Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Preliminary Additional Materials
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.149-11(c) or Section
240.14a-12
FEDERATED PURCHASER, INC.
(Name of Registrant as Specified in its Charter)
CHRISTIAN PETER JOHNSON, ESQ.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check appropriate box):
[ ] No fee required
[ ]Fee computed on table below per Exchange Act Rules 14a-6(j)(4) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
<PAGE>
5) Total fee paid:
[ X ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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[FEDERATED LETTERHEAD]
April 21, 1998
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 May 28, 1998 at 10 o'clock a.m. Eastern Daylight
Time at the offices of the Company, 268 Cliffwood Avenue, Cliffwood, NJ 07721.
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 issued. 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.
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<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
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<PAGE>
FEDERATED PURCHASER, INC.
268 Cliffwood Avenue
Cliffwood, NJ 07721
(908) 290-2900
---------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on May 28, 1998
---------------------------
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 May 28, 1998 at 10 o'clock a.m. Eastern
Daylight Time, at the offices of the Company, 268 Cliffwood Avenue, Cliffwood,
NJ 07721 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 issued. 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
April 20, 1998 (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
4/21/98 Secretary
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<PAGE>
FEDERATED PURCHASER, INC.
268 CLIFFWOOD AVENUE
CLIFFWOOD, NEW JERSEY 07721
(908) 290-2900
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS ON May 28, 1998
This Proxy Statement is being furnished to the holders as of
April 20, 1998 (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 May 28, 1998 at 10 o'clock a.m. Eastern Daylight Time and at
any postponements or adjournments thereof. This Proxy Statement and the
accompanying Proxy Card are first being mailed to shareholders of
Federated on or about April 21, 1998.
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 issued. 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 and in the documents attached hereto,
each of which shareholders is 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 19 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
Federated's Common Stock is not traded on an exchange. On March 31,
1998, the last reported bid price per share of Common Stock was $.27, and
the last reported ask price per share was $.44. 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 date of this Proxy Statement is April 21, 1998.
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<PAGE>
All expenses incurred in connection with this solicitation of proxies
will be borne by the Company. In addition to the solicitation of proxies
by use of the mails, the directors, officers and regular employees of the
Company may solicit proxies by telephone or personal interview, but will
not receive any additional compensation therefor. The company will
reimburse brokers, banks and other nominees for their reasonable expenses
incurred in forwarding proxy materials.
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<PAGE>
TABLE OF CONTENTS
PAGE
Available Information...........................................9
Assistance......................................................9
Incorporation of Certain Information by Reference ..............9
Forward-Looking Statements.....................................10
Summary........................................................11
Risk Factors...................................................19
The Special Meeting ...........................................23
The Exchange and Amendment ....................................25
The Exchange Agreement ........................................31
Business of Federated..........................................34
Federated Purchaser, Inc. Selected Historical Consolidated
Financial Data..............................................38
Management's Discussion and Analysis of Financial Condition
and Results of Operations for Federated.....................40
Description of Capital Stock of Federated......................48
Directors and Officers.........................................51
Business of Wise...............................................57
Wise Components, Inc. Selected Historical Financial Data ......60
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Wise...........................61
Capital Stock of Wise..........................................62
Market for Common Equity.......................................64
Pro Forma Financial Information ...............................66
Experts........................................................75
_______________________________
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<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 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 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 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.
RISK FACTORS
Shareholders should carefully consider the information presented in
this Proxy Statement, 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,
1997, filed with the Commission on January 29, 1998, and the amendments
thereof on form 10-K/A, filed with the Commission on March 2, and April 16,
1998, are incorporated herein by reference in their entirety. Federated's
Quarterly Report on Form 10-Q for the quarter ended January 31, 1998, filed with
the Commission on March 12, 1998, and the amendment thereof on form 10-Q/A,
filed with the Commission on April 16, 1998, are also incorporated herein by
reference in their entirety.
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<PAGE>
Federated's Report on Form 8-K as filed with the Commission on October
1, 1997, is incorporated herein by reference in its entirety.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy Statement
shall be deemed to be modified or superseded for purposes of this Proxy
Statement 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, 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 May 1, 1998.
FORWARD-LOOKING STATEMENTS
This Proxy Statement 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.
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, 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 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.
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<PAGE>
PROXY STATEMENT SUMMARY
This Proxy Statement 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 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.
Shareholders are urged to review carefully this Proxy Statement and the
Appendices hereto in their entirety.
The Exchange................. This Proxy Statement 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 as
Appendix I, and any summary contained
herein of the terms thereof is
qualified in its entirety by reference
to the Agreement.
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<PAGE>
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 Stamford, Connecticut.
Wise's principal business address is 79
Harborview Avenue, Stamford,
Connecticut 06902, and its telephone
number is (800) 543-4333.
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<PAGE>
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 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."
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<PAGE>
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
the Company's offices, 268 Cliffwood
Avenue, Cliffwood, NJ 07721, on May 28,
1998, commencing at 10 a.m. Eastern
Daylight 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.
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<PAGE>
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 April 20, 1998 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.
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<PAGE>
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 purchase method of
accounting, as a reverse acquisition with
Wise deemed the accounting acquiror. If
and when the acquisition is consummated,
presentation of Federated's financial
statements for periods before its acqui-
sition by Wise will include only the
assets, operations and cash flows of Wise.
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.
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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 March 2, 1998 for a total
volume of 50 shares at a price of .29
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 December 31, 1997 was
$18,924. 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, as well as other pertinent
information set fort in this Proxy
Statement. 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.
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<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 purchase 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.
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>
(Unaudited) (Unaudited)
Fiscal Year Three Months
Ended Ended
DECEMBER 31, JANUARY 31,
1997 1998
<S> <C> <C>
FEDERATED HISTORICAL(3)
Net Loss per share: $(.17) $(.07)
Cash Dividends per -0- -0-
share:
Book Value per .29 .21
share:
WISE HISTORICAL(1),(2),(4)
Net Income (loss) 934 (16)
per share:
Cash Dividends per -0- -0-
share:
Book Value per 18,924 18,924
share:
WISE EQUIVALENT PRO
FORMA PER SHARE (4)
Net Income per Share .03 -0-
Cash Dividend per -0- -0-
Share
Book Value per Share .37 .37
PRO FORMA COMBINED
Net Income (loss) .00 (.02)
per share:
Cash Dividends per -0- -0-
share:
Book Value per .23 .32
share:
</TABLE>
(1) Data for Wise are based on Wise's year ended December 31, 1997.
(2) As of December 31, 1997 there were 87.5 shares of Wise common stock
issued and outstanding. As of December 31, 1996 and 1995, there
were 175 shares of Wise common stock issued and outstanding.
(3) Data for Federated are based on Federated's year ended October 31,
1997.
(4) Data for Wise for January 31, 1998 are based upon the three months
ended December 31, 1997.
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<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. 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.
It is a condition to closing the Exchange that all of the
officers and directors of Federated resign. 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 himself and one additional
person from the prior Board of Directors.
(iii) LIQUIDITY; BANKRUPTCY RISK
PRIOR TO THE EXCHANGE
Old Federated's liquidity position continues to be adversely
affected by a variety of factors, including operating losses of
$115,221 for the three months ended January 31, 1998, $281,901 for the
year ended October 31, 1997 and of $414,826 for the year ended October
31, 1996. Since prior to 1992, Old Federated's liquidity position has
been negatively affected by certain trends, including intense
competition from larger competitors in the electronics industry and
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<PAGE>
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 again in its Annual
Report for the year ended October 31, 1997. Please see below at
"Audit Report -- Uncertainty," and at "Management's Discussion and
Analysis -- Federated -- Years Ended October 31, 1997, 1996 and 1995 -
- Going Concern Question." In its Annual Report on Form 10-K for the
fiscal years ended October 31, 1996 and October 31, 1997, and in
subsequent quarterly reports, Old Federated disclosed that if it
failed to achieve its objectives for improving its financial
condition, it may seek protection under bankruptcy laws. While the
Company has been slow in paying certain accounts payable, the Company
is aware of no legal action that has been taken or threatened against
it.
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, 1996, Old Federated's losses for
fiscal year 1997 would have been offset by Wise's profitability.
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.
Old Federated's independent auditors are of the opinion that the
Exchange would eliminate the need for the going concern language for
the fiscal year ending December 31, 1998. Management will continue to
focus its efforts on increasing sales and continuing to reduce costs.
In particular, management believes that combining with Wise will allow
New Federated to streamline its administrative structure, improve its
negotiating position with suppliers and compete more effectively in
the market for qualified sales personnel. Management also believes
that the increased cash flow and greater efficiency resulting from the
Exchange will enable it to resume a current payment schedule, and
plans to do so as soon as it becomes practicable. There can be no
assurances that any of these desired effects will occur; there remains
a possibility that New Federated will operate at a loss, and that its
auditors will continue in their reports to raise substantial doubt
regarding New Federated's ability to continue as a going concern.
Please see below at "Audit Report -- Uncertainty," and at
"Management's Discussion and Analysis -- Federated -- Years Ended
October 31, 1997, 1996 and 1995 -- Going Concern Question."
(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
years ended October 31, 1996 and October 31, 1997 included a paragraph
raising substantial doubt regarding Old Federated's ability to
continue as a going concern. Quarterly reports filed on Form 10-Q
during the year ended October 31, 1997 have continued to disclose this
doubt. Please see Note 2 of Federated's Consolidated Financial
Statements. It is estimated that $150,000 would constitute
sufficient funds to overcome the threat to Federated's ability to
continue as a going concern. Under the Exchange, neither Wise nor
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<PAGE>
Blaustein have committed to provide these funds, and it is doubtful
that the Company will be able to raise these funds either through
results of operations or by other means. However, management believes
that as the two firms integrate their operations, the losses
experienced by Federated will be offset by the much stronger
operations of Wise. The combination of the two firms will also allow
Federated to reduce certain of its operating expenses by eliminating
overlapping operations. Assuming consummation of the Exchange, the
Company's auditors have indicated that their report for the year
ending December 31, 1998 will not include any question regarding
Federated's ability to continue as a going concern.
(v) STOCK PRICE
For the fiscal quarter ended January 31, 1998, the average bid
and ask prices for Federated's Common Stock were $.28 and $.41
respectively, as compared to $.25 and $.34 for the fiscal quarter
ended January 31, 1997. 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.
Robert K. Berwick, a former shareholder, will also provide important
liaison services with his substantial customer base. Although New
Federated believes it would be able to retain Mr. Berwick's customers
in the event it were to lose his services, management is not in a
position to predict the response of these customers should such
circumstances arise.
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<PAGE>
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. Nevertheless,
since the disputes arose between Wise and the cooperative, Wise has
been able to acquire the same or similar merchandise at similar
pricing from other sources. Other than as discussed above, Old
Federated is not aware of any existing disputes which would affect its
relationships with suppliers and customers.
(xi) OTHER INDUSTRY TRENDS
There can be no assurances that the Exchange will permit New
Federated to avoid the consequences of other industry trends affecting
smaller electronics distributors. These trends include the
consolidation of other small distributors, the increase in the use of
technology (which Old Federated's limited capital resources have not
permitted it to acquire), marketplace changes favoring value-added
services, and the reduction of franchises by major vendors. All of
these trends may have the effect of reducing New Federated's ability
to increase sales, widen profit margins and effectuate cost
reductions, although management believes that New Federated's enhanced
capital and sales resources will significantly increase its ability to
adapt to these market forces.
(xii) ABSENCE OF FAIRNESS OPINION BY OUTSIDE CONSULTANTS
Although the Board of Directors of Old Federated considered the
financial condition, potential alternative transactions and other factors
in approving the Exchange, no formal fairness opinion from an investment
advisor was sought in connection with the Exchange. In concluding that
such an opinion would not be obtained, the Board was of the opinion that
in view of financial and other circumstances, the considerable cost
involved in obtaining a formal fairness opinion would not be justified.
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<PAGE>
THE SPECIAL MEETING
TIME, DATE AND PLACE
This Proxy Statement 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 May 28, 1998 at 10 o'clock a.m. Eastern Daylight Time, 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 April 20, 1998 (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.
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<PAGE>
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 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, 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, 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.
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<PAGE>
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 years
ended October 31, 1996, and October 31, 1997, Federated's auditors included
in their Audit Reports a note raising substantial doubt regarding
Federated's ability to continue as a going concern. In Federated's Annual
Reports on Form 10-K for the fiscal years ended October 31, 1996, and
October 31, 1997, and in interim quarterly reports, management disclosed
that if Federated failed to achieve its objectives for improving its
financial condition, it may be forced to seek protection under the
bankruptcy laws.
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
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<PAGE>
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, the Board of Directors
approved the Exchange. Although the Board had sought other alternatives,
by the time negotiations with Mr. Blaustein began in mid-1997, no other
third party had made a formal offer that would permit the Board of
Directors, in the exercise of its fiduciary duties, to maximize shareholder
value, nor did any such offer emerge prior to the Board's final decision.
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 Exchange and the
Amendment -- The Board's Approval of the Exchange and Amendment" and "The
Exchange and the Amendment -- Execution and Announcement of the Exchange,"
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 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; (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; and (7) the Exchange provides the best possible
opportunity for increasing liquidity in the market for Federated's shares.
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<PAGE>
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 economic
and market data, as provided to it by Federated's management, and its auditors,
and by Wise. Although no written or oral financial projections or models were
available for presentation to the Board, the information the Board considered
in assessing the Exchange and its fairness to Federated's shareholders 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. Federated's attorneys advised the Board regarding
its fiduciary duties in the protection of its shareholders' interests and
the maximization of shareholder value. In its discussions, the Board of
Directors determined that Wise's financial strength would be more than
sufficient to counterbalance Federated's losses on a going-forward basis,
by extrapolating from the Federated financial statements for the fiscal year
ended October 31, 1996 and the nine months ended July 31, 1997, and the Wise
financial statements for the fiscal year ended December 31, 1996 and the six
months ended June 30, 1997. Copies of these historical financial statements
are attached to this Proxy Statement/Prospectus. As noted above, no formal
written financial forecasts were presented to or
reviewed by the Board of Directors.
The Board of Directors believes that the Exchange will establish the
strongest basis possible for increasing liquidity in the market for Federated's
shares. Whether that liquidity can be achieved, however, will depend on a
wide variety of factors, including the market's confidence in the electronics
distribution industry, and Federated's ability to achieve the efficiencies and
other benefits described above subsequent to the Exchanged.
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.
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<PAGE>
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.
These services will include overseeing the integration of the Federated
operations into those of Wise, maintaining relationships with Federated's
customers and suppliers, identifying opportunities for expansion within the
New Jersey and Pennsylvania markets, advising management regarding
strategic planning, and developing cost-control programs. For additional
information, please see "Directors and Officers" below. 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 salary of $60,871 and a 25% bonus, or $15,218, payable 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.
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<PAGE>
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.
Up to 390,656 shares of Federated Common Stock (the "Indemnity
Shares") are issuable to Mr. Blaustein under the indemnification clause of
the Exchange Agreement. During the six months following the Exchange, if
Mr. Blaustein notifies Federated that he has suffered financial harm
resulting from any knowing, intentional and deliberate breach or inaccuracy
of Federated as to its representations and warranties under the Exchange
Agreement, the Indemnity Shares are issuable, but only to the extent Mr.
Blaustein's aggregate indemnity claims exceed $25,000, and in no event in
excess of the 390,656 Shares. Mr. Blaustein will not be able to vote any
of the additional 390,656 shares unless and until they are issued.
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.
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<PAGE>
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, Federated's auditors have issued an
Opinion as to certain federal income tax consequences to shareholders,
which is attached as an Exhibit hereto. They have opined that:
1. The Exchange under current law constitutes a tax-free reorganization
under Section 368(a) of the Code;
2. Wise and Federated will each be a party to the reorganization as
contemplated by Section 368(b) of the Code.
3. No gain or loss will be recognized by Blaustein as a result of his
exchange of the Wise Shares for the Federated Shares.
4. The tax basis of the Federated shares received by Blaustein will be
equal to the basis Blaustein had in the Wise Shares which were
exchanged in the Transaction.
5. The holding period for the Federated Shares received by Blaustein will
include the holding period Blaustein had in the Wise Shares given up
on the exchange.
6. Neither Wise nor Federated will recognize gain or loss as a result of
the Transaction.
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<PAGE>
ADDITIONAL 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" (5.10% for March, 1998).
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 purchase method of
accounting, as a reverse acquisition with Wise deemed the accounting acquiror.
If and when the acquisition is consummated, presentation of Federated's
financial statements for periods before its acquisition by Wise will include
only the assets, operations and cash flows of Wise.
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
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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
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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.
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<PAGE>
(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.
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<PAGE>
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 1997, fiscal 1996 or fiscal 1995.
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 1997, 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.
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<PAGE>
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 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 31, 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.
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<PAGE>
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 1997.
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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, 1997 have been derived from the
audited financial statements of Federated. 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.
<TABLE>
<CAPTION>
Three Months Ended
January 31, Year Ended
(Unaudited) October 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994 1993
Net sales $666,033 $801,697 $3,252,670 $3,980,560 $4,118,799 $6,281,006 $6,245,276
Net loss from
continuing
operations (115,221) (38,132) (281,901) (414,826) (546,062) (373,849) (315,621)
Net loss per
share from
continuing
operations (.07) (.02) (.17) (.26) (.34) (.22) (.19)
Cash
dividends
paid -- -- -- -- -- --
Cash
dividends
paid per
share .00 .00 .00 .00 .00 .00 .00
Total assets 946,233 1,127,905 1,001,175 1,287,324 1,605,604 2,768,863 2,788,001
Working
capital 248,962 457,683 274,835 490,614 871,875 1,452,970 1,852,245
Current ratio 1.4:1 2.2:1 1.5:1 2.0:1 3.5:1 2.5:1 4.0:1
Long-term debt
5,910 16,300 8,331 18,955 29,697 44,989 69,613
Stockholders'
equity 352,785 711,775 468,006 749,907 1,164,733 1,755,240 2,129,089
Stockholders'
equity per
share $ .21 $ .44 $ .29 $ .47 $ .72 $ 1.03 $ 1.25
</TABLE>
(1) The data for fiscal years 1995 and 1996 reflect the divestiture of a
former Federated subsidiary, Freedom. See further discussion at
Management's Discussion and Analysis of Financial Condition and Results
of Operation for the fiscal years ended October 31, 1997, 1996 and 1995.
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<PAGE>
The combined pro forma selected financial data for year ended December
31, 1997, have been derived from the pro forma financial statements attached
hereto. The selected financial data for the year ended December 31, 1997 are
unaudited. Results for the year ended December 31, 1997 are not necessarily
indicative of results to be expected. 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>
Three Months Ended Year Ended December 31, 1997
January 31, 1998 UNAUDITED
UNAUDITED
<S> <C> <C>
Net sales 3,356,652 15,071,141
Net income (loss) from
continuing operations (116,661) (98,536)
Net income (loss) per
share from continuing
operations (.02) .01
Cash dividends
paid -- --
Cash dividends
paid per share .00 .00
Total assets 4,199,475 4,252,712
Working capital 2,133,308 2,161,197
Current ratio 2.21:1 2.27:1
Long-term debt 560,037 562,458
Stockholders' equity 2,010,379 1,456,243
Stockholders' equity per
share $ .32 $ .23
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR FEDERATED
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
The Company has experienced significant operating losses throughout the
past five operating periods. For fiscal 1997, fiscal 1996, fiscal 1995, fiscal
1994, and fiscal 1993, the Company incurred losses of $281,901, $414,826,
$546,062, $373,849, and $315,621, respectively. As a result of negative cash
flows associated with these losses, as of October 31, 1997, working capital had
decreased 88.5% to $274,835 from $2,389,580 at October 31, 1991 and the Company
had an accumulated deficit of $1,335,234. While management is seeking to
address these problems by increasing sales and reducing operating costs, there
can be no assurances that the Company will be successful in its efforts to
improve either its liquidity position or operating results. In addition,
because the Company 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 the Company's cash
reserves will be sufficient to satisfy the Company's capital requirements or
that the Company's inability to obtain capital from outside sources will not
force the Company to seek protection under the United States Bankruptcy Code.
While there can be no assurances, management believes that the Proposed
Transaction will improve the Company's operating performance and financial
condition. See Note 14 - Consolidated Financial Statements.
In November 1994, the Company 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) the Company's results of operations for
fiscal 1996 (which do not include Freedom) to the Company's results of
operations for fiscal 1995 (which do not include Freedom), (ii) the Company's
results of operations for fiscal 1995 (which do not include Freedom) to the
Company'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 the Company's recent financial performance.
RESULTS OF OPERATIONS
The Company recognized a net loss of $281,901 for the year ended October
31, 1997 on net sales of $3,252,670, as compared to a net loss of $414,826 for
the year ended October 31, 1996 on net sales of $3,980,560, and a net loss of
$546,062 for the year ended October 31, 1995 on net sales of $4,118,799. The
loss of $546,062 for the year ended October 31, 1995 included a loss of
$182,791 on the divestiture of the Company's subsidiary, Freedom Electronics
Corp. ("Freedom").
Despite the relative improvement in the magnitude of the loss when
compared with the years ended October 31, 1996 and 1995, 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 October 31, 1997, working capital had decreased to $274,835 and
Federated had an accumulated deficit of $1,335,234. 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 October 31, 1997, Federated's cash reserves were $69,358.
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
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obtain capital from outside sources will not force Federated to seek protection
under the United States Bankruptcy Code. While there can be no assurances,
management believes that the Proposed Transaction will improve the Company's
operating performance and financial condition. See Note 14 - Consolidated
Financial Statements.
Net sales were $3,252,670 for the year ended October 31, 1997 as compared
to $3,980,560 for the year ended October 31, 1996, or a decrease of $727,890 or
18.2% over the prior year. Net sales were $3,980,560 for the year ended
October 31, 1996 as compared to $4,118,799 for the year ended October 31, 1995,
a decrease of $138,239 or 3.4% over the prior year. The decrease in sales for
the year 1997 as compared to 1996 of $727,890 and the decrease in sales for the
year 1996 as compared to 1995 of $138,239 is due to intense competition,
particularly in the Northeast United States, and trends adversely affecting the
electronics industry as a whole (as described in more detail below). These
competitive circumstances have continued to reduce Federated's sales volume,
which, along with gross margins, must improve in the short-term and in the
long-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. These trends include the
consolidation of other small distributors, the increase in the use of
technology (which Federated's limited capital resources have not permitted it
to acquire), the diminished availability of capital within the business,
marketplace changes favoring value-added services, and the reduction of
franchises by major vendors. 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 $2,493,482 or 76.6% of sales for the year ended October
31, 1997 as compared to $3,128,019 or 78.6% of sales for the year ended October
31, 1996 and $3,172,060 or 77.0% of sales for the year ended October 31, 1995.
The decrease in cost of sales for the years ended October 31, 1997, 1996 and
1995 are the result of Federated's decrease in sales volume. The gross profit
percentage for the year ended October 31, 1997 was 23.4% as compared to 21.4%
for the year ended October 31, 1996 and 23.0% for the year ended October 31,
1995. The increase of 2.0% in gross profit percentage for the year ended
October 31, 1997 when compared to October 31, 1996, is the result of
management's attempt to increase sales prices to customers and decrease prices
paid to suppliers. The decrease in gross profit percentage of 1.6% from 23.0%
for the year ended October 31, 1995 to 21.4% for the year ended October 31,
1996 was the result of increased competition within the industry and
management's decision to attempt to improve the Company's sales volume and
operating results by reducing prices to its customers. 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
$1,061,382 for the year ended October 31, 1997, compared to $1,286,444 for the
year ended October 31, 1996 and $1,353,609 for the year ended October 31, 1995.
Fiscal year 1997 thus showed a decrease in SSG&A of $225,062 when compared to
year ended October 31, 1996. The decrease of $225,062 is the result of a
reduction of sales salaries of 18.6%, a reduction of administrative salaries of
14.0% a reduction of telephone expense of 32.2% and a reduction of general
expenses of 36.2%. The decrease of $225,062 for the year ended October 31,
1997 when compared to the year ended October 31, 1996 represented a 17.4%
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decrease in SSG&A expenses. SSG&A expenses for the year ended October 31, 1996
were $1,286,444 compared to $1,353,609 for the year ended October 31, 1995, a
decrease of $67,165 over the prior year. The decrease of $67,165 is the result
of a reduction in warehouse salaries of 48.6%, a reduction of administrative
salaries of 10.3%, a reduction of insurance costs of 36.0%, a reduction of bad
debt expense of 64.1%, partially offset by an increase in sales salaries of
7.7%. Management anticipates that further reductions in SSG&A expenses will be
necessary to reverse Federated's negative results of operations.
Interest earned on the Company's cash reserves and notes receivable were
$11,054 for the year ended October 31, 1997 as compared to $14,830 for the year
ended October 31, 1996 and $32,530 for the year ended October 31, 1995. The
decrease of $3,776 for the year ended October 31, 1997 as compared to October
31, 1996 was attributable to lower cash balances, which continue to deteriorate
as a result of the Company's operating losses and lower note receivable
balances. The decrease of $17,700 for the year ended October 31, 1996 when
compared to October 31, 1995 was due to lower cash balances as a result of
recurring operating losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position has been and continues to be adversely
affected by a variety of factors, including the $281,901 loss for the year
ended October 31, 1997, the loss of $414,826 for the year ended October 31,
1996 and the loss of $546,062 for the year ended October 31, 1995. Moreover,
the Company'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 raise
substantial doubt regarding Federated's ability to continue as a going concern
in Federated's annual report for the year ended October 31, 1997. 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. While there
can be no assurances, management believes that the Proposed Transaction will
improve the Company's operating performance and financial condition. See
"Going Concern Question", below, and Note 14 to the Consolidated Financial
Statements.
Cash and cash equivalents decreased by $26,560 for the year ended October
31, 1997 as compared to a decrease of $90,597 for the year ended October 31,
1996 and an increase of $23,655 for the year ended October 31, 1995. During
the year ended October 31, 1997, the Company used net cash of $71,461 from
operating activities primarily from the net loss of $281,901, a decrease of
$118,762 in accounts receivable, a decrease of $85,864 in inventories and a
increase of $30,741 in accounts payable and accrued expenses. The Company
generated cash of $55,525 for the year ended October 31, 1997, primarily though
collections of a note receivable from Freedom Electronics of $55,000. During
the year ended October 31, 1997, the Company used cash of $10,624 for payments
on long-term debt.
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During the year ended October 31, 1996, the Company used net cash of
$190,456 from operating activities, primarily because of the net loss for the
year, the decrease of $77,835 in inventories and the increase of $127,913 in
accounts payable and accrued expenses. The Company generated cash of $110,601
for the year ended October 31, 1996, primarily through the receipt of $99,744
on the redemption of marketable securities and the collection of $35,000 in
notes receivable; these decreases were partially offset by the $23,672 increase
in association membership costs. The collection of $35,000 in notes receivable
is due to Federated's renegotiation of certain terms relating to debt owed by
Freedom to Federated as a result of the divestiture. During the year ended
October 31, 1996, the Company used cash of $10,742 for payments on long-term
debt.
During the year ended October 31, 1995, the Company used net cash of
$474,722 from operating activities, primarily because the net loss for the
year. The Company generated cash from investing activities of $573,001 for the
year ended October 31, 1995, primarily from the $755,845 proceeds on the
divestiture of Freedom, and used cash of $286,224 to purchase marketable
securities, while redeeming marketable securities of $192,439. During the year
ended October 31, 1995, the Company 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.
The note was pursuant to a credit line agreement with New Jersey National Bank,
which had previously been withdrawn by the bank. The note was secured by
accounts receivable and inventory of the Company. As part of the consideration
received in connection with the divestiture of Freedom, Federated was relieved
of its obligations under a note payable to United Jersey Bank in the amount of
$250,000. Federated had been a guarantor of this obligation of Freedom.
Based upon the Company's continuing losses, the Company has experienced
periods of declining cash balances, which have negatively impacted the accounts
payable balances of trade creditors. The Company has been slow in the payment
of its accounts payable and approximately 47% of its accounts payable are over
30 days old and 21% are over 60 days old as of October 31, 1997. On open trade
accounts payable for unsecured creditors, the Company has no knowledge of any
pending or threatened legal actions which would force the Company into
bankruptcy. As of October 31, 1997, open trade accounts payable and accrued
expenses for unsecured creditors totaled $500,463. Secured creditors on long-
term debt, namely for the purchase of computer equipment totaled $8,331. As of
October 31,1996, open trade accounts payable and accrued expenses for unsecured
creditors totaled $469,712, and secured creditors on long-term debt, namely for
the purchase of computer equipment totaled $18,955. The Company anticipates
that the increased cash flow and greater efficiency resulting from the Exchange
will enable it to resume a current payment schedule, and plans to do so as soon
as it becomes practicable.
CAPITAL RESOURCES - WORKING CAPITAL REQUIREMENTS
Federated currently has no access to any outside source of capital, except
for approximately $8,300 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.
As a result, management must meet substantially 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 the Company's recurring operating
losses. There can be no assurances that the Company's current cash reserves
will be sufficient to satisfy the Company's financing requirements or that the
Company's inability to obtain capital from outside sources will not impair its
ability to continue future operations. While there can be no assurances,
management believes that the Proposed Transaction will improve the Company's
operating performance and financial condition. See Note 14 - Consolidated
Financial Statements.
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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 the 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 is to
require written authorization by Federated, except for special order items,
which are handled on a case by case basis.
The Company's balance sheet reflects working capital of $274,835 and
$490,614 at October 31, 1997 and 1996, respectively, a decrease of $215,779 or
43.9% for the year 1997.
The Company's stockholders' equity amounted to $468,006 at October 31,
1997, equivalent to a book value per common share of $.29. As of October 31,
1996, stockholders' equity amounted to $749,907 equivalent to a book value per
common share of $.47.
On October 1, 1997, Federated Purchaser, Inc. signed an agreement whereby
Federated will acquire all of the outstanding shares of stock of Wise
Components, Inc. in an exchange of stock which will be accounted for as a
purchase.
On November 15, 1994, by unanimous vote of all non-interested directors,
Federated divested its subsidiary, Freedom. In consideration of the
divestiture of 100% of the outstanding shares of Freedom, Federated received
approximately $360,500, including $100,000 in cash, a $210,000 promissory note
and 88,889 shares of common stock of Federated (representing 4.9% of the
outstanding class of common shares) held personally by Freedom's President. In
addition, the parties entered into customary covenants not to compete, pursuant
to which Federated became entitled to receive $90,000 over a four year period.
As part of this transaction, certain intercompany indebtedness to Federated was
satisfied by payment of an additional $656,000. While there are no written,
oral or other binding agreements between Federated and Freedom regarding their
ongoing business relationship, both Federated and Freedom anticipate selling
certain goods to each other on mutually beneficial terms. During the period
November 16, 1994 to October 31, 1995, the period immediately following the
divestiture of Freedom, Freedom sold goods to Federated in the amount of
$76,112 and Federated sold goods to Freedom for $69,193. During the year ended
October 31, 1996, Federated purchased goods from Freedom totaling $776 and did
not sell any goods to Freedom during the same period. During the year ended
October 31, 1997, Federated did not purchase any goods from Freedom, nor did it
sell any goods to Freedom.
The loss on the divestiture of Freedom amounted to $182,791 or $.11 per
share.
GOING CONCERN QUESTION
The Company is addressing the threat to its ability to continue as a going
concern primarily by pursuing the Exchange with Wise and Mr. Blaustein, and by
continuing its efforts to diminish costs and increase sales -- both of which
will be much easier to attain with the addition of Wise's resources. It is
estimated that $150,000 would constitute sufficient funds to overcome the
threat to Federated's ability to continue as a going concern. Under the
Exchange, neither Wise nor Blaustein have committed to provide these funds, and
it is doubtful that the Company will be able to raise these funds either
through results of operations or by other means. Based on Federated's current
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impaired liquidity, in the event the Exchange is not consummated, management
believes that Federated can continue operations for the next two to three months
without the protection of the federal bankruptcy laws. There can be no
assurances that Federated will not seek bankruptcy protection at an earlier
date. However, assuming consummation of the Exchange, management believes that
as the two firms integrate their operations, the losses experienced by
Federated will be offset by the much stronger operations of Wise.
The combination of the two firms will also allow Federated to reduce certain
of its operating expenses by eliminating overlapping operations.
Assuming consummation of the Exchange, the Company's auditors have
indicated that their report for the year ending December 31, 1998 will not
include any question regarding Federated's ability to continue as a going
concern.
FOR THE PERIODS ENDED JANUARY 31, 1998 AND 1997
RESULTS OF OPERATIONS
The Company recognized a loss of $115,221 on net sales of $666,033 for the
three months ended January 31, 1998, as compared to a loss of $38,132 on net
sales of $801,697 for the three months ended January 31, 1997. The current
period loss of $115,221 is $77,089 higher than the prior year for the same
three month period.
Net sales were $666,033 for the three months ended January 31, 1998,
compared to $801,697 for the three months ended January 31, 1997, for a
decrease of $135,664, or 16.9%, over the prior year. The decrease in net sales
for the current three month period ended January 31, 1998, as compared to the
three month period ended January 31, 1997, is due to intense competition,
particularly in the Northeast United States, and trends adversely affecting the
electronics industry as a whole. These competitive circumstances have
continued to reduce Federated's sales volume, which, along with gross margins,
must improve in the short-term and in the long-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. These trends include the consolidation of other small
distributors, the increase in the use of technology (which Federated's limited
capital resources have not permitted it to acquire), the diminished
availability of capital within the business, marketplace changes favoring
value-added services, and the reduction of franchises by major vendors. 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 $498,773 for the three months ended January 31, 1998 as
compared to $610,160 for the three months ended January 31, 1997, a decrease of
$111,387 or 18.3% over the prior year. The decrease is the result of the
decrease in sales volume for the three months ended January 31, 1998 as
compared to the three months ended January 31, 1997. The gross profit
percentage for the three months ended January 31, 1998 was 25.1% as compared to
23.9% of the three months ended January 31, 1997 or an increase of 1.2% over
the prior year. The increase in gross profit percentage is the result of
modest increases in sales prices to customers. There can be no assurances that
the minor improvement in Federated's gross profit percentage 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.
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Selling, shipping and general and administrative ("SSG&A") expenses were
$286,321 for the three months ended January 31, 1998, as compared to $231,964
for the three months ended January 31, 1997, an increase of $54,357 over the
prior year. The increase is primarily the result of an increase of
approximately $14,000 in sales salaries and an increase of approximately
$38,000 in professional fees. Management anticipates that further reductions
in SSG&A expenses will be necessary to reverse Federated's negative results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position has been and continues to be adversely
affected by a variety of factors, including the operating loss of $281,901 for
the year ended October 31, 1997, and the operating loss of $115,221 for the
three months ended January 31, 1998. Moreover, the Company's liquidity
position may be 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, decrease the Company's sales levels, gross profit margins, or
both. The Company'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 and securing additional lines of credit
from outside lenders or entering into strategic alliances. There can be no
assurances that the Company's liquidity position will not continue to be
impaired both in the short-term and in the future. 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, 1997. 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 $66,231 for the three months ended
January 31, 1998 compared to an increase of $1,589 for the three months ended
January 31, 1997. For the three months ended January 31, 1998, the Company
provided cash from operating activities primarily from a decrease in accounts
receivable of $80,375, and increase of $68,325 in accounts payable and accrued
expenses and the loss from the quarter of $115,221. For the three months ended
January 31, 1997, the Company used net cash of $756 from operating activities
primarily as the result of the operating loss of $38,132, a decrease of $80,133
in accounts receivable, a decrease of $59,172 in inventories and a decrease of
$104,361 in accounts payable. The Company provided cash by financing
activities of $2,579 for the quarter ended January 31, 1998, primarily as a
result of a $5,000 collection for a note receivable and payments on long-term
debt of $2,421. For the three months ended January 31, 1997, the Company
provided cash from financing activities of $2,345, primarily for the $5,000
collection of a note receivable and payments on long-term debt of $2,655.
Based upon the Company's continuing losses, the Company has experienced
periods of declining cash balances, which have negatively impacted the accounts
payable balances of trade creditors. The Company has been slow in the payment
of its accounts payable and approximately 51% of its accounts payable are over
30 days old and 21% are over 60 days old as of January 31, 1998. On open trade
accounts payable for unsecured creditors, the Company has no knowledge of any
pending or threatened legal actions which would force the Company into
bankruptcy. As of January 31, 1998, open trade accounts payable and accrued
expenses for unsecured creditors totaled $568,788. Secured creditors on long-
term debt, namely for the purchase of computer equipment totaled $5,910. The
Company anticipates that the increased cash flow and greater efficiency
resulting from the Exchange will enable it to resume a current payment
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schedule, and plans to do so as soon as it becomes practicable; its ability to
do so quickly is limited by the fact that Federated is not receiving cash under
the Exchange.
CAPITAL RESOURCES - WORKING CAPITAL REQUIREMENTS
Federated currently has no access to any outside source of capital, except
for approximately $5,910 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.
As a result, management must meet substantially 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 the Company's recurring operating
losses. There can be no assurances that the Company's current cash reserves
will be sufficient to satisfy the Company's financing requirements or that the
Company's inability to obtain capital from outside sources will not impair its
ability to continue future operations.
Federated maintains its records on the accrual basis of accounting.
Income is recorded when earned and expenses are recorded with incurred.
Federated's accounting policies with respect to customer right of returns is to
require written authorization by Federated, except for special order items,
which are handled on a case by cash basis.
The Company's balance sheet at January 31, 1998 reflects working capital
of $248,962 as compared to $457,683 at January 31, 1997, which represents a
decrease of $208,721.
The Company's stockholders' equity amounted to $352,785 at January 31,
1998, equivalent to a book value per common share of $.21. As of January 31,
1997, stockholders' equity amounted to $711,784 equivalent to a book value per
common share of $.44.
On October 1, 1997, Federated Purchaser, Inc. signed an agreement whereby
Federated will acquire all of the outstanding shares of stock of Wise
Components, Inc. in an exchange of stock which will be accounted for as a
purchase.
GOING CONCERN QUESTION
The Company is addressing the threat to its ability to continue as a going
concern primarily by pursuing the Exchange with Wise and Mr. Blaustein, and by
continuing its efforts to diminish costs and increase sales -- both of which
will be much easier to attain with the addition of Wise's resources. It is
estimated that $150,000 would constitute sufficient funds to overcome the
threat to Federated's ability to continue as a going concern. Under the
Exchange, neither Wise nor Blaustein have committed to provide these funds, and
it is doubtful that the Company will be able to raise these funds either
through results of operations or by other means. However, management believes
that as the two firms integrate their operations, the losses experienced by
Federated will be offset by the much stronger operations of Wise. The
combination of the two firms will also allow Federated to reduce certain of its
operating expenses by eliminating overlapping operations. Assuming
consummation of the Exchange, the Company's auditors have indicated that their
report for the year ending December 31, 1998 will not include any question
regarding Federated's ability to continue as a going concern.
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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
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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
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<PAGE>
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
April 20, 1998 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 April 20, 1998. 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
Name and Address of AMOUNT AND NATURE OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP(2) Before Exchange After Exchange
<S> <C> <C> <C>
Harry J. Fallon 304,285 18.9% 4.9%
123 Milligan Place
South Orange, NJ 07079
-50-
<PAGE>
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>
______________________
(asterisk) 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
It is a condition to closing the Exchange that all of the current members
of the Board of Directors resign. Under the terms of the Agreement, Mr. Fallon
has the right to name 25% of the Board for two years after the Exchange closes.
It is presently expected that New Federated's Board of Directors will consist
of five members, of which Mr. Fallon will appoint himself and Mr. Hoener. Wise
Components has indicated its intention to name Martin L. Blaustein and Steven
H. Fried to the Board of Directors, but has not named the third director it
will appoint.
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 (and nominee for director) of Federated, the Chief Executive
Officer, by all current directors, nominees and officers of Federated as a
group, subsequent to the Exchange.
-51-
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF CLASS(1)
Name of AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP Before Exchange After Exchange
<S> <C> <C> <C>
Harry J. Fallon 304,285 18.9% 4.9%
Martin L. Blaustein 4,491,988(1) 0.0% 73.6%
Edmund J. Hoener 2,538 * *
Edwin S. Shortess 3,178 * *
Jane A. Christy 11,921 * *
ALL DIRECTORS, CANDIDATES AND
OFFICERS AS A GROUP (5
PERSONS) 321,922 18.9% 78.9%
</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.
<TABLE>
<CAPTION>
Member DIRECTOR OF Principal Occupation
Age FEDERATED
Since
<S> <C> <C> <C>
Harry J. Fallon 70 1975 President of Federated
Martin L. Blaustein 55 n/a Chairman of Wise
Steven H. Fried 35 n/a Controller of Wise
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.
Wise Components has indicated that it will name Mr. Blaustein to the Board
of Directors of Federated upon the closing of the Exchange. Mr. Blaustein has
been Chairman of Wise Components for more than five years, and in that capacity
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<PAGE>
directed all aspects of a $15 million electronic component distribution
business.
Wise Components has also indicated that it will name Mr. Fried to the
Board of Directors of Federated upon the closing of the Exchange. Mr. Fried
has been Controller of Wise Components for more than five years, and has
overseen all financial affairs of Wise Components during that period.
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, and is not standing
for reelection. 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, and is not standing
for reelection. 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. Blaustein,
Fried, 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, 1997.
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, 1998.
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<PAGE>
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 YEAR
POSITION
<S> <C> <C>
SALARY Harry J. Fallon, 1997
President and 1996
Chief Executive 1995
Officer
$125,000
$125,000
$125,000
</TABLE>
Directors are not compensated for service as directors. Mr. Fallon
received no other compensation other than the salary listed above.
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,
ending on October 31, 1997. The terms of the Employment Agreement are being
extended until the closing of the Agreement, at which point Mr. Fallon's sole
compensation will be in accordance with the Consulting Agreement described
below.
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. Mr. Fallon's consulting services will include: overseeing
the integration of the Federated operations into those of Wise, maintaining
relationships with Federated's customers and suppliers, identifying
opportunities for expansion within the New Jersey and Pennsylvania markets,
advising management regarding strategic planning, and developing cost-control
programs. The Agreement also provides for an employment agreement of one
years' duration 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.
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<PAGE>
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, 1997. Mr. Fallon and Ms. Christy are also
executive officers of Federated.
During the fiscal year ended October 31, 1997, 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 1997 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, 1997.
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, 1998, 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.
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<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FEDERATED PURCHASER, INC., S&P 500 COMPOSITE INDEX AND
PEER GROUP INDEX OF ELECTRONIC PARTS DISTRIBUTORS
[graph illustrates relative performance
of Company shares]
Assumes $100 invested on October 31, 1992, 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 [10/31/92 = 100]
COMPANY/INDEX BASE YEAR 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
FEDERATED PURCHASER 100.00 136.35 81.81 46.70 63.51 75.84
INC.
S&P INDEX 100.00 114.94 119.39 150.96 187.33 247.48
PEER GROUP(1) 100.00 120.84 122.52 157.99 144.70 183.74
</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. Savoir Technology Group, Inc.
Jaco Electronics Inc. SED International Hldgs Inc.
Kent Electronics Corp. Sterling Electronics
Marshall Industries Wyle Laboratories
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<PAGE>
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.
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<PAGE>
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 1997, Wise did not have any customers to whom it had sales
in excess of 10% of its annual sales for the year ended December 31, 1997.
During fiscal 1996, sales 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 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 December 31, 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.
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<PAGE>
PROPERTY
Wise currently operates its principal administrative, sales and
warehousing functions in a single, consolidated 15,000-square-foot facility in
Stamford, Connecticut. Total rent is 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.
Federated is not assuming liability for this dispute subsequent to the
Exchange; Wise will remain liable for any judgment. (Wise will become a
separately-incorporated subsidiary of New Federated after the closing of the
Exchange.) 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
In late 1996, Robert Berwick, a shareholder and officer of Wise, expressed
his desire to reduce his role in Wise, believing that increased family
responsibilities would no longer permit him to serve both as an executive and
as part-owner of the Wise business. After approximately six months of
negotiations, on June 12, 1997 Wise redeemed all of the outstanding shares of
Wise common stock (87.5 shares) owned by Mr. Berwick $800,000 payable
immediately. 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 for a six-year
term with Mr. Berwick at a rate of $4,000 per week, or $208,000 per year; his
duties include maintaining relationships with his extensive customer base,
assisting in marketing and advertising efforts, and in acting as a liaison
between employees and management. The six-year term was selected because it
was the time remaining until Mr. Berwick reaches normal retirement age. The
salary was calculated as follows: 50%, or $2,000 per week, is equal to the
commissions to which Mr. Berwick would be entitled, and the remaining 50%
reflects his duties in sales, marketing, and personnel, as described above.
The Board of Directors of Wise entered into the repurchase and the
employment agreement because of its desire to keep Mr. Berwick's customer base,
which is the product of over 35 years' experience in the electronic components
industry. Indeed, the Board determined that the loss of Mr. Berwick's clients
could have had a material adverse effect upon the business of Wise. Moreover,
the 38% reduction in compensation to be paid to Mr. Berwick under the Agreement
would be commensurate with the reduction in his role with Wise.
Prior to the buyout, Mr. Berwick served without a written employment
agreement as a director and as Executive Vice President, with compensation (in
his executive capacity only) of $321,765 in 1996, $268,858 in 1995, and
$258,103 in 1994. In addition to his continuing responsibilities, his duties
as Executive Vice President included: maintaining relationships with insurance
agents, accountants and attorneys; overseeing collection matters; assisting in
purchasing and providing general strategic advice.
Payments to Mr. Berwick are subordinated to the Fleet Loan described
above. As Wise will remain a separately-incorporated, wholly-owned subsidiary
of Federated after the Exchange, Federated is not assuming liability for the
employment agreement with Mr. Berwick.
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<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
Three Months Ended Year Ended
December 31, December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995 1994 1993
Net sales $2,690,619 $3,178,154 $11,818,471 $14,863,476 $15,885,147 $11,971,540 $11,046,324
Net income loss
from con-
tinuing
operations (1397) 45,588 117,703 470,906 498,546 243,723 136,713
Net income
(loss) per
share from
continuing
operations (16) 2,430 934 2,690 2,849 1,393 781
Cash
dividends
paid -- -- -- -- 26,000 26,000 26,000
Cash
dividends
paid per share
-- -- 149 149 149
Total assets 3,251,537 3,302,505 3,251,537 3,302,505 3,583,483 2,913,901 2,831,143
Working
capital 1,903,096 2,081,549 1,903,096 2,093,487 1,577,928 1,099,190 954,399
Current ratio 2.6:1 3.2:1 2.6:1 3.2:1 2.0:1 1.8:1 1.7:1
Long-term debt 554,127 11,987 554,127 11,987 193,572 266,822 322,014
Stockholders'
equity 1,655,889 2,338,186 1,655,889 2,338,186 1,867,290 1,394,734 1,177,011
Stockholders'
equity per
share 18,924 13,361 18,924 13,361 10,670 7,970 6,726
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR WISE
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
OPERATING RESULTS
The Company recognized net income of $117,703 for the year ended December
31, 1997 on net sales of $11,818,471, as compared to net income of $470,906 on
net sales of $14,863,476, and net income of $498,546 for the year ended
December 31, 1995 on net sales of $15,885,147.
Net sales were $11,818,471 for the year ended December 31, 1997, as
compared to $14,863,476 for the year ended December 31, 1996, or a decrease of
$3,045,005 or 20.4% over the prior year. The decrease in net sales for the
year 1997 as compared to 1996 is the result of the departure of key sales
personnel and decreased average unit selling prices. Net sales decreased
$1,021,671 or 6.5% for the year 1996 as compared to year 1995 from $15,885,147
for the year 1995 to $14,863,476 for the year 1996. 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.
Cost of sales as a percentage of sales was 74.13%, 73.20% and 73.79% for
the years ended 1997, 1996 and 1995. The increase in cost of sales as a
percentage of sales for the year ended 1997 in comparison to the year ended
1996 is due to increased competition within the industry. The decrease in cost
of sales as a percentage of sales for the year ended 1996, in comparison to the
year ended 1995, was due to management's continued efforts to monitor
purchasing costs within the industry.
Selling and shipping expenses were $1,035,737 for the year ended December
31, 1997, compared to $1,267,023 for the year ended December 31, 1996, for a
decrease of $231,286 or 18.2% over the prior year. The decrease is primarily
attributable to a decrease of $199,809 in sales salaries and a decrease of
$45,822 in advertising costs. 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 -- an increase of $7,218 over the prior year.
General and administrative expenses were $1,699,762 for the year ended
December 31, 1997, compared to $1,722,332 for the year ended December 31, 1996,
a decrease of $22,570 or 1.3% over the prior year. The decrease for the 1997
year over the 1996 year was primarily the result of an increase in professional
fees of $33,790, and a decrease of $53,351 in general and administrative
salaries. General and administrative expenses were $1,722,332 for the year
1996 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 of $76,385 in professional fees, which was
partially offset by a decrease of $12,042 in general and administrative
salaries.
Interest expense was $33,049, $14,384 and $64,376 for the years ended
1997, 1996 and 1995, respectively. Interest expense increased $18,665 from
1996 to 1997 due to higher debt levels of financing in comparison to the prior
year. Interest expense decreased $49,992 from 1995 to 1996 primarily due to
the Company repaying $475,000 of its line-of-credit and repaying $181,585 of
its long-term debt.
During the year 1995, the Company 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
-61-
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
During the year 1997, cash decreased by $207,815 as compared to an
increase of $151,483 for the year 1996, and an increase of $68,126 for the year
1995. Cash provided by operating activities was $51,270 for the year 1997, and
arose primarily from the net income for the year of $117,703, a decrease of
$28,091 in accounts receivable, an increase in accounts payable of $326,511
(partially offset by a increase in inventories of $234,643), and a decrease in
deposit payable of $202,970. Cash provided by operating activities was
$808,079 for the year 1996, and arose 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 $294,739 for the year 1995, and arose
primarily from the net income for the year of $498,546, and an increase of
$295,286 in accounts payable and accrued expenses, which were partially offset
by an increase of $488,691 in accounts receivable. The Company used cash in
investing activities of $1,225 in 1997, $11 in 1996 and $102,363 in 1995. Cash
was used primarily in 1995 to purchase equipment for $94,188. During the year
1997, the Company used cash of $800,000 to purchase treasury stock on June 12,
1997, when the Company purchased all of the outstanding shares of common stock
(87.5 shares) of a shareholder and officer of the Company. The Company funded
the purchase of the treasury stock with the proceeds of long-term borrowings of
$600,000 and retired payments on long-term debt of $57,860. During the year
1996, the Company 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, the
Company used cash of $73,250 to pay long-term debt, $25,000 to pay short-term
borrowings and $26,000 to pay dividends.
The Company currently has an available line-of-credit of $400,000 which
was negotiated on June 12, 1997. As of December 31, 1997, $-0- was outstanding
against the line-of-credit.
Working capital has decreased from $2,081,549 at the end of 1996 to
$1,903,096 at the end on 1997, a decrease of $178,453 over the prior year. The
decrease in working capital from 1996 to 1997 is primarily the result of an
increase in the current portion of long-term debt of $120,000.
The Company has reviewed its computer system and has determined that it
complies with year 2000 requirements.
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.
-62-
<PAGE>
Number of Shares Percentage
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
Martin L. Blaustein 87.5 100%
28 Henry Street
Greenwich, CT 06830
-63-
<PAGE>
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
October 31, 1997 1/8 1/8 5/16 5/16
January 31, 1998 .28 .28 .41 .41
March 31, 1998 .27 .27 .44 .44
</TABLE>
At March 31, 1998, 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.
-64-
<PAGE>
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 $9,839.
-65-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information,
gives retroactive effect to Federated's exchange of 4,491,988 newly issued
shares of its common stock (having a per share value of $.22), for all of the
outstanding capital stock of Wise Components, Inc. ("Wise"). The
determination that $.22 per share represents the fair market value of the
securities to be issued in connection withb the reverse acquisition was based
upon the market price of the securities during the period from September 25,
1997 through October 5, 1997 as obtained from public sources. In accordance
with EITF 95-19, the issuer believes that this period is a reasonable period of
time before and after the October 1, 1997 announcement date. Federated will
amend its charter to authorize the issuance of 10,000,000 shares of common
stock. The result of this transaction is antidilutive to the existing
shareholders of Federated. For financial statement purposes, Wise is deemed to
be the acquiror of Federated and the transaction will be recorded by Wise under
the purchase method of accounting. As Wise is deemed for financial reporting
purposes to be the acquiror, the consolidated entity will adopt Wise's fiscal
year end of December 31 upon consummation of the acquisition.
The pro forma condensed consolidated balance sheet as of January 31, 1998 is
based on the historical balance sheets of Federated at January 31, 1998 and
Wise as of December 31, 1997 and assumes that the exchange took place on
January 31, 1998. The pro forma condensed consolidated statements of
operations for the year ended October 31, 1997 and the three months ended
January 31, 1998 are prepared based on the historical statements of operations
of Federated. The condensed consolidated results of operations of Wise for the
year ended December 31, 1997 are based on the historical statements of
operations of Wise. All such financial statements are presented herein. The
statements of operations of Wise for the three month period ended December 31,
1997 (not presented herein) which are unaudited but which, in the opinion of
Wise's management, include all adjustments, consisting only of normal recurring
accruals, necessary for the fair presentation of the results of operations.
The pro forma condensed consolidated statement of operations assume the
exchange took place on November 1, 1996.
The pro forma statements do not purport to represent what the Company's results
of operations and financial condition would actually have been if the foregoing
transaction had actually been consummated, or project the Company'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.
-66-
<PAGE>
WISE COMPONENTS, INC.
FEDERATED PURCHASER, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------
Wise Federated Pro Forma
Components,Inc. Purchaser, Inc. Pro Forma Consolidated
DECEMBER 31, 1997 JANUARY 31, 1998 ADJUSTMENTS BALANCE SHEET
----------------- ------------------ ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS:
Cash $ 73,227 $ 135,589 $ 208,816
Accounts receivable 1,554,861 302,184 1,857,045
Inventories 1,317,296 246,148 1,563,444
Other current assets 123,360 139,739 263,099
TOTAL CURRENT ASSETS 3,068,744 823,660 3,892,404
Property and equipment 93,534 18,127 111,661
Investment in subsidiary - - (4)$ 354,490 -
(5) (354,490)
Other assets 89,259 104,446 193,705
Goodwill - - (5) 1,705 1,705
--------- ---------- ---------- ---------
TOTAL ASSETS $3,251,537 $ 946,233 $ 1,705 $4,199,475
========== ========== ========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current portion of long-term debt $ 124,127 $ 5,910 $ 130,037
Accounts payable and accrued
expense 1,041,521 587,538 1,629,059
--------- ---------- ---------
TOTAL CURRENT LIABILITIES 1,165,648 593,448 1,759,096
Long-term debt 430,000 - 430,000
--------- ---------- ---------
TOTAL LIABILITIES 1,595,648 593,448 2,189,096
--------- ---------- ---------
Common stock 87,500 171,976 (1) (43,750) 610,331
(2) 405,449
(3) (10,844)
(4) 449,199
(5) (449,199)
Additional paid-in capital 367,750 1,692,342 (1) (183,875) 193,358
(2) (183,875)
(3) (50,234)
(4) (94,709)
(5) (1,354,041)
Retained earnings (deficit) 2,000,639 (1,450,455) (1) (572,375) 1,206,690
(2) (221,574)
(5) 1,450,455
Treasury stock (800,000) (61,078) (1) 800,000 -
(3) 61,078
----------- --------- ----------- ---------
TOTAL STOCKHOLDERS'
EQUITY 1,655,889 352,785 1,705 2,010,379
--------- ---------- ----------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,251,537 $ 946,233 $ 1,705 $4,199,475
========== ========== =========== ==========
</TABLE>
-67-
<PAGE>
WISE COMPONENTS, INC.
FEDERATED PURCHASER, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------------- Three Months
Wise Federated Ended
Components, Inc. Purchaser, Inc. January 31,
Three Months Three Months 1998
Ended Ended Consolidated
December 31, January 31, Pro Forma Statement of
1997 1998 ADJUSTMENTS OPERATIONS
------------- --------------- ----------- ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $2,690,619 $ 666,033 $3,356,652
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 2,028,424 498,773 2,527,197
Selling and shipping 240,414 98,343 338,757
General and administrative 396,684 187,978 584,662
Interest expense 12,952 854 13,806
Depreciation and amortization 10,915 2,473 (6)$ 43 13,431
Interest income (184) (2,042) (2,226)
Other income - (5,625) (5,625)
---------- ----------- ------- ---------
TOTAL COSTS AND EXPENSES 2,689,205 780,754 43 3,470,002
---------- ----------- ------- ---------
INCOME (LOSS) BEFORE PROVISION
FOR TAXES 1,414 (114,721) (43) (113,350)
PROVISION FOR INCOME TAXES 2,811 500 - 3,311
---------- ----------- ------- ---------
NET INCOME (LOSS) $ (1,397) $ (115,221) $ (43) $ (116,661)
========== =========== ======= ===========
NET INCOME (LOSS) PER SHARE $ - $ (.07) $ (.02)
========== =========== ======= ===========
CASH DIVIDENDS PER SHARE $ - $ - $ -
========== =========== ======= ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,491,988 1,611,317 6,103,305
========== ========== ===========
</TABLE>
NOTE A: Wise financial information for the three months ended December 31,
1997 was included in the pro forma condensed consolidated
statement of operations (unaudited) of Wise for the year ended
December 31, 1997 and Federated for the year ended October 31,
1997.
NOTE B: The computation of loss per share for the pro forma consolidated
three months ended January 31, 1998 statement of operations is
based upon the consolidated net loss of $116,661 divided by the
weighted average number of shares outstanding (1,611,317 shares of
Federated plus 4,491,988 newly issued shares for a total of
6,103,305 shares) at January 31, 1998.
There were no common stock equivalents or other reconciling items
effecting either the numerator or denominator in calculating
earnings (loss) per share.
-68-
<PAGE>
WISE COMPONENTS, INC.
FEDERATED PURCHASER, INC.
PRO FORMA ADJUSTMENTS
THREE MONTHS ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
DEBITS CREDITS
----------- ----------
<S> <C> <C>
TO RETIRE TREASURY SHARES OF WISE
(1) Common stock $ 43,750
Additional paid-in capital 183,875
Retained earnings 572,375
Treasury stock $ 800,000
To record the retirement of 87.5 shares
of Wise treasury stock.
TO CONVERT WISE SHARES TO FEDERATED EQUIVALENTS
(2) Additional paid-in capital 183,875
Retained earnings 221,574
Common stock 405,449
To recast the equity section of Wise Components
at the conversion rate of 51,337 common shares,
($.10 par) of Federated shares per 1 common share,
no par, of Wise.
TO RETIRE TREASURY SHARES OF FEDERATED
(3) Common stock 10,844
Additional paid-in capital 50,234
Treasury stock 61,078
To record the retirement of 108,441 shares of
Federated treasury stock.
TO RECORD FEDERATED SHARES ISSUED FOR ACQUISITION
OF WISE
(4) Investment in Wise 354,490
Common stock 449,199
Additional paid-in capital 94,709
To record the issuance of 4,491,988 shares of
common stock of Federated at $.10 par value in
exchange for 1,611,317 shares of Federated at
$.22 per share fair value.
TO ELIMINATE INVESTMENT IN SUBSIDIARY
(5) Goodwill 1,705
Common stock 449,199
Additional paid-in capital 1,354,041
Investment in subsidiary 354,490
Retained earnings 1,450,455
To record elimination of investment in subsidiary
and record goodwill.
(6) Amortization of goodwill 43
To record three months amortization of goodwill
over a 10 year period.
</TABLE>
-69-
<PAGE>
WISE COMPONENTS, INC.
FEDERATED PURCHASER, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL
Wise Federated
Components, Inc. Purchaser, Inc. Pro Forma
Year Ended Year Ended Consolidated
December 31, October 31, Pro Forma Statement of
1997 1997 ADJUSTMENTS OPERATIONS
---------------- --------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $11,818,471 $3,252,670 $15,071,141
COSTS AND EXPENSES:
Cost of sales 8,760,821 2,493,482 11,254,303
Selling and shipping 1,035,737 389,627 1,425,364
General and administrative 1,760,573 671,754 2,432,327
Interest expense 33,049 2,850 35,899
Depreciation and amortization 42,647 11,427 (1) $ 171 54,245
Interest income (4,308) (11,054) (15,362)
Other income (8,401) (24,615) (33,016)
TOTAL COSTS AND EXPENSES 11,620,118 3,533,471 171 15,153,760
INCOME (LOSS) BEFORE PROVISION
FOR TAXES 198,353 (280,801) 171 (82,619)
PROVISION FOR INCOME TAXES 80,650 1,100 (2) (65,833) 15,917
NET INCOME (LOSS) $ 117,703 $ (281,901) $ 65,662 $ (98,536)
NET INCOME (LOSS) PER SHARE $ .03 $ (.17) $ (.01)
CASH DIVIDENDS PER SHARE $ - $ - $ -
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,491,988 1,611,317 6,103,305
</TABLE>
NOTE A: The computation of loss per share for the pro forma consolidated year
ended October 31, 1997 statement of operations is based upon the net
loss of $98,536 divided by the weighted average number of shares
outstanding (1,611,317 shares of Federated plus 4,491,988 newly
issued shares for a total of 6,103,305 shares) at October 31, 1997
There were no common stock equivalents or other reconciling items
effecting either the numerator or denominator in calculating earnings
(loss) per share.
NOTE B: The provision for income taxes of $15,917 represents state income
taxes for Wise and Federated filing in their respective
jurisdictions. No provision has been recognized for federal income
taxes since the consolidated loss before income taxes at the
statutory rate would have resulted in a federal tax benefit which the
company has placed a valuation allowance against.
-70-
<PAGE>
WISE COMPONENTS, INC.
FEDERATED PURCHASER, INC.
PRO FORMA ADJUSTMENTS
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
DEBITS CREDITS
<S> <C> <C>
CONSOLIDATION ENTRIES
(1) Amortization of goodwill $ 171
To amortize goodwill over a 10 year period
for one year.
(2) Provision for income taxes $ 65,833
To adjust provision for income taxes upon
consolidation to offset the profit of Wise
against the current loss of Federated.
</TABLE>
-71-
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of Federated as of
October 31, 1997 and January 31, 1998 (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.
JANUARY 31, 1998
ACTUAL AS ADJUSTED
Long-term debt, less current maturities $ 5,910 $ 560,037
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 2,231,380
Accumulated deficit (1,450,455) (1,450,455)
Treasury stock (61,078) (61,078)
Total stockholders' equity 352,785 1,341,022
Total capitalization $ 352,785 $1,341,022
Reflects the acquisition of Wise Components, Inc. in the form of a purchase
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.
-72-
<PAGE>
EXPERTS
The financial statements and financial statements schedules of Federated
as of October 31, 1997, 1996 and 1995 included in this Proxy Statement and
elsewhere in the Registration Statement have been audited, to the extent stated
in their report (which includes an explanatory paragraph regarding 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, 1997, 1996 and 1995 included in this Proxy Statement
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 and elsewhere in the Registration Statement in reliance
upon their report given on their authority as experts in accounting and
auditing.
PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals for the 1998 Annual Meeting must have been received
at the principal executive offices of the Company, 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.
By Order of the Board of Directors
/S/ HARRY J. FALLON
Harry J. Fallon
PRESIDENT
Federated Purchaser, Inc.
268 Cliffwood Avenue
Cliffwood, New Jersey 07721
April 21, 1998
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT DESCRIPTION
8 Opinion Letter of Bederson & Co.
dated October 23, 1997
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)
-73-
<PAGE>
(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)
(e) Employment Agreement between Wise Components, Inc. and
Robert Berwick, dated June 12, 1997.
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, 1997, 1996 and 1995..................FA-1
Independent Auditor's Report................................FA-3
Consolidated Balance Sheets as of October 31, 1997 and
1996........................................................FA-4
Consolidated Statements of Operations for the years ended
October 31, 1997, 1996 and 1995.............................FA-5
Consolidated Statements of Stockholders' Equity for the years
ended October 31, 1997, 1996 and 1995.......................FA-6
Consolidated Statements of Cash Flows for the years ended
October 31, 1997, 1996 and 1995.............................FA-7
Notes to Consolidated Financial Statements..................FA-9
-74-
<PAGE>
Schedule .................................................FA-15
THREE MONTHS ENDED JANUARY 31, 1998.........................FB-1
Unaudited Balance Sheets as of January 31, 1998 and 1997....FB-2
Unaudited Statements of Income for the three months ended
January 31, 1998 and 1997...................................FB-3
Unaudited Statements of Retained Earnings for the three months
ended
January 31, 1998 and 1997...................................FB-4
Unaudited Statements of Cash Flows for the three months ended
January 31, 1998 and 1997...................................FB-5
Notes to Consolidated Condensed Financial Statements........FB-6
WISE
YEAR ENDED DECEMBER 31, 1997, 1996 and 1995.................FC-1
Independent Auditor's Report................................FC-3
Balance Sheets as of December 31, 1997 and 1996.............FC-4
Statements of Income for the years ended December 31, 1997
and 1996....................................................FC-5
Statements of Retained Earnings for the years ended December 31,
1997 and 1996...............................................FC-6
Statements of Cash Flows for the years ended December 31,
1997 and 1996...............................................FC-7
Notes to Financial Statements...............................FC-8
-75-
<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>
<<Date>>
FEDERATED PURCHASER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
FA-1
<PAGE>
FEDERATED PURCHASER, INC.
OCTOBER 31, 1997, 1996 AND 1995
CONTENTS
PAGE
Independent Auditors' Report FA-3
Consolidated Balance Sheets FA-4
Consolidated Statements of Operations FA-5
Consolidated Statements of Stockholders' Equity FA-6
Consolidated Statements of Cash Flows FA-7 -
FA-8
Notes to Consolidated Financial Statements FA-9 -
FA-14
FA-2
<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, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended October 31, 1997, 1996 and 1995. 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, 1997 and 1996, and the
results of its operations and its cash flows for the years ended October 31,
1997, 1996 and 1995 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
January 8, 1998
West Orange, New Jersey
FA-3
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 69,358 $ 95,918
Accounts receivable, less allowance for doubtful
accounts of $16,803 and $26,339, respectively 384,059 493,285
Inventories 228,583 314,447
Prepaid expenses and sundry receivables 49,754 22,925
Note receivable - Freedom Electronics Corporation 27,500 20,000
Restrictive covenant receivable 24,375 24,375
TOTAL CURRENT ASSETS 783,629 970,950
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 20,600 32,028
OTHER ASSETS:
Note receivable - Freedom Electronics Corporation,
net of current portion 92,500 155,000
Restrictive covenant receivable, net of current portion - 24,375
Security deposits 10,845 10,845
Association membership 93,601 94,126
TOTAL OTHER ASSETS 196,946 284,346
TOTAL ASSETS $1,001,175 $1,287,324
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,331 $ 10,624
Accounts payable 468,479 375,851
Accrued expenses 31,984 93,861
TOTAL CURRENT LIABILITIES 508,794 480,336
LONG-TERM DEBT, less current portion - 8,331
DEFERRED INCOME 24,375 48,750
TOTAL LIABILITIES 533,169 537,417
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, authorized,
5,000,000 shares,
1,719,758 shares issued 171,976 171,976
Additional paid-in capital 1,692,342 1,692,342
Accumulated deficit (1,335,234) (1,053,333)
Total 529,084 810,985
Less: Treasury stock, 108,441 shares, at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 468,006 749,907
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,001,175 $1,287,324
</TABLE>
The accompanying notes are an
integral part of these financial statements.
FA-4
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
1997 1996 1995
REVENUES:
Sales, net $3,252,670 $3,980,560 $4,118,799
COSTS AND EXPENSES (INCOME):
Cost of sales 2,493,482 3,128,019 3,172,060
Selling, shipping, and general
and administrative 1,061,381 1,286,444 1,353,609
Loss on sale of subsidiary - - 182,791
Depreciation and amortization 11,427 11,575 11,260
Interest expense 2,850 2,828 3,811
Interest income (11,054) (14,830) (32,530)
Restrictive covenant (24,375) (20,625) (20,625)
Other income (240) - (9,878)
TOTAL COSTS AND EXPENSES (INCOME) 3,533,471 4,393,411 4,660,498
LOSS BEFORE PROVISION FOR INCOME TAXES (280,801) (412,851) (541,699)
PROVISION FOR INCOME TAXES 1,100 1,975 4,363
NET LOSS $ (281,901) $ (414,826) $ (546,062)
LOSS PER SHARE $ (.17) $ (.26) $ (.34)
The accompanying notes are an
integral part of these financial statements.
FA-5
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
Additional Held in
COMMON STOCK Paid-in Accumulated TREASURY AT COST
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
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
Net loss - - - (281,901) - -
BALANCES - October 31, 1997 1,719,758 $ 171,976 $1,692,342 $(1,335,234) 108,441$ 61,078
</TABLE>
The accompanying notes are an
integral part of these financial statements.
FA-6
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(281,901) $(414,826) $(546,062)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 11,427 11,575 11,260
Allowance for doubtful accounts (9,525) 4,751 4,001
Accrued interest income - - (5,959)
Loss on divestiture of Freedom Electronics,
Corp. - - 182,791
(Increase) decrease in current assets:
Accounts receivable 118,762 (11,647) (100,164)
Inventories 85,864 77,835 48,370
Prepaid expenses and sundry receivables (26,829) 13,943 (6,033)
Tax refund receivable - - 5,119
Decrease in security deposits - - 9,228
Increase (decrease) in current liabilities:
Accounts payable 92,628 92,526 (47,095)
Accrued expenses (61,887) 35,387 (30,178)
NET CASH USED BY OPERATING ACTIVITIES (71,461) (190,456) (474,722)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on divestiture of Freedom Electronics, Corp. - - 100,000
Investment in subsidiary - - (50,471)
Purchase of marketable securities - - (286,224)
Sale of marketable securities - 99,744 192,439
Advance to subsidiary - - (15,500)
Purchase of property and equipment - (471) (2,688)
Collection of note receivable 55,000 35,000 655,845
(Increase) decrease in association membership costs 525 (23,672) (20,400)
NET CASH PROVIDED BY INVESTING ACTIVITIES 55,525 110,601 573,001
CASH FLOWS USED BY FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (10,624) (10,742) (74,624)
NET (INCREASE) DECREASE IN CASH (26,560) (90,597) 23,655
CASH - beginning of year 95,918 186,515 162,860
CASH - end of year $ 69,358 $ 95,918 $ 186,515
</TABLE>
(Continued)
The accompanying notes are an
integral part of these financial statements.
FA-7
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 2,850 $ 2,828 $ 3,811
Income taxes $ 404 $ - $ 421
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
Cash received $ - $ - $ 755,845
Applied to:
Sale of stock - - (100,000)
Intercompany indebtedness - - (655,845)
- - (755,845)
$ - $ - $ -
</TABLE>
(Concluded)
The accompanying notes are an
integral part of these financial statements.
FA-8
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Companies are engaged in the sale of electronic parts, components
and related equipment.
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. Actual results could differ
from those estimates.
REVENUE RECOGNITION
Federated Purchaser, Inc. and its subsidiaries, ("the Company" or
"Federated") maintain their records on the accrual basis of accounting.
Income is earned and recorded at the time of shipment, which is
when title passes. Expenses are recorded when incurred. Any
merchandise returned by customers in the normal course of business
must be pre-approved by management.
DEFERRED REVENUE
In conjunction with the sale of all the common stock of its wholly-
owned subsidiary, Freedom Electronics Corporation, on November 14,
1994, Federated entered into a noncompete agreement with the purchaser.
The $90,000 noncompete agreement is being recognized into income over
the four-year term of the agreement based upon monthly installments
received.
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 13,
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.
ADVERTISING
Advertising costs are expensed as incurred and included in Selling,
Shipping and General and Administrative Expenses. Advertising expenses
for the years ended October 31, 1997, 1996 and 1995 were $6,898,
$19,792 and $20,149, respectively.
DEFERRED INCOME TAXES
Deferred income taxes are provided on a liability method whereby
deferred income tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred income 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 income 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
deferred tax assets will not be realized. Deferred income tax assets
and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
FA-9
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current year presentation. Such reclassifications had no effect on
reported net losses.
NET LOSS PER COMMON SHARE
The computations of losses per share are based upon the Company's net
loss of $281,901, $414,826 and $546,062 for the years ended October 31,
1997, 1996 and 1995, respectively, divided by the weighted average
number of shares outstanding of 1,611,317 in 1997 and 1996 and
1,614,726 in 1995.
There were no common stock equivalents or other reconciling items
affecting either the numerator or denominator in calculating earnings
(loss) per share.
LONG-LIVED ASSETS
Effective November 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. In
accordance with SFAS No. 121, the Company reviewed long-lived assets
for impairment whenever events or changes in business circumstances
occur that indicate that the carrying amount of the assets may not be
recoverable. The Company assesses the recoverability of long-lived
assets held and to be used based on undiscounted cash flows, and
measures the impairment, if any, using discounted cash flows. Adoption
of SFAS No. 121 did not have a material impact on the Company's
financial position, operating results or cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, trade accounts
receivable, notes receivable, accounts payable, accrued expenses, the
carrying amounts approximate fair value due to their short term
maturities. The amount shown for long-term receivables also
approximate fair value. The fair value of the Company's long-term debt
is based upon rates currently available to the Company for loans with
similar terms and average maturities. The fair value of the long-term
debt approximates its carrying value.
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 incurred net
losses of $281,901, $414,826 and $546,062 for the fiscal years ended
October 31, 1997, 1996 and 1995, respectively and sales and working
capital have 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. See Note 14 - Proposed Acquisition.
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. At times throughout
the year the Company may maintain certain bank accounts in excess of
the FDIC insured limits.
FA-10
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 4 - INVENTORIES
Inventories consist of the following:
1997 1996
Merchandise for resale $228,583 $314,447
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996 USEFUL LIFE
<S> <C> <C> <C>
Leasehold improvements $ 12,522 $ 12,522 5 - 31 years
Furniture, fixtures and equipment 110,626 110,626 5 - 15 years
Automotive equipment 24,139 24,139 4 years
Total 147,287 147,287
Less: Accumulated depreciation
and amortization 126,687 115,259
Net property and equipment $ 20,600 $ 32,028
</TABLE>
NOTE 6 - 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, 1997 and 1996 was $93,601 and $94,126,
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 7 - LONG-TERM DEBT
Long-term debt payable consist of the following:
1997 1996
IBM Credit Corporation, payable in monthly
installments of $1,122, including interest
at 11% through July 1998, secured by data
processing equipment. $ 8,331 $18,955
Less: Current portion 8,331 10,624
Total long-term debt $ - $ 8,331
NOTE 8 - ACCRUED EXPENSES
Accrued expenses as of October 31, consist of the following:
1997 1996
Payroll $ 12,944 $17,693
Professional fees 11,680 63,470
Sundry 7,360 12,698
Total accrued expenses $ 31,984 $93,861
FA-11
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 9 - RETIREMENT PLAN
The Company sponsored a profit sharing plan covering substantially all
employees. There was no charge to income for 1996 and 1995. 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 10 - INCOME TAXES DEFERRED AND PAYABLE
Components of provision for income taxes are as follows:
1997 1996 1995
Current:
Federal $ - $ - $ -
State 1,100 1,975 4,363
Total 1,100 1,975 4,363
Deferred:
Federal - - -
Total taxes $ 1,100 $ 1,975 $ 4,363
Accounting for income taxes 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, 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:
1997 1996
Accounts receivable, principally due to
allowance for doubtful accounts $ 7,225 $ 11,326
Carryforward losses 801,423 672,025
Valuation allowance (808,648) (683,351)
Net deferred tax assets and liabilities $ - $ -
At October 31, 1997, the Company had net operating loss carryforwards
of approximately $1,796,000 that expire in the years 2008 to 2012.
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:
1997 1996 1995
Expected tax (credit) at U.S.
statutory income tax rate $ (95,472) $(141,041) $(184,178)
State income taxes 1,100 1,975 4,363
Valuation allowance 95,472 141,041 184,178
$ 1,100 $ 1,975 $ 4,363
FA-12
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 11 - 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 $76,528, $80,979 and $82,885, respectively, for the
years ended October 31, 1997, 1996 and 1995.
The future aggregate minimum rental payments under this operating lease
agreement are as follows:
Years Ended
OCTOBER 31,
1998 $ 58,000
1999 9,667
$ 67,667
NOTE 12 - MAJOR SUPPLIER INFORMATION
The Company had one supplier from whom it purchased approximately
$418,000 or 17% of purchases for the year ended October 31, 1997 and
one supplier from whom it purchased approximately $523,000 or 16% of
purchases for the year ended October 31, 1996.
NOTE 13 - 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.
NOTE 14 - PROPOSED ACQUISITION
On October 1, 1997, Federated Purchaser, Inc. signed an agreement
whereby Federated will exchange 4,491,988 newly issued shares of its
common stock having a per share value of $.22 for all of the out-
standing capital stock of Wise Components, Inc. ("Wise"). As a result
of this transaction the controlling interest of Wise will also become
the controlling interest of Federated. For financial statement
purposes, Wise is deemed to be the acquiror of Federated and the
transaction will be recorded by Wise under the purchase method of
accounting.
In order to conclude the transaction referred to in the preceding
paragraph, Federated will increase the number of common shares it has
authorized, from 5,000,000 to 10,000,000 shares. This increase has not
yet been approved by the shareholders of Federated; accordingly, the
issuance has not been recorded as of October 31, 1997.
FA-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Federated Purchaser, Inc.
Cliffwood, New Jersey
We have audited the financial statements of Federated Purchaser, Inc. and its
subsidiaries as of October 31, 1997 and have issued our report thereon dated
January 8, 1998; such financial statements and report are included elsewhere in
this Form 10K. Our audit also included the financial statements schedules of
Federated Purchaser, Inc. and its subsidiaries listed in Item 14. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
BEDERSON & COMPANY LLP
January 8, 1998
West Orange, New Jersey
FA-14
<PAGE>
SCHEDULE VIII
FEDERATED PURCHASER, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Charged to
Balance at Profit and Deductions Balance
Beginning Loss or From at Close
CLASSIFICATION OF PERIOD INCOME RESERVES OF PERIOD
<S> <C> <C> <C> <C>
Year ended October 31, 1997:
Allowance for doubtful accounts $ 26,339 $ 6,000 $ 15,536 $ 16,803
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
</TABLE>
FA-15
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
FB-1
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
January 31, October 31,
1998 1997
(Unaudited)
CURRENT ASSETS:
Cash $ 135,589 $ 69,358
Accounts receivable, less allowance for doubtful
accounts of $18,303 at January 31, 1998 and
$16,803 at October 31, 1997, respectively 302,184 384,059
Inventories 246,148 228,583
Prepaid expenses and sundry receivables 5,989 49,754
Note receivable - Freedom Electronics Corporation 115,000 27,500
Restrictive covenant receivable 18,750 24,375
TOTAL CURRENT ASSETS 823,660 783,629
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $118,115 and $115,259 18,127 20,600
OTHER ASSETS:
Note receivable - over one year - 92,500
Security deposits 10,845 10,845
Other 93,601 93,601
TOTAL OTHER ASSETS 104,446 196,946
TOTAL ASSETS $ 946,233 $1,001,175
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,910 $ 8,331
Accounts payable 511,648 468,479
Accrued expenses 57,140 31,984
TOTAL CURRENT LIABILITIES 574,698 508,794
LONG-TERM DEBT, net of current portion - -
DEFERRED INCOME 18,750 24,375
TOTAL LIABILITIES 593,448 533,169
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 (1,450,455) (1,335,234)
Total 413,863 529,084
Less: Treasury stock at cost 61,078 61,078
TOTAL STOCKHOLDERS' EQUITY 352,785 468,006
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 946,233 $1,001,175
FB-2
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
(Unaudited)
1998 1997
SALES $ 666,033 $ 801,697
OPERATING EXPENSES:
Cost of sales 498,773 610,160
Selling, shipping and general and administrative 286,321 231,964
Interest expense 854 599
Depreciation and amortization 2,473 2,856
TOTAL OPERATING EXPENSES 788,421 845,579
LOSS FROM OPERATIONS (122,388) (43,882)
OTHER INCOME:
Restrictive covenant 2,042 3,750
Interest income 5,625 2,975
TOTAL OTHER INCOME 7,667 6,725
LOSS BEFORE PROVISION FOR INCOME TAXES (114,721) (37,157)
PROVISION FOR INCOME TAXES 500 975
NET LOSS $ (115,221) $ (38,132)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 1,611,317 1,611,317
LOSS PER COMMON SHARE $ (.07) $ (.02)
CASH DIVIDEND PER COMMON SHARE $ .00 $ .00
FB-3
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Additional Held in
COMMON STOCK Paid-in Accumulated TREASURY AT COST
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCES - November 1, 1996 1,719,758 $171,976 $1,692,342 $(1,053,333) 108,441 $61,078
Net loss - - - (38,132) - -
BALANCES - January 31, 1997 1,719,758 $171,976 $1,692,342 $(1,091,465) 108,441 $61,078
BALANCES - November 1, 1997 1,719,758 $171,976 $1,692,342 $(1,335,234) 108,441 $61,078
Net loss - - - (115,221) - -
BALANCES - January 31, 1998 1,719,758 $171,976 $1,692,342 $(1,450,455) 108,441 $61,078
</TABLE>
FB-4
<PAGE>
FEDERATED PURCHASER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
(Unaudited)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(115,221) $ (38,132)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 2,473 2,856
Allowance for doubtful accounts 1,500 1,500
(Increase) decrease in operating assets:
Accounts receivable 80,375 80,133
Inventories (17,565) 59,172
Prepaid expenses and sundry receivables 43,765 8,597
Increase (decrease) in operating liabilities:
Accounts payable 43,169 (104,361)
Accrued expenses 25,156 (10,521)
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES 63,652 (756)
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection on note receivable 5,000 5,000
Payments on notes payable and long-term debt (2,421) (2,655)
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,579 2,345
NET INCREASE IN CASH 66,231 1,589
CASH - beginning 69,358 8 95,918
CASH - end $ 135,589 $ 97,507
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 854 $ 599
FB-5
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1997
(Unaudited)
NOTE 1
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
as of January 31, 1998 and the results of operations for the three
months ended January 31, 1998 and 1997.
NOTE 2
The results of operations for the three months ended January 31, 1998
and 1997 are not necessarily indicative of the results to be expected
for the full year.
FB-6
<PAGE>
WISE COMPONENTS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
FC-1
<PAGE>
WISE COMPONENTS, INC.
DECEMBER 31, 1997, 1996 AND 1995
CONTENTS
PAGE
Independent Auditors' Report FC-3
Financial Statements:
Balance Sheets FC-4
Statements of Income FC-5
Statements of Stockholders' Equity FC-6
Statements of Cash Flows FC-7
Notes to Financial Statements FC-8 -
FC-12
FC-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Directors of
Wise Components, Inc.
Stamford, Connecticut
We have audited the accompanying balance sheets of Wise Components, Inc. as of
December 31, 1997 and 1996, and the related statements of income, stockholders'
equity, and cash flows for the years ended December 31, 1997, 1996 and 1995.
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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wise Components, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years ended December 31, 1997, 1996 and 1995 in conformity with
generally accepted accounting principles.
BEDERSON & COMPANY LLP
West Orange, New Jersey
February 13, 1998
FC-3
<PAGE>
WISE COMPONENTS, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 73,227 $ 281,042
Accounts receivable, less allowance for doubtful
accounts of $48,100 for 1997 and $30,000 for 1996 1,554,861 1,582,952
Inventories 1,317,296 1,082,653
Prepaid expenses and taxes 83,012 58,786
Deferred income taxes 40,348 36,700
TOTAL CURRENT ASSETS 3,068,744 3,042,133
PROPERTY AND EQUIPMENT, less accumulated
depreciation 93,534 154,156
OTHER ASSETS:
Cash surrender value, officers' life insurance, net of
loans thereon of $15,418 for 1997 and $30,836 for 1996 33,324 49,667
Deposits 20,570 16,420
Deferred income taxes 35,365 40,129
TOTAL OTHER ASSETS 89,259 106,216
TOTAL ASSETS $3,251,537 $3,302,505
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 124,127 $ 8,252
Accounts payable 832,109 505,598
Accrued expenses and taxes 209,412 243,764
Deposit payable - 202,970
TOTAL CURRENT LIABILITIES 1,165,648 960,584
LONG-TERM DEBT, less current portion 430,000 3,735
TOTAL LIABILITIES 1,595,648 964,319
STOCKHOLDERS' EQUITY:
Common stock, no par value, 200 shares authorized,
175 shares issued 87,500 87,500
Additional paid-in capital 367,750 367,750
Retained earnings 2,000,639 1,882,936
Total 2,455,889 2,338,186
Treasury stock, 87.5 shares at cost for 1997 (800,000) -
TOTAL STOCKHOLDERS' EQUITY 1,655,889 2,338,186
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,251,537 $3,302,505
</TABLE>
The accompanying notes are an integral part
of these financial statements.
FC-4
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
SALES $11,818,471 $14,863,476 $15,885,147
COST OF SALES 8,760,821 10,879,159 11,722,182
GROSS PROFIT 3,057,650 3,984,317 4,162,965
OPERATING EXPENSES:
Selling and shipping 1,035,737 1,267,023 1,259,805
General and administrative 1,699,762 1,722,332 1,659,054
Depreciation and amortization 42,647 45,730 58,356
Bad debts 33,210 16,740 8,780
Interest expense 33,049 14,384 64,376
Profit-sharing - 30,000 80,000
TOTAL OPERATING EXPENSES 2,844,405 3,096,209 3,130,371
OPERATING INCOME 213,245 888,108 1,032,594
OTHER INCOME (EXPENSES):
Miscellaneous income - 448 -
Interest income 4,308 5,382 1,000
Gain on sale of equipment 8,401 - -
Loss on sale of securities - (49,800) (12,500)
Loss on abandonment of leasehold
improvements (27,601) - -
Loss on impairment of goodwill - - (182,477)
TOTAL OTHER INCOME (EXPENSES) (14,892) (43,970) (193,977)
INCOME BEFORE PROVISION FOR
INCOME TAXES 198,353 844,138 838,617
PROVISION FOR INCOME TAXES 80,650 373,232 340,071
NET INCOME $ 117,703 $ 470,906 $ 498,546
EARNINGS PER SHARE $ 934.15 $ 2,690.89 $ 2,848.83
The accompanying notes are an integral part
of these financial statements.
FC-5
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Additional
COMMON STOCK Paid-in Retained TREASURY AT COST
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - January 1, 1995 175 $87,500 $367,750 $ 939,484 - $ - $1,394,734
Net income - - - 498,546 - - 498,546
Dividends - - - (26,000) - - (26,000)
BALANCE - December 31, 1995 175 87,500 367,750 1,412,030 - - 1,867,280
Net income - - - 470,906 - - 470,906
BALANCE - December 31, 1996 175 87,500 367,750 1,882,936 - - 2,338,186
Purchase of treasury stock - - - - 87.5 (800,000) (800,000)
Net income - - - 117,703 - - 117,703
BALANCE - December 31, 1997 175 $87,500 $367,750 $2,000,639 87.5 $800,000 $1,655,889
</TABLE>
The accompanying notes are an integral part
of these financial statements.
FC-6
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 117,703 $ 470,906 $ 498,546
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 42,647 45,730 58,356
Loss on abandonment of leasehold improvements 27,601 - -
Gain on sale of equipment (8,401) - -
Loss on impairment of goodwill - - 182,477
Loss on sale of securities - 49,800 12,500
Deferred income taxes 1,116 (18,452) (47,090)
(Increase) decrease in:
Accounts receivable 28,091 301,116 (488,691)
Inventories (234,643) 9,722 (139,153)
Prepaid expenses (24,226) 11,271 (53,054)
Cash surrender value of officers' life insurance 16,3433 3,285 (16,038)
Deposits (4,150) - (8,400)
Increase (decrease) in:
Accounts payable 326,511 (296,356) 166,004
Accrued expenses and taxes (34,352) (1,913) 129,282
Deposit payable (202,970) 202,970 -
NET CASH PROVIDED BY OPERATING ACTIVITIES 51,270 808,079 294,739
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (33,325) (9,284) (94,188)
Increase (decrease) in investments - 1,773 (8,175)
Proceeds from sale of equipment 32,100 - -
Proceeds from sale of securities - 7,500 -
NET CASH USED BY INVESTING ACTIVITIES (1,225) (11) (102,363)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings - - 1,810,000
Proceeds from long-term borrowings 600,000 - -
Payments on short-term borrowings - (475,000) (1,835,000)
Payments on long-term debt (57,860) (181,585) (73,250)
Purchase of treasury stock (800,000) - -
Dividends paid - - (26,000)
NET CASH USED BY FINANCING ACTIVITIES (257,860) (656,585) (124,250)
NET INCREASE (DECREASE) IN CASH (207,815) 151,483 68,126
CASH - beginning 281,042 129,559 61,433
CASH - ending $ 73,227 $ 281,042 $ 129,559
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 29,661 $ 18,402 $ 66,214
Income taxes $ 75,959 $ 356,500 $ 439,415
</TABLE>
The accompanying notes are an integral part
of these financial statements.
FC-7
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 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. Effective
January 1, 1997, the Company ceased the assembly of cable components.
The Company was incorporated in the State of New York on March 31,
1977.
The Company maintains its administrative and warehouse facilities in
Stamford, Connecticut under a new lease agreement effective December
12, 1997. The Company closed its North Carolina sales office on July
1, 1997.
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.
REVENUE RECOGNITION
Income is earned and recorded at the time of shipment, which is when
title passes. Expenses are recorded when incurred. Any merchandise
returned by customers in the normal course of business must be
pre-approved by management.
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 $139,879, $185,701 and
$201,996 for the years ended December 31, 1997, 1996 and 1995
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, receivables and accounts payable
approximates fair value due to the short maturity of these instruments.
The carrying value of short and long-term debt approximates fair value
based on current market rates.
INCOME TAXES
Deferred tax assets are recognized for deductible temporary differences
and capital loss carryforwards. 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.
FC-8
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the December 31, 1996 and
1995 financial statements to conform with the December 31, 1997
financial statement presentation. Such reclassifications have had no
effect on net income as previously reported.
EARNINGS PER SHARE
The computation of earnings per share are based upon the Company's net
income of $117,703, $470,906 and $498,546 for the years ended December
31, 1997, 1996 and 1995, respectively, divided by the weighted average
number of shares outstanding of 126 in 1997 and 175 in 1996 and 1995.
There were no common stock equivalents or other reconciling items
affecting either the numerator or denoninator in calculating earnings
per share.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, Estimated
1997 1996 USEFUL LIVES
<S> <C> <C> <C>
Leasehold improvements $ - $220,169 5 - 10 years
Furniture and fixtures 154,374 167,618 5 - 10 years
Automotive equipment 64,694 123,401 5 years
219,068 511,188
Less: Accumulated depreciation 125,534 357,032
$ 93,534 $154,156
</TABLE>
NOTE 3 - LINE OF CREDIT
The Company negotiated a new agreement with its 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 December 31, 1997 and
1996, $-0- was outstanding against the line-of-credit.
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
1997 1996
Note payable to bank payable in monthly installments
of $10,000 until July 1, 2002, plus interest at prime
plus 1/2%, secured by lien on corporate assets and
guaranteed by the corporate stockholder. On
December 31, 1997, the Company did not meet the
minimum tangible net worth covenant of its loan
agreement. On February 2, 1998, the Company
received a waiver from the bank regarding this
covenant non-compliance as of December 31, 1997. $550,000 $ -
Equipment note, payable in monthly installments of
$875, including interest, until June 1998, secured by
computer equipment. 4,127 11,987
554,127 11,987
Less: Current maturities 124,127 8,252
Long-term debt $430,000 $3,735
FC-9
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 4 - LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt are as follows:
Years Ending
DECEMBER 31,
1998 $124,127
1999 120,000
2000 120,000
2001 120,000
2002 70,000
$554,127
NOTE 5 - INCOME TAXES
The provision (benefit) for income taxes consists of the following:
1997 1996 1995
Current:
Federal $ 65,952 $286,114 $283,281
State 13,582 105,570 103,880
79,534 391,684 387,161
Deferred:
Federal (119) (15,148) (34,302)
State 1,235 (3,304) (12,788)
1,116 (18,452) (47,090)
Total income tax provision $ 80,650 $373,232 $340,071
A reconciliation of provision (benefit) for income taxes at the federal
statutory rate (34%) to income tax provision (benefit) at the Company's
effective rate is as follows:
1997 1996 1995
Computed tax provision at
the expected statutory rate $ 67,440 $287,007 $285,130
State income tax - net of
Federal tax benefit 9,779 67,496 60,120
Other, net 3,431 18,729 (5,179)
$ 80,650 $373,232 $340,071
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
FC-10
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 5 - INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets consisted
of the following:
1997 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Deferred tax assets:
Current:
Allowance for doubtful accounts receivable $ 21,405 $13,575
Tax inventory adjustment 16,346 11,441
Accrued vacation 2,597 11,684
40,348 36,700
Noncurrent:
Excess book depreciation 7,641 11,938
Capital loss carryforwards 27,724 28,191
35,365 40,129
Net deferred tax assets $ 75,713 $76,829
</TABLE>
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, 1997, 1996 and 1995 was $-0-, $30,000 and
$80,000, respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
During 1996 and 1997 the Company conducted its New York and Connecticut
operations in leased facilities operating on a month-to-month basis.
Rent charged to operations amounted to $107,279, $99,945 and $86,433
for the years ended December 31, 1997, 1996 and 1995, respectively.
Effective December 12, 1997, the Company relocated its administrative
and warehouse facilities to Stamford, Connecticut under a new lease
agreement which expires December 31, 2002. In addition to the monthly
rent, the Company is responsible for all real estate taxes and common
use charges.
The Company closed its New York warehouse on January 31, 1998.
Minimum rental payments under the lease agreement are summarized as
follows:
Years Ended
DECEMBER 31,
1998 $120,000
1999 123,750
2000 131,250
2001 135,000
2002 138,750
$648,750
FC-11
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 8 - 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
Eastern 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.
The Company maintains its bank accounts in several financial
institutions and is insured by the Federal Deposit Insurance
Corporation up to $100,000. There were no uninsured balances at
December 31, 1997. Uninsured balances at December 31, 1996 approximated
$382,000.
NOTE 9 - MAJOR CUSTOMERS
The Company did not have any customers to whom it had sales in excess
of 10% of its annual sales for the year ended December 31, 1997.
The Company had one customer to whom it sold approximately $1,914,000
or 13% of sales for the year ended December 31, 1996. The accounts
receivable from this customer amounted to approximately $244,000 or 15%
of the total accounts receivable balance at December 31, 1996.
NOTE 10 - MAJOR SUPPLIERS
The Company had one supplier from whom it purchased approximately
$1,025,000 or 11% of purchases for the year ended December 31, 1997 and
$1,543,000 or 14% of purchases for the year ended December 31, 1996.
NOTE 11 - PROPOSED ACQUISITION
On October 1, 1997, the Company's stockholder agreed to exchange all of
the outstanding capital stock of Wise Components, Inc. for 4,491,988
newly issued shares of Federated Purchaser, Inc. having a per share
value of $.22. As a result of this transaction, the controlling
interest of Wise will also become the controlling interest
(approximately 74%) of Federated. For financial statement purposes,
Wise is deemed to be the acquiror of Federated and the transaction will
be recorded by Wise under the purchase method of accounting. Once the
transaction has been concluded, the financial position and resdults of
operations of Federated will thereafter be consolidated with Wise.
In order to conclude the transaction referred to in the preceding
paragraph, Federated will increase the number of common shares it has
authorized, from 5,000,000 to 10,000,000 shares. This increase has not
yet been approved by the stockholders of Federated; accordingly, the
issuance has not been recorded as of December 31, 1997.
FC-12
<PAGE>
Exhibit 8
October 23, 1997
Mr. Martin Blaustein
Wise Components Inc.
28 Henry Street
Greenwich, Connecticut 06830
RE: WISE COMPONENTS, INC. B-REORGANIZATION
Gentlemen:
You have asked our opinion regarding certain federal income tax consequences of
the exchange (the "Transaction") by Martin L. Blaustein ("Blaustein") of all of
the issued and outstanding shares ("Wise Shares") of capital stock of Wise
Components, Inc., ("Wise") for 4,882,664 shares ("Federated Shares") of the
common capital stock of Federated Purchaser, Inc. ("Federated").
For purposes of this opinion we have reviewed the following documents:
1. A signed, dated Agreement by and among Wise, Federated and Blaustein (the
"Agreement");
2. Compilation financial statements of Wise for the six months ended June
30, 1997;
3. Compilation financial statement of Federated and its subsidiaries for the
nine months ended July 31, 1997;
4. Copies of Wise's 1996 Internal Revenue Form 1120 and Federated's 1995
(year ending October 31, 1996) Internal Revenue Form 1120;
5. An Employment Agreement between Wise and Robert Berwick ("Berwick") dated
the 12th day of June, 1997 (the "Employment Agreement"); and
6. A signed Agreement with handwritten June 12, 1997 at the top by and among
Wise and Berwick which appears to be a redemption agreement (the
"Redemption Agreement").
In making this opinion we have also reviewed the Internal Revenue Code of 1986,
as amended (the "Code") Treasury Regulations promulgated thereunder, applicable
case law, interpretive rulings of the Internal Revenue Service and such other
authority as we have considered relevant or appropriate. In addition, we have
also assumed that:
1. The Wise Shares constitute all of the issued and outstanding shares of
stock of Wise, and that except for the Agreement, there are no
agreements, options, warrants, stock rights or similar rights which would
entitle any party to any of the equity of Wise;
<PAGE>
Mr. Martin Blaustein
Wise Components Inc.
-2-
2. Notwithstanding the last line of Section 1.4(b) of the Agreement, no cash
in lieu of fractional interest in Federated will be issued;
3. The Federated Shares to be received by Blaustein pursuant to the
Agreement will be shares of voting stock and that notwithstanding that
the Agreement referred to 4,882,644 shares to be received, the number of
shares referred to above is the correct number of shares;
4. All non-stock interests to be received by Blaustein in connection with
the Transactions contemplated by the Agreement, including, without
limitation, and employment agreements or otherwise are for adequate
consideration and not additional consideration for Stock;
5. Federated, Wise and Blaustein will each report this transaction as a tax-
free reorganization under Section 368(a) of the Code and will each file
the statements to be attached pursuant to Treasury Regulations Section
1.368-3 with their respective tax returns;
6. Wise is not insolvent and that the obligations of Wise to Berwick
pursuant to the Redemption Agreement shall be satisfied by Wise without
contribution or otherwise from Federated;
7. The redemption of Berwick's interest in Wise was at arm's length, for
fair market value and accomplished without regard to the Transaction; and
8. The Transaction had been approved by all parties in the manner required
to be approved by each such party.
Additional assumptions are contained in the body of this letter.
Accordingly, and based on the assumptions contained herein we are of the
opinion that:
1. The Transaction under current law, constitutes a tax-free reorganization
under Section 368(a) of the Code;
2. Wise and Federated will each be a party to the reorganization as
contemplated by Section 368(b) of the Code.
3. No gain or loss will be recognized by Blaustein as a result of his
exchange of the Wise Shares for the Federated Shares.
4. The tax basis of the Federated shares received by Blaustein will be equal
to the basis Blaustein had in the Wise Shares which were exchanged in the
Transaction.
<PAGE>
Mr. Martin Blaustein
Wise Components Inc.
-3-
5. The holding period for the Federated Shares received by Blaustein will
include the holding period Blaustein had in the Wise Shares given up on
the exchange.
6. Neither Wise nor Federated will recognize gain or loss as a result of the
Transaction.
Please note that the foregoing discussion represents our conclusion regarding
existing law as applied to the transaction subject to the assumptions contained
herein. No opinion is expressed with respect to the effect, if any, changes to
the Agreement are made or if any of our assumptions are inaccurate. Our
conclusions are not binding upon the Internal Revenue Service or any
governmental authority and no assurance can be given that the Internal Revenue
Service may not take a contrary position with some or all of the opinions
expressed herein.
This opinion is expressed as of the date hereof. No opinion is expressed as to
the effect of the changes or events which may occur hereafter. This Firm
neither accepts nor recognizes any duty or responsibility to inform you of any
subsequent change or event.
Very truly yours,
BEDERSON & COMPANY LLP
/S/ RICHARD EBERLE
Richard Eberle
For the Firm
RE:jz
<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 10(e)
EMPLOYMENT AGREEMENT
Agreement made the 12th day of June , 1997 between WISE COMPONENTS,
INC., a New York corporation with offices at 28 Henry Street, Greenwich,
Connecticut 06830 ("WISE") and ROBERT BERWICK, residing at 73 Weaver
Street, Greenwich, Connecticut 06831 ("Employee").
WHEREAS Berwick was previously a principal of WISE and has recently
terminated his equity position in said corporation; and
WHEREAS Berwick is familiar with the customers of WISE and the
operations of WISE; and
WHEREAS WISE is desirous of obtaining the continuing services of
Berwick;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound
hereby, agree as follows:
1) EMPLOYMENT
WISE hereby employs Berwick as its Vice President and Berwick accepts
such employment for the term of employment specified below. During the
Employment Term, Berwick shall have such duties, responsibilities and
authority which the Board of Directors of WISE deem appropriate.
2) PERFORMANCE
Berwick agrees to devote such time to the performance of his duties
with WISE as the parties mutually deem to be appropriate.
3) EMPLOYMENT TERM
The Employment Term shall begin on the date of this Agreement and
shall continue until the sixth anniversary of such date, unless earlier
terminated as herein provided.
4) COMPENSATION
a) SALARY
During the Employment Term, WISE shall pay Berwick at the rate of
$4,000.00 per week. Throughout the Employment Term, Berwick shall be given
copies of all quarterly financial reports of Wise.
b) BENEFITS
Berwick shall be entitled to participate in any employee benefit
programs offered by WISE to its employees, including but not limited to
health insurance, 401K and profit sharing plans. Nothing contained herein
shall require WISE to provide Berwick with any benefits not provided for
other employees.
c) AUTOMOBILE
Upon the execution of this Agreement WISE shall transfer to
Berwick the Lexus automobile presently being used by Berwick. After such
transfer WISE shall issue to Berwick an appropriate form 1099 or equivalent
statement reflecting the fair market value of said vehicle. Berwick shall
thereafter be responsible for any and all insurance, maintenance, repairs,
gasoline and all other costs and expenses attendant to such vehicle.
5) NON-COMPETITION AND NON-SOLICITATION
a) Berwick recognizes that his willingness to enter into the
restrictive covenants contained herein was a critical condition precedent
to WISE's willingness to enter into and perform under this Agreement.
Berwick also acknowledges that the restrictions contained herein will not
materially or unreasonably interfere with Berwick's ability to earn a
living.
b) Berwick agrees that during the Non-Competition Period (defined
below) he will not in any capacity, either separately, jointly, or in
association with others, directly or indirectly, as an officer, director,
consultant, agent, employee, owner, partner, joint venturer, distributor,
dealer, representative, stockholder, investor, lender or otherwise engage
or have a financial interest in any business located anywhere in the
Restricted Area (as herein defined) which competes with WISE or with any
affiliate of WISE (excepting only the ownership of not more than one
percent of outstanding securities of any class of stock listed on an
exchange or regularly traded over the counter market.) "Restricted Area"
means the USA, Puerto Rico and Ireland.
An entity shall be deemed to compete with WISE or one of its
affiliates as of a particular time if the entity then manufactures,
produces, distributes, or markets any product or service which is
competitive with, and may be purchased in replacement or substitution of,
any product or service which was being distributed or marketed by WISE or
such affiliate during the Employment Term, and which is then still being
marketed or distributed by WISE or such affiliate or which WISE or such
affiliate was considering marketing or distributing during the Employment
Term. WISE and its affiliates shall be deemed to be considering marketing
or distributing a product or service as of a particular date only if WISE
or such affiliate intends to market or distribute such product or service
within the next two years of such date. The "Non-Competition Period" is
the greater of: the period during which Berwick is employed by WISE plus a
period of two years thereafter or the Employment Term plus a period of two
years thereafter.
c) Berwick further agrees that during the Non-Competition Period he
will not in any capacity, either separately, jointly or in association with
others, directly or indirectly, solicit, divert or take away, attempt to
take away or otherwise contact any of WISE's clients, customers, accounts,
distributors, dealers or representatives as shown by WISE's records, that
were clients, customers, distributors, accounts, dealers or representatives
of WISE at any time during the two years immediately preceding the date of
termination of Berwick's employment with WISE if such solicitation or
contact is for the specific purpose of selling products or services that
compete with any products or services that WISE had available to sell to
its clients, customers, accounts, distributors, dealers or representatives
or prospects during the two years immediately preceding the end of the Non-
Competition Period. Berwick further agrees that during the Non-Competition
Period he will not in any capacity, either separately, jointly or in
association with others, directly or indirectly, recruit, solicit or hire
any employee or consultant of WISE or induce or attempt to induce any
employee or consultant of WISE to terminate his or her employment or
consultancy with, or otherwise cease his or her relationship with WISE.
d) If a court determines that the foregoing restrictions are too broad
or otherwise unreasonable under applicable law, including with respect to
time or space, the court is hereby requested and authorized by the parties
hereto to revise the foregoing restriction to include the maximum
restrictions allowed under the applicable law. Berwick expressly agrees
that breach of the foregoing would result in irreparable injuries to WISE,
that the remedy at law for any such breach will be inadequate and that upon
breach of this provision, WISE, in addition to all other available
remedies, shall be entitled as a matter of right to injunctive relief in
any court of competent jurisdiction without the necessity of proving the
actual damage to WISE. For the purposes of this section, "WISE" refers to
WISE and any subsidiaries or affiliates of WISE.
6) SECRET PROCESSES AND CONFIDENTIAL INFORMATION
a) For the Employment Term and thereafter, (i) Berwick will not
divulge, directly or indirectly, other than in the regular and proper
course of business of WISE, or as required by law, any confidential
knowledge or information with respect to the operation or finances of WISE,
including without limitation, inventions, products, machinery, processes,
methods, techniques, compositions, projects, developments, plans, financial
data, personnel data, computer programs, and customer supplier lists
(collectively, "Confidential Information"), and (ii) Berwick will not use,
directly or indirectly, any Confidential Information for the benefit of
anyone other than WISE; provided, however, that Berwick has no obligation,
express or implied, to refrain from using or disclosing to others any such
knowledge or information which is or hereafter shall become available to
the public other than through disclosure by Berwick. Berwick agrees that
all files, letters, memoranda, reports, records, data, sketches, drawings,
program listings or other written, photographic, or other tangible material
containing Confidential Information, whether created by Berwick or others,
which shall come into his custody or possession, shall be and are the
exclusive property of WISE to be used by Berwick only in the performance of
his duties for WISE.
b) All new processes, techniques, know-how, inventions, improvements,
discoveries, methods, plans, products, works of authorship, patents and
devices developed, made or invented by Berwick, alone or with others,
whether patentable or not, while an employee of WISE (collectively, the
"Developments") shall become and be the sole property of WISE unless
released in writing by WISE. Berwick agrees to assign and does hereby
assign to WISE (or any person or entity designated by WISE) all his right,
title and interest in and to all Developments and all related patents,
patent applications, copyrights and copyright applications. In addition,
Berwick agrees to cooperate fully with WISE, both during and after his
employment with WISE, with respect to the procurement, maintenance and
enforcement of copyrights and patents (both in the United States and
foreign countries) relating to Developments. Berwick shall sign all
papers, including without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignments of
priority rights, and powers of attorney which WISE may deem necessary or
desirable in order to protect its rights and interests in any Developments.
c) Notwithstanding the foregoing, if Berwick is required to disclose
or divulge any Confidential Information pursuant to any subpoena or other
judicial process he will promptly so notify WISE, and if so requested by
WISE, will assist WISE in seeking a protective order with respect thereto.
If WISE cannot or chooses not to obtain such protective order, Berwick will
divulge only such Confidential Information as he is advised by his counsel
is required to be disclosed, and will use his best efforts to ensure that
the balance of such Confidential Information will be kept confidential.
7) TERMINATION
a) TERMINATION AT END OF TERM. Unless affirmatively extended by
written agreement of WISE and Berwick, the employment of Berwick hereunder
shall terminate at the end of the Employment Term.
b) PREMATURE TERMINATION. WISE shall have the right at any time to
terminate Berwick's employment hereunder by written notice to Berwick.
However, any such termination will not in any way eliminate or reduce the
obligation of WISE to remit the compensation required herein during the
entire Employment Term. In the event of Berwick's death or disability
during the Employment Term, WISE shall be obligated to remit all
compensation hereinabove provided throughout the balance of the Employment
Term.
8) MERGER OR OTHER SALE OF WISE.
In the event of the sale or merger of WISE during the Employment Term,
Berwick shall, within his sole discretion, have the option of no longer
rendering services to WISE if after such sale or merger Martin L. Blaustein
no longer owns at least fifty-one (51%) percent of said surviving entity's
outstanding voting stock. However, in the event he shall elect to cease
rendering services to WISE, (due to a sale or merger which results in
Martin L. Blaustein no longer owning at least fifty-one (51%) percent of
the surviving entity's outstanding voting stock) this shall not in any way
diminish the obligation of WISE to remit compensation to Berwick throughout
the balance of the Employment Term. Berwick shall also have the option of
requiring the corporation to immediately remit, in a lump sum, without
discount, all compensation payable over the balance of the Employment Term
simultaneously with the consummation of such merger or sale, in the event
that after such sale or merger Martin L. Blaustein no longer owns at least
fifty-one (51%) percent of said surviving entity's outstanding voting
stock.
9) SUBORDINATION OF EMPLOYMENT COMPENSATION TO FLEET BANK.
Berwick agrees to subordinate any claims for unpaid employment
compensation pursuant to this Agreement to Fleet Bank. Said subordination
shall be limited to Fleet Bank loans up to a maximum of $1,000,000.00 plus
interest. Berwick agrees that upon the occurrence and during the
continuation of an event of default under the terms of such loans from
Fleet Bank he shall not receive any compensation pursuant to this agreement
until such default has been cured. Upon the curing of the event of
default, WISE will have the obligation to remit any payments which were
previously suspended during such default.
10) NOTICE
Any notices required or permitted hereunder shall be in writing and
shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the address as
set forth above or to such other addresses as the parties may hereafter
give notice as provided herein.
11) GENERAL
a) PRIOR AGREEMENTS.
Berwick represents and warrants that he is not a party to any
other agreement relating to his employment or which would prohibit him from
entering into this Agreement. This Agreement supersedes and replaces all
prior agreements between WISE and Berwick, whether written or oral,
relating to his employment by WISE.
b) GOVERNING LAW.
The terms of this Agreement shall be governed by the laws of the
State of New York.
c) ASSIGNABILITY.
Berwick may not assign his interest in or delegate his duties
under this Agreement. The covenants and obligations of Berwick hereunder
shall redound to the benefit of the successors and assigns of WISE.
d) BINDING EFFECT.
This Agreement shall be binding upon the parties hereto, and
enure to the benefit of WISE, its successors and assigns.
e) ENTIRE AGREEMENT: MODIFICATION.
This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and may not be modified or
amended in any way except in writing by the parties hereto.
f) DURATION.
Notwithstanding the term of employment hereunder, this Agreement
shall continue so long as any obligations remain under this Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first above written.
WISE COMPONENTS, INC.
By: /s/ Martin L. Blaustein
Martin L. Blaustein, President
/s/ Robert E. Berwick
Robert E. Berwick
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE COMPANY
Percentage of Voting
Jurisdiction of Securities Owned by
SUBSIDIARY INCORPORATION THE COMPANY
Federated Purchaser, Inc. Pennsylvania 100%
<PAGE>
Exh. 99.2 FEDERATED PURCHASER, INC.
Proxy For the 1998 Special Meeting of Shareholder
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY
The undersigned shareholder hereby appoints HARRY J. FALLON and EDMUND L.
HOENER the proxies of the undersigned, with full power of substitution, hereby
revoking any proxy heretofore given, to attend the 1998 Special Meeting of
Shareholders of FEDERATED PURCHASER, INC. to be held on May 28, 1998, at the
time and place set forth in the Notice of Meeting, and any adjournment(s)
thereof and to vote and act with respect to the number of shares of Common
Stock, par value $.01 per share, of FEDERATED PURCHASER, INC., standing in the
name of the undersigned as the undersigned would be entitled to vote or act if
personally present, as follows.
1. Amendment of the Company's Certificate of Incorporation to increase
the number of shares of Common Stock authorized from 5,000,000 to 10,000,000.
2. In their discretion, to vote and act with respect to such other
business as may properly come before the Meeting or any adjournment(s) thereof.
(Continued and to be signed and dated, on reverse side.)
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN HEREIN.
IF NO INSTRUCTIONS ARE INDICATED, THE PERSONS NAMED PROXY HEREIN WILL VOTE ALLS
SHARES IN THE NAME OF THE UNDERSIGNED FOR THE AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION AND, IN THEIR DISCRETION, FOR ANY OTHER BUSINESS
WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT(S) THEREOF.
Please mark, date, sign and promptly return this proxy in the accompanying
envelope. No postage is required if mailed within the United States.
Date
Signature
Signature
INSTRUCTIONS: Please sign
exactly as your name appears
on this proxy. If signing for
an estate, trust, minor,
partnership or corporation,
title or capacity should be
stated. If shares are held
jointly, each holder must
sign.
