AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER __, 1997
REGISTRATION NO. 33-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
FEDERATED PURCHASER, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
New York 3670 22-1589344
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
268 Cliffwood Avenue
Cliffwood, NJ 07721
(908) 290-2900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
_______________
Harry J. Fallon
President and Acting Chairman
Federated Purchaser, Inc.
268 Cliffwood Avenue
Cliffwood, NJ 07721
(908) 290-2900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S AGENT FOR SERVICE)
_______________
COPIES TO:
Victor H. Boyajian, Esq. Michael Nordell, Esq.
Sills Cummis Zuckerman Radin Smith, Ranscht, Connors, Mutino,
Tischman Epstein & Gross, P.A. Nordell & Sirignano
One Riverfront Plaza 235 Main Street
Newark, New Jersey 07102-5400 White Plains, New York 10601
_______________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes
effective.
_______________
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. <square>
_______________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class Amount to be Proposed Maximum Offering Proposed Amount of
of securities Registered Price Maximum Aggregate Registration Fee
to be registered Per Share Offering Price
<S> <C> <C> <C> <C>
Common Stock 4,882,644 (1) $.36 (2) $1,633,287 (2) $495 (3)
</TABLE>
(1)This amount consists of 4,491,988 shares to be issued upon consummation of
the Exchange, as described in further detail in the attached Proxy
Statement/Prospectus, and an additional 390,656 shares that may be issued in
accordance with certain indemnity provisions described at "The Exchange
Agreement."
(2)In accordance with Section 6(b) of the Securities Act of 1933 (the "Act")
and Rule 457(f)(2) thereunder, the maximum offering price per share is based
on the book value of the securities of Wise Components, Inc., to be received
by Federated in exchange for the shares of Common Stock of Federated
Purchaser, Inc. being registered hereunder. As of June 30, 1997, the book
value of the Wise Common Stock to be received was $1,633,287.
(3)Under Section 6(b) of the Act, the registration fee is equal to 1/33 of 1%
of the maximum aggregate offering price.
_______________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
<PAGE>
FEDERATED PURCHASER, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROXY STATEMENT/PROSPECTUS
<S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Proxy Statement/Prospectus Facing Page of Registration Statement; Cross Reference
Sheet; Outside Front Cover Page.
2. Inside Front and Outside Back Cover Pages of Proxy
Statement/Prospectus Inside Front Cover Page; Available Information; Table of
Contents; Outside Back Cover Page.
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information Proxy Statement/Prospectus Summary; Risk Factors; Federated
Purchaser, Inc. Selected Historical Consolidated Financial
Data.
4. Terms of the Transaction Proxy Statement/Prospectus Summary; Risk Factors; The
Exchange and Amendment; Description of Capital Stock of
Federated.
5. Pro Forma Financial Information Pro Forma Financial Information.
6. Material Contacts with Company Being Acquired Proxy Statement/Prospectus Summary; The Exchange and
Amendment; the Exchange Agreement.
7. Additional Information Required for Reoffering by Not applicable.
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not applicable.
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities Description of Capital Stock of Federated -- Indemnification
of Directors and Officers.
10. Information with Respect to S-3 Registrants Not applicable.
11. Incorporation of Certain Information by Reference Not applicable.
12. Information With Respect to S-2 or S-3 Registrants Business of Federated; Selected Financial Data of Federated;
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Federated.
13. Incorporation of Certain Information by Reference Incorporation of Certain Information by Reference.
14. Information With Respect to Registrants Other than S-3
or S-2 Registrants Not applicable.
15. Information With Respect to S-3 Companies Not applicable.
16. Information With Respect to S-2 or S-3 Companies Not applicable.
17. Information With Respect to Companies other than S-2 or
S-3 Companies Business of Wise; Selected Financial Data of Wise;
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Wise; Stock of Wise.
18. Information if Proxies, Consents or Authorizations are
to be Solicited Proxy Statement/Prospectus Summary; The Special Meeting;
Risk Factors; The Exchange and Amendment; Officers and
Directors.
19. Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Proxy Statement/Prospectus Summary; The Special Meeting;
Risk Factors; The Exchange and Amendment.
</TABLE>
<PAGE>
PRELIMINARY COPY
[FEDERATED LETTERHEAD]
December , 1997
To Our Shareholders:
You are cordially invited to attend a special meeting of the shareholders
(the "Special Meeting") of Federated Purchaser, Inc. ("Federated"), to be held
on , 1997 at a.m. Eastern Standard Time at
.
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an amendment (the "Amendment") to Federated's
certificate of incorporation, which will increase the number of authorized
shares of Federated's common stock (the "Common Stock") from 5 million to 10
million. By approving the Amendment, you will enable Federated to consummate
an Agreement (the "Agreement") among Federated, Wise Components, Inc. ("Wise"),
and Wise's sole shareholder, Martin L. Blaustein ("Mr. Blaustein"). Under the
terms of the Agreement, Federated will acquire all of Wise's capital stock from
Mr. Blaustein, and in exchange will issue 4,491,988 shares of Common Stock to
Mr. Blaustein (these transactions collectively known as the "Exchange"). The
Agreement also provides that upon the occurrence of certain events during the
six months subsequent to the Exchange, Federated may issue up to an additional
390,656 shares of Common Stock to Mr. Blaustein. Accordingly, a total of
4,882,644 shares of Common Stock are to be registered under this Proxy
Statement/Prospectus. The Agreement and Amendment are described more
thoroughly in the attached Proxy Statement, which shareholders should read
carefully.
As Federated's current Certificate of Incorporation does not permit the
issuance of sufficient shares of Common Stock, the Agreement cannot be
consummated without shareholder approval of the Amendment. A vote FOR approval
of the Amendment therefore has the practical consequence of approving of the
Agreement.
After careful consideration, your Board of Directors believes that the
Exchange is in the best interests of Federated and its shareholders.
Accordingly, your Board of Directors has unanimously approved the Agreement and
recommends that holders of Federated Common Stock vote FOR approval of the
Amendment.
All shareholders are invited to attend the meeting in person. The
affirmative vote of the holders of a majority of the issued and outstanding
shares of Common Stock will be necessary for approval and adoption of the
Amendment. Harry J. Fallon, Acting Chairman of the Board of Federated, owns
18.9% of the shares of Common Stock outstanding, and has announced his
intention to vote "FOR" the approval of the Amendment. Directors Edmund L.
Hoener, Edwin S. Shortess and Jane A. Christy hold, respectively, 2,538, 3,178,
and 11,921 shares of Common Stock, representing together 1.1% of the shares of
Common Stock outstanding; they have also announced their intentions to vote
"FOR" the approval of the Amendment. Nevertheless, approval of the Amendment
by the shareholders is not assured.
<PAGE>
Even if you plan to attend the Special Meeting in person, please complete,
sign and promptly return the enclosed proxy in the enclosed postage pre-paid
envelope. If you attend the Special Meeting, you may vote in person whether or
not you have previously returned your proxy.
Sincerely,
HARRY J. FALLON
-----------------------------
President and Acting Chairman
<PAGE>
PRELIMINARY COPY
FEDERATED PURCHASER, INC.
268 Cliffwood Avenue
Cliffwood, NJ 07721
(908) 290-2900
---------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on ________________, 1997
---------------------------
Notice is hereby given that a Special Meeting of the shareholders (the "Special
Meeting") of Federated Purchaser, Inc., a New York corporation ("Federated"),
will be held on , 1997 at a.m. Eastern Standard
Time, at , for the purpose of considering and voting upon the
following matters:
1. A proposal to approve and adopt an amendment (the "Amendment") to
Federated's certificate of incorporation, which will increase the number of
authorized shares of Federated's common stock (the "Common Stock") from 5
million to 10 million, thereby enabling Federated to consummate an Agreement
(the "Agreement") dated October 1, 1997, among Federated, Wise Components, Inc.
("Wise"), and Wise's sole shareholder, Martin L. Blaustein ("Mr. Blaustein"),
under which Federated will acquire all of Wise's capital stock from Mr.
Blaustein, and in exchange will issue 4,491,988 shares of Common Stock to Mr.
Blaustein (these transactions collectively known as the "Exchange"). The
Agreement also provides that upon the occurrence of certain events during the
six months subsequent to the Exchange, Federated may issue up to an additional
390,656 shares of Common Stock to Mr. Blaustein. Accordingly, a total of
4,882,644 shares of Common Stock are to be registered under this Proxy
Statement/Prospectus. As Federated's current Certificate of Incorporation does
not permit the issuance of sufficient shares of Common Stock, the Agreement
cannot be consummated without shareholder approval of the Amendment. A vote
FOR approval of the Amendment therefore has the practical consequence of
approving of the Agreement.
2. Such other business as may properly come before the Special Meeting
and any postponements or adjournments thereof.
Holders of record of Common Stock and at the close of business on
_______________, 1997 (the "Record Date"), are entitled to notice of, and to
vote at, the Special Meeting and any adjournment thereof.
Under New York law, no appraisal rights are available to Federated
shareholders with respect to any aspect of the Amendment and Exchange.
Please fill in the appropriate blanks, sign, date and return the enclosed
proxy card, whether or not you plan to attend the Special Meeting. If you
attend the meeting and wish to vote in person, you may do so by withdrawing
your proxy prior to voting at the Special Meeting.
By Order of the Board of Directors
______________________________
Marie Santasiri
[Date] Secretary
<PAGE>
PRELIMINARY COPY
FEDERATED PURCHASER, INC.
PROSPECTUS
---------------------------
FEDERATED PURCHASER, INC.
PROXY STATEMENT
----------------------------
This Proxy Statement/Prospectus is being furnished to the holders as of
___________________, 1997 (the "Record Date"), of common stock, $0.10 par value
per share (the "Common Stock"), of Federated Purchaser, Inc., a New York
corporation ("Federated"), in connection with the solicitation of proxies by
Federated's Board of Directors (the "Federated Board"), for use at a special
meeting of shareholders of Federated (the "Special Meeting") to be held on ,
1997 at _____ a.m. Eastern Standard Time at , and at any
postponements or adjournments thereof. This Proxy Statement/Prospectus and the
accompanying Proxy Card are first being mailed to shareholders of Federated on
or about____________________, 1997.
At the Special Meeting, holders of Federated Common Stock and will be
asked to consider and vote upon a proposal to approve and adopt an amendment
(the "Amendment") to Federated's certificate of incorporation, which will
increase the number of authorized shares of Federated's common stock (the
"Common Stock") from 5 million to 10 million. By voting in favor of the
Amendment, Federated's shareholders will enable Federated to consummate an
Agreement (the "Agreement") dated October 1, 1997, among Federated, Wise
Components, Inc. ("Wise"), and Wise's sole shareholder, Martin L. Blaustein
("Mr. Blaustein"), under which Federated will acquire all of Wise's capital
stock from Mr. Blaustein, and in exchange will issue 4,491,988 shares of Common
Stock to Mr. Blaustein (these transactions collectively known as the
"Exchange"). The Agreement also provides that upon the occurrence of certain
events during the six months subsequent to the Exchange, Federated may issue up
to an additional 390,656 shares of Common Stock to Mr. Blaustein. Accordingly,
a total of 4,882,644 shares of Common Stock are to be registered under this
Proxy Statement/Prospectus. As Federated's current Certificate of
Incorporation does not permit the issuance of sufficient shares of Common
Stock, the Agreement cannot be consummated without shareholder approval of the
Amendment. A vote FOR approval of the Amendment therefore has the practical
consequence of approving of the Agreement.
As a result of the Exchange, Mr. Blaustein will own approximately 74% of
Federated's issued and outstanding Common Stock, and Wise will become a wholly-
owned subsidiary of Federated. The Exchange is described more thoroughly in
this Proxy Statement/Prospectus and in the documents attached hereto, each of
which shareholders are urged to read carefully. The shareholders of Federated
will also consider and vote upon such other matters as may properly come before
the Special Meeting and any postponements or adjournments thereof.
SEE "RISK FACTORS" ON PAGE FOR A DISCUSSION OF CERTAIN CONSIDERATIONS
IN EVALUATING THE EXCHANGE.
Under New York law, law, no appraisal rights are available to Federated
shareholders with respect to any aspect of the Amendment and Exchange. See
"The Exchange and Amendment - Appraisal Rights," and Appendix II
This Proxy Statement/Prospectus also constitutes a prospectus of Federated
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the issuance of up to 4,882,644 shares of Common Stock that may be
issued in consideration of the Exchange to Mr. Blaustein. Federated will not
issue fractional shares of Common Stock, but instead will pay cash to any
shareholder otherwise entitled to receive a fractional share. See "Summary -
The Exchange," "The Exchange and Amendment" and Appendix I.
Federated is not traded on an exchange. On September 30, 1997 the last
reported bid price per share of Common Stock was $.13, and the last reported
ask price per share was $.31. Although Federated is publicly traded, no active
public trading market currently exists for Common Stock. See "Summary - Market
Price and Trading" and "Market For Common Equity."
THE SECURITIES OF FEDERATED OFFERED IN CONNECTION WITH THE EXCHANGE HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is , 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
Available Information................................................10
Assistance...........................................................10
Incorporation of Certain Information by Reference ...................10
Forward-Looking Statements...........................................11
Summary..............................................................12
Risk Factors.........................................................20
The Special Meeting .................................................23
The Exchange and Amendment ..........................................24
The Exchange Agreement ..............................................31
Business of Federated................................................34
Federated Purchaser, Inc. Selected Historical Consolidated
Financial Data.....................................................37
Management's Discussion and Analysis of Financial Condition
and Results of Operations for Federated...........................38
Description of Capital Stock of Federated............................45
Directors and Officers...............................................49
Business of Wise.....................................................53
Wise Components, Inc. Selected Historical Financial Data ............56
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Wise.................................57
Capital Stock of Wise................................................59
Market for Common Equity.............................................60
Pro Forma Financial Information .....................................62
Experts..............................................................75
_______________________________
<PAGE>
AVAILABLE INFORMATION
Federated is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Federated has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts
of which have been omitted in accordance with the Commission's rules and
regulations. For further information with respect to Federated and Federated's
Common Stock, reference is made to the Registration Statement, including the
exhibits and schedules thereto. Statements contained in this Proxy
Statement/Prospectus with respect to the contents of any contract or other
document referred to herein are not necessarily complete and in each instance
such statements are qualified in all respects by reference to the copies of
such contract or other document filed as an exhibit to the Registration
Statement. Copies of the Registration Statement, including the exhibits and
schedules, may be inspected without charge at the offices of the Commission or
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site at http://www.sec.gov, which contains reports, proxy
and information statements, and other information regarding Federated.
References in this Proxy Statement/Prospectus to Federated mean Federated
Purchaser, Inc. and, where relevant, its wholly-owned subsidiaries.
ASSISTANCE
Federated shareholders who require assistance relating to the Amendment or
the Exchange should contact Federated at the address or telephone number listed
on the front cover of this Proxy Statement/Prospectus.
RISK FACTORS
Shareholders should carefully consider the information presented in this
Proxy Statement/Prospectus, particularly the matters set forth under the
caption "Risk Factors."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Federated's annual report on Form 10-K for the year ended October 31,
1996, as previously filed by Federated with the Commission, is incorporated
herein by reference in its entirety.
Federated's quarterly reports on Form 10-Q for the periods ended January
31, 1997, April 31, 1997 and July 31, 1997, and its Report on Form 8-K dated
October 1, 1997, are incorporated herein by reference in their entirety.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy
Statement/Prospectus shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
This prospectus incorporates documents by reference what are not presented
herein or delivered herewith. These documents are available from Marie
Santasiri, Secretary, Federated Purchaser, 268 Cliffwood Avenue, Cliffwood, NJ
07721, (908) 290-2900. In order to ensure timely delivery of the documents,
any request should be made by .
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 with respect to the financial condition, results of operations and
business of Federated and Wise. Statements in this document that are not
historical facts are hereby identified as "forward-looking statements" for the
purpose of the safe harbor provided by Section 21E of the Exchange Act and
Section 27A of the Securities Act. Federated cautions the reader that such
"forward-looking statements" including without limitation, those relating to
Federated's and Wise's future business prospects, revenues, working capital,
liquidity and capital needs, and regarding Federated's cost controls and
reductions, wherever they occur in this document, are necessarily estimates
reflecting the best judgment of Federated's and Wise's senior management and
involve a number of risks and uncertainties that could cause actual results to
differ materially from those suggested by the "forward-looking statements,"
including the possibilities that the demand for Federated's or Wise's services
may decline as a result of possible changes in general and industry specific
economic conditions and the effect of competitive services and pricing, and the
risk of a failure by Federated to integrate effectively the businesses of Wise.
Such "forward-looking statements" should, therefore, be considered in light of
various important factors, including those set forth in this Proxy
Statement/Prospectus.
The words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. These
"forward-looking statements" are found at various places throughout this
document. The reader is cautioned not to place undue reliance on
forward-looking statements included herein and to read carefully the discussion
of risks set forth under the heading "Risk Factors" for an understanding of the
types of risks that may cause results to differ from those projected herein.
Neither Federated nor Wise undertakes any obligation to publicly release any
revisions to the forward-looking statements herein to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by Federated, Wise or their respective
affiliates. This Proxy Statement/Prospectus does not constitute an offer to
exchange or sell, or a solicitation of an offer to exchange or purchase, any
securities other than Federated Common Stock offered hereby, nor does it
constitute an offer to exchange or sell or a solicitation of an offer to
exchange or purchase such securities in any state or other jurisdiction to any
person to whom such an offer or solicitation would be unlawful.
<PAGE>
PROXY STATEMENT/PROSPECTUS SUMMARY
This Proxy Statement/Prospectus is furnished in connection with the
proposed Exchange, and the solicitation relating to the Amendment. This
summary is not a complete statement of all information, facts or materials
relating to a shareholder's decision with respect to the matters to be voted on
at the Special Meeting. This summary should only be read in conjunction with,
and is qualified in its entirety by reference to, the more detailed information
contained in this Proxy Statement/Prospectus and the Appendices hereto. Unless
otherwise defined, capitalized terms used in this summary have the respective
meanings ascribed to them elsewhere in this Proxy Statement/Prospectus.
Shareholders are urged to review carefully this Proxy Statement/Prospectus and
the Appendices hereto in their entirety.
The Exchange ........... This Proxy Statement/Prospectus relates to a
proposal to approve an Agreement dated as of
October 1, 1997, as amended (the
"Agreement"), among Federated, Wise and Mr.
Blaustein, pursuant to which Federated will
acquire all of the outstanding capital stock
of Wise from Mr. Blaustein, and will issue
to Mr. Blaustein 4,491,988 shares of
Federated Common Stock in exchange (the
"Exchange"). Upon consummation of the
Exchange, Wise will become a wholly-owned
subsidiary of Federated, and Mr. Blaustein
will be Federated's principal shareholder,
owning approximately 74% of the issued and
outstanding Federated Common Stock. A Form
of Agreement is attached to this Proxy
Statement/Prospectus as Appendix I, and any
summary contained herein of the terms
thereof is qualified in its entirety by
reference to the Agreement.
The Parties ............
Federated ......... Federated and its wholly-owned subsidiary
are engaged in one segment of the
electronics industry: the assembly and
marketing of a broad range of electronic
parts, components and related equipment
(including, for example, such items as
semi-conductors, wire, transformers, relay
systems, capacitors and electronic tubes) to
industrial customers.
Federated conducts its business through its
two locations in Cliffwood, New Jersey, and
Allentown, Pennsylvania, and through the
direct solicitation of certain industrial
customers by Federated's own sales
personnel.
Federated's principal business address is
268 Cliffwood Avenue, Cliffwood, NJ 07721,
and its telephone number is (908) 290-2900.
Wise .............. Wise Components, Inc. ("Wise"), founded
approximately 22 years ago, distributes
electronic components and wire and cable for
voice and data networks. Its products range
from capacitors to fiber optics to power
modification and protection supplies.
Founded as a local distributor, it has since
expanded to include regional, national, and
international clientele, with sales offices
in Greenwich, Connecticut.
Wise's principal business address is 28
Henry Street, Greenwich, Connecticut 06830,
and its telephone number is (800) 543-4333.
The Amendment .......... As a condition to the Exchange, Federated's
common shareholders are solicited to approve
an amendment (the "Amendment") to
Federated's Certificate of Incorporation,
which will increase the number of authorized
shares of Common Stock from 5 million to 10
million. As Federated's current Certificate
of Incorporation does not permit the
issuance of sufficient shares of Common
Stock, the Agreement cannot be consummated
without shareholder approval of the
Amendment. A vote FOR approval of the
Amendment therefore has the practical
consequence of approving of the Agreement.
A form of the Amendment is attached to this
Proxy Statement/Prospectus as Appendix II,
and any summary contained herein of the
terms thereof is qualified in its entirety
by reference to said Appendix II.
Conditions to Exchange . Consummation of the Exchange is subject to a
number of conditions, including the approval
by a majority of Federated's shareholders of
the Amendment described above; the Agreement
may also be terminated by either party upon
the occurrence or failure of certain events.
Among the events that could result in the
termination of the Agreement is a failure by
Federated, as of the closing date, to have
shareholder's equity of at least $400,000.
See "The Exchange Agreement -- Conditions to
Consummation of the Exchange; Competing
Transactions."
Competing Transactions;
Termination .......... Under the Agreement, Federated's Board of
Directors retains the right to exercise its
fiduciary duties to its shareholders by
considering other proposals or offers
relating to the acquisition of all or
substantially all of Federated's capital
stock or assets ("Competing Transactions").
Federated may terminate the Agreement should
its Board of Directors determine that a
Competing Transaction is more favorable from
a financial point of view to its
shareholders than the Exchange. Upon such a
termination, Federated must pay up to
$50,000 of Mr. Blaustein's reasonable out-
of-pocket expenses in connection with the
Exchange. The parties may also terminate
the Agreement under certain other
circumstances. See "The Exchange Agreement
-- Competing Transactions; Termination."
The Special Meeting ....
Time, Date and Place .... The Special meeting will be held at
on , 1997, commencing at
a.m. Eastern Standard Time.
Matters to be Considered
at the Special Meeting.. At the Special Meeting, the shareholders of
Federated will be asked to consider and vote
upon a proposal to approve the Amendment
and, such other business as may properly
come before the meeting and any
postponements or adjournments thereof.
Voting ............ Under the laws of the State of New York, the
affirmative vote of a majority of the shares
of Common Stock issued and outstanding on
the Record Date voting together as a class
is required to authorize the Amendment.
Harry J. Fallon, Acting Chairman of the
Board of Federated, owns 18.9% of the shares
of Common Stock outstanding, and has
announced his intention to vote "FOR" the
approval of the Amendment. Directors Edmund
L. Hoener, Edwin S. Shortess and Jane A.
Christy hold, respectively, 2,538, 3,178,
and 11,921 shares of Common Stock,
representing together 1.1% of the shares of
Common Stock outstanding; they have also
announced their intentions to vote "FOR" the
approval of the Amendment.
Record Date ....... Holders of record of shares of Federated
Common Stock at the close of business on
, 1997 are entitled to notice of, and to
vote at, the Special Meeting.
Owners other than Registered
Owners .............. Any beneficial owner of Federated Common
Stock whose shares registered in the name of
a broker, dealer, commercial bank, trust
company or other nominee should contact such
registered holder promptly and instruct such
registered holder to tender on such
beneficial owner's behalf.
Effects of the Exchange ..... Upon consummation of the Exchange, Mr.
Blaustein will become Federated's principal
shareholder, holding about 74% of
Federated's issued and outstanding Common
Stock. Wise will also become a wholly-owned
subsidiary of Federated.
Recommendation of the Board
of Directors .............. The Board of Federated has unanimously
approved the Agreement and Amendment, and
recommends to Federated's shareholders that
they vote FOR the Amendment. The Board has
determined that the Exchange represents an
attractive opportunity for the shareholders
to realize greater return on their
investments in Federated, which are
presently of diminished liquidity and value.
Interests of Certain Persons
in the Exchange ........... Certain members of Federated's Board of
Directors and management have interests in
the Exchange that are in addition to or
different from the interests of Federated's
shareholders generally. Such interests
relate to the consulting agreement between
Federated and Harry J. Fallon, the
employment agreement between Federated and
Jane A. Christy, the election of Harry J.
Fallon to the position of Vice Chairman
following the Exchange, and certain other
interests. See "The Exchange and Amendment
-- Interests of Certain Persons in the
Exchange."
Regulatory Approvals ........ No governmental approvals are required with
respect to the Exchange, except for the
filing of certain forms in conformity with
the Securities Act of 1933, the Exchange Act
of 1934, and the blue sky laws of various
states.
Accounting Treatment ......... Federated will account for the Exchange
under the pooling method of accounting.
Appraisal Rights ............. Under New York law, no appraisal rights are
available to Federated shareholders with
respect to any aspect of the Exchange and
Amendment.
Certain Tax Considerations ... It is currently contemplated that the
Exchange will qualify as a tax-free
reorganization. If the Exchange does so
qualify, no gain or loss will be recognized
for federal income tax purposes by Wise or
Federated as a result of the Exchange. In
addition, no gain or loss will be recognized
by holders of Wise's common stock ("Wise
Shares") as a result of the exchange of
their Wise Shares for Common Stock, except
for any cash received for fractional shares.
All shareholders should read carefully the
discussion under "Certain Federal Income Tax
Consequences" and are urged to consult their
own tax advisors.
Market Price and Trading ..... Although Federated's Common Stock is traded
over-the-counter, it is not listed on any
exchange and no active public trading market
for it presently exists. The last reported
trade occurred on September 30, 1997, for a
total volume of 50 shares at a price of .13
per share. Wise's Common Stock is owned
entirely by Martin L. Blaustein and is not
publicly traded. Its book value per share
as of June 30, 1997 was $18,666. See
"Market for Common Equity."
Dividends ................... No cash dividends have been paid by
Federated since prior to 1992. The Board of
Directors of Federated intends to retain any
future earnings for use in Federated's
business and does not anticipate paying cash
dividends for the foreseeable future. Under
the terms of Wise's line of credit with
Fleet Bank, N.A., approval may be required
for the payment of any dividends.
Risk Factors ................ Ownership of Federated Common Stock involves
certain risks. In considering how to vote
with respect to the Amendment, Federated
shareholders should carefully examine the
Risk Factors section of this Proxy
Statement/Prospectus, as well as other
pertinent information set fort in this Proxy
Statement/Prospectus. See "Risk Factors."
Information and Assistance ... Request for information or assistance may be
directed to Federated at the address or
phone numbers set forth on the front cover
of this Proxy Statement/Prospectus.
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are earnings and book value per share data of Federated on
an historical and pro forma per share basis, and for Wise on an historical
basis. The Federated pro forma combined data was derived by combining
financial information of Federated and Wise after giving effect to the Exchange
under the pooling method of accounting.
The information set forth below should be read in conjunction with the
respective historical audited and unaudited financial statements of Federated
and Wise and the respective notes thereto, and with the unaudited pro forma
financial information and the related notes thereto, all of which appear
elsewhere in this Proxy Statement/Prospectus.
The Following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Exchange been consummated at the beginning of the periods indicated,
nor is it necessarily indicative of the future combined results of operations
or financial position.
Federated has not distributed dividends for the periods reported below.
<TABLE>
<CAPTION>
Nine Months Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended
JULY 31, 1997(1) OCT. 31, 1996 (2) OCT. 31, 1995 (2) OCT. 31, 1994 (2)
<S> <C> <C> <C> <C>
FEDERATED HISTORICAL
Net Loss per share: $(.10) $(.26) $(.34) $(.22)
Cash Dividends per -- -- -- --
share:
Book Value per share: .36 .47 -- --
WISE HISTORICAL (3)
Net Income per share: 587.00 2,690.89 2,848,83 1,392.70
Cash Dividends per
share: -- -- 148.57 148.57
Book Value per share: 9,839.00 13,361.06 10,670.17 7,969.91
PRO FORMA COMBINED
Net Income per share: .01 .04 .03 .00
Cash Dividends per -- -- -- --
share:
Book Value per share: .37 .54 -- --
</TABLE>
(1) Data for Wise are based on Wise's six months ended June 30, 1997.
(2) Data for Wise are based on Wise's fiscal year ended December 31, 1996,
1995 and 1994, respectively.
(3) As of June 30, 1997 there were 87.5 shares of Wise common stock issued
and outstanding. As of December 31, 1996, 1995 and 1994, there were 175
shares of Wise common stock issued and outstanding.
<PAGE>
RISK FACTORS
Ownership of Federated Common Stock is subject to a number of
risks, including those discussed below. Prior to deciding whether
to approve the Amendment, each shareholder should carefully
consider the following risk factors together with all other
information set forth in this Proxy Statement/Prospectus. For
purposes of the following discussion, the term "Old Federated"
refers to Federated Purchaser, Inc. prior to the Exchange, and "New
Federated" refers to Federated Purchaser, Inc. once the Exchange is
consummated.
(i) DILUTION OF OWNERSHIP OF OLD FEDERATED SHAREHOLDERS.
Three shareholders currently beneficially own more than
5% of the outstanding Common Stock of Old Federated: Harry J.
Fallon, Old Federated's President and Acting Chairman, 18.9%;
Peter Manganiello, 13.7%, and Edward A. Cantor, 8.1%. Messrs.
Manganiello and Cantor do not currently serve on the Board or
in any executive capacity. The other Board members of Old
Federated, Edmund L. Hoener, Edwin S. Shortess and Jane A.
Christy, collectively hold 1.1% of the outstanding Old
Federated common stock. Accordingly, Old Federated is 80%
owned by persons not affiliated with the Board or management.
Following consummation of the Exchange, 74% of New
Federated will be owned by Martin L. Blaustein. Old Federated
shareholders (including Old Federated's officers and
directors) will own only 26% of the Common Stock of New
Federated. While this represents a substantial dilution of
the ownership interests of Old Federated's shareholders after
consummation of the Exchange, management believes that the
Exchange will provide the best opportunity to maximize
shareholder value in the present environment.
(ii) CHANGE OF CONTROL OF FEDERATED
As noted above in "Dilution of Ownership of Old
Federated Shareholders," upon consummation of the Exchange,
Mr. Blaustein will own approximately 74% of New Federated's
Common Stock. Therefore, Mr. Blaustein will be in a position
to control the election of directors and other corporate
matters that require the vote of New Federated's shareholders.
The Board of Directors will still maintain certain
continuity after the Exchange. Under the terms of the
Agreement, Mr. Fallon has the right to name 25% of the Board
for two years after the Exchange is completed. It is
presently expected that New Federated's Board of Directors
will consist of five members, of which Mr. Fallon will appoint
two.
(iii) LIQUIDITY; BANKRUPTCY RISK
PRIOR TO THE EXCHANGE
As of July 31, 1997, Old Federated's liquidity position
continued to be adversely affected by a variety of factors,
including the operating loss of $414,826 for the year ended
October 31, 1996 and the operating loss of $164,015 for the
nine months ended July 31, 1997. Old Federated's liquidity
position has been negatively affected by certain trends,
including intense competition from larger competitors in the
electronics industry and the migration of certain customers
from smaller to larger distributors, which together decreased
Old Federated's sales levels and gross profit margins. While
Old Federated had enhanced its short-term liquidity position
when it received a one-time cash payment of $755,845 from its
November 15, 1994 divestiture of a former subsidiary, Freedom
Electronics, those proceeds have been used to sustain
operations since that time. Thus, Old Federated's ability to
satisfy its fixed costs of operations has been entirely
dependent upon management's success in increasing sales,
improving gross margins, reducing operations costs, securing
additional lines of credit from outside lenders or entering
into strategic alliances. Old Federated's independent
auditors raised substantial doubt regarding Old Federated's
ability to continue as a going concern in its annual report
for the year ended October 31, 1996, and warned of a
possibility of bankruptcy.
SUBSEQUENT TO THE EXCHANGE
The financial condition of Wise is considerably stronger
than that of Old Federated. After giving pro forma effect to
the Exchange as if it had occurred on November 1, 1995, Old
Federated's losses for fiscal year 1996 would have been offset
by Wise's profitability. Furthermore, management believes
that the addition of Wise's resources will enable New
Federated to stabilize its business, maintain its business
relationships and attract and retain qualified sales
personnel. However, there can be no assurances that any of
these desired effects will occur, and there remains a
possibility that New Federated will operate at a loss.
(iv) AUDIT REPORT - UNCERTAINTY
Because of the continuing losses noted at paragraph (ii)
above, Old Federated's independent auditors, in their report
for the fiscal year ended October 31, 1996 and in their
subsequent quarterly reports, included a paragraph raising
substantial doubt regarding Old Federated's ability to
continue as a going concern. See Note 2 of Federated's
Consolidated Financial Statements. Management expects that
New Federated's financial resources will permit the auditors
to eliminate this doubt on future reports, but there can be no
assurances that New Federated's financial condition will in
fact permit such a change.
(v) STOCK PRICE
For the fiscal quarter ended July 31, 1997, the bid and
ask prices for Federated's Common Stock were $.13 and $.31
respectively, as compared to $.22 and $.38 for the fiscal
quarter ended July 31, 1996. See "Market for Common Equity --
Federated." Federated's shares have been traded over the
counter since 1992; currently, no active market for its shares
exists. There can be no assurances that New Federated's
improved financial outlook will be translated into increased
prices or trading activity for its shares. So long as New
Federated's common stock remains priced below $1.00 per share,
there remains a substantial risk that the market will fail to
respond to any future possible improvements in New Federated's
performance.
(vi) INTEGRATION OF FEDERATED AND WISE
There can be no assurances that New Federated will be
able to integrate successfully the operations, facilities and
management of Wise or realize any benefits of the Exchange.
Failure to integrate the Wise and Old Federated businesses
successfully could have a material adverse effect on New
Federated's results of operations and financial condition.
The diversion of senior management's attention during this
period of integration may also have a material adverse affect
on New Federated's results of operations and financial
condition.
(vii) COMPETITION; CONSOLIDATION
The electronic distribution business is highly
competitive. Old Federated and Wise compete with many
companies, many of which have greater resources available, and
no assurances can be given that these competitors will not
substantially increase their energies devoted to competing
with New Federated. The electronics distribution business is
also experiencing a continued trend of consolidation, which
will further intensify the competitive environment generally,
and may increase the size and resources of New Federated's
primary competitors.
(viii)DEPENDENCE ON KEY PERSONNEL
New Federated's business will be managed by a limited
number of management and operating personnel, the loss of
certain of whom could have a material effect on its ability to
compete. New Federated will be particularly dependent upon
Martin L. Blaustein, Harry J. Fallon, Jane A. Christy and
Steven H. Fried to integrate the two businesses. Also, New
Federated will be highly dependent on the companies' ability
to retain and attract qualified sales personnel. The market
for such personnel is extremely competitive, and there can be
no assurances that New Federated will successfully retain its
current sales force or attract new staff. Finally, New
Federated does not plan to obtain "key-person" insurance for
any of these individuals for the foreseeable future.
(ix) FINANCIAL CONSTRAINTS
Old Federated's deteriorating financial condition over
the past several fiscal years substantially diminished its
ability to raise funds through borrowing or through equity
offerings. Wise, however, has had access to capital through
secured borrowings, and management believes that New
Federated's improved financial circumstances will permit it to
obtain the funding it will require to meet its business needs.
Of course, changing general economic conditions, including
possible increases in interest rates, fluctuations in equity
markets, and other factors beyond New Federated's control may
prohibit New Federated from obtaining financing in the future.
(x) SUPPLIERS AND CUSTOMERS
There can be no assurances that the Exchange will not
have an adverse effect on ongoing relationships with customers
or suppliers of either Old Federated or Wise. New Federated's
ability to maintain its relationship with a cooperative buying
organization may be compromised because of disputes between
that organization and Wise. A failure to continue membership
in that organization may have a material affect on New
Federated's ability to obtain its products at a competitive
cost, and may thereby lower New Federated's profitability.
THE SPECIAL MEETING
TIME, DATE AND PLACE
This Proxy Statement/Prospectus is being furnished to the
holders of Common Stock as of the Record Date in connection with
the solicitation of proxies by the Board of Directors of Federated
(the "Board") for use at the Special Meeting to be held
on ______________, 1997 at ___ a.m. Eastern Standard Time, at and at
any postponements or adjournments thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the holders of Common Stock will be
asked to consider and vote upon (i) the Amendment, and (ii) such
other business as may properly come before the Special Meeting and
any postponements or adjournments thereof.
VOTING AND RECORD DATE
The Board has fixed ____________, 1997 (the "Record Date"), as
the Record Date for determining holders of Common Stock of record
entitled to receive notice of and to vote at the Special Meeting.
Accordingly, only holders of record of Common Stock who are holders
of such securities as of the Record Date will be entitled to notice
of and to vote at the Special Meeting. As of the Record Date,
there were 1,611,317 shares of Common Stock outstanding and
entitled to vote.
Each holder of record of Common Stock on the Record Date is
entitled to cast one vote per share, exercisable in person or by a
properly executed proxy, with respect to the approval of the
Amendment and any other matter to be submitted to a vote of
shareholders at the Special Meeting.
The presence at the Special Meeting, in person or by a proxy,
of the holders of a majority of the shares of Common Stock
outstanding on the Record Date will constitute a quorum at the
Special Meeting. Votes cast by proxy or in person at the Special
Meeting will be counted by the persons appointed by Federated to
act as the inspectors for the meeting. Shares represented by
proxies that reflect abstentions or include "broker non-votes" will
be treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Abstentions and
"broker non-votes" will be included in the calculation for purposes
of determining whether the Amendment has been approved and will be
treated as "no" votes.
The Board has unanimously approved the Exchange and the
Amendment and recommends a vote FOR approval of the Amendment.
Federated is seeking shareholder approval of the Amendment.
Under the laws of the State of New York, the affirmative vote
of a majority of the shares of Common Stock issued and outstanding
on the Record Date voting together as a class is required to
authorize the Amendment. Harry J. Fallon, Acting Chairman of the
Board of Federated, owns 18.9% of the shares of Common Stock
outstanding, and has announced his intention to vote "FOR" the
approval of the Amendment. Directors Edmund L. Hoener, Edwin S.
Shortess and Jane A. Christy hold, respectively, 2,538, 3,178, and
11,921 shares of Common Stock, representing together 1.1% of the
shares of Common Stock outstanding; they have also announced their
intentions to vote "FOR" the approval of the Amendment.
PROXIES
All shares of Common Stock which are represented at the
Special Meeting by properly executed proxies received prior to or
at the Special Meeting, and not duly and timely revoked, will be
voted at the Special Meeting in accordance with the choices marked
thereon by the shareholders. If no choice is marked, the shares
will be voted FOR approval of the Amendment.
At the time this Proxy Statement/Prospectus was filed with the
Commission, the Board was not aware of any other matters not
referred to herein that would be presented for action at the
Special Meeting. If any other matters properly come before the
Special Meeting, the persons designated in the proxy will vote the
shares represented thereby in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before it is voted. Proxies
may be revoked by (i) filing with the Secretary of Federated at or
before the taking of the vote at the Special Meeting a written
notice of revocation bearing a later date than the proxy, (ii) duly
executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Federated before the taking of
the vote at the Special Meeting or (iii) attending the Special
Meeting and voting in person (although attendance at the Special
Meeting will not in and of itself constitute a revocation of a
proxy). Any proxy revoked in writing should be addressed to: Marie
Santasiri, Secretary, Federated Purchaser, Inc., 268 Cliffwood
Avenue, Cliffwood, New Jersey, 07721.
It is estimated that $100,000 will be spent in connection with
the solicitation of holders of Common Stock.
All expenses of this solicitation, including the cost of
preparing and mailing this Proxy Statement/Prospectus, will be
borne by Federated and Wise jointly. In addition to solicitation
by mail, arrangements will be made with brokers and other
custodians, nominees and fiduciaries to forward proxy solicitation
materials to beneficial owners of shares of Common Stock held of
record by such brokers, custodians, nominees and fiduciaries, and
Federated may reimburse such brokers, custodians, nominees and
fiduciaries for their reasonable expenses incurred in connection
therewith. Directors and employees of Federated may also solicit
proxies in person or by telephone without receiving any
compensation in addition to their regular compensation as directors
and employees.
PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals for the 1998 Annual Meeting must be
received at the principal executive offices of Federated, 268
Cliffwood Avenue, Cliffwood, New Jersey 07721, no later than
October 17, 1997 for inclusion in the 1998 proxy statement and form
of proxy relating to that Annual Meeting.
THE EXCHANGE AND AMENDMENT
THE EXCHANGE
GENERAL
The following information sets forth the material terms of the
Exchange and is qualified in its entirety by reference to more
detailed information contained elsewhere in this Proxy
Statement/Prospectus, including the Appendices hereto. A copy of
the Exchange Agreement is included as Appendix I and is
incorporated herein by reference. Federated shareholders are urged
to read the Exchange Agreement carefully.
EFFECTS OF THE EXCHANGE
On the closing date, Federated will acquire all of the issued
and outstanding capital stock of Wise from Wise's sole shareholder,
Martin L. Blaustein ("Mr. Blaustein"), and will issue to Mr.
Blaustein 4,491,988 shares of Federated Common Stock in return.
Mr. Blaustein will become Federated's principal shareholder,
holding about 74% of Federated's issued and outstanding Common
Stock. Wise will become a wholly-owned subsidiary of Federated,
but will continue to exist as a separate corporation.
BACKGROUND OF THE EXCHANGE
The terms of the Agreement are the result of arms-length
negotiations between representatives of Federated (also, the
"Company") and Wise. The following is a brief discussion of the
background of these negotiations, the Exchange and related
transactions.
Federated has traditionally operated its business by
maintaining inventories of electronic components at its facilities
located in New Jersey and Allentown, Pennsylvania. Due to
competitive pressures, economic contraction and industry
consolidation, in the early 1990's Federated began to suffer
losses. During this period Federated was unable to find
alternative capital sources, and its continuing losses have
consumed an increasing portion of its cash. The Company has also
suffered turnover in its sales staff, depressing its income.
Although Federated has taken measures to reduce costs by increasing
staff efficiency and decreasing professional costs, these measures
have failed to return Federated to profitability. In part because
of staff turnover, Federated has been unable to restore sales
growth, thus further diminishing its competitiveness. In light of
these difficulties, for the fiscal year ended October 31, 1996,
Federated's auditors included in their Audit Report a note raising
substantial doubt regarding Federated's ability to continue as a
going concern, and raised the possibility of bankruptcy.
As early as 1995, Federated's board of directors had begun
considering various strategic options, including the possibility of
finding a merger candidate, in order to maximize shareholder value.
In early 1996, Federated's Acting Chairman, Harry J. Fallon
("Fallon"), was approached by Martin L. Blaustein ("Mr.
Blaustein"), president of Wise Components, Inc. ("Wise"), who
suggested the possibility of selling his business to Federated.
Wise was then involved in another potential transaction, and the
discussions with Federated remained only at the most preliminary
stage. (For a brief description of Wise's history and business,
see "Business of Wise" below.)
In June, 1997, Mr. Blaustein once again approached Federated,
as the other transaction involving Wise never came to fruition.
Privately-held Wise was both larger and better-financed than
Federated, and sought to increase its presence in the New Jersey
and Pennsylvania markets, where Federated has long been
established. On June 22, 1997, Wise delivered a proposal whereby
Wise's sole shareholder, Martin L. Blaustein, would exchange all of
his shares in Wise for a large block of Federated Common Stock.
The number of shares issued to Mr. Blaustein would be based on
a relative valuation of the two companies: Mr. Blaustein would
receive an interest in Federated proportionate with the relative
book values of Federated and Wise. As discussions continued over
the summer of 1997, the parties settled on a valuation date of July
31, 1997 for Federated (the end of Federated's third fiscal
quarter) and June 30, 1997 for Wise (the end of Wise's second
fiscal quarter). As a result, Wise was valued at 73.6% of the
future combined entity. Accordingly, the Agreement between the
parties calls for issuing Mr. Blaustein approximately 4.5 million
shares of Federated Common Stock. This issuance will require an
amendment to Federated's certificate of incorporation to increase
the number of authorized shares of Federated's Common Stock. (See
"The Amendment" below.)
The parties also agreed that the 4.5 million shares to be
issued to Mr. Blaustein would be registered under the Securities
Act of 1933, which would provide Mr. Blaustein with additional
liquidity and an enhanced asset base. Nevertheless, Mr. Blaustein
will remain subject to provisions of the Exchange Act of 1934 which
limit the ability of officers, directors and large shareholders of
public companies to sell their stock. See "Resale of Federated
Common Stock by Affiliates" below.
After due consideration of the proposal, including
presentations by its advisors, the Board of Directors responded
favorably to the proposal. Although the Board sought other
alternatives, none brought to its attention demonstrated the degree
of seriousness of the Wise acquisition proposal. On September 4,
1997, after various negotiations between the parties, the Board
gave its final approval to the proposed Agreement and Amendment,
and the Agreement was signed on October 1, 1997. See "The Board's
Approval," "Execution and Announcement," below.
THE AMENDMENT
Federated's Certificate of Incorporation currently authorizes
the issuance of a total of 5 million shares of Common Stock, of
which approximately 1.8 million are presently outstanding. As a
condition precedent to the Exchange, Federated must amend its
certificate of incorporation to increase the authorized number of
shares of Common Stock. The Board of Directors has approved an
amendment (the "Amendment"), a form of which is attached to this
Proxy Statement/Prospectus as Appendix II, which will increase the
number of authorized shares of Federated Common Stock to 10
million. Any summary of the terms of the Amendment is qualified in
its entirety by reference to said Appendix II.
THE BOARD'S APPROVAL OF THE EXCHANGE AND AMENDMENT AND
RECOMMENDATION REGARDING THE AMENDMENT
At a meeting held on September 4, 1997 at which all directors
were present, the Board of Directors of Federated unanimously
determined that the Exchange is fair to and in the best interests
of Federated and its shareholders, unanimously approved the
Exchange and the other contemplated transactions, unanimously
approved the Amendment to the Certificate of Incorporation
necessary to effect the Exchange, and unanimously resolved to
recommend that the shareholders of Federated vote to approve the
Amendment and thereby enable the completion of the Exchange. In
reaching its conclusion to approve the Agreement and the
contemplated transactions, the Board of Directors considered a
number of business factors, including the facts that (1) the
financial strength of Wise would provide Federated access to
capital necessary to stabilize its business, enhance its
competitive position and finance its regional expansion goals; (2)
the Exchange would provide for the continuation of its
relationships in the electronics distribution industry; (3) the
Exchange would allow Federated to maintain its name, mark and the
goodwill its has built up over its approximately 70-year history;
(4) the Exchange and related transactions provided the best chance
for Federated's shareholders to achieve a substantial return on
their investments; (5) operational synergies and efficiencies would
be achieved by integrating select functions of the companies'
operations; and (6) the compatibility of the business, operations
and management and other personnel of the two companies was likely
to facilitate a successful combination and realization of the
anticipated benefits.
The Board of Directors also reviewed certain business
descriptions and audited and unaudited financial information
relating to Federated and Wise, and certain other information it
deemed relevant, including financial forecasts, economic and market
data, as provided to it by Federated's management and by Wise.
This information included: (1) strategic benefits, financial
considerations and other issues regarding the proposed transaction;
(2) Wise's corporate structure; (3) Wise's summary financial
information for the fiscal year ended December 31, 1996 and the six
months ended June 30, 1997; (4) anticipated sources of savings
identified as part of a plan to rationalize existing operations;
(5) the impact of the proposed transactions on Federated's
shareholders; and (6) the corporate governance structure of the
companies following the Exchange, including representation on the
board of directors of Federated, and the impact of the Exchange on
the voting and economic rights of Federated's existing
shareholders.
The foregoing discussion of the information and factors
discussed by Federated's Board of Directors and is not meant to be
exhaustive. In view of the wide variety of factors considered in
connection with its evaluation of the terms of the Exchange the
Board of Directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determinations. There
can be no assurances, of course, that the benefits anticipated to
arise out of the Exchange will in fact be achieved. Based on the
factors described above, the Board of Directors believes that the
Exchange is in the best interests of Federated and its
shareholders, and it recommends that the shareholders approve the
Amendment, and thereby enable Federated to consummate the
Agreement.
EXECUTION AND ANNOUNCEMENT OF THE EXCHANGE
On October 1, 1997, Federated, Wise and Mr. Blaustein executed
the final Agreement. On the same day, Federated issued a press
release announcing the Exchange, and filed a Report on Form 8-K
with the Securities and Exchange Commission. In the exercise of
its fiduciary responsibilities, the Board has undertaken to provide
prompt and thorough information to the markets, to ensure that any
proposed alternative transactions would be brought to its
attention. To date, Federated has received no such proposals.
VOTING ON THE EXCHANGE
FEDERATED
Under New York law, the vote of the shareholders is not
required to approve the Exchange. However, the affirmative vote of
the holders of a majority of the issued and outstanding shares of
Common Stock is required for approval and adoption of the
Amendment, which adoption is a condition precedent to consummating
the Exchange. A vote FOR approval of the Amendment therefore has
the practical consequence of approving of the Agreement. Harry J.
Fallon, President and Acting Chairman of the Board of Federated,
owns 18.9% of the shares of Common Stock outstanding, and has
announced his intention to vote "FOR" the approval of the
Amendment. Directors Edmund L. Hoener, Edwin S. Shortess and Jane
A. Christy hold, respectively, 2,538, 3,178, and 11,921 shares of
Common Stock, representing together 1.1% of the shares of Common
Stock outstanding; they have also announced their intentions to
vote "FOR" the approval of the Amendment.
WISE
Under New York law, the consent of the sole shareholder of
Wise, Martin L. Blaustein (also the President and Chairman of Wise)
is not required to approve the Exchange.
APPRAISAL RIGHTS
Under New York law, no appraisal rights are available to
Federated shareholders with respect to any aspect of the Exchange
and Amendment.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE
FEDERATED
Certain members of Federated's Board of Directors and
management have interests in the Exchange that are in addition to
or different from the interests of Federated's shareholders
generally. As noted above at "Voting on the Exchange", the members
of Federated's current Board of Directors collectively own 20% of
Federated's outstanding Common Stock, of which Mr. Fallon accounts
for 18.9%. Although the Exchange will have the effect of reducing
these ownership percentages substantially, under the Agreement
Federated has agreed to enter into contracts with Mr. Fallon and
with Jane A. Christy, Vice President--Operations and current Board
member. Mr. Fallon's contract provides that for two years
following the Exchange, he will provide consulting services and
serve as Vice Chairman of the Board. Mr. Fallon will also have the
right to appoint at least 25% of the members of the Board of
Directors. The employment agreement with Ms. Christy provides that
she will continue to serve in her current executive capacity for
one year, with a 25% bonus at the end of that year. Several
salespeople and the manager of Federated's Allentown office will
also enter into employment agreements with Federated of six months
to one year.
WISE
Currently, Mr. Blaustein owns all of the outstanding shares of
Wise Common Stock and serves as Wise's chairman. As noted above in
"Risk Factors -- Dilution of Ownership of Old Federated
Shareholders," upon consummation of the Exchange, Mr. Blaustein
will own approximately 74% of New Federated's Common Stock. Mr.
Blaustein will therefore be in a position to control the election
of directors and other corporate matters that require the vote of
New Federated's shareholders.
RESALE OF FEDERATED COMMON STOCK BY AFFILIATES
Federated Common Stock to be issued to Wise shareholders in
connection with the Exchange has been registered under the
Securities Act and, upon consummation of the Exchange, will be
freely transferable under the Securities Act, except for shares
issued to any person who may be deemed an "Affiliate" (as defined
below) of Wise or Federated within the meaning of Rule 145 under
the Securities Act. "Affiliates" are generally defined as persons
who control, are controlled by, or are under common control with
Wise or Federated at the time of the Special Meeting (generally,
directors and certain executive officers of Wise or Federated and
major shareholders of Wise or Federated).
Affiliates of Wise or Federated may not sell their shares of
Federated Common Stock acquired in connection with the Exchange
except pursuant to an effective registration statement under the
Securities Act covering such shares or in compliance with Rule 145
or another applicable exemption from the registration requirements
of the Securities Act. In general, under Rule 145, for one year
following the Effective Time (the "Restricted Period"), an
Affiliate (together with certain related persons) is entitled to
sell shares of Federated Common Stock acquired in connection with
the Exchange only through unsolicited "broker transactions" or in
transactions directly with a "market maker", as such terms are
defined in Rule 144 under the Securities Act. Additionally, the
number of shares that may be sold by an Affiliate (together with
certain related persons and certain persons acting in concert)
within any three-month period during the Restricted Period for
purposes of Rule 145 may not exceed the greater of (i) 1% of the
outstanding shares of Federated Common Stock or (ii) the average
weekly trading volume of such stock during the four calendar weeks
preceding such sale. Rule 145 is available to Affiliates only if
Federated remains current with its information filings with the
Commission under the Exchange Act. Following the Restricted
Period, an Affiliate may sell such Federated Common Stock free of
such manner of sale or volume limitations, provided that Federated
is current with its Exchange Act information filings and such
Affiliate is not then an Affiliate of Federated. At any time
following two years after the Effective Time, an Affiliate may sell
such shares of Federated Common Stock without any restrictions, so
long as such Affiliate is not then, and has not been for at least
three months prior thereto, an Affiliate of Federated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The following summary is a general discussion of certain of
the expected federal income tax consequences of the Exchange. The
summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and published regulations, rulings and judicial
decisions now in effect, all of which are subject to change. The
summary does not discuss all aspects of federal income taxation
that may be relevant to a particular Federated or Wise shareholder
in light of his personal investment circumstances or to certain
types of shareholders subject to special treatment under the
federal income tax laws, such a life insurance companies,
tax-exempt organizations and foreign taxpayers and does not discuss
any aspects of state and local tax laws, which may not follow
federal tax law.
Moreover, substantial uncertainties exist with respect to
various federal income tax consequences of the Exchange. No
opinion of counsel or ruling from the Internal Revenue Service
("IRS") has been obtained or will be requested by Federated on any
tax issue connected with the Exchange. Accordingly, no assurances
can be given that the IRS will not challenge certain of the tax
positions described herein or that such a challenge would not be
successful.
FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS
Based upon certain assumptions, it is expected that the
Exchange will qualify as a "reorganization" within the meaning of
Section 368(a)(1)(B) of the Code, and that accordingly:
(a) Upon the closing of the Exchange, existing Federated
shareholders will not experience either (1) a taxable event or (2)
a change in the tax treatment of their Common Stock;
(b) No gain or loss will be recognized for federal income tax
purposes by shareholders of Wise upon their receipt of shares of
Federated's Common Stock in exchange for their shares of Wise's
Common Stock ("Wise Shares");
(c) Each former Wise shareholder's aggregate adjusted basis in
the Wise Shares exchanged in the Exchange will be carried over to
the shares of Federated's Common Stock received in the Exchange;
(d) The holding period for the shares of Federated's Common
Stock received in the Exchange is expected to include the holding
period for Wise Shares exchanged therefor, provided said Wise
Shares are held as a capital asset as of the Effective Date;
(e) Upon the subsequent sale of each share of Federated's
Common Stock received by former Wise shareholders in the Exchange,
gain or loss will be recognized. Such gain or loss will be measured
by the difference between the amount received therefor and the
adjusted basis of such share. If such share is a capital asset in
the hands of the selling shareholder, such gain or loss will be
capital gain or loss which will be long term or short term
depending upon the holding period; and
(f) Cash received by a Wise shareholder in lieu of fractional
shares will generally be taxable as capital gain or loss, depending
upon the shareholder's basis in the shares and assuming that such
shares are capital assets in his hands.
FEDERAL INCOME TAX CONSEQUENCES TO FEDERATED
LIMITATION ON USE OF LOSSES FOLLOWING AN OWNERSHIP CHANGE
Generally, a change in the ownership of more than 50% of the
equity holdings of a corporation results in an "ownership change"
of the corporation for purposes of Sections 382 and 383 of the
Code. Under the terms of the Exchange, Martin L. Blaustein, who
presently does not own any stock in Federated, will acquire in
excess of 70% of Federated's total issued and outstanding stock.
Accordingly, it is anticipated that the Exchange will result in an
"ownership change." In that event, Federated's use of its net
operating loss carryforwards ("NOLs"), capital loss carryovers and
certain other tax attribute carryovers and certain built-in losses
(collectively, "tax attributes") generally would be limited to an
annual amount equal to the fair market value of Federated's capital
stock immediately before the ownership change multiplied by the
"long-term tax-exempt rate" (5.09% for September, 1997).
If the consummation of the Exchange results in an "ownership
change" of Federated, the application of Sections 382 and 383 of
the Code could severely limit the ability of Federated to enjoy the
benefit of its tax attributes and thus increase the amount of
federal income tax Federated would otherwise owe in future years.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR
GENERAL INFORMATION ONLY. SHAREHOLDERS OF FEDERATED AND WISE ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE EXCHANGE AND THE OWNERSHIP OF SHARES,
INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS AND POSSIBLE CHANGES IN TAX LAWS.
REGULATORY APPROVALS
No governmental approvals are required with respect to the
Exchange, except for the filing of certain forms in conformity with
the Securities Act of 1933, the Exchange Act of 1934, and the blue
sky laws of various states.
ACCOUNTING
Federated will account for the Exchange under the pooling
method of accounting.
Representatives of Federated's independent public accountants,
Bederson & Co., who have also audited the Wise financial statements
included herein, will be present at the Special Meeting, will have
the opportunity to make a statement if they desire to do so and
will be available to respond to reasonable and appropriate
questions.
THE EXCHANGE AGREEMENT
The Agreement provides for the acquisition by Federated of all
of the issued and outstanding capital stock of Wise from Wise's
sole shareholder, Martin L. Blaustein ("Mr. Blaustein"), and the
issuance to Mr. Blaustein of 4,491,988 shares of Federated common
stock in return. Wise will therefore become a wholly-owned
subsidiary of Federated, but will continue to exist as a separate
corporation. Mr. Blaustein will become Federated's principal
shareholder, holding about 74% of Federated's issued and
outstanding Common Stock.
CLOSING
The closing of the Exchange will take place as soon as
practicable after the day upon which all the Amendment is filed
with and accepted by the New York Secretary of State as required by
the New York Business Corporation Law, and all other conditions to
consummation of the Exchange are satisfied or waived. It is
anticipated that the Amendment will be filed promptly after its
approval by the shareholders of Federated at the Special Meeting.
Such filing will be made, however, only upon satisfaction or waiver
of all conditions to the Exchange contained in the Exchange
Agreement.
REPRESENTATIONS AND WARRANTIES
The Agreement contains various customary representations and
warranties of Wise relating to, among other things, (i) Wise's
organization and similar corporate matters; (ii) the capitalization
of Wise; (iii) the authorization of the Agreement by Wise, the
execution, delivery and performance of the Agreement by Wise, and
the legality, validity and enforceability thereof against Wise;
(iv) the noncontravention of, and lack of conflict with, any
agreement, contract, lease or commitment affecting Wise's authority
or ability to perform its obligations, or any related agreement,
license, instrument, or other arrangement by which Wise is bound or
to which any of its assets is subject, or any constitution,
statute, regulation, rule, injunction, judgment, order, decree,
ruling, or other restriction of any governmental entity or court
applicable to Wise or its property, or Wise's articles of
incorporation or by-laws; (v) subject to certain exceptions,
absence of certain material changes or events; (vi) the financial
statements of Wise and the accuracy of the information contained
therein; (vii) the absence of undisclosed litigation and other
legal proceedings; and (viii) entitlement to brokers and finders
fees.
The Agreement also contains various customary representations
and warranties of Federated relating to, among other things, (i)
Federated's organization and similar corporate matters; (ii) the
capitalization of Federated; (iii) the authorization of the
Agreement by Federated, the execution, delivery and performance of
the Agreement by Federated, and the legality, validity and
enforceability thereof against Federated; (iv) the noncontravention
of, and lack of conflict with, any agreement, contract, lease or
commitment affecting Federated's authority or ability to perform
its obligations, or any related agreement, license, instrument, or
other arrangement by which Federated is bound or to which any of
its assets is subject, or any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, or other
restriction of any governmental entity or court applicable to
Federated or its property, or Federated's articles of incorporation
or by-laws; (v) subject to certain exceptions, absence of certain
material changes or events; (vi) the financial statements and
Securities and Exchange Commission filings of Federated and the
accuracy of the information contained therein; (vii) the absence of
undisclosed litigation and other legal proceedings; and (viii)
entitlement to brokers and finders fees.
INDEMNIFICATION
Federated's representations and warranties, as described
above, survive for six months following the closing of the
Agreement. During that time, Mr. Blaustein may be eligible for
indemnification should Federated breach a warranty, or should any
of Federated's representations prove inaccurate or incorrect,
provided that the breach, inaccuracy or incorrectness is
intentional. Eligibility for indemnification will be determined by
a single arbitrator, appointed by a committee of the Board of
Directors. If the arbitrator awards indemnification, Federated
will issue to Mr. Blaustein additional shares of Common Stock,
valued at $.36 per share, equal to the total amount by which all of
his valid indemnity claims in the aggregate exceed $25,000. The
number of shares of Common Stock that may be issued as
indemnification, however, is limited such that Mr. Blaustein's
ownership of Common Stock does not exceed 80% of the total Common
Stock issued and outstanding as of the Closing Date, or 4,882,644
shares.
CONDUCT OF BUSINESS OF THE PARTIES PRIOR TO THE CLOSING
Pursuant to the Agreement, Federated and Wise have agreed
that, among other things, prior to the closing each will conduct
its business in the ordinary course consistent with past practice.
STANDSTILL
Each of Mr. Blaustein and Wise have agreed that if either is
privy to material, non-public information regarding Federated,
neither can trade in Federated Common Shares or other securities of
Federated. Mr. Blaustein has further agreed that at no time prior
to the closing will Mr. Blaustein or Wise buy, sell or engage in
any transaction (except the closing under the Agreement) involving
any securities issued by Federated, or induce any other person to
do any of the foregoing.
COMPETING TRANSACTIONS
From the date of the Agreement Federated and Wise have agreed
not to, directly or indirectly, (i) take any action to solicit,
initiate, encourage or otherwise facilitate any Competing
Transaction, as defined below. A "Competing Transaction" is
defined as a proposal or offer relating to the acquisition of all
or substantially all of the capital stock or assets of Wise or
Federated, whether structured as a merger, consolidation, share
exchange or similar transaction. An exception applies to Federated
for shareholder inquiries in the ordinary course of business, and
for Competing Transactions if Federated's Board of Directors, after
consulting with counsel, determines that such discussions or
negotiations should be commenced in the exercise of its fiduciary
responsibilities or such information should be furnished in the
exercise of its fiduciary responsibilities. Federated has the
right to terminate the Agreement should its Board of Directors
determine that a Competing Transaction is more favorable from a
financial point of view to its shareholders than the Exchange.
To date no communications regarding Competing Transactions
have been received by Federated.
CONDITIONS TO CONSUMMATION OF THE EXCHANGE
The obligations of the parties to consummate the Exchange are
subject to the satisfaction (or waiver) of the following conditions
at or prior to closing: (i) the other parties shall have performed
in all material respects their obligations under the Agreement;
(ii) the representations and warranties of the other parties
contained in the Agreement shall be true and correct in all
material respects; (iii) the other parties shall have secured all
consents required for its consummation of the Exchange; (iv) no
statute, rule, regulation, executive order, decree, ruling or
preliminary or permanent injunction existing which prohibits,
restrains, enjoins or restricts the consummation of the Exchange;
(v) the effectiveness of this Registration Statement; (vi) the
approval by the shareholders of Federated of the Amendment; and
(vii) the absence of certain material changes or events on the part
of the other parties.
The obligations of Federated to consummate the Exchange are
subject to the satisfaction (or waiver) of the following
conditions: (i) the execution of a consulting agreement between
Federated and Harry J. Fallon ("Fallon"); (ii) the appointment of
Fallon to the position of Vice Chairman, and the appointment of a
nominee of Fallon to the Board of Directors; (iii) the execution of
employment agreements with Jane A. Christy and certain Federated
administrative and sales personnel; and (iv) the maintenance of a
New Jersey office facility.
The obligations of Mr. Blaustein to consummate the Exchange is
subject to the satisfaction (or waiver) of the following
conditions: (i) the resignation by all of Federated's current
directors and officers; (ii) Federated's net worth being at least
$400,000 as of the closing date; (iii) the execution of employment
agreements with Jane A. Christy and certain Federated
administrative and sales personnel; and (iv) the delivery of an
opinion by Bederson & Co., Federated's independent auditors, that
the Exchange qualifies as a tax-free reorganization under the U.S.
Tax Code.
TERMINATION
The Agreement may be terminated (i) at any time prior to
closing by mutual consent of the parties; (ii) by Federated if Mr.
Blaustein or Wise breaches or otherwise fails to meet an obligation
under the Agreement; (iii) by Mr. Blaustein if Federated breaches
or otherwise fails to meet an obligation under the Agreement; or
(iv) by Federated if Federated determines in good faith that a
Competing Transaction, as described above, is more favorable from a
financial point of view to its shareholders than the Agreement and
the transactions contemplated thereby. Upon a termination under
(iv) above, Federated must pay up to $50,000 of Mr. Blaustein's
reasonable out-of-pocket expenses in connection with the Exchange.
AMENDMENTS AND WAIVERS
The Agreement may not be amended except by an instrument in
writing signed on behalf of the parties thereto. The Agreement
provides that at any time before the closing of the Exchange,
either Federated, Mr. Blaustein or Wise may waive any inaccuracies
in the representations and warranties of any other party contained
in the Agreement and waive compliance by any other party with any
of the agreements or conditions contained in the Agreement.
EXPENSES
Except as described in "The Exchange -- Proxies" above,
whether or not the Exchange is consummated, all costs and expenses
incurred in connection with the Agreement and the transactions
contemplated thereby shall be paid by the party incurring such
expenses.
BUSINESS OF FEDERATED
PRINCIPAL PRODUCTS AND SERVICES
Federated and its wholly-owned subsidiary are engaged in one
segment of the electronics industry: the assembly and marketing of
a broad range of electronic parts, components and related equipment
(including, for example, such items as semi-conductors, wire,
transformers, relay systems, capacitors and electronic tubes) to
industrial customers.
Federated conducts its business through its two locations in
Cliffwood, New Jersey, and Allentown, Pennsylvania, and through the
direct solicitation of certain industrial customers by Federated's
own sales personnel.
Federated assembles and markets a broad range of products,
none of which accounted for 15% or more of Federated's consolidated
revenues during fiscal 1996, fiscal 1995 or fiscal 1994.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The products marketed and distributed by Federated are
obtained either through distributorship agreements or are otherwise
normally available to Federated from a number of commercial sources
on a competitive basis. While Federated has not generally
experienced difficulties in obtaining such products, a supplier of
electronic parts to Federated terminated Federated's appointment as
a distributor in 1993. There can be no assurances that Federated
will not be terminated by any of its other suppliers or that any
such termination will not have a material adverse impact on
Federated's results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
PATENTS, TRADEMARKS AND LICENSES
Federated does not hold any patents, trademarks, licenses,
franchises or concessions with respect to its continuing
operations.
SEASONAL BUSINESS
Federated's business is generally not affected by seasonal
factors.
WORKING CAPITAL ITEMS
Management believes that Federated's inventory practices and
other practices which impact working capital are similar to those
employed by other similarly sized distributors doing business in
this segment of the electronics industry. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
MATERIAL CUSTOMERS
During fiscal 1996, net sales by Federated to its largest
customer comprised approximately 4% of Federated's consolidated net
sales. Given Federated's current liquidity situation and
Federated's need to significantly improve its sales revenues, there
can be no assurances that the loss of this or any other customer
would not have a material adverse effect on Federated.
All but a nominal amount of Federated's sales are made to
industrial customers within the continental United States.
GOVERNMENT CONTRACTS
No portion of Federated's business is subject to renegotiation
of profits or to termination of contracts or subcontracts at the
election of the Government.
COMPETITIVE CONDITIONS
Federated faces intense competition from numerous companies
assembling and marketing products similar to those sold by
Federated. Many of Federated's competitors are substantially
larger than Federated, have greater resources, larger staffs, more
extensive facilities and equipment, and offer a broader range of
products than Federated. Competition is generally based upon
price, service and breadth of product lines offered. In addition,
Federated believes that the industry is moving towards a reduction
in the number of distributors which service each customer, a trend
which management believes favors the larger distributors and
negatively impacts Federated. As a result of these factors, there
can be no assurances that Federated will be able to reverse its
negative operating results and return to profitability.
RESEARCH AND DEVELOPMENT
During fiscal 1996 and the interim periods of fiscal 1997,
Federated did not spend any amount on research and development
activities.
ENVIRONMENTAL MATTERS
Management believes that Federated's capital expenditures,
earnings and competitive position have not been affected by
compliance with Federal, State and local laws relating to the
protection of the environment.
NUMBER OF EMPLOYEES
As of October 1, 1997, Federated had 17 employees, 2 of whom
were engaged in administration, 9 in clerical and shipping
positions, and 6 in sales. This represents a reduction of 4
employees from the fiscal year 1995, all of whom were laid off in
February, 1996 as part of management's plan to reduce overhead
expenses. Federated is not a party to any collective bargaining
agreement and considers its employee relations to be satisfactory.
PROPERTY
Federated currently operates its principal administrative,
sales and warehousing facilities from a 11,600 square foot facility
located in Cliffwood, New Jersey. The annual rental during the
current term under the terms of a 6-year net lease (i.e., the
annual rental is exclusive of property taxes and all other
property-connected charges payable by Federated) is $58,000.
Federated also leases approximately 2,800 square feet in a building
in Allentown, Pennsylvania, on a month-by-month basis for a minimum
annual rental of $10,800.
Management believes that the present facilities are adequate
to meet Federated's current and reasonably foreseeable needs.
LEGAL PROCEEDINGS
Federated is not a party to, nor is any of its property the
subject of, any material pending legal proceedings, other than
ordinary routine litigation incidental to its business.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Federated did not submit any matters to a vote of its
shareholders, through the solicitation of proxies or otherwise,
during the fourth quarter of fiscal 1996.
<PAGE>
FEDERATED PURCHASER, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The consolidated selected financial data of and for each of
the five years in the period ended October 31, 1996 have been
derived from the audited financial statements of Federated. The
selected financial data for the nine months ended July 31, 1997 and
1996 are unaudited but include, in the opinion of management, all
adjustments necessary for a fair presentation of such data.
Results for the nine months ended July 31, 1997 are not necessarily
indicative of results to be expected for the entire fiscal year.
These data should be read in conjunction with, and is qualified in
its entirety to, the related financial statements and notes
included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Unaudited
Nine Months Ended Year Ended
JULY 31, OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
Net sales $2,515,054 $3,008,004 $3,980,560 $4,118,799 $6,281,006 $6,245,276 $6,794,007
Net loss from
continuing
operations (164,015) (270,176) (414,826) (546,062) (373,849) (315,621) (182,144)
Net loss per
share from
continuing
operations (.10) (.17) (.26) (.34) (.22) (.19) (.11)
Cash
dividends
paid -- -- -- -- -- -- --
Cash
dividends
paid per
share .00 .00 .00 .00 .00 .00 .00
Total assets 1,127,031 1,355,967 1,287,324 1,605,604 2,768,863 2,788,001 2,995,410
Working
capital 344,129 639,351 490,614 871,875 1,452,970 1,852,245 2,210,571
Current ratio 1.7:1 2.6:1 2.0:1 3.5:1 2.5:1 4.0:1 5.0:1
Long-term debt
11,510 21,729 18,955 29,697 44,989 69,613 --
Stockholders'
equity 585,892 894,557 749,907 1,164,733 1,755,240 2,129,089 2,444,997
Stockholders'
equity per
share $ .36 $ .52 $ .47 $ .72 $ 1.03 $ 1.25 $ 1.44
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR FEDERATED
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
GENERAL
Federated has experienced significant operating losses throughout the past
five operating periods. For fiscal 1996, fiscal 1995, fiscal 1994, fiscal 1993
and fiscal 1992, Federated incurred losses of $414,826, $546,062, $373,849,
$315,621 and $182,144, respectively. As a result of negative cash flows
associated with these losses, as of October 31, 1996, working capital had
decreased 79.5% to $490,614 from $2,389,580 at October 31, 1991 and Federated
had an accumulated deficit of $1,053,333. While management is seeking to
address these problems by increasing sales and reducing operating costs, there
can be no assurances that Federated will be successful in its efforts to
improve either its liquidity position or operating results. In addition,
because Federated currently has no access to any outside source of capital
(except for an existing equipment financing arrangement), management must meet
its short-term capital requirements solely from cash from operations (if any)
and existing cash reserves. There can be no assurances that Federated's cash
reserves will be sufficient to satisfy Federated's capital requirements or that
Federated's inability to obtain capital from outside sources will not force
Federated to seek protection under the United States Bankruptcy Code.
In November 1994, Federated divested its subsidiary, Freedom. In
accordance with generally accepted accounting principles, the divestiture of
the operations of Freedom has not been accounted for as a discontinued
operation because Freedom was not a separate business entity. As a result,
management's discussion compares (i) Federated's results of operations for
fiscal 1996 (which do not include Freedom) to Federated's results of operations
for fiscal 1995 (which do not include Freedom), (ii) Federated's results of
operations for fiscal 1995 (which do not include Freedom) to Federated's
results of operations for fiscal 1994 (which include Freedom) and (iii)
Federated's results of operations for fiscal 1995 to Federated's Pro Forma
results for fiscal 1994 (which include Freedom). Management believes this
approach more accurately reflects Federated's recent financial performance.
RESULTS OF OPERATIONS
Federated recognized losses of $414,826 for fiscal 1996, $546,062 for
fiscal 1995, and $373,849 for fiscal 1994 on net sales of $3,980,560 in fiscal
1996, $4,118,799 in fiscal 1995 and $6,281,006 in fiscal 1994. The loss of
$414,826 for fiscal 1996 represents a decrease of $131,234, or 24.0%, when
compared to the loss for fiscal 1995, but represents an increase of $51,557 or
14.2% when allowing for the one-time charge of $182,791 attributable to the
Divestiture. The loss of $546,062 for fiscal 1995 represents an increase of
$172,213, or 46.1%, when compared to the loss for fiscal 1994, such increase
attributable to the loss realized on the Divestiture.
Net sales for Federated were $3,980,560 for fiscal 1996 as compared to
$4,118,799 for fiscal 1995, representing a 3.4% decrease. Net sales for
Federated were $4,118,799 for fiscal 1995 (after giving effect to the
Divestiture) as compared to $6,281,006 for fiscal 1994, representing a 34.4%
decrease. This decrease is attributable to the effects of the Divestiture,
partially offset by a 20.2% increase in Federated's net sales from $3,427,049
in fiscal 1994 (without consideration of Freedom).
The decrease in Federated's net sales for fiscal 1996 represents a
reversal of the modest sales increase achieved by Federated in fiscal 1995
(after giving effect to the Divestiture). Management expects that significant
further improvement in Federated's sales along with a reduction in operating
costs will be required to sustain operations during the upcoming operating
period ("fiscal 1997") and in the future. There can be no assurances that
Federated will be successful in its efforts to increase sales, reduce costs or
improve profitability. Moreover, the likelihood of achieving the necessary
sales increase is diminished by a variety of factors, including the slowdown in
the electronics segment of the national economy, the loss of certain customers
due to the departure of key sales personnel to competitors and certain other
industry trends. In addition, prior gains in sales revenue by Federated have
necessarily been achieved at lower gross margins, which has mitigated the
impact of such sales gains on Federated's results of operations. As a result,
there can be no assurances that any increase in sales activity can be
maintained, (as evidenced by the decline in sales for fiscal 1996), or that
such sales increases will be achieved at gross profit margins sufficient to
return Federated to profitability. As a result of these uncertainties,
Federated's independent auditors have included a paragraph which raises
substantial doubt regarding Federated's ability to continue as a going concern.
Moreover, if Federated does not generate sufficient cash flow to sustain
operations in fiscal 1997, Federated may have to seek protection under the
United States Bankruptcy Code. See Note 2 of Federated's consolidated
Financial Statements.
Cost of sales for Federated were $3,128,019 for fiscal 1996 as compared to
$3,172,060 for fiscal 1995, (after giving effect to the Divestiture)
representing a decrease of $44,041. This decrease is solely attributable to
lower sales volume. For fiscal 1995, cost of sales decreased 35.4% from
$4,907,644 (including Freedom) to $3,172,060, as a result of the Divestiture.
Cost of sales for Federated were $3,172,060 in fiscal 1995 as compared to
$2,591,436 in fiscal 1994 (without consideration of Freedom), representing an
increase of $580,624, or 22.4%. The increase in cost of sales for Federated in
fiscal 1995 is primarily attributable to the increase in Federated's sales
volume for that period as well as price increases imposed on Federated by its
suppliers.
As a percentage of sales, Federated's cost of sales were 78.6%, 77.0% and
75.6%, for fiscal 1996, fiscal 1995 and fiscal 1994, respectively. The
increase in cost of sales as a percentage of sales and corresponding lower
gross margins is attributable to management's decision to rebuild Federated's
sales base by reducing prices to remain competitive with the larger
distributors. While Federated's sales levels for fiscal 1996 remain higher
than sales for fiscal 1994 (without consideration of Freedom), the resulting
decrease in gross margins has negatively impacted Federated's results of
operations. Moreover, gross margins have been further reduced by price
increases imposed by Federated's suppliers, most of which Federated is unable
to pass along to its customers. Federated's gross profit percentage for fiscal
1996 was 22.0% as compared to 23.0% for fiscal 1995 and 24.4% for fiscal 1994.
There can be no assurances that Federated's gross margins will not be further
reduced in the future by intense price competition, price increases imposed by
Federated's suppliers, or a combination of these factors.
Selling, shipping, general and administrative ("SSG&A") expenses for
Federated were $1,286,444, or 32.3%, of net sales for fiscal 1996 as compared
to $1,353,609, or 32.9% of net sales, for fiscal 1995 and $1,687,016, or 26.9%
of net sales for fiscal 1994. The decrease of $67,165 for fiscal 1996 when
compared to fiscal 1995 is the result of a reduction in costs attributable to
warehouse salaries, office salaries, insurance costs and bad debt expenses,
partially offset by an increase in sales salaries and non-recurring severance
payments to certain employees resulting from management's decision to downsize
Federated's labor force. See "Business of Federated - Number of Employees"
above. Management anticipates that further reductions in SSG&A expenses will
be necessary to reverse Federated's negative results of operations. The
decrease of $333,407 in SSG&A expenses for fiscal 1995 when compared to fiscal
1994 is attributable to the effects of the Divestiture. SSG&A expenses for
Federated for fiscal 1995 were $1,353,609, or 32.9% of net sales, as compared
to $1,268,985, or 37.0% of net sales for fiscal 1994 (without consideration of
Freedom). The increase of $84,624 for fiscal 1995 is attributable to the
increase in sales, purchasing and office salaries and expenses, while the
decrease as a percentage of sales is attributable to the 20.2% increase in
Federated's sales volume.
Depreciation and amortization expenses were $11,575 for fiscal 1996,
$11,260 for fiscal 1995 and $47,337 for fiscal 1994. The substantial reduction
in fiscal 1996 and fiscal 1995 when compared to fiscal 1994 is attributable to
the effects of the Divestiture.
Interest earned on Federated's cash reserves and marketable securities was
$14,830 for fiscal 1996 as compared to $32,530 for fiscal 1995 and $1,637 for
fiscal 1994. The decrease of $17,700 for fiscal 1996 when compared to fiscal
1995 was attributable to lower cash balances which continue to deteriorate as a
result of Federated's recurring operating losses. The increase of $30,893 for
fiscal 1995 when compared to fiscal 1994 was the result of higher cash balances
and marketable securities purchased with proceeds received from the
Divestiture, all of which have been used to sustain operations during the past
two operating periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $90,597, $38,500, $40,540 for
fiscal 1996, fiscal 1995 and fiscal 1994, respectively. During fiscal 1996,
Federated used net cash of $190,456 from operating activities, primarily from
the $414,826 net loss for the year, partially offset by a decrease of $77,835
in inventory and an increase of $127,913 in accounts payable and accrued
expenses. Federated generated cash of $110,601 from investing activities for
fiscal 1996, primarily through the receipt of $99,744 on the redemption of
marketable securities and the collection of $35,000 in notes receivable,
partially offset by a $23,672 increase in association membership costs. The
collection of $35,000 in notes receivable is due to the renegotiation by
Federated of certain terms relating to debt owed by Freedom to Federated as a
result of the Divestiture. During fiscal 1996, Federated used cash of $10,742
for payments on long-term debt.
Federated's liquidity position has been and continues to be adversely
affected by a variety of factors, including the $414,826 loss for fiscal 1996,
the loss of $546,062 for fiscal 1995 and the loss of $373,849 for fiscal 1994.
Moreover, Federated's liquidity position may be further negatively impacted to
the extent that certain trends, including intense competition from larger
competitors in the electronics industry and the migration of certain customers
from smaller to larger distributors, continue to decrease Federated's sales
levels, gross profit margins, or both. While Federated enhanced its short-term
liquidity position through the one-time receipt of $755,845 in cash from the
Divestiture, those proceeds have been used to sustain operations during the
past two operating periods. Thus, Federated's ability to satisfy its fixed
costs of operations in the future will depend upon management's success in
increasing sales, improving gross margins, reducing operating costs, securing
additional lines of credit from outside lenders or entering into other
strategic alliances. Due to Federated's impaired liquidity position, negative
financial performance, reliance on cash from net profits to sustain operations
and certain other factors, Federated's independent auditors have raised
substantial doubt regarding Federated's ability to continue as a going concern.
See Note 2 to Federated's Consolidated Financial Statements. If Federated is
not successful in achieving any or all of these strategic objectives, it may
have to seek protection under the United States Bankruptcy Code.
During fiscal 1995, Federated used net cash of $602,848 from operating
activities, primarily as a result of the $546,062 net loss for the year, a
$117,488 increase in accounts receivable, a $52,354 decrease in accounts
payable and a $45,540 decrease in accrued expenses, partially offset by the
effects of the Divestiture, a $51,385 decrease in prepaid expenses and a
$18,546 decrease in inventories. Federated generated cash from investing
activities of $638,972 for fiscal 1995, primarily from the $755,845 proceeds on
the Divestiture, used cash of $286,224 to purchase marketable securities, and
redeemed marketable securities of $192,439. During fiscal 1995, Federated used
cash of $74,624 to pay off a note payable in the amount of $63,999 and long-
term debt in the amount of $10,625.
Federated currently has no access to any outside source of capital, except
for approximately $19,000 outstanding under an existing equipment financing
arrangement. While management has sought and will continue to seek new sources
of financing from other financial institutions, no such arrangement has yet
been established. As a result, management must meet all of its short-term
capital requirements from cash from operations (if any) and existing cash
reserves, which continue to deteriorate as a result of Federated's recurring
operating losses. Given the magnitude of Federated's recent operating losses,
there can be no assurances that Federated's current cash reserves, which were
$95,918 at October 31, 1996, will be sufficient to satisfy Federated's
operating and/or financial requirements or that Federated's inability to obtain
capital from outside sources will not force Federated to seek protection under
the United States Bankruptcy Code.
In fiscal 1994, Federated received notification from its lender that its
credit line had been withdrawn and that monies borrowed in the amount of
$63,999 were due and payable. This obligation was paid in full in November
1994. Prior to the Divestiture, Federated also maintained a separate agreement
with another lender under which Freedom could borrow up to $250,000, such
borrowings secured by Freedom's eligible inventories and accounts receivable.
As of October 31, 1994, Freedom had borrowed $250,000 against this line of
credit. As part of the Divestiture, Federated no longer has access to, nor
obligation to repay debt incurred under, this line of credit.
During fiscal 1994, Federated used $294,765 from operating activities,
primarily as a result of the $373,849 net operating loss for the year, a
$42,624 increase in inventories, a $30,001 increase in prepaid expenses and a
$17,906 increase in accrued expenses. Federated used $35,150 in investing
activities for equipment purchased and additional association membership costs.
During fiscal 1994, Federated borrowed $400,000 on available lines-of-credit,
partially offset by payments of $86,001 against the lines-of-credit and $24,624
against outstanding long-term debt.
Federated's ratio of current assets to current liabilities at October 31,
1996 declined to 2.0:1 from 3.5:1 at October 31, 1995 (after giving effect to
the Divestiture). The decrease is primarily attributable to the impact of the
$414,826 operating loss on Federated's cash position. Federated had working
capital of $490,614 at October 31, 1996 down $381,261, or 43.7%, from $871,875
at October 31, 1995, primarily as a result of the operating loss for that
period. Working capital for Federated at October 31, 1995 declined $344,467,
or 28.3% as compared to $1,216,342 for Federated at October 31, 1994 (without
consideration of Freedom) and $581,095, or 40.0%, at October 31, 1994
(including Freedom).
The future aggregate minimum commitment of Federated under its lease on
its principal operating facilities is as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, AMOUNT
<S> <C>
1997 $58,000
1998 58,000
Due thereafter 9,667
$125,667
</TABLE>
Federated's stockholders' equity in fiscal 1996 amounted to $749,907 which
is equivalent to a book value per common share of $.47. In fiscal 1995 and
fiscal 1994, comparable figures for stockholder's equity were $1,164,733, or
$.72 per common share and $1,755,240, or $1.03 per common share.
Federated maintains its records on the accrual basis of accounting.
Income is recorded when earned and expenses are recorded when incurred.
Federated accounting policies with respect to customer right of returns are
governed upon written authorization by Federated except for special order
items.
FOR THE NINE MONTHS ENDED JULY 31, 1997, AND JULY 31, 1996
RESULTS OF OPERATIONS
Federated recognized a loss of $164,015 for the nine months ended July 31,
1997 on net sales of $2,515,054 compared to a loss of $270,176 for the nine
months ended July 31, 1996 on net sales of $3,008,004. The loss of $164,015
for the nine months ended July 31, 1997 represents an improvement of $106,161
when compared to the loss of $270,176 for the nine months ended July 31, 1996.
Despite the relative improvement in the magnitude of the loss when compared
with the nine months ended July 31, 1996, the loss represents a continuation of
repeated significant operating losses experienced by Federated since prior to
1992. As a result of negative cash flows associated with these losses, as of
July 31, 1997, working capital had decreased to $344,129 and Federated had an
accumulated deficit of $1,217,348. Because Federated currently has no access
to any outside source of capital (except for an existing equipment financing
arrangement), management must meet its short-term capital requirements solely
from cash from operations (if any) and existing cash reserves. At July 31,
1997, Federated's cash reserves were $102,341. There can be no assurances that
Federated's cash reserves will be sufficient to satisfy Federated's capital
requirements or that Federated's inability to obtain capital from outside
sources will not force Federated to seek protection under the United States
Bankruptcy Code.
Net sales were $2,515,054 for the nine months ended July 31, 1997 as
compared to $3,008,004 for the nine months ended July 31, 1996, a decrease of
$492,950 or 16.4% under the prior year. Net sales were $836,668 for the three
months ended July 31, 1997 as compared to $1,009,865 for the three months ended
July 31, 1996 a decrease of $173,197 or 17.2% under the prior year. This
decrease in net sales is a result of intense competition from larger
competitors, as well as certain other industry trends which negatively impact
smaller electronics distributors such as Federated. These competitive
circumstances have continued to reduce Federated's sales volume, which, along
with gross margins, must improve in the short term for Federated to reverse its
negative results of operations. The likelihood of achieving the necessary
increases in both sales volume and gross margins continues to be compromised by
several factors, including the loss of certain customers due to the departure
of key sales personnel, intense industry competition which has resulted in
management seeking additional sales volume through price reductions, and
certain other industry trends which adversely impact smaller electronics
distributors. While management continues its effort to improve sales volume
while preserving Federated's current customer base, there can be no assurances
that management will succeed in achieving the sales increases, improved margins
and cost reductions which are necessary to reverse Federated's negative results
of operations.
Cost of sales were $1,919,823 or 76.3% of sales for the nine months ended
July 31, 1997 compared to $2,333,366 or 77.6% of sales for the nine months
ended July 31, 1996. Cost of sales were $636,828 or 76.1% of sales for the
three months ended July 31, 1997 compared to $789,204 or 78.1% of sales for the
three months ended July 31, 1996. The decrease in cost of sales for both the
nine months and three months ended July 31, 1997 is the result of Federated's
decrease in sales volume. The gross profit percentage for the nine months
ended July 31, 1997 was 23.7% compared to 22.4% for the nine months ended July
31, 1996. The gross profit percentage for the three months ended July 31, 1997
was 23.9% compared to 21.9% for the three months ended July 31, 1996. There
can be no assurances that the minor improvement in Federated's gross margin can
be sustained, or that lower gross profits associated with the reduction in
sales volume will not force Federated to seek protection under the United
States Bankruptcy Code.
Selling, shipping and general and administrative ("SSG&A") expenses were
$774,253 for the nine months ended July 31, 1997, compared to $961,007 for the
nine months ended July 31, 1996, a decrease of $186,754 or 19.4% as compared to
the prior comparable period. For the three months ended July 31, 1997,
selling, shipping and general and administrative expenses were $275,579 as
compared to $304,259 for the three months ended July 31, 1996, a decrease of
$28,680 or 9.4% as compared to the prior comparable period. The decrease is a
result of lower sales salaries, warehouse salaries, administrative salaries,
advertising expenses, telephone expenses and office expenses. The decrease in
salaries are the result of management's decision to downsize Federated's labor
force. Management anticipates that further reductions in SSG&A expenses will
be necessary to reverse Federated's negative results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Federated's liquidity position has been and continues to be adversely
affected by a variety of factors, including the operating loss of $414,826 for
the year ended October 31, 1996 and the operating loss of $164,015 for the nine
ended July 31, 1997. Moreover, Federated's liquidity position may be further
negatively impacted to the extent that certain trends, including intense
competition from larger competitors in the electronics industry and the
migration of certain customers from smaller to larger distributors, continue to
decrease Federated's sales levels, gross profit margins, or both. While
Federated enhanced its short-term liquidity position when it received a one-
time cash payment of $755,845 from its November 15, 1994 divestiture of a
former subsidiary, Freedom Electronics, those proceeds have been used to
sustain operations since that time. Thus, Federated's ability to satisfy its
fixed costs of operations in the future will depend upon management's success
in increasing sales, improving gross margins, reducing operations costs,
securing additional lines of credit from outside lenders or entering into
strategic alliances. Due to Federated's impaired liquidity position, negative
financial performance, reliance on cash to sustain operations and certain other
factors, Federated's independent auditors raised substantial doubt regarding
Federated's ability to continue as a going concern in Federated's annual report
for the year ended October 31, 1996. If Federated is not successful in
achieving any or all of its strategic objectives, it may have to seek
protection under the United States Bankruptcy Code.
Cash and cash equivalents increased by $6,423 for the nine months ended
July 31, 1997 compared to a decrease of $57,889 for the nine months ended July
31, 1996. For the nine months ended July 31, 1997, Federated provided cash of
$568 from operating activities primarily as a result of a decrease in accounts
receivable of $85,321, a decrease of $35,097 in inventories an increase of
$59,330 in accounts payable offset by the net loss of $164,015 and a decrease
of $29,413 in accrued expenses. Federated generated cash from investing
activities of $13,300 from the collection of $15,000 in notes receivable offset
by $1,700 in association membership costs. During the nine months ended July
31, 1997, Federated used cash of $7,445 for notes payable. The collection of
$15,000 in notes receivable is due to Federated's renegotiation of certain
payment terms relating to debt owed by Freedom in relation to the divestiture
described above.
Federated currently has no access to any outside source of capital, except
for approximately $11,500 outstanding under an existing equipment financing
arrangement. While management continues to seek new sources of financing from
other financial institutions, no such arrangements has yet been established.
A supplier of electronic parts to Federated Purchaser terminated Federated
Purchaser's franchise agreement as an Industrial Electronic Distributor
effective July 1, 1997. Federated expects to continue to be able to obtain
electronic parts from that supplier through a cooperative purchasing group.
Federated maintains its records on the accrual basis of accounting.
Income is recorded when earned and expenses are recorded when incurred.
Federated's accounting policies with respect to customer right of returns are
governed upon written authorization by Federated except for special order
items.
Federated's balance sheet at July 31, 1997 reflects working capital of
$344,129 as compared to $639,351 at July 31, 1996, which represents a decrease
of $295,222.
Federated's stockholders' equity is $585,392 at July 31, 1997, equivalent
to a book value per share of $.36.
CAPITAL RESOURCES - WORKING CAPITAL REQUIREMENTS
Federated currently has no access to any outside source of capital, except
for approximately $11,500 outstanding under an existing equipment financing
arrangement. While management continues to seek new sources of financing from
other financial institutions, no such arrangements has yet been established.
Federated maintains its records on the accrual basis of accounting.
Income is recorded when earned and expenses are recorded when incurred.
Federated's accounting policies with respect to customer right of returns are
governed upon written authorization by Federated except for special order
items.
Federated's balance sheet at July 31, 1997 reflects working capital of
$344,129 as compared to $639,351 at July 31, 1996, which represents a decrease
of $295,222.
Federated's stockholders' equity is $585,392 at July 31, 1997, equivalent
to a book value per share of $.36.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized common stock of Federated consists of shares of Common
Stock, par value $.10 per share. All shares of Common Stock currently
outstanding are fully paid and non-assessable, not subject to redemption and
without preemptive or other rights to subscribe for or purchase any
proportionate part of any new or additional issues of stock of any class or of
securities convertible into stock of any class.
VOTING
Holders of Common Stock are entitled to one vote per share, and vote on
all matters as a single class.
DIVIDENDS
Holders of Common Stock are entitled to receive dividends equally on a per
share basis if and when such dividends are declared by the Board of Directors
of Federated from funds legally available therefor.
LIQUIDATION
Holders Common Stock share with each other on a ratable basis as a single
class in the net assets of Federated available for distribution in respect of
Common Stock in the event of liquidation.
DISPARATE VOTING RIGHTS AND CONTROL BY MARTIN L. BLAUSTEIN
Upon consummation of the Exchange, Martin L. Blaustein will control
approximately 74% of Federated's common equity an equal percentage of its
voting power.
PREFERRED STOCK
Federated's Certificate of Incorporation does not authorize any preferred
stock.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer and Trust Co. serves as Federated's transfer
agent and registrar for its shares of Common Stock.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation provides that a director will not be
personally liable for monetary damages to Federated or its shareholders for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to Federated or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 719 of the New York Business
Corporation Law (which prohibits the payment of dividends and approval of stock
repurchases in certain circumstances), or (iv) for any transaction from which
the director derived an improper personal benefit.
While the Certificate of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does
not eliminate such duty. Accordingly, the Certificate of Incorporation will
have no effect on the availability of equitable remedies, such as an injunction
or rescission based on a director's breach of such director's duty of care.
The provisions of the Certificate of Incorporation described above apply to an
officer of Federated only if such person is also a director of Federated and is
acting in his or her capacity as director, and do not apply to officers of
Federated who are also directors, when acting in their capacity as officers.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Federated's By-Laws (the "By-Laws") provide for mandatory indemnification
to the full extent permitted by the laws of the State of New York against and
with respect to threatened, pending or completed actions, suits or proceedings,
whether civil, criminal, administrative or investigative, arising from or
alleged to arise from, a party's actions or omissions as a director, officer,
employee or agent of Federated or of any subsidiary of Federated or of any
other corporation, partnership, joint venture, trust or other enterprise which
has served in such capacity at the request of Federated if such acts or
omissions occurred or were or are alleged to have occurred, while such party
was a director or officer of Federated. In any situation in which
indemnification is not mandatory, Federated may, to the full extent permitted
by applicable law, indemnify all other persons whom it has the power to
indemnify. Generally, under New York law, indemnification will only be
available where an officer or director can establish that he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of Federated.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in said Act and is
therefore unenforceable.
Federated does not maintain any director's and officer's liability
insurance, and has no current plans to purchase such insurance in the
foreseeable future.
SECTION 912 OF THE NEW YORK BUSINESS CORPORATION LAW
Subject to certain exclusions summarized below, Section 912 of the New
York Business Corporation Law ("Section 912") prohibits any Interested
Shareholder from engaging in a "business combination" with a New York
corporation for five years following the date such person became an Interested
Shareholder. Interested Shareholder generally includes (i) any person who is
the beneficial owner of 20% or more of the outstanding voting stock of the
corporation and (ii) any person who is an affiliate or associate of the
corporation and who held 20% or more of the outstanding voting stock of the
corporation at any time within five years before the date on which such
person's status as an Interested Shareholder is determined. Subject to certain
exceptions, a "business combination" includes the following transactions
between a corporation and an Interested Shareholder: (i) any merger or
consolidation involving the corporation, (ii) the sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets having an aggregate
market value equal to 10% or more of either the aggregate market value of all
assets of the corporation determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation, (iii) any
transaction that results in the issuance or transfer by the corporation of any
stock of the corporation to the Interested Shareholder, except pursuant to a
transaction that effects a pro rata distribution to all shareholders of the
corporation, (iv) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation, proposed by or in agreement with the Interested
Shareholder or an affiliate or associate thereof, (v) any transaction involving
the corporation that has the effect of increasing the proportionate share of
the stock of any class or series, or securities convertible into the stock of
any class or series, of the corporation that is owned directly or indirectly by
the Interested Shareholder, and (vi) any receipt by the Interested Shareholder
of the benefit (except proportionately as a shareholder) of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
Section 912 does not apply to a business combination if (i) before a
person became an Interested Shareholder, the board of directors of the
corporation approved the transaction in which the Interested Shareholder became
an Interested Shareholder, or the business combination, (ii) no sooner than
five years after the Interested Shareholder acquires the shares, the business
combination is authorized by a majority of the outstanding voting stock not
beneficially owned by such Interested Shareholder, or any affiliate or
associate thereof, (iii) the transaction meets certain requirements regarding
the price and form of consideration to be paid for outstanding shares, and the
Interested Shareholder has, since becoming an Interested Shareholder, received
shares only on a proportionate basis with the remaining shareholders.
Section 912 permits corporations to avoid application of its provisions by
amending its bylaws, with shareholder approval. Federated has not adopted any
such amendment.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Only shareholders of record at the close of business on
1997 will be entitled to notice of and to vote at the Special Meeting and any
adjournment(s) thereof. As of such date, there were 1,611,317 shares of
Federated's Common Stock, par value $0.10 per share (the "Common Stock"),
outstanding.
The following table indicates the effect of the Exchange on the holdings
of the individuals known by Federated to own beneficially more than 5% of
Federated's Common Stock as of , 1997. Subsequent to the
Exchange, Martin L. Blaustein will own 4,491,988 shares of Common Stock, or
approximately 73.6% of the class outstanding.
<TABLE>
<CAPTION>
PERCENT OF CLASS
--------------------------------------
<S> <C> <C> <C>
Name and Address of AMOUNT AND NATURE OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP(2) BEFORE EXCHANGE AFTER EXCHANGE
Harry J. Fallon 304,285 18.9% 4.9%
123 Milligan Place
South Orange, NJ 07079
Peter Manganiello 220,496 13.7% 3.6%
21 Heath Drive
Bridgewater, NJ 08807
Edward A. Cantor 130,155 8.1% 2.1%
1203 West St. George Ave.
Linden, NJ 07036
Martin L. Blaustein 4,491,988 0.0% 73.6%
26 Henry Street
Greenwich, CT 06830
</TABLE>
______________________
* Calculated assuming issuance only of the 4,491,988 shares to be issued in
the Exchange, and not any additional shares which may be issued upon the
occurrence of certain events subsequent to the Exchange. See "The
Agreement and Amendment -- Indemnification."
(1) Mr. Manganiello disclaims beneficial ownership of 59,765 common shares.
Mr. Fallon and Mr. Cantor have sole voting and investment power regarding
their respective shares.
(2) Based on information provided to Federated. To the knowledge of
Federated, no other person as of record date is the beneficial owner of
more than 5% of Federated's Common Stock.
DIRECTORS AND OFFICERS
COMMON STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth certain information respecting the number
of shares of Federated's Common Stock which will be beneficially owned by each
current director of Federated, the Chief Executive Officer and by all current
directors and officers of Federated as a group, subsequent to the Exchange.
<TABLE>
<CAPTION>
PERCENT OF CLASS(1)
--------------------------------------
<S> <C> <C> <C>
Name of AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) BEFORE EXCHANGE AFTER EXCHANGE
Harry J. Fallon 304,285 18.9% 4.9%
Edmund J. Hoener 2,538 * *
Edwin S. Shortess 3,178 * *
Jane A. Christy 11,921 * *
ALL DIRECTORS AND OFFICERS AS
A GROUP (4 PERSONS) 321,922 5.3%
</TABLE>
_________________________
(1) Calculated assuming issuance only of the 4,491,988 shares to be issued in
the Exchange, and not any additional shares which may be issued upon the
occurrence of certain events subsequent to the Exchange. See "The
Agreement and Amendment -- Indemnification."
* Less than one percent of outstanding Common Stock.
THE BOARD OF DIRECTORS
The following table identifies each member of the Board of Directors, the
member's age, the period during which the member has served as a director, if
any, the member's current position(s) with Federated, if any, the member's
principal occupation and any other directorships held by the member in a
company with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 or subject to the requirements of Section 15(d)
of such Act or in any company registered as an investment company under the
Investment Company Act of 1940. It is anticipated that such persons will
continue to serve in the positions described below until the consummation of
the Exchange. Thereafter, it is anticipated that at least two directors shall
resign, and two additional directors will be appointed.
<TABLE>
<CAPTION>
Member DIRECTOR OF Principal Occupation
Age FEDERATED
Since
<S> <C> <C> <C>
Harry J. Fallon 70 1975 President of Federated
Edmund L. Hoener 66 1977 Former Vice President of the Howard Savings Bank;
Retired
Edwin S. Shortess 77 1989 Former President of Shortess-Rawson Associates;
Retired
Jane A. Christy 61 1989 Vice President/Operations of Federated
</TABLE>
Mr. Fallon, President of Federated since 1974, has been a director of
Federated since 1975. He is also a director of Hickok Electrical Instrument
Co., a manufacturer of electronic test equipment, located in Cleveland, Ohio.
After the death of Federated's Chairman of the Board, Arthur C. Kammerman, in
September 1992, Mr. Fallon served as acting Chairman of the Board of Federated
until the election of Mr. Albert Zlotnick in 1993. Mr. Fallon has been serving
as acting Chairman of the Board since Mr. Zlotnick's resignation of that
position in May, 1996.
Mr. Hoener became a director of Federated in 1977. He was a Vice
President of the Howard Savings Bank from October 1983 until his retirement in
June 1990.
Mr. Shortess became a director of Federated in 1989. From 1969 until his
retirement in 1986, he was the founder and President of Shortess-Rawson
Associates, a distributor of primarily electronic instrumentation and
educational systems in the sciences and electronics.
Ms. Christy became a director of Federated in 1989. She is currently Vice
President of Operations of Federated and has been employed by Federated in
various executive positions and offices for more than five years.
None of the corporations or organizations with which Messrs. Hoener or
Shortess has been employed during the past five years is a parent, subsidiary
or other affiliate of Federated.
During Federated's last fiscal year, the Board of Directors held four
meetings; each director has attended at least 75% of the meetings of the Board
of Directors and the committees on which he or she served that were held during
Federated's last fiscal year.
The Audit Committee has the authority to make recommendations to the Board
of Directors concerning the selection of Federated's independent auditors and
to review with the independent auditors the scope and results of the annual
audit. The incumbent members of this Committee are Messrs. Hoener and Fallon.
During the last fiscal year, the Audit Committee held one meeting. As a member
of this Committee, Mr. Hoener receives $200 for each meeting he attends. Mr.
Fallon receives no remuneration for his activities as a Committee member.
The Executive Committee has general authority over the supervision and
direction of the finances and business of Federated and has the power and
authority of the Board in the management of the business and affairs of
Federated between meetings of the Board. The incumbent members of this
Committee are Messrs. Shortess and Fallon. No meetings were held during the
last fiscal year.
Federated's Board of Directors has no standing nominating or compensation
committees. The functions of the compensation committee were performed by the
Board of Directors as a whole during the fiscal year ended October 31, 1996.
The Board of Directors has assigned the responsibilities generally performed by
the compensation committee to the Executive Committee for the fiscal year
ending October 31, 1997.
EXECUTIVE OFFICERS
The executive officers of Federated are set forth in the table below. All
executive officers are chosen at the annual meeting or interim meetings of the
Board of Directors and serve at the pleasure of the Board of Directors. It is
anticipated that following the consummation of the Exchange, the three persons
named below will continue in their current positions, and at least two
additional persons will be named Executive Officers of Federated.
<TABLE>
<CAPTION>
NAME AGE POSITION PERIOD SERVED
<S> <C> <C> <C>
Harry J. Fallon 70 President Since 1974
Jane A. Christy 61 Vice President/Operations Since 1976
Marie Santasiri 69 Secretary Since 1986
</TABLE>
All of the executive officers listed in the preceding table have been
employed by Federated in various executive positions and offices for more than
five years.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Summary Compensation Table set forth below shows the compensation of
the Chief Executive Officer of Federated for the past three fiscal years. The
Chief Executive Officer is the only executive officer whose total annual salary
and bonus exceeds $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION YEAR SALARY
<S> <C> <C>
Harry J. Fallon, President and 1996 $125,000
Chief Executive Officer 1995 $125,000
1994 $125,000
</TABLE>
EMPLOYMENT CONTRACTS
In April 1986, Mr. Fallon entered into an employment agreement with
Federated, the term of which commenced on November 1, 1986, expired on October
31, 1991 and was subsequently extended annually until October 31, 1996. The
employment agreement provided that, among other things, Mr. Fallon will receive
an annual salary in the amount of $125,000. Mr. Fallon has voluntarily waived
the receipt of $20,000 of such annual salary for each of the years ended
October 31, 1995, October 31, 1996 and October 31, 1997. Mr. Fallon executed a
new Employment Agreement with Federated, on identical terms, as of May 1, 1997.
Under the terms of the Agreement, Mr. Fallon will enter into a Consulting
Agreement with Federated, for a period of two years at cash compensation of
$60,000 per year. The Agreement also provides for an employment agreement of
one years' durations with Ms. Jane A. Christy, Vice President--Operations, at
cash compensation of $62,500, with a $15,000 bonus to be paid on the first
anniversary thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Fallon and Ms. Christy each served as a member of the Board of
Directors, which acted in the place of a compensation committee during the
fiscal year ended October 31, 1996. Mr. Fallon and Ms. Christy are also
executive officers of Federated.
During the fiscal year ended October 31, 1996, Mr. Fallon and Ms. Christy
participated in deliberations concerning executive officer compensation in
their capacities as members of the Board of Directors.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
Federated does not have a standing compensation committee. Decisions
regarding compensation of Federated's executive officers generally are made by
the Board of Directors as a whole. Pursuant to recently adopted rules designed
to enhance disclosure of companies' policies regarding executive compensation,
set forth below is a report submitted by Messrs. Fallon, Hoener, Shortess, and
Ms. Christy, as members of Federated's Board of Directors, addressing
Federated's compensation policies for 1995 as they affected Mr. Fallon, in his
capacity as Chief Executive Officer of Federated, and other executive officers.
Mr. Fallon is the only officer of Federated whose total compensation
exceeded $100,000 during the fiscal year ended October 31, 1996.
Mr. Fallon's current employment arrangement was negotiated by Federated on
an arm's length basis and was designed to be competitive with compensation
packages offered to other chief executive officers of similarly situated
companies in the industry.
During the fiscal year ending October 31, 1997, the Executive Committee of
the Board of Directors will perform the functions of the compensation
committee.
The foregoing report has been furnished by Messrs. Fallon, Hoener,
Shortess, and Ms. Christy.
PERFORMANCE GRAPH
The following line graph compares cumulative total shareholder return on
Federated's Common Stock since October 31, 1992, based on the market price and
assuming reinvestment of dividends, with the cumulative total return of
companies on Standard & Poor's Composite 500 Index and a peer group index
comprised of electronic parts distributors.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FEDERATED PURCHASER, INC., S&P 500 COMPOSITE INDEX AND
PEER GROUP INDEX OF ELECTRONIC PARTS DISTRIBUTORS
<GRAPH>
[graph illustrates relative performance
of Company shares]
Assumes $100 invested on October 31, 1991, at the prior day's closing market
price in Federated's Common Stock, the S&P 500 Composite Index and a Peer Group
Index comprised of Electronic Parts Distributors.
<TABLE>
<CAPTION>
INDEXED RETURNS [10/31/91 = 100]
BASE
COMPANY/INDEX YEAR 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
FEDERATED PURCHASER 100.00 61.18 85.42 50.05 28.57 38.85
INC.
S&P 500 COMP-LTD 100.00 109.95 176.59 131.27 165.98 205.97
PEER GROUP(1) 100.00 140.67 168.76 167.15 215.54 197.41
</TABLE>
_______________________
(1) The Peer Group Index is comprised of the following:
Peer Group
All American Semiconductor Nu Horizons Electrs Corp.
Arrow Electronics Inc. Pioneer Standard Electronics
Avnet Inc. Premier Industrial CP.
Bell Industries Inc. Richardson Elec Ltd.
Electrocon Intl Inc. Southern Electronics Corp.
Jaco Electronics Inc. Sterling Electronics
Kent Electronics Corp. Western Micro Technology Inc.
Marshall Industries Wyle Laboratories
Milgray Electronics Inc.Zing Technologies, Inc.
Although the foregoing companies are all distributors of electronic parts
and may be considered to be in the same industry as Federated, each has
significantly greater revenues and assets. Federated is unable to
construct a peer group index comprised of companies in the industry with
similar financial characteristics because such companies are privately
held.
Because Federated was delisted by NASDAQ in July, 1992, data from that
time through October 31, are as reported by the National Quotation Bureau, Inc.
and are based upon the average of high and low bid prices.
BUSINESS OF WISE
GENERAL
Wise Components, Inc. ("Wise"), founded 22 years ago, distributes
electronic components and wire and cable for voice and data networks. Its
products range from capacitors to fiber optics to power modification and
protection supplies. Founded as a local distributor, it has since expanded to
include regional, national, and international clientele, with sales offices in
Greenwich, Connecticut.
Wise maintains sizeable inventories of voice and data products for LAN
(local area network) and WAN (wide area network) installations. Supporting
these product lines, Wise provides fiber and copper cable, connectors, patch
panels and workstation information outlets, as well as numerous related items
for all wiring topologies.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Wise obtains the products it markets and distributes either through
distributorship agreements or through secondary commercial sources on the open
market. In general, Wise has had no difficulties in obtaining such products;
however, in 1995, Wise withdrew from The Genie Group, a cooperative supplier of
electronic components. See "Legal Proceedings" below. Wise has been able to
obtain by other means most of the products it previously purchased through
Genie, but on occasion at higher cost. As a result of the Exchange, there can
be no assurances that Wise will not be terminated by any of its other suppliers
or that any such termination will not have a material adverse impact on the
results of operations of the combined entity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PATENTS, TRADEMARKS AND LICENSES
Wise does not hold any patents, trademarks, licenses, franchises or
concessions with respect to its continuing operations.
SEASONAL BUSINESS
Wise's business is generally not affected by seasonal factors.
WORKING CAPITAL ITEMS
Management believes that Wise's inventory practices and other practices
which impact working capital are similar to those employed by other similarly
sized distributors doing business in this segment of the electronics industry.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MATERIAL CUSTOMERS
During fiscal 1996, net sales by Wise to its largest customer comprised
approximately 13% of Wise's consolidated net sales, and 15% of its total
accounts receivable balance. Given the competitiveness of the market for
smaller electronics distributors, there can be no assurances that the loss of
this or any other customer would not have a material adverse effect on Wise.
Most of Wise's sales are made to industrial customers within the
continental United States. International sales amount to less than 10% of
Wise's total sales.
GOVERNMENT CONTRACTS
No portion of Wise's business is subject to renegotiation of profits or to
termination of contracts or subcontracts at the election of the Government.
COMPETITIVE CONDITIONS
Like Federated, Wise faces intense competition from numerous companies
assembling and marketing products similar to its own. Although Wise has
substantially greater resources than Federated, many of Wise's competitors are
nevertheless substantially larger than Wise, with more capital resources,
larger staffs, more extensive facilities and equipment, and a broader range of
products. Competition is generally based upon price, service and breadth of
product lines offered. Wise agrees with Federated that the industry is moving
towards a reduction in the number of distributors which service each customer,
a trend which management believes favors the larger distributors and negatively
impacts Wise. As a result of these factors, there can be no assurances that
either Wise or the combined entity will be able to maintain profitability.
RESEARCH AND DEVELOPMENT
During fiscal 1996 and the interim periods of 1997, Wise did not spend any
amount on research and development activities.
ENVIRONMENTAL MATTERS
Management believes that Wise's capital expenditures, earnings and
competitive position have not been affected by compliance with Federal, State
and local laws relating to the protection of the environment.
NUMBER OF EMPLOYEES
As of October 1, 1997 Wise had approximately 25 employees, 4 of whom were
engaged in administration, 11 in clerical and shipping positions, and 10 in
sales. Wise is not a party to any collective bargaining agreement and
considers its employee relations to be satisfactory.
PROPERTY
Wise currently operates its principal administrative, sales and
warehousing functions in two facilities: a 7,500-square-foot
warehouse/administrative location in Greenwich, Connecticut, and a 3,000-
square-foot warehouse in Port Chester, New York. The leases for both of these
locations are currently on a month-to-month basis, for a total rent of
approximately $8,200 per month. Wise is planning to move in January of 1998 to
a single, consolidated 15,000-square-foot facility in Stamford, Connecticut.
Under the lease for the Stamford facility, total rent will be approximately
$10,000 per month.
LEGAL PROCEEDINGS.
Wise is a party to a dispute with The Genie Group, Inc. ("Genie"),
concerning certain items for which Wise alleges it was improperly billed by
Genie, and certain monies Genie alleges are owed by Wise. No civil action has
commenced, and the maximum potential liability of Wise is for $23,786. Wise is
not otherwise a party, nor is any of its property the subject of, any material
pending legal proceedings, other than ordinary routine litigation incidental to
its business.
RECENT DEVELOPMENTS
On June 12, 1997 Wise redeemed all of the outstanding shares of Wise
common stock (87.5 shares) owned by a shareholder and officer of Wise, at a
cost of $800,000. Of that total, $200,000 was paid out of cash on hand, and
$600,000 was obtained by entering into a loan agreement (the "Fleet Loan") with
Fleet National Bank, dated June 12, 1997, payable in monthly installments of
$10,000 plus interest at prime plus 1/2%, until July 1, 2002. The loan is
secured by a lien on corporate assets and is guaranteed by the remaining
stockholder of Wise, Martin L. Blaustein.
Simultaneously, Wise entered into an employment agreement with said
shareholder and officer, at a rate of $4,000 per week. These payments are
subordinated to the Fleet Loan described above.
<PAGE>
WISE COMPONENTS, INC.
SELECTED FINANCIAL DATA
The selected financial data as of and for each of the five years in the
period ended December 31, 1996 have been derived from the audited financial
statements of Wise. This data should be read in conjunction with, and is
qualified in its entirely by reference to the related financial statements and
notes included elsewhere is the Report.
<TABLE>
<CAPTION>
Unaudited
Six Months Ended Year Ended
JUNE 30, OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
Net sales $6,212,380 $8,030,601 $14,863,476 $15,885,147 $11,971,540 $11,046,324 $9,170,020
Net income
from con-
tinuing
operations 95,101 278,438 470,906 498,546 243,723 136,713 24,583
Net income per
share from
continuing
operations 573 1,591 2,690 2,849 1,393 781 141
Cash
dividends
paid -- -- -- 26,000 26,000 26,000 26,000
Cash
dividends
paid per share
-- -- -- 149 149 149 149
Total assets 3,275,648 3,632,243 3,302,505 3,583,483 2,913,901 2,831,143 2,452,351
Working
capital 1,928,253 1,855,444 2,093,487 1,577,928 1,099,190 954,399 874,038
Current ratio 2.7:1 2.3:1 3.2:1 2.0:1 1.8:1 1.7:1 1.7:1
Long-term debt 608,252 102,779 11,987 193,572 266,822 322,014 209,515
Stockholders'
equity 1,633,287 2,145,719 2,338,186 1,867,290 1,394,734 1,177,011 991,298
Stockholders'
equity per
share 9,839 12,261 13,361 10,670 7,970 6,726 5,665
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR WISE
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
RESULTS OF OPERATIONS
Wise recognized net income of $470,906 for the year ended December 31,
1996 on net sales of $14,863,476 as compared to net income of $498,546 for the
year ended December 31, 1995 on net sales of $15,885,147 and net income of
$243,723 for the year ended December 31, 1994 on net sales of $11,971,540.
Net sales were $14,863,476 for the year ended December 31, 1996 as
compared to $15,885,147 for the year ended December 31, 1995, or a decrease of
$1,021,671 or 6.5% over the prior year. The decrease in net sales for the 1996
year when compared to the 1995 year was the result of increased competition in
the electronic components industry and decreased average unit selling prices.
Net sales increased $3,913,607 for the 1995 year over the 1994 year or an
increase of 32.7% when net sales for the 1994 year were $11,971,540. The 32.7%
increase in net sales was the result of increased sales in the voice data line
of business and increased average unit selling prices.
Cost of sales as a percentage of sales was 73.20%, 73.79% and 72.81% for
the years ended 1996, 1995, 1994, respectively. The relative stability of
Wise's cost of sales is due to management's continued efforts to monitor
purchasing costs and trends within the industry and the result of increased
competition within the industry.
Selling and shipping expenses were $1,267,023 for the year ended December
31, 1996 compared to $1,259,805 for the year ended December 31, 1995 or an
increase of $7,218 over the prior year. Selling and shipping expenses were
$1,096,478 for the year ended December 31, 1994 as compared to $1,259,805 for
the 1995 year. The increase of $163,327 for the 1995 year over the 1994 year
represents an increase of 14.9% over the prior year and is the result of
increases primarily in sales salaries.
General and administrative expenses were $1,722,332 for the 1996 year
compared to $1,659,054 for the 1995 year an increase of $63,278 or 3.9% over
the prior year. The increase for the 1996 year over the 1995 year was
primarily the result of an increase in professional fees. General and
administrative expenses increased $118,678 or 7.7% from $1,540,376 in 1994 to
$1,659,054 in 1995. The increase was the result of increases in salaries,
consulting fees and telephone expenses.
Interest expense was $14,384, $64,376 and $74,103 for the years ended
1996, 1995 and 1994, respectively. Interest expense decreased $49,992 from
1995 to 1996 primarily due to Wise repaying $475,000 of its line-of-credit and
repaying $181,585 of its long-tem debt.
During the year 1995, Wise recognized a goodwill impairment charge of
$182,478, related to the 1993 acquisition of Ancar Electronic Supply, Inc.
Management has asserted that since Ancar Electronic Supply, Inc. was purchased
by Wise Components, Inc. and dissolved, all employees were transferred to Wise,
all accounts receivables were either allocated or written-off, all outstanding
payables and accruals were paid, all inventory was assigned to Wise with
obsolete inventory written-off, and all agreements with vendors and customers
were assigned to Wise, there is no remaining value associated with the original
purchase of Ancar Electronic Supply, Inc. Accordingly, Wise has recorded a
loss on impairment for the goodwill remaining.
LIQUIDITY AND CAPITAL RESOURCES
Wise's financial position continues to be solid. Cash provided from
operating activities in the primary source of liquidity and amounted to
$808,079 in 1996, $303,139 in 1995 and $206,331 in 1994 which has enabled Wise
to finance its growth and existing operations.
Wise has a banking relationship to finance fluctuations in working capital
and it provide long-term financing as necessary to meet growth requirements.
Internally generated funds have primarily been used to finance capital
expenditures, provide working capital and pay dividends.
During the year 1996, cash increased by $151,483 as compared to an
increase of $68,126 for the year 1995 and an increase of $25,435 for the year
1994. Cash provided by operating activities was $808,079 for the year 1996
primarily from the net income for the year of $470,906 and a decrease in
accounts receivable of $301,116. Cash provided by operating activities was
$303,139 for the year 1995 primarily from the net income for the year of
$498,546, an increase of $295,286 in accounts payable and accrued expenses,
partially offset by an increase of $488,691 in accounts receivable. Cash
provided by operating activities was $206,331 for the year 1994, primarily from
the net income of $243,723 for the year 1994. Wise used cash in investing
activities of $11 in 1996, $136,763 in 1995 and $60,704 in 1994. Cash was used
primarily in 1995 to purchase equipment for $94,188 and $26,000 to pay
dividends. Cash was used primarily in 1994 to purchase equipment for $17,384
and $26,000 to pay dividends. During the year 1996, Wise used cash of $475,000
to retire short-term borrowings and cash of $181,585 as payments on long-term
debt. During the year 1995, Wise used cash of $73,250 to pay long-term debt
and $25,000 to pay short-term borrowings. During the year 1994, Wise used cash
of $120,192 to pay long-term debt and short-term borrowings.
Working capital has increased from $1,099,190 at the end of year 1994 to
$1,577,928 at the end of year 1995 to $2,093,487 at the end of year 1996. The
increase of working capital from 1995 to 1996 is the result of decreases in
bank financing, decrease in accounts payable, partially offset by higher
accounts receivable levels.
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
OPERATING RESULTS
Wise recognized net income of $95,101 for the six months ended June 30,
1997 on net sales of $6,212,380 as compared to net income of $278,438 for the
six months ended June 30, 1996 on net sales of $8,030,601. Net income for the
three months ended June 30, 1997 was $34,600 compared to net income of $150,756
for the three months ended June 30, 1996.
Net sales were $6,212,380 for the six months ended June 30, 1997 as
compared to $8,030,601 for the six months ended June 30, 1996, a decrease of
$1,818,221 or 22.6% over the prior year. Net sales were $2,995,871 for the
three months ended June 30, 1997 as compared to $4,046,338 for the three months
ended June 30, 1996, a decrease of $1,050,467 or 25.9% over the prior year.
The decrease in net sales for the current six months and three months ended
June 30, 1997 is the result of the departure of key sales personnel and
decreased average unit selling prices.
Cost of sales was $4,582,999 for the six months ended June 30, 1997
compared to $5,988,869 for the six months ended June 30, 1996 or a decrease of
$1,405,870 over the prior year. Cost of sales for the three months ended June
30, 1997 was $2,229,420 compared to $3,030,327 for the three months ended June
30, 1996 or a decrease of $800,907 over the prior year. The decrease in cost
of sales for the six months and three months ended June 30, 1997 in the result
of lower sales levels.
Selling and shipping expenses were $537,018 for the six months ended June
30, 1997 compared to $642,006 for the six months ended June 30, 1996 a decrease
of $104,988 or 16.3% over the prior year. The decrease is a result of a
reduction is sales salaries and advertising expenses. For the three months
ended June 30, 1997, selling and shipping expenses were $266,691 compared to
$322,096 for the three months ended June 30, 1996, a decrease of $55,405 or
17.2% over the prior year. The decrease for the three months ended June 30,
1997 when compared to the three months ended June 30, 1996 was the result of a
reduction in sales salaries and advertising expenses.
General and administrative expenses were $902,587 for the six months ended
June 30, 1997 compared to $854,865 for the six months ended June 30, 1996,
representing an increase of $47,722 or 5.5% over the prior year. The increase
is the result of an increase in executive salaries, office expenses partially
offset by a reduction in insurance expense. For the three months ended June
30, 1997, general and administrative expenses were $439,521 compared to
$397,038 for the three months ended June 30, 1996, and increase of $42,483 over
the prior year or 10.6%.
Interest expense was $5,458 for the six months ended June 30, 1997, as
compared to $10,684 for the six months ended June 30, 1996, a decrease of
$5,226 over the prior year. The decrease is due to lower debt levels of
financing in comparison to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash was $154,780 at June 30, 1997 compared to cash of $120,109 at June
30, 1996, an increase of $34,671 over the prior comparable period. Cash
decreased by $126,262 for the six months ended June 30, 1997. The decrease of
$126,262 is principally attributable to the net income of $95,101 for the six
months ended June 30, 1997, an increase of $222,183 in accounts receivable, a
decrease of $85,105 in other current assets, an increase in accounts payable of
$358,193, a decrease of $276,416 is accrued expenses and deposit payable,
proceeds from long-term borrowings of $600,000 and purchase of treasury stock
for $800,000. The purchase of treasury stock of $800,000 occurred on June 12,
1997, when Wise purchased all of the outstanding shares of common stock (87.5
shares) of a shareholder and officer of Wise. Wise funded the purchase of
treasury stock with proceeds of long-term borrowings of $600,000.
Cash decreased by $9,450 for the six months ended June 30, 1996. The
decrease of $9,450 is principally attributable to the net income of $278,438
for the six months ended June 30, 1996, an increase of $201,804 in accounts
receivable, a decrease of $143,857 in inventories, an increase of $393,376 in
deposits payable, payments on short-term debt of $500,000 and payments on long-
term debt of $66,480.
Wise currently has an available line-of-credit of $400,000 which was
negotiated on June 12, 1997. As of June 30, 1997, $-0- was outstanding against
the line-of-credit.
The ratio of current assets to current liabilities was 2.66 at June 30,
1997 as compared to 2.29 at June 30, 1996. Working capital increased from
$1,855,444 at June 30, 1996 to $1,928,253 at June 30, 1997, an increase of
$72,809.
CAPITAL STOCK OF WISE
The capital stock of Wise consists solely of one class of common stock
(the "Wise Stock"). There are 175 currently issued and outstanding shares of
Wise Stock, of which 87.5 are treasury shares. There is no market for Wise's
common stock. No dividends were paid during the interim period ended June 30,
1997, or during the fiscal year ended December 31, 1996. Dividends totalling
$26,000 were paid during the fiscal year ended December 31, 1995.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS; SECURITY OWNERSHIP OF
MANAGEMENT
The following table sets forth the number of shares of Wise common stock
beneficially owned by the following person, who is known by Wise to be the
sole holder of its common stock. Mr. Blaustein is President and Chairman of
the Board of Wise.
Number of Shares Percentage
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
Martin L. Blaustein 87.5 100%
28 Henry Street
Greenwich, CT 06830
MARKET FOR COMMON EQUITY
FEDERATED
Since July 14, 1992, Federated's stock has been quoted on the "pink
sheets" by the National Quotation Bureau, Inc. These quotations represent
prices between dealers and do not include retail mark-up, mark-down or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
BID PRICES ASKED PRICES
<S> <C> <C> <C> <C>
Quarter ended: HIGH LOW HIGH LOW
January 31, 1995 5/16 1/4 3/4 9/16
April 30, 1995 5/16 1/16 3/4 5/16
July 31, 1995 1/4 1/8 3/4 7/16
October 31, 1995 1/4 1/8 3/4 1/2
January 31, 1996 1/4 1/4 1/2 7/16
April 30, 1996 1/4 1/8 7/16 3/8
July 31, 1996 7/32 7/32 3/8 3/8
October 31, 1996. 7/32 7/32 3/8 3/8
January 31, 1997 3/8 1/8 7/16 1/4
April 30, 1997 5/16 1/8 5/16 1/4
July 31, 1997 5/32 1/8 5/16 5/16
September 30, 1997 1/8 1/8 5/16 5/16
</TABLE>
At October 1, 1997, there were approximately 785 shareholders of record of
Federated's Common Stock.
Given Federated's repeated operating losses, accumulated deficit, and
impaired liquidity position, management intends to retain all remaining
available cash for the operation of Federated's business and does not
anticipate paying cash dividends on its common stock in the foreseeable future.
Any future determination as to the payment of dividends on the common stock
will depend upon future earnings, capital requirements, the financial condition
of Federated and any other factors the Board of Directors may consider.
For information regarding the effect of the Exchange on the principal
holders of Common Stock, see "Description of Capital Stock -- Voting and
Principal Holders" above. For information regarding the effect of the Exchange
on the Common Stock ownership of Federated's directors and officers, see
"Directors and Officers" above. There are no commitments with any of such
persons with respect to the issuance of any class of Federated's common equity.
Wise
Wise's Common Stock, of which 87.5 shares are currently issued and
outstanding, is owned entirely by Martin L. Blaustein and is not publicly
traded. Its book value per share as of June 30, 1997 was $18,666.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma, condensed, combining balance sheet as of
July 31, 1997 and the unaudited, Pro Forma condensed, combining statements of
income for various periods, give retroactive effect to the acquisition of Wise
Components, Inc. in a stock for stock transaction accounted for as a pooling of
interest. The acquisition of Wise Components, Inc. requires that Federated
amend its charter to authorize the issuance of 10,000,000 shares of common
stock. Federated will issue 4,491,988 shares to the stockholders of Wise for
all of the common stock of Wise. The result of this transaction is
antidilutive to the existing shareholders of Federated. The Pro Forma
statements do not purport to represent what Federated's results of operations
and financial condition would actually have been if the foregoing transaction
had actually been consummated on such dates, or project Federated's result of
operations or financial position for any future period or date.
The Pro Forma statements should be read in conjunction with the historical
financial statements and notes thereto appearing elsewhere in this prospectus.
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING BALANCE SHEET
JULY 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
Federated Wise
Purchaser, Inc. Components, Inc. Pro Forma Pro Forma
JULY 31, 1997 JUNE 30, 1997 ADJUSTMENTS BALANCE SHEET
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS:
Cash $ 102,341 $ 154,780 $ 257,121
Accounts receivable 403,464 1,805,135 2,208,599
Inventories 279,350 1,028,863 1,308,213
Other current assets 70,113 101,836 171,949
TOTAL CURRENT ASSETS 855,268 3,090,614 3,945,882
Property and equipment 22,592 109,959 132,551
$(1,633,287)(2)
Other assets 249,171 75,075 1,633,287(1) 324,246
TOTAL ASSETS $1,127,031 $3,275,648 $4,402,679
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current portion of long-term debt $ 11,510 $ 128,252 $ 139,762
Accounts payable and accrued
expense 499,629 1,034,109 (58,801)(3) 1,474,937
TOTAL CURRENT LIABILITIES 511,139 1,162,361 1,614,699
Long-term debt - 480,000 480,000
Deferred income 30,000 - 30,000
TOTAL LIABILITIES 541,139 1,642,361 2,124,699
Common stock 171,976 87,500 (87,500)(2) 621,175
449,199(1)
Additional paid-in capital 1,692,342 367,750 (367,750)(2) 2,876,430
1,184,088(1)
Retained earnings (deficit) (1,217,348) 1,978,037 58,801(3) (1,158,547)
(1,978,037)(2)
Treasury stock (61,078) (800,000) 800,000(2) (61,078)
TOTAL STOCKHOLDERS'
EQUITY 585,892 1,633,287 2,277,980
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,127,031 $3,275,648 $4,402,679
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING STATEMENT OF INCOME
NINE MONTHS ENDED JULY 31, 1997
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
Federated Wise
Purchaser, Inc. Components, Inc.
Nine Months Six Months
Ended Ended Pro Forma
July 31, June 30, Pro Forma Income
1997 1997 ADJUSTMENTS STATEMENT
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $2,515,054 $6,212,380 $8,727,434
COSTS AND EXPENSES:
Cost of sales 1,919,823 4,582,999 6,502,822
Selling and shipping 280,865 537,018 817,883
General and administrative 493,388 922,484 1,415,872
Interest expense 2,013 5,458 7,471
Depreciation and amortization 9,436 22,414 31,850
Interest income (8,721) (3,494) (12,215)
Other income (18,750) (8,401) (27,151)
TOTAL COSTS AND EXPENSES 2,678,054 6,058,478 8,736,532
INCOME (LOSS) BEFORE PROVISION
FOR TAXES (163,000) 153,902 (9,098)
PROVISION FOR INCOME TAXES 1,015 58,801 $ (58,801)(3) 1,015
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ (164,015) $ 95,101 $(10,113)
NET INCOME (LOSS) PER SHARE (.10) N/A (.00)
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING STATEMENT OF INCOME
NINE MONTHS ENDED JULY 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
Federated Wise
Purchaser, Inc. Components, Inc.
Nine Months Nine Months
Ended Ended Pro Forma
July 31, June 30, Pro Forma Income
1997 1997 ADJUSTMENTS STATEMENT
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $2,515,054 $9,390,534 $11,905,588
COSTS AND EXPENSES:
Cost of sales 1,919,823 6,813,907 8,733,730
Selling and shipping 280,865 846,647 1,127,512
General and administrative 493,388 1,432,115 1,925,503
Interest expense 2,013 6,810 8,823
Depreciation and amortization 9,436 32,656 42,092
Interest income (8,721) (4,152) (12,873)
Other income (18,750) (10,906) (29,656)
TOTAL COSTS AND EXPENSES 2,678,054 9,117,077 11,795,131
INCOME (LOSS) BEFORE PROVISION
FOR TAXES (163,000) 273,457 110,457
PROVISION FOR INCOME TAXES 1,015 132,768 $ 79,139(3) 53,629
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ (164,015) $ 140,689 $56,828
NET INCOME (LOSS) PER SHARE (.10) N/A .01
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
Federated Wise
Purchaser, Inc. Components, Inc.
Nine Months Nine Months
Ended Ended Pro Forma
October 31, September 30, Pro Forma Income
1996 1996 ADJUSTMENTS STATEMENT
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $ 3,980,560 $11,685,322 $15,665,882
COSTS AND EXPENSES:
Cost of sales 3,128,019 8,648,251 11,776,270
Selling and shipping 485,701 957,394 1,443,095
General and administrative 800,743 1,311,298 2,112,041
Interest expense 2,828 13,032 15,860
Depreciation and amortization 11,575 35,488 47,063
Interest income (14,830) (4,724) (19,554)
Other income (20,625) - (20,625)
TOTAL COSTS AND EXPENSES 4,393,411 10,960,739 15,354,150
INCOME (LOSS) BEFORE PROVISION
FOR TAXES (412,851) 724,583 311,732
PROVISION FOR INCOME TAXES 1,975 299,265 $ 172,490(3) 128,750
INCOME (LOSS) FROM CONTINUING
OPERATIONS $(414,826) $ 425,318 $ 182,982
NET INCOME (LOSS) PER SHARE (.26) N/A .03
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA ADJUSTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
DEBITS CREDIT
<S> <C> <C>
(1) Investments in subsidiary $1,633,287
Common stock $ 449,199
Additional paid-in capital 1,184,088
To record the issuance of 4,491,988 shares of
common stock in exchange for the common stock
of Wise Components, Inc.
(2)Common stock 87,500
Additional paid-in capital 367,750
Retained earnings 1,978,037
Treasury stock 800,000
Investment in subsidiary 1,633,287
To eliminate the equity of Wise Components, Inc.
upon consolidation.
(3)Accrued expenses 58,801
Provision for federal income tax 58,801
To eliminate the tax on subsidiary profit upon
consolidation.
(Memo) retained earnings. 58,801
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING BALANCE SHEET
OCTOBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
Federated Wise
Purchaser, Inc. Components, Inc. Pro Forma Pro Forma
OCTOBER 31, 1996 DECEMBER 31, 1996 ADJUSTMENTS BALANCE SHEET
<S> <C> <C> <C> (Unaudited)
ASSETS:
Cash $ 95,918 $ 281,042 $ 376,960
Accounts receivable 493,285 1,582,952 2,076,237
Inventories 314,447 1,082,653 1,397,100
Other current assets 67,300 107,424 174,724
TOTAL CURRENT ASSETS 970,950 3,054,071 4,025,021
Property and equipment 32,028 154,156 186,184
$1,633,287(4)
Other assets 284,346 94,278 (1,633,287)(5) 378,624
TOTAL ASSETS $1,287,324 $3,302,505 $4,589,829
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current portion of long-term debt $ 10,624 $ 8,252 $ 18,876
Accounts payable and accrued
expense 469,712 952,332 (184,515)(6) 1,237,529
TOTAL CURRENT LIABILITIES 480,336 960,584 1,256,405
Long-term debt 8,331 3,735 12,066
Deferred income 48,750 - 48,750
TOTAL LIABILITIES 537,417 964,319 1,317,221
Common stock 171,976 87,500 449,199(4) 621,175
(87,500)(5)
Additional paid-in capital 1,692,342 367,750 521,664(5) 3,765,844
1,184,088(4)
Retained earnings (deficit) (1,053,333) 1,882,936 (2,067,451)(5) (1,053,333)
184,515(6)
Treasury stock (61,078) - (61,078)
TOTAL STOCKHOLDERS'
EQUITY 749,907 2,338,186 3,272,608
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,287,324 $3,302,505 $4,589,829
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
Federated Wise
Purchaser, Inc. Components, Inc.
Year Endeds Year Ended
October 31, December 31, Pro Forma Income
1996 1996 ADJUSTMENTS STATEMENT
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $ 3,980,560 $14,863,476 $18,844,036
COSTS AND EXPENSES:
Cost of sales 3,128,019 10,879,159 14,007,178
Selling and shipping 485,701 1,267,023 1,752,724
General and administrative 800,743 1,820,929 2,621,672
Interest expense 2,828 14,384 17,212
Depreciation and amortization 11,575 45,730 57,305
Interest income (14,830) (5,382) (20,212)
Other income (20,625) (2,505) (23,130)
TOTAL COSTS AND EXPENSES 4,393,411 14,019,338 18,412,749
INCOME (LOSS) BEFORE PROVISION
FOR TAXES (412,851) 844,138 431,287
PROVISION FOR INCOME TAXES 1,975 373,232 $ (184,515)(4) 190,692
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ (414,826) $ 470,906 $ 240,595
NET INCOME (LOSS) PER SHARE$ (.26) N/A $ .04
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA ADJUSTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
DEBITS CREDIT
<S> <C> <C>
(4) Investments in subsidiary $1,633,287
Common stock $ 449,199
Additional paid-in capital 1,184,088
To record the issuance of 4,491,988 shares of
common stock in exchange for the common stock
of Wise Components, Inc.
(5) Common stock 87,500
Retained earnings 2,067,451
Investment in subsidiary 1,633,287
Additional paid-in capital 521,664
To eliminate the equity of Wise Components, Inc.
upon consolidation.
(6) Accrued expenses 184,515
Provision for federal income tax 184,515
To eliminate the tax on subsidiary profit upon
consolidation.
(Memo) retained earnings. 184,515
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
Federated Wise
Purchaser, Inc. Components, Inc.
Year Ended Year Ended
October 31, December 31,, Pro Forma Income
1995 1995 ADJUSTMENTS STATEMENT
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $ 4,118,799 $15,885,147 $20,003,946
COSTS AND EXPENSES:
Cost of sales 3,172,060 11,722,182 14,894,242
Selling and shipping 491,090 1,259,805 1,750,895
General and administrative 862,519 1,942,811 2,805,330
Loss on sale of subsidiary 182,791 - 182,791
Interest expense 3,811 64,376 68,187
Depreciation and amortization 11,260 58,356 69,616
Interest income (32,530) (1,000) (33,530)
Other income (30,503) - (30,503)
TOTAL COSTS AND EXPENSES 4,660,498 15,046,530 19,707,028
INCOME (LOSS) BEFORE PROVISION
FOR TAXES (541,699) 838,617 296,918
PROVISION FOR INCOME TAXES 4,363 340,071 $ (224,030)(7) 120,404
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ (546,062) $ 498,546 $ 176,514
NET INCOME (LOSS) PER SHARE$ (.34) N/A $ .03
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL
Federated Wise
Purchaser, Inc. Components, Inc.
Year Ended Year Ended
October 31, December 31,, Pro Forma Income
1994 1994 ADJUSTMENTS STATEMENT
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $ 6,281,006 $11,971,540 $18,252,546
COSTS AND EXPENSES:
Cost of sales 4,907,644 8,716,183 13,623,827
Selling and shipping 624,196 1,096,478 1,720,674
General and administrative 1,062,820 1,600,315 2,663,135
Interest expense 24,340 74,103 98,443
Depreciation and amortization 47,332 56,689 104,021
Interest income (1,637) - (1,637)
Other income (2,505) - (2,505)
TOTAL COSTS AND EXPENSES 6,662,190 11,543,768 18,205,958
INCOME (LOSS) BEFORE PROVISION
FOR TAXES (381,184) 427,772 46,588
PROVISION FOR INCOME TAXES (7,335) 184,049 $ (156,670)(8) 20,044
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ (373,849) $ 243,723 $ 26,544
NET INCOME (LOSS) PER SHARE$ (.22) N/A $ .00
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA ADJUSTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
DEBITS CREDIT
<S> <C> <C>
(7)Accrued expenses 224,030
Provision for federal income tax 224,030
To eliminate the tax on subsidiary profit upon consolidation.
(Memo) retained earnings. 224,030
OCTOBER 31, 1994
DEBITS CREDIT
(8)Accrued expenses 156,670
Provision for federal income tax 156,670
To eliminate the tax on subsidiary profit upon consolidation.
(Memo) retained earnings. 156,670
</TABLE>
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of Federated as of July
31, 1997 (ii) such capitalization "as adjusted" to reflect the issuance of
4,491,988 shares of common stock to complete the stock for stock acquisition of
Wise Components, Inc. This table should be read in conjunction with
Federated's financial statements and Pro Forma financial statements included
elsewhere in this document.
<TABLE>
<CAPTION>
JULY 31, 1997
ACTUAL AS ADJUSTED
<S> <C> <C>
Long-term debt, less current maturities $ - $ 480,000
Common stock, $.10 par value, 5,000,000
shares authorized 1,719.758 shares issued
and outstanding, 10,000,000 shares authorized,
6,211,748 issued and outstanding, as adjusted 171,976 621,175
Additional paid-in capital 1,692,342 2,876,430
Accumulated deficit (1,217,348) (1,158,547)
Treasury stock (61,078) (61,078)
Total stockholders' equity 585,892 2,277,990
Total capitalization $ 585,892 $2,757,980
</TABLE>
Reflects the acquisition of Wise Components, Inc. in the form of a pooling
of interest as indicated in the Pro Forma Financial Statements.
Reflects the amendment to Federated's certificate of incorporation
increasing the authorized shares of common stock to 10,000,000, and the
issuance of 4,491,988 shares to effect the acquisition of Wise Components,
Inc.
<PAGE>
EXPERTS
The financial statements and financial statements schedules of Federated as
of October 31, 1996 and 1995 and for each of three years in the period ended
October 31, 1994 included in this Proxy Statement/Prospectus and elsewhere in
the Registration Statement have been audited, to the extent stated in their
report (which includes explanatory paragraphs regarding (a) the change in
Federated's method of accounting for income taxes and (b) Federated's ability
to continue as a going concern) by Bederson & Co., independent accountants.
The financial statements and financial statements schedules of Wise as of
December 31, 1996 and 1995 and for each of three years in the period ended
December 31, 1994 included in this Proxy Statement/Prospectus and elsewhere in
the Registration Statement have been audited, to the extent stated in their
report by Bederson & Co. The financial statements and financial statement
schedules audited by Bederson & Co. have been included in this Proxy
Statement/Prospectus and elsewhere in the Registration Statement in reliance
upon their report given on their authority as experts in accounting and
auditing.
<PAGE>
APPENDIX I
AGREEMENT
THIS AGREEMENT (this "Agreement") entered into on this ______ day
of October, 1997, by and among Wise Components, Inc., a New York
corporation ("Wise"), Federated Purchaser, Inc., a New York corporation
("Federated"), and Martin L. Blaustein ("Blaustein"). Wise, Federated and
Blaustein are sometimes individually or collectively referred to herein as
"Party" or "Parties," as appropriate.
RECITALS
WHEREAS, Blaustein and Federated wish to effect a tax-free
exchange (the "Exchange") of all of the outstanding capital stock of Wise,
which following the Exchange shall be held by Federated, for which
Blaustein, being the holder of all of such outstanding capital stock of
Wise, will receive such number of shares of common stock of Federated as is
herein specified; and
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations,
warranties and covenants herein contained, the parties hereto agree as
follows:
ARTICLE 1
THE EXCHANGE
1.1 THE EXCHANGE. Each share of capital stock of Wise issued
and outstanding prior to consummation of the Exchange shall be delivered to
Federated, in exchange for the right to receive, as of the Closing Date,
4,491,988 shares of Federated Common Stock (the "Federated Common Shares").
1.2 EFFECT OF THE EXCHANGE. By virtue of the Exchange and upon
consummation of the Exchange, all of the capital stock of Wise will be held
by Federated; consequently, Wise shall become a wholly owned subsidiary of
Federated.
1.3 FRACTIONAL SHARES. No fractional Federated Common Shares
shall be issued in the Exchange. Any fractional Federated Common Shares
shall be rounded down.
1.4 EXCHANGE PROCEDURES.
(a) On or before the consummation of the Exchange, Federated
will deliver to a financial institution appointed by Federated with the
consent of Wise (the "Exchange Agent"), certificates representing the
Federated Common Shares and funds representing a sufficient amount of cash
payable in lieu of fractional shares.
(b) Upon surrender to Federated of one or more certificates for
shares of capital stock of Wise ("Wise Certificates"), accompanied by stock
powers duly endorsed in blank, the Exchange Agent shall, promptly after the
Exchange, deliver to Blaustein new certificates representing the Federated
Common Shares together with checks for payment of cash in lieu of
fractional interests.
(c) Until Wise Certificates have been surrendered to Federated
and exchanged as herein provided, each outstanding Wise Certificate shall
represent, on and after the consummation of the Exchange, solely the right
to receive Federated Common Shares as provided herein.
(d) No transfer taxes shall be payable by Wise or Blaustein in
respect of the issuance of new certificates.
(e) The Exchange Agent shall not be entitled to vote or exercise
any other rights of ownership with respect to any Federated Common Shares
held from time to time and will hold any dividends received with respect to
the new certificates for the benefit of the holder of such new
certificates.
1.5 CLOSING DATE. Subject to the terms and conditions set forth
in this Agreement and the satisfaction of all conditions precedent
specified herein, the closing of the Exchange shall take place on the
Closing Date, which shall be on or before January 31, 1998.
1.6 DOCUMENTS TO BE DELIVERED. At the closing, the Parties
shall deliver, or cause to be delivered, such documents or certificates as
may be necessary, in the reasonable opinion of the Parties, to effect the
transactions contemplated by this Agreement. From and after the date of
this Agreement, each of the Parties hereby covenants and agrees, without
the necessity of any further consideration whatsoever, to execute,
acknowledge and deliver any and all other documents and instruments and
take any and all such other action as may be reasonably necessary or
desirable to more effectively carry out the intent and purpose of this
Agreement, and the officers and directors of the Parties shall execute and
deliver, or cause to be executed and delivered, all such documents as may
be reasonably necessary or desirable to more effectively carry out the
intent and purpose of this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF FEDERATED
Federated represents and warrants to Wise and Blaustein that the
statements contained in this Article II are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted
for the date of this Agreement throughout this Article II) except as set
forth in the corresponding section of the Federated Disclosure Schedule.
2.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Federated
is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation. Federated is duly
authorized to conduct business and is in good standing under the laws of
New York, New Jersey and Pennsylvania.
2.2 CHARTER, BY-LAWS, ETC. True and complete copies of the
certificate or articles of incorporation (as the case may be) and by-laws,
each of the foregoing as amended to the date hereof, and the minute books
and all stock books and stock transfer records of Federated shall have been
delivered to Wise prior to the Closing Date. On the Closing Date, such
minute books will contain the true and complete minutes and records of any
meetings, proceedings and other actions of the shareholders and the Board
of Directors of Federated from the date of its incorporation to and
including the Closing Date.
2.3 ISSUANCE OF THE SHARES; CAPITALIZATION. Upon the issuance
of the Federated Common Shares as provided herein, such shares will be duly
authorized and validly issued, fully paid and non-assessable. The
Federated Common Shares, when issued and delivered to Blaustein, will not
be subject to preemptive rights. The issuance of the Federated Common
Shares is subject to the registration requirements of the Securities Act of
1933, and the requirements of applicable state securities laws. As of the
date of this Agreement, the authorized capital stock of Federated is as set
forth in Federated's most recent Quarterly Report on Form 10-Q.
2.4 AUTHORIZATION OF TRANSACTION. Following approval by
Federated's Board of Directors and shareholders, Federated shall have full
power, authority and capacity to execute and deliver this Agreement and any
related agreement and to perform its obligations hereunder and thereunder.
Following approval by Federated's Board of Directors and shareholders, this
Agreement and any related agreement shall constitute valid and legally
binding obligations of Federated, enforceable in accordance with their
terms and conditions, except in each case, as limited by the effect of
bankruptcy, insolvency, reorganization, moratorium and similar laws
relating to or affecting creditors' rights generally, and general equity
principles.
2.5 NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement and any related agreement, nor the consummation of the
transactions contemplated hereby and thereby, will (i) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, or create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice or consent under (A) any
agreement, contract, lease or commitment affecting the authority of
Federated to perform its obligations hereunder or (B) any related
agreement, license, instrument, or other arrangement (including any
shareholder agreement) to which Federated is a party or by which it is
bound or to which any of its assets is subject (or will result in the
imposition of any mortgage, pledge, lien, encumbrance, charge or other
security interest upon any of its assets); or (ii) violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, or other restriction of any governmental entity or court to
which Federated is subject; or (iii) conflict with or result in a breach of
any provision of the articles of incorporation or by-laws of Federated.
2.6 CONSENTS AND APPROVALS. No consent, approval or
authorization of, or declaration, filing or registration with, any
governmental entity, or any other person or entity, is required to be made
or obtained by Federated in connection with the execution, delivery and
performance of this Agreement or any related agreement and the consummation
of the transactions contemplated hereby and thereby, except for approval by
Federated's Board of Directors and shareholders, and any consents,
approvals, authorizations, declarations, filings and registrations required
pursuant to the federal securities laws and the securities or blue sky laws
of the various states, which Federated shall make.
2.7 EVENTS SUBSEQUENT TO JULY 31, 1997. Since July 31, 1997,
there has not been, individually or in the aggregate, any Federated
Material Adverse Effect.
2.8 SECURITIES REPORTS; FINANCIAL STATEMENTS.
(a) Federated has provided to Blaustein true and correct copies
of the following, including all exhibits thereto: (i) Federated's Annual
Report on Form 10-K for the years ended on October 31 of each of 1992,
1993, 1994, 1995 and 1996, (ii) Federated's Quarterly Reports on Form 10-Q
for the quarters ended January 31, April 30, and July 31 of 1997, (iii)
Federated's Annual Reports to the Shareholders for the years ended on
October 31 of each of 1992, 1993, 1994, 1995 and 1996, and (iv) Federated's
proxy statements filed on Form 14A in each of 1993, 1994, 1995, 1996 and
1997. The foregoing (i) comply in all material respects with, and were
filed with the U.S. Securities and Exchange Commission ("SEC") in
accordance with, the requirements of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as applicable, and the rules and
regulations of the SEC promulgated thereunder applicable thereto, and (ii)
did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(b) The audited financial statements of Federated for the year
ended October 31, 1996, included in Federated's Annual Report on Form 10-K
filed with the SEC, fairly present in all material respects, the financial
condition and the results of operations and cash flows of Federated as of
October 31, 1996.
(c) Except as disclosed in Federated's Quarterly Reports on Form
10-Q, there has not been any Federated Material Adverse Effect since the
date of the financial statements contained in its Annual Report on Form 10-
K for the year ended October 31, 1996.
2.9 LITIGATION. There are no Actions pending or, to the
knowledge of Federated, threatened or anticipated, against or involving
Federated or an Affiliate of Federated relating to or affecting the
transactions contemplated by this Agreement or any related agreement.
2.10 BOOKS AND RECORDS. Federated's books and records have been
fully, properly and accurately maintained in all material respects, and
there are no material inaccuracies or discrepancies of any kind contained
or reflected therein, and they fairly present the financial position of
Federated in all respects. None of the records, systems, controls, data or
information of Federated are recorded, stored, maintained, operated or
otherwise wholly or partly dependent on or held by any means (including any
electronic, mechanical or photographic process, whether computerized or
not) which (including all means of access thereto and therefrom) are not
under the exclusive ownership and direct control of Federated or
accountants retained by Federated.
2.11 NO MATERIAL ADVERSE EFFECT. There exist no facts,
conditions or circumstances that would be required to be disclosed under
any other Section of this Article II, except for such facts, conditions and
circumstances which, individually or in the aggregate, have not had and
would not reasonably be expected to have a Federated Material Adverse
Effect.
2.12 BROKERS' FEES. Federated has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which Blaustein or Wise
could become liable or obligated.
2.13 DISCLOSURE. No representation or warranty by Federated in
this Article II contains any untrue statement of a material fact, or omits
to state any material fact necessary to make the statements or facts
contained therein not misleading. The copies of all documents furnished to
Blaustein hereunder are true and complete copies of the originals thereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES CONCERNING WISE
Wise represents and warrants to Federated that the statements
contained in this Article III are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article III), except as set forth in
the corresponding section of the Wise Disclosure Schedule.
3.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Wise is a
corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Wise is duly authorized
to conduct business and is in good standing under the laws of New York, New
Jersey and Connecticut.
3.2 CHARTER, BY-LAWS, ETC. True and complete copies of the
certificate or articles of incorporation (as the case may be) and by-laws,
each of the foregoing as amended to the date hereof, and the minute books
and all stock books and stock transfer records of Wise shall have been
delivered to Federated prior to the Closing Date. On the Closing Date,
such minute books will contain the true and complete minutes and records of
any meetings, proceedings and other actions of the shareholders and the
Board of Directors of Wise from the date of its incorporation to and
including the Closing Date.
3.3 CAPITALIZATION.
(a) The entire authorized capital stock of Wise is set forth in
Exhibit A of this Agreement. All of the issued and outstanding shares of
common stock of Wise have been duly authorized, are validly issued, fully
paid and nonassessable, and are held of record only by Blaustein. On the
Closing Date, all of the issued and outstanding shares of capital stock of
Wise will be held by Blaustein and there will be no options, warrants, or
other rights to purchase or obtain (including upon conversion, exchange or
exercise) any of such capital stock. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that
could require Wise to issue, sell, or otherwise cause to become outstanding
any of its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to Wise.
(b) Wise is not obligated to any person, including, but not
limited to Blaustein, to make any payments based upon or relating to the
results of operations or other financial performance of Wise.
3.4 AUTHORIZATION OF TRANSACTION. Following approval by Wise's
Board of Directors and shareholders, Wise shall have full corporate power,
authority and capacity to execute and deliver this Agreement and any
related agreement and to perform its obligations hereunder and thereunder.
Following approval by Wise's Board of Directors and shareholders, this
Agreement and any related agreement shall constitute the valid and legally
binding obligations of Wise, enforceable in accordance with their terms and
conditions, except in each case, as limited by the effect of bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditors' rights generally, and general equity principles.
3.5 NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement and any related agreement, nor the consummation of the
transactions contemplated hereby and thereby, will (i) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, or create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice or consent under (A) any
agreement, contract, lease or commitment affecting the authority or ability
of Wise to perform its obligations hereunder or (B) any related agreement,
license, instrument, or other arrangement (including any shareholder
agreement) to which Wise is a party or by which it is bound or to which any
of its assets is subject (or will result in the imposition of any mortgage,
pledge, lien, encumbrance, charge or other security interest upon any of
its assets); (ii) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, or other restriction of any
governmental entity or court to which Wise is subject; or (iii) conflict
with or result in a breach of any provision of the articles of
incorporation or by-laws of Wise.
3.6 CONSENTS AND APPROVALS. No consent, approval or
authorization of, or declaration, filing or registration with, any
governmental entity, or any other person or entity, is required to be made
or obtained by Wise in connection with the execution, delivery and
performance of this Agreement or any related agreement and the consummation
of the transactions contemplated hereby and thereby, except for approval by
Wise's Board of Directors and shareholders, and any consents, approvals,
authorizations, declarations, filings and registrations required pursuant
to the federal securities laws and the securities or blue sky laws of the
various states, which Federated shall make.
3.7 EVENTS SUBSEQUENT TO JUNE 30, 1997. Since June 30, 1997,
there has not been, individually or in the aggregate, any Wise Material
Adverse Effect.
3.8 FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the
following financial statements (collectively the "Financial Statements"):
(i) audited balance sheets as of December 31, 1996, 1995, 1994, 1993 and
1992 and the related statements of income, shareholders' equity, and cash
flows (including the notes thereto) for the fiscal years ended December 31,
1996, 1995, 1994, 1993 and 1992 for Wise, and (ii) compiled balance sheets
as of June 30, 1997 and related statements of income, shareholders' equity,
and cash flows for six months ended June 30, 1997 for Wise. The Financial
Statements (including the notes thereto) have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered
thereby and present fairly in all material respects the financial condition
of Wise as of such dates and the results of operations of Wise for such
periods.
3.9 LITIGATION. There are no Actions pending or, to the
knowledge of Wise, threatened or anticipated, against or involving Wise or
an Affiliate of Wise relating to or affecting the transactions contemplated
by this Agreement or any related agreement.
3.10 BOOKS AND RECORDS. Wise's books and records have been
fully, properly and accurately maintained in all material respects, and
there are no material inaccuracies or discrepancies of any kind contained
or reflected therein, and they fairly present the financial position of
Wise in all respects. None of the records, systems, controls, data or
information of Wise are recorded, stored, maintained, operated or otherwise
wholly or partly dependent on or held by any means (including any
electronic, mechanical or photographic process, whether computerized or
not) which (including all means of access thereto and therefrom) are not
under the exclusive ownership and direct control of Wise or accountants
retained by Wise.
3.11 NO MATERIAL ADVERSE EFFECT. There exist no facts,
conditions or circumstances that would be required to be disclosed under
any other Section of this Article III, except for such facts, conditions
and circumstances which, individually or in the aggregate, have not had and
would not reasonably be expected to have a Wise Material Adverse Effect.
3.12 BROKERS' FEES. Wise has no liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Federated could
become liable or obligated.
3.13 DISCLOSURE. No representation or warranty by Wise in this
Article III contains any untrue statement of a material fact, or omits to
state any material fact necessary to make the statements or facts contained
therein not misleading. The copies of all documents furnished to Federated
hereunder are true and complete copies of the originals thereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BLAUSTEIN
Blaustein hereby represents and warrants to Federated that the
statements contained in this Article IV are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted
for the date of this Agreement throughout this Article IV), except as set
forth in the corresponding section of the Wise Disclosure Schedule.
4.1 AUTHORIZATION OF TRANSACTION. Blaustein has full power,
authority and capacity to execute and deliver this Agreement and each
related agreement to which he is a party, and to perform his obligations
hereunder and thereunder. This Agreement and any such related agreement
constitute valid and legally binding obligations of Blaustein, enforceable
in accordance with their terms and conditions, except in each case, as
limited by the effect of bankruptcy, insolvency, reorganization, moratorium
and similar laws relating to or affecting creditors' rights generally, and
general equity principles.
4.2 NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement and any related agreement, nor the consummation of the
transactions contemplated hereby and thereby, will (i) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, or create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice or consent under (A) any
agreement, contract, lease or commitment affecting the authority or ability
of Blaustein or Wise to perform his or its obligations hereunder or (B) any
related agreement, license, instrument, or other arrangement (including any
shareholder agreement) to which Blaustein or Wise is a party or by which he
or it is bound or to which any of his or its assets is subject (or will
result in the imposition of any mortgage, pledge, lien, encumbrance, charge
or other security interest upon any of his or its assets); (ii) violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, or other restriction of any governmental entity or court to
which Blaustein or Wise is subject; or (iii) conflict with or result in a
breach of any provision of the articles of incorporation or by-laws of
Wise.
4.3 CONSENTS AND APPROVALS. No consent, approval or
authorization of, or declaration, filing or registration with, any
governmental entity, or any other person or entity, is required to be made
or obtained by Blaustein in connection with the execution, delivery and
performance of this Agreement or any related agreement and the consummation
of the transactions contemplated hereby and thereby, except for any
consents, approvals, authorizations, declarations, filings and
registrations required pursuant to the federal securities laws and the
securities or blue sky laws of the various states, which Federated shall
make.
4.4 WISE SECURITIES. Blaustein owns beneficially and holds of
record good and marketable title to all of the shares of common stock of
Wise, free and clear of any lien, pledge, claim, option, charge, easement,
security interest, transfer or voting restriction, right-of-way, or other
encumbrance of any kind or nature whatsoever (other than transfer
restrictions under the Securities Act of 1933 and state securities laws),
and taxes. Blaustein is not a party to any option, warrant, purchase
right, agreement, contract, lease or commitment that could require
Blaustein to sell, transfer, or otherwise dispose of any capital stock of
Wise (other than this Agreement). Blaustein is not a party to any voting
trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of Wise.
4.5 LITIGATION. There are no Actions pending or, to the
knowledge of Blaustein, threatened or anticipated, against or involving
Blaustein or an Affiliate of Blaustein relating to or affecting the
transactions contemplated by this Agreement or any related agreement.
4.6 NO MATERIAL ADVERSE EFFECT. There exist no facts,
conditions or circumstances that would be required to be disclosed under
any other Section of this Article IV, except for such facts, conditions and
circumstances which, individually or in the aggregate, have not had and
would not reasonably be expected to have a Wise Material Adverse Effect.
4.7 BROKERS' FEES. Blaustein has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for whichFederated could
become liable or obligated.
4.8 DISCLOSURE. No representation or warranty by Blaustein in
this Article IV contains any untrue statement of a material fact, or omits
to state any material fact necessary to make the statements or facts
contained therein not misleading.
ARTICLE 5
COVENANTS OF THE PARTIES
The Parties jointly and severally agree as follows with respect
to the period between the execution of this Agreement and the closing.
5.1 GENERAL. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement.
5.2 NOTICES AND CONSENTS. Each Party will use its best efforts
to give notices to, and obtain consents from, any third party, which notice
or consent the other Party or Parties may reasonably require in connection
with the matters referred to in Articles II, III and IV above.
5.3 FULL ACCESS; CONFIDENTIALITY.
(a) Each of Wise and Federated will permit the other and its
respective representatives to have full access at all reasonable times, and
in a manner so as not to interfere with the normal business operations of
each other, to all premises, properties, personnel, books and records,
contracts, and documents of or pertaining to Wise or Federated.
(b) Each such Party covenants and agrees that it and its
representatives will hold in strict confidence all documents and
information concerning Wise or Federated so obtained (except to the extent
that such documents or information are a matter of public record or require
disclosure in any of the public information or any applications required to
be filed with any governmental or regulatory agency to obtain the approvals
and consents required to effect the transactions contemplated hereby), and
if the transactions contemplated herein are not consummated, such
confidence shall be maintained and, upon written request of a Party all
such documents shall be returned to said Party.
5.4 EXCLUSIVITY.
(a) Neither Wise nor Federated shall, directly or indirectly,
solicit, initiate, encourage or otherwise facilitate any inquiries or the
submission of any proposal or offer from any person relating to the
acquisition of all or substantially all of the capital stock or assets of
Wise or Federated (a "Competing Transaction," which term shall include any
acquisition structured as a merger, consolidation, share exchange or
similar transaction).
(b) Notwithstanding paragraph (a), Federated may (i) enter into
discussions or negotiations or provide information in connection with a
Competing Transaction if its Board of Directors, after consulting with
counsel, determines that such discussions or negotiations should be
commenced in the exercise of its fiduciary responsibilities or such
information should be furnished in the exercise of its fiduciary
responsibilities; and (ii) respond to inquiries from its shareholders in
the ordinary course of business.
(c) Each Party agrees to notify the other Parties immediately if
any such inquiries, proposals or offers are received by, any such
information is requested from, or any such discussions or negotiations are
sought to be initiated or continued with, any of its representatives
indicating, in connection with such notice, the name of such person and the
material terms and conditions of any proposals or offers and thereafter
shall keep the other Parties informed, on a current basis, on the status
and terms of any such proposals or offers and the status of any such
negotiations or discussions.
5.5 STANDSTILL. Each of Blaustein and Wise acknowledges that he
and it are aware of the provisions of the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder relating to insider
trading, and that if either Blaustein or Wise is privy to material, non-
public information regarding Federated, neither Blaustein nor Wise can
trade in Federated Common Shares or other securities of Federated.
Blaustein agrees and undertakes to Federated that at no time prior to the
closing will Blaustein or Wise buy, sell or engage in any transaction
(except the closing under this Agreement) involving any securities issued
by Federated (including any securities convertible into, or exchangeable
for, or warrants, options or rights to purchase or sell, such securities),
or induce any other person to do any of the foregoing.
5.6 CONDUCT OF BUSINESS. During the period from the date hereof
to the Closing Date, each Party will operate only in the ordinary course of
business, except to the extent that the other Parties provide prior written
consent to do otherwise, or as expressly permitted or required by this
Agreement. Without limiting the generality of the foregoing, each Party
agrees that, except as permitted by the other Parties (which permission
shall be deemed granted if the other Parties do not object in writing
within 5 business days of written notification to them of the Party's
intention to take any such action), that Party shall not take any action
which would cause the representations set forth in Sections 2.7 and 3.7
hereof to fail to be true and correct as of the Closing Date.
5.7 REGISTRATION STATEMENT. Each of the Parties agrees to
cooperate in the preparation of a registration statement on Form S-4 (the
"Registration Statement") to be filed by Federated with the SEC in
connection with the issuance of the Federated Common Shares, including the
proxy statement and prospectus constituting a part of said Registration
Statement. Each of the Parties agrees to use all reasonable efforts to
cause the Registration Statement to be declared effective under the
Securities Act of 1933 as promptly as reasonably practicable after filing
thereof. Each of Wise and Blaustein agrees to furnish to Federated all
information concerning Wise, its subsidiaries, officers, directors,
shareholders and Blaustein as may be reasonably requested in connection
with the foregoing.
5.8 SHAREHOLDER MEETING.
(a) Federated shall (i) take all steps reasonably necessary duly
to call, give notice of, convene and hold a meeting of Federated's
shareholders as soon as reasonably practicable for the purpose of securing
the approval by such shareholders of an amendment to Federated's
Certificate of Incorporation (the "Amendment"), which shall increase the
number of authorized shares of Federated's common stock, such that the
transactions contemplated under this Agreement may be consummated, and (ii)
subject to the qualification set forth in Section 5.4 hereof, recommend to
the shareholders of said Party the approval of the Amendment, and use its
best efforts to obtain, by January 31, 1998, such approval.
(b) Each Party shall cooperate and consult with the other
Parties as to each of the foregoing matters. In connection therewith, each
director of Federated agrees to vote the shares he or she owns in Federated
in favor of this Agreement.
5.9 FINANCIAL SUPPORT. From and after the date hereof, Wise
will use its best efforts, and Blaustein will cause Wise to use its best
efforts, to provide such financial assistance to Federated (which may
include purchases of Federated's inventory) as Federated may request in the
continued conduct of its business, PROVIDED THAT (a) the Board of Directors
of Wise shall determine in good faith that said assistance shall be in the
best interests of Wise, including post-closing considerations, and (b)
Fleet Bank, N.A. shall have provided any requisite consent under the
$400,000 Revolving Line of Credit and $600,000 Term Loan by and between
Fleet Bank, N.A. and Wise dated June 12, 1997, which consent Wise shall use
its best efforts to secure.
5.10 NOTICES. Each Party shall promptly notify the others of (a)
any Wise or Federated Material Adverse Effect and (b) any developments
causing any of the representations and warranties of the Parties in this
Agreement not to be true.
5.11 FILINGS, APPLICATIONS. The Parties will prepare promptly,
and Federated will file, any statements or applications necessary to obtain
the regulatory approvals required to consummate the transactions
contemplated by this Agreement.
ARTICLE 6
OTHER AGREEMENTS
The Parties agree as follows with respect to the period following
the closing.
6.1 GENERAL. In case at any time after the closing any further
action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any
other Party reasonably may request, all at the sole cost and expense of the
requesting Party.
6.2 TAX-FREE REORGANIZATION TREATMENT. Neither Blaustein, Wise
nor Federated will take or cause to be taken any action which would, or is
reasonably likely to, prevent or impede the Exchange from qualifying as a
reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986.
ARTICLE 7
CONDITIONS TO FEDERATED'S OBLIGATIONS
The obligation of Federated to consummate the transactions to be
performed by it in connection with the closing is subject to satisfaction
of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Articles III and IV above or in any related
agreement shall be true and correct at and as of the Closing Date as though
such representations and warranties were made or given on and as of the
Closing Date (other than the representations and warranties made as of a
particular date, which shall be true as of such date).
7.2 COVENANTS. Blaustein shall have performed and complied with
all of his covenants hereunder in all material respects through the
closing.
7.3 CERTIFICATES. Blaustein shall have delivered to Federated a
certificate to the effect that each of the conditions specified above in
Sections 7.1 and 7.2 is satisfied in all respects.
7.4 INJUNCTIONS. There shall not be any injunction, judgment,
order, decree, ruling, or charge in effect, or any litigation that has been
commenced or threatened, preventing consummation of any of the transactions
contemplated by this Agreement.
7.5 CONSENTS. Blaustein and Wise shall use their best efforts
to obtain all authorizations, consents and approvals as required under
Section 3.5, 3.6, 4.2 or 4.3 above, or any schedule thereto, prior to the
closing. Each such authorization, consent and approval shall be in form
and substance reasonably acceptable to Federated. Any filing required by
any governmental entity prior to the closing, including, without
limitation, the Registration Statement described in Section 5.7 above,
shall have been made to said entity in conformity with applicable law and
regulations, and any such filing that is material shall have been accepted
by said entity prior to the closing. Federated shall have received from
the SEC a declaration of effectiveness as to the Registration Statement.
7.6 CORPORATE APPROVALS. The Agreement and the transactions
contemplated hereby shall have been approved by the Board of Directors of
Wise within 30 days of the date of this Agreement.
7.7 ADDITIONAL DELIVERIES. All actions to be taken by Blaustein
and Wise in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to Federated.
7.8 NO MATERIAL ADVERSE CHANGE. No Wise Material Adverse Effect
shall have occurred.
7.9 FALLON CONSULTING AGREEMENT. The Parties shall have entered
into a Consulting Agreement with Harry Fallon, on terms mutually agreed
upon, which agreement shall be for a term of not less than 2 years, and for
cash compensation of not less than $60,000 per year, and which shall
provide Mr. Fallon with health insurance and other benefits, as agreed upon
between Mr. Fallon and the Parties.
7.10 BOARD OF DIRECTORS. Blaustein shall cause the designees of
Harry Fallon (who shall comprise not be less than 25% of the Board at any
given time) to be elected to the Board of Directors of Federated on the
Closing Date for a period of not less than 2 years. It is presently
anticipated that Fallon will constitute one such designee, and will serve
as Vice Chairman of the Board of Directors for a period of not less than 2
years, having such duties and responsibilities as shall be mutually agreed
upon by Fallon and the Parties.
7.11 EXECUTIVE EMPLOYMENT AGREEMENTS AND OTHER EMPLOYEE
ARRANGEMENTS.
(a) Federated shall have entered into an employment agreement
with Jane A. Christy, on terms mutually agreed upon by the Parties and Ms.
Christy, under which Ms. Christy shall continue to perform such services as
she currently performs for Federated, and shall have the title of Vice
President -- Operations, and which shall further provide: a term of one
year, cash compensation of $62,500, an incentive cash bonus of $15,000
payable on the first anniversary of said employment agreement, and benefits
including health insurance, lease payments on the car currently leased by
Federated for her, and such other benefits as are mutually agreed upon by
Ms. Christy and the Parties.
(b) Federated shall have entered into an employment agreement
with Donald Butz, on terms mutually agreed upon by the Parties and Mr.
Butz, which agreement shall be for a 1-year term, and which shall provide
cash compensation of not less than the amount he currently receives as an
employee of Federated, and benefits including health insurance and such
other benefits as are mutually agreed upon by Mr. Butz and the Parties.
(c) In addition, Federated shall have entered into employment
and non-compete agreements, in substantially the form of those used by Wise
with certain of its sales personnel, with each of Michael Bachman, Raymond
D'Amato, Diane D'Amato and Steven Parker.
7.12 NEW JERSEY FACILITY. The Parties shall maintain an office
facility in New Jersey on terms mutually agreed upon by the Parties.
ARTICLE 8
CONDITIONS TO BLAUSTEIN'S OBLIGATIONS
Blaustein's obligation to consummate the transactions to be
performed by him in connection with the closing is subject to satisfaction
of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Article II above or in any related agreement shall
be true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made and given on and as
of the Closing Date (other than the representations and warranties made as
of a particular date, which shall be true as of such date).
8.2 COVENANTS. Federated shall have performed and complied with
all of its covenants hereunder in all material respects through the
closing.
8.3 CERTIFICATES. Federated shall have delivered to Blaustein a
certificate to the effect that each of the conditions specified above in
Sections 8.1 and 8.2 is satisfied in all respects.
8.4 INJUNCTIONS. There shall not be any injunction, judgment,
order, decree, ruling, or charge in effect, or any litigation that has been
commenced or threatened, preventing consummation of any of the transactions
contemplated by this Agreement.
8.5 CONSENTS. Federated shall use its best efforts to obtain
all authorizations, consents and approvals as required under Sections 2.5
and 2.6 above, or any schedule thereto, prior to the closing. Each such
authorization, consent and approval shall be in form and substance
reasonably acceptable to Blaustein. Any filing required by any
governmental entity prior to the closing, including, without limitation,
the Registration Statement described in Section 5.7 above, shall have been
made to said entity in conformity with applicable law and regulations, and
any such filing that is material shall have been accepted by said entity
prior to the closing. Federated shall have received from the SEC a
declaration of effectiveness as to the Registration Statement.
8.6 CORPORATE APPROVALS.
(a) The Agreement and the transactions contemplated hereby shall
have been approved by the Board of Directors of Federated within 30 days of
the date of this Agreement.
(b) The Amendment, as defined in Section 5.8, shall have been
approved by the shareholders of Federated not later than January 31, 1998.
8.7 ADDITIONAL DELIVERIES. All actions to be taken by Federated
in connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory
in form and substance to Blaustein.
8.8 NO MATERIAL ADVERSE CHANGE. No Federated Material Adverse
Effect shall have occurred.
8.9 RESIGNATION BY FEDERATED'S CURRENT BOARD OF DIRECTORS AND
EXECUTIVE OFFICERS. Except as provided in Sections 7.10 and 7.11 above, by
the Closing Date all members of Federated's Board of Directors and all
executive officers of Federated shall have resigned, and Federated shall
have accepted such resignations.
8.10 FEDERATED NET WORTH. On the Closing Date, Federated's
shareholders' equity, as determined by the accounting firm of Bederson &
Company, L.L.P., shall not be less than $400,000.
8.11 AUDITORS' OPINION. The accounting firm of Bederson &
Company, L.L.P., shall have delivered to Blaustein an opinion reasonably
satisfactory in form and substance to Blaustein (based on certain
assumptions and representations of Blaustein, Wise, and Federated), to the
effect that the Exchange qualifies as a reorganization under Section 368 of
the Code and that generally no income or gain will be recognized by
Blaustein for federal income tax purposes as a result of the transactions
contemplated by this Agreement.
8.12 EXECUTIVE EMPLOYMENT AGREEMENTS AND OTHER EMPLOYEE
ARRANGEMENTS.
(a) Federated shall have entered into an employment agreement
with Jane A. Christy, on terms mutually agreed upon by the Parties and Ms.
Christy, under which Ms. Christy shall continue to perform such services as
she currently performs for Federated, and shall have the title of Vice
President -- Operations, and which shall further provide: a term of one
year, cash compensation of $62,500, an incentive cash bonus of $15,000
payable on the first anniversary of said employment agreement, and benefits
including health insurance, lease payments on the car currently leased by
Federated for her, and such other benefits as are mutually agreed upon by
Ms. Christy and the Parties.
(b) Federated shall have entered into an employment agreement
with Donald Butz, on terms mutually agreed upon by the Parties and Mr.
Butz, which agreement shall be for a 1-year term, and which shall provide
cash compensation of not less than the amount he currently receives as an
employee of Federated, and benefits including health insurance and such
other benefits as are mutually agreed upon by Mr. Butz and the Parties.
(c) In addition, Federated shall have entered into employment
and non-compete agreements, in substantially the form of those used by Wise
with certain of its sales personnel, with each of Michael Bachman, Raymond
D'Amato, Diane D'Amato and Steven Parker.
Blaustein may waive any condition specified in this Article VIII
if he executes a writing so stating at or prior to the closing.
ARTICLE 9
TERMINATION
9.1 TERMINATION OF AGREEMENT. Certain of the Parties may
terminate this Agreement as provided below:
(a) Federated and Blaustein may terminate this Agreement by
mutual written consent at any time prior to the closing;
(b) Blaustein may terminate this Agreement by giving written
notice to Federated at any time prior to the closing if any of the
following events shall have occurred:
(i) FEDERATED'S BREACH. Federated has breached any
representation, warranty, or covenant contained in this Agreement in any
material respect, and Blaustein has notified Federated of the breach, and
the breach has continued without cure for a period of 10 days after the
notice of breach.
(ii) FAILURE TO CLOSE BECAUSE FEDERATED FAILS TO MEET
OBLIGATIONS. The closing shall not have occurred on or before January 31,
1998, by reason of the failure of any provision of Article VIII (conditions
precedent to Blaustein's performance), unless said failure shall have
resulted primarily from Blaustein's breaching any representation, warranty,
or covenant contained in this Agreement.
(c) Federated may terminate this Agreement by giving written
notice to Blaustein at any time prior to the closing if any of the
following events shall have occurred:
(i) BLAUSTEIN'S BREACH. Blaustein has breached any
representation, warranty, or covenant contained in this Agreement in any
material respect, and Federated has notified Blaustein of the breach, and
the breach has continued without cure for a period of 10 days after the
notice of breach.
(ii) FAILURE TO CLOSE BECAUSE BLAUSTEIN FAILS TO MEET
OBLIGATIONS. The closing shall not have occurred on or before January 31,
1998, by reason of the failure of any provision of Article VII (conditions
precedent to Federated's performance), unless said failure shall have
resulted primarily from Federated's breaching any representation, warranty,
or covenant contained in this Agreement.
(d) Federated may terminate this Agreement if its Board of
Directors determines in good faith that a written proposal for a Competing
Transaction under Section 5.4 above is more favorable from a financial
point of view to its shareholders than the transactions contemplated by
this Agreement (including any adjustment to the terms and conditions of the
transactions under this Agreement, proposed by the other Parties in
response to such Competing Transaction), and is in said shareholders' best
interests. Federated may terminate this Agreement and enter into an
agreement with respect to such Competing Transaction, PROVIDED THAT it has
complied with the provisions of Section 5.4(c) concerning notice to the
other Parties of negotiations, and at least 2 business days prior to any
such termination, Federated has provided the other Parties written notice
that it intends to terminate this Agreement pursuant to this Section
9.1(b), which notice shall identify the Competing Transaction then
determined to be more favorable.
9.2 EFFECT OF TERMINATION. Except as provided in Section 9.3
below, and except for any liability of any Party then in breach, if any
Party terminates this Agreement pursuant to Section 9.1 above, all rights
and obligations of the Parties hereunder shall terminate without any
liability of any Party to any other Party; PROVIDED, HOWEVER, that the
provisions of Section 5.3(b) (confidentiality), Article X (Indemnification)
and Section 12.13 (expenses) of this Agreement shall survive termination.
9.3 PAYMENT UPON TERMINATION. If Federated terminates this
Agreement pursuant to clause (d) of Section 9.1, then Federated shall pay
to Blaustein the reasonable documented out-of-pocket expenses incurred by
Blaustein in connection with the transactions contemplated hereby,
including the negotiation and execution of this Agreement, up to a maximum
of $50,000.
ARTICLE 10
INDEMNIFICATION
10.1 GENERAL. Subject to the limitations set forth in this
Article X, Federated agrees to indemnify, defend and hold Blaustein (the
"Indemnified Party") harmless from and against any and all claims, actions,
suits, demands, assessments, judgments, losses, liabilities, damages, costs
and expenses (including, without limitation, fines, penalties and, to the
extent permitted by law, reasonable attorneys' fees) ("Indemnity Claims")
suffered by said Indemnified Party resulting from the inaccuracy or
incorrectness of any representation or breach of any warranty made by
Federated under this Agreement, if, but only if, and then only to the
extent that, the inaccuracy or incorrectness or breach, as the case may be,
was knowing, intentional and deliberate on the part of Federated, AND
FURTHER PROVIDED THAT the Indemnity Notice described at Section 10.2 below
shall have been received within six months of the Closing Date. Except as
provided otherwise under Article IX (Termination), the provisions of this
Article X shall be the sole remedy available to the Parties for the breach
of this Agreement. In no event shall Federated's directors, officers,
employees, or agents have any liability arising out of this Agreement.
10.2 NOTICE; PAYMENT OF VALID CLAIMS. Subject to the limitations
set forth in this Article X, in the event that an Indemnified Party shall
assert an Indemnity Claim, said Indemnified Party shall have sent written
notice thereof (the "Indemnity Notice") to an independent committee of
directors (the "Independent Committee"), consisting of Harry J. Fallon,
Steven Fried, and a representative of Federated's independent auditors.
The Indemnity Notice shall provide (i) an identification of the particular
representation claimed to be incorrect or inaccurate, the warranty,
covenant or agreement claimed to have been breached and/or the basis of the
claim for indemnification, (ii) a statement in reasonable detail of the
facts giving rise to such alleged inaccuracy, incorrectness or breach
and/or claim for indemnification, (iii) a statement that the incorrectness
or inaccuracy or breach, as the case may be, was knowing, deliberate, and
intentional by Federated, and (iv) the amount in dollars by which the
Indemnified Party claims to have been damaged by reason of the alleged
inaccuracy, incorrectness or breach and/or the amount by which the
Indemnified Party is or may be entitled to indemnification pursuant to this
Article X (said written notice of claim from the Indemnified Party being
hereinafter called an "Indemnity Notice"). Except as provided in Section
10.3 (Third-Party Claims) below, upon receipt of an Indemnity Notice, the
Independent Committee shall, in not less than three (3) business days,
appoint a single arbitrator, who, in accordance with the rules of the
American Arbitration Association, shall determine the validity of the
Indemnity Claims described therein. The decision by said arbitrator shall
be final and binding on the Parties. If the arbitrator determines that
such Indemnity Claims are valid, Federated shall immediately issue to
Blaustein a number of shares of Federated Common Stock, valued at $.36 per
share (the "Indemnity Shares"), equal in value to the total amount by which
such valid Indemnity Claims, aggregated with all other Indemnity Claims
found valid in accordance with this Section 10.2, exceed $25,000; PROVIDED,
HOWEVER, THAT the number of Indemnity Shares issued under this Section 10.2
shall be limited to an amount that, when aggregated with the Federated
Common Shares described at Section 1.1, shall not exceed 80% of the total
shares of Federated's common stock issued and outstanding as of the Closing
Date.
10.3 THIRD-PARTY CLAIMS. Notwithstanding any provision to the
contrary in Section 10.2 above, if an Indemnity Claim should involve the
proposed settlement of litigation or threatened litigation against
Federated, Wise or Blaustein, the approval of the Independent Committee,
acting in its sole discretion by majority vote, without referral to an
arbitrator, shall be required. The decision by the Independent Committee
shall be final and binding on the Parties.
10.4 DEDUCTIBLE. In no event shall Federated be liable to an
Indemnified Party to the extent that all Indemnity Claims found valid under
this Article X do not exceed $25,000 in the aggregate, such that the
Indemnified Party shall absorb a total of the first $25,000 of losses,
costs, expenses or damages sustained by it relating to valid Indemnity
Claims made hereunder and after said Indemnified Party shall have absorbed
such total of $25,000 in respect to valid Indemnity Claims generally, the
balance of all such valid Indemnity Claims shall be subject to
indemnification as provided in this Article X, it being understood by the
Parties that said $25,000 deductible amount is a cumulative aggregate
deductible and is not applicable as a deduction to each Indemnity Claim
individually.
10.5 CONFORMITY WITH ARTICLE X. In no event shall an Indemnified
Party's right to reimbursement in respect of any one or more Indemnity
Claims be enforced or realized except in conformity with this Article X.
The Indemnified Party hereby acknowledges that this Article X has been
expressly bargained for in this transaction.
ARTICLE 11
DEFINITIONS
11.1 DEFINED TERMS. As used herein, the terms below shall have
the following meanings:
"ACTIONS" means (i) any outstanding criminal, civil or
administrative injunction, judgment, order, decree, ruling, or charge,
contingent or otherwise and whether or not required to be disclosed, or
(ii) any action, suit, proceeding, hearing, or investigation of, in, or
before any court or administrative agency of any federal, state, local, or
foreign jurisdiction.
"AFFILIATE" means, with respect to any person, any person
directly or indirectly controlling, controlled by, or under common control
with such other person. For purposes of this definition, "control"
(including with correlative meaning, the terms "controlled by" and "under
common control with") as used with respect to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through
ownership of voting securities, by contract or otherwise.
"FEDERATED MATERIAL ADVERSE EFFECT" means a material adverse
change in or effect on the consolidated financial condition, properties,
business or results of operations of Federated, taken as a whole.
"WISE MATERIAL ADVERSE EFFECT" means a material adverse change in
or effect on the consolidated financial condition, properties, business or
results of operations of Wise, taken as a whole.
ARTICLE 12
MISCELLANEOUS
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in Articles II, III
and IV shall survive for six months following the Closing Date.
12.2 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the
subject matter of this Agreement prior to the closing without the prior
written approval of Federated and Blaustein; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required
by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
12.3 THIRD PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
12.4 ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or
among the Parties, written or oral, to the extent they have related in any
way to the subject matter hereof.
12.5 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either
this Agreement or any of his or its rights, interests, or obligations
hereunder without the prior written approval of Federated and Blaustein.
12.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
12.7 PRONOUNS. Whenever the context requires, the use in this
Agreement of a pronoun of any gender shall be deemed to refer also to any
other gender, and the use of the singular shall be deemed to refer also to
the plural.
12.8 HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.9 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
IF TO BLAUSTEIN:
Martin L. Blaustein, Chairman
Wise Components, Inc.
28 Henry Street
Greenwich, Connecticut 06830
Fax: (203) 531-7956
and copy to:
Smith, Ranscht, Connors, Mutino,
Nordell & Sirignano, P.C.
235 Main Street
White Plains, NY 10601
Attn: Michael Nordell, Esq.
Fax: (914) 946-8861
IF TO FEDERATED:
Federated Purchaser, Inc.
268 Cliffwood Avenue
Cliffwood, New Jersey 07721
Attn: Harry J. Fallon, Chairman
Fax: (908) 290-8008
and copy to:
Sills Cummis Zuckerman Radin
Tischman Epstein & Gross
One Riverfront Plaza
Newark, NJ 07102-5400
Attn: Victor H. Boyajian, Esq.
Fax: (973) 643-6500
IF TO WISE:
Wise Components, Inc.
28 Henry Street
Greenwich, Connecticut 06830
Attn: Martin L. Blaustein, Chairman
Fax: (203) 531-4859
and copy to:
Smith, Ranscht, Connors, Mutino,
Nordell & Sirignano, P.C.
235 Main Street
White Plains, NY 10601
Attn: Michael Nordell, Esq.
Fax: (914) 946-8861
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it actually is
received by the intended recipient. Any Party may change the address to
which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties notice in the
manner herein set forth.
12.10 JURISDICTION. Each of the Parties hereto, including all
persons joining in this Agreement, hereby expressly agrees that
jurisdiction respecting any dispute between or among them arising out of
this Agreement, shall be in the appropriate State Courts of New York, or
the United States District Court for the Southern District of New York.
12.11 AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and
signed by Federated, Blaustein and Wise. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
12.12 SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
12.13 EXPENSES. Each party will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby; PROVIDED, HOWEVER, that
Federated shall pay 50%, and Wise shall pay 50%, of all legal and
professional fees relating to the preparation and filing of the
Registration Statement.
12.14 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also
to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" shall mean including
without limitation.
12.15 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Disclosure Schedules identified in this Agreement are incorporated herein
by reference and made a part hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement on the date first above written.
FEDERATED PURCHASER, INC.
By:
Harry J. Fallon
Title: President
WISE COMPONENTS, INC.
By:
Martin L. Blaustein
Title: Chairman
MARTIN L. BLAUSTEIN
<PAGE>
APPENDIX II
FEDERATED PURCHASER, INC.
________________________________________
CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
.
_______________________________________
It is hereby certified that:
FIRST: The name of the corporation is
FEDERATED PURCHASER, INC. (the "CORPORATION").
SECOND: The certificate of incorporation of the Corporation was
filed by the Department of State on May 3, 1928. The name under which the
certificate of incorporation of the Corporation was filed was:
FEDERATED PURCHASING SERVICE CORPORATION
THIRD: The purpose of the amendment of the certificate of
incorporation of the Corporation, effected by this certificate of
amendment, is to increase the authorized capitalization of the corporation
to the name of the Corporation.
FOURTH: To accomplish the foregoing amendment, Article Third of
the certificate of incorporation of the Corporation, is hereby amended to
read as follows:
"THIRD: The aggregate number of shares which the corporation
shall have authority to issue is seven million five hundred thousand
(7,500,000 shares of common stock of the par value of ten cents ($.10)
per share."
FIFTH: The foregoing amendment was authorized by resolution of
the Board of Directors of the corporation, followed by the vote of a
majority of the issued and outstanding common stock of the Corporation
entitled to vote thereon at a shareholders meeting held on the
day of December, 1997, at which a quorum was present and acting
throughout.
<PAGE>
IN WITNESS WHEREOF, we have subscribed this document on the date
set forth below and do hereby affirm, under the penalties of perjury, that
the statements contained therein have been examined by us and are true and
correct.
Date: ________, 1997.
______________________________
President
_______________________________
Secretary
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Federated's By-Laws provide for mandatory indemnification, to the full
extent permitted by the laws of the State of New York, for any person made a
party to an action by or in the right of the corporation, by reason of the fact
that he is or was a director or officer of Federated. In addition, the By-Laws
provide for permissive indemnification for any employee or agent of Federated
against and with respect to legal or administrative proceedings which allege
actionable conduct on the part of such employee or agent. In the case of non-
mandatory indemnification, indemnification will only be available where an
officer or director can establish that he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of
Federated.
Federated does not at this time maintain any director's and officer's
liability insurance policy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. INDEX TO EXHIBITS
Sequentially
EXHIBIT NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE
3 (a) Articles of Incorporation of Federated (incorporated by
reference to Federated's original Registration
Statement)
(b) By-laws of Federated (incorporated by reference to pp.
26-55 of the Exhibit Volume of Federated's Form 10-K
Annual Report for the year ended October 30, 1980).
10 (a) Employment Agreement between Federated and Harry J.
Fallon
(b) Lease dated September 1, 1992 relating to Federated's
total operations (including Freedom Electronics)
located in Cliffwood, New Jersey (incorporated by
reference to Federated's Form 10-K Annual Report for
the year ended October 31, 1992)
(c) Lease Modification, dated July 18, 1995 between
Cliffwood Avenue Partners and Federated Purchaser
(incorporated by reference to Federated's Form 10-K
Annual Report for the year ended October 31, 1995)
(d) Agreement by and among Federated Purchaser, Wise
Components, Inc. and Martin L. Blaustein, dated October
1, 1997 (incorporated by reference to Federated's
Report on Form 8-K dated October 1, 1997)
22 Subsidiaries of Federated (filed as an exhibit hereto)
99.1 Press Release dated October 1, 1997 (incorporated by
reference to Federated's Report on Form 8-K dated
October 1, 1997)
B. FINANCIAL STATEMENT SCHEDULES
FEDERATED
YEAR ENDED OCTOBER 31, 1996.....................................FA
Independent Auditor's Report
Consolidated Balance Sheets as of October 31, 1996, 1995 and 1994
FA-1
Consolidated Statements of Operations for the years ended
October 31, 1996, 1995 and 1994...............................FA-2
Consolidated Statements of Stockholders' Equity for the years
ended October 31, 1996, 1995 and 1994.........................FA-3
Consolidated Statements of Cash Flows for the years ended
October 31, 1996, 1995 and 1994...............................FA-4
Notes to Consolidated Financial Statements....................FA-5
Schedule V - Valuation and Qualifying Accounts...............FA-13
NINE MONTHS ENDED JULY 31, 1997.................................FB
Consolidated Balance Sheets as of July 31, 1997 and October 31,
1996..........................................................FB-1
Unaudited Consolidated Statements of Operations for the three
months ended July 31, 1997 and 1996, and the nine months ended
July 31, 1997 and 1996........................................FB-2
Unaudited Consolidated Statements of Stockholders' Equity for the
nine months ended July 31, 1997 and 1996......................FB-3
Unaudited Consolidated Statements of Cash Flows for the nine
months ended July 31, 1997 and 1996...........................FB-4
WISE
YEAR ENDED DECEMBER 31, 1996....................................FC
Independent Auditor's Report..................................FC-1
Balance Sheets as of December 31, 1996 and 1995...............FC-2
Statements of Income for the years ended December 31, 1996 and 1995
FC-3
Statements of Retained Earnings for the years ended December 31,
1996 and 1995.................................................FC-4
Statements of Cash Flows for the years ended December 31, 1996 and
1995..........................................................FC-5
Notes to Financial Statements.................................FC-6
Supplementary Information....................................FC-12
SIX MONTHS ENDED JUNE 30, 1997..................................FD
Accountants' Compilation Report...............................FD-1
Unaudited Balance Sheets as of June 30, 1997 and 1996.........FD-2
Unaudited Statements of Income for the six months ended June 31,
1997 and 1996.................................................FD-3
Unaudited Statements of Retained Earnings for the six months ended
June 30, 1997 and 1996........................................FD-4
Unaudited Statements of Cash Flows for the six months ended June
30, 1997 and 1996.............................................FD-5
Notes to Financial Statements.................................FD-6
Supplementary Information....................................FD-10
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, that was not
the subject of and included in the Registration Statement when it became
effective.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CAPACITIES
INDICATED, IN CLIFFWOOD, NEW JERSEY ON THE ____ DAY OF OCTOBER, 1997
FEDERATED PURCHASER, INC.
By: /S/ HARRY S. FALLON
----------------------------
Harry S. Fallon
Acting Chairman of the
Board
Principal Executive Officer
Principal Financial Officer
Principal Accounting Officer
Director
By: /S/ JANE A. CHRISTY
----------------------------
Jane A. Christy
Vice President -- Operations
By: /S/ EDMUND L. HOENER
-----------------------------
Edmund L. Hoener
Director
By: /S/ EDWIN S. SHORTESS
-----------------------------
Edwin S. Shortess
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Harry S. Fallon his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
By: /S/ JANE A. CHRISTY
--------------------------
Jane A. Christy
Vice President -- Operations
By: /S/ EDMUND L.HOENER
--------------------------
Edmund L. Hoener
Director
By: /S/ EDWIN S. SHORTESS
---------------------------
Edwin S. Shortess
Director
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Federated Purchaser, Inc.
Cliffwood, New Jersey
We have audited the consolidated balance sheets of Federated Purchaser, Inc.
and its subsidiaries as of October 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended October 31, 1996, 1995 and 1994. These consolidated financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Federated
Purchaser, Inc. and its subsidiaries as of October 31, 1996 and 1995, and the
results of its operations and its cash flows for the years ended October 31,
1996, 1995 and 1994 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
which raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BEDERSON & COMPANY LLP
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS:
Cash $ 95,918 $ 186,515
Marketable securities - 99,744
Accounts receivable, less allowance for doubtful
accounts of $26,339 and $22,835, respectively 493,285 486,389
Inventories 314,447 392,282
Prepaid expenses and sundry receivables 22,925 36,868
Note receivable - Freedom Electronics Corporation 20,000 -
Restrictive covenant receivable 24,375 22,500
TOTAL CURRENT ASSETS 970,950 1,224,298
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 32,028 43,132
OTHER ASSETS:
Note receivable - Freedom Electronics Corporation,
net of current portion 155,000 210,000
Restrictive covenant receivable, net of
current portion 24,375 46,875
Security deposits 10,845 10,845
Association membership 94,126 70,454
TOTAL OTHER ASSETS 284,346 338,174
TOTAL ASSETS $1,287,324 $1,605,604
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 10,624 $ 10,624
Accounts payable 375,851 283,325
Accrued expenses 93,861 58,474
TOTAL CURRENT LIABILITIES 480,336 352,423
LONG-TERM DEBT, less current portion 8,331 19,073
DEFERRED INCOME 48,750 69,375
TOTAL LIABILITIES 537,417 440,871
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
Authorized, 5,000,000 shares,
Issued and outstanding, 1,719,758 shares 171,976 171,976
Additional paid-in capital 1,692,342 1,692,342
Accumulated deficit (1,053,333) (638,507)
Total 810,985 1,225,811
Less: Treasury stock, at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 749,907 1,164,733
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,287,324 $1,605,604
The accompanying notes are an
integral part of these financial statements.
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
1996 1995 1994
REVENUES:
Sales, net $3,980,560 $4,118,799 $6,281,006
COSTS AND EXPENSES (INCOME):
Cost of sales 3,128,019 3,172,060 4,907,644
Selling, shipping, and general
and administrative 1,286,444 1,353,609 1,687,016
Loss on sale of subsidiary - 182,791 -
Depreciation and amortization 11,575 11,260 47,332
Interest expense 2,828 3,811 24,340
Interest income (14,830) (32,530) (1,637)
Restrictive covenant (20,625) (20,625) -
Other income - (9,878) (2,505)
TOTAL COSTS AND EXPENSES (INCOME) 4,393,411 4,660,498 6,662,190
LOSS BEFORE PROVISION FOR INCOME TAXES (412,851) (541,699) (381,184)
PROVISION (BENEFIT) FOR INCOME TAXES 1,975 4,363 (7,335)
NET LOSS $ (414,826) $ (546,062) $ (373,849)
LOSS PER SHARE $ (.26) $ (.34) $ (.22)
The accompanying notes are an
integral part of these financial statements.
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock
Retained Held in
Additional Earnings Treasury
COMMON STOCK Paid-in Accumulated AT COST
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCES - October 31, 1993 1,719,758 $171,976 $1,692,342 $ 281,404 19,552 $16,633
Net loss - - - (373,849) - -
BALANCES - October 31, 1994 1,719,758 171,976 1,692,342 (92,445) 19,552 16,633
Purchase of treasury stock - - - - 88,889 44,445
Net loss - - - (546,062) - -
BALANCES - October 31, 1995 1,719,758 171,976 1,692,342 (638,507) 108,441 61,078
Net loss - - - (414,826) - -
BALANCES - October 31, 1996 1,719,758 $171,976 $1,692,342 $(1,053,333) 108,441 $61,078
</TABLE>
The accompanying notes are an
integral part of these financial statements.
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(414,826) $(546,062) $(373,849)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 11,575 11,260 47,332
Allowance for doubtful accounts 4,751 13,235 10,691
Accrued interest income - (5,959) -
Loss on divestiture of Freedom
Electronics, Corp. - 182,791 -
Freedom Electronics, Corp., net assets
and liabilities disposed of - (127,802) -
Noncash operating expenses - 2,154 -
Deferred income taxes - 7,867 5,438
(Increase) decrease in current assets:
Accounts receivable (11,647) (117,488) (8,045)
Inventories 77,835 18,546 (42,624)
Prepaid expenses and sundry receivables 13,943 51,385 (30,001)
Tax refund receivable - 5,119 30,957
Increase (decrease) in current liabilities:
Accounts payable 92,526 (52,354) 83,242
Accrued expenses 35,387 (45,540) (17,906)
NET CASH USED BY OPERATING ACTIVITIES (190,456) (602,848) (294,765)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on divestiture of Freedom
Electronics, Corp. - 755,845 -
Purchase of marketable securities - (286,224) -
Sale of marketable securities 99,744 192,439 -
Purchase of property and equipment (471) (2,688) (8,546)
Collection of note receivable 35,000 - -
Increase in association membership costs (23,672) (20,400) (26,604)
NET CASH PROVIDED BY (USED BY)
INVESTING ACTIVITIES 110,601 638,972 (35,150)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (10,742) (74,624) (110,625)
Proceeds from bank and equipment loans - - 400,000
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES (10,742) (74,624) 289,375
NET DECREASE IN CASH (90,597) (38,500) (40,540)
CASH - beginning of year 186,515 225,015 265,555
CASH - end of year $ 95,918 $ 186,515 $ 225,015
The accompanying notes are an
integral part of these financial statements.
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,826 $ 3,811 $ 24,340
Income taxes $ - $ 421 $ 4,194
NON-CASH INVESTING AND FINANCING ACTIVITY:
Divestiture of Freedom Electronics Corp.,
summarized as follows:
Selling price $ - $1,100,290 $ -
Less: Note receivable - (210,000) -
Restrictive covenant - (90,000) -
Treasury stock - (44,445) -
Cash received $ - $ 755,845 $ -
</TABLE>
The accompanying notes are an
integral part of these financial statements.
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Companies are engaged in the assembly and sale of electronic
parts, components and related equipment and contract manufacturing
for the electronics industry.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period.
REVENUE RECOGNITION
Federated Purchaser, Inc. and its subsidiaries, ("the Company" or
"Federated") maintains their records on the accrual basis of
accounting. Income is recorded when earned and expenses are recorded
when incurred. The Company's accounting policies with respect to
customer right of returns are governed upon written authorization by
Federated except for special order items.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany items have been eliminated. (See Note 16,
Sale of Subsidiary.)
INVENTORIES
Inventories are stated at lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT
Property and equipment, including significant betterments, are
recorded at cost. Upon retirement or disposal of properties, the
cost and accumulated depreciation are removed from the accounts, and
any gain or loss is included in income. Maintenance and repair costs
are charged to expense as incurred. Provisions for depreciation are
made using the straight-line method over the estimated economic lives
of the assets.
AMORTIZATION
Goodwill is being amortized over a period of forty years by the
straight-line method.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current year presentation.
LOSSES PER SHARE
The computations of losses per share are based on the weighted
average number of shares outstanding during the year: 1,611,317 in
1996, 1,614,726 in 1995, 1,700,206 in 1994.
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 2 - GOING CONCERN
The Company's financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
As shown in the financial statements, the Company has reported net
losses of $414,826, $546,062 and $373,849 for the fiscal years ended
October 31, 1996, 1995 and 1994, respectively and working capital has
continued to decline. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
The Company's continued operations will depend on its ability to
raise additional funds through a combination of equity or debt
financing, strategic alliances, increased revenues and reduction of
operating costs.
The Company's long-term liquidity will depend on its ability to raise
substantial additional funds. There can be no assurances that such
funds will be available to the Company on acceptable terms, if at
all.
NOTE 3 - CONCENTRATION OF CREDIT RISK AND RISK ARISING FROM CASH
DEPOSITS IN EXCESS OF INSURED LIMITS
The Company sells its products to various customers primarily in the
Northeast United States. The Company performs ongoing credit
evaluations on its customers and generally does not require
collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
NOTE 4 - MARKETABLE SECURITIES
At October 31, 1995, marketable securities represents treasury bills
with an original maturity in excess of three months and are
classified as available for sale. The current marketable securities
are stated at cost, plus accrued interest which approximates the
current market value of the securities.
NOTE 5 - INVENTORIES
Inventories consist of the following:
1996 1995
Merchandise for resale $314,447 $392,282
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995 USEFUL LIFE
<S> <C> <C> <C>
Leasehold improvements $ 12,522 $ 12,522 5 - 31 years
Furniture, fixtures and
equipment 110,626 110,155 5 - 15 years
Automotive equipment 24,139 24,139 4 years
Total 147,287 146,816
Less: Accumulated depreciation
and amortization 115,259 103,684
Total Property and Equipment $ 32,028 $ 43,132
</TABLE>
NOTE 7 - ASSOCIATION MEMBERSHIP
The Company is a member of a cooperative buying group and has been
purchasing stock in such group pursuant to group guidelines. The
total investment as of October 31, 1996 and 1995 was $94,126 and
$70,454, respectively. In the event that the Company were to leave
the group, the group would be obligated to refund all invested
amounts over a five year period. The association membership is
valued at cost, which approximates the current market value.
NOTE 8 - LONG-TERM DEBT
Long-term debt payable consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
IBM Credit Corporation, payable in monthly
installments of $1,122, including interest
at 11% through July 1998, secured by data
processing equipment. $ 18,955 $ 29,697
Less: Current portion 10,624 10,624
Total Long-Term Debt $ 8,331 $ 19,073
Long-term debt matures as follows:
Year Ended
OCTOBER 31,
1997 $ 10,624
1998 8,331
$ 18,955
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 9 - ACCRUED EXPENSES
Accrued expenses as of October 31, consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Payroll $ 17,693 $ 8,290
Professional fees 63,470 34,500
Sundry 12,698 15,684
Total Accrued Expenses $ 93,861 $ 58,474
</TABLE>
NOTE 10 - EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with the chief
executive officer effective November 1, 1986, originally
terminating October 31, 1991 and subsequently extended until
October 31, 1996. This agreement also provided for cash awards at
10% of incentive earnings, as defined. No cash awards were earned
during the years 1996, 1995 and 1994.
NOTE 11 - RETIREMENT PLAN
The Company sponsored a profit sharing plan covering substantially
all employees. There was no charge to income for 1996, 1995 and
1994. The Board of Directors adopted a resolution on December 1,
1995 to terminate the Company's sponsored profit sharing plan
covering substantially all employees.
NOTE 12 - INCOME TAXES (BENEFIT) DEFERRED AND PAYABLE
Components of provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State 1,975 4,363 (1,847)
Total 1,975 4,363 (1,847)
Deferred:
Federal - - (5,488)
Total taxes (benefit) $ 1,975 $ 4,363 $ (7,335)
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 12 - INCOME TAXES (BENEFIT) DEFERRED AND PAYABLE (Continued)
In 1992, the Company adopted Statement of Financial Accounting
Standard 109 ("SFAS"). SFAS 109 provides for an asset and liability
approach to accounting for income taxes that require the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns.
In estimating future consequences, SFAS 109 generally considers all
expected future events other than proposed changes in the tax law or
rates prior to enactment. A valuation allowance is provided when it
is more likely than not that some portion or all of the deferred tax
assets will not be realized.
Temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities that give rise to
significant portions of the net deferred tax asset relate to the
following:
1996 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Accounts receivable, principally
due to allowance for doubtful
accounts $ 11,326 $ 1,720
Carryforward losses 672,025 512,861
Valuation allowance (683,351) (514,581)
Net deferred tax assets and
liabilities $ - $ -
</TABLE>
At October 31, 1996, the Company had net operating loss
carryforwards of approximately $1,500,000 that expire in the years
2008 to 2011.
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 12 - INCOME TAXES (BENEFIT) DEFERRED AND PAYABLE (Continued)
The consolidated income tax (benefit) was different than the amount
computed using the United States statutory income tax rate for the
reasons set forth in the following table:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expected tax (credit) at U.S.
statutory income tax rate $ - $ - $ -
State income taxes 1,975 4,363 (1,847)
Utilization of loss
carryforwards - - (5,488)
$ 1,975 $ 4,363 $ (7,335)
</TABLE>
NOTE 13 - LEASE COMMITMENT
As of September 30, 1992, the Company moved to a new facility under
an operating lease agreement which will expire on December 31, 1998
at a minimum annual lease rental of $106,970. The lease was
modified on June 1, 1995 to remove the premises used by Freedom
Electronics Corporation at a minimum annual lease rental of $58,000.
In addition to minimum rentals, the Company will be responsible for
real estate taxes and a pro-rata share of all common charges. Rent
charged to operations was $80,979, $82,885 and $163,765,
respectively, for the years ended October 31, 1996, 1995 and 1994.
The future aggregate minimum rental payments under this operating
lease agreement are as follows:
Years Ended
OCTOBER 31,
1997 $ 58,000
1998 58,000
1999 9,667
$125,667
NOTE 14 - MAJOR SUPPLIER INFORMATION
The Company had one supplier from whom it purchased approximately
$523,000 or 16% of purchases for the year ended October 31, 1996.
NOTE 15 - RELATED PARTY TRANSACTIONS
Freedom Electronics Corporation, a 100% owned subsidiary of
Federated Purchaser, Inc. leased warehouse facilities from the
President of the Company on a month-to-month basis, at a monthly
rental of $3,500 for a total of $42,000 for the year ended October
31, 1994.
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
NOTE 16 - SALE OF SUBSIDIARY
On November 15, 1994, by unanimous vote of all non-interested
directors, Federated Purchaser, Inc. (Federated) divested its
subsidiary, Freedom Electronics Corporation (Freedom).
In consideration of the divestiture of 100% of the outstanding
shares of Freedom Electronics Corporation, Federated Purchaser, Inc.
received approximately $354,000, including $100,000 in cash, a
$210,000 7% promissory note due on November 15, 1998 and 88,889
shares of common stock of Federated (representing 4.9% of the class
outstanding) held personally by Freedom's President. In addition,
the parties entered into customary covenants not to compete,
pursuant to which Federated would become entitled to receive $90,000
over a period of four years. As part of this transaction certain
intercompany indebtedness to Federated was satisfied by payment of
an additional $656,000.
The loss on the divestiture of Freedom amounted to $182,791 or $.11
per share.
The following is a summary of net assets and results of operations
of Freedom Electronics Corporation as of October 31, 1994 and for
the year then ended.
Cash $ 62,155
Receivables 482,559
Inventories 786,574
Other current assets 37,295
Property and equipment (net) 94,210
Other assets 28,032
Total assets 1,490,825
Accounts payable 206,998
Notes payable 254,667
Other current liabilities 668,910
Long-term debt -
Net assets $ 360,250
Sales $2,853,957
Cost and expenses 2,919,342
Loss before income taxes (65,385)
Income taxes (benefit) (5,127)
Net loss $ (60,258)
<PAGE>
SCHEDULE V
FEDERATED PURCHASER, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
<S> <C> <C> <C> <C>
Balance at Beginning of Additions Charged to
PERIOD Profit and Loss OR Deductions From Balance at Close
CLASSIFICATION INCOME RESERVES OF PERIOD
Year ended October 31, 1996:
Allowance for doubtful accounts $22,835 $4,751 $1,247 $26,339
Year ended October 31, 1995:
Allowance for doubtful accounts $28,682 $13,235 $19,082 $22,835
Year ended October 31, 1994:
Allowance for doubtful accounts $84,224 $10,691 $66,233 $28,682
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997 AND 1996
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31, October 31,
1997 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 102,341 $ 95,918
Accounts receivable, less allowance for
doubtful accounts of $30,839 at July
31, 1997 and $26,339 at October 31, 1996,
respectively 403,464 493,285
Inventories 279,350 314,447
Prepaid expenses and sundry receivables 22,613 22,925
Note receivable - Freedom Electronics 25,000 20,000
Corporation Restrictive covenant receivable 22,500 24,375
TOTAL CURRENT ASSETS 855,268 970,950
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $124,696 and $115,259,
respectively 22,592 32,028
OTHER ASSETS:
Note receivable - Freedom Electronics
Corporation - net of current portion 135,000 155,000
Security deposits 10,845 10,845
Restrictive covenant receivable - net of
current portion 7,500 24,375
Other 95,826 94,126
TOTAL OTHER ASSETS 249,171 284,346
TOTAL ASSETS $1,127,031 $1,287,324
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 11,510 $ 10,624
Accounts payable 435,181 375,851
Accrued expenses 64,448 93,861
TOTAL CURRENT LIABILITIES 511,139 480,336
LONG-TERM DEBT, net of current portion - 8,331
DEFERRED INCOME 30,000 48,750
TOTAL LIABILITIES 541,139 537,417
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
Authorized, 5,000,000 shares, issued
and outstanding, 1,719,758 shares 171,976 171,976
Additional paid-in capital 1,692,342 1,692,342
Accumulated deficit (1,217,348) (1,053,333)
Total 646,970 810,985
Less: Treasury stock at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 585,892 749,907
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,127,031 $1,287,324
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
JULY 31, JULY 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
SALES $ 836,668 $1,009,865 $2,515,054 $3,008,004
COSTS AND EXPENSES (INCOME):
Cost of sales 636,828 789,204 1,919,823 2,333,366
Selling, shipping and general
and administrative 275,579 304,259 774,253 961,007
Interest expense 706 707 2,013 2,121
Depreciation and amortization 3,290 3,172 9,436 9,516
Restrictive covenant (1,838) (3,750) (8,721) (15,000)
Interest income (5,625) (4,440) (18,750) (13,830)
TOTAL COSTS AND EXPENSES
(INCOME) 908,940 1,089,152 2,678,054 3,277,180
LOSS BEFORE PROVISION FOR
INCOME TAXES (72,272) (79,287) (163,000) (269,176)
PROVISION FOR INCOME TAXES 40 500 1,015 1,000
NET LOSS $ (72,312) $ (79,787) $(164,015) $(270,176)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,611,317 1,611,317 1,611,317 1,611,317
LOSS PER COMMON SHARE $ (.04) $ (.05) $ (.10) $ (.17)
CASH DIVIDEND PER COMMON SHARE $ .00 $ .00 $ .00 $ .00
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JULY 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Retained Held in
Additional Earnings Treasury
COMMON STOCK Paid-in Accumulated AT COST
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCES - November 1, 1995 1,719,758 $171,976 $1,692,342 $ (638,507) 108,441 $61,078
Net loss - - - (270,176) - -
BALANCES - July 31, 1996 1,719,758 $171,976 $1,692,342 $ (908,683) 108,441 $61,078
BALANCES - November 1, 1996 1,719,758 $171,976 $1,692,342 $ (1,053,333) 108,441 $61,078
Net loss - - - (164,015) - -
BALANCES - July 31, 1997 1,719,758 $171,976 $1,692,342 $(1,217,348) 108,441 $61,078
</TABLE>
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (164,015) $ (270,176)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 9,436 9,516
Allowance for doubtful accounts 4,500 9,000
(Increase) decrease in operating assets:
Accounts receivable 85,321 37,654
Inventories 35,097 (6,432)
Prepaid expenses and sundry receivables 312 13,037
Increase (decrease) in operating liabilities:
Accounts payable 59,330 36,168
Accrued expenses (29,413) 7,339
NET CASH PROVIDED BY (USED BY) OPERATING
ACTIVITIES 568 (163,894)
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of marketable securities - 99,744
Purchase of property and equipment - (471)
Proceeds on note receivable 15,000 30,000
Increase in association membership costs (1,700) (15,300)
NET CASH PROVIDED BY INVESTING ACTIVITIES 13,300 113,973
CASH FLOWS USED BY FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (7,445) (7,968)
NET INCREASE (DECREASE) IN CASH 6,423 (57,889)
CASH - beginning 95,918 186,515
CASH - ending $ 102,341 $ 128,626
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,013 $ 2,121
Income taxes $ - $ -
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997 AND 1996
(Unaudited)
NOTE 1
The accompanying unaudited consolidated financial statements contain
all adjustments (consisting of normal recurring accruals) necessary to
present fairly the financial position as of July 31, 1997 and the
results of operations for the nine months ended July 31, 1997 and 1996.
NOTE 2
The results of operations for the nine months ended July 31, 1997 and
1996 are not necessarily indicative of the results to be expected for
the full year.
<PAGE>
WISE COMPONENTS, INC.
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
DECEMBER 31, 1996 AND 1995
<PAGE>
WISE COMPONENTS, INC.
DECEMBER 31, 1996 AND 1995
CONTENTS
PAGE
Independent Auditors' Report 1
Financial Statements:
Balance Sheets 2
Statements of Income 3
Statements of Retained Earnings 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 9
Supplementary Information:
Independent Auditors' Report on Supplementary
Information 10
Schedules of Cost of Sales 11
Schedules of Selling and Shipping Expenses and
General and Administrative Expenses 12
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Directors of
Wise Components, Inc.
Greenwich, Connecticut
We have audited the accompanying balance sheets of Wise Components, Inc. as of
December 31, 1996 and 1995, and the related statements of income, retained
earnings and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wise Components, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
BEDERSON & COMPANY LLP
February 24, 1997
<PAGE>
WISE COMPONENTS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS:
Cash $ 281,042 $ 129,559
Accounts receivable, less allowance for doubtful
accounts of $30,000 for 1996 and $
20,145 for 1995 1,582,952 1,884,068
Inventories 1,082,653 1,092,375
Prepaid expenses and taxes 58,786 70,057
Deferred income taxes 48,638 36,778
TOTAL CURRENT ASSETS 3,054,071 3,212,837
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 154,156 190,602
OTHER ASSETS:
Cash surrender value, officers' life insurance,
net of loans thereon of $30,836 for 1996
and $50,238 for 1995 49,667 82,952
Investments in co-op buying group - 57,300
Other investments - 1,773
Deposits 16,420 16,420
Deferred income taxes 28,191 21,599
TOTAL OTHER ASSETS 94,278 180,044
TOTAL ASSETS $3,302,505 $3,583,483
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank $ - $ 475,000
Current portion of long-term debt 8,252 75,500
Accounts payable 505,598 801,954
Accrued expenses and taxes 243,764 245,677
Deposit payable 202,970 -
TOTAL CURRENT LIABILITIES 960,584 1,598,131
LONG-TERM DEBT 3,735 118,072
TOTAL LIABILITIES 964,319 1,716,203
STOCKHOLDERS' EQUITY:
Common stock, no par value, 200 shares
authorized, 175 shares issued and outstanding 87,500 87,500
Paid-in capital 367,750 367,750
Retained earnings 1,882,936 1,412,030
TOTAL STOCKHOLDERS' EQUITY 2,338,186 1,867,280
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,302,505 $3,583,483
The accompanying notes are an integral part
of these financial statements.
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
SALES $14,863,476 100.00% $15,885,147 100.00%
COST OF SALES 10,879,159 73.20 11,722,182 73.79
GROSS PROFIT 3,984,317 26.80 4,162,965 26.21
OPERATING EXPENSES (INCOME):
Selling and shipping 1,267,023 8.52 1,259,805 7.93
General and administrative 1,722,332 11.58 1,659,054 10.44
Depreciation and amortization 45,730 .30 58,356 .37
Bad debts 16,740 .11 8,780 .05
Interest expense 14,384 .08 64,376 .40
Profit-sharing 30,000 .20 80,000 .51
Miscellaneous income (2,505) (.01) - -
Interest income (5,382) (.02) (1,000) -
Loss on impairment of goodwill - - 182,477 1.15
Loss on sale of securities 51,857 .37 12,500 .08
TOTAL OPERATING EXPENSES 3,140,179 21.13 3,324,348 20.93
INCOME BEFORE PROVISION
FOR INCOME TAXES 844,138 5.67 838,617 5.28
PROVISION FOR INCOME TAXES 373,232 2.51 340,071 2.14
NET INCOME $ 470,906 3.16%$ 498,546 3.14%
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
RETAINED EARNINGS - beginning $1,412,030 $ 939,484
Net income 470,906 498,546
Total 1,882,936 1,438,030
Less: Dividends - 26,000
RETAINED EARNINGS - ending $1,882,936 $1,412,030
The accompanying notes are an integral part
of these financial statements.
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 470,906 $ 498,546
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 45,730 58,356
Loss on impairment of goodwill - 182,477
Loss on sale of securities 49,800 12,500
Deferred income taxes (18,452) (47,090)
Cash surrender value of officers' life insurance 33,285 (16,038)
(Increase) decrease in:
Accounts receivable 301,116 (488,691)
Inventories 9,722 (139,153)
Prepaid expenses 11,271 (53,054)
Increase (decrease) in:
Accounts payable (296,356) 166,004
Accrued expenses and taxes (1,913) 129,282
Deposit payable 202,970 -
NET CASH PROVIDED BY OPERATING ACTIVITIES 808,079 303,139
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,284) (94,188)
Dividends paid - (26,000)
Increase (decrease) in investments 1,773 (8,175)
Increase in deposits - (8,400)
Proceeds from sale of securities 7,500 -
NET CASH USED BY INVESTING ACTIVITIES (11) (136,763)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings - 1,810,000
Payments on short-term borrowings (475,000) (1,835,000)
Payments on long-term debt (181,585) (73,250)
NET CASH USED BY FINANCING ACTIVITIES (656,585) (98,250)
NET INCREASE IN CASH 151,483 68,126
CASH - beginning 129,559 61,433
CASH - ending $ 281,042 $ 129,559
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 18,402 $ 66,214
Income taxes $ 356,500 $ 439,415
The accompanying notes are an integral part
of these financial statements.
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company distributes electronic components and assembles cable
components primarily on the East Coast of the United States. The
Company was incorporated in the State of New York on March 31, 1977.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
INVENTORIES
Inventories are stated at the lower of cost or market value using the
average cost method.
PROPERTY AND EQUIPMENT
Property and equipment, including significant betterments, are recorded
at cost. Upon retirement or disposal of properties, the cost and
accumulated depreciation are removed from the accounts, and any gain or
loss is included in income. Maintenance and repair costs are charged
to expense as incurred.
DEPRECIATION
Depreciation is provided primarily on the straight-line method for
financial reporting purposes and accelerated methods for income tax
purposes.
ADVERTISING
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising expense was $185,701 and $201,996 for
the years ended December 31, 1996 and 1995, respectively.
INVESTMENTS
Investments are recorded at cost. Fair value at December 31, 1996 and
1995 approximates cost.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the December 31, 1995
financial statements to conform with the December 31, 1996 financial
statement presentation. Such reclassifications have had no effect on
net income as previously reported.
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, Estimated
1996 1995 USEFUL LIVES
<S> <C> <C> <C>
Leasehold improvements $220,169 $220,169 5 - 10 years
Furniture and fixtures 167,618 158,334 5 - 10 years
Automotive equipment 123,401 123,401 5 years
511,188 501,904
Less: Accumulated depreciation 357,032 311,302
$154,156 $190,602
</TABLE>
NOTE 3 - NOTE PAYABLE, BANK
On June 29, 1995, the Company negotiated a new agreement with Fleet
Bank, formerly Shawmut Bank, effective July 1, 1995. The new agreement
provides for borrowings up to $1,000,000 with interest at 1/4% over the
bank's prime interest rate and expires on July 1, 1997. The loan is
secured by a lien on corporate assets and guarantees by the corporate
stockholders. As of December 31, 1996, $-0- is outstanding against the
line-of-credit and as of December 31, 1995, $475,000 was outstanding
against the line-of-credit.
<PAGE>
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
1996 1995
<S> <C> <C> <C>
Fleet Bank, formerly Shawmut Bank, payable in
monthly installments of $3,333 until August 1, 1998,
plus interest at prime plus 1%, secured by lien on
corporate assets and guarantees by the corporate
stockholders. The note was paid off during 1996. $ - $106,667
Shawmut Bank, payable in monthly installments of
$2,083 until August 1, 1998, plus interest at prime,
secured by $100,000 of State of Connecticut
Municipal Bonds purchased by Martin Blaustein
and pledged to the Bank. The note was paid off
during 1996. - 66,667
IBM Credit Corporation, payable in monthly
installments of $875, including interest, until June
1998, secured by computer equipment. 11,987 20,238
11,987 193,572
Less: Current maturities 8,252 75,500
Long-term debt $ 3,735 $118,072
</TABLE>
Maturities of long-term debt are as follows:
Years Ended
DECEMBER 30,
1997 $ 8,252
1998 3,735
$ 11,987
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 5 - INCOME TAXES
Deferred tax assets as of December 31 consisted of the following:
1996 1995
Current:
Federal $ 36,546 $ 24,519
State 12,092 12,259
48,638 36,778
Noncurrent:
Federal 21,182 14,399
State 7,009 7,200
28,191 21,599
Total $ 76,829 $ 58,377
The Company's deferred tax liabilities represent the tax effects of
taxable temporary differences in book and tax reporting. The taxable
temporary differences primarily consist of the following: accelerated
depreciation methods used for tax purposes, additional cost of
inventories for tax purposes, accounts receivable allowance for
doubtful accounts and long-term capital loss carryovers.
Income tax expense for the years ended December 31 consisted of the
following:
1996 1995
Current:
Federal $286,114 $283,281
State 105,570 103,880
Total current 391,684 387,161
Deferred:
Federal (15,148) (34,302)
State (3,304) (12,788)
Total non-current (18,452) (47,090)
Total $373,232 $340,071
NOTE 6 - EMPLOYEES PROFIT SHARING PLAN
The Company has a qualified profit-sharing plan and 401(k) plan which
includes all eligible, as defined, employees. The expense for the
period ended December 31, 1996 and 1995 was $30,000 and $80,000,
respectively.
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 7 - LOSS ON IMPAIRMENT
In 1995, the Company adjusted the remaining goodwill of $182,478 per
Statement of Financial Accounting Standards #121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of". This goodwill was the result of a purchase of Ancar
Electronic Supply, Inc. in 1993. Management asserts that since Ancar
Electronic Supply, Inc. was purchased by Wise Components, Inc. and
dissolved, all employees were transferred to Wise, all accounts
receivables were either allocated or written-off, all outstanding
payables and accruals were paid, all inventory was assigned to Wise
with obsolete inventory written-off, and all agreements with vendors
and customers were assigned to Wise, there is no remaining value
associated with the original purchase of Ancar Electronic Supply, Inc.
Accordingly, the Company has recorded a loss on impairment for the
goodwill remaining at January 1, 1995.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company conducts its operations in leased facilities under
operating leases which expired January 31, 1995. Subsequent to the
expiration of the leases, the Company continues to rent on a month-to-
month basis.
Rent charged to operations amounted to $99,945 and $86,433 for the
years ended December 31, 1996 and 1995, respectively.
As of December 31, 1996, current monthly rent amounts to approximately
$8,300 per month.
NOTE 9 - CONCENTRATION OF CREDIT RISK
The Company maintains its bank accounts in several financial
institutions and is insured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured balances at December 31, 1996
approximated $382,000.
NOTE 10 - MAJOR CUSTOMERS
The Company had one customer to whom it sold approximately $1,914,000
or 13% of sales. The accounts receivable from this customer amounted
to approximately $244,000 or 15% of the total accounts receivable
balance.
NOTE 11 - MAJOR SUPPLIERS
The Company had one supplier from whom it purchased approximately
$1,543,000 or 14% of purchases.
NOTE 12 - OTHER MATTERS
On June 12, 1995, the Board of Directors voted to resign the Company's
membership in The Genie Group, Inc., a cooperative buying association.
NOTE 13 - SUBSEQUENT EVENT
On January 16, 1997, the Vice President of sales resigned his position
within the Company. The Company expects a decrease in sales and a
decrease in earnings before income taxes for 1997 as a result of this
resignation.
On January 17, 1997, a letter of intent was signed by the shareholders
of Wise Components, Inc. to sell the outstanding shares of common stock
of Wise Components, Inc. to an acquiring company on terms agreeable to
both parties.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
To the Board of Directors and Stockholders
of Wise Components, Inc.
Our report on our audits of the basic financial statements of Wise Components,
Inc. for December 31, 1996 and 1995 appears on Page 1. Those audits were made
for the purpose of forming an opinion on the basic financial statements taken
as a whole. The supplementary schedules are presented for purposes of
additional analysis and are not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
BEDERSON & COMPANY LLP
February 24, 1997
<PAGE>
WISE COMPONENTS, INC.
SCHEDULES OF COST OF SALES
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
INVENTORIES - beginning $ 1,092,375 $ 953,222
Purchases 10,841,317 11,827,920
Freight-in 28,120 33,415
11,961,812 12,814,557
INVENTORIES - ending 1,082,653 1,092,375
TOTAL COST OF SALES $10,879,159 $11,722,182
See Independent Auditors' report on supplementary information.
<PAGE>
WISE COMPONENTS, INC.
SCHEDULES OF SELLING AND SHIPPING EXPENSES AND
GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
SELLING AND SHIPPING EXPENSES:
Sales salaries $ 907,025 $ 886,887
Outside commissions 4,916 24,477
Advertising 185,701 201,996
Business promotions 74,393 51,277
Shipping and receiving salaries 102,062 107,508
Supplies 10,733 13,499
Freight-out, net of recoveries (17,807) (25,839)
TOTAL SELLING AND SHIPPING EXPENSES $1,267,023 $1,259,805
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries:
Officers $ 604,241 $ 577,492
Office 211,861 211,720
Purchasing 199,371 238,303
1,015,473 1,027,515
Consulting fees 4,564 19,675
Rent 99,945 86,433
Telephone 95,679 87,872
Repairs and maintenance 20,594 17,468
Utilities 16,511 15,521
Insurance 31,911 29,500
Truck and auto expense 14,390 24,244
Group insurance 91,376 84,012
Office expenses 46,950 59,932
Payroll taxes 129,956 119,833
Professional fees 138,060 61,675
Dues and subscriptions 1,746 1,135
Donations 4,620 5,525
Miscellaneous expenses 10,557 18,714
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES $1,722,332 $1,659,054
See Independent Auditors' report on supplementary information.
<PAGE>
WISE COMPONENTS, INC.
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
JUNE 30, 1997 AND 1996
<PAGE>
WISE COMPONENTS, INC.
JUNE 30, 1997 AND 1996
CONTENTS
PAGE
Accountants' Compilation Report 1
Financial Statements:
Balance Sheets 2
Statements of Income 3
Statements of Retained Earnings 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 9
Supplementary Information:
Schedules of Cost of Sales 10
Schedules of Selling and Shipping Expenses and
General and Administrative Expenses 11
<PAGE>
Stockholders and Directors of
Wise Components, Inc.
Greenwich, Connecticut
We have compiled the accompanying balance sheets of Wise Components, Inc. as of
June 30, 1997 and 1996 and the related statements of income, retained earnings
and cash flows for the six months then ended, and the accompanying
supplementary information which is presented only for supplementary analysis
purposes, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements and
supplementary schedules information that is the representation of management.
We have not audited or reviewed the accompanying financial statements and
supplementary schedules and, accordingly, do not express an opinion or any
other form of assurance on them.
BEDERSON & COMPANY LLP
July 17, 1997
<PAGE>
WISE COMPONENTS, INC.
BALANCE SHEETS
JUNE 30, 1997 AND 1996
ASSETS
1997 1996
CURRENT ASSETS:
Cash $ 154,780 $ 120,109
Accounts receivable, less allowance for
doubtful accounts of $37,616 for 1997
and $30,083 for 1996 1,805,135 2,085,872
Inventories 1,028,863 948,518
Prepaid expenses and taxes 46,207 91,076
Deferred income taxes 55,629 44,114
TOTAL CURRENT ASSETS 3,090,614 3,289,689
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 109,959 166,943
OTHER ASSETS:
Cash surrender value, officers' life
insurance, net of loans thereon of $-0-
for 1997 and $65,149 for 1996 30,931 77,843
Investments in co-op buying group - 57,300
Other investments - 1,323
Deposits 16,420 16,420
Deferred income taxes 27,724 22,725
TOTAL OTHER ASSETS 75,075 175,611
TOTAL ASSETS $3,275,648 $3,632,243
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 128,252 $ 50,500
Accounts payable 863,791 736,640
Accrued expenses and taxes 170,318 250,178
Deposit payable - 396,927
TOTAL CURRENT LIABILITIES 1,162,361 1,434,245
LONG-TERM DEBT 480,000 52,279
TOTAL LIABILITIES 1,642,361 1,486,524
STOCKHOLDERS' EQUITY:
Common stock, no par value, 200 shares
authorized, 175 shares issued and outstanding 87,500 87,500
Paid-in capital 367,750 367,750
Retained earnings 1,978,037 1,690,469
Treasury stock, 87.5 shares, at cost (800,000) -
TOTAL STOCKHOLDERS' EQUITY 1,633,287 2,145,719
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,275,648 $3,632,243
See Accountants' compilation report and
accompanying notes to financial statements.
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
SALES $6,212,380 100.00% $8,030,601 100.00%
COST OF SALES 4,582,999 73.78 5,988,869 74.58
GROSS PROFIT 1,629,381 26.22 2,041,732 25.42
OPERATING EXPENSES (INCOME):
Selling and shipping 537,018 8.64 642,006 7.99
General and administrative 902,587 14.53 854,865 10.65
Depreciation and amortization 22,414 .36 23,659 .29
Bad debts 7,897 .12 12,148 .15
Interest 5,458 .09 10,684 .13
Profit-sharing 12,000 .20 30,000 .37
Interest income (3,494) (.06) (900) -
Gain on sale of equipment (8,401) (.14) - -
TOTAL OPERATING EXPENSES 1,475,479 23.74 1,572,462 19.58
INCOME BEFORE PROVISION
FOR INCOME TAXES 153,902 2.48 469,270 5.84
PROVISION FOR INCOME TAXES 58,801 .95 190,832 2.38
NET INCOME $ 95,101 1.53% $ 278,438 3.46%
See Accountants' compilation report and
accompanying notes to financial statements.
</TABLE>
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
RETAINED EARNINGS - beginning $1,882,936 $1,412,031
Net income 95,101 278,438
RETAINED EARNINGS - ending $1,978,037 $1,690,469
See Accountants' compilation report and
accompanying notes to financial statements.
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 95,101 $ 278,438
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 22,414 23,659
Gain on sale of equipment (8,401) -
Deferred income taxes (6,524) (4,912)
(Increase) decrease in:
Accounts receivable (222,183) (201,804)
Inventories 53,790 143,857
Prepaid expenses and taxes 12,579 (20,332)
Cash surrender value of officers'
life insurance 18,736 5,109
Increase (decrease) in:
Accounts payable 358,193 (65,314)
Accrued expenses and taxes (73,446) 4,503
Deposit payable (202,970) 393,376
NET CASH PROVIDED BY OPERATING ACTIVITIES 47,289 556,580
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,916) -
Decrease in investments - 450
Proceeds from sale of equipment 32,100 -
NET CASH PROVIDED BY INVESTING ACTIVITIES 30,184 450
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 600,000 -
Payments on short-term debt - (500,000)
Payments on long-term debt (3,735) (66,480)
Purchase of treasury stock (800,000) -
NET CASH USED BY FINANCING ACTIVITIES (203,735) (566,480)
NET DECREASE IN CASH (126,262) (9,450)
CASH - beginning 281,042 129,559
CASH - ending $ 154,780 $ 120,109
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,608 $ 10,684
Income tax $ 60,959 $ 206,000
See Accountants' compilation report and
accompanying notes to financial statements.
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company distributes electronic components and assembles cable
components primarily on the East Coast of the United States. The
Company was incorporated in the State of New York on March 31, 1977.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
INVENTORIES
Inventories are stated at the lower of cost or market value using the
average cost method.
PROPERTY AND EQUIPMENT
Property and equipment, including significant betterments, are recorded
at cost. Upon retirement or disposal of properties, the cost and
accumulated depreciation are removed from the accounts, and any gain or
loss is included in income. Maintenance and repair costs are charged
to expense as incurred.
DEPRECIATION
Depreciation is provided primarily on the straight-line method for
financial reporting purposes and accelerated methods for income tax
purposes.
ADVERTISING
The Company follows the policy of charging costs of advertising to
expense as incurred. Advertising expense was $74,304 and $101,746 for
the six months ended June 30, 1997 and 1996.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and capital
loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consist of the following:
JUNE 30, Estimated
1997 1996 USEFUL LIVES
Leasehold improvements $220,169 $220,169 5 - 10 years
Furniture and fixtures 169,535 158,334 5 - 10 years
Automotive equipment 64,694 123,401 5 years
454,398 501,904
Less: Accumulated depreciation 344,439 334,961
and amortization
$109,959 $166,943
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 3 - LINE OF CREDIT
On June 12, 1997, the Company negotiated a new agreement with Fleet
National Bank effective June 12, 1997. The new agreement provides for
borrowings up to $400,000 with interest at 1/4% over the bank's prime
interest rate and expires on July 1, 1999. The line is secured by a
lien on corporate assets and guarantees by the corporate stockholder.
As of June 30, 1997 and 1996, $-0- was outstanding against the line-of-
credit.
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
JUNE 30,
1997 1996
<S> <C> <C> <C>
Fleet National Bank, payable in monthly
installments of $10,000 plus interest at
prime plus 1/2 % until July 1, 2002, secured
by a lien on corporate assets and guaranteed
by the corporate stockholder. $600,000 $ 86,667
IBM Credit Corporation, payable in monthly
installments of $875, including interest, until
June 1998, secured by computer equipment. 8,252 16,112
608,252 102,779
Less: Current maturities 128,252 50,500
Long-term debt $480,000 $ 52,279
</TABLE>
Maturities of long-term debt are as follows:
Twelve Months
JUNE 30,
1998 $128,252
1999 120,000
2000 120,000
2001 120,000
2002 120,000
$608,252
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 5 - INCOME TAXES
Deferred tax assets as of June 30 consisted of the following:
1997 1996
Current:
Federal $ 42,502 $ 33,527
State 13,127 10,587
55,629 44,114
Noncurrent:
Federal 21,182 17,271
State 6,542 5,454
27,724 22,725
Total $ 83,353 $ 66,839
The Company's deferred tax assets represent the tax effects of taxable
temporary differences in book and tax reporting. The taxable temporary
differences primarily consist of the following: accelerated
depreciation methods used for tax purposes, additional cost of
inventories for tax purposes, and accounts receivable allowance for
doubtful accounts.
Income tax expense for the six months ended June 30 consists of the
following:
1997 1996
Current:
Federal $ 53,767 $147,820
State 11,558 51,474
Total current 65,325 199,294
Deferred:
Federal (5,219) (5,943)
State (1,305) (2,519)
Total deferred (6,524) (8,462)
Total $ 58,801 $190,832
NOTE 6 - EMPLOYEES PROFIT SHARING PLAN
The Company has a qualified profit-sharing plan and 401(k) plan which
includes all eligible employees as defined. The expense for the period
ended June 30, 1997 and 1996, was $12,000 and $30,000, respectively.
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 7 - RECLASSIFICATION
Certain reclassifications have been made to prior year financial
statements to conform to the 1997 presentation.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company conducts its operations in leased facilities under
operating leases which expired on January 31, 1995. Subsequent to the
expiration of the leases, the Company continues to rent on a month-to-
month basis.
Rent charged to operations amounted to $51,011 and $49,934 for the six
months ended June 30, 1997 and 1996, respectively.
As of June 30, 1997, current monthly rent amounts to approximately
$8,500 per month.
NOTE 9 - TREASURY STOCK
On June 12, 1997, the Company purchased all the outstanding shares of
common stock (87.5 shares) of a shareholder and officer of the Company,
at a cost of $800,000. The treasury stock is shown in the
stockholders' equity section of the balance sheet.
NOTE 10 - EMPLOYMENT AGREEMENT
On June 12, 1997, the Company entered into an employment agreement with
a prior shareholder and officer of the Company, at a rate of $4,000 per
week for a period of six years, and is subordinated to the loan
agreement with Fleet National Bank.
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Company maintains its bank accounts in several financial
institutions which are insured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured balances at June 30, 1997
approximated $152,000.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
WISE COMPONENTS, INC.
SCHEDULES OF COST OF SALES
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
INVENTORIES - beginning $1,082,653 $1,092,375
Purchases 4,512,568 5,781,511
Freight-in 16,641 14,919
Direct labor - 37,588
Payroll taxes - 4,494
Insurance - 2,500
Group insurance - 4,000
5,611,862 6,937,387
INVENTORIES - ending 1,028,863 948,518
TOTAL COST OF SALES $4,582,999 $5,988,869
See Accountants' compilation report.
<PAGE>
WISE COMPONENTS, INC.
SCHEDULES OF SELLING AND SHIPPING EXPENSES AND
GENERAL AND ADMINISTRATIVE EXPENSES
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
SELLING AND SHIPPING EXPENSES:
Sales salaries and commissions $ 368,851 $ 451,011
Rep. commissions 196 4,562
Advertising 74,304 101,746
Business promotions 40,092 33,418
Shipping and receiving salaries 57,503 54,160
Supplies 3,996 6,164
Freight-out, net of recoveries (7,924) (9,055)
TOTAL SELLING AND SHIPPING EXPENSES $ 537,018 $ 642,006
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries:
Officers $ 379,040 $ 316,600
Office 105,113 107,267
Purchasing 89,190 104,507
573,343 528,374
Rent 51,011 49,934
Telephone 43,912 43,461
Repairs and maintenance 10,694 11,210
Utilities 7,216 8,243
Insurance 21,036 27,818
Truck and auto expense 8,114 12,653
Group insurance 35,994 39,555
Office expenses 35,007 25,895
Payroll taxes 74,298 78,194
Professional fees 23,204 23,650
Dues and subscriptions 425 257
Donations 2,100 625
Miscellaneous expenses 16,233 4,996
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES $ 902,587 $ 854,865
See Accountants' compilation report.
<PAGE>
Exhibit 10(a)
EMPLOYMENT AGREEMENT
Employment Agreement ("AGREEMENT") made this 1ST day of May,
1997
by and between FEDERATED PURCHASER INC., a New York corporation, having its
principal offices at 268 Cliffwood Avenue, Cliffwood, New Jersey 07721
("FEDERATED"), and
HARRY J. FALLON, residing at 123 Milligan Place, South Orange, New Jersey
07079 ("FALLON").
WITNESSETH:
WHEREAS, Fallon has been President and Chief Executive Officer of
Federated since 1974; and
WHEREAS, Federated believes it is important to and in its best
interests to retain Fallon as its President and Chief Executive Officer and
to restrict Fallon from competing against Federated for a term extending
beyond that contained in the Agreement.
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, and intending to be legally bound hereby, the parties hereby
agree as follows:
1. EMPLOYMENT. Federated hereby employs Fallon and Fallon hereby
agrees to serve in the capacity of President and Chief Executive Officer of
Federated for the term hereinafter described.
2. TERM. This Agreement shall commence on May 1 , 1997 and,
subject to the termination provisions included herein, shall expire on
October 31, 1997 (the "TERM").
3. SALARY. Federated shall pay to Fallon, in equal installments
payable every two (2) weeks, an annual base salary ("BASE SALARY") equal to
$125,000 subject to normal withholdings and deductions.
4. CASH BONUSES. Federated and Fallon agree as follows:
(a) In addition to the Base Salary provided for in paragraph 4,
Federated shall pay to Fallon, in respect of its fiscal year ending October
31, 1997, a cash bonus ("BONUS") equal to ten (10%) percent of Federated's
Operating Profits in excess of $300,000 for the appropriate fiscal year;
PROVIDED HOWEVER, that the amount of any such cash bonus shall not exceed
one hundred (100%) percent of Fallon's Base Salary for the applicable
fiscal year.
(b) For purposes of this Agreement, the term "OPERATING PROFITS"
shall mean the combined income from all operations of Federated and its
subsidiaries (including operations and subsidiaries acquired hereafter)
before any contribution to profit sharing or pension plans and excluding
capital gains and capital losses, and without deduction or allowance for
federal or state income taxes or tax credits or for any bonus payments made
to Fallon under this or any other bonus or incentive plan(s) which may be
adopted in the future.
(c) Payments of the Bonus shall be made no later than forty-five
(45) days from the last day of the fiscal year in which such cash bonus was
earned.
(d) The determination of Operating Profits shall be made by the
certified public accountants who prepared the annual audit for the fiscal
year in question, in accordance with generally accepted accounting
principles consistently applied, and each such determination by such
accountants shall be binding and conclusive on both parties hereto.
5. CHANGE OF CONTROL. If a "CHANGE OF CONTROL" (defined below) of
Federated shall occur at any time during Fallon's employment hereunder
Fallon may, by notice to the Board of Directors within six (6) months of
such Change of Control, elect to terminate his employment with Federated at
the end of such six (6) month period. If Fallon elects to terminate his
employment hereunder pursuant to this Section 5, Federated shall promptly
pay him an amount equal to his salary at the then current rate for the
greater of (a) the remainder of this Agreement; or (b) twelve (12) months
from the date of the Change of Control. A "CHANGE OF CONTROL" shall be
deemed to occur when any person, corporation, partnership, association or
entity, directly or indirectly (through a subsidiary or otherwise), (i)
acquires or is granted the right to acquire, directly or through a merger
or similar transaction, a majority of Federated's outstanding voting
securities, or (ii) acquires all or substantially all of Federated's
assets.
6. WORKING FACILITIES. Federated shall furnish Fallon with a
private office, and such other facilities, services and staff as are
suitable to his position and adequate for the performance or his duties
hereunder.
7. VACATION AND OTHER BENEFITS. Fallon shall be entitled to four
(4) weeks vacation with full pay during each fiscal year during the Term.
In addition, Fallon shall receive all other benefits regularly offered by
Federated to its employees, including but not limited to hospitalization
insurance, life insurance, profit sharing benefits, pension benefits and
paid holidays, but in no event shall such benefits be, at any time during
the Term, less in number, type, extent and quality than those which Fallon
is receiving as of the date of this Agreement.
8. SPECIAL BENEFITS. Federated and Fallon agree as follows:
(a) In the event Fallon dies during the Term while employed by
Federated, Federated shall pay the salary provided for in paragraph 3 for a
period of six (6) months, commencing with the first regular pay day
following his death, to such person or persons as Fallon may designate in a
written notice to the secretary of Federated referring to this paragraph
8(a), which designation(s) may be changed by Fallon from time to time.
(b) In the event Fallon becomes disabled by illness or accident,
to the extent that Fallon is unable to perform the duties required of him,
Federated shall nevertheless continue to pay to Fallon the Base Salary.
Such payments under this paragraph 8(b) shall continue for a period of six
(6) months from the date such disability first precludes Fallon from
performing his duties. If Fallon has been continually disabled for six (6)
months following the first payment pursuant to this paragraph 8(b),
Federated shall have the right to terminate this Agreement at such time or
any time thereafter so long as such disability continues.
(c) Termination of this Agreement by reason of Fallon's death or
disability shall not deprive Fallon or his designees of the right to the
Bonus (computed in accordance with the provisions hereof, and to which
Fallon would otherwise be entitled hereunder), except that the amount of
the Bonus for the fiscal year in which such termination occurs shall be
reduced by subtracting from such bonus 1/365th of the Bonus for each day in
such fiscal year in excess of ninety (90) days that Fallon did not actively
perform his duties (disregarding vacation periods and holidays) as
contemplated hereunder.
9. REIMBURSEMENT OF EXPENSES.
(a) Federated recognizes that Fallon will incur out-of-pocket
expenses for entertainment and travel expenses in the course of his duties
as its President and Chief Executive Officer. Federated agrees to
reimburse Fallon for all such expenses and/or permit him to charge such
expenses directly to Federated's account, provided such expenses are
reasonable and are incurred in the course of his employment hereunder.
(b) Federated agrees to reimburse Fallon for reasonable
financial advisor expenses, including without limitation, all of Fallon's
personal tax preparation expenses, PROVIDED THAT such reimbursement shall
not exceed $5,000 per annum.
10. IMPROVEMENTS, INVENTORIES, DISCOVERIES AND CONFIDENTIAL
INFORMATION. Fallon hereby agrees that:
(a) Any improvements, inventions or discoveries which he may
come upon, make, invent, conceive, create or otherwise acquire by reason of
or in connection with his employment hereunder during the Term or any prior
employment by Federated, whether solely or jointly with others, shall be
the sole and exclusive property of Federated or its nominee.
(b) He shall and does hereby assign and transfer to Federated,
its successors and assigns, and to its or their own use absolutely, all
inventions, discoveries, improvements, and all interests and rights therein
or thereunder, which he has invented, conceived, created, owns, controls,
or has any rights to acquire, whether solely or jointly with others, or
which he may, during and by reason of or in connection with his present or
future employment with Federated, come upon, make, invent, conceive,
create, own, control or have any right to acquire, whether solely or
jointly with others.
(c) He shall at all times promptly disclose to Federated, and in
writing if so requested, and to no other person unless so directed in
writing by Federated, any and all ideas, inventions, discoveries,
improvements, and applications therefor, or any interests and rights
described or referred to in (a) and (b) of this paragraph 10, and that
whenever requested to do so, he shall perform or cause to be performed all
such acts, and shall execute or cause to be executed any and all such
applications, assignments, powers of attorney, and other instruments in
such manner and form as Federated or its counsel may deem necessary or
desirable to fully and completely vest and confirm in Federated or its
nominee, so far as it is within Fallon's power to do so, the sole and
exclusive right, title and interest, in, to and under all such matters, all
without any further consideration other than this Agreement, but at
Federated's expense.
(d) At all times both during the Term and after the expiration
or sooner termination of this Agreement, he shall keep secret all knowledge
concerning all ideas, designs, discoveries, processes, inventions,
improvements, developments, customers and customer lists, pricing policies,
customer orders, and trade secrets made known to him by Federated or any of
its officers or employees, or learned or developed by him by reason of or
in connection with his employment hereunder, either alone or jointly with
others, while employed by Federated (either during the Term or prior
thereto), and he shall not in any manner whatsoever disclose any of same or
anything relating to any of same to any person, entity or corporation or
use the same or information derived therefrom for himself (alone or jointly
with others) or any other party whatsoever.
(e) He shall not during the Term compete with Federated; and
after the expiration or sooner termination of his employment with
Federated, pursuant to this Agreement or otherwise, he shall not use any of
the matters described or referred to in this paragraph 10 to the extent
that any of same do not at any such time constitute public knowledge.
11. RESTRICTIVE COVENANTS. Fallon acknowledges that Federated is
engaged in the distribution and sale of electronic parts and equipment on
the retail and wholesale levels and that it sells such products throughout
various states. Fallon has developed certain of the marketing procedures
used in developing customers for Federated, and Fallon is aware of the
names of certain of Federated's customers. As a consequence of the
confidential nature of the customer and prospect lists, and other product,
price, sales, and financial information which are available to him in the
course of his employment, Fallon hereby agrees that he shall not, directly
or indirectly, during the Term and for a period of one (1) year thereafter,
regardless of the reason for any termination of said employment, do any of
the following:
(a) Participate or become interested in, become affiliated or
connected with, be employed by or render service to, an a sole proprietor
or as a principal, partner, stockholder, director, officer, employee,
agent, consultant, or other representative, any corporation, partnership,
firm, association, or other entity which markets or sells at retail or
wholesale, in competition with Federated, the same or substantially similar
products as those marketed or sold by Federated at the time of the
termination of his employment, in those States of the United States in
which Federated has engaged in the distribution and sale of electronic
parts and equipment;
(b) Solicit orders from, accept orders from, or service any
person, firm or other enterprise who or which was a customer of Federated
during any term of his employment by Federated, whether or not such
customer was personally solicited or serviced by him;
(c) Solicit orders from, accept orders from, or service any
prospects of Federated whom or which he contacted, personally or otherwise,
or whose names he learned of, during any term of his employment by
Federated;
(d) Disclose to any individual, firm, association, corporation,
or other enterprise, or use for his own benefit, any business, trade,
financial, customer, product, or sales information which became or shall
become known to him in the course of any term of his employment by
Federated, such information being deemed confidential to the extent not
known generally in the trade.
Federated and Fallon agree that the provisions of this Paragraph 11
are reasonably necessary for the protection of Federated; and that in the
event Fallon breaches any covenant, condition or restriction therein
provided, Federated may enforce its rights hereunder against Fallon by
injunction as well as other remedies, the parties agreeing that remedies at
law alone for the breach of any of the aforesaid provisions and
restrictions contained therein are inadequate. In the event that any court
having jurisdiction shall determine that any one or more of the restrictive
covenants contained in this paragraph 11 shall be unreasonable in any
respect, then such covenant or covenants shall be deemed limited and
restricted to the extent that such court shall deem to be reasonable, and
as so limited or restricted shall remain in full force and effect. In the
event that any such covenant or covenants shall be deemed wholly
unenforceable, the remaining covenants shall remain in full force and
effect.
12. TERMINATION FOR "GOOD REASON". Federated shall have the right to
discharge Fallon for "Good Reason" at any time during the Term, upon giving
written notice to Fallon of the reasons for such proposed termination as
determined by Federated's Board of Directors. For purposes of this
Agreement, "GOOD REASON" shall mean
(a) Fallon's violation of any covenant or agreement contained herein; or
(b) Fallon's conviction for a felony or other crime of dishonesty; in each
case which materially and adversely affects Federated. This Agreement
shall terminate on the date of any termination for Good Reason and
Federated shall have no further obligation to Fallon, to the same extent as
if the Term had expired on such date; except for accrued and unpaid Base
Salary or Bonus as calculated in accordance with the terms hereof.
13. SURVIVAL OF RESTRICTIVE COVENANTS. The provisions of paragraph
11 shall survive the expiration of the Term without any renewal of the
employment relationship, as well as the termination of Fallon's employment
under this Agreement, without regard to the reason for such termination.
14. MISCELLANEOUS.
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by and against Fallon and his heirs,
devisees, legatees, executors, administrators and personal representatives,
and Federated and its successors and assigns.
(b) The captions or paragraph headings contained in this
Agreement have been utilized herein solely for purposes of convenience, and
shall in no event be deemed to be part or interpretive of this Agreement.
(c) Use of the words "hereby", "herein", "hereof", "hereunder",
and similar words, shall always be deemed to refer to this Agreement in its
entirety, and not merely to the paragraph or subparagraph in which any such
word appears.
(d) If any provision of this Agreement, or the application of
any such provision to any person or any set of facts, shall be held invalid
by any court of competent jurisdiction, such provision shall not affect the
validity of any other provision hereof or the validity of such provision to
any other person or set of facts, it being the express intention of the
parties hereto that this Agreement shall be enforceable as between them to
the greatest extent possible.
(e) The waiver by either party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach of the same or any other provision hereof by
either party.
(f) This Agreement may be executed in several counterparts, each
of which shall be deemed a duplicate original, but all of which together
shall constitute one and the same instrument.
(g) This Agreement shall be construed, interpreted and enforced
in accordance with the internal laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first above written.
FEDERATED PURCHASER, INC.
by: /S/ JANE CHRISTY
Name: Jane Christy
Title: Vice President and Director
/S/ HARRY J. FALLON
Harry J. Fallon
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE COMPANY
Percentage of Voting
Jurisdiction of Securities Owned by
SUBSIDIARY INCORPORATION THE COMPANY
Federated Purchaser, Inc.Pennsylvania 100%
