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:
[ X ]Preliminary Proxy Statement
[ ] Preliminary Additional Materials
[ ] 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
[ X]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:
COMMON STOCK, $.01 PAR VALUE.
2) Aggregate number of securities to which transaction applies:
4,882,644
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$1,657,286
4) Proposed maximum aggregate value of transaction:
$1,657,286
<PAGE>
5) Total fee paid:
$332.00
[ ] 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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<PAGE>
PRELIMINARY COPY
[FEDERATED LETTERHEAD]
February , 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 , 1998 at a.m. Eastern Standard Time at
.
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an amendment (the "Amendment") to Federated's
certificate of incorporation, which will increase the number of authorized
shares of Federated's common stock (the "Common Stock") from 5 million to 10
million. By approving the Amendment, you will enable Federated to consummate
an Agreement (the "Agreement") among Federated, Wise Components, Inc. ("Wise"),
and Wise's sole shareholder, Martin L. Blaustein ("Mr. Blaustein"). Under the
terms of the Agreement, Federated will acquire all of Wise's capital stock from
Mr. Blaustein, and in exchange will issue 4,491,988 shares of Common Stock to
Mr. Blaustein (these transactions collectively known as the "Exchange"). The
Agreement also provides that upon the occurrence of certain events during the
six months subsequent to the Exchange, Federated may issue up to an additional
390,656 shares of Common Stock to Mr. Blaustein. Accordingly, a total of
4,882,644 shares of Common Stock are to be 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>
PRELIMINARY COPY
FEDERATED PURCHASER, INC.
268 Cliffwood Avenue
Cliffwood, NJ 07721
(908) 290-2900
---------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on ________________, 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 , 1998 at a.m. Eastern Standard
Time, at , for the purpose of considering and voting upon the
following matters:
1. A proposal to approve and adopt an amendment (the "Amendment") to
Federated's certificate of incorporation, which will increase the number of
authorized shares of Federated's common stock (the "Common Stock") from 5
million to 10 million, thereby enabling Federated to consummate an Agreement
(the "Agreement") dated October 1, 1997, among Federated, Wise Components, Inc.
("Wise"), and Wise's sole shareholder, Martin L. Blaustein ("Mr. Blaustein"),
under which Federated will acquire all of Wise's capital stock from Mr.
Blaustein, and in exchange will issue 4,491,988 shares of Common Stock to Mr.
Blaustein (these transactions collectively known as the "Exchange"). The
Agreement also provides that upon the occurrence of certain events during the
six months subsequent to the Exchange, Federated may issue up to an additional
390,656 shares of Common Stock to Mr. Blaustein. Accordingly, a total of
4,882,644 shares of Common Stock are to be 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
_______________, 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
[Date] 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 1998
This Proxy Statement is being furnished to the holders as of
___________________, 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 ,
1998 at _____ a.m. Eastern Standard Time at , 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____________________, 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 are urged to read carefully. The shareholders of Federated will
also consider and vote upon such other matters as may properly come before the
Special Meeting and any postponements or adjournments thereof.
SEE "RISK FACTORS" ON PAGE FOR A DISCUSSION OF CERTAIN CONSIDERATIONS
IN EVALUATING THE EXCHANGE.
Under New York law, law, no appraisal rights are available to Federated
shareholders with respect to any aspect of the Amendment and Exchange. See
"The Exchange and Amendment - Appraisal Rights," and Appendix II
Federated's Common Stock is not traded on an exchange. On January 20,
1998, the last reported bid price per share of Common Stock was $.29, 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 , 1998.
<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..............................................................12
Risk Factors.........................................................20
The Special Meeting .................................................24
The Exchange and Amendment ..........................................25
The Exchange Agreement ..............................................32
Business of Federated................................................35
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............................44
Directors and Officers...............................................48
Business of Wise.....................................................53
Wise Components, Inc. Selected Historical Financial Data ............57
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Wise.................................58
Capital Stock of Wise................................................61
Market for Common Equity.............................................62
Pro Forma Financial Information .....................................63
Experts..............................................................68
_______________________________
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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,
1996, filed with the Commission on January 29, 1997, and the amendment thereof
on form 10-K/A, filed with the Commission on May 1, 1997, are incorporated
herein by reference in their entirety.
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Federated's Proxy Statement on Schedule 14A as filed with the Commission
on February 21, 1997 and its Report on Form 8-K as filed with the Commission on
October 1, 1997, are incorporated herein by reference in their entirety.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy Statement 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 .
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
-10-
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.
<TABLE>
<CAPTION>
<S> <C>
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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The Parties...............................................
Federated..................................... Federated and its wholly-owned subsidiary
are engaged in one segment of the
electronics industry: the assembly and
marketing of a broad range of electronic
parts, components and related equipment
(including, for example, such items as
semi-conductors, wire, transformers, relay
systems, capacitors and electronic tubes) to
industrial customers.
Federated conducts its business through its
two locations in Cliffwood, New Jersey, and
Allentown, Pennsylvania, and through the
direct solicitation of certain industrial
customers by Federated's own sales
personnel.
Federated's principal business address is
268 Cliffwood Avenue, Cliffwood, NJ 07721,
and its telephone number is (908) 290-2900.
Wise................................. Wise Components, Inc. ("Wise"), founded
approximately 22 years ago, distributes
electronic components and wire and cable for
voice and data networks. Its products range
from capacitors to fiber optics to power
modification and protection supplies.
Founded as a local distributor, it has since
expanded to include regional, national, and
international clientele, with sales offices
in Greenwich, Connecticut.
Wise's principal business address is 28
Henry Street, Greenwich, Connecticut 06830,
and its telephone number is (800) 543-4333.
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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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Competing Transactions; Termination....................... Under the Agreement, Federated's Board of
Directors retains the right to exercise its
fiduciary duties to its shareholders by
considering other proposals or offers
relating to the acquisition of all or
substantially all of Federated's capital
stock or assets ("Competing Transactions").
Federated may terminate the Agreement should
its Board of Directors determine that a
Competing Transaction is more favorable from
a financial point of view to its
shareholders than the Exchange. Upon such a
termination, Federated must pay up to
$50,000 of Mr. Blaustein's reasonable out-
of-pocket expenses in connection with the
Exchange. The parties may also terminate
the Agreement under certain other
circumstances. See "The Exchange Agreement
-- Competing Transactions; Termination."
The Special Meeting.......................................
Time, Date and Place.............................. The Special meeting will be held at
on , 1998, commencing at
a.m. Eastern Standard Time.
Matters to be Considered at the Special
Meeting........................................... At the Special Meeting, the shareholders of
Federated will be asked to consider and vote
upon a proposal to approve the Amendment
and, such other business as may properly
come before the meeting and any
postponements or adjournments thereof.
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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
, 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.
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."
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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.
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 January 20, 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 September 30, 1997 was $18,940. 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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</TABLE>
<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>
Nine Months Fiscal Year
Ended Ended
JULY 31, 1997(2) OCT 31, 1997
<S> <C> <C>
FEDERATED HISTORICAL
Net Loss per share: $(.10) $(.17)
Cash Dividends per -0- -0-
share:
Book Value per .36 .29
share:
WISE HISTORICAL (4)
Net Income per 1,087 1,361
share:
Cash Dividends per -0- -0-
share:
Book Value per 18,666 18,940
share:
WISE EQUIVALENT PRO
FORMA PER SHARE
Net Income per Share .02 .03
Cash Dividend per -0- -0-
Share
Book Value per Share .36 .37
PRO FORMA COMBINED
Net Income per .01 .03
share:
Cash Dividends per -0- -0-
share:
Book Value per .36 .35
share:
</TABLE>
(1) Data for Wise are based on Wise's twelve months ended
September 30, 1997.
(2) Data for Wise are based on Wise's nine months ended June 30,
1997.
(3) As of June 30, 1997 there were 87.5 shares of Wise common
stock issued and outstanding. As of December 31, 1996, 1995 and
1994, there were 175 shares of Wise common stock issued and
outstanding.
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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 $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
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has been negatively affected by certain trends, including intense
competition from larger competitors in the electronics industry and the
migration of certain customers from smaller to larger distributors, which
together decreased Old Federated's sales levels and gross profit margins.
While Old Federated had enhanced its short-term liquidity position when it
received a one-time cash payment of $755,845 from its November 15, 1994
divestiture of a former subsidiary, Freedom Electronics, those proceeds
have been used to sustain operations since that time. Thus, Old
Federated's ability to satisfy its fixed costs of operations has been
entirely dependent upon management's success in increasing sales,
improving gross margins, reducing operations costs, securing additional
lines of credit from outside lenders or entering into strategic alliances.
Old Federated's independent auditors raised substantial doubt regarding
Old Federated's ability to continue as a going concern in its Annual
Report for the year ended October 31, 1996, and again in its Annual Report
for the year ended October 31, 1997. In its Annual Report on Form 10-K
for the fiscal year ended October 31, 1996, 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 plan
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 October 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. See "Audit Report -- Uncertainty" below.
(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. See Note 2 of
Federated's Consolidated Financial Statements; "Management's Discussion
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and Analysis of Financial Condition and Results of Operations: Nine Months
ended 1997." Old Federated's independent auditors are of the opinion
that, based upon the financial strength of Wise Components, Inc., the
Exchange would eliminate the need for the going concern language for the
fiscal year ending October 31, 1998, but there can be no assurances that
New Federated's financial condition will in fact permit such a change.
See "Liquidity; Bankruptcy Risk -- Subsequent to the Exchange" above.
(v) STOCK PRICE
For the fiscal quarter ended October 31, 1997, the bid and ask
prices for Federated's Common Stock were $.13 and $.31 respectively, as
compared to $.22 and $.38 for the fiscal quarter ended October 31, 1996.
See "Market for Common Equity -- Federated." Federated's shares have been
traded over the counter since 1992; currently, no active market for its
shares exists. There can be no assurances that New Federated's improved
financial outlook will be translated into increased prices or trading
activity for its shares. So long as New Federated's common stock remains
priced below $1.00 per share, there remains a substantial risk that the
market will fail to respond to any future possible improvements in New
Federated's performance.
(vi) INTEGRATION OF FEDERATED AND WISE
There can be no assurances that New Federated will be able to
integrate successfully the operations, facilities and management of Wise
or realize any benefits of the Exchange. Failure to integrate the Wise
and Old Federated businesses successfully could have a material adverse
effect on New Federated's results of operations and financial condition.
The diversion of senior management's attention during this period of
integration may also have a material adverse affect on New Federated's
results of operations and financial condition.
(vii) COMPETITION; CONSOLIDATION
The electronic distribution business is highly competitive. Old
Federated and Wise compete with many companies, many of which have greater
resources available, and no assurances can be given that these competitors
will not substantially increase their energies devoted to competing with
New Federated. The electronics distribution business is also experiencing
a continued trend of consolidation, which will further intensify the
competitive environment generally, and may increase the size and resources
of New Federated's primary competitors.
(viii)DEPENDENCE ON KEY PERSONNEL
New Federated's business will be managed by a limited number of
management and operating personnel, the loss of certain of whom could have
a material effect on its ability to compete. New Federated will be
particularly dependent upon Martin L. Blaustein, Harry J. Fallon, Jane A.
Christy and Steven H. Fried to integrate the two businesses. 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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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.
-23-
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 ________________, 1998 at
___ a.m. Eastern Standard Time, at and at any postponements or adjournments
thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the holders of Common Stock will be asked to
consider and vote upon (i) the Amendment, and (ii) such other business as may
properly come before the Special Meeting and any postponements or adjournments
thereof.
VOTING AND RECORD DATE
The Board has fixed ____________, 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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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.
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A copy of the Exchange Agreement is included as Appendix I and is incorporated
herein by reference. Federated shareholders are urged to read the Exchange
Agreement carefully.
EFFECTS OF THE EXCHANGE
On the closing date, Federated will acquire all of the issued and
outstanding capital stock of Wise from Wise's sole shareholder, Martin L.
Blaustein ("Mr. Blaustein"), and will issue to Mr. Blaustein 4,491,988 shares
of Federated Common Stock in return. Mr. Blaustein will become Federated's
principal shareholder, holding about 74% of Federated's issued and outstanding
Common Stock. Wise will become a wholly-owned subsidiary of Federated, but
will continue to exist as a separate corporation.
BACKGROUND OF THE EXCHANGE
The terms of the Agreement are the result of arms-length negotiations
between representatives of Federated (also, the "Company") and Wise. The
following is a brief discussion of the background of these negotiations, the
Exchange and related transactions.
Federated has traditionally operated its business by maintaining
inventories of electronic components at its facilities located in New Jersey
and Allentown, Pennsylvania. Due to competitive pressures, economic
contraction and industry consolidation, in the early 1990's Federated began to
suffer losses. During this period Federated was unable to find alternative
capital sources, and its continuing losses have consumed an increasing portion
of its cash. The Company has also suffered turnover in its sales staff,
depressing its income. Although Federated has taken measures to reduce costs
by increasing staff efficiency and decreasing professional costs, these
measures have failed to return Federated to profitability. In part because of
staff turnover, Federated has been unable to restore sales growth, thus further
diminishing its competitiveness. In light of these difficulties, for the
fiscal year ended October 31, 1996, Federated's auditors included in their
Audit Report a note raising substantial doubt regarding Federated's ability to
continue as a going concern. In Federated's Annual Report on Form 10-K for the
fiscal year ended October 31, 1996, and in subsequent 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.
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The number of shares issued to Mr. Blaustein would be based on a relative
valuation of the two companies: Mr. Blaustein would receive an interest in
Federated proportionate with the relative book values of Federated and Wise.
As discussions continued over the summer of 1997, the parties settled on a
valuation date of July 31, 1997 for Federated (the end of Federated's third
fiscal quarter) and June 30, 1997 for Wise (the end of Wise's second fiscal
quarter). As a result, Wise was valued at 73.6% of the future combined entity.
Accordingly, the Agreement between the parties calls for issuing Mr. Blaustein
approximately 4.5 million shares of Federated Common Stock. This issuance will
require an amendment to Federated's certificate of incorporation to increase
the number of authorized shares of Federated's Common Stock. (See "The
Amendment" below.)
The parties also agreed that the 4.5 million shares to be issued to Mr.
Blaustein would be registered under the Securities Act of 1933, which would
provide Mr. Blaustein with additional liquidity and an enhanced asset base.
Nevertheless, Mr. Blaustein will remain subject to provisions of the Exchange
Act of 1934 which limit the ability of officers, directors and large
shareholders of public companies to sell their stock. See "Resale of Federated
Common Stock by Affiliates" below.
After due consideration of the proposal, 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
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regional expansion goals; (2) the Exchange would provide for the continuation
of its relationships in the electronics distribution industry; (3) the Exchange
would allow Federated to maintain its name, mark and the goodwill its has built
up over its approximately 70-year history; (4) the Exchange and related
transactions provided the best chance for Federated's shareholders to achieve a
substantial return on their investments; (5) operational synergies and
efficiencies would be achieved by integrating select functions of the
companies' operations; and (6) the compatibility of the business, operations
and management and other personnel of the two companies was likely to
facilitate a successful combination and realization of the anticipated
benefits.
The Board of Directors also reviewed certain business descriptions and
audited and unaudited financial information relating to Federated and Wise, and
certain other information it deemed relevant, including financial forecasts,
economic and market data, as provided to it by Federated's management, and its
auditors, and by Wise. This information included: (1) strategic benefits,
financial considerations and other issues regarding the proposed transaction;
(2) Wise's corporate structure; (3) Wise's summary financial information for
the fiscal year ended December 31, 1996 and the six months ended June 30, 1997;
(4) anticipated sources of savings identified as part of a plan to rationalize
existing operations; (5) the impact of the proposed transactions on Federated's
shareholders; and (6) the corporate governance structure of the companies
following the Exchange, including representation on the board of directors of
Federated, and the impact of the Exchange on the voting and economic rights of
Federated's existing shareholders. Federated's attorneys advised the Board
regarding its fiduciary duties in the protection of its shareholders' interests
and the maximization of shareholder value. The Board of Directors forecasted
results of the proposed combined entity 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. No written financial forecasts were presented to or
reviewed by the Board of Directors.
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.
-28-
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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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.
In addition, 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 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.
-30-
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.
ADDITIONAL FEDERAL INCOME TAX CONSEQUENCES TO FEDERATED
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LIMITATION ON USE OF LOSSES FOLLOWING AN OWNERSHIP CHANGE
Generally, a change in the ownership of more than 50% of the equity
holdings of a corporation results in an "ownership change" of the corporation
for purposes of Sections 382 and 383 of the Code. Under the terms of the
Exchange, Martin L. Blaustein, who presently does not own any stock in
Federated, will acquire in excess of 70% of Federated's total issued and
outstanding stock. Accordingly, it is anticipated that the Exchange will
result in an "ownership change." In that event, Federated's use of its net
operating loss carryforwards ("NOLs"), capital loss carryovers and certain
other tax attribute carryovers and certain built-in losses (collectively, "tax
attributes") generally would be limited to an annual amount equal to the fair
market value of Federated's capital stock immediately before the ownership
change multiplied by the "long-term tax-exempt rate" (5.09% for September,
1997).
If the consummation of the Exchange results in an "ownership change" of
Federated, the application of Sections 382 and 383 of the Code could severely
limit the ability of Federated to enjoy the benefit of its tax attributes and
thus increase the amount of federal income tax Federated would otherwise owe in
future years.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL
INFORMATION ONLY. SHAREHOLDERS OF FEDERATED AND WISE ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
EXCHANGE AND THE OWNERSHIP OF SHARES, INCLUDING THE APPLICATION OF FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS AND POSSIBLE CHANGES IN TAX LAWS.
REGULATORY APPROVALS
No governmental approvals are required with respect to the Exchange,
except for the filing of certain forms in conformity with the Securities Act of
1933, the Exchange Act of 1934, and the blue sky laws of various states.
ACCOUNTING
Federated will account for the Exchange under the purchase method of
accounting.
Representatives of Federated's independent public accountants, Bederson &
Co., who have also audited the Wise financial statements included herein, will
be present at the Special Meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to
reasonable and appropriate questions.
THE EXCHANGE AGREEMENT
The Agreement provides for the acquisition by Federated of all of the
issued and outstanding capital stock of Wise from Wise's sole shareholder,
Martin L. Blaustein ("Mr. Blaustein"), and the issuance to Mr. Blaustein of
4,491,988 shares of Federated common stock in return. Wise will therefore
become a wholly-owned subsidiary of Federated, but will continue to exist as a
separate corporation. Mr. Blaustein will become Federated's principal
shareholder, holding about 74% of Federated's issued and outstanding Common
Stock.
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CLOSING
The closing of the Exchange will take place as soon as practicable after
the day upon which all the Amendment is filed with and accepted by the New York
Secretary of State as required by the New York Business Corporation Law, and
all other conditions to consummation of the Exchange are satisfied or waived.
It is anticipated that the Amendment will be filed promptly after its approval
by the shareholders of Federated at the Special Meeting. Such filing will be
made, however, only upon satisfaction or waiver of all conditions to the
Exchange contained in the Exchange Agreement.
REPRESENTATIONS AND WARRANTIES
The Agreement contains various customary representations and warranties of
Wise relating to, among other things, (i) Wise's organization and similar
corporate matters; (ii) the capitalization of Wise; (iii) the authorization of
the Agreement by Wise, the execution, delivery and performance of the Agreement
by Wise, and the legality, validity and enforceability thereof against Wise;
(iv) the noncontravention of, and lack of conflict with, any agreement,
contract, lease or commitment affecting Wise's authority or ability to perform
its obligations, or any related agreement, license, instrument, or other
arrangement by which Wise is bound or to which any of its assets is subject, or
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, or other restriction of any governmental entity or court
applicable to Wise or its property, or Wise's articles of incorporation or by-
laws; (v) subject to certain exceptions, absence of certain material changes or
events; (vi) the financial statements of Wise and the accuracy of the
information contained therein; (vii) the absence of undisclosed litigation and
other legal proceedings; and (viii) entitlement to brokers and finders fees.
The Agreement also contains various customary representations and
warranties of Federated relating to, among other things, (i) Federated's
organization and similar corporate matters; (ii) the capitalization of
Federated; (iii) the authorization of the Agreement by Federated, the
execution, delivery and performance of the Agreement by Federated, and the
legality, validity and enforceability thereof against Federated; (iv) the
noncontravention of, and lack of conflict with, any agreement, contract, lease
or commitment affecting Federated's authority or ability to perform its
obligations, or any related agreement, license, instrument, or other
arrangement by which Federated is bound or to which any of its assets is
subject, or any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, or other restriction of any governmental entity or court
applicable to Federated or its property, or Federated's articles of
incorporation or by-laws; (v) subject to certain exceptions, absence of certain
material changes or events; (vi) the financial statements and Securities and
Exchange Commission filings of Federated and the accuracy of the information
contained therein; (vii) the absence of undisclosed litigation and other legal
proceedings; and (viii) entitlement to brokers and finders fees.
INDEMNIFICATION
Federated's representations and warranties, as described above, survive
for six months following the closing of the Agreement. During that time, Mr.
Blaustein may be eligible for indemnification should Federated breach a
warranty, or should any of Federated's representations prove inaccurate or
incorrect, provided that the breach, inaccuracy or incorrectness is
intentional. Eligibility for indemnification will be determined by a single
arbitrator, appointed by a committee of the Board of Directors. If the
arbitrator awards indemnification, Federated will issue to Mr. Blaustein
additional shares of Common Stock, valued at $.36 per share, equal to the total
amount by which all of his valid indemnity claims in the aggregate exceed
$25,000. The number of shares of Common Stock that may be issued as
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indemnification, however, is limited such that Mr. Blaustein's ownership of
Common Stock does not exceed 80% of the total Common Stock issued and
outstanding as of the Closing Date, or 4,882,644 shares.
CONDUCT OF BUSINESS OF THE PARTIES PRIOR TO THE CLOSING
Pursuant to the Agreement, Federated and Wise have agreed that, among
other things, prior to the closing each will conduct its business in the
ordinary course consistent with past practice.
STANDSTILL
Each of Mr. Blaustein and Wise have agreed that if either is privy to
material, non-public information regarding Federated, neither can trade in
Federated Common Shares or other securities of Federated. Mr. Blaustein has
further agreed that at no time prior to the closing will Mr. Blaustein or Wise
buy, sell or engage in any transaction (except the closing under the Agreement)
involving any securities issued by Federated, or induce any other person to do
any of the foregoing.
COMPETING TRANSACTIONS
From the date of the Agreement Federated and Wise have agreed not to,
directly or indirectly, (i) take any action to solicit, initiate, encourage or
otherwise facilitate any Competing Transaction, as defined below. A "Competing
Transaction" is defined as a proposal or offer relating to the acquisition of
all or substantially all of the capital stock or assets of Wise or Federated,
whether structured as a merger, consolidation, share exchange or similar
transaction. An exception applies to Federated for shareholder inquiries in
the ordinary course of business, and for Competing Transactions if Federated's
Board of Directors, after consulting with counsel, determines that such
discussions or negotiations should be commenced in the exercise of its
fiduciary responsibilities or such information should be furnished in the
exercise of its fiduciary responsibilities. Federated has the right to
terminate the Agreement should its Board of Directors determine that a
Competing Transaction is more favorable from a financial point of view to its
shareholders than the Exchange.
To date no communications regarding Competing Transactions have been
received by Federated.
CONDITIONS TO CONSUMMATION OF THE EXCHANGE
The obligations of the parties to consummate the Exchange are subject to
the satisfaction (or waiver) of the following conditions at or prior to
closing: (i) the other parties shall have performed in all material respects
their obligations under the Agreement; (ii) the representations and warranties
of the other parties contained in the Agreement shall be true and correct in
all material respects; (iii) the other parties shall have secured all consents
required for its consummation of the Exchange; (iv) no statute, rule,
regulation, executive order, decree, ruling or preliminary or permanent
injunction existing which prohibits, restrains, enjoins or restricts the
consummation of the Exchange; (v) the effectiveness of this Registration
Statement; (vi) the approval by the shareholders of Federated of the Amendment;
and (vii) the absence of certain material changes or events on the part of the
other parties.
The obligations of Federated to consummate the Exchange are subject to the
satisfaction (or waiver) of the following conditions: (i) the execution of a
consulting agreement between Federated and Harry J. Fallon ("Fallon"); (ii) the
appointment of Fallon to the position of Vice Chairman, and the appointment of
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a nominee of Fallon to the Board of Directors; (iii) the execution of
employment agreements with Jane A. Christy and certain Federated administrative
and sales personnel; and (iv) the maintenance of a New Jersey office facility.
The obligations of Mr. Blaustein to consummate the Exchange is subject to
the satisfaction (or waiver) of the following conditions: (i) the resignation
by all of Federated's current directors and officers; (ii) Federated's net
worth being at least $400,000 as of the closing date; (iii) the execution of
employment agreements with Jane A. Christy and certain Federated administrative
and sales personnel; and (iv) the delivery of an opinion by Bederson & Co.,
Federated's independent auditors, that the Exchange qualifies as a tax-free
reorganization under the U.S. Tax Code.
TERMINATION
The Agreement may be terminated (i) at any time prior to closing by mutual
consent of the parties; (ii) by Federated if Mr. Blaustein or Wise breaches or
otherwise fails to meet an obligation under the Agreement; (iii) by Mr.
Blaustein if Federated breaches or otherwise fails to meet an obligation under
the Agreement; or (iv) by Federated if Federated determines in good faith that
a Competing Transaction, as described above, is more favorable from a financial
point of view to its shareholders than the Agreement and the transactions
contemplated thereby. Upon a termination under (iv) above, Federated must pay
up to $50,000 of Mr. Blaustein's reasonable out-of-pocket expenses in
connection with the Exchange.
AMENDMENTS AND WAIVERS
The Agreement may not be amended except by an instrument in writing signed
on behalf of the parties thereto. The Agreement provides that at any time
before the closing of the Exchange, either Federated, Mr. Blaustein or Wise may
waive any inaccuracies in the representations and warranties of any other party
contained in the Agreement and waive compliance by any other party with any of
the
agreements or conditions contained in the Agreement.
EXPENSES
Except as described in "The Exchange -- Proxies" above, whether or not the
Exchange is consummated, all costs and expenses incurred in connection with the
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such expenses.
BUSINESS OF FEDERATED
PRINCIPAL PRODUCTS AND SERVICES
Federated and its wholly-owned subsidiary are engaged in one segment of
the electronics industry: the assembly and marketing of a broad range of
electronic parts, components and related equipment (including, for example,
such items as semi-conductors, wire, transformers, relay systems, capacitors
and electronic tubes) to industrial customers.
Federated conducts its business through its two locations in Cliffwood,
New Jersey, and Allentown, Pennsylvania, and through the direct solicitation of
certain industrial customers by Federated's own sales personnel.
-35-
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.
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,
-36-
larger staffs, more extensive facilities and equipment, and offer a broader
range of products than Federated. Competition is generally based upon price,
service and breadth of product lines offered. In addition, Federated believes
that the industry is moving towards a reduction in the number of distributors
which service each customer, a trend which management believes favors the
larger distributors and negatively impacts Federated. As a result of these
factors, there can be no assurances that Federated will be able to reverse its
negative operating results and return to profitability.
RESEARCH AND DEVELOPMENT
During fiscal 1996 and the interim periods of fiscal 1997, Federated did
not spend any amount on research and development activities.
ENVIRONMENTAL MATTERS
Management believes that Federated's capital expenditures, earnings and
competitive position have not been affected by compliance with Federal, State
and local laws relating to the protection of the environment.
NUMBER OF EMPLOYEES
As of October 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.
Management believes that the present facilities are adequate to meet
Federated's current and reasonably foreseeable needs.
LEGAL PROCEEDINGS
Federated is not a party to, nor is any of its property the subject of,
any material pending legal proceedings, other than ordinary routine litigation
incidental to its business.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Federated did not submit any matters to a vote of its shareholders,
through the solicitation of proxies or otherwise, during the fourth quarter of
fiscal 1996.
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<PAGE>
FEDERATED PURCHASER, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The consolidated selected financial data of and for each of the five years
in the period ended October 31, 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>
Year Ended
October 31,
_____________________________________________________________
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Net sales $3,252,670 $3,980,560 $4,118,799 $6,281,006 $6,245,276
Net loss from
continuing
operations (281,901) (414,826) (546,062) (373,849) (315,621)
Net loss per
share from
continuing
operations (.17) (.26) (.34) (.22) (.19)
Cash
dividends
paid -- -- -- -- --
Cash
dividends
paid per
share .00 .00 .00 .00 .00
Total assets 1,001,175 1,287,324 1,605,604 2,768,863 2,788,001
Working
capital 274,835 490,614 871,875 1,452,970 1,852,245
Current ratio 1.5:1 2.0:1 3.5:1 2.5:1 4.0:1
Long-term debt
8,331 18,955 29,697 44,989 69,613
Stockholders'
equity 468,006 749,907 1,164,733 1,755,240 2,129,089
Stockholders'
equity per
share $ .29 $ .47 $ .72 $ 1.03 $ 1.25
</TABLE>
(1) The data for fiscal years 1995 and 1996 reflect
the divesture 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.
-38-
<PAGE
The combined pro forma selected financial data for the period ended July
31, 1997 and the year ended October 31, 1997, have been derived from the pro
forma financial statements attached hereto. The selected financial data for
the nine months ended July 31, 1997 and the year ended October 31, 1997 are
unaudited. Results for the nine months ended July 31, 1997 and the years ended
October 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>
<S> <C>
Year Ended October 31, 1997
UNAUDITED
Net sales 15,558,676
Net income (loss) from
continuing operations 2,503
Net income (loss) per
share from continuing
operations .00
Cash dividends
paid --
Cash dividends
paid per share .00
Total assets 4,210,846
Working capital 2,157,887
Current ratio 2.32:1
Long-term debt 460,000
Stockholders' equity 2,125,292
Stockholders' equity per
share $ .34
</TABLE>
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<PAGE>
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
-40-
assurances that Federated's cash reserves will be sufficient to
satisfy Federated's capital requirements or that Federated's
inability to obtain capital from outside sources will not force
Federated to seek protection under the United States Bankruptcy
Code. 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
-41-
compared to the year ended October 31, 1996 represented a 17.4%
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 Note 14 - 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.
-42-
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.
-43-
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 divesture 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.
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.
-44-
VOTING
Holders of Common Stock are entitled to one vote per share,
and vote on all matters as a single class.
DIVIDENDS
Holders of Common Stock are entitled to receive dividends
equally on a per share basis if and when such dividends are
declared by the Board of Directors of Federated from funds legally
available therefor.
LIQUIDATION
Holders Common Stock share with each other on a ratable basis
as a single class in the net assets of Federated available for
distribution in respect of Common Stock in the event of
liquidation.
DISPARATE VOTING RIGHTS AND CONTROL BY MARTIN L. BLAUSTEIN
Upon consummation of the Exchange, Martin L. Blaustein will
control approximately 74% of Federated's common equity an equal
percentage of its voting power.
PREFERRED STOCK
Federated's Certificate of Incorporation does not authorize
any preferred stock.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer and Trust Co. serves as Federated's
transfer agent and registrar for its shares of Common Stock.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation provides that a director will
not be personally liable for monetary damages to Federated or its
shareholders for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to
Federated or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 719 of the New York Business
Corporation Law (which prohibits the payment of dividends and
approval of stock repurchases in certain circumstances), or (iv)
for any transaction from which the director derived an improper
personal benefit.
While the Certificate of Incorporation provides directors with
protection from awards for monetary damages for breaches of their
duty of care, it does not eliminate such duty. Accordingly, the
Certificate of Incorporation will have no effect on the
availability of equitable remedies, such as an injunction or
rescission based on a director's breach of such director's duty of
care. The provisions of the Certificate of Incorporation described
above apply to an officer of Federated only if such person is also
-45-
a director of Federated and is acting in his or her capacity as
director, and do not apply to officers of Federated who are also
directors, when acting in their capacity as officers.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Federated's By-Laws (the "By-Laws") provide for mandatory
indemnification to the full extent permitted by the laws of the
State of New York against and with respect to threatened, pending
or completed actions, suits or proceedings, whether civil,
criminal, administrative or investigative, arising from or alleged
to arise from, a party's actions or omissions as a director,
officer, employee or agent of Federated or of any subsidiary of
Federated or of any other corporation, partnership, joint venture,
trust or other enterprise which has served in such capacity at the
request of Federated if such acts or omissions occurred or were or
are alleged to have occurred, while such party was a director or
officer of Federated. In any situation in which indemnification is
not mandatory, Federated may, to the full extent permitted by
applicable law, indemnify all other persons whom it has the power
to indemnify. Generally, under New York law, indemnification will
only be available where an officer or director can establish that
he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of Federated.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in said Act and is therefore
unenforceable.
Federated does not maintain any director's and officer's
liability insurance, and has no current plans to purchase such
insurance in the foreseeable future.
SECTION 912 OF THE NEW YORK BUSINESS CORPORATION LAW
Subject to certain exclusions summarized below, Section 912 of
the New York Business Corporation Law ("Section 912") prohibits any
Interested Shareholder from engaging in a "business combination"
with a New York corporation for five years following the date such
person became an Interested Shareholder. Interested Shareholder
generally includes (i) any person who is the beneficial owner of
20% or more of the outstanding voting stock of the corporation and
(ii) any person who is an affiliate or associate of the corporation
and who held 20% or more of the outstanding voting stock of the
corporation at any time within five years before the date on which
such person's status as an Interested Shareholder is determined.
Subject to certain exceptions, a "business combination" includes
the following transactions between a corporation and an Interested
Shareholder: (i) any merger or consolidation involving the
corporation, (ii) the sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets having an aggregate market
value equal to 10% or more of either the aggregate market value of
all assets of the corporation determined on a consolidated basis or
the aggregate market value of all the outstanding stock of the
corporation, (iii) any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
Interested Shareholder, except pursuant to a transaction that
effects a pro rata distribution to all shareholders of the
corporation, (iv) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation, proposed by or in
agreement with the Interested Shareholder or an affiliate or
associate thereof, (v) any transaction involving the corporation
that has the effect of increasing the proportionate share of the
stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned
directly or indirectly by the Interested Shareholder, and (vi) any
receipt by the Interested Shareholder of the benefit (except
-46-
proportionately as a shareholder) of any loans, advances,
guarantees, pledges or other financial benefits provided by or
through the corporation.
Section 912 does not apply to a business combination if (i)
before a person became an Interested Shareholder, the board of
directors of the corporation approved the transaction in which the
Interested Shareholder became an Interested Shareholder, or the
business combination, (ii) no sooner than five years after the
Interested Shareholder acquires the shares, the business
combination is authorized by a majority of the outstanding voting
stock not beneficially owned by such Interested Shareholder, or any
affiliate or associate thereof, (iii) the transaction meets certain
requirements regarding the price and form of consideration to be
paid for outstanding shares, and the Interested Shareholder has,
since becoming an Interested Shareholder, received shares only on a
proportionate basis with the remaining shareholders.
Section 912 permits corporations to avoid application of its
provisions by amending its bylaws, with shareholder approval.
Federated has not adopted any such amendment.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Only shareholders of record at the close of business on
1997 will be entitled to notice of and to vote at the Special
Meeting and any adjournment(s) thereof. As of such date, there
were 1,611,317 shares of Federated's Common Stock, par value $0.10
per share (the "Common Stock"), outstanding.
The following table indicates the effect of the Exchange on
the holdings of the individuals known by Federated to own
beneficially more than 5% of Federated's Common Stock as of
, 1997. Subsequent to the Exchange, Martin L. Blaustein will own
4,491,988 shares of Common Stock, or approximately 73.6% of the
class outstanding.
<TABLE>
<CAPTION>
PERCENT OF CLASS
<S> <C> <C> <C>
Name and Address of AMOUNT AND NATURE OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP(2) Before Exchange After Exchange
Harry J. Fallon 304,285 18.9% 4.9%
123 Milligan Place
South Orange, NJ 07079
Peter Manganiello 220,496 13.7% 3.6%
21 Heath Drive
Bridgewater, NJ 08807
Edward A. Cantor 130,155 8.1% 2.1%
1203 West St. George Ave.
Linden, NJ 07036
Martin L. Blaustein 4,491,988 0.0% 73.6%
26 Henry Street
Greenwich, CT 06830
</TABLE>
______________________
-47-
<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 one
additional person from the current Board of Directors. 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. Wise will also name an additional
director, but has yet to finalize its decision
<TABLE>
<CAPTION>
PERCENT OF CLASS(1)
<S> <C> <C> <C>
Name of AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP Before Exchange After Exchange
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 (4
PERSONS) 321,922 18.9% 5.3%
</TABLE>
_________________________
(1) Calculated assuming issuance only of the 4,491,988 shares to
be issued in the Exchange, and not any additional shares which
may be issued upon the occurrence of certain events subsequent
to the Exchange. See "The Agreement and Amendment --
Indemnification."
<asterisk> Less than one percent of outstanding Common Stock.
THE BOARD OF DIRECTORS
-48-
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 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. From
1969 until his retirement in 1986, he was the founder and President
of Shortess-Rawson Associates, a distributor of primarily
electronic instrumentation and educational systems in the sciences
and electronics.
Ms. Christy became a director of Federated in 1989. She is
currently Vice President of Operations of Federated and has been
employed by Federated in various executive positions and offices
for more than five years.
None of the corporations or organizations with which Messrs.
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.
-49-
The Audit Committee has the authority to make recommendations
to the Board of Directors concerning the selection of Federated's
independent auditors and to review with the independent auditors
the scope and results of the annual audit. The incumbent members
of this Committee are Messrs. Hoener and Fallon. During the last
fiscal year, the Audit Committee held one meeting. As a member of
this Committee, Mr. Hoener receives $200 for each meeting he
attends. Mr. Fallon receives no remuneration for his activities as
a Committee member.
The Executive Committee has general authority over the
supervision and direction of the finances and business of Federated
and has the power and authority of the Board in the management of
the business and affairs of Federated between meetings of the
Board. The incumbent members of this Committee are Messrs.
Shortess and Fallon. No meetings were held during the last fiscal
year.
Federated's Board of Directors has no standing nominating or
compensation committees. The functions of the compensation
committee were performed by the Board of Directors as a whole
during the fiscal year ended October 31, 1996. The Board of
Directors has assigned the responsibilities generally performed by
the compensation committee to the Executive Committee for the
fiscal year ending October 31, 1997.
EXECUTIVE OFFICERS
The executive officers of Federated are set forth in the table
below. All executive officers are chosen at the annual meeting or
interim meetings of the Board of Directors and serve at the
pleasure of the Board of Directors. It is anticipated that
following the consummation of the Exchange, the three persons named
below will continue in their current positions, and at least two
additional persons will be named Executive Officers of Federated.
<TABLE>
<CAPTION>
NAME AGE POSITION PERIOD SERVED
<S> <C> <C> <C>
Harry J. Fallon 70 President Since 1974
Jane A. Christy 61 Vice President/Operations Since 1976
Marie Santasiri 69 Secretary Since 1986
</TABLE>
All of the executive officers listed in the preceding table
have been employed by Federated in various executive positions and
offices for more than five years.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Summary Compensation Table set forth below shows the
compensation of the Chief Executive Officer of Federated for the
past three fiscal years. The Chief Executive Officer is the only
executive officer whose total annual salary and bonus exceeds
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C>
NAME AND PRINCIPAL POSITION YEAR SALARY
Harry J. Fallon, 1996 $125,000
President and 1995 $125,000
Chief Executive 1994 $125,000
Officer
</TABLE>
Directors are not compensated for service as directors. Mr.
Fallon received no other compensation other than the salary listed
above.
-50-
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' durations with Ms. Jane A. Christy, Vice
President--Operations, at cash compensation of $62,500, with a
$15,000 bonus to be paid on the first anniversary thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Fallon and Ms. Christy each served as a member of the
Board of Directors, which acted in the place of a compensation
committee during the fiscal year ended October 31, 1996. Mr.
Fallon and Ms. Christy are also executive officers of Federated.
During the fiscal year ended October 31, 1996, Mr. Fallon and
Ms. Christy participated in deliberations concerning executive
officer compensation in their capacities as members of the Board of
Directors.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
Federated does not have a standing compensation committee.
Decisions regarding compensation of Federated's executive officers
generally are made by the Board of Directors as a whole. Pursuant
to recently adopted rules designed to enhance disclosure of
companies' policies regarding executive compensation, set forth
below is a report submitted by Messrs. Fallon, Hoener, Shortess,
and Ms. Christy, as members of Federated's Board of Directors,
addressing Federated's compensation policies for 1995 as they
affected Mr. Fallon, in his capacity as Chief Executive Officer of
Federated, and other executive officers.
Mr. Fallon is the only officer of Federated whose total
compensation exceeded $100,000 during the fiscal year ended October
31, 1996.
Mr. Fallon's current employment arrangement was negotiated by
Federated on an arm's length basis and was designed to be
competitive with compensation packages offered to other chief
executive officers of similarly situated companies in the industry.
During the fiscal year ending October 31, 1997, the Executive
Committee of the Board of Directors will perform the functions of
the compensation committee.
The foregoing report has been furnished by Messrs. Fallon,
Hoener, Shortess, and Ms. Christy.
-51-
<PAGE>
PERFORMANCE GRAPH
The following line graph compares cumulative total shareholder
return on Federated's Common Stock since October 31, 1992, based on
the market price and assuming reinvestment of dividends, with the
cumulative total return of companies on Standard & Poor's Composite
500 Index and a peer group index comprised of electronic parts
distributors.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FEDERATED PURCHASER, INC., S&P 500 COMPOSITE INDEX AND
PEER GROUP INDEX OF ELECTRONIC PARTS DISTRIBUTORS
[graph illustrates relative performance
of Company shares]
Assumes $100 invested on October 31, 1991, at the prior day's
closing market price in Federated's Common Stock, the S&P 500
Composite Index and a Peer Group Index comprised of Electronic
Parts Distributors.
-52-
<TABLE>
<CAPTION>
INDEXED RETURNS [10/31/91 = 100
COMPANY/INDEX BASE YEAR 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
FEDERATED PURCHASER INC. 100.00 61.18 85.42 50.05 28.57 38.85
S&P 500 COMP-LTD 100.00 109.95 176.59 131.27 165.98 205.97
PEER GROUP (1) 100.00 140.67 168.76 167.15 215.54 197.41
</TABLE>
_______________________
(1) The Peer Group Index is comprised of the following:
Peer Group
All American Semiconductor Nu Horizons Electrs Corp.
Arrow Electronics Inc. Pioneer Standard Electronics
Avnet Inc. Premier Industrial CP.
Bell Industries Inc. Richardson Elec Ltd.
Electrocon Intl Inc. Southern Electronics Corp.
Jaco Electronics Inc. Sterling Electronics
Kent Electronics Corp. Western Micro Technology Inc.
Marshall Industries Wyle Laboratories
Milgray Electronics Inc. Zing Technologies, Inc.
Although the foregoing companies are all distributors of
electronic parts and may be considered to be in the same
industry as Federated, each has significantly greater revenues
and assets. Federated is unable to construct a peer group
index comprised of companies in the industry with similar
financial characteristics because such companies are privately
held.
Because Federated was delisted by NASDAQ in July, 1992, data
from that time through October 31, are as reported by the National
Quotation Bureau, Inc. and are based upon the average of high and
low bid prices.
BUSINESS OF WISE
GENERAL
Wise Components, Inc. ("Wise"), founded 22 years ago,
distributes electronic components and wire and cable for voice and
data networks. Its products range from capacitors to fiber optics
to power modification and protection supplies. Founded as a local
distributor, it has since expanded to include regional, national,
and international clientele, with sales offices in Greenwich,
Connecticut.
Wise maintains sizeable inventories of voice and data products
for LAN (local area network) and WAN (wide area network)
installations. Supporting these product lines, Wise provides fiber
and copper cable, connectors, patch panels and workstation
information outlets, as well as numerous related items for all
wiring topologies.
-53-
SOURCES AND AVAILABILITY OF RAW MATERIALS
Wise obtains the products it markets and distributes either
through distributorship agreements or through secondary commercial
sources on the open market. In general, Wise has had no
difficulties in obtaining such products; however, in 1995, Wise
withdrew from The Genie Group, a cooperative supplier of electronic
components. See "Legal Proceedings" below. Wise has been able to
obtain by other means most of the products it previously purchased
through Genie, but on occasion at higher cost. As a result of the
Exchange, there can be no assurances that Wise will not be
terminated by any of its other suppliers or that any such
termination will not have a material adverse impact on the results
of operations of the combined entity. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
PATENTS, TRADEMARKS AND LICENSES
Wise does not hold any patents, trademarks, licenses,
franchises or concessions with respect to its continuing
operations.
SEASONAL BUSINESS
Wise's business is generally not affected by seasonal factors.
WORKING CAPITAL ITEMS
Management believes that Wise's inventory practices and other
practices which impact working capital are similar to those
employed by other similarly sized distributors doing business in
this segment of the electronics industry. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
MATERIAL CUSTOMERS
During fiscal 1996, net sales by Wise to its largest customer
comprised approximately 13% of Wise's consolidated net sales, and
15% of its total accounts receivable balance. Given the
competitiveness of the market for smaller electronics distributors,
there can be no assurances that the loss of this or any other
customer would not have a material adverse effect on Wise.
Most of Wise's sales are made to industrial customers within
the continental United States. International sales amount to less
than 10% of Wise's total sales.
GOVERNMENT CONTRACTS
No portion of Wise's business is subject to renegotiation of
profits or to termination of contracts or subcontracts at the
election of the Government.
COMPETITIVE CONDITIONS
Like Federated, Wise faces intense competition from numerous
companies assembling and marketing products similar to its own.
Although Wise has substantially greater resources than Federated,
many of Wise's competitors are nevertheless substantially larger
than Wise, with more capital resources, larger staffs, more
extensive facilities and equipment, and a broader range of
products. Competition is generally based upon price, service and
breadth of product lines offered. Wise agrees with Federated that
-54-
the industry is moving towards a reduction in the number of
distributors which service each customer, a trend which management
believes favors the larger distributors and negatively impacts
Wise. As a result of these factors, there can be no assurances
that either Wise or the combined entity will be able to maintain
profitability.
RESEARCH AND DEVELOPMENT
During fiscal 1996 and the interim periods of 1997, Wise did
not spend any amount on research and development activities.
ENVIRONMENTAL MATTERS
Management believes that Wise's capital expenditures, earnings
and competitive position have not been affected by compliance with
Federal, State and local laws relating to the protection of the
environment.
NUMBER OF EMPLOYEES
As of October 1, 1997 Wise had approximately 25 employees, 4
of whom were engaged in administration, 11 in clerical and shipping
positions, and 10 in sales. Wise is not a party to any collective
bargaining agreement and considers its employee relations to be
satisfactory.
PROPERTY
Wise currently operates its principal administrative, sales
and warehousing functions in two facilities: a 7,500-square-foot
warehouse/administrative location in Greenwich, Connecticut, and a
3,000-square-foot warehouse in Port Chester, New York. The leases
for both of these locations are currently on a month-to-month
basis, for a total rent of approximately $8,200 per month. Wise is
planning to move in January of 1998 to a single, consolidated
15,000-square-foot facility in Stamford, Connecticut. Under the
lease for the Stamford facility, total rent will be approximately
$10,000 per month.
LEGAL PROCEEDINGS.
Wise is a party to a dispute with The Genie Group, Inc.
("Genie"), concerning certain items for which Wise alleges it was
improperly billed by Genie, and certain monies Genie alleges are
owed by Wise. No civil action has commenced, and the maximum
potential liability of Wise is for $23,786. 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.
-55-
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.
-56-
<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
Nine Months Ended Year Ended
SEPTEMBER 30, DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
Net sales $9,127,852 $11,685,322 $14,863,476 $15,885,147 $11,971,540 $11,046,324 $9,170,020
Net income
from con-
tinuing
operations 119,100 425,318 470,906 498,546 243,723 136,713 24,583
Net income per
share from
continuing
operations 1,361 2,430 2,690 2,849 1,393 781 141
Cash
dividends
paid -- -- -- 26,000 26,000 26,000 26,000
Cash
dividends
paid per share
-- -- -- 149 149 149 149
Total assets 3,209,671 3,499,602 3,302,505 3,583,483 2,913,901 2,831,143 2,452,351
Working
capital 1,907,427 1,995,707 2,093,487 1,577,928 1,099,190 954,399 874,038
Current ratio 2.7:1 2.7:1 3.2:1 2.0:1 1.8:1 1.7:1 1.7:1
Long-term debt 586,189 14,050 11,987 193,572 266,822 322,014 209,515
Stockholders'
equity 1,657,286 2,292,599 2,338,186 1,867,290 1,394,734 1,177,011 991,298
Stockholders'
equity per
share 18,940 13,100 13,361 10,670 7,970 6,726 5,665
</TABLE>
-57-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR WISE
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
RESULTS OF OPERATIONS
Wise recognized net income of $470,906 for the year ended December 31,
1996 on net sales of $14,863,476 as compared to net income of $498,546 for the
year ended December 31, 1995 on net sales of $15,885,147 and net income of
$243,723 for the year ended December 31, 1994 on net sales of $11,971,540.
Net sales were $14,863,476 for the year ended December 31, 1996 as
compared to $15,885,147 for the year ended December 31, 1995, or a decrease of
$1,021,671 or 6.5% over the prior year. The decrease in net sales for the 1996
year when compared to the 1995 year was the result of increased competition in
the electronic components industry and decreased average unit selling prices.
Net sales increased $3,913,607 for the 1995 year over the 1994 year or an
increase of 32.7% when net sales for the 1994 year were $11,971,540. The 32.7%
increase in net sales was the result of increased sales in the voice data line
of business and increased average unit selling prices.
Cost of sales as a percentage of sales was 73.20%, 73.79% and 72.81% for
the years ended 1996, 1995, 1994, respectively. The relative stability of
Wise's cost of sales is due to management's continued efforts to monitor
purchasing costs and trends within the industry and the result of increased
competition within the industry.
Selling and shipping expenses were $1,267,023 for the year ended December
31, 1996 compared to $1,259,805 for the year ended December 31, 1995 or an
increase of $7,218 over the prior year. Selling and shipping expenses were
$1,096,478 for the year ended December 31, 1994 as compared to $1,259,805 for
the 1995 year. The increase of $163,327 for the 1995 year over the 1994 year
represents an increase of 14.9% over the prior year and is the result of
increases primarily in sales salaries.
General and administrative expenses were $1,722,332 for the 1996 year
compared to $1,659,054 for the 1995 year an increase of $63,278 or 3.9% over
the prior year. The increase for the 1996 year over the 1995 year was
primarily the result of an increase in professional fees. General and
administrative expenses increased $118,678 or 7.7% from $1,540,376 in 1994 to
$1,659,054 in 1995. The increase was the result of increases in salaries of
5%, consulting fees of 119% and telephone expenses of 17%.
Interest expense was $14,384, $64,376 and $74,103 for the years ended
1996, 1995 and 1994, respectively. Interest expense decreased $49,992 from
1995 to 1996 primarily due to Wise repaying $475,000 of its line-of-credit and
repaying $181,585 of its long-tem debt.
During fiscal year 1996, Wise recognized a loss on the sale of securities
of $51,857. This loss resulted from Wise's resignation of its membership in
The Genie Group, Inc. ("Genie"), a member-owned purchasing cooperative, as the
result of its dispute with Genie discussed at "Business of Wise -- Legal
Proceedings" above. Wise had been a shareholder of Genie, and Genie charged
Wise for accumulated losses against Wise's stock investment account. Wise had
treated its investment in Genie at cost and reported a capital loss on the
difference between its investment and the assessed accumulated losses of Genie.
During the year 1995, Wise recognized a goodwill impairment charge of
$182,478, related to the 1993 acquisition of Ancar Electronic Supply, Inc.
Management has asserted that since Ancar Electronic Supply, Inc. was purchased
by Wise Components, Inc. and dissolved, all employees were transferred to Wise,
all accounts receivables were either allocated or written-off, all outstanding
payables and accruals were paid, all inventory was assigned to Wise with
obsolete inventory written-off, and all agreements with vendors and customers
were assigned to Wise, there is no remaining value associated with the original
purchase of Ancar Electronic Supply, Inc. Accordingly, Wise has recorded a
loss on impairment for the goodwill remaining.
-58-
LIQUIDITY AND CAPITAL RESOURCES
Wise's financial position continues to be solid. Cash provided from
operating activities in the primary source of liquidity and amounted to
$808,079 in 1996, $303,139 in 1995 and $206,331 in 1994 which has enabled Wise
to finance its growth and existing operations.
Wise has a banking relationship to finance fluctuations in working
capital and it provide long-term financing as necessary to meet growth
requirements. Internally generated funds have primarily been used to finance
capital expenditures, provide working capital and pay dividends.
During the year 1996, cash increased by $151,483 as compared to an
increase of $68,126 for the year 1995 and an increase of $25,435 for the year
1994. Cash provided by operating activities was $808,079 for the year 1996
primarily from the net income for the year of $470,906 and a decrease in
accounts receivable of $301,116. Cash provided by operating activities was
$303,139 for the year 1995 primarily from the net income for the year of
$498,546, an increase of $295,286 in accounts payable and accrued expenses,
partially offset by an increase of $488,691 in accounts receivable. Cash
provided by operating activities was $206,331 for the year 1994, primarily from
the net income of $243,723 for the year 1994. Wise used cash in investing
activities of $11 in 1996, $136,763 in 1995 and $60,704 in 1994. Cash was used
primarily in 1995 to purchase equipment for $94,188 and $26,000 to pay
dividends. Cash was used primarily in 1994 to purchase equipment for $17,384
and $26,000 to pay dividends. During the year 1996, Wise used cash of $475,000
to retire short-term borrowings and cash of $181,585 as payments on long-term
debt. During the year 1995, Wise used cash of $73,250 to pay long-term debt
and $25,000 to pay short-term borrowings. During the year 1994, Wise used cash
of $120,192 to pay long-term debt and short-term borrowings.
Working capital has increased from $1,099,190 at the end of year 1994 to
$1,577,928 at the end of year 1995 to $2,093,487 at the end of year 1996. The
increase of working capital from 1995 to 1996 is the result of decreases in
bank financing, decrease in accounts payable, partially offset by higher
accounts receivable levels.
-59-
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
OPERATING RESULTS
The Company recognized net income of $119,100 for the nine months ended
September 30, 1997 on net sales of $9,127,852 as compared to net income of
$425,318 for the nine months ended September 30, 1996 on net sales of
$11,685,322. Net income for the three months ended September 30, 1997 was
$23,999 compared to net income of $146,880 for the three months ended September
30, 1996.
Net sales were $9,127,852 for the nine months ended September 30, 1997 as
compared to $11,685,322 for the nine months ended September 30, 1996, a
decrease of $2,557,470 or 21.8% over the prior year. Net sales were $2,915,472
for the three months ended September 30, 1997 as compared to $3,654,721 for the
three months ended September 30, 1996, a decrease of $739,249 or 20.2% over the
prior year. The decrease in net sales for the current nine months and three
months ended September 30, 1997 is the result of the departure of key sales
personnel and decreased average unit selling prices.
Cost of sales was $6,732,397 for the nine months ended September 30, 1997
compared to $8,648,251 for the nine months ended September 30, 1996 or a
decrease of $1,915,854 over the prior year. Cost of sales for the three months
ended September 30, 1997 was $2,149,398 compared to $2,659,382 for the three
months ended September 30, 1996 or a decrease of $509,984 over the prior year.
The decrease in cost of sales for the nine months and three months ended
September 30, 1997 in the result of lower sales levels.
Selling and shipping expenses were $795,323 for the nine months ended
September 30, 1997 as compared to $957,394 for the nine months ended September
30, 1996, a decrease of $162,071 or 16.9% over the prior year. The decrease is
a result of a reduction in sales salaries and advertising. For the three
months ended September 30, 1997, selling and shipping expenses were $258,305,
compared to $315,388 for the three months ended September 30, 1996, a decrease
of $57,083 or 18.0% over the prior year. The decrease for the three months
ended September 30, 1997 when compared to the three months ended September 30,
1996 was the result of a reduction in sales salaries and advertising expenses.
General and administrative expenses were $1,324,280 for the nine months
ended September 30, 1997 compared to $1,263,371 for the nine months ended
September 30, 1996, representing an increase of $60,909 or 4.8% over the prior
year. The increase is the result of an increase in executive salaries, and
office expenses, as partially offset by a reduction in insurance expenses. For
the three months ended September 30, 1997, general and administrative expenses
were $421,693, compared to $408,506 for the three months ended September 30,
1996, and an increase of $13,187 or 3.2% over the prior year.
Interest expense was $20,097 for the nine months ended September 30,
1997, as compared to $13,032 for the nine months ended September 30, 1996, an
increase of $7,065 or 54.2% over the prior year. Interest expense was $14,639
for the three months ended September 30, 1997, as compared to $2,348 for the
three months ended September 30, 1996, an increase of $12,291 or 523% over the
prior year. The increase is due to higher debt levels of financing in
comparison to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash was $52,789 at September 30, 1997 compared to $349,394 at September
30, 1996, an decrease of $296,605 over the prior comparable period. Cash
decreased by $228,253 for the nine months ended September 30, 1997. The
decrease of $228,253 is principally attributable to the net income of $119,100
for the nine months ended September 30, 1997, an increase of $125,397 in
accounts receivable, an increase of $89,706 in inventories, a decrease of
$47,662 in other current assets, an increase of $255,576 in accounts payable, a
decrease of $241,712 in accrued expenses and deposit payable, proceeds from
long-term borrowings of $600,000 and purchase of treasury stock for $800,000.
The purchase of treasury stock of $800,000 occurred on June 12, 1997, when 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 treasury stock with the proceeds of long-term borrowings of $600,000.
-60-
Cash decreased by $219,835 for the nine months ended September 30, 1996.
The increase of $219,835 is principally attributable to the net income of
$425,318 for the nine months ended September 30, 1996, a decrease of $63,822 in
accounts receivable, a decrease of $121,998 in inventories, a decrease of
$94,557 in other current assets, a decrease of $200,763 in accounts payable and
accrued expenses, an increase of $346,086 in deposits payable, payments of
$542,248 on short-term debt and payments on long-term debt of $112,274.
The Company currently has an available line-of-credit of $400,000 which
was negotiated on June 12, 1997. As of September 30, 1997, $-0- was
outstanding against the line-of-credit.
The ratio of current assets was 2.75:1 at September 30, 1997 as compared
to 2.66:1 at September 30, 1996. Working capital decreased from $1,995,707 at
September 30, 1996 to $1,907,427 at September 30, 1997, an decrease of $88,280.
CAPITAL STOCK OF WISE
The capital stock of Wise consists solely of one class of common stock
(the "Wise Stock"). There are 175 currently issued and outstanding shares of
Wise Stock, of which 87.5 are treasury shares. There is no market for Wise's
common stock. No dividends were paid during the interim period ended June 30,
1997, or during the fiscal year ended December 31, 1996. Dividends totalling
$26,000 were paid during the fiscal year ended December 31, 1995.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS; SECURITY OWNERSHIP OF
MANAGEMENT
The following table sets forth the number of shares of Wise common stock
beneficially owned by the following person, who is known by Wise to be the
sole holder of its common stock. Mr. Blaustein is President and Chairman of
the Board of Wise.
Number of Shares Percentage
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
Martin L. Blaustein 87.5 100%
28 Henry Street
Greenwich, CT 06830
-61-
<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 20, 1998 3/8 3/8 9/32 9/32
</TABLE>
At January 20, 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.
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.
-62-
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma, condensed, combining balance sheet as of
October 31, 1997 and the unaudited, Pro Forma condensed, combining statements
of income for various periods, give retroactive effect to the acquisition of
Wise Components, Inc. in a stock for stock transaction accounted for as a
purchase. The acquisition of Wise Components, Inc. requires that Federated
amend its charter to authorize the issuance of 10,000,000 shares of common
stock. The Company will issue 4,491,988 shares to the stockholders of Wise for
all of the common stock of Wise. The result of this transaction is
antidilutive to the existing shareholders of the Company. 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 on such dates, 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.
-63-
<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING BALANCE SHEET
OCTOBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
Federated Wise
Purchaser, Inc. Components, Inc. Pro Forma Pro Forma
OCTOBER 31, 1997 SEPTEMBER 30, 1997 ADJUSTMENTS BALANCE SHEET
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS:
Cash $ 69,358 $ 52,789 $ 122,147
Accounts receivable 384,059 1,708,348 2,092,407
Inventories 228,583 1,172,359 1,400,942
Other current assets 101,629 66,316 167,945
TOTAL CURRENT ASSETS 783,629 2,999,812 3,783,441
Property and equipment 20,600 114,784 135,384
(2) $(1,122,997)
Other assets 196,946 95,075 (1) 1,122,997 292,021
TOTAL ASSETS $1,001,175 $3,209,671 $4,210,846
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current portion of long-term
debt $ 8,331 $ 126,189 $ 134,520
Accounts payable and accrued
expense 524,838 966,196 1,491,034
TOTAL CURRENT LIABILITIES 533,169 1,092,385 1,625,554
Long-term debt - 460,000 460,000
TOTAL LIABILITIES 533,169 1,552,385 2,085,554
Common stock 171,976 87,500 (1) 449,199 621,175
(2) (87,500)
Additional paid-in capital 1,692,342 367,750 (1) 166,539 2,900,429
(2) 673,798
Retained earnings (deficit) (1,335,234) 2,002,036 (2) (2,002,036) (1,335,234)
Treasury stock (61,078) (800,000) (2) 800,000 (61,078)
TOTAL STOCKHOLDERS'
EQUITY 468,006 1,657,286 2,125,292
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,001,175 $3,209,671 $4,210,846
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<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA ADJUSTMENTS
OCTOBER 31, 1997
DEBITS CREDIT
(1) Investments in subsidiary $1,122,997
Common stock $ 449,199
Additional paid-in capital 673,798
To record the issuance of 4,491,988 shares of
common stock in exchange for the common stock
of Wise Components, Inc.
(2) Common stock 87,500
Retained earnings 2,002,036
Additional paid-in capital 166,539
Investment in subsidiary 1,122,997
Treasury stock 800,000
To eliminate the equity of Wise Components, Inc.
upon consolidation.
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<PAGE>
FEDERATED PURCHASER, INC.
PRO FORMA, CONDENSED, COMBINING STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1997
HISTORICAL
Wise
Federated Components, Inc.
Purchaser, Inc. Twelve Months
Year Ended Ended Pro Forma
October 31, September 30, Pro Forma Income
1997 1997 ADJUSTMENTS STATEMENT
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales, net $ 3,252,670 $12,306,006 $15,558,676
COSTS AND EXPENSES:
Cost of sales 2,493,482 8,963,305 11,456,787
Selling and shipping 389,627 1,104,952 1,494,579
General and administrative 371,754 1,821,663 2,493,417
Interest expense 2,850 21,449 24,299
Depreciation and amortization 11,427 41,974 53,401
Interest income (11,054) (4,782) (15,836)
Other income (24,615) (40,951) 16,336
TOTAL COSTS AND EXPENSES 3,533,471 11,989,512 15,522,983
INCOME (LOSS) BEFORE PROVISION
OR TAXES (280,801) 316,494 35,693
PROVISION FOR INCOME TAXES 1,100 151,806 $(119,716)
33,190
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ (281,901) $ 164,688 $(119,716) $ 2,503
NET INCOME (LOSS) PER SHARE$ (.17) $ 1,882.14 $ (.00)
CASH DIVIDENDS PER SHARE $ - $ - $ -
</TABLE>
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<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of Federated as of
October 31, 1997 (ii) such capitalization "as adjusted" to reflect the issuance
of 4,491,988 shares of common stock to complete the stock for stock acquisition
of Wise Components, Inc. This table should be read in conjunction with
Federated's financial statements and Pro Forma financial statements included
elsewhere in this document.
OCTOBER 31, 1997
ACTUAL AS ADJUSTED
Long-term debt, less current maturities $ 8,331 $ 594,520
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 2,900,429
Accumulated deficit (1,335,234) (1,335,234)
Treasury stock (61,078) (61,078)
Total stockholders' equity 468,006 2,125,292
Total capitalization $ 486,006 $2,125,292
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.
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<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 explanatory paragraphs regarding (a) the change
in Federated's method of accounting for income taxes and (b) Federated's
ability to continue as a going concern) by Bederson & Co., independent
accountants. The financial statements and financial statements schedules of
Wise as of December 31, 1996, 1995 and 1994 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
February , 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)
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(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.................................FA-1
Independent Auditor's Report................................FA-3
Consolidated Balance Sheets as of October 31, 1997, 1996
and 1995....................................................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
Schedule .................................................FA-16
WISE
YEAR ENDED DECEMBER 31, 1996 AND 1995.........................FB
Independent Auditor's Report................................FB-1
Balance Sheets as of December 31, 1996 and 1995.............FB-2
Statements of Income for the years ended December 31, 1996
and 1995....................................................FB-3
Statements of Retained Earnings for the years ended December 31,
1996 and 1995...............................................FB-4
Statements of Cash Flows for the years ended December 31,
1996 and 1995...............................................FB-5
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Notes to Financial Statements...............................FB-6
Supplementary Information..................................FB-12
YEAR ENDED DECEMBER 31, 1995 AND 1994.........................FC
Independent Auditor's Report................................FC-1
Balance Sheets as of December 31, 1995 and 1994.............FC-2
Statements of Income for the years ended December 31, 1995
and 1994....................................................FC-3
Statements of Retained Earnings for the years ended December
31, 1995 and 1994...........................................FC-4
Statements of Cash Flows for the years ended December 31,
1995 and 1994...............................................FC-5
Notes to Financial Statements...............................FC-6
NINE MONTHS ENDED SEPTEMBER 30, 1997
Unaudited Balance Sheets as of September 30, 1997 and 1996..FD-1
Unaudited Statements of Income for the nine months ended
September 30, 1997 and 1996.................................FD-2
Unaudited Statements of Retained Earnings for the nine months
ended
September 30, 1997 and 1996.................................FD-3
Unaudited Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996.................................FD-4
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<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.
<PAGE>
(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
-2-
<PAGE>
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
-3-
<PAGE>
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
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<PAGE>
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
-5-
<PAGE>
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
-6-
<PAGE>
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
-7-
<PAGE>
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
-8-
<PAGE>
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
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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.
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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).
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(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.
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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.
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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.
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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.
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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:
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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.
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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.
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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
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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,
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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.
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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
-22-
<PAGE>
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.
-23-
<PAGE>
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
-24-
<PAGE>
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
-25-
<PAGE>
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.
-26-
<PAGE>
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
-27-
<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
-2-
<PAGE>
<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>
<<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
Common Stock
<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)
$ - $ - $ -
</TOTAL>
(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 when title passes and 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 on the weighted average
number of shares outstanding during the year: 1,611,317 in 1997 and
1996 and 1,614,726 in 1995.
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>
<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 acquire Wise Components, Inc. for an exchange of
stock which will be accounted for as a purchase. The purchase of Wise
Components, Inc. has not been consummated as of October 31, 1997.
The terms of the agreement call for Federated Purchaser, Inc. to
exchange 4,491,988 newly issued shares of its common stock for all of
the outstanding capital stock of Wise Components, Inc.
FA-13
<PAGE>
FEDERATED PURCHASER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
NOTE 14 - PROPOSED ACQUISITION (CONTINUED)
The following unaudited proforma information for the years ended
October 31, 1997, 1996 and 1995 give retroactive effect of the proposed
acquisition of Wise Components, Inc., which will be accounted for as a
purchase when consummated. The unaudited proforma information gives
retroactive effect to the foregoing transaction as if it had occurred
at the beginning of each year presented. Such information does not
purport to represent what the Company=s results of operations would
actually have been if the foregoing transactions had actually been
consummated on such dates or project the Company=s results of
operations for any future period or date.
YEARS ENDED OCTOBER 31,
1997 1996 1995
(Unaudited Proforma Information)
Revenues, rounded $15,559,000 $19,417,000 $19,296,000
Net income, rounded $ 3,000 $ 189,000 $ 100,000
Income (loss) per share $ .00 $ .03 $ .02
Cash dividends per share $ - $ - $ -
Weighted average number
of shares outstanding 6,103,305 6,103,305 6,106,714
FA-14
<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-15
<PAGE>
SCHEDULE VIII
FEDERATED PURCHASER, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
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
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
FA-16
<PAGE>
WISE COMPONENTS, INC.
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
DECEMBER 31, 1996 AND 1995
FB
<PAGE>
WISE COMPONENTS, INC.
DECEMBER 31, 1996 AND 1995
CONTENTS
PAGE
Independent Auditors' Report FB-1
Financial Statements:
Balance Sheets FB-2
Statements of Income FB-3
Statements of Retained Earnings FB-4
Statements of Cash Flows FB-5
Notes to Financial Statements FB-6 - FB-11
Supplementary Information:
Independent Auditors' Report on Supplementary Information FB-13
Schedules of Cost of Sales FB-14
Schedules of Selling and Shipping Expenses and
General and Administrative Expenses FB-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Directors of
Wise Components, Inc.
Greenwich, Connecticut
We have audited the accompanying balance sheets of Wise Components, Inc. as of
December 31, 1996 and 1995, and the related statements of income, retained
earnings and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wise Components, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
BEDERSON & COMPANY LLP
West Orange, New Jersey
February 24, 1997
FB-1
<PAGE>
WISE COMPONENTS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS:
Cash $ 281,042 $ 129,559
Accounts receivable, less allowance for doubtful
accounts of $30,000 for 1996 and $20,145 for 1995 1,582,952 1,884,068
Inventories 1,082,653 1,092,375
Prepaid expenses and taxes 58,786 70,057
Deferred income taxes 48,638 52,721
TOTAL CURRENT ASSETS 3,054,071 3,228,780
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 154,156 190,602
OTHER ASSETS:
Cash surrender value, officers' life insurance, net of
loans thereon of $30,836 for 1996 and $50,238 for 1995 49,667 82,952
Investments in co-op buying group - 57,300
Other investments - 1,773
Deposits 16,420 16,420
Deferred income taxes 28,191 5,656
TOTAL OTHER ASSETS 94,278 164,101
TOTAL ASSETS $3,302,505 $3,583,483
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank $ - $ 475,000
Current portion of long-term debt 8,252 75,500
Accounts payable 505,598 801,954
Accrued expenses and taxes 243,764 245,677
Deposit payable 202,970 -
TOTAL CURRENT LIABILITIES 960,584 1,598,131
LONG-TERM DEBT 3,735 118,072
TOTAL LIABILITIES 964,319 1,716,203
STOCKHOLDERS' EQUITY:
Common stock, no par value, 200 shares
authorized, 175 shares issued and outstanding 87,500 87,500
Paid-in capital 367,750 367,750
Retained earnings 1,882,936 1,412,030
TOTAL STOCKHOLDERS' EQUITY 2,338,186 1,867,280
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,302,505 $3,583,483
The accompanying notes are an integral part
of these financial statements.
FB-2
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
SALES $14,863,476 100.00% $15,885,147 100.00%
COST OF SALES 10,879,159 73.20 11,722,182 73.79
GROSS PROFIT 3,984,317 26.80 4,162,965 26.21
OPERATING EXPENSES (INCOME):
Selling and shipping 1,267,023 8.52 1,259,805 7.93
General and administrative 1,722,332 11.58 1,659,054 10.44
Depreciation and amortization 45,730 .30 58,356 .37
Bad debts 16,740 .11 8,780 .05
Interest expense 14,384 .08 64,376 .40
Profit-sharing 30,000 .20 80,000 .51
Miscellaneous income (2,505) (.01) - -
Interest income (5,382) (.02) (1,000) -
Loss on impairment of goodwill - - 182,477 1.15
Loss on sale of securities 51,857 .37 12,500 .08
TOTAL OPERATING EXPENSES 3,140,179 21.13 3,324,348 20.93
INCOME BEFORE PROVISION
FOR INCOME TAXES 844,138 5.67 838,617 5.28
PROVISION FOR INCOME TAXES 373,232 2.51 340,071 2.14
NET INCOME $ 470,906 3.16% $ 498,546 3.14%
EARNINGS PER SHARE $ 2,690.89 $ 2,848.83
</TABLE>
The accompanying notes are an integral part
of these financial statements.
FB-3
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
RETAINED EARNINGS - beginning $1,412,030 $ 939,484
Net income 470,906 498,546
Total 1,882,936 1,438,030
Less: Dividends - 26,000
RETAINED EARNINGS - ending $1,882,936 $1,412,030
The accompanying notes are an integral part
of these financial statements.
FB-4
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 470,906 $ 498,546
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 45,730 58,356
Loss on impairment of goodwill - 182,477
Loss on sale of securities 49,800 12,500
Deferred income taxes (18,452) (47,090)
Cash surrender value of officers' life insurance 33,285 (16,038)
(Increase) decrease in:
Accounts receivable 301,116 (488,691)
Inventories 9,722 (139,153)
Prepaid expenses 11,271 (53,054)
Increase (decrease) in:
Accounts payable (296,356) 166,004
Accrued expenses and taxes (1,913) 129,282
Deposit payable 202,970 -
NET CASH PROVIDED BY OPERATING ACTIVITIES 808,079 303,139
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,284) (94,188)
Increase (decrease) in investments 1,773 (8,175)
Increase in deposits - (8,400)
Proceeds from sale of securities 7,500 -
NET CASH USED BY INVESTING ACTIVITIES (11) (110,763)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings - 1,810,000
Payments on short-term borrowings (475,000) (1,835,000)
Payments on long-term debt (181,585) (73,250)
Dividends paid - (26,000)
NET CASH USED BY FINANCING ACTIVITIES (656,585) (124,250)
NET INCREASE IN CASH 151,483 68,126
CASH - beginning 129,559 61,433
CASH - ending $ 281,042 $ 129,559
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 18,402 $ 66,214
Income taxes $ 356,500 $ 439,415
The accompanying notes are an integral part
of these financial statements.
FB-5
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company distributes electronic components and assembles cable
components primarily on the East Coast of the United States. The
Company was incorporated in New York State on March 31, 1977.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company maintains its records on the accrual basis of accounting.
Income is recorded when earned and 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 $185,701 and $201,996 for
the years ended December 31, 1996 and 1995, respectively.
INVESTMENTS
Investments are recorded at cost. Fair value at December 31, 1996 and
1995 approximates cost.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the December 31, 1995
financial statements to conform with the December 31, 1996 financial
statement presentation. Such reclassifications have had no effect on
net income as previously reported.
EARNINGS PER SHARE
The computation of earnings per share is based on the weighted average
of shares outstanding during the year. For both 1996 and 1995 the
weighted average of shares outstanding was 175 shares.
FB-6
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, Estimated
1996 1995 USEFUL LIVES
<S> <S> <C> <C>
Leasehold improvements $220,169 $220,169 5 - 10 years
Furniture and fixtures 167,618 158,334 5 - 10 years
Automotive equipment 123,401 123,401 5 years
511,188 501,904
Less: Accumulated depreciation 357,032 311,302
$154,156 $190,602
</TABLE>
NOTE 3 - NOTE PAYABLE, BANK
On June 29, 1995, the Company negotiated a new agreement with Fleet
Bank, formerly Shawmut Bank, effective July 1, 1995. The new agreement
provides for borrowings up to $1,000,000 with interest at 1/4% over the
bank's prime interest rate and expires on July 1, 1997. The loan is
secured by a lien on corporate assets and guarantees by the corporate
stockholders. As of December 31, 1996, $-0- is outstanding against the
line-of-credit and as of December 31, 1995, $475,000 was outstanding
against the line-of-credit.
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
1996 1995
<S> <C> <C>
Fleet Bank, formerly Shawmut Bank, payable in
monthly installments of $3,333 until August 1, 1998,
plus interest at prime plus 1%, secured by lien on
corporate assets and guarantees by the corporate
stockholders. The note was paid off during 1996. $ - $106,667
Shawmut Bank, payable in monthly installments of
$2,083 until August 1, 1998, plus interest at prime,
secured by $100,000 of State of Connecticut
Municipal Bonds purchased by Martin Blaustein
and pledged to the Bank. The note was paid off
during 1996. - 66,667
IBM Credit Corporation, payable in monthly
installments of $875, including interest, until June
1998, secured by computer equipment. 11,987 20,238
11,987 193,572
Less: Current maturities 8,252 75,500
Long-term debt $ 3,735 $118,072
</TABLE>
FB-7
<PAGE>
Maturities of long-term debt are as follows:
Years Ended
DECEMBER 31,
1997 $ 8,252
1998 3,735
$11,987
FB-8
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 4 - LONG-TERM DEBT (CONTINUED)
Based on the borrowing rates currently available to the corporation for
loans with similar terms and average maturities, the fair value of
long-term debt approximates book value.
NOTE 5 - INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
1996 1995
Current tax:
Federal $286,114 $283,281
State 105,570 103,880
391,684 387,161
Deferred tax:
Federal (15,148) (34,302)
State (3,304) (12,788)
(18,452) (47,090)
Total income tax provision (benefit) $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:
1996 1995
Computed tax provision at the
expected statutory rate $287,007 $285,130
State income tax - net of Federal tax
benefit 70,402 71,192
Other 15,823 (16,251)
$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.
Significant components of the Company's deferred tax assets consisted
of the following:
1996 1995
Deferred tax assets:
Current:
Allowance for doubtful receivables $ 13,575 $ 9,116
Tax inventory adjustment 11,441 8,692
Excess book depreciation 11,938 8,238
Accrued vacation 11,684 26,675
48,638 52,721
Noncurrent:
Capital loss carryforwards 28,191 5,656
Net deferred tax assets $ 76,829 $ 58,377
FB-9
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 6 - EMPLOYEES PROFIT SHARING PLAN
The Company has a qualified profit-sharing plan and 401(k) plan which
includes all eligible, as defined, employees. The expense for the
period ended December 31, 1996 and 1995 was $30,000 and $80,000,
respectively.
NOTE 7 - LOSS ON IMPAIRMENT
In 1995, the Company adjusted the remaining goodwill of $182,478 per
Statement of Financial Accounting Standards #121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of". This goodwill was the result of a purchase of Ancar
Electronic Supply, Inc. in 1993. Management asserts that since Ancar
Electronic Supply, Inc. was purchased by Wise Components, Inc. and
dissolved, all employees were transferred to Wise, all accounts
receivables were either allocated or written-off, all outstanding
payables and accruals were paid, all inventory was assigned to Wise
with obsolete inventory written-off, and all agreements with vendors
and customers were assigned to Wise, there is no remaining value
associated with the original purchase of Ancar Electronic Supply, Inc.
Accordingly, the Company has recorded a loss on impairment for the
goodwill remaining at January 1, 1995.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company conducts its operations in leased facilities under
operating leases which expired January 31, 1995. Subsequent to the
expiration of the leases, the Company continues to rent on a month-to-
month basis.
Rent charged to operations amounted to $99,945 and $86,433 for the
years ended December 31, 1996 and 1995, respectively.
As of December 31, 1996, current monthly rent amounts to approximately
$8,300 per month.
NOTE 9 - CONCENTRATION OF CREDIT RISK
The Company maintains its bank accounts in several financial
institutions and is insured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured balances at December 31, 1996
approximated $382,000.
NOTE 10 - MAJOR CUSTOMERS
The Company had one customer to whom it sold approximately $1,914,000
or 13% of sales. The accounts receivable from this customer amounted
to approximately $244,000 or 15% of the total accounts receivable
balance.
NOTE 11 - MAJOR SUPPLIERS
The Company had one supplier from whom it purchased approximately
$1,543,000 or 14% of purchases.
NOTE 12 - OTHER MATTERS
On June 12, 1995, the Board of Directors voted to resign the Company's
membership in The Genie Group, Inc., a cooperative buying association.
NOTE 13 - SUBSEQUENT EVENT
On January 16, 1997, the Vice President of sales resigned his position
within the Company. The Company expects a decrease in sales and a
decrease in earnings before income taxes for 1997 as a result of this
resignation.
FB-10
<PAGE>
On January 17, 1997, a letter of intent was signed by the shareholders
of Wise Components, Inc. to sell the outstanding shares of common stock
of Wise Components, Inc. to an acquiring company on terms agreeable to
both parties.
FB-11
<PAGE>
SUPPLEMENTARY INFORMATION
FB-12
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
To the Board of Directors and Stockholders
of Wise Components, Inc.
Our report on our audits of the basic financial statements of Wise Components,
Inc. for December 31, 1996 and 1995 appears on Page 1. Those audits were made
for the purpose of forming an opinion on the basic financial statements taken
as a whole. The supplementary schedules are presented for purposes of
additional analysis and are not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
BEDERSON & COMPANY LLP
February 24, 1997
FB-13
<PAGE>
WISE COMPONENTS, INC.
SCHEDULES OF COST OF SALES
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
INVENTORIES - beginning $ 1,092,375 $ 953,222
Purchases 10,841,317 11,827,920
Freight-in 28,120 33,415
11,961,812 12,814,557
INVENTORIES - ending 1,082,653 1,092,375
TOTAL COST OF SALES $10,879,159 $11,722,182
See Independent Auditors' report on supplementary information.
FB-14
<PAGE>
WISE COMPONENTS, INC.
SCHEDULES OF SELLING AND SHIPPING EXPENSES AND
GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
SELLING AND SHIPPING EXPENSES:
Sales salaries $ 907,025 $ 886,887
Outside commissions 4,916 24,477
Advertising 185,701 201,996
Business promotions 74,393 51,277
Shipping and receiving salaries 102,062 107,508
Supplies 10,733 13,499
Freight-out, net of recoveries (17,807) (25,839)
TOTAL SELLING AND SHIPPING EXPENSES $1,267,023 $1,259,805
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries:
Officers $ 604,241 $ 577,492
Office 211,861 211,720
Purchasing 199,371 238,303
1,015,473 1,027,515
Consulting fees 4,564 19,675
Rent 99,945 86,433
Telephone 95,679 87,872
Repairs and maintenance 20,594 17,468
Utilities 16,511 15,521
Insurance 31,911 29,500
Truck and auto expense 14,390 24,244
Group insurance 91,376 84,012
Office expenses 46,950 59,932
Payroll taxes 129,956 119,833
Professional fees 138,060 61,675
Dues and subscriptions 1,746 1,135
Donations 4,620 5,525
Miscellaneous expenses 10,557 18,714
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES $1,722,332 $1,659,054
See Independent Auditors' report on supplementary information.
FB-15
<PAGE>
WISE COMPONENTS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
FC
<PAGE>
WISE COMPONENTS, INC.
DECEMBER 31, 1995 AND 1994
CONTENTS
PAGE
Independent Auditors' Report FC-1
Financial Statements:
Balance Sheets FC-2
Statements of Income FC-3
Statements of Retained Earnings FC-4
Statements of Cash Flows FC-5
Notes to Financial Statements FC-6 - FC-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Directors of
Wise Components, Inc.
Greenwich, Connecticut
We have audited the accompanying balance sheets of Wise Components, Inc. as of
December 31, 1995 and 1994, and the related statements of income, retained
earnings and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wise Components, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
BEDERSON & COMPANY LLP
West Orange, New Jersey
February 16, 1996
FC-1
<PAGE>
WISE COMPONENTS, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS:
Cash $ 129,559 $ 61,433
Accounts receivable, less allowance for
doubtful accounts of $20,145 for 1995
and $18,469 for 1994 1,884,068 1,395,377
Inventories 1,092,375 953,222
Prepaid expenses and taxes 70,057 17,003
Deferred income taxes 52,721 11,287
TOTAL CURRENT ASSETS 3,228,780 2,438,322
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 190,602 154,770
OTHER ASSETS:
Goodwill, less accumulated amortization of
$190,417 for 1995 and $7,940 for 1994 - 182,477
Cash surrender value, officers' life
insurance, net of loans thereon of $50,238
for 1995 and $40,532 for 1994 82,952 66,914
Investments in co-op buying group 57,300 61,300
Other investments 1,773 2,098
Deposits 16,420 8,020
Deferred income taxes 5,656 -
TOTAL OTHER ASSETS 164,101 320,809
TOTAL ASSETS $3,583,483 $2,913,901
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank $ 475,000 $ 500,000
Current portion of long-term debt 75,500 75,500
Accounts payable 801,954 635,950
Accrued expenses and taxes 245,677 116,395
TOTAL CURRENT LIABILITIES 1,598,131 1,327,845
LONG-TERM DEBT 118,072 191,322
TOTAL LIABILITIES 1,716,203 1,519,167
STOCKHOLDERS' EQUITY:
Common stock, no par value, 200 shares
authorized, 175 shares issued and outstanding 87,500 87,500
Paid-in capital 367,750 367,750
Retained earnings 1,412,030 939,484
TOTAL STOCKHOLDERS' EQUITY 1,867,280 1,394,734
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,583,483 $2,913,901
The accompanying notes are an integral part
of these financial statements.
FC-2
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
AMOUNT PERCENT AMOUNT PERCENT
SALES $15,885,147 100.00% $11,971,540 100.00%
COST OF SALES 11,722,182 73.79 8,716,183 72.81
GROSS PROFIT 4,162,965 26.21 3,255,357 27.19
OPERATING EXPENSES (INCOME):
Selling and shipping 1,259,805 7.93 1,096,478 9.17
General and administrative 1,659,054 10.44 1,540,376 12.86
Depreciation and amortization 58,356 .37 56,689 .47
Bad debts 8,780 .05 20,439 .17
Interest expense 64,376 .40 74,103 .62
Profit-sharing 80,000 .51 40,000 .33
Interest income (1,000) - (500) -
Loss on impairment of goodwill 182,477 1.15 - -
Loss on sale of securities 12,500 .08 - -
TOTAL OPERATING EXPENSES 3,324,348 20.93 2,827,585 23.62
INCOME BEFORE PROVISION
FOR INCOME TAXES 838,617 5.28 427,772 3.57
PROVISION FOR INCOME TAXES 340,071 2.14 184,049 1.53
NET INCOME $ 498,546 3.14% $ 243,723 2.04%
NET INCOME PER SHARE $ 2,848.83 $ 1,392.70
The accompanying notes are an integral part
of these financial statements.
FC-3
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
RETAINED EARNINGS - beginning $ 939,484 $ 721,761
Net income 498,546 243,723
Total 1,438,030 965,484
Less: Dividends 26,000 26,000
RETAINED EARNINGS - ending $1,412,030 $ 939,484
The accompanying notes are an integral part
of these financial statements.
FC-4
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 498,546 $ 243,723
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 58,356 56,689
Loss on impairment of goodwill 182,477 -
Loss on sale of securities 12,500 -
Deferred income taxes (47,090) (17,523)
(Increase) decrease in:
Accounts receivable (488,691) (55,405)
Inventories (139,153) (20,459)
Prepaid expenses (53,054) 12,108
Cash surrender value of officers' life
insurance (16,038) (4,265)
Increase (decrease) in:
Accounts payable 166,004 (20,811)
Accrued expenses 129,282 12,274
NET CASH PROVIDED BY OPERATING ACTIVITIES 303,139 206,331
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (94,188) (17,384)
Increase in investments (8,175) (17,320)
Increase in deposits (8,400) -
NET CASH USED BY INVESTING ACTIVITIES (110,763) (34,704)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings - 260,000
Proceeds from short-term borrowings 1,810,000 500,000
Payments on short-term borrowings (1,835,000) (565,000)
Payments on long-term debt (73,250) (315,192)
Dividends paid (26,000) (26,000)
NET CASH USED BY FINANCING ACTIVITIES (124,250) (146,192)
NET INCREASE IN CASH 68,126 25,435
CASH - beginning 61,433 35,998
CASH - ending $ 129,559 $ 61,433
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 66,214 $ 72,312
Income taxes $ 439,415 $ 185,129
The accompanying notes are an integral part
of these financial statements.
FC-5
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company distributes electronic components and assembles cable
components primarily on the East Coast of the United States. The
Company was incorporated in the State of New York on March 31, 1977.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from
those estimates.
REVENUE RECOGNITION
The Company maintains its records on the accrual basis of accounting.
Income is recorded when earned and expenses are recorded when
incurred. Any merchandise returned by customers in the normal
course of business must be pre-approved by management.
RECLASSIFICATION OF PRIOR YEAR BALANCES
The classifications of certain expenses within the statement of
operations for the year ended December 31, 1994, have been changed to
be consistent with the classifications adopted by the Company in 1995.
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.
AMORTIZATION
Goodwill is being amortized over a period of forty years by the
straight-line method.
INVESTMENTS
Investments are recorded at cost. Fair value at December 31, 1995 and
1994 approximates cost.
FC-6
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date
of enactment.
EARNINGS PER SHARE
The computation of earnings per share is based on the weighted average
of shares outstanding during the year. For both 1995 and 1994 the
weighted average of shares outstanding was 175 shares.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consist of the following:
DECEMBER 31, Estimated
1995 1994 USEFUL LIVES
Leasehold improvements $220,169 $220,169 5 - 10 years
Furniture and fixtures 158,334 164,515 5 - 10 years
Automotive equipment 123,401 75,749 5 years
501,904 460,433
Less: Accumulated depreciation 311,302 305,663
$190,602 $154,770
NOTE 3 - NOTE PAYABLE, BANK
On June 29, 1995, the Company negotiated a new agreement with Shawmut
Bank effective July 1, 1995. The new agreement provides for
borrowings up to $1,000,000 with interest at 1/4% over the bank's
prime interest rate and expires on July 1, 1997. The loan is secured
by a lien on corporate assets and guarantees by the corporate
stockholders. As of December 31, 1995, $475,000 is outstanding
against the line-of-credit.
The Company had a line-of-credit agreement with Shawmut Bank which
provided for borrowings up to $750,000 with interest at 1/2% over the
bank's prime interest rate and expired on July 1, 1995. The loan was
secured by a lien on corporate assets and guarantees by the corporate
stockholders. As of December 31, 1994, $500,000 was outstanding
against the line-of-credit.
FC-7
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
1995 1994
Shawmut Bank, payable in monthly
installments of $3,333 until
August 1, 1998, plus interest at
prime plus 1%, secured by lien on
corporate assets and guarantees by
the corporate stockholders. $106,667 $146,667
Shawmut Bank, payable in monthly
installments of $2,083 until August 1,
1998, plus interest at prime, secured by
$100,000 of State of Connecticut Municipal
Bonds purchased by Martin Blaustein and
pledged to the Bank. 66,667 91,667
IBM Credit Corporation, payable in
monthly installments of $875, including
interest, until June 1998, secured by
computer equipment. 20,238 28,488
193,572 266,822
Less: Current maturities 75,500 75,500
Long-term debt $118,072 $191,322
Maturities of long-term debt are as follows:
Years Ended
DECEMBER 30,
1996 $ 75,500
1997 74,738
1998 43,334
$193,572
FC-8
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 5 - INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
1995 1994
Current tax:
Federal $283,281 $147,814
State 103,880 53,758
387,161 201,572
Deferred tax:
Federal (34,302) (12,851)
State (12,788) (4,672)
(47,090) (17,523)
Total income tax provision $340,071 $184,049
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:
1995 1994
Computer tax provision at the expected
statutory rate $ 285,130 $ 145,442
State income tax - net of Federal tax
benefit 71,192 32,397
Other (16,251) 6,210
$ 340,071 $ 184,049
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.
Significant components of the Company's deferred tax assets consisted
of the following:
1995 1994
Deferred tax assets:
Current:
Allowance for doubtful receivables $ 9,116 $ 6,279
Tax inventory adjustment 8,692 3,442
Excess book depreciation 8,238 1,566
Accrued vacation 26,675 -
52,721 11,287
Noncurrent:
Capital loss carryforwards 5,656 -
$ 58,377 $ 11,287
FC-9
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
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, 1995 and 1994 was $80,000 and $40,000,
respectively.
NOTE 7 - LOSS ON IMPAIRMENT
In 1995, the Company adjusted the remaining goodwill of $182,478 per
Statement of Financial Accounting Standards #121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of". This goodwill was the result of a purchase of Ancar
Electronic Supply, Inc. in 1993. Management asserts that since Ancar
Electronic Supply, Inc. was purchased by Wise Components, Inc. and
dissolved, all employees were transferred to Wise, all accounts
receivables were either allocated or written-off, all outstanding
payables and accruals were paid, all inventory was assigned to Wise
with obsolete inventory written-off, and all agreements with vendors
and customers were assigned to Wise, there is no remaining value
associated with the original purchase of Ancar Electronic Supply, Inc.
Accordingly, the Company has recorded a loss on impairment for the
goodwill remaining at January 1, 1995.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company conducts its operations in leased facilities under
operating leases which expired January 31, 1995. Subsequent to the
expiration of the leases, the Company continues to rent on a month-to-
month basis.
Rent charged to operations amounted to $86,433 and $80,725 for the
years ended December 31, 1995 and 1994, respectively.
As of December 31, 1995, current monthly rent amounts to approximately
$8,200 per month.
NOTE 9 - CONCENTRATION OF CREDIT RISK
The Company maintains its bank accounts in several financial
institutions and is insured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured balances at December 31, 1995
approximated $305,000.
FC-10
<PAGE>
WISE COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 10 - MAJOR SUPPLIERS
The Company had one supplier from whom it purchased approximately
$1,923,000 or 16% of purchases.
NOTE 11 - OTHER MATTERS
On June 12, 1995, the Board of Directors voted to resign the
Company's membership in The Genie Group, Inc., a cooperative buying
association.
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Note payable and long-term debt - the fair value of the Company's
debt is estimated based on the quoted market prices for the same or
similar issues or on the current rates offered by the Company for
debt of the same remaining maturities. The carrying value
approximates fair value.
FC-11
<PAGE>
WISE COMPONENTS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(Unaudited)
ASSETS
1997 1996
CURRENT ASSETS:
Cash $ 52,789 $ 349,394
Accounts receivable, less allowance for
doubtful accounts of $42,268 for 1997
and $30,110 for 1996 1,708,348 1,820,246
Inventories 1,172,359 970,377
Prepaid expenses and taxes 9,860 8,643
Deferred income taxes 56,456 48,252
TOTAL CURRENT ASSETS 2,999,812 3,196,912
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 114,784 155,114
OTHER ASSETS:
Cash surrender value, officers' life
insurance, net of loans thereon of $-0-
for 1997 and $30,836 for 1996 30,931 49,809
Investments in co-op buying group - 52,300
Other investments - 1,323
Deposits 36,420 16,420
Deferred income taxes 27,724 27,724
TOTAL OTHER ASSETS 95,075 147,576
TOTAL ASSETS $3,209,671 $3,499,602
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 126,189 $ 8,252
Accounts payable 761,174 618,957
Accrued expenses and taxes 205,022 227,910
Deposit payable - 346,086
TOTAL CURRENT LIABILITIES 1,092,385 1,201,205
LONG-TERM DEBT 460,000 5,798
TOTAL LIABILITIES 1,552,385 1,207,003
STOCKHOLDERS' EQUITY:
Common stock, no par value, 200 shares authorized,
175 shares issued and outstanding at September 30,
1996 and 87.5 shares outstanding at September
30, 1997 87,500 87,500
Paid-in capital 367,750 367,750
Retained earnings 2,002,036 1,837,349
Treasury stock, 87.5 shares, at cost (800,000) -
TOTAL STOCKHOLDERS' EQUITY 1,657,286 2,292,599
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,209,671 $3,499,602
FD-1
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
SALES $9,127,852 100.00% $11,685,322 100.00%
COST OF SALES 6,732,397 73.76 8,648,251 74.01
GROSS PROFIT 2,395,455 26.24 3,037,071 25.99
OPERATING EXPENSES (INCOME):
Selling and shipping 795,323 8.71 957,394 8.19
General and administrative 1,324,280 14.51 1,263,371 10.82
Depreciation and amortization 31,732 .35 35,488 .30
Bad debts 23,609 .26 12,136 .10
Interest 20,097 .22 13,032 .11
Profit-sharing 16,000 .18 35,791 .31
Interest income (4,124) (.05) (4,724) (.04)
Gain on sale of equipment (8,401) (.09) - -
TOTAL OPERATING EXPENSES 2,198,516 24.09 2,312,488 19.79
INCOME BEFORE PROVISION
FOR INCOME TAXES 196,939 2.15 724,583 6.20
PROVISION FOR INCOME TAXES 77,839 .85 299,265 2.56
NET INCOME $ 119,100 1.30%$ 425,318 3.64%
FD-2
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
RETAINED EARNINGS - beginning $1,882,936 $1,412,031
Net income 119,100 425,318
RETAINED EARNINGS - ending $2,002,036 $1,837,349
FD-3
<PAGE>
WISE COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 119,100 $ 425,318
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 31,732 35,488
Gain on sale of equipment (8,401) -
Deferred income taxes (7,351) (17,599)
Capital gains - (2,500)
(Increase) decrease in:
Accounts receivable (125,397) 63,822
Inventories (89,706) 121,998
Prepaid expenses and taxes 48,926 61,414
Cash surrender value of officers' life 18,736 33,143
insurance 18,736 33,143
Security deposits (20,000) -
Increase (decrease) in:
Accounts payable 255,576 (182,996)
Accrued expenses and taxes (38,742) (17,767)
Deposit payable (202,970) 346,086
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES (18,497) 866,407
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (16,058) -
Increase in investments - 7,950
Proceeds from sale of equipment 32,100 -
NET CASH PROVIDED BY INVESTING ACTIVITIES 16,042 7,950
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 600,000 -
Payments on short-term debt - (542,248)
Payments on long-term debt (25,798) (112,274)
Purchase of treasury stock (800,000) -
NET CASH USED BY FINANCING ACTIVITIES (225,798) (654,522)
NET INCREASE (DECREASE) IN CASH (228,253) 219,835
CASH - beginning 281,042 129,559
CASH - ending $ 52,789 $ 349,394
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 15,747 $ 13,701
Income tax $ 96,756 $ 306,000
FD-4
<PAGE>
<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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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,
<PAGE>
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
<PAGE>
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
<PAGE>
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,
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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%
</TABLE>
