . . . . . . A-17
5.2 Preservation of Permits and Services . . . . . . . . A-18
5.3 Litigation.. . . . . . . . . . . . . . . . . . . . . A-18
5.4 Continued Effectiveness of Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . A-18
5.5 Corporate Examinations and Investigations. . . . . . A-18
5.6 Approvals. . . . . . . . . . . . . . . . . . . . . . A-18
5.7 Expenses.. . . . . . . . . . . . . . . . . . . . . . A-19
5.8 Indemnification of Directors and Officers. . . . . . A-19
5.9 Further Assurances.. . . . . . . . . . . . . . . . . A-19
5.10 Notification of Misrepresentations.. . . . . . . . . A-19
5.11 Proxy Statement and 13E-3 Transaction Statement. . . A-19
5.12 Stockholder Approval . . . . . . . . . . . . . . . . A-20
5.13 Best Efforts To Achieve Merger . . . . . . . . . . . A-20
6. CONDITIONS PRECEDENT TO MERGER . . . . . . . . . . . . . . A-20
6.1 Conditions Precedent to Obligations of Bowline and
Arrowhead . . . . . . . . . . . . . . . . . . . . . A-20
6.2 Conditions Precedent to Obligations of Arrowhead . . A-21
6.3 Conditions Precedent to Obligations of Bowline . . . A-21
7. TERMINATION AND ABANDONMENT. . . . . . . . . . . . . . . . A-22
7.1 Termination. . . . . . . . . . . . . . . . . . . . . A-22
7.2 Effect of Termination. . . . . . . . . . . . . . . . A-22
7.3 Extension; Waiver. . . . . . . . . . . . . . . . . . A-22
8. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . A-23
8.1 Expenses . . . . . . . . . . . . . . . . . . . . . . A-23
8.2 Representations and Warranties . . . . . . . . . . . A-23
8.3 Public Announcements . . . . . . . . . . . . . . . . A-23
8.4 Notices. . . . . . . . . . . . . . . . . . . . . . . A-23
8.5 Entire Agreement . . . . . . . . . . . . . . . . . . A-24
8.6 Binding Effect; Benefit; Assignment. . . . . . . . . A-24
8.7 Amendment and Modification . . . . . . . . . . . . . A-25
8.8 Further Actions. . . . . . . . . . . . . . . . . . . A-25
8.9 Specific Performance . . . . . . . . . . . . . . . . A-25
8.10 Headings . . . . . . . . . . . . . . . . . . . . . . A-25
8.11 Counterparts . . . . . . . . . . . . . . . . . . . . A-26
8.12 Applicable Law . . . . . . . . . . . . . . . . . . . A-26
8.13 Severability . . . . . . . . . . . . . . . . . . . . A-26
A-3
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), is dated as of the 20th
day of February, 1996 by and between Bowline Corporation, a New York
corporation ("Bowline"), and Arrowhead Holdings Corporation, a Delaware
corporation ("Arrowhead").
W I T N E S S E T H:
WHEREAS, the parties hereto desire that Bowline merge with and into Arrowhead
upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of Bowline has approved and adopted
this Agreement and the Merger; and
WHEREAS, the Board of Directors of Arrowhead has approved and adopted this
Agreement and the Merger.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
agreements, representations and warranties herein contained, the parties
hereto agree as follows:
1. THE MERGER.
1.1 The Merger. Upon the terms and conditions of this Agreement, at the
Effective Date (as hereinafter defined), Bowline shall be merged with and into
Arrowhead and the separate existence of Bowline will cease (the "Merger").
Arrowhead shall be the surviving corporation of the Merger (sometimes
hereinafter referred to as the "Surviving Corporation"), and shall continue to
be governed by the laws of the State of Delaware, and the separate corporate
existence of Arrowhead with all its rights, privileges, immunities, power and
franchises shall continue unaffected by the Merger. The Surviving Corporation
shall thereupon possess all the rights, privileges, powers and franchises of
each of Arrowhead and Bowline (collectively the "Constituent Corporations"),
and all property, real, personal and mixed, and all debts due on whatever
account, and all of the choses in action, and all and every other interest of
or belonging to or due to each of the Constituent Corporations (the
"Property") shall be taken and deemed to be transferred to and vested in the
Surviving Corporation without further act or deed and shall be thereafter as
effectually the property of the Surviving Corporation as they were of the
Constituent Corporations; and the title to any real
A-4
<PAGE>
estate, or any interest therein, vested in any of the Constituent Corporations
shall not revert or be in any way impaired by reason of the Merger; and all
rights of creditors and all liens upon any property of any of the Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities and
duties of each of the Constituent Corporations shall thenceforth attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it. Any
action or proceeding, whether civil, criminal or administrative, pending by or
against any Constituent Corporation shall be prosecuted as if the Merger had not
taken place, or the Surviving Corporation may be substituted in such action or
proceeding. The execution and delivery of this Agreement by Bowline without
more, shall be a grant, assignment and transfer, and shall have the effect of a
conveyance, as of the Effective Date of the Merger, of all of the Property of
Bowline to the Surviving Corporation.
1.2 Closing. The closing of the Merger (the "Closing") shall take place as
soon as practicable after the last of the conditions set forth in Section 6 is
satisfied or waived or at such other time, date or place as the parties may
agree, but in any event not later than May 31, 1996, at the offices of Klehr,
Harrison, Harvey, Branzburg & Ellers, located at 1401 Walnut Street,
Philadelphia, Pennsylvania 19102 unless such date is adjourned, in the case of
the conditions set forth in Section 6.1(a) by the party having the right to
waive compliance of such condition, or, in the case of all other conditions,
by all parties having the right to waive compliance of such condition, in
order to permit such condition to be satisfied. The date of the Closing is
hereinafter referred to as the "Closing Date." On the Closing Date, a
certificate of merger shall be executed, delivered and filed by the parties
with the Secretary of State of the State of New York and the Secretary of
State of the State of Delaware in accordance with the applicable provisions of
law of each such jurisdiction and the Merger shall become effective upon such
filing or on such later date as may be specified in such certificate of merger
(the date of such filing is referred to herein as the "Effective Date").
1.3 Directors and Officers of the Surviving Corporation. The directors and
officers of Arrowhead shall, from and after the Effective Date, continue as
the directors and officers, respectively, of the Surviving Corporation until
their successors shall have been duly elected or appointed or qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws.
1.4 Certificate of Incorporation and By-Laws of the Surviving Corporation.
The Certificate of Incorporation, as amended as of the Effective Date, and
By-Laws, as amended as of the Effective Date, of Arrowhead shall be the
Certificate of Incorporation and By-Laws, respectively, of the Surviving
Corporation until duly amended in accordance with the provisions of the
Delaware General Corporation Law, as amended (the "DGCL").
A-5
<PAGE>
2. CONSIDERATION.
2.1 Outstanding Bowline Common Stock. (a) Subject to the provisions of this
Section 2.1, on the Effective Date, by virtue of the Merger and without any
action on the part of any of the holders of any capital stock of Bowline, all
of the shares of Bowline common stock, $.02 par value per share ("Bowline
Common Stock") issued and outstanding immediately prior to the Effective Date,
other than (i) the 141,419 shares of Bowline Common Stock owned of record by
Arrowhead which shall be cancelled in the Merger; (ii) the Affiliate Exchange
Stock (as hereinafter defined) which shall be exchanged for Arrowhead Common
Stock (as hereinafter defined); and (iii) shares ("Dissenters' Shares"), if
any, held by holders of Bowline Common Stock who perfect dissenters' rights of
appraisal in accordance with Section 623 of the New York Business Corporation
Law, as amended ("NYBCL"), shall be converted into the right to receive $1.32
per share, in cash, without interest (the "Merger Consideration"). Each of the
732,169 issued and outstanding shares of Bowline Common Stock beneficially
owned by Arrowhead and/or its affiliates is hereinafter referred to as the
"Affiliate Stock." On the Effective Date, 590,750 shares of the Affiliate
Stock (the "Affiliate Exchange Stock") will be exchanged for shares of
Arrowhead common stock, $1.00 par value per share ("Arrowhead Common Stock"),
having an aggregate dollar value equal to the product of (x) the number of
shares of Affiliate Exchange Stock, and (y) the Merger Consideration.
(b) Fractional shares of Arrowhead Common Stock and certificates or scrip
therefor, or other evidence of ownership thereof, may be issued in the Merger
to holders of Affiliate Exchange Stock.
(c) All shares of Bowline Common Stock which are owned as of the Effective
Date by Bowline as treasury stock shall be cancelled as of the Effective Date,
and no consideration shall be delivered for such shares.
(d) Each holder of Bowline Common Stock shall deliver to Arrowhead all
certificates evidencing shares of Bowline Common Stock in exchange for the
Merger Consideration or, in the case of a holder of Affiliate Exchange Stock,
the appropriate number of shares of Arrowhead Common Stock. On the Effective
Date, holders of Bowline Common Stock shall cease to be, and shall have no
rights as, stockholders of Bowline. No interest will be paid or accrued on the
cash payable upon the surrender of such certificates between the Effective
Date and the rendering of payment following actual surrender of the
certificates.
(e) Any Dissenters' Shares shall be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenters' Shares pursuant to the applicable provisions
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of the NYBCL. Notwithstanding anything in this Agreement to the contrary, if any
holder of shares of Bowline Common Stock who demands appraisal of such shares of
Bowline Common Stock pursuant to the applicable provisions of the NYBCL shall
effectively withdraw or lose (through failure to perfect or otherwise) his right
to appraisal, then as of the Effective Date or the occurrence of such event,
whichever last occurs, such holder's shares of Bowline Common Stock shall
automatically be convertible into and represent only the right to receive cash
as provided in Section 2.1(a) hereof, without interest thereon, upon surrender
of the certificate or certificates representing such shares of Bowline Common
Stock in accordance with Section 2.1(d).
3. REPRESENTATIONS AND WARRANTIES OF BOWLINE
Bowline hereby represents and warrants to Arrowhead as follows:
3.1 Authority; Execution and Delivery. Bowline has the legal right, power and
authority to execute, deliver and perform its obligations under this Agreement
and each agreement, document or instrument contemplated hereby to which
Bowline is a party (the "Bowline Documents"). This Agreement and each Bowline
Document has been duly executed and delivered by Bowline and the agreements of
Bowline contained herein constitute the legal, valid and binding obligation of
Bowline, enforceable against Bowline in accordance with their respective
terms, subject to bankruptcy, insolvency, moratorium and other laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
3.2 Consents and Approvals; No Breach. Except as has been disclosed to
Arrowhead, and subject to the approval of this Agreement and the transactions
contemplated hereby by the affirmative vote of the holders of two-thirds of all
outstanding shares of Bowline Common Stock, the execution and delivery by
Bowline of this Agreement and the performance by Bowline of the transactions
contemplated hereby do not (i) require any consent, waiver, approval, license,
authorization, order, permit or franchise of or from, or the registration,
declaration or filing with, any person, (except as already obtained or as will
be obtained prior to Closing and except for the filing of the Certificate of
Merger as set forth in Section 1.2 hereof), (ii) violate, with or without the
giving of notice or the passage of time, any statute, law, ordinance, regulation
or rule (collectively, "Laws") applicable to or affecting the properties or
assets of Bowline, (iii) violate any provision of the Certificate of
Incorporation or Bylaws of Bowline, or (iv) conflict with or result in a breach
or termination of any provision of, or constitute a default or give rise to a
right of termination or acceleration under, or result in the creation of any
lien, charge or encumbrance upon any of its properties or assets pursuant to,
any mortgage, deed of trust, indenture or contract, agreement, instrument or any
order,
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judgment, decree, Law or of any other restriction of any kind or character,
to which Bowline is a party or subject or by which any of the properties or
assets of Bowline may be bound.
3.3 Organization, Standing and Authority. Bowline is a corporation duly
organized, validly existing and in good standing under the laws of the State
of New York and has all requisite power and authority to own, lease and
operate its assets, properties and business and to carry on its business as
now being and as heretofore conducted, and is authorized as a foreign
corporation to transact business and is in good standing in each jurisdiction
in which such qualification or authorization is required by law.
3.4 Capitalization of Bowline. Bowline is authorized to issue 5,000,000
shares of Bowline Common Stock. As of the date hereof, there are 1,287,412
shares of Bowline Common Stock issued and outstanding. Bowline Common Stock is
the only class of capital stock of Bowline that is outstanding. All of the
outstanding shares of Bowline Common Stock are duly authorized, validly
issued, fully paid and nonassessable and are free of preemptive rights.
3.5 Options or Other Rights. There is no outstanding option, warrant, call,
unsatisfied preemptive right or other agreement of any kind to purchase or
otherwise to receive from Bowline or any stockholder of Bowline any shares of
Bowline Common Stock or any other security of Bowline; there is no outstanding
security of any kind convertible into any security of Bowline; and there is no
outstanding contract or other agreement to purchase, redeem or otherwise
acquire any outstanding shares of Bowline Common Stock or any other security
of Bowline.
3.6 Subsidiaries. (a) Bowline has no direct or indirect Subsidiaries (as
defined below), has not made any advances to or investments in, and does not
own any securities of or other interests in, any firm, corporation,
association, business, organization, enterprise or entity, other than
Starboard Data Services, Inc., a Delaware corporation ("Starboard"). A
"Subsidiary" of any person shall mean an entity as to which such person,
directly or indirectly, owns or has power to vote or to exercise a controlling
influence with respect to 50% or more of the securities of such entity the
holders of which are entitled to vote for the election of directors of such
entity.
(b) Bowline directly owns all the outstanding capital stock of Starboard.
Starboard does not have any outstanding or authorized subscriptions, options,
warrants, calls, preemptive or other rights, commitments or any other
agreements of any character obligating it to issue any shares of its capital
stock of any class or any securities convertible into or evidencing the right
to purchase any shares of its capital stock of any class.
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(c) Starboard is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and has all
requisite corporate power to own, operate and lease its properties and carry
on its business as the same is now being conducted. Starboard is duly
qualified to do business as a foreign corporation in each jurisdiction in
which the ownership or lease of property by it or the conduct of its business
makes such qualification necessary.
3.7 Financial Statements. The consolidated balance sheets of Bowline, as of
September 30, 1995 (the "Balance Sheet Date") and 1994, and related
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal years then ended, delivered to Arrowhead (the "Financial
Statements") are in accordance with the books and records of Bowline and
fairly present the consolidated financial position, results of operations and
cash flows of Bowline and Starboard as of the dates and for the periods
indicated and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis.
3.8 No Material Adverse Change. Since September 30, 1995, there has been no
material adverse change, or to the best knowledge of Bowline, any development
involving a prospective material adverse change, in the general affairs,
management, shareholders' equity, assets, liabilities, properties, business,
operations, condition (financial or otherwise) or results of operations of
Bowline.
3.9 Compliance with Laws. (a) To the best knowledge of Bowline, Bowline and
Starboard are not in violation of any applicable order, judgment, injunction,
award or decree, or any federal, state, local or foreign law, ordinance or
regulation or any other requirement of any governmental or regulatory body,
court or arbitrator applicable to its business, and neither Bowline nor
Starboard has received written notice that any such violation has been alleged
or is being investigated.
(b) Bowline and Starboard are not in violation of any applicable order,
judgment, injunction, award or decree, or any federal, state, local or foreign
law, ordinance or regulation or any other requirement of any governmental or
regulatory body, court or arbitrator applicable and material to its business,
and neither Bowline nor Starboard has received written notice that any such
violation has been alleged or is being investigated.
3.10 Permits and Licenses. To the best knowledge of Bowline, Bowline and
Starboard have all licenses, permits, orders, approvals, registrations,
authorizations and qualifications, and have made all filings with and under
all federal, state, local or foreign laws and governmental or regulatory
bodies (collectively the "Permits"), that are necessary for the ownership and
operation of Bowline's and Starboard's respective
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businesses as conducted on the date hereof; the Permits are valid, in good
standing and in full force and effect and are sufficient for the ownership and
conduct of such business; no violations exist or have been recorded in respect
to any Permit; and no proceeding is pending or, to the knowledge of Bowline and
Starboard threatened, that would suspend, revoke or limit any Permit.
3.11 Litigation. There are no outstanding material orders, judgments,
injunctions, awards or decrees of any governmental or regulatory body, court
or arbitrator against or involving Bowline or Starboard, or against or
involving any of the directors, officers or employees of Bowline or Starboard.
As of the date of this Agreement, there are no material actions, suits or
claims or legal, administrative or arbitration proceedings pending or, to the
knowledge of Bowline and Starboard threatened, against or involving Bowline or
Starboard or any of their respective directors, officers, employees,
properties or assets.
3.12 Liens. Bowline and Starboard have good and marketable title to all of
their respective assets reflected in the Financial Statements, in each case
free and clear of any lien, claim or other encumbrance, except for (i) liens
or other encumbrances disclosed in the Financial Statements or securing Taxes
(as defined in Section 3.18), assessments, governmental charges or levies, or
the claims of materialmen, carriers, landlords and like persons, all of which
are not yet due and payable or which are being contested in good faith and
(ii) minor liens or other encumbrances of a character that do not materially
detract from the value or impair the use of the property subject thereto, or
impair the operation of Bowline or Starboard or detract materially from their
business.
3.13 Employee Benefit Plans. Except as has been disclosed to Arrowhead,
Bowline and Starboard have no "employee benefit plans" (as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), and any other written informal plan or contract
involving direct or indirect compensation under which Bowline or Starboard
have any present or future obligation or liability on behalf of its employees
or former employees or their dependents or beneficiaries (each, a "Plan").
3.14 Operations of Bowline. Except as has been disclosed to Arrowhead, since
the Balance Sheet Date, neither Bowline nor Starboard has:
(a) amended its Certificate of Incorporation or Bylaws or merged with or
into or consolidated with any other person, subdivided or in any way
reclassified any shares of its capital stock or changed or agreed to change in
any manner the rights of its outstanding capital stock or the character of its
business;
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(b) issued or sold or purchased, or issued options or rights to subscribe
to, or entered into any contracts or commitments to issue or sell or purchase,
any shares of its capital stock or any of its bonds, notes, debentures or
other evidences of indebtedness;
(c) entered into or amended any agreement with any labor union or
association representing any employee, made any wage or salary increase or
bonus, or increase in any other direct or indirect compensation, for or to any
of its officers, directors, consultants, agents or other representatives, or
commitment or agreement to make or pay the same, other than to persons who are
not its officers, directors or shareholders made in the ordinary course of
business;
(d) incurred any indebtedness for borrowed money or incurred or assumed
any other liability in excess of twenty five thousand dollars ($25,000.00), in
each case;
(e) declared or paid any distribution on or in respect of its Common Stock
or declared or made any other distributions of any kind to its stockholders or
made any direct or indirect redemption, purchase or other acquisition of any
shares of its capital stock;
(f) made any change in its accounting methods or practices or made any
change in depreciation or amortization policies, except as required by law or
generally accepted accounting principles;
(g) made any loan or advance to its stockholders or to any of its
directors, officers or employees, consultants, agents or other representatives
(other than advances made in the ordinary course of business), or made any
other loan or advance, otherwise than in the ordinary course of business;
(h) entered into any lease (as lessor or lessee) under which it would be
obligated to make or would receive payments in any one year of ten thousand
dollars ($10,000.00), or more; sold, abandoned or made any other disposition
of any of its assets or properties; granted or suffered any lien or other
encumbrance on any of its assets or properties other than liens or other
encumbrances excepted in Section 3.12; entered into or amended any contract or
other agreement to which it is a party, or by or to which it or its assets or
properties are bound or subject;
(i) made any acquisition of all or a substantial part of the assets,
properties, securities or business of any other person or entity;
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(j) paid, directly or indirectly, any of its material Liabilities (as
defined in Section 3.16 below) before the same became due in accordance with
its terms or otherwise than in the ordinary course of business;
(k) terminated or failed to renew, or received any written threat (that
was not subsequently withdrawn) to terminate or fail to renew, any contract or
other agreement that is or was material to its assets, liabilities,
properties, business, operations, condition (financial or otherwise) or
results of operations; or
(l) entered into any other contract or other agreement or other
transaction that materially increases its liabilities.
3.15 Regulatory Filings. Bowline and Starboard have filed all material
registrations, filings or submissions (including, without limitation, all
reports, statements and other documents) required to be filed by it with any
governmental or regulatory body. All such registrations, filings and
submissions were in compliance with applicable law when filed, and no
deficiencies have been asserted by any such governmental or regulatory body
with respect to such registrations, filings or submissions that have not been
satisfied.
3.16 Liabilities. Except as has already been disclosed to Arrowhead, as of
the Balance Sheet Date, neither Bowline nor Starboard has any direct or
indirect indebtedness, liability, claim, loss, damage, deficiency, obligation
or responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or
otherwise, of a kind required by generally accepted accounting principles to
be set forth on a financial statement ("Liabilities") that was not fully and
adequately reflected or reserved against on the Financial Statements. Bowline
and Starboard have no Liabilities, other than (i) Liabilities fully and
adequately reflected or reserved against on the Financial Statements, and (ii)
Liabilities incurred since September 30, 1995 in the ordinary course of
business.
3.17 No Broker. No broker or finder has acted, directly or indirectly, for
Bowline nor has Bowline incurred any obligation to pay any brokerage, finder's
fee or other commission in connection with the transactions contemplated by
this Agreement.
3.18 Taxes. Except as has already been disclosed to Arrowhead:
(a) Bowline has timely filed (and, through and including the Closing Date,
will timely file) with the appropriate governmental entities all federal Tax
Returns, all state and local income and franchise Tax Returns and all other
material Tax Returns required to be filed by or with respect to it, its
operations
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and assets through and including the Closing Date, and as of the time of filing,
all such Tax Returns were (and, as to Tax Returns not filed as of the date
hereof, will be) true, complete and correct in all material respects;
(b) Bowline has timely paid (and, through and including the Closing Date,
will timely pay) all Taxes which are due and payable with respect to it, and
its operations and assets through and including the Closing Date, except for
Taxes that are being contested in good faith by appropriate proceedings and as
to which adequate reserves have been reflected on its Financial Statements;
(c) Bowline has complied with all applicable laws relating to the payment
and withholding of Taxes and has timely withheld from employee wages and paid
over (and, through and including the Closing Date, will timely withhold and
pay over) to the proper governmental entities all amounts for all periods
required under all applicable laws to be so withheld and paid over;
(d) Bowline's Tax Returns have not been the subject of federal, state or
local examination or audit by a taxing authority;
(e) No federal, state, local or foreign Tax audits or other judicial,
administrative or arbitral proceedings are presently pending or threatened
with regard to any Taxes for which Bowline would be liable. No issue has been
raised by the Internal Revenue Service (the "IRS") with respect to any of
Bowline's Tax Returns which could result in the assertion of a deficiency for
any taxable year of Bowline. Bowline has not taken any reporting position for
which it does not have a reasonable basis nor does it anticipate any further
tax liability with respect to taxable years that have not yet been closed;
(f) There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any of Bowline's Tax Returns and Bowline
has not requested any extension of time within which to file any material Tax
Return, which return has not yet been filed;
(g) Bowline has not requested or agreed to and is not required to make any
adjustment which would result in the shifting, for Tax purposes, of income to
or deductions from a taxable period which ends after the Closing Date;
(h) Complete and accurate copies of all Tax Returns relating to taxable
periods of Bowline ending after 1988 have been made available to Arrowhead;
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For purposes of this Agreement, (i) "Tax" or "Taxes" shall mean all federal,
state, local and foreign taxes, assessments and similar charges of any kind
whatsoever owed by Bowline, including, without limitation, any interest,
penalties and additions imposed with respect to such amounts and shall include
any transferee liability in respect of Taxes, (ii) "Tax Return" shall mean all
returns, declarations, reports, estimates, information returns and statements
required to be filed by Bowline in respect of any Taxes, and (iii) "Code"
shall mean the Internal Revenue Code of 1986, as amended.
3.19 Related Transactions. Except as has already been disclosed to Arrowhead,
there are no material contracts, arrangements, understandings, relationships,
negotiations or transactions between Bowline and any of its officers,
directors and stockholders or to which both Bowline and any of its officer,
directors and stockholders are parties.
3.20 Intellectual Property. Neither Bowline nor Starboard is infringing, or
otherwise acting adversely to, any proprietary right of any other person, and
no proprietary right of, or product or service sold by, any other persons
infringes or conflicts with any proprietary right heretofore or presently used
by Bowline and Starboard. No claim has been asserted or, to the knowledge of
Bowline and Starboard threatened, by any person with respect to any of the
proprietary rights used by Bowline and Starboard and, to the knowledge of
Bowline and Starboard, there is no basis for any such claim.
3.21 Environmental. Neither Bowline nor Starboard has disposed of or arranged
for any disposal of any hazardous substances, other than in conformity with
applicable laws and regulations and, to the best knowledge of Bowline and
Starboard, Bowline and Starboard have not been designated a potentially liable
party for remedial action or response costs in connection with any of its
facilities, locations, sites or properties under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Federal Resource Conservation and Recovery Act, as amended, the Toxic Control
Substance Act, the Clean Water Act, the Clean Air Act or comparable state
statutes.
3.22 Insurance. (a) Neither Bowline nor Starboard maintains any policies of
insurance (other than title insurance on real property) now in effect covering
the assets, properties and business of Bowline and Starboard, except as have
been previously disclosed to Arrowhead.
(b) Each of such insurance policies is in full force and effect, neither
Bowline nor Starboard is in default under any such policy, and no insurer under
any of said policies has given notice of cancellation or non-renewal thereunder.
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3.23 Contracts, Leases, Agreements and Other Commitments. Except as has been
previously disclosed to Arrowhead, neither Bowline nor Starboard is a party to
or bound by any written, oral or implied contract, agreement, lease, power of
attorney, guaranty, surety arrangement, or other commitment, including but not
limited to any contract or agreement for the purchase or sale of merchandise
or for the rendering of services (collectively, the "Contracts"), except for
agreements involving a maximum possible liability or obligation on the part of
Bowline or Starboard, as applicable, of less than twenty five thousand dollars
($25,000) each and less than one hundred thousand dollars ($100,000) in the
aggregate.
All of such Contracts to which Bowline and Starboard are party, are valid,
binding and enforceable against the respective parties thereto in accordance
with their respective terms. All other parties to all of the Contracts have
performed all material obligations required to be performed to date under such
Contracts and neither Bowline, Starboard nor any such other party is in
material default or in arrears under the terms thereof, and no condition
exists or event has occurred which, with the giving of notice or lapse of time
or both, would constitute a material default thereunder. The consummation of
this Agreement will not result in an impairment or termination of any of
Bowline's or Starboard's rights under any Contracts.
3.24 Labor and Employment. Except as has previously been disclosed to
Arrowhead, neither Bowline nor Starboard is a party to any collective
bargaining agreement or employment agreement or any pending or threatened
labor dispute.
3.25 Statements and Other Documents Not Misleading. Neither this Agreement,
including all Exhibits hereto, nor any other financial statement, information,
document or other instrument heretofore or hereafter furnished by Bowline to
Arrowhead in connection with the transactions contemplated hereby contains or
will contain any untrue statement of any material fact or omits or will omit
to state any material fact required to be stated in order to make such
statement, document or other instrument not misleading. There is no fact known
to Bowline which materially adversely affects the business, prospects,
financial condition or affairs of Bowline, Starboard or any of their
properties or assets which has not been set forth in this Agreement or
previously disclosed to Arrowhead.
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4. REPRESENTATIONS AND WARRANTIES OF ARROWHEAD
Arrowhead represents and warrants to Bowline as follows:
4.1 Authority, Execution and Delivery. Arrowhead has the legal right, power
and authority to execute, deliver and perform its obligations under this
Agreement and each agreement, document or instrument contemplated hereby to
which Arrowhead is a party. This Agreement has been duly executed and
delivered by Arrowhead and the agreements of Arrowhead contained herein and
therein constitute the valid and binding obligations of Arrowhead enforceable
against Arrowhead in accordance with their respective terms, subject to
bankruptcy, insolvency, moratorium and other laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity.
4.2 Consents and Approvals; No Breach. Other than as heretofore obtained or
provided for herein, the execution and delivery by Arrowhead of this Agreement
and the performance by Arrowhead of the transactions contemplated hereby and
thereby do not (i) require any consent, waiver, approval, license,
authorization, order, permit or franchise of or from, or the registration,
declaration or filing with, any person, (ii) violate, with or without the
giving of notice or the passage of time, any laws applicable to or affecting
the properties or assets of Arrowhead, (iii) violate any provision of the
Certificate of Incorporation or Bylaws of Arrowhead, (iv) conflict with or
result in a breach or termination of any provision of, or constitute a default
or give rise to a right of termination or acceleration under, or result in the
creation of any lien, charge or encumbrance upon any of its properties or
assets pursuant to any mortgage, deed of trust, indenture or contract,
agreement, instrument or any order, judgment, decree, Law or of any other
restriction of any kind or character, to which Arrowhead is a party or subject
or by which any of the properties or assets of Arrowhead may be bound.
4.3 Organization, Standing and Authority. Arrowhead is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, and Arrowhead has all requisite power and authority to own, lease
and operate its assets, properties and business and to carry on its business
as now being and as heretofore conducted, and is authorized as a foreign
corporation in each jurisdiction in which such qualification or authority is
required by law.
4.4 No Brokers. No broker or finder has acted, directly or indirectly, for
Arrowhead nor has Arrowhead incurred any obligation to pay any brokerage,
finder's fee or other commission in connection with the transactions
contemplated by this Agreement.
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4.5 Reorganization. The parties intend that the Merger will qualify as a
tax-free reorganization under Section 368(a) of the Code and will report the
transactions referred to herein accordingly for federal, state and local
income tax purposes. Arrowhead will not take any action with respect to its
assets or business which likely would cause the transactions contemplated by
this Agreement to fail to qualify as a tax-free reorganization under Section
368(a) of the Code.
5. COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
5.1 Conduct of Business. From the date hereof through the Closing Date,
Bowline shall conduct its business substantially in the manner in which it is
presently conducted and use its best efforts to preserve its existing
relations with customers, suppliers, creditors and business partners, and,
without the prior written consent of Arrowhead, shall not: (i) make, declare
or pay any dividend, or declare or make any distribution on, or directly or
indirectly combine, redeem, reclassify, purchase or otherwise acquire, any
shares of its capital stock or authorize the creation or issuance of or issue
or sell any additional shares of its capital stock or any options, calls or
commitments relating to its capital stock or any securities or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire from Bowline shares of its capital stock or its
assets, or issue any long-term debt securities except pursuant to plans or
agreements as existing on the date hereof and disclosed to Arrowhead in
writing, (ii) enter into any employment contracts with, pay any bonus to, or
increase the rate of compensation of any of its directors, officers or any
other person, (iii) except as provided for in this Agreement, enter into or
substantially modify (except as may be required by applicable law) any
pension, retirement, stock option, stock purchase, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust
agreement related thereto, in respect to any of its directors, officers or
employees, (iv) enter into any new line of business or amend its Certificate
of Incorporation or its Bylaws, (v) dispose of or acquire any material assets
except in the ordinary course of business, (vi) modify, amend or terminate any
of its material contracts or waive, release or assign any material rights or
claims, (vii) take any other action not in the ordinary course of business,
including, without limitation, the deferment of any expenses or the
acceleration of any taxable income, (viii) issue any press release or written
statement for general circulation relating to the transactions contemplated
hereby, (ix) make any change in Bowline's accounting methods or practices or
its depreciation or amortization policies, except as required by law or
generally accepted accounting principles, (x) pay or settle any action, suit,
claim or legal, administrative or arbitration proceeding, or (xi) agree to
take any of the foregoing actions.
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5.2 Preservation of Permits and Services. From the date hereof through the
Closing Date, Bowline shall, and shall cause Starboard to, use its best
efforts to preserve the Permits in full force and effect, keep available the
services of their present officers, consultants and agents, maintain its
present suppliers and customers and preserve their goodwill.
5.3 Litigation. From the date hereof through the Closing Date, Bowline shall
notify Arrowhead promptly of any actions or proceedings of the type required
to be described in Section 3.11 that from the date hereof are threatened or
commenced against Bowline, or against any officer, director, employee,
property or asset of Bowline or Starboard with respect to its affairs, and of
any requests for additional information or documentary materials by any
governmental or regulatory body in connection with the transactions
contemplated hereby.
5.4 Continued Effectiveness of Representations and Warranties. From the date
hereof through the Effective Date, Bowline on the one hand, and Arrowhead on
the other hand (i) shall use their respective best efforts to conduct their
affairs in such a manner so that, except as otherwise contemplated or
permitted by this Agreement, the representations and warranties made by such
parties in this Agreement shall continue to be true and correct on and as of
the Closing Date as if made on and as of the Closing Date, and (ii) shall
promptly notify the other parties hereto of any event, condition or
circumstances occurring from the date hereof through the Closing Date that
would constitute a violation or breach of this Agreement by such party.
5.5 Corporate Examinations and Investigations. Prior to the Closing Date,
Arrowhead shall be entitled, through its employees and representatives, to
make such investigation and examination of the assets, Liabilities,
properties, business, operations, books, records, Tax Returns and financial
condition of Bowline as Arrowhead wishes. Any such investigation and
examination shall be conducted at reasonable times and under reasonable
circumstances and Bowline and its employees and representatives including,
without limitation, its counsel and independent public accountants, shall
cooperate fully with such representatives in connection with such review and
examination.
5.6 Approvals. Bowline and Arrowhead shall take all reasonable steps
necessary or appropriate, and shall use all commercially reasonable efforts,
to obtain as promptly as practicable all necessary approvals, authorizations
and consents of any corporation, partnership, person, firm or other entity or
any governmental or regulatory body or any public or judicial authority,
required to be obtained to consummate the transactions contemplated hereby and
will cooperate with each other in seeking to obtain all such
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approvals, authorizations and consents. Bowline and Arrowhead shall each use
their best efforts to provide such information to such bodies and authorities as
such bodies or authorities may reasonably request.
5.7 Expenses. Except as otherwise specifically provided herein, the parties
to this Agreement shall bear their respective expenses incurred in connection
with the preparation, execution and performance of this Agreement and the
transactions contemplated hereby, including, without limitation, all fees and
expenses of agents, representatives, counsel, actuaries and accountants.
5.8 Indemnification of Directors and Officers. From and after the Closing
Date, Arrowhead shall maintain all rights to indemnification, contribution,
reimbursement or advancement of expenses created by the Certificate of
Incorporation or Bylaws of Bowline in favor of the directors, officers and
employees of Bowline, arising under the NYBCL or contained in any contracts or
other instruments with respect to acts or omissions of such persons prior to
the Closing Date.
5.9 Further Assurances. Each of the parties shall execute such documents and
other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby.
5.10 Notification of Misrepresentations. Bowline agrees to promptly notify
Arrowhead in writing of any inaccuracy or misrepresentation made by Bowline in
this Agreement of which it becomes aware prior to the Closing Date.
5.11 Proxy Statement and 13E-3 Transaction Statement. As promptly as
practicable, Bowline and Arrowhead, to the extent required by applicable law,
regulation or the interpretation thereof by the United States Securities and
Exchange Commission (the "Commission") will prepare and file a preliminary
Proxy Statement and a 13E-3 Transaction Statement with the Commission and will
use their best efforts to respond to the comments of the Commission in
connection therewith and to furnish all information required to prepare a
definitive Proxy Statement (including, without limitation, financial
statements and supporting schedules and certificates and reports of
independent public accountants) and a final 13E-3 Transaction Statement.
Bowline will cause the definitive Proxy Statement to be mailed to the
stockholders of Bowline and, if necessary, after the definitive Proxy
Statement shall have been so mailed, promptly circulate amended, supplemental
or supplemented proxy materials and, if required in connection therewith,
resolicit proxies.
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5.12 Stockholder Approval. Bowline, acting through its Board of Directors,
shall, in accordance with applicable law, call a special meeting of the
holders of Bowline Common Stock for the purpose of voting upon this Agreement
and Bowline agrees that this Agreement shall be submitted for approval at such
special meeting.
5.13 Best Efforts To Achieve Merger. Subject to the terms and conditions
herein provided, each of Bowline and Arrowhead shall use their respective best
efforts to take, or cause to be taken, all appropriate action, and to make, or
cause to be made, all filings necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement and to fulfill the conditions to the Merger and
to rectify any event or circumstance which could impede consummation of the
transaction contemplated by this Agreement.
6. CONDITIONS PRECEDENT TO MERGER
6.1 Conditions Precedent to Obligations of Bowline and Arrowhead. The
respective obligations of Arrowhead, on the one hand, and Bowline, on the
other hand, to consummate the Merger are subject to the satisfaction or waiver
(subject to applicable law) at or prior to the Closing Date and the Effective
Date of each of the following conditions:
(a) Approval by Bowline's Stockholders. The Merger and the transactions
contemplated by this Agreement shall have been approved and adopted by the
requisite vote or consent of the stockholders of Bowline in accordance with
applicable law and the Company's Certificate of Incorporation and By-Laws;
(b) Injunction. No preliminary or permanent injunction or other order
issued by any court or by an governmental or regulatory agency, body or
authority which restrains or prohibits the consummation of the Merger and the
transactions contemplated by this Agreement shall be in effect as of the
Closing Date and the Effective Date; and
(c) Statutes. No statute, rule, regulation, executive order, decree or
order of any kind shall be in effect or enforced by any court or governmental
authority as of the Closing Date and the Effective Date which prohibits or
restricts the consummation of the Merger.
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6.2 Conditions Precedent to Obligations of Arrowhead. The obligations of
Arrowhead to effect the Merger are also subject to the satisfaction or waiver,
at or prior to the Effective Date, of each of the following conditions:
(a) Accuracy of Representations and Warranties. All representations and
warranties of Bowline contained herein shall be true and correct in all material
respects as of the date hereof and at and as of the Closing, with the same force
and effect as though made on and as of the Closing Date;
(b) Bowline's Performance. Bowline shall have performed in all material
respects all obligations and agreements, and complied in all material respects
with all covenants and conditions, contained in this Agreement to be performed
or complied with by it prior to the Closing Date;
(c) External Conditions. There shall not have occurred (i) any general
suspension of trading in or limitation on prices for, securities on any
national securities exchange or national over-the-counter market, (ii) the
declaration of any banking moratorium or suspension of payments in respect of
banks in the United States, or (iii) the commencement of a war declared by or
upon the United States; and
(d) Material Changes. There shall not have occurred, from the date of this
Agreement through the Closing Date, any material adverse change in the
business, assets, liabilities, operations, prospects or conditions (financial
or otherwise) of Bowline which would cause any of the material assumptions upon
which Arrowhead has based its decision to enter into this Agreement to be no
longer valid.
6.3 Conditions Precedent to Obligations of Bowline. The obligation of Bowline
to effect the Merger is also subject to the satisfaction or waiver, at or prior
to the Effective Date, of each of the following conditions:
(a) Accuracy of Representations and Warranties. All representations and
warranties of Arrowhead contained herein shall be true and correct in all
material respects as of the date hereof and at and as of the Closing, with the
same force and effect as though made on and as of the Closing Date and Bowline
shall have received a certificate, signed by the President of Arrowhead to such
effect;
(b) Performance. Arrowhead shall have performed in all material respects
all obligations and agreements, and complied in all material respects with all
covenants and conditions contained in this Agreement to be performed or
complied with by it prior to the Closing Date; and
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(c) Fairness Opinion. Bowline shall not have received written notice from
American Maple Leaf Financial Corp. that it has withdrawn its opinion as to the
fairness of the Merger to the stockholders of Bowline (other than the
Affiliates) from a financial point of view.
7. TERMINATION AND ABANDONMENT
7.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned, at any time prior to the Effective Date,
whether before or after approval of the Merger by Bowline's stockholders:
(a) by Bowline, on the one hand, or Arrowhead, on the other hand, in their
discretion;
(b) automatically, unless the right to terminate is waived by Arrowhead, on
the one hand, and Bowline, on the other hand, if any court of competent
jurisdiction in the United States, or other United States governmental body
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and unappealable;
(c) automatically, unless the right to terminate is waived by Bowline, if
any of the conditions set forth in Sections 6.1 and 6.3 have not been satisfied
on or before May 31, 1996;
(d) automatically, unless the right to terminate is waived by Arrowhead, if
any of the conditions set forth in Sections 6.1 and 6.2 have not been satisfied
on or before May 31, 1996.
7.2 Effect of Termination. In the event of the termination of this Agreement
pursuant to Section 7.1 by Arrowhead, on the one hand, or Bowline, on the other
hand, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, and there shall be no
liability hereunder on the part of Arrowhead or Bowline, except that Sections
8.1, 8.3, 8.4, 8.6 and 8.9 hereof shall survive any termination of this
Agreement. Nothing in this Section 7.2 shall relieve any party to this
Agreement of liability for breach of this Agreement.
7.3 Extension; Waiver. At any time prior to the Effective Date, the parties
hereto, by action taken by or on behalf of the respective Board of Directors
of Bowline or Arrowhead, may (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies
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in the representations and warranties contained herein by any other applicable
party or in any documents, certificate or writing delivered pursuant hereto by
any other applicable party or (iii) waive compliance with any of the agreements
or conditions contained herein. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
8. MISCELLANEOUS
8.1 Expenses. All costs and expenses incurred in connection with the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
costs and expenses.
8.2 Representations and Warranties. The respective representations and
warranties of Bowline, on the one hand, and Arrowhead, on the other hand,
contained herein or in any certificates or other documents delivered prior to
or at the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party. Each and every such representation and
warranty contained in this Agreement shall expire with, and be terminated and
extinguished by, the Closing and, thereafter, neither Bowline nor Arrowhead nor
any of their respective directors, officers or employees shall be under any
liability whatsoever with respect to any such representation or warranty
contained in this Agreement. This Section 8.2 shall have no effect upon any
other obligations of the parties hereto, whether to be performed before or
after the Effective Date.
8.3 Public Announcements. Bowline, on the one hand, and Arrowhead, on the
other hand, agree to consult promptly with each other prior to issuing any
press release or otherwise making any public statement with respect to the
transactions contemplated hereby, and shall not issue any such press release or
make any such public statement prior to such consultation and review by the
other party of a copy of such release or statement, unless required by
applicable law.
8.4 Notices. All notices, requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered in person or mailed,
certified or registered mail with postage prepaid, or sent by telex, telegram
or telecopier, as follows:
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(a) if to Bowline, to it at:
3400 West Chester Pike, Suite 201
Newtown Square, PA 19073
Attn: Clifford Demarest, President
with copies to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Attn: Gerald F. Stahlecker, Esquire
(b) if to Arrowhead, to it at:
1838 Black Rock Turnpike
Fairfield, CT 06432-3547
Attn: Gerald J. Carroll, Secretary
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date
of delivery unless mailed, in which case on the third business day after the
mailing thereof except for a notice of a change of address, which shall be
effective only upon receipt thereof.
8.5 Entire Agreement. This Agreement and the exhibits, schedules and other
documents referred to herein or delivered pursuant hereto, collectively contain
the entire understanding of the parties hereto with respect to the subject
matter contained herein and supersede all prior agreements and understandings,
oral and written, with respect thereto.
8.6 Binding Effect; Benefit; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either of the
parties hereto without the prior written consent of the other party. Nothing in
this Agreement, express or implied, is intended to confer on any person other
than the parties hereto or their respective successors and permitted
A-24
<PAGE>
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except, on and after the Effective Date, as contemplated under
Section 8.9.
8.7 Amendment and Modification. Subject to the applicable law, this Agreement
may be amended, modified and supplemented in writing by the parties hereto in
any and all respects before the Effective Date (notwithstanding any stockholder
approval), by action taken by the respective Boards of Directors of Arrowhead
and Bowline, or by the respective officers authorized by such Boards of
Directors; provided, however, that after any such stockholder approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval.
8.8 Further Actions. Each of the parties hereto agrees that, subject to its
legal obligations, it will use its best efforts to fulfill all conditions
precedent specified herein, to the extent that such conditions are within its
control, and to do all things reasonably necessary to consummate the
transactions contemplated hereby.
8.9 Specific Performance. Bowline acknowledges that the rights of Arrowhead
to consummate the transactions contemplated hereby are special, unique and of
extraordinary character and that, in the event that Bowline violates or fails
and refuses to perform any covenant made by it herein, Arrowhead will be
without adequate remedy at law. Bowline agrees, therefore, that, in the event
that it violates or fails or refuses to perform any covenant made by it herein,
Arrowhead, so long as it is not in breach hereof, may, in addition to any
remedies at law, institute and prosecute an action in a court of competent
jurisdiction to enforce specific performance of such covenant or seek any other
equitable relief. In the event that Arrowhead institutes a proceeding seeking
specific performance or other equitable relief prior to the termination of this
Agreement pursuant to Section 7.1 hereof, then notwithstanding any provision of
such Section 7.1, this Agreement shall be terminated thereafter only if (i) a
final judgment or order is entered in such action or in any appeal therefrom
denying specific performance to Arrowhead in such action or dismissing or
discontinuing such action without the granting of such relief (and such
judgment or order is not then subject to appeal), (ii) such proceeding or any
appeal therefrom is dismissed or discontinued voluntarily by the plaintiff or
by agreement of the parties thereto without the granting of such relief, or
(iii) a final judgment or order is entered in such action or in any appeal
therefrom declaring this Agreement terminated.
8.10 Headings. The descriptive headings of the several Sections of this
Agreement are inserted for convenience only, do not constitute a part of this
Agreement and shall not affect in any way the meaning or interpretation of this
Agreement.
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8.11 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, and all of which together
shall be deemed to be one and the same instrument.
8.12 Applicable Law. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania, without regard to the conflict of laws
rules thereof.
8.13 Severability. If any term, provision, covenant or restriction contained
in this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions contained in
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
IN WITNESS WHEREOF, each of Bowline and Arrowhead have caused this Agreement
to be executed by their respective officers thereunto duly authorized, all as
of the date first above written.
BOWLINE CORPORATION
By: /s/ James Benenson, Jr.
Name: James Benenson, Jr.
Title: Chairman of the Board
ARROWHEAD HOLDINGS CORPORATION
By: /s/ James Benenson, Jr.
Name: James Benenson, Jr.
Title: Chairman of the Board and President
A-26
<PAGE>
ANNEX B
FAIRNESS OPINION AND VALUATION ANALYSES
OF AMERICAN MAPLE LEAF FINANCIAL CORP.
<PAGE>
February 20, 1996
Board of Directors
Bowline Corporation
11 Bala Avenue
Bala Cynwyd, PA 19004
Gentlemen:
In connection with the proposed merger (the "Merger") of Bowline Corporation
("Bowline") with and into Arrowhead Holdings Corporation ("Arrowhead") pursuant
to which all shares of Bowline's common stock which are issued and outstanding
at the effective time of the Merger (other than certain of such shares owned by
Arrowhead and its affiliates) will be converted into the right to receive $1.32
per share, in cash, you have asked us to render our opinion as to the fairness
of the Merger from a financial point of view to the shareholders of Bowline.
American Maple Leaf Financial ("AML"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, employee benefit plans,
and valuations for corporate, estate, and other purposes. Neither AML nor any
of its officers or employees has an interest in Bowline or in the assets of
Bowline, and all of such persons are otherwise independent with respect to the
Merger.
In arriving at our opinion, we have:
1) reviewed audited financial statements of Bowline for the fiscal years
ended September 30, 1995 and 1994;
2) reviewed filings made by Bowline with the Securities and Exchange
Commission during 1995 and 1994;
3) reviewed unaudited consolidated financial information for Bowline for
the quarter ended December 31, 1995;
4) discussed with management of Bowline their projections for fiscal 1996
as well as the operations and prospects of Bowline and its operating
entities;
5) reviewed the liquidation values of Bowline's assets with management;
6) prepared a liquidation analysis of Bowline's assets and liabilities
based upon Bowline's estimate of liquidation costs;
7) considered the effect of illiquidity on the value of the shares held by
Bowline's minority shareholders;
8) reviewed Bowline's public trading data as reflected on the
over-the-counter market for the period ranging from 1/1/95 through
12/31/95;
9) reviewed the terms of the Merger; and
10) reviewed all of the foregoing with you before forming our opinion.
B-1
<PAGE>
Board of Directors of Bowline Corporation
February 20, 1996
Page 2
In arriving at our opinion, we have not independently verified any of the
information we reviewed and our opinion is given in reliance on the accuracy
and completeness of the information furnished to us. We have not made an
independent evaluation or appraisal of the assets of Bowline, nor are we aware
of any current independent appraisals thereof, with the exception of an
appraisal of computer equipment by Concept Computer Corporation, dated 2/28/95,
which we have reviewed. Should any of the information provided to use be
inaccurate or incomplete in any material respect, our opinion may change.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger is fair from a financial point of view to the
shareholders of Bowline.
AMERICAN MAPLE LEAF FINANCIAL
By: /s/ Andrew Panzo
Andrew Panzo
B-2
<PAGE>
DISCUSSION OF VALUATION
METHODOLOGIES EMPLOYED
There are a variety of analyses which investment bankers use to evaluate a
publicly traded company. However, given the fact that Bowline Corporation at
this time derives 100% of its revenues from one customer, an affiliated
company, and has no other operations to speak of, there are three relevant
analyses to be undertaken in forming an opinion as to the fairness of the
purchase of the minority shareholders' common stock: a Market Price Analysis,
a Liquidation Analysis, and a Third Party Purchase Analysis.
Market Price Analysis. - The range of bid prices at which market makers
offered to purchase the Company's common shares on the over-the-counter market
between January 1, 1995 and December 31, 1995 was $.500 to $.6875 per share.
The trading volume totaled 23,900 shares during the 12 month period. The
market for common shares during the relevant time period was extremely thin
and the common shares were very illiquid. Therefore, the maximum value that a
public shareholder could have received in 1995 was the highest bid price,
$.6875 per share, and only in minimal quantities. The current bid price as of
February 16, 1996 is $.6875/share.
Liquidation Analysis. - As mentioned above, given the lack of ongoing
operations and the projected operating losses, a liquidation analysis is the
most theoretically correct method to determine the valuation of the shares of
the public minority stockholders. The following computation, as illustrated in
Exhibit A, is based upon the Company's audited balance sheet as of 9/30/95 and
management prepared estimates of liquidation costs.
Assets. AML assumed that cash and accounts receivable from an affiliate could
be liquidated at 100% of their book value, $1,978,008 and $53,000
respectively. The security deposits and prepaid rent would be used to offset
any monies due for the rental of office space and is also valued at 100% of
its book value, $6,963. The "Other" current assets are comprised of advances
to employees and prepaid postage, also valued at 100% of its book value,
$1,275. The Fixed Assets of the Company consist of computer equipment and a 10
year old phone system. Based upon a Company supplied independent appraisal,
the liquidation value is $40,000, 28% of the $144,482 book value. This
appraisal appears to be consistent with the weak demand for mainframe and used
computer equipment. Additionally, management has stated that they have been
unsuccessfully attempting to sell the Company's customized software package,
and have yet to receive any offers. Therefore, it is assumed to have no value
to a third party which is equal to its $0 book value. It has also been assumed
that the leasehold improvements are not detachable and would have to be
abandoned. They also are considered to have no liquidation value, a 100%
discount of their $16,639 book value.
Liabilities. Accounts payable are valued at $36,464, 100% of their book value
since it is assumed that 100% of these will need to be satisfied in full. The
annual report accrual of $20,000 is discounted 100% since no annual report
would be printed in the event of liquidation. All other liabilities are valued
at 100% of their book value, $44,183.
Projected Liquidation Expenses. As part of a liquidation, a special meeting of
shareholders would have to be convened to approve the transaction. This
includes approximately $33,000 for proxy materials and mailing costs and
$4,000 for financial advisors. Legal fees necessary for the liquidation and
de-registration of shares have been approximated at $28,356 above and beyond
the legal accrual account. Administrative fees are approximated at $104,000
which assumes keeping the office operating for 6 months to administrate the
transition with the shareholders and to file various reports with the SEC.
Since certain documents are required to be stored for 7 years, storage
expenses are approximated at $8,400 ($100/month). There would also be an
obligation to buy-out various maintenance agreements with computer vendors,
approximated at $15,000. In connection with certain office space which the
Company leases in Pennsylvania and Connecticut, the Company would be liable
for unfulfilled lease obligations. Considering the number of months
outstanding before the leases expire, the total accelerated rental payments
necessary to satisfy the Company's obligations
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<PAGE>
are $36,456. In the cases where these payments would be due over a period of 12
months or greater, we assume that the landlord would be agreeable to settling
for the present value of these payments (6% implied interest rate), less a 10%
discount in exchange for the right to re-lease the properties to a third party.
Additionally, the expense required to vacate the leased spaces in a "broom
clean" condition, as required by lease stipulations, was approximated at
$10,000. This results in at total lease abandonment liability of $46,456.
Finally, the terminated employees would be eligible to receive severance pay
equal to 1 week of pay for every year of employment. This translates into a
total severance expense of $58,381. After subtracting the above liabilities and
management's estimates of one time liquidation expenses from the assets, we are
left with a liquidation value of $1,701,006 or $1.32/share.
Sale to Third Party Analysis. - This analysis calculates the reasonable price
which a third party investor could be expected to pay for a minority stake in
the Company if it did not liquidate and remained as an ongoing business. Due
to the fact that the shares of Bowline are controlled by one entity, even if
100% of the publicly traded available shares were purchased, the purchaser
would still be in a minority shareholder position. Such an ownership interest
would not afford the buyer any material voice in daily operations, long term
planning, distribution of profits, etc. Assuming that such an investor does
not foresee any significant events which would positively affect the earnings
of the Company, it is AML's opinion that they would demand at least a 25%
discount from the Company's "Adjusted Book Value". The Adjusted Book Value is
defined as the replacement value of all assets minus the actual liabilities.
Since it assumes the Company will continue operations and not liquidate, it
does not include the "Projected Liquidation Expenses". To arrive at the
Adjusted Book Value, one would simply start with the Liquidation Value
($1,701,006), add back the Liquidation Expenses ($297,593) and subtract the
annual report accrual ($20,000). This results in an Adjusted Book Value of
$1,978,599.
Because the Company is not projected to be profitable from existing
operations, we have not attached any value to the investment tax credit of
$255,000 or the tax loss carry forward of $18,800,000. It is not within the
scope of this analysis to speculate on potential business combinations with
other entities which would result in the Company deriving benefit from the tax
deferred asset. We believe that such an analysis is extremely subjective and
recognize that management has an existing fiduciary responsibility to pursue a
course which maximizes shareholder value. Since no such transaction has taken
place or is contemplated, we assume that management does not believe a
transaction of this sort is feasible. (A change in ownership of a majority of
the shares would cause the Company to forfeit the benefit of the tax-loss
carry forward. Therefore, the majority shareholders would be unable to sell,
and a third party would be unable to purchase, the value of that intangible
asset.)
After deducting 25% from the Adjusted Book Value as computed above, the price
which we believe a third party investor would be willing to pay for a minority
position in the Company is a maximum of $1,483,949 or $1.15/share.*
*Due to the stock's illiquidity and the minority position, an even greater
discount than 25% would perhaps be more appropriate. Arguably, the assumed 25%
discount actually yields an aggressively high valuation for the public
minority shareholders' position.
B-4
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EXHIBIT A
BOWLINE CORPORATION AND SUBSIDIARY
Calculation of Liquidation Value
Current Balance Liquidation
Sheet Value Value
ASSETS
Current Assets:
Cash $1,978,008 1,978,008
Accounts Receivable from Affiliate 53,000 53,000
Security Deposits and Pre-paid Rent 6,963 6,963
Other 1,275 1,275
Fixed Assets:
Equipment, Computers and Software 144,482 40,000
Leasehold Improvements 16,639 0
Total Assets 2,200,367 2,079,246
LIABILITIES
Accounts Payable 36,464 36,464
Annual Report 20,000 0
Other 44,183 44,183
Total Liabilities 100,647 80,647
Projected Liquidation Expenses:
Proxy Materials and Mailing Costs 33,000
Financial Advisors 4,000
Legal Fees 28,356
Administrative Fees 104,000
Storage 8,400
Buy-Out of Maintenance Agreements 15,000
Lease Abandonment Liability 46,456
Severance Package 58,381
------
Total Liquidation Expenses 297,593
Shareholders' Equity based upon Liquidation Analysis
(Total Assets - Liabilities - Liquidation Expenses) 1,701,006
Value per share (1,287,412 shares outstanding) 1.32
B-5
<PAGE>
ANNEX C
SECTION 623 OF THE NEW YORK BUSINESS CORPORATION LAW
<PAGE>
NEW YORK BUSINESS CORPORATION LAW
Section 623. Procedure to enforce shareholder's right to receive payment for
shares
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the
meeting of shareholders at which the action is submitted to a vote, or at such
meeting but before the vote, written objection to the action. The objection
shall include a notice of his election to dissent, his name and residence
address, the number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares if the action is taken. Such
objection is not required from any shareholder to whom the corporation did not
give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization date, which term as
used in this section means the date on which the shareholders' vote authorizing
such action was taken, or the date on which such consent without a meeting was
obtained from the requisite shareholders, the corporation shall give written
notice of such authorization or consent by registered mail to each shareholder
who filed written objection or from whom written objection was not required,
excepting any shareholder who voted for or consented in writing to the proposed
action and who thereby is deemed to have elected not to enforce his right to
receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election
to dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease to
have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenters' rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by
the board as of the time of such expiration or completion, but without
prejudice otherwise to any corporate proceedings that may have been taken in
the interim.
C-1
<PAGE>
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate
bearing such notation, each new certificate issued therefor shall bear a
similar notation together with the name of the original dissenting holder of
the shares and a transferee shall acquire no rights in the corporation except
those which the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for his shares at
a specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment
to each such shareholder who has submitted the certificates representing his
shares to the corporation, as provided in paragraph (f), of an amount equal to
eighty percent of the amount of such offer, or (2) as to each shareholder who
has not yet submitted his certificates a statement that advance payment to him
of an amount equal to eighty percent of the amount of such offer will be made
by the corporation promptly upon submission of his certificates. If the
corporate action has not been consummated at the time of the making of the
offer, such advance payment or statement as to advance payment shall be sent to
each shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does
not constitute a waiver of any dissenters' rights. If the corporate action has
not been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than
a twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such balance
sheet or profit and loss statement or statements were previously furnished, nor
if in connection with obtaining the shareholders' authorization for or consent
to the proposed corporate action the shareholders were furnished with a proxy
or information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be
paid for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to make such
offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
C-2
<PAGE>
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office of
the corporation is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign corporation
without an office in this state, such proceeding shall be brought in the county
where the office of the domestic corporation, whose shares are to be valued,
was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such proceeding
for the same purpose not later than thirty days after the expiration of such
twenty day period. If such proceeding is not instituted within such thirty day
period, all dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is entitled
to receive payment for his shares. If the corporation does not request any such
determination or if the court finds that any dissenting shareholder is so
entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business
on the day prior to the shareholders' authorization date. In fixing the fair
value of the shares, the court shall consider the nature of the transaction
giving rise to the shareholder's right to receive payment for shares and its
effects on the corporation and its shareholders, the concepts and methods then
customary in the relevant securities and financial markets for determining fair
value of shares of a corporation engaging in a similar transaction under
comparable circumstances and all other relevant factors. The court shall
determine the fair value of the shares without a jury and without referral to
an appraiser or referee. Upon application by the corporation or by any
shareholder who is a party to the proceeding, the court may, in its discretion,
permit pretrial disclosure, including, but not limited to, disclosure of any
expert's reports relating to the fair value of the shares whether or not
intended for use at the trial in the proceeding and notwithstanding subdivision
(d) of section 3101 of the civil practice law and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such rate as
the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of
the proceeding. If the court finds that the refusal of any shareholder to
accept the corporate offer of payment for his shares was arbitrary, vexatious
or otherwise not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed by
it. Notwithstanding the foregoing, the court may, in its discretion, apportion
and assess all or any part of the costs, expenses and fees incurred by the
corporation against any or all of the dissenting shareholders who are parties
to the proceeding, including any who have withdrawn their notices of election
as provided in paragraph (e), if the court finds that their refusal to accept
the corporate offer was arbitrary, vexatious or otherwise not in good faith.
The court may, in its discretion, apportion and assess all or any part of the
costs, expenses and fees incurred
C-3
<PAGE>
by any or all of the dissenting shareholders who are parties to the proceeding
against the corporation if the court finds any of the following: (A) that the
fair value of the shares as determined materially exceeds the amount which the
corporation offered to pay; (B) that no offer or required advance payment was
made by the corporation; (C) that the corporation failed to institute the
special proceeding within the period specified therefor; or (D) that the action
of the corporation in complying with its obligations as provided in this
section was arbitrary, vexatious or otherwise not in good faith. In making any
determination as provided in clause (A), the court may consider the dollar
amount or the percentage, or both, by which the fair value of the shares as
determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be due
him, upon surrender of the certificates for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section
515 (Reacquired shares), except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation, but
have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If the
dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
C-4
<PAGE>
ANNEX D
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants........................ D-2
Independent Auditors' Report.............................................. D-3
Consolidated Balance Sheets, September 30, 1995 and 1994.................. D-4
Consolidated Statements of Operations,
Fiscal Years Ended September 30, 1995, 1994 and 1993.................... D-5
Consolidated Statements of Changes in Stockholders' Equity,
Fiscal Years Ended September 30, 1995, 1994 and 1993.................... D-6
Consolidated Statements of Cash Flows,
Fiscal Years Ended September 30, 1995, 1994 and 1993.................... D-7
Notes to Consolidated Financial Statements................................ D-8
Unaudited Consolidated Balance Sheet, March 31, 1996
and Consolidated Balance Sheet, September 30, 1995...................... D-11
Unaudited Consolidated Statements of Operations,
Six Months Ended March 31, 1996 and 1995................................ D-12
Unaudited Consolidated Statements of Cash Flows,
Six Months Ended March 31, 1996 and 1995................................ D-13
Notes to Unaudited Consolidated Financial Statements...................... D-14
D-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Bowline Corporation
Bala Cynwyd, Pennsylvania
We have audited the consolidated balance sheet of Bowline Corporation and
Subsidiary as of September 30, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bowline
Corporation and Subsidiary as of September 30, 1995, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
We have also audited Schedule VIII of Bowline Corporation and Subsidiary for the
year ended September 30, 1995. In our opinion, this schedule presents fairly, in
all material respects, the information required to be set forth therein.
Grant Thornton LLP
Cleveland, Ohio
December 7, 1995
D-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Bowline Corporation
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheet of Bowline
Corporation and Subsidiary (the "Company") as of September 30, 1994, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the two years in the period ended September 30, 1994.
Our audits also included the financial statement schedules listed in the Index
under Item 14(a)(2). These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Bowline Corporation
and Subsidiary as of September 30, 1994, and the results of their operations and
their cash flows for each of the two years in the period ended September 30,
1994, in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Notes 2 and 8 to the financial statements, a significant portion
of the Company's revenues are from an affiliate.
Deloitte & Touche
Philadelphia, Pennsylvania
December 5, 1994
D-3
<PAGE>
BOWLINE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,978,008 $ 1,791,386
Accounts receivable, less allowances: 1995 - $0
and 1994 - $3,250 -- 72,657
Accounts receivable from affiliate 53,000 53,466
Other current assets 8,238 7,239
----------- -----------
Total current assets 2,039,246 1,924,748
PLANT AND EQUIPMENT - net 161,121 240,872
----------- -----------
TOTAL ASSETS $ 2,200,367 $ 2,165,620
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 36,464 $ 13,117
Other current liabilities 64,183 47,481
----------- -----------
Total current liabilities 100,647 60,598
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.02 per share; authorized
5,000,000 shares; issued and outstanding 1,287,412
in 1995 and 1994 25,748 25,748
Additional paid-in capital 6,975,428 6,975,428
Accumulated deficit (4,901,456) (4,896,154)
----------- -----------
Total stockholders' equity 2,099,720 2,105,022
----------- -----------
TOTAL LIABILITIES AND STOCKH0LDERS' EQUITY $ 2,200,367 $ 2,165,620
=========== ===========
</TABLE>
See notes to consolidated financial statements.
D-4
<PAGE>
BOWLINE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Non-affiliate $ -- $ 265,107 $ 1,906,757
Affiliate 600,000 604,723 430,046
----------- ----------- -----------
Total revenues 600,000 869,830 2,336,803
SELLING AND ADMINISTRATIVE EXPENSES
Non-affiliate -- 290,235 1,407,947
Affiliate 455,028 450,452 392,164
Corporate 230,144 190,279 232,161
----------- ----------- -----------
Total selling and administrative expenses 685,172 930,966 2,032,272
INTEREST INCOME (EXPENSE)
Income 84,303 48,958 41,941
Expense -- (880) (5,072)
----------- ----------- -----------
Net interest income 84,303 48,078 36,869
RECOVERY OF LOSS CONTINGENCY -- -- 25,000
GAIN (LOSS) ON DISPOSAL OF ASSETS (5,433) 14,000 --
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES &
EXTRAORDINARY ITEM (6,302) 942 366,400
----------- ----------- -----------
PROVISION FOR INCOME TAXES (1,000) -- 155,000
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5,302) 942 211,400
EXTRAORDINARY ITEM - Utilization of losses
carried forward -- -- 110,000
----------- ----------- -----------
NET INCOME (LOSS) ($ 5,302) $ 942 $ 321,400
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE
Income (loss) before extraordinary item $ .00 $ .00 $ .16
Extraordinary item -- -- .09
----------- ----------- -----------
Net income (loss) per common shares $ .00 $ .00 $ .25
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,287,412 1,287,412 1,287,412
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
D-5
<PAGE>
BOWLINE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock Additonal
------------------------ Paid-In Accumulated
Shares Amount Capital Deficit
------ ------ ------- -----------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1992 1,287,412 $ 25,748 $ 6,975,428 ($5,218,496)
Net income -- -- -- 321,400
--------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1993 1,287,412 25,748 6,975,428 (4,897,096)
Net income -- -- -- 942
--------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1994 1,287,412 25,748 6,975,428 (4,896,154)
Net income (loss) -- -- -- (5,302)
--------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1995 1,287,412 $ 25,748 $ 6,975,428 ($4,901,456)
========= =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
D-6
<PAGE>
BOWLINE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 5,302) $ 942 $ 321,400
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 74,318 69,418 99,942
(Gain) loss on disposal of assets 5,433 (14,000)
(Increase) decrease in
Accounts receivable 73,123 211,496 27,472
Other current assets (999) 24,207 99,680
Increase (decrease) in
Accounts payable 23,347 (145,663) 108,397
Other current liabilities 16,702 (160,143) (2,653)
----------- ----------- -----------
Total adjustments 191,924 (14,685) 332,838
----------- ----------- -----------
Net cash provided by (used in)
operating activities 186,622 13,743 654,238
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of capital assets -- (48,270) (270,173)
Sale of capital assets -- 14,000 --
----------- ----------- -----------
Net cash (used in) investing activities -- (34,270) (270,173)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on capital leases -- (3,104) (49,803)
----------- ----------- -----------
Net cash used in
financing activities -- (3,104) (49,803)
NET INCREASE (DECREASE) IN CASH 186,622 (51,117) 334,262
CASH, BEGINNING OF YEAR 1,791,386 1,842,503 1,508,241
----------- ----------- -----------
CASH, END OF YEAR $ 1,978,008 $ 1,791,386 $ 1,842,503
=========== =========== ===========
</TABLE>
ADDITIONAL DISCLOSURES:
1) Interest paid during the years ended September 30, 1995, 1994 and 1993,
was $,0, $880 and $5,071, respectively.
2) Income taxes paid during the years ended September 30, 1995, 1994 and
1993, were $2,000, $16,000, and $32,000, respectively.
See notes to consolidated financial statements.
D-7
<PAGE>
BOWLINE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company
and its subsidiary. All material intercompany profits, transactions and
balances are eliminated.
Plant and equipment is stated at cost. Depreciation and amortization are
computed by the straight-line method based on the estimated useful lives of
the related assets which range from 3 to 5 years.
Revenue is recognized when the related services are rendered.
Net income (loss) per share is calculated based on the weighted average
number of common shares outstanding during each period.
Deferred income taxes result from timing differences between tax
recognition and financial statement reporting of depreciation, capitalized
leases, allowances for accounts receivable and the treatment of loss
contingencies. Deferred income taxes are not provided due to the existence
of significant net operating losses.
The Company adopted SFAS No. 109 in the fiscal year beginning October 1,
1993. The effect of adopting SFAS No. 109 did not have a material effect on
the financial statements.
2. MAJOR CUSTOMERS
For the year ended September 30, 1995, an affiliate accounted for 100% of
total revenues. In 1994 and 1993, two customers, including an affiliate,
accounted for 96.5% and 84.8% of revenues, respectively. Percentage of
revenues for each, in 1994 and 1993, are as follows:
1994 1993
----- -----
Affiliate 69.5% 18.4%
Non-Affiliate 27.0% 66.4%
----- -----
Total 96.5% 84.8%
===== =====
Accounts receivable from the non-affiliate on September 30, 1995 and 1994
were $0 and $74,000, respectively. Effective January 1, 1994, the company
lost its major unaffiliated customer; therefore, the Company's business
consists of solely servicing its affiliate.
3. CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances with several financial institutions
located in Pennsylvania and Connecticut. In all but one of the financial
institutions, the cash balances are insured for $100,000 by the Federal
Deposit Insurance Corporation (FDIC). Uninsured cash amounts were
approximately $1,740,000 and $1,630,000 on September 30, 1995 and 1994,
respectively.
D-8
<PAGE>
4. PLANT AND EQUIPMENT
September 30,
----------------------
1995 1994
---- ----
Owned:
Furniture, fixtures and equipment $613,488 $622,588
Leasehold improvements 49,918 49,918
------- -------
Total 663,406 672,506
Less accumulated depreciation and amortization 502,285 431,634
------- -------
Total 161,121 240,872
------- -------
Leased:
Equipment -0- 30,072
Less accumulated amortization -0- 30,072
------- -------
Total -0- -0-
------- -------
Total $161,121 $240,872
======== ========
5. OTHER CURRENT LIABILITIES
September 30,
--------------------
1995 1994
---- ----
Compensation and benefits $ 8,144 $ 4,162
Professional fees 35,344 28,137
Other 22,995 15,182
------- -------
$66,483 $47,481
6. INCOME TAXES
Components of the provision for income taxes are as follows:
1995 1994 1993
---- ---- ----
State ($1,000) $ 0 $ 45,000
Federal - 0 110,000
------- ------- --------
Provision for income tax
before utilization
of net operating losses carried forward ($1,000) $ 0 $155,000
======== ======= ========
For the year ended September 30, 1993, the Company utilized net operating
losses carried forward for federal tax purposes of $323,000. For the years
ended September 30, 1995 and 1994, the Company recorded no provision for
federal income taxes.
On September 30, 1995, the Company had net operating losses carried forward
of approximately $18,800,000 for federal income tax purposes which expire
as follows: $2,600,000 in 1999, $800,000 in 2000, $2,200,000 in 2001,
$12,200,000 in 2002, $200,000 in 2004 and $800,000 in 2005.
On September 30, 1995, the Company had investment tax credits of
approximately $255,000 which expire as follow: $155,000 in 1996, $52,000 in
1997, $44,000 in 1998, $1,000 in 1999 and $3,000 in 2000.
The Company adopted SFAS No. 109 beginning October 1, 1993. A valuation
reserve was established for 100% of the net operating losses and investment
tax credits carried forward. Accordingly, the adoption of SFAS 109 had no
effect on the Company's results of operations for the years ended September
30, 1995 and 1994.
D-9
<PAGE>
7. STOCKHOLDERS' EQUITY
On September 30, 1995 and 1994, there were 5,000,000 shares of preferred
stock, par value $.02 per share, authorized, of which none were issued.
8. RELATED PARTY TRANSACTIONS
The Company provided data processing services to a subsidiary of a related
company for $600,000, in 1995, $604,730 in 1994 and $430,046 in 1993 (see
note 2).
9. COMMITMENTS AND CONTINGENCIES
Future minimum payments under operating leases that had initial or
remaining lease terms in excess of one year on September 30, 1995, amounted
to $105,528 in 1996, $68,056 in 1997, $39,691 in 1998 and $4,640 in 1999.
Rent expense was $51,903 in 1995, $119,445 in 1994 and $207,555 in 1993.
The Company was a defendant in a class action lawsuit which was settled in
1992. The Company filed a related insurance claim which was received in
November 1992, of which $25,000 is included as income in the Company's
consolidated financial statements in the year ended September 30, 1993.
D-10
<PAGE>
BOWLINE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
CURRENT:
Cash $2,066,460 $1,978,008
Accounts receivable 0 53,000
Other current assets 9,500 8,238
---------- ---------
Total current assets 2,075,960 2,039,246
PLANT AND EQUIPMENT 124,402 161,121
----------- ----------
TOTAL ASSETS $2,200,362 $2,200,367
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 19,282 $ 36,464
Other current liabilities 97,978 64,183
----------- ----------
Total current liabilities 117,260 100,647
----------- ----------
STOCKHOLDERS' EQUITY:
Common stock, par value $.02 per share;
authorized 5,000,000 shares; issued
and outstanding 1,287,412 25,748 25,748
Additional paid-in capital 6,975,428 6,975,428
Accumulated deficit (4,918,074) (4,901,456)
----------- -----------
Total stockholders' equity 2,083,102 2,099,720
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,200,362 $2,200,367
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
D-11
<PAGE>
BOWLINE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
3/31/96 3/31/95 3/31/96 3/31/95
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES $300,000 $300,175 150,000 $150,050
SELLING AND ADMINISTRATIVE
EXPENSE 358,851 341,092 187,852 183,144
INTEREST INCOME 42,233 39,112 20,566 21,547
LOSS ON DISPOSAL OF ASSETS 5,433
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES ( 16,618) ( 7,238) ( 17,286) ( 11,547)
PROVISION FOR INCOME TAXES 1,500 ( 1,189)
--------- --------- --------- ---------
NET INCOME (LOSS) ($16,618) ($ 8,738) ($16,097) ($ 11,547)
--------- --------- --------- ---------
NET INCOME (LOSS) PER
COMMON SHARE: ($ .01) ($ .01) ($ .01) ($ .01)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES 1,287,412 1,287,412 1,287,412 1,287,412
========= ========= ========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
D-12
<PAGE>
BOWLINE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) ($ 16,618) ($ 8,738)
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation & amortization 36,719 33,887
Loss on disposal of assets 0 5,433
(Increase) decrease in
Accounts receivable 53,000 74,552
Other current assets ( 1,262) ( 24)
Increase (decrease) in
Accounts payable ( 17,182) 15,715
Other current liabilities 33,795 8,977
--------- ---------
Total Adjustments 105,070 138,540
--------- --------
Net cash provided by (used in)
operating activities 88,452 129,802
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 88,452 129,802
CASH AND CASH EQUIVALENTS
Beginning of period 1,978,008 1,791,386
--------- ---------
End of period $2,066,460 $1,921,188
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
D-13
<PAGE>
BOWLINE CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Preparation
The accompanying financial statements have been prepared by Bowline Corporation
(the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, these financial statements
give effect to all normal recurring adjustments necessary to present fairly the
financial position of the Company as of March 31, 1996, and September 30, 1995,
and the results of operations and cash flow for the six-month periods ended
March 31, 1996, and March 31, 1995.
Certain reclassifications have been made to the prior year's financial
statements to conform to classifications used in the current fiscal year.
The Company's revenue consists solely of providing data processing services to
an affiliate.
Although the Company believes that the disclosures included herein are adequate
to make the information not misleading, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. Accordingly,
the accompanying financial statements should be read in conjunction with the
financial statements and the related financial review included in the Company's
latest annual report on Form 10-K for the year ended September 30, 1995.
Note 2. Computation of Net Income per Common Share
Net earning per common share was computed by dividing the net income by the
number of common shares outstanding during each period presented.
Note 3. Income Taxes
Components of the provision for income taxes are as follows:
March 31, March 31,
1996 1995
-------- --------
State - current $ 0 $1,500
Federal 0 0
------- ------
Provision for income tax $ 0 $1,500
========= ======
On March 31, 1996, the Company had net operating losses carried forward of
approximately $18,800,000 for federal income tax purposes which expire as
follows: $2,600,000 in 1999, $800,000 in 2000, $2,200,000 in 2001, $12,200,000
in 2002, $200,000 in 2004 and $800,000 in 2005.
On March 31, 1996, the Company had investment tax credits of approximately
$255,000 which expire as follows: $155,000 in 1996, $52,000 in 1997, $44,000 in
1998, $1,000 in 1999 and $3,000 in 2000.
D-14
<PAGE>
The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," ("SFAS No. 109") beginning October 1, 1993.
No provision for federal income taxes is recorded due to the existence of net
operating losses carried forward. The Company has no means of realizing value
from any of the above, therefore, a valuation reserve was established in
accordance with SFAS 109 for 100% of the net operating losses and investment tax
credits carried forward. Accordingly, the adoption of SFAS 109 had no effect on
the Company's results of operations.
Note 4. Proposed Merger
On February 20, 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Arrowhead Holdings Corporation ("Arrowhead")
pursuant to which the Company will be merged with and into Arrowhead, the
separate corporate existence of the Company will be extinguished and the equity
interest of the Company's public shareholders will cease to exist.
Pursuant to the terms of the Merger Agreement, each outstanding share of common
stock of the Company (other than the 141,419 shares held by Arrowhead which will
be canceled in the Merger and other than the 590,750 shares held by certain of
Arrowhead's affiliates which will be exchanged for shares of Arrowhead common
stock) will be converted into the right to receive $1.32 per share in cash.
Consummation of the merger is subject to a number of conditions, including
approval of the Merger Agreement and the principal terms of the merger by the
affirmative vote of the holders of two-thirds of the outstanding shares of the
Company's common stock. As of April 30, 1996, Arrowhead and its affiliates own
an aggregate of 732,169 shares of the Company's common stock, or 56.9% of the
total shares outstanding. It is anticipated that all of such shares will be
voted in favor of the Merger Agreement and the principal terms of the merger.
D-15
<PAGE>
BOWLINE CORPORATION
PROXY
COMMON STOCK
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
SPECIAL MEETING OF SHAREHOLDERS - MAY 31, 1996
The undersigned hereby appoints Clifford J. Demarest and Gerald J. Carroll,
jointly and severally, proxies with power of substitution to vote at the Special
Meeting of Shareholders (including any adjournments and postponements thereof)
of Bowline Corporation, to be held at the Gramercy Park Hotel conference room,
Two Lexington Avenue, New York, New York on May 31, 1996 at 9:00 a.m., local
time, with all powers the undersigned would possess if personally present, as
specified on the ballot below on the proposal set forth, and revokes all proxies
previously given by the undersigned with respect to the shares of common stock
of Bowline Corporation covered hereby.
Proposal to approve and adopt the Agreement and Plan of Merger, dated as of
February 20, 1996, by and between Bowline Corporation (the "Company") and
Arrowhead Holdings Corporation ("Arrowhead") pursuant to which, among other
things, the Company will be merged with and into Arrowhead and all issued and
outstanding shares of the Company's common stock (other than shares owned by
Arrowhead and its affiliates) will be coverted into the right to receive $1.32
per share, in cash, subject to dissenting shareholders' rights of appraisal. The
Agreement and Plan of Merger and the proposal embodied herein are more fully
described in the proxy statement of the Company dated May 10, 1996, receipt of
which is acknowledged by execution hereof.
/ / FOR / / AGAINST / / ABSTAIN
This Proxy, when properly executed, will be voted in the manner directed
herein. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL AND
AT THE DISCRETION OF THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY COME
BEFORE THE SPECIAL MEETING.
DATED: __________________, 1996 ____________________________________
Signature
____________________________________
Print Name
____________________________________
Signature
____________________________________
Print Name
NOTE: PLEASE MARK, DATE AND SIGN
THIS PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE.
Please sign this proxy exactly as the
name appears in the address above. If
shares are registered in more than
one name, all owners should sign. If
signing in a fiduciary or
representative capacity, such as
attorney-in-fact, executor,
administrator, trustee or gurdaian,
please give full title and attach
evidence of authority. Corporations
please sign with full corporate name
by an authorized officer and affix
the corporate seal.
