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 [_] Confidential, for Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant
to Rule 14a-11(c) or Rule 14a-12
METRO-TEL CORP.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
4,720,954
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$0.95
(4) Proposed maximum aggregate value of transaction:
$4,484,906
(5) Total fee paid:
$896.98
[_] 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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METRO-TEL CORP.
250 South Milipitas Boulevard
Milipitas, California 95035
(408) (946-4600)
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
October __, 1998
To the Stockholders of
Metro-Tel Corp.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders
(the "Meeting") of METRO-TEL CORP., a Delaware corporation (the "Company"), will
be held on November __, 1998 at 10:00 A.M., New York City time, at the offices
of Parker Chapin Flattau & Klimpl, LLP, Eighteenth Floor, 1211 Avenue of the
Americas (between 47th and 48th Streets), New York, New York, for the purpose of
considering and acting upon the following matters:
(1) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of July 1, 1998, among the Company,
Metro-Tel Acquisition Corp., William Steiner, Michael Steiner and
Steiner-Atlantic Corp. ("Steiner") pursuant to which a newly formed wholly-owned
subsidiary of the Company will be merged with and into Steiner (the "Merger") as
a result of which, among other things, Steiner will become a wholly-owned
subsidiary of the Company, the stockholders of Steiner will become owners of
approximately 69% of the shares of the Company's Common Stock and a majority of
the members of the Company's Board of Directors will consist of designees of
Steiner.
(2) To consider and vote upon an amendment of the Company's Certificate
of Incorporation to increase the number of shares of Common Stock which the
Company is authorized to issue from 6,000,000 shares to 15,000,000 shares (the
"Proposed Amendment").
(3) To consider and vote upon an amendment to the Company's 1991 Stock
Option Plan (the "1991 Plan") to increase the number of shares of Common Stock
which the Company is authorized to issue thereunder from 250,000 shares to
850,000 shares.
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(4) The election of four directors, each to hold office until the next
Annual Meeting of Stockholders or until his respective successor is elected and
qualified (or, in the case of Michael Michaelson and Michael Epstein, the
consummation of the Merger, if earlier).
(5) The transaction of such other business as may properly be brought
before the meeting or any adjournments or postponements thereof.
The amendment of the Company's Certificate of Incorporation
and the 1991 Plan are subject to and, would become effective only upon,
consummation of the Merger. It is a condition to Steiner's obligation to
consummate the Merger that the amendment to Company's Certificate of
Incorporation and the 1991 Plan be adopted.
The Board of Directors has fixed the close of business on
October 2, 1998 as the Record Date for the determination of stockholders
entitled to notice of, and to vote at, the Meeting.
By Order of the Board of Directors,
Lloyd Frank
Secretary
The return of your signed proxy as promptly as possible will greatly facilitate
arrangements for the meeting. No postage is required if the proxy is returned in
the enclosed envelope and mailed in the United States.
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METRO-TEL CORP.
PROXY STATEMENT
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION......................................................................1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS........................2
SUMMARY .........................................................................3
General Information......................................................3
Date, Time and Place of the Meeting.............................3
Purposes of the Meeting.........................................3
Record Date.....................................................3
Votes Required..................................................3
Parties to the Merger....................................................4
Metro-Tel Corp..................................................4
Steiner-Atlantic Corp...........................................4
Merger Agreement................................................4
The Merger...............................................................4
General .......................................................4
Shares to be Issued.............................................4
Opinion of the Company's Financial Advisor......................4
Recommendation of the Company's Board of Directors..............5
Risk Factors....................................................5
Effective Date..................................................6
Management of the Company.......................................6
Operations of the Company.......................................6
Interests of Certain Directors and Officers of Steiner..........6
Dissenter's Rights of Appraisal.................................6
Accounting Treatment of the Merger..............................7
Certain Federal Income Tax Consequences.........................7
NASDAQ Listing of the Company's Common Stock to be Issued in
the Merger.............................................7
Financial Information....................................................7
Summary Selected Historical and Pro Forma Combined Financial
Data...................................................7
Selected Historical Financial Data.............................11
Financial Statements...........................................11
VOTING RIGHTS AND PROXY INFORMATION..............................................13
RISK FACTORS............................................................14
Reliance on Key Customers......................................14
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METRO-TEL CORP.
PROXY STATEMENT
TABLE OF CONTENTS (cont'd)
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Fluctuations in Demand for Dry-cleaning and Laundry Equipment..14
Reliance on Key Personnel......................................14
Highly Competitive Market......................................14
Control by Certain Stockholders; Potential for Conflicts of
Interest; Difficulty of Consummating Hostile
Takeovers.............................................15
Borrowing by Steiner...........................................15
Dilution ......................................................15
Absence of Market Prices of Steiner's Common Stock.............16
No Present Intention to Pay Dividends..........................16
Possible Delisting of Securities from Nasdaq System; Risks
Relating to Low-Priced Stocks.........................16
PROPOSAL NO. 1 - THE MERGER......................................................17
General Description.....................................................17
Effective Date Of The Merger............................................17
Background of Merger....................................................17
Negotiations with Steiner......................................17
Other Indications of Interest..................................19
Opinion of the Company's Financial Advisor.....................19
Comparable Company Analysis....................................20
Selected Transaction Analysis..................................20
Trading History of the Common Stock............................20
Reasons for the Merger; Recommendation of the Company's
Board of Directors....................................21
Stockholder Approval....................................................24
Terms of the Merger Agreement...........................................24
The Merger.....................................................24
Closing Date...................................................24
Certificates of Merger.........................................25
Issuance of Shares.............................................25
Issuance of Stock Options......................................25
Management and Operations of the Company After the Merger......25
No Solicitations...............................................27
Representations and Warranties.................................27
Conduct of Business Prior to Closing...........................27
Certain Covenants..............................................28
Indemnification................................................28
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METRO-TEL CORP.
PROXY STATEMENT
TABLE OF CONTENTS (cont'd)
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Page
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Conditions Precedent...........................................28
Registration Rights............................................30
Termination....................................................30
Absence of Dissenter's Rights of Appraisal for the Company's
Stockholders...................................................31
Additional Effects of the Merger........................................31
Accounting Treatment of the Merger.............................31
Certain Federal Income Tax Consequences of the Merger..........32
NASDAQ Listing of the Company's Common Stock to be Issued in
the Merger............................................32
Dividend Policy of the Company.................................33
Possibility that the Merger Will Not Be Consummated............33
Selected Historical Financial Data of Steiner-Atlantic Corp.............34
Selected Historical Financial Data of the Company.......................36
Selected Pro Forma Combined Condensed Financial Data....................37
Comparative per Share Data (Unaudited)..................................41
MARKET PRICES OF COMPANY'S COMMON STOCK; DIVIDENDS...............................42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF STEINER'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................43
Results of Operations...................................................43
Comparison of Six Months Ended June 30, 1998 and. June 30,
1997..................................................43
Comparison of Years Ended December 31, 1997 vs. December 31,
1996..................................................43
Financial Position and Liquidity........................................44
STEINER'S BUSINESS...............................................................46
Business ...............................................................46
General ......................................................46
History ......................................................46
Product Lines..................................................46
Business Strategy..............................................46
Geographical Expansion..................................................47
Pursue Strategic Acquisitions...........................................47
Develop and Market Advanced Technology Dry-Cleaning Systems Under the
Aero-Tech Brand Name...........................................47
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<PAGE>
METRO-TEL CORP.
PROXY STATEMENT
TABLE OF CONTENTS (cont'd)
--------------------------
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Expand Steiner's High Margin Parts Business.............................48
Sources of Supply..............................................48
Customers and Markets..........................................49
Sales, Marketing and Customer Support..........................49
Facilities.....................................................50
Trademarks.....................................................50
Competition....................................................51
Environmental Regulations......................................51
Product Liability and Insurance................................51
Employees......................................................51
Weissco Development, Inc.......................................52
Executive Officers and Directors........................................52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................53
Results of Operations...................................................53
Comparison of years ended June 30, 1998 vs. June 30, 1997......53
Financial Position and Liquidity........................................54
THE COMPANY'S BUSINESS...........................................................55
General. ..............................................................55
Product Lines. ........................................................55
Methods of Distribution. ..............................................56
Competition. ..........................................................56
Raw Materials. ........................................................57
Patents and Trademarks. ...............................................57
Principal Customers. ..................................................57
Research and Development. .............................................57
Compliance with Environmental and Other Governmental Laws and
Regulations. ...............................................57
Employees. ............................................................58
Foreign and Government Sales. .........................................58
Properties. ...........................................................58
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<PAGE>
METRO-TEL CORP.
PROXY STATEMENT
TABLE OF CONTENTS (cont'd)
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Page
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PROPOSAL NO. 2
AMENDMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION...........................................................59
PROPOSAL NO. 3
AMENDMENT OF THE 1991 PLAN..............................................61
Description of the 1991 Plan............................................61
New Plan Benefits.......................................................63
Federal Income Tax Consequences of Participation in the 1991 Plan.......63
PROPOSAL NO. 4 - ELECTION OF DIRECTORS...........................................66
Meetings of the Board of Directors......................................67
Executive Officers......................................................68
Security Ownership of Certain Beneficial Owners and Management..........68
Executive Compensation..................................................71
Compensation of Directors...............................................71
1998 Fiscal Year-End Option Values......................................72
FINANCIAL STATEMENTS.............................................................73
INDEPENDENT ACCOUNTANTS..........................................................73
STOCKHOLDER PROPOSALS............................................................73
OTHER MATTERS....................................................................73
INDEX TO FINANCIAL STATEMENTS....................................................75
</TABLE>
Exhibits
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A - Agreement of Merger.
B - Fairness Opinion of Slusser Associates, Inc.
C - Proposed Amendment of Certificate of Incorporation of Metro-Tel Corp.
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<PAGE>
METRO-TEL CORP.
250 South Milpitas Boulevard
Milpitas, California 95035
(408) 946-4600
------------------------
PROXY STATEMENT
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Annual Meeting of Stockholders
To Be Held November __, 1998
------------------------
INTRODUCTION
This Proxy Statement, to be mailed to stockholders on or about
_________, 1998, is furnished in connection with the solicitation by the Board
of Directors of Metro-Tel Corp., a Delaware corporation (the "Company"), of
proxies in the accompanying form (the "Proxy" or "Proxies") for use at the 1998
Annual Meeting of Stockholders of the Company (the "Meeting") to be held on
_________, November __, 1998, and at any adjournments or postponements thereof.
The Meeting will be held at the place and time stated in the notice attached
hereto.
All Proxies received will be voted in accordance with the
specifications made thereon or, in the absence of any specification, for the
election of all of the nominees named herein to serve as directors and in favor
of each of the other matters proposed in this Proxy Statement by the Board of
Directors. Any Proxy given pursuant to this solicitation may be revoked by the
person giving it at any time prior to the exercise of the powers conferred
thereby by (i) notice in writing or by submitting a later dated proxy to the
Company at 250 South Milpitas Boulevard, Milpitas, California 95035, Attention:
Lloyd Frank, Secretary, (ii) by submitting a later dated proxy, or (iii) by
voting in person, at the Meeting.
At the Meeting, the holders of shares of Common Stock of the Company
will be asked to consider and vote upon (i) a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of July 1, 1998 ( the "Merger
Agreement"), pursuant to which, upon the terms and conditions set forth in the
Merger Agreement, a newly formed wholly-owned subsidiary of the Company will be
merged with and into Steiner-Atlantic Corp. ("Steiner"), Steiner will become a
wholly-owned subsidiary of the Company, the stockholders of Steiner will become
owners of approximately 4,720,954 shares of Common Stock of the Company
(representing approximately 69% of the outstanding shares of Common Stock of the
Company ) immediately following the Merger and a majority of the members of the
Company's Board of Directors will consist of designees of Steiner. In addition,
100,000 (1% of the outstanding) shares of the Company's Common Stock would be
issued to the Company's investment bankers. The 2,054,046 shares of the
Company's Common Stock that are currently outstanding would remain outstanding
upon consummation of the Merger and would represent, in the aggregate,
approximately 30% of the Company's Common Stock outstanding
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<PAGE>
upon consummation of the Merger. Steiner's shareholders may receive additional
shares of the Company's Common Stock and current employees of Steiner, other
than Steiner's shareholders, would be granted options to purchase shares of the
Company's Common Stock, depending on the market value of the Company's Common
Stock on the date of consummation of the Merger not to aggregate more than
500,000 shares of the Company's Common Stock. (See "THE MERGER Terms of the
Merger Agreement - The Merger; Issuance of Shares; Issuance of Stock Options");
(ii) a proposal to amend the Company's Certificate of Incorporation to increase
the number of shares of Common Stock which the Company is authorized to issue
from 6,000,000 shares to 15,000,000 shares; (iii) a proposal to amend the
Company's 1991 Stock Option Plan (the "1991 Plan") to increase the number of
shares of Common Stock which the Company is authorized to issue pursuant to the
1991 Plan from 250,000 shares to 850,000 shares; (iv) the election of four
directors to serve until the Company's next Annual Meeting of Stockholders or
until his respective successor is elected and qualified (or, in the case of
Michael Michaelson and Michael Epstein the consummation of the Merger, if
earlier).
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information herein contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. When used herein, the words "believes,"
"expects," "may," "will," "should," "seeks," "anticipates," "estimate,"
"project," "intends" and similar expressions are intended to identify
forward-looking statements regarding events, conditions and financial trends
that may affect the Company's future plans of operations, business strategy,
operating results and financial position. Prospective investors are cautioned
that any forward-looking statements are not guarantees of future performance and
are subject to risks and significant uncertainties and that actual results may
differ materially from those included within the forward-looking statements as a
result of various factors. Certain of those factors are described under the
heading "Risk Factors."
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<PAGE>
SUMMARY
Certain significant matters discussed in the Proxy Statement are
summarized below. This Summary is not intended to be complete and is qualified
in all respects by reference to the more detailed information appearing in this
Proxy Statement, including the financial statements and copies of the Merger
Agreement, Proposed Amendment and Fairness Opinion (as defined herein).
Stockholders are urged to review carefully the entire Proxy Statement
(including such financial statements and other documents).
General Information
Date, Time and Place of the Meeting. The Annual Meeting of Stockholders
of the Company is to be held on _________ November ___, 1998, at the offices of
Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, New
York at 10:00 A.M., New York City Time (the "Meeting"). See "VOTING RIGHTS AND
PROXY INFORMATION."
Purposes of the Meeting. The purposes of the Meeting are to: consider
and vote upon (i) a proposal to approve and adopt the Merger Agreement; (ii) a
proposal to amend the Company's Certificate of Incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue from
6,000,000 shares to 15,000,000 shares; (iii) a proposal to amend the 1991 Plan
to increase the number of shares of Common Stock which the Company is authorized
to issue from 250,000 shares to 850,000 shares; (iv) the election of four
directors, each to hold office until the next Annual Meeting of Stockholders or
until his respective successor is elected and qualified (or, in the case of
Michael Michaelson and Michael Epstein, the consummation of the Merger, if
earlier); and other business which may properly come before the Meeting. See
"VOTING RIGHTS AND PROXY INFORMATION."
Record Date. The Board of Directors has fixed the close of business on
October 2, 1998, as the record date (the "Record Date") for the determination of
stockholders entitled to notice of, and to vote at, the Meeting. On that date,
2,054,046 shares of the Company's Common Stock were outstanding. See "VOTING
RIGHTS AND PROXY INFORMATION."
Votes Required. The affirmative vote of a majority of the shares of the
Company's Common Stock outstanding on the Record Date is required to approve and
adopt the Merger Agreement and the amendment of the Company's Certificate of
Incorporation. The affirmative vote of a majority of the shares of the Company's
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote thereon is required to amend the 1991 Plan. A plurality of the
votes of the shares present in person or represented by proxy at the Meeting and
entitled to vote is required with respect to the election of directors. See
"VOTING RIGHTS AND PROXY INFORMATION."
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<PAGE>
Proposal 1: Approval and Adoption of the Agreement and Plan of Merger
Parties to the Merger
Metro-Tel Corp. The Company is a manufacturer and seller of telephone
test and customer premise equipment utilized by telephone and telephone
interconnect companies in the installation and maintenance of telephone
equipment. See "THE COMPANY'S BUSINESS - General."
Steiner-Atlantic Corp. Steiner is a supplier of dry cleaning equipment,
industrial laundry equipment and steam boilers, offering over 30 lines of
commercial systems to customers in South Florida, the Caribbean and Central and
South American markets. See "THE MERGER - Steiner's Business."
Merger Agreement. On July 6, 1998, the Company and Steiner signed the
Merger Agreement dated as of July 1, 1998, pursuant to which a wholly-owned
subsidiary of the Company would be merged with and into Steiner. A copy of the
Merger Agreement is attached to this Proxy Statement as Exhibit A. See "THE
MERGER."
The Merger
General. The Merger Agreement provides for a wholly-owned subsidiary of
the Company to be merged with and into Steiner, with Steiner being the surviving
corporation of the Merger and therefore becoming a wholly-owned subsidiary of
the Company. See "THE MERGER - General."
Shares to be Issued. Each share of the Company's Common Stock
outstanding prior to the consummation of the Merger will remain outstanding
following the consummation of the Merger. Each share of Steiner's Common Stock
outstanding prior to the consummation of the Merger will be converted into
13.90561 shares of the Company's Common Stock. Steiner's shareholders will also
receive additional shares of the Company's Common Stock depending on the number
of shares of the Company's Common Stock to be subject to options granted to key
employees of Steiner on the date of consummation of the Merger. Assuming no
additional shares are issued, upon consummation of the Merger, the holders of
the Company's Common Stock immediately prior to the Merger would own 2,054,046
shares or approximately 30% of the Company's Common Stock to be outstanding
immediately following the Merger and the holders of Steiner's Common Stock
immediately prior to the Merger would own at least 4,720,954 shares, or
approximately 69%, of the Company's Common Stock. See "THE MERGER - Background
of the Proposed Merger - Negotiations with Steiner and "THE MERGER - Terms of
the Merger Agreement - The Merger; Shares Issued."
Opinion of the Company's Financial Advisor. Slusser Associates, Inc.
("Slusser") is acting as the Company's financial advisor in connection with the
Merger and has rendered an opinion to the Company's Board of Directors that, as
of June 25, 1998, the date the Board of Directors authorized the Company to
enter into the Merger Agreement, and as of the date of this Proxy Statement, the
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<PAGE>
consideration to be paid by the Company in connection with the Merger was fair
to the Company and its shareholders from a financial point of view (the
"Fairness Opinion"). The full text of Slusser's Fairness Opinion is set forth as
Exhibit B to this Proxy Statement. Slusser will receive reasonable out-of-pocket
expenses and, upon the completion of the Merger, Slusser will receive a fee of
(i) $100,000 and (ii) 100,000 shares of the Company's Common Stock. See "THE
MERGER - Opinion of Financial Advisor".
Recommendation of the Company's Board of Directors. The Company's Board
of Directors believes the Merger is in the best interests of the Company and its
stockholders and has unanimously approved the Merger Agreement and the
consummation of the transactions contemplated thereby. The Board unanimously
recommends that its stockholders approve and adopt the Merger Agreement, as well
as the related amendment to the Company's Certificate of Incorporation to
increase the number of shares of Common Stock which the Company is authorized to
issue and the related amendment to the 1991 Plan which increases the number of
shares subject to the 1991 Plan. The Board of Directors' recommendation is based
upon a number of factors discussed in this Proxy Statement, including the
Board's determination that the Merger is fair to the Company and its
stockholders from a financial point of view, and the Board's belief that the
best way to maximize the prospects of enhancing shareholder value over the
long-term is to merge the Company with another entity that is profitable and
would benefit from the Company's existing business, its standing as a public
company and the existing trading market on the NASDAQ for the Company's Common
Stock. The Company's Board believes that Steiner meets these criteria. See "THE
MERGER - Background of the Proposed Merger - Recommendation of the Company's
Board of Directors; Reasons for the Merger."
Risk Factors. By voting in favor of the Merger, the Company's
stockholders will, in effect, be approving a transaction which will alter the
investment of the Company's stockholders to an investment in the combined assets
and operations of Steiner and the Company. Such investment will, therefore, be
subject to the risks of an investment in Steiner, as well as in the Company.
These risks include, among other things, Steiner's dependence upon Michael S.
Steiner, Steiner's Chief Executive Officer, and other members of the management
group for its continuing success, the fact that Michael S. Steiner, and his
father William K. Steiner, will control a majority of the Company's Common Stock
subsequent to the Effective Time (as hereinafter defined), which provides
Messrs. Michael S. Steiner and William K. Steiner, if they act together, the
ability to elect the entire Board of Directors, approve or disapprove most
actions requiring stockholder approval, including amendments to the certificate
of incorporation and bylaws of the Company, certain mergers or similar
transactions, sales of all or substantially all of the Company's assets and
"going private" transactions, and the power to prevent or cause a change in
control of the Company. In addition, after the Merger, Steiner intends to
refinance its indebtedness by borrowing $2,400,000 from a bank, to be guaranteed
by the Company and collateralized by a first security interest in the assets of
the Company, as well as Steiner, which will be used to fund future cash
distributions to Steiner's shareholders prior to completion of the Merger. The
Merger will also cause a dilution in tangible net book value per share of the
Company's Common Stock (based upon certain assumptions) from $1.00 per share to
$.55 per share. For a more detailed discussion of these and other factors which
should be considered by the Company's
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<PAGE>
stockholders in determining whether to approve and adopt the Merger Agreement,
see "THE MERGER - Risk Factors."
Effective Date. The Merger will become effective (the "Effective Date")
upon the filing of Articles of Merger and Plan of Merger ("Certificates of
Merger") with the Department of State of the State of Florida. The Merger
Agreement provides that the Certificates of Merger will be filed on a mutually
agreed-upon date within five business days of the date on which all of the
conditions precedent to the Merger have been either satisfied or waived. It is
anticipated that the Effective Date will be on or as soon after the date of the
Meeting as is practicable. See "THE MERGER - Terms of the Merger Agreement - The
Effective Date."
Management of the Company. Upon consummation of the Merger, the Board
of Directors of each of the Company and Steiner will consist of two designees of
the Company (Messrs. Venerando J. Indelicato and Lloyd Frank) and four designees
of Steiner, including Michael S. Steiner, Steiner's President and Chief
Executive Officer, William K. Steiner, the Chairman of Steiner's Board of
Directors, and two independent directors, _____ and _____, who were selected by
Michael S. Steiner and William K. Steiner. William K. Steiner will be the
Chairman of the Board of Directors of each of the Company and Steiner, Michael
S. Steiner will be the President and Chief Executive Officer of each of the
Company and Steiner, and Mr. Indelicato, who is currently the President and
Treasurer of the Company, will be the Chief Financial Officer of each of the
Company and Steiner. All of the other current officers of the Company and
Steiner will maintain their offices. See "THE MERGER - Terms of the Merger
Agreement - Management and Operations of the Company After the Merger."
Operations of the Company. From and after the Effective Time, the
Company and Steiner will continue to operate their respective present businesses
as they are presently constituted. See "THE MERGER - Management and Operations
of the Company After the Merger."
Interests of Certain Directors and Officers of Steiner. Steiner is
wholly-owned by Michael S. Steiner and William K. Steiner, each of whom, when
the Merger is consummated, will receive approximately 2,360,477 shares of the
Company's Common Stock for his Steiner Common Stock, and each of whom will then
own approximately 35% of the issued and outstanding shares of the Company's
Common Stock. Pursuant to the Merger Agreement, Messrs. Michael S. Steiner and
William K. Steiner have certain rights to cause the Company to register the
shares of the Company's Common Stock they will be receiving under the Securities
Act of 1933, as amended, for potential resale. William K. Steiner owns and
leases to Steiner and following the consummation of the Merger will continue to
own and lease to the Company the facilities in which Steiner's executive offices
and main distribution center are housed. See "THE MERGER - Steiner's Business-
Executive Officers and Directors; Business - Facilities; Terms of the Merger
Agreement - Registration Rights."
Dissenter's Rights of Appraisal. Under the Delaware General Corporation
Law (the "DGCL"), holders of the Company's Common Stock will not be entitled to
rights of appraisal in connection with the Merger. The holders of Steiner's
shares have executed the Merger Agreement
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<PAGE>
in which they agreed to vote their shares of Common Stock in Steiner in favor of
the Merger and, accordingly, will not have appraisal rights. See "THE MERGER -
Absence of Dissenter's Rights of Appraisal for the Company's Stockholders."
Accounting Treatment of the Merger. The Merger will, for accounting
purposes, be treated as a reverse acquisition, with Steiner being deemed to be
the acquiring party and the Company being deemed to be the acquired party. The
Merger will be accounted for using the purchase method of accounting. See "THE
MERGER - Additional Effects of the Merger - Accounting Treatment of the Merger."
Certain Federal Income Tax Consequences. The Company has received an
opinion from counsel to the effect that the Merger will not constitute a taxable
event for federal income tax purposes for either the Company or its
stockholders. For a discussion of the federal income tax consequences of the
Merger to the Company and its stockholders, see "THE MERGER - Additional Effects
of the Merger - Certain Federal Income Tax Consequences of the Merger."
NASDAQ Listing of the Company's Common Stock to be Issued in the
Merger. The Company has filed an application for the listing with the NASDAQ of
the Company's Common Stock to be issued upon the consummation of the Merger, as
well as the additional shares to be subject to the 1991 Plan and intends to
cause such application to be approved by the NASDAQ prior to the Effective Date.
See "THE MERGER - Additional Effects of the Merger - NASDAQ Listing of the
Company's Common Stock to be Issued in the Merger."
Financial Information
Summary Selected Historical and Pro Forma Combined Financial Data. The
following tables set forth summary selected historical financial data for each
of the Company and Steiner, and pro forma combined financial data giving effect
to the proposed Merger. The summary selected historical financial data for the
Company as of June 30, 1997 and 1998 and for the years then ended and for
Steiner as of December 31, 1997 and June 30, 1998 and for the years ended
December 31, 1996 and 1997 and for the six month periods ended June 30, 1997 and
1998, has been obtained from the financial statements of the Company and
Steiner, respectively, appearing elsewhere in this Proxy Statement. The pro
forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the Merger had been consummated at January 1, 1997 and at June
30, 1998, nor is it necessarily indicative of future operating results or
financial position. See the notes to "THE MERGER - Selected Pro Forma Combined
Condensed Financial Data." THIS DATA SHOULD BE READ IN CONJUNCTION WITH THE MORE
COMPLETE FINANCIAL INFORMATION AND THE NOTES THERETO CONTAINED HEREIN.
-7-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Financial Data
Fiscal Year Ended December 31, Six Months Ended June 30,
----------------------------------- -------------------------------------
1997 1998
------------------- ------------------
Operating Data (Pro Forma):
<S> <C> <C>
Net sales $18,242,562 $9,833,468
Cost of goods sold 13,035,080 7,124,910
---------- ---------
Gross Profit 5,207,482 2,708,558
Selling, general and administrative
expenses 3,951,873 1,970,190
Research and development 218,155 96,660
Interest expense 223,106 95,799
Interest and other income 304,906 285,289
------- -------
Income before income taxes 1,119,254 831,198
Provision for income taxes 429,063 313,887
------- -------
Net income $690,191 $517,311
Per Share Data:
Weighted average shares outstanding:
Basic 6,872,222 6,875,000
Diluted 6,895,622 6,923,600
Basic earning per share $.10 $.08
Diluted earnings per share $.07 $.07
June 30,1998
---------------------
Balance Sheet Data (Pro Forma):
Working capital $ 4,758,240
Total assets 8,326,402
Long-term debt 1,529,033
Stockholders' equity 4,086,258
</TABLE>
-8-
<PAGE>
Summary Selected Historical Financial Data
Metro-Tel Corp.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
----------------------------------------------------------------
1997 1998
------------------------ ------------------------------
Operating Data
(Historical):
<S> <C> <C>
Net sales $3,882,818 $3,839,077
Operating income (loss) 18,867 509,851
Interest and other income (6,254) (10,181)
Provision for income taxes 13,000 (150,000)
Net income (loss) $ 12,121 $ (349,670)
Per Share Data:
Basic and diluted $.01 $(.17)
earnings (loss) per share
Weighted average shares 2,025,711 2,054,046
outstanding
Balance Sheet Data (Historical):
June 30,1997 June 30,1998
--------------------- --------------------
Working Capital $ 2,225,056 $ 1,761,305
Total Assets 3,554,676 3,532,215
Stockholders' equity 3,163,625 2,813,955
</TABLE>
-9-
<PAGE>
Summary Selected Historical Financial Data
Steiner-Atlantic Corp.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Six Months Ended June 30,
-------------------------------------- --------------------------------------
1996 1997 1997 1998
------------------ ----------------- ----------------- -----------------
Operating Data (Historical):
<S> <C> <C> <C> <C>
Total Revenues $14,015,717 $14,249,441 $6,584,160 $7,834,709
Operating Income 664,331 430,907 359,243 450,312
Interest income 138,426 100,158 55,591 40,390
Management fee income 145,000 40,000 - 150,000
Interest expense (83,543) (80,940) (35,740) (26,509)
Net income $864,214 $510,125 $379,094 $614,193
Pro forma amounts:
Net Income before income
taxes 864,214 510,125 379,094 614,193
Provision for income taxes1 329,935 195,555 144,722 231,939
Pro forma net income $534,279 $314,570 234,372 382,254
Per Share Data:
Pro forma net income 534,279 314,570 234,372 382,254
Weighted average shares
outstanding 339,500 339,500 339,500 339,500
Basic and diluted earnings per $1.57 $.93 $.69 $1.13
share
</TABLE>
December 31,1997 June 30,1998
--------------------- ---------------------
Balance Sheet Data (Historical):
Working Capital $3,392,059 $2,034,879
Total Assets 5,626,588 5,140,584
-10-
<PAGE>
Long-term debt 316,613 216,613
Shareholders' equity 3,436,662 2,113,378
Selected Historical Financial Data. See "SELECTED HISTORICAL FINANCIAL
DATA" for a summary of certain financial information of each of the Company and
Steiner, which consists of certain historical data.
Financial Statements. See "FINANCIAL STATEMENTS" for a description of
certain financial statements of both the Company and Steiner annexed hereto.
- --------
1 The pro forma provision for income taxes have been completed as if Steiner -
Atlantic Corp. were a C corporation for tax purposes.
-11-
<PAGE>
Proposal 2: Amendment to Certificate of Incorporation to Increase
Authorized Common Stock
In order to have a sufficent number of shares of its Common Stock
authorized and available for issuance to complete the Merger in accordance with
its terms, the Company has agreed to amend its Certificate of Incorporation to
increase the authorized number of shares of the Company's Common Stock from
6,000,000 to 15,000,000. The text of the proposed amended section of the
Company's Certificate of Incorporation attached to this Proxy Statement in the
form of Exhibit C (the "Proposed Amendment"). The adoption of the amendment to
the Company's Certificate of Incorporation is a condition precedent to Steiner's
obligation to consummate the Merger and the Board of Directors recommends a vote
"FOR" approval of the amendment to the Company's Certificate of Incorporation.
The amendment of the Company's Certificate of Incorporation is subject to, and
would become effective only upon, consummation of the Merger. It is a condition
to Steiner's obligation to consummate the Merger that the amendment to Company's
Certificate of Incorporation be adopted. See "PROPOSAL NO. 2 - AMENDMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION."
Proposal 3: Amendment of the 1991 Plan
The Company's Board of Directors has approved an amendment to the
Company's 1991 Stock Option Plan (the "1991 Plan"), in order to increase the
number of stock options that a stock option committee would be allowed to grant
from 250,000 to 850,000, so that , pursuant to the Merger Agreement, stock
options may be granted to current employees of Steiner, other than Steiner's
shareholders, to purchase up to 500,000 shares of the Company's Common Stock at
an exercise price equal to the greater of the fair market value per share on the
Closing Date or $1.00 per share. The adoption of the amendment to the 1991 Plan
by the Company's stockholders is a condition precedent to Steiner's obligation
to consummate the Merger, and the Board of Directors recommends a vote "FOR"
approval of the amendment to the 1991 Plan. The amendment of the 1991 Plan is
subject to, and would become effective only upon, consummation of the Merger. It
is a condition to Steiner's obligation to consummate the Merger that the
amendment to the 1991 Plan be adopted. See "PROPOSAL NO. 3 - AMENDMENT OF THE
1991 PLAN."
Proposal 4: Election of Directors
Stockholders will be asked to elect four directors to serve until the
Company's next Annual Meeting of Stockholders and until their successors are
elected and qualified (or, in the case of Michael Michaelson and Michael
Epstein, the consummation of the Merger, if earlier). Michael Epstein, Lloyd
Frank, Venerando J. Indelicato and Michael Michaelson are the Board's nominees
for director. See "Proposal 4 -- Election of Directors."
---------------
-12-
<PAGE>
VOTING RIGHTS AND PROXY INFORMATION
Proxies in the accompanying form are solicited on behalf of and at the
direction of the Board of Directors, with respect to each matter, each
stockholder is entitled to one vote, exercisable in person or by proxy, for each
share of the Company's Common stock held of record on the Record Date. The
affirmative vote of a majority of the Common Stock outstanding will be required
to approve and adopt the Merger Agreement and Proposed Amendment. The
affirmative vote of a majority of the shares present, in person or by proxy, and
entitled to vote at the Meeting will be required to amend the 1991 Plan. A
plurality of the votes of the shares of the Company's Common Stock present in
person or represented by proxy at the Meeting and entitled to vote is required
with respect to the election of directors. Abstentions are considered as shares
entitled to vote and, therefore, are effectively votes against the Merger
Agreement, Proposed Amendment and amendment to the 1991 Plan. Broker nonvotes
with respect to any matter are not considered as shares entitled to vote.
However, because an affirmative vote of a majority of the outstanding Common
Stock is required to approve and adopt the Merger Agreement and Proposed
Amendment, broker nonvotes will have the same effect as a vote "against" the
Merger Agreement and Proposed Amendment. Broker nonvotes will have no effect on
the outcome of the amendment of the 1991 Plan or on the election of directors.
If any other matters are properly presented at the Meeting for action,
including a question of adjourning the meeting from time to time, the persons
named in the proxies and acting thereunder will have discretion to vote on such
matters in accordance with their best judgment. The Meeting may be adjourned,
and additional proxies solicited, if at the time of the Meeting the votes
necessary to approve and adopt the Merger Agreement, the Proposed Amendment and
amend the 1991 Plan have not been obtained. Any adjournment of the Meeting would
require the affirmative vote of the holders of at least a majority of the shares
of the Company's Common Stock represented at the Meeting (regardless of whether
such shares constituted a quorum).
All Proxies received will be voted in accordance with the
specifications made thereon or, in the absence of any specification, for the
election of all of the nominees named herein to serve as directors and in favor
of each of the other matters proposed in this Proxy Statement by the Board of
Directors. Any Proxy given pursuant to this solicitation may be revoked by the
person giving it at any time prior to the exercise of the powers conferred
thereby by (i) notice in writing or by submitting a later dated proxy to the
Company at 250 South Milpitas Boulevard, Milpitas, California 95035, Attention:
Lloyd Frank, Secretary, (ii) by submitting a later dated proxy, or (iii) by
voting in person, at the Meeting.
-13-
<PAGE>
RISK FACTORS
After giving effect to the Merger, the Company's stockholders will hold
approximately 30% of the issued and outstanding Company's Common Stock. See "--
Terms of the Merger Agreement The Merger; Issuance of Shares." By voting in
favor of the Merger the Company's stockholders will in effect be approving a
transaction which will alter the investment of the Company's stockholders to an
investment in the combined assets of Steiner and the Company. The Company,
therefore, believes that it is important that its stockholders recognize that
their existing investment in the Company will, if the Merger is consummated,
also be subject to the following principal risks relating to the business of
Steiner. The considerations set forth below should be read in conjunction with
the full discussion of Steiner's business and results of operations set forth
elsewhere herein. See "-- STEINER'S BUSINESS," "SELECTED HISTORICAL FINANCIAL
DATA OF STEINER-ATLANTIC CORP.," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
STEINER'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "SELECTED HISTORICAL
FINANCIAL DATA OF THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "FINANCIAL
STATEMENTS."
Reliance on Key Customers. Although during the twelve month period
ended June 30, 1998, no customer of Steiner accounted for more than 10% of
Steiner's gross revenues, the Company's continued success will be dependent upon
its ability to maintain Steiner's existing customers and obtain new customers.
No assurances can be given that the Company will maintain its existing
customers' base or that it will be able to attract new customers. The loss of
one or more of Steiner's large customers or a significant reduction in business
from such customers could have a material adverse effect on the Company. See "--
Steiner's Business - Business - Customers and Markets."
Fluctuations in Demand for Dry-cleaning and Laundry Equipment. Demand
for the dry cleaning and laundry equipment sold by Steiner can be affected by a
number of factors outside Steiner's control. These include, among others, (i)
changes in environmental laws and regulations by governmental entities; (ii)
changes in textile fabrics and clothing that would require less professional dry
cleaning services; and (iii) an economic downturn or recession that reduces
employment or consumer income. As a result of such factors, the amount of dry
cleaning and laundry equipment sold by Steiner is likely to vary from year to
year, and these variations can contribute to fluctuations in the Company's
consolidated operating results from period to period.
Reliance on Key Personnel. Steiner is heavily dependent on the efforts
of Michael S. Steiner and other management personnel. The loss of the services
of one or more of these individuals could have a material adverse effect on the
Company. See "-- Steiner's Business - Executive Officers and Directors."
Highly Competitive Market. The laundry and dry cleaning equipment
distribution business is highly competitive and fragmented with over 100
full-line and partial-line equipment distributors within the United States.
Steiner's management believes that all such distributors are independently owned
and, with the exception of several regional distributors, operate primarily in
local markets.
-14-
<PAGE>
In South Florida, Steiner's primary competition is derived from two full-line
distributors which operate out of the Miami area. In the export market, Steiner
primarily competes with a wholesale distributor located in the Northeast,
Steiner anticipates increased competition from other distributors, as the export
market grows. Competition is based on price, product quality, delivery and
support services provided by the distributor to the customer. Steiner believes
that it competes principally by offering an extensive product selection,
value-added services such as product inspection and quality assurance, toll-free
customer support line, reliability, warehouse location, price and, with the
Aero- Tech line, offers special features and exclusivity. As Steiner expands the
sale of its Aero-Tech line to its distributors, it will compete with over a
dozen manufacturers of dry cleaning equipment whose products are distributed
nationally. Although Steiner believes that no single competitor offers a
comparable combination of products and services, there can be no assurance that
other companies, some with greater financial resources than Steiner, will not
attempt to offer a range of products and services similar to those offered by
Steiner, or otherwise compete more effectively in the laundry and dry cleaning
equipment industry.
Control by Certain Stockholders; Potential for Conflicts of Interest;
Difficulty of Consummating Hostile Takeovers. After the Merger, approximately
69% of the outstanding shares of the Company's Common Stock will be beneficially
owned by Michael S. Steiner and William K. Steiner. See "-- Steiner's Business -
Executive Officers and Directors." As a result, such persons, if they act
together, generally will be able to elect all directors, and will have the power
to approve or disapprove most actions requiring stockholder approval, including
amendments to the certificate of incorporation and by-laws of the Company,
certain mergers or similar transactions, sales of all or substantially all of
the Company's assets and "going private" transactions, and the power to prevent
or cause a change in control of the Company. In the future, these situations
could make the acquisition of control of the Company and the removal of then
existing management more difficult.
Borrowing by Steiner. The Company presently has no outstanding
borrowings and its assets are unencumbered. Steiner presently has approximately
$1,416,000 in debt. After the Merger, Steiner intends to refinance and increase
its indebtedness by approximately $1,000,000 by borrowing $2,400,000 from a bank
to fund a cash distribution to shareholders prior to the Merger. The bank loan
will be guaranteed by the Company and collateralized by a first security
interest in the assets of Steiner and the Company. The bank loan is contingent,
among other things, on a satisfactory review of current interim financial
statements of Steiner and the Company, satisfactory credit and trade references
on the Company and renewal of Steiner's existing line of credit, as to which,
personal guarantees of William K. Steiner and Michael S. Steiner are to be
released. The bank loan will contain financial covenants with respect to debt
service coverage and leverage.
Dilution. The tangible net book value per share of the Company's Common
Stock as of June 30, 1998 was approximately $1.00 per share. The tangible net
book value per share of Steiner's Common Stock as of June 30, 1998 was
approximately $.45 per share (after giving effect to the exchange of all of
Steiner's Common Stock for 4,720,954 shares of the Company's Common Stock upon
the consummation of the Merger). After giving effect to the pro forma
adjustments and
-15-
<PAGE>
assuming no other changes in the Company's or Steiner's tangible net book value
since June 30, 1998, and that 4,720,954 shares of the Company's Common Stock are
issued to Steiner's shareholders upon the consummation of the Merger, the
tangible net book value per share of the Company's Common Stock would be
approximately $.55 per share, resulting in an immediate decrease in tangible net
book value per share of approximately $.45 for the Company's shareholders and an
immediate increase in tangible net book value per share of approximately $.10
for Steiner's shareholders.
Absence of Market Prices of Steiner's Common Stock. Prior to the
Merger, there has been a limited trading market for the Common Stock and
Steiner's Common Stock has never been publicly traded. There can therefore be no
assurances as to what the market price of the Company's Common Stock might be
upon consummation of the Merger.
No Present Intention to Pay Dividends. It is not the intention of the
Company, to pay dividends in the immediate future. Rather, it is anticipated
that earnings will, for some period of time, be retained to help finance the
accelerated growth of the Company and its business. See "-- Additional Effects
of the Merger - Dividend Policy of the Company."
Possible Delisting of Securities from Nasdaq System; Risks Relating to
Low-Priced Stocks. The Company's Common Stock is listed on the Nasdaq SmallCap
Market. In order to continue to be listed on Nasdaq, however, the Company must
maintain $2,000,000 in total assets, a $250,000 market value of the public float
and $1,000,000 in total capital and surplus. In addition, continued inclusion
requires two market makers and a minimum bid price of $1.00 per share; provided,
however, that if the Company falls below such minimum bid price, it will remain
eligible for continued inclusion on Nasdaq if the market value of the public
float is at least $1,000,000 and the Company has $2,000,000 in capital and
surplus. The failure to meet these maintenance criteria in the future may result
in the delisting of the Company's securities from Nasdaq, and trading, if any,
in the Company's securities would thereafter be conducted in the non-Nasdaq
over-the-counter market. As a result of such delisting, an investor could find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Company's securities.
-16-
<PAGE>
PROPOSAL NO. 1 - THE MERGER
The description of the Merger Agreement contained in this Proxy
Statement does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement a copy of which is attached to this Proxy
Statement as Exhibit A and incorporated herein by reference.. All shareholders
are urged to carefully read the Merger Agreement, as well as the other Exhibits,
in their entirety.
General Description
The Merger Agreement provides for a business combination between the
Company and Steiner in which a wholly-owned subsidiary of the Company would be
merged into Steiner and the holders of Steiner's stock would receive shares of
the Company's Common Stock in a transaction intended to qualify as a tax-free
reorganization for federal income tax purposes. As a result of the Merger,
Steiner would become a wholly-owned subsidiary of the Company.
Effective Date Of The Merger
The Merger will become effective upon the filing of Articles of Merger
and Plan of Merger, in the form attached as Appendix 1 to the Merger Agreement
(the "Certificates of Merger"), with the Department of State of the State of
Florida (the "Effective Date"). The Certificates of Merger will be filed as
promptly as practicable after the approval by the Company's stockholders has
been obtained and all other conditions to the Merger have been satisfied or
waived. It is presently expected that the Merger will be consummated on or about
November [ ], 1998, or as soon thereafter as such conditions are satisfied.
Background of Merger
Negotiations with Steiner. Between January 1997 and July 1997, the
Company on its own pursued the competitive advantages and increased shareholder
value that could be obtained by means of a strategic combination with another
business entity. In July 1997, the Company retained Slusser Associates, Inc.
("Slusser"), as the Company's financial advisor to contact potential merger
partners and others to ascertain their possible interest in a transaction with
the Company. Over 30 parties were contacted by Slusser, including telephone test
equipment manufacturers, financial buyers, and foreign entities during the
period beginning October 1997 and ending in May 1998.
In late November 1997, Slusser suggested to Venerando J. Indelicato,
the Company's president, that Steiner might be an attractive merger partner for
the Company. During December 1997, various discussions of a possible business
combination with Steiner were held between Mr. Indelicato and representatives of
Slusser. On December 4, 1997, an initial meeting was held at the offices of
Steiner in Miami, Florida among William K. Steiner, Chairman, Michael S.
Steiner, President of Steiner, Mr. Indelicato and a representative of Slusser to
explore a potential business
-17-
<PAGE>
combination. On December 22, 1997, a further meeting was held at the offices of
the Company in Milpitas, California between William K. Steiner, Richard Wildman,
Executive Vice President of the Company, and a representative of Slusser to
review the business of the Company and how the Company and Steiner might work
together.
On January 10, 1998, Mr. Indelicato and two representatives of Slusser
met in Miami, Florida with Messrs. William K. Steiner and Mr. Michael S.
Steiner, to discuss a possible business combination. General terms of a business
combination were discussed, but no firm agreement was reached.
Subsequent to the January 10, 1998 meeting, Mr. Indelicato, Mr. Wildman
and representatives of Slusser met with representatives of other potential
merger partners to explore if such companies were interested in considering a
transaction with the Company.
On May 12, 1998, Mr. Indelicato and two representatives of Slusser met
with Messrs. William K. Steiner and Michael S. Steiner in Steiner's offices in
Miami, Florida to discuss a possible business combination. Both parties
indicated that any transaction would be subject to due diligence and the
approval of the Board of Directors of each company and various regulatory
agencies.
During the meeting on May 12, 1998, Mr. Indelicato communicated to
Steiner an indication of interest by which Steiner shareholders would receive as
consideration approximately 4,700,000 shares of the Company, and the employees
of Steiner, other than Michael and William Steiner, would be granted incentive
stock options under the 1991 Plan pursuant to which they would be entitled to
purchase approximately 500,000 shares of the Company, as a result of which the
Steiner shareholders would own approximately 70% of the Company.
On Tuesday, May 12, 1998, a Memorandum of Intent was signed between the
Company and Steiner, and, on Friday, May 15, 1998, a public announcement was
made concerning the proposed transaction.
Between May 12, 1998 and July 1, 1998 the parties and their respective
counsel conducted diligence and negotiated the terms of the Merger Agreement.
During that period the Company's auditors reviewed Steiner's accounts, work
papers and audit procedures.
On May 27, 1998 and May 28, 1998 Mr. Indelicato met with Messrs.
William K. Steiner and Michael S. Steiner at Steiner's offices in Miami, Florida
to conduct due diligence with respect to Steiner and on May 28, 1998 counsel to
the Company also met with Messrs. William K. Steiner and Michael S. Steiner at
Steiner's offices to conduct due diligence and examine documents with respect to
Steiner.
On June 25, 1998, the Company's Board of Directors met in New York City
to discuss the transaction with Steiner. The Company's Board determined that the
transaction with Steiner was in
-18-
<PAGE>
the best interest of the Company's shareholders, and authorized the Company's
officers to enter into the Merger Agreement.
On July 6, 1998, the Company and Steiner entered into the Merger
Agreement as of July 1, 1998 and the Company issued a press release stating that
it had signed the Merger Agreement with Steiner.
Other Indications of Interest. The Company has received two other
indications of interest to acquire the assets of the Company or its business for
$3 million or less subject to due diligence and other matters. At meetings of
the Company's Board of Directors on June 25, 1998 and August 13, 1998, the
Company's Board of Directors concluded, based in part on advice from Slusser,
that the merger with Steiner was more advantageous to the Company's shareholders
than the sale of the Company pursuant to the other indications of interest.
Opinion of the Company's Financial Advisor. On June 25, 1998, the
Company's Board of Directors received an oral opinion, which was followed by a
written opinion dated August 12, 1998, from Slusser that, as of such dates, the
consideration to be paid by the Company in connection with the Merger was fair
to the Company and its shareholders from a financial point of view. Slusser has
confirmed its written opinion as of the date of this Proxy Statement.
THE FULL TEXT OF SLUSSER'S OPINION DATED THE DATE OF THIS PROXY
STATEMENT IS ATTACHED AS EXHIBIT B TO THIS PROXY STATEMENT. THE COMPANY'S
SHAREHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY. SLUSSER'S OPINION
IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE PAID BY THE COMPANY
IN CONNECTION WITH THE MERGER FROM A FINANCIAL POINT OF VIEW AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY OF THE COMPANY'S SHAREHOLDERS AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE MEETING. THE SUMMARY OF SLUSSER'S OPINION SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
In rendering its opinion, Slusser (i) reviewed the Merger Agreement;
(ii) reviewed certain publicly available business and financial information
relating to Steiner and the Company; (iii) reviewed certain other information,
including financial projections provided to Slusser by Steiner and the Company
and prepared by Steiner and the Company in the ordinary course of their
respective businesses; and (iv) met with management teams of both Steiner and
the Company to discuss the businesses of Steiner and the Company. Slusser also
considered certain financial and stock market data regarding Steiner and the
Company and compared that data with similar data for other publicly held
companies in businesses similar to those of Steiner and the Company. In
addition, Slusser considered the financial terms of certain other business
combinations that had recently been effected or proposed. Slusser participated
in discussions with Steiner and the Company's management regarding the strategic
aspects of the Merger and considered such other information, financial studies,
analyses and investigations and financial, economic and market data as it deemed
relevant.
-19-
<PAGE>
In connection with its review, Slusser did not independently verify any
of the foregoing information and relied on such information as being complete
and accurate in all material respects. With respect to the financial
projections, Slusser assumed they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Steiner and the Company as to the future financial performance of
Steiner and the Company. In addition, Slusser did not make an independent
evaluation or appraisal of any of the assets of Steiner and the Company.
In connection with rendering its opinion, Slusser considered a variety
of valuation methods. The material valuation methods used are summarized below.
These analyses taken together provided the basis for Slusser's opinion. For
purposes of its analysis, Slusser assumed a price for the Company Common Stock
of $1.0625 per share:
(1) Comparable Company Analysis. Using publicly available information,
Slusser compared selected historical operating and financial data, stock data
and financial ratios for the Company and certain other companies which, in
Slusser's judgment, were deemed relevant to the Company for the purpose of this
analysis.
(2) Selected Transaction Analysis. Using publicly available
information, Slusser analyzed certain transactions which it deemed to be
relevant.
(3) Trading History of the Common Stock. Slusser analyzed the price and
trading volume history for the Company's Common Stock from December 1993 through
the date of the fairness opinion. It was noted that the price of the Company
Common Stock had been trading in anticipation of the Merger.
In preparing its opinion to the Company's Board of Directors, Slusser
performed a variety of financial and comparative analyses, including those
described above. This summary of such analyses does not purport to be a complete
description of the analyses underlying Slusser's opinion. The preparation of a
fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular circumstances.
Therefore, such opinion is not readily susceptible to a summary description. In
arriving at its opinion, Slusser did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Slusser believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and other factors considered by it, without considering all
analyses and factors, could create a misleading view of the processes underlying
its opinion. Slusser made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company, Steiner and Slusser. Any estimates
contained in Slusser's analyses are not necessarily indicative of actual values,
which may be significantly more or less favorable than as set forth therein.
Estimates of the financial value of companies do not purport to be appraisals or
necessarily reflect the prices at which companies actually may be sold. Because
such estimates are inherently subject to uncertainty, neither the Company,
Steiner, Slusser nor any other person is responsible for their accuracy.
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In rendering its opinion, Slusser expressed no view as to the range of
values at which the Company's Common Stock may trade following consummation of
the Merger, nor did Slusser make any recommendations to the Company's
shareholders with respect to how such holders should vote on the Merger or to
the advisability of disposing of or retaining the Company's Common Stock
following the Merger.
The Company's Board of Directors selected Slusser as its financial
advisor because Slusser is a recognized investment banking firm with experience
in transactions similar to the Merger. Slusser had previously represented
Steiner from April 1994 until April 1995 in connection with exploring strategic
alternatives. As a part of its investment banking business, Slusser is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements, and valuations for
estate, corporate and other purposes.
Slusser will receive, upon completion of the Merger, total fees of (i)
$100,000 and (ii) 100,000 shares of the Company's Common Stock for acting as
financial advisor to the Company and preparing its fairness opinion. The Company
has also agreed to reimburse Slusser for its out-of-pocket expenses and to
indemnify Slusser against certain liabilities in connection with its engagement.
Slusser previously received a $25,000 fee for financial advisory services
provided to the Company.
Reasons for the Merger; Recommendation of the Company's Board of
Directors. The proposed Merger, including the terms of the Merger Agreement and
the consummation of the transactions contemplated thereby, was submitted to the
Company's Board of Directors and unanimously approved at a meeting held on June
25, 1998. The Board of Directors believes that the Merger is in the best
interests of the Company and its stockholders and recommends to the Company's
stockholders that they vote FOR the Merger. No affiliations exist between the
Company and its officers and directors and Steiner and its officers and
directors.
The Board of Directors believes that the best way to maximize the
prospects of enhancing stockholder value over the long-term would be to merge
the Company with another entity that is profitable, has prospects for future
growth. In the opinion of the Board of Directors, the proposed Merger fits
within these parameters. The Board of Directors was unable to locate an
alternative merger partner which would offer the Company and its stockholders a
better opportunity for increasing stockholder value over the long-term than that
of merging with Steiner. All other offers received consisted of cash
consideration without allowing the Company to participate in the upside
potential of the new company. While there can be no assurances that, given
enough time, another potential merger partner would not have been located, the
Board of Directors believed that it was in the Company's interest to act on the
proposed transaction with Steiner because the Company's was doubtful that it
would obtain a merger partner under more attractive terms in the near future.
Based on the foregoing, the Board of Directors has, subject to the
requisite stockholder approval, approved the Merger of a subsidiary of the
Company with and into Steiner, in order to realize what the Board of Directors
believes to be the greatest possible value currently obtainable by the Company
for its stockholders' investment in the Company and to provide the Company's
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stockholders with an attractive long-term investment. See "-- Steiner's
Business." In determining that the Merger is fair and in the best interests of
the Company and its stockholders, the Board of Directors considered and analyzed
a number of factors, including the following:
1. The long-term potential of Steiner's established, profitable and
growing business, especially considering the benefits to its growth prospects of
the Company's business, its status as a public company and the existing trading
market on the NASDAQ for the Company's Common Stock.
See "-- Steiner's Business."
2. The terms and conditions of the Merger Agreement, including the fact
that the Company's stockholders would, upon the consummation of the Merger, own
approximately 30% of the Company's Common Stock (subject to minor adjustment
in certain events). See "-- Terms of the Merger Agreement - The Merger; Issuance
of Shares."
3. The historical financial information concerning Steiner and its
business that was presented to the Board. See "FINANCIAL STATEMENTS."
4. The Board's determination, based upon the cumulative business and
financial experience of its members, of the relative values of the Company and
Steiner. (For a further discussion concerning the methodology used by the Board
of Directors in determining the relative values of the Company and Steiner and
the fairness of the Merger to the Company's stockholders from a financial
perspective, see the two paragraphs immediately following the ten listed factors
considered by the Board of Directors in this subsection of the Proxy Statement.)
5. The fact that the Company was advised by the law firm of Parker
Chapin Flattau & Klimpl, LLP, the Company's outside counsel, that the Merger
would not be a taxable transaction for the Company's stockholders. The Company
has since received a legal opinion of such firm to this effect. See "--
Additional Effects of the Merger - Certain Federal Income Tax Consequences of
the Merger."
6. The range of the market price at which the Company's Common Stock
has been traded on the NASDAQ along with the range of market prices at which the
Board estimates that the Company's Common Stock will trade upon consummation of
the Merger. See "MARKET PRICES OF COMMON STOCK; DIVIDENDS" and the two
paragraphs immediately following the ten listed factors considered by the Board
of Directors.
7. The value of the Company in the event that the Merger is not
consummated. In analyzing this factor, the Board of Directors considered (i) the
possibility of identifying another attractive prospective merger partner and
negotiating terms as beneficial to the Company and its stockholders as those set
forth in the Merger Agreement, and (ii) operating the Company at a profit while
exploring the sale of the Company. The Company has reviewed other possible
business combinations, and has concluded that they are not as beneficial to the
Company's shareholders as the proposed Merger.
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8. The fact that the Company's Common Stock will remain outstanding and
traded on the NASDAQ upon the consummation of the Merger, and that the issuance
of shares to Steiner's shareholders as part of the Merger should eventually
increase the public float of the trading market for the Company's Common Stock,
thereby increasing the liquidity of the Company's Common Stock and enhancing
stockholders' value. Absent an earlier registration, shares of the Company's
Common Stock issued to Steiner shareholders upon the consummation of the Merger
would become publicly tradeable beginning two years after the Merger. See "--
Terms of the Merger Agreement - Interests of Certain Directors and Officers of
Steiner" and "-- Additional Effects of the Merger - NASDAQ Listing of the
Company's Common Stock to be Issued in the Merger."
9. The fact that there are no material legal and/or regulatory
impediments to the consummation of the Merger.
10. The fact that, by approving the Merger, the Company's stockholders
would in effect be making an investment in Steiner, and that such an investment
poses various risks (including a dilution of book value and the risks inherent
in investing in a service business) that are not currently inherent in an
investment in the Company. See "-- Risk Factors." There is not, and there has
never been, any affiliation between the Company and Steiner.
In determining the fairness from a financial point of view of the
proposed Merger Agreement to the Company and its stockholders, as well as the
related valuation determinations set forth in items 1 through 4 above, the Board
endeavored to determine the approximate relative values of the Company and
Steiner so that it could determine what percentage of the Company's equity would
be fair to the Company and its stockholders. In evaluating the Company, the
Board, among other factors, looked at the value of the Company's business and
assets.
In evaluating Steiner, the Board reviewed Steiner's business,
personnel, assets and liabilities, in conjunction with both actual and estimated
operating results and the changing of Steiner from an S corporation to a C
corporation. In addition, based upon its review of Steiner's current business
and prospects, as well as its view of the benefits of Steiner's business of
being a public company with a NASDAQ listing, having access to the public equity
markets and being able to benefit from the Company's cash resources, the Board
believed that the proposed Merger would bring long-term benefits to the Company
and its stockholders. The Board also anticipated, based on the financial
information that was available to the Board at the time it made its decision,
that the Company's stockholders would have the ability to sell their shares of
the Company's Common Stock on the existing trading markets therefor at a price
that was likely to exceed the amount the stockholders could expect to receive
upon a sale of the Company or its business to a third party.
In basing its conclusion upon the different considerations discussed
above, the Company's Board of Directors did not assign any relative weight to
the various factors it considered in reaching its decision. Rather, the Board
weighed all of these considerations in their entirety in determining to
recommend the Merger and the Merger Agreement to the Company and its
stockholders. The Board did, however, determine that the financial factors set
forth as items 1 through 5 above, including their
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determination set forth above that the proposed Merger was fair to the Company
and its stockholders from a financial point of view, outweighed the
considerations discussed as items 7 and 10, including the risks set forth in
item 10 above.
Stockholder Approval
The affirmative vote of the holders of a majority of the outstanding
shares of the Company's Common Stock is required to approve "PROPOSAL NO. 1 -
THE MERGER" and "PROPOSAL NO. 2 - AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION", the approval of which is a condition precedent to Steiner's
obligation to consummate the Merger. In addition, the affirmative vote of the
holders of a majority of the outstanding shares of the Company's Common Stock
present and voting at the Meeting is required to approve "PROPOSAL NO. 3 - THE
AMENDMENT TO 1991 PLAN," the approval of which is a condition precedent to
Steiner's obligation to consummate the Merger. Each of the Company's directors
and executive officers has indicated his intention to vote in favor of all of
these proposals. The Company's directors and executive officers beneficially
owned 460,925 shares of the Company's Common Stock as of June 30, 1998,
representing approximately 22.4% of the Company's Common Stock then outstanding.
With respect to the approval of the Merger by Steiner's shareholders,
the affirmative vote of 100% of the outstanding shares of Steiner's common
stock, $.50 par value per share ("Steiner's Common Stock"), is required in order
for Steiner to approve the Proposed Merger. Steiner's two shareholders have
agreed in the Merger Agreement to vote in favor of the Merger.
Terms of the Merger Agreement
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Exhibit A to this Proxy Statement and
is incorporated herein by reference. This summary is qualified in its entirety
by reference to the full text of the Merger Agreement.
The Merger. Pursuant to the Merger Agreement, at the Effective Date,
Metro-Tel Acquisition Corp., a newly formed Florida corporation and wholly-owned
subsidiary of the Company (the "Subsidiary"), will be merged with and into
Steiner, and Steiner will become a wholly-owned subsidiary of the Company.
Closing Date. Consummation of the Merger and the other transactions
contemplated by the Merger Agreement (the "Closing") will, subject to the terms
and conditions in the Merger Agreement, take place within five business days
after the date of the Meeting or as soon thereafter as possible. The date on
which the Closing takes place is referred to as the "Closing Date".
Certificates of Merger. Following the Closing, and the satisfaction or
waiver of the conditions to the Merger set forth in the Merger Agreement, and
provided that the Merger Agreement has not been terminated, the Subsidiary and
Steiner will cause Articles of Merger and a
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Plan of Merger to be prepared, executed, delivered and filed with the Florida
Department of State, upon which the Merger will become effective.
Issuance of Shares. Each share of the Company's Common Stock
outstanding prior to consummation of the Merger will remain outstanding
following the consummation of the Merger. Each share of Steiner's Common Stock
outstanding prior to consummation of the Merger would be converted into 13.90561
shares of the Company's Common Stock, or in the aggregate, 4,720,954 shares of
the Company's Common Stock. The result of such exchange would be that the
holders of Steiner's Common Stock immediately prior to the Merger would own
approximately 69% of the Company's Common Stock upon the consummation of the
Merger, and the holders of the Company's Common Stock immediately prior to the
Merger would own approximately 30% of the Company's Common Stock outstanding
upon the consummation of the Merger. Both Steiner and the Company have agreed in
the Merger Agreement not to issue any common stock or other equity securities
prior to consummation of the Merger. See "-- Terms of the Merger Agreement -
Certain Covenants Prior to Closing."
The shares of the Company's Common Stock being issued to Steiner's
shareholders pursuant to the Merger will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), but rather will be issued to
said shareholders in a transaction exempt from the registration requirements of
the Securities Act by virtue of the company's compliance with the terms and
provisions of Rule 506 of Regulation D promulgated thereunder. Said Rule 506
allows an issuer of securities to offer and sell its securities to an unlimited
number of accredited investors, and up to 35 other non-accredited investors, so
long as certain specified requirements are complied with. Steiner currently has
two shareholders.
Issuance of Stock Options. At the closing, the Company will issue up to
500,000 Incentive Stock Options ("ISO's"), to employees of Steiner, other than
Steiner's Shareholders, under the 1991 Plan (as amended by vote of the Company's
shareholders pursuant to this Proxy Statement), effective as of the Effective
Date, at an exercise price of the greater of $1.00 per share or the market price
on the Closing Date. To the extent the market price on the Closing Date exceeds
$1.00 per share, the ISO's issued will be limited to the number that will yield
an aggregate exercise price of $500,000. To the extent fewer than 500,000 ISO's
are issued, additional Shares of the Company's Common Stock will be issued to
Steiner's shareholders, so that the ISO's and additional shares aggregate
500,000. See "-- PROPOSAL NO. 3 - AMENDMENT TO THE 1991 PLAN".
Management and Operations of the Company After the Merger. The Merger
Agreement provides that, at the Effective Date, each of the Company's and
Steiner's Boards of Directors will consist of five members, two of whom will
have been designated by the Company and three of whom will have been designated
by Steiner. Because of the requirement of the NASDAQ that the Company have two
independent directors, the Company has agreed that the Boards of Directors will
consist of six Members and that Steiner can designate four directors, of which
two will be independent directors. The Company has designated Messrs. Indelicato
and Frank as directors. See "ELECTION OF DIRECTORS - Nominees for Election as
Directors." Steiner has designated Michael S. Steiner,
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William K. Steiner, ___________ and ______________ as directors. For information
concerning Steiner's four nominees for Director, see "-- Information Concerning
Steiner - Executive Officers and Directors." Therefore, assuming that the Merger
occurs and the four directors who are nominated herein are in fact elected,
Messrs. Epstein and Michaelson will not be members of the Company's Board of
Directors, notwithstanding their reelection to the Company's Board of Directors
pursuant to Proposal No. 1 above. William K. Steiner will serve as Chairman of
the Company's Board of Directors.
Pursuant to the Merger Agreement, at the Effective Time the following
individuals will serve as the executive officers of each of the Company and
Steiner in the following capacities:
Name Position
---- --------
Michael S. Steiner President and
Chief Executive Officer
Venerando J. Indelicato Chief Financial Officer
For information on Mr. Steiner, who is currently serving as President
and Chief Executive Officer of Steiner, see " -- Steiner's Business - Executive
Officers and Directors." For information concerning Mr. Indelicato, who is
currently serving as President and Treasurer of the Company, see "ELECTION OF
DIRECTORS - Nominees for Election as Director." All officers of the Company and
Steiner who are not executive officers will retain their positions following the
Effective Time.
Amendment of the Company's Certificate of Incorporation. The proposed
amendment to the Company's Certificate of Incorporation (the "Proposed
Amendment"), if adopted, will increase the number of authorized shares of the
Company's Common Stock from 6,000,000 to 15,000,000. See, "PROPOSAL NO. 2 -
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION". As of the date of this
Proxy Statement, there were 2,054,046 shares of the Company's Common Stock
issued and outstanding. Upon the consummation of the Merger, an additional
4,820,954 shares of the Company's Common Stock will be issued, increasing the
outstanding shares of the Company's Common Stock to 6,875,000. Therefore, the
Merger could not be effected without increasing the number of authorized shares
of the Company's Common Stock. In addition to the shares of the Company's Common
Stock that will be issued and outstanding upon the consummation of the Merger,
850,000 shares of the Company's Common Stock will be reserved for issuance
pursuant to the 1991 Plan (see "PROPOSAL NO. 3 - AMENDMENT OF THE 1991 PLAN"),
and 100,000 shares will be issued to Slusser. See "THE MERGER - Background of
the Proposed Merger - Opinion of the Company's Financial Adviser". The Company
would then have available for future use approximately 7,275,000 shares of the
Company's Common Stock that are both unissued and unreserved.
No Solicitations. Each of the Company, Steiner and its shareholders has
agreed, from May 12, 1998 until the Effective Date, not to, directly or
indirectly, (i) solicit or initiate any discussion
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with, or (ii) enter into negotiations or agreements with, or furnish any
information to any person or entity concerning any proposal for a merger, sale
of substantial assets, sale of shares of stock or securities or other takeover
or business combination transaction (an "Acquisition Proposal") involving the
Company or Steiner, provided, however, that there is no prohibition from taking
any action described in clause (ii) above, to the extent such action is
authorized by the Board of Directors of the Company or Steiner, respectively, in
the exercise of such Board's good faith judgment as to the fiduciary duties to
shareholders, which judgment is based upon the written advice of independent
outside legal counsel that a failure of such Board of Directors to take such
action would be likely to constitute a breach of its fiduciary duties to
shareholders.
Representations and Warranties. The Merger Agreement contains various
representations and warranties. The representations and warranties of the
Company and Steiner, with exceptions, relate to, among other things: (a) the
Company's and Steiner's organization and good standing; (b) their
capitalization; (c) the due authorization by them and binding effect on them of
the Merger Agreement; (d) their ownership interests in other entities; (e) their
corporate power and authority; (f) the absence of restrictions and conflicts
with the Merger Agreement; (g) the Company's reports filed with the Securities
and Exchange Commission; (h) the Company's and Steiner's financial statements
and records; (i) there being no material undisclosed liabilities; (j) the
absence of certain changes with respect to the Company since March 31, 1998, and
Steiner since December 31, 1997, including the absence of any material adverse
change in the Company's and Steiner's businesses, results of operations, working
capital, condition, prospects or manner of conducting their businesses; (k) the
Company's and Steiner's tax returns and payment of taxes; (l) the title and
condition of the Company's and Steiner's assets; (m) the Company's and Steiner's
intellectual properties; (n) their contracts; (o) their licenses and permits;
(p) the Company's and Steiner's compliance with laws; (q) their insurance and
surety agreements; (r) certain relationships; (s) their employee benefit plans;
(t) the Company's and Steiner's labor relations; (u) the Company's and Steiner's
compliance with provisions of the Foreign Corrupt Practices Act of 1977, as
amended; (v) environmental matters with respect to Steiner; (w) the brokers and
finders retained in connection with the contemplated transactions; and (x) the
accuracy of information furnished to the Company and Steiner. Except for
Steiner's representations respecting taxes, the representations and warranties
contained in the Merger Agreement will not survive the Closing and the Merger.
Conduct of Business Prior to Closing. During the period until the
Closing Date, the Company and Steiner have agreed, among other things, to
conduct their operations in the ordinary and usual course of business,
consistent with past and current practices and to use their best efforts to
maintain and preserve intact their business organization and goodwill, to retain
the services of their key officers and employees and to maintain satisfactory
relations with their customers, suppliers and others having business
relationships with them. Without limiting the foregoing, the Company and Steiner
have agreed not to, among other things, incur (except that Steiner may (i)
reasonably borrow under its $2,250,000 existing line of credit commitment, and
(ii) borrow from an institution on terms reasonably satisfactory to the Company
an amount sufficient to pay Steiner's shareholders' bonuses and a distribution
in an aggregate amount equal to Steiner's earnings and profits from January 1,
1998 to the Closing Date) or prepay obligations, encumber assets or sell assets
outside the ordinary course
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of business, commit to material capital expenditures, increase employee
compensation or benefits or issue shares or grant options, warrants or rights to
purchase capital stock or securities convertible into or exchangeable for
capital stock.
Certain Covenants. Each of Steiner and the Company have agreed, among
other things, to advise the other in writing of any event or the existence of
any state of facts that (a) would make any of its representations and warranties
in the Merger Agreement untrue in any material respect or (b) would otherwise
constitute a material adverse change in its business, results of operation,
working capital, assets, liabilities or condition (financial or otherwise) or
prospects. In addition, each of the parties to the Merger Agreement have agreed
to use its best efforts to: (a) proceed promptly to make or give the necessary
applications, notices, requests and filings in order to obtain at the earliest
practicable date and, in any event, before the Closing Date, the approvals,
authorizations and consents necessary to consummate the transactions
contemplated by the Merger Agreement; (b) cooperate with and keep the others
informed of any matter which may result in a failure by such party to fulfill
any covenant of such party or which may provide the other party with a right to
terminate the Merger Agreement; and (c) take such actions as the other parties
may reasonably request to consummate the transactions contemplated by the Merger
Agreement and use its best efforts and diligently attempt to satisfy, to the
extent within its control, all conditions precedent to the obligations to close
the Merger Agreement.
Indemnification. Michael S. Steiner and William K. Steiner, Steiner's
sole shareholders (the "Agreement Shareholders") have agreed to indemnify and
hold Steiner, the Company and their affiliates (collectively, the "Indemnified
Parties") harmless on an after-tax basis from and against the full amount of any
loss, claim, damage, liability, cost or expense (including attorneys' fees),
judgments, fines and amounts paid in settlement of any claim, action, suit,
proceeding or investigation, resulting to the Indemnified Parties (collectively,
a "Loss"), either directly or indirectly, from any breach of or inaccuracy in
the representations and warranties, or covenants and agreements respecting taxes
made by Steiner in the Merger Agreement.
Conditions Precedent. The respective obligations of the Company and
Steiner to consummate the Merger are subject to the fulfillment of several
conditions, including among others, that:
(a) the Merger Agreement will have been approved and adopted by the
affirmative vote of the holders of a majority of all of the outstanding shares
of the Company's Common Stock;
(b) no action or proceeding before any court or administrative agency,
by any government agency or any other person will have been instituted or
threatened challenging or otherwise relating to the Merger, or which otherwise
would, if adversely determined, materially and adversely affect Steiner or the
Company;
(c) no action, statute, rule or regulation will have been proposed or
enacted by any federal, state, or foreign government or governmental agency
which would render the parties unable
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to consummate the Merger or make the Merger illegal or prohibit, restrict or
delay consummation of the Merger; and
(d) other than the filing of Articles of Merger, all authorizations,
consents, orders or approvals of, or declarations or filings with, or
expirations or terminations of waiting periods imposed by any governmental
authority, the failure to obtain which would have a material adverse effect on
Steiner and its subsidiaries, will have been filed, occurred or been obtained.
Except as may be waived by the Company, the obligation of the Company
to consummate the transactions contemplated by the Merger Agreement is subject
to the satisfaction of the following conditions, among others:
(a) Steiner will have, or will have caused to be, satisfied or complied
with and performed in all material respects all terms, covenants and conditions
of the Merger Agreement to be satisfied, complied with or performed by Steiner;
(b) all of the representations and warranties made by Steiner in the
Merger Agreement and in all certificates and other documents delivered to the
Company pursuant to or in connection with the transactions contemplated by the
Merger Agreement will have, in general, been true and correct in all material
respects as of the date of the Merger Agreement, and will be true and correct in
all materials respects at the Closing Date;
(c) the Company shall have received certain opinions from Greenberg
Traurig, P.A., counsel to Steiner;
(d) there shall not have occurred since December 31, 1997, with
exceptions, a material adverse change in the business, results of operations or
prospects of Steiner;
(e) Steiner will have obtained the written consent of William K.
Steiner to the assignment to the Surviving Corporation of the October 6, 1995
lease between William K. Steiner and Steiner covering 290 N.E. 68 Street, 297
N.E. 67 Street, and 277 N.E. 67 Street, Miami, Florida 33138 (the "Premises"),
which written consent will contain an absolute and unconditional indemnification
and hold harmless of the Company, Steiner and their affiliates from and against
the full amount of any loss, claim, damage, liability, cost or expense
(including attorneys' fees), judgments, fines and amounts paid in settlement of
any claim, action, suit, proceeding or investigation relating to any alleged
violations of Environmental Law with respect to any actual or alleged
environmental contamination or the release of any hazardous substances at or on
the Premises;
(f) Steiner will have entered into an agreement, on terms reasonably
satisfactory to the Company, with Weissco Development Inc. ("Weissco") and
William K. Steiner and Michael S. Steiner, pursuant to which, among other
things, Weissco agrees to pay 100% of its pre-tax profits to the Surviving
Corporation as a management fee; and
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Except as may be waived by Steiner, the obligation of Steiner to
consummate the transactions contemplated by the Merger Agreement is subject to
the satisfaction of the following conditions, among others:
(a) the Company will have, or will have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants and
conditions of the Merger Agreement to be satisfied, complied with or performed
by the Company;
(b) all of the representations and warranties made by the Company in
the Merger Agreement and in all certificates and other documents delivered by
the Company pursuant to the Merger Agreement or in connection with the
transactions contemplated thereby will have been true and correct in all
material respects as of the date of the Merger Agreement, and will be true and
correct in all material respects at the Closing Date;
(c) Steiner will have received certain opinions from Parker Chapin
Flattau & Klimpl, LLP, counsel to the Company, and from Greenberg Traurig, P.A.,
counsel to Steiner; and
(d) there will not have occurred since March 31, 1998, a material
adverse change in the business, results of operations or prospects of the
Company.
Registration Rights. The shares of the Company's Common Stock to be
received by William K. Steiner and Michael S. Steiner (the "Agreement
Shareholders"), will not be registered under the Securities Act. The Merger
Agreement provides that, on request by an Agreement Shareholder, the Company, at
its expense, will prepare, file and cause to become and remain effective, a
registration statement to register the shares of the Company's Common Stock
received by the Agreement Shareholders pursuant to the Merger Agreement. The
Agreement Shareholders can also request registration of their shares of the
Company's Common Stock if the Company registers any other shares of the
Company's Common Stock, with exceptions. The Company and the Agreement
Shareholders have each agreed to indemnify the other from losses, damages,
liabilities, costs or expenses caused by an untrue statement or omission
contained in the registration statement, unless made in reliance on information
furnished by, or on behalf of, the other party.
Termination. The Merger Agreement provides that it may be terminated
and the Merger may be abandoned at any time on or before the Closing Date:
(a) by mutual consent of Steiner and the Company;
(b) by the Company or Steiner if the Company or Steiner receives
an Acquisition Proposal under circumstances that do not violate the no
solicitations provisions of the Merger Agreement. See "THE MERGER - Terms of the
Merger Agreement - No Solicitations";
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(c) by the Company or Steiner if the other receives an Acquisition
Proposal under circumstances that do violate the no solicitations provisions of
the Merger Agreement. See "THE MERGER - Terms of the Merger Agreement - No
Solicitations";
(d) by Steiner if there has been a material misrepresentation or breach
of warranty in the representations and warranties of the Company set forth in
the Merger Agreement, or if there has been any material failure on the part of
the Company to comply with its obligations under the Merger Agreement which
failure, if capable of cure, is not cured within 30 days after the giving of
written notice thereof to the Company by Steiner;
(e) by the Company if there has been a material misrepresentation or
breach of warranty in the representations and warranties of Steiner set forth in
the Merger Agreement or if there has been any material failure on the part of
Steiner to comply with its obligations under the Merger Agreement which failure,
if capable of cure, is not cured within 30 days after the giving of written
notice thereof to Steiner by the Company; or
(f) by either Steiner or the Company if the transactions contemplated
by the Merger Agreement have not been consummated by December 31, 1998, unless
such failure of consummation is due to the failure of the terminating party to
perform or observe any covenant, agreement or condition set forth in the Merger
Agreement to be performed or observed by it at or before the Closing Date.
Absence of Dissenter's Rights of Appraisal for the Company's Stockholders
Under the DGCL, holders of the Company's Common Stock will not be
entitled to rights of appraisal in connection with the Merger. The DGCL does not
provide for appraisal rights with respect to the shares of any class or series
of stock which, at the record date fixed to determine the stockholders entitled
to receive notice of and vote at the meeting of stockholders to consider the
agreement of merger, was listed on a national securities exchange or designated
as a national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. Since, on the Record Date for
the Meeting, shares of the Company's Common Stock were listed on the NASDAQ, a
national securities exchange, the Company's stockholders will not be entitled to
appraisal rights with respect to the Merger. However, a holder of the Company's
Common Stock outstanding on the Record Date who is not in favor of "PROPOSAL NO.
1 - THE MERGER," or any other action that is proposed to be taken by the Company
as contemplated hereby (or otherwise), may, in addition to voting against such
proposal(s) and subject to compliance with applicable federal and state
securities laws, dispose of all or any part of such Common Stock.
Additional Effects of the Merger
Accounting Treatment of the Merger. The Merger, if consummated as
proposed, will for accounting and financial reporting purposes be treated as a
reverse acquisition in accordance with
-31-
<PAGE>
generally accepted accounting principles, with Steiner being deemed to be the
acquiring party and the Company being deemed to be the acquired party
(notwithstanding the fact that, as a matter of corporate and securities laws,
the Company will survive the Merger as the parent of Steiner), with Steiner
being deemed to be acquiring the Company in return for an approximate 30% equity
interest in Steiner. After consummation of the Merger, the results of operations
of the Company will be included in the consolidated financial statements of
Steiner, which consolidated financial statements will be the consolidated
financial statements for the Company.
Certain Federal Income Tax Consequences of the Merger. The Company has
received a written opinion from Parker Chapin Flattau & Klimpl, LLP, counsel to
the Company, as to the following material U.S. federal income tax consequences
of the Merger:
(a) the Merger will constitute a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code;
and
(b) no income, gain, or loss will be recognized by either the
Company or its stockholders as a result of the consummation of the Merger.
Steiner has received a written opinion from Greenberg Traurig, P.A.,
counsel to Steiner, as to the following material U. S. federal income tax
consequences of the Merger:
(a) the Merger will constitute a reorganization within the
meaning of Sections 368 (a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code;
(b) no gain or loss will be recognized by Steiner's
shareholders as a result of the Merger;
(c) the tax basis of the Company's Common Stock to be received
by Steiner's shareholders will be equal to the tax basis of their Steiner Common
Stock and the holding period of their Company's Common Stock will include the
holding period of their Steiner Common Stock; and
(d) Steiner will not recognize gain or loss as a result of the
Merger.
NASDAQ Listing of the Company's Common Stock to be Issued in the
Merger. The Company is filing an application for the listing with the NASDAQ of
the shares of the Company's Common Stock which will be issued to Steiner's
shareholders upon consummation of the Merger and intends to cause such
application to be approved by the NASDAQ prior to the Effective Date. Since the
Company does not currently have a sufficient number of authorized shares of its
Common Stock to issue to Steiner's shareholders at the Effective Date, or list
with the NASDAQ, the Company must authorize additional shares of its Common
Stock. Accordingly, the Company is proposing to amend its Certificate of
Incorporation at or prior to the Effective Date to increase the number of shares
of the Company's Common Stock which the Company is authorized to issue from
6,000,000 shares to 15,000,000 shares. The affirmative vote of the holders of a
majority of the outstanding shares of the
-32-
<PAGE>
Company's Common Stock is needed to adopt the Amended Certificate. The Proposed
Amendment will become effective only on consummation of the Merger. See "THE
MERGER - Stockholder Approval". The Company intends to use its best efforts to
cause the application for the listing of additional securities with the NASDAQ
to be approved by NASDAQ. The Company has received preliminary indications from
the NASDAQ that such application will be approved. Notwithstanding such listing,
the shares which will be issued to Steiner's shareholders upon consummation of
the Merger will be subject to restrictions on transferability under federal and
state securities laws. See "THE MERGER - Terms of the Merger Agreement -Issuance
of Shares."
Dividend Policy of the Company. It is not the intention of the Company
after the Effective Time to pay dividends in the immediate future. Rather, it is
anticipated that earnings will, for some period of time, be retained to help
finance the accelerated growth of the Company and its business.
Possibility that the Merger Will Not Be Consummated. There are a number
of conditions to the obligations of both the Company and Steiner under the
Merger Agreement to consummate the Merger. See " -- Terms of the Merger
Agreement - Conditions to Closing." These conditions include the approval of the
Company's stockholders.
It is expected that if the Merger is not approved by the Company's
stockholders, or if the Merger is not consummated for any other reason, the
Company's management will continue to manage the Company while it continues to
pursue its strategic alternatives. The primary alternative would be to attempt
to locate and negotiate the terms of a merger with another merger partner. No
assurance can be given that another merger partner could be located or that, if
located, the terms of a merger agreement with another merger partner would be,
to the extent comparable, as favorable to the Company and its stockholders as
the Merger Agreement. The secondary alternative would be to continue to operate
the Company's business on a profitable basis, while exploring the possibility of
a sale of the Company or its business to a third party. The Company does not
believe that any of these alternatives would provide the same prospects for
enhancing stockholder value as the Merger. For these reasons, the Company's
Board of Directors believes that the consummation of the Merger is the best
alternative for the Company and its stockholders. See "-- Background of the
Proposed Merger."
-33-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF STEINER-ATLANTIC CORP.
The following selected historical financial data of Steiner for each of
the years ended December 31, 1996 and 1997, and as of the end of each of those
years have been derived from the financial statements of Steiner, which have
been audited by BDO Seidman, LLP, independent auditors. The selected financial
data presented below for the periods ended as of such dates June 30, 1997 and
1998, have been derived from unaudited financial statements of Steiner. Such
unaudited financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information set
forth therein. The selected financial data of Steiner should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF STEINER." and the financial statements of Steiner
and the notes thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------- --------------------------
1996 1997 1997 1998
(unaudited)
<S> <C> <C> <C> <C>
Operating Results:
- -----------------
Net Sales............................. $13,857,817 $14,093,632 6,511,446 7,747,321
Commissions and other income.......... 157,900 155,809 72,714 87,388
Total................................. 14,015,717 14,249,441 6,584,160 7,834,709
Cost of sales......................... 9,953,041 10,344,113 4,628,985 5,686,339
Selling, general and administrative
expenses .................... 3,398,345 3,474,421 1,545,932 1,698,058
Total................................. 13,351,386 13,818,534 6,224,917 7,384,397
Operating Income...................... 664,331 430,907 359,243 450,312
Other Income (Expense):
Interest income.............. 138,426 100,158 55,391 40,390
Management fee income....... 145,000 40,000 __ 150,000
Interest expense............. (83,543) (60,940) (35,740) (26,509)
Total Other Income.................... 199,883 79,218 19,851 163,881
Income Before Income Taxes............ 864,214 510,125 379,094 614,193
Net Income............................ 864,214 510,125 379,094 614,193
Pro forma amounts :
Net income before income
taxes........................ 864,214 510,125 379,094 614,193
Provision for income taxes 329,935 195,555 144,722 231,939
.............................
Pro forma net income.................. 534,279 314,570 234,372 382,254
Pro forma net income per share........ $1.57 $.93 $.69 $1.13
Weighted average number of shares
of common stock
outstanding.................. 339,500 339,500 339,500 339,500
</TABLE>
-34-
<PAGE>
December 31,1997 June 30,1998
--------------------- ---------------------
Balance Sheet Data (Historical):
Working Capital $3,392,059 $2,034,879
Total Assets 5,626,588 5,140,584
Long-term debt 316,613 216,613
Shareholders' equity 3,436,662 2,113,378
-35-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The following table sets forth selected historical financial data of
the Company for the dates and periods indicated. The selected financial data as
of June 30, 1997 and 1998 and for the years then ended, have been derived from
the financial statements of the Company, which have been audited by Grant
Thornton LLP. The selected financial data of the Company should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY" and the financial statements of the
Company including the notes thereto included elsewhere in this Proxy Statement.
Year Ended June 30,
-------------------
1997 1998
---- ----
Operating Results:
Net sales............................... $ 3,882,818 $ 3,839,077
Cost of goods sold...................... 2,413,529 2,570,551
--------- ---------
Gross profit...................... 1,469,289 1,268,516
Selling, general and
administrative expenses.............. 1,212,361 1,249,612
Expenses related to pending
acquisition __ 300,000
Research and development................ 238,061 228,755
Interest and other income............... (6,254) (10,181)
--------- ---------
Earnings (loss) before provision
for income taxes.................. 25,121 (499,670)
Provision for income taxes.............. 13,000 (150,000)
--------- ---------
Net earnings (loss) .............. 12,121 (349,670)
========== ==========
Earnings (loss) per common share
Basic and diluted................... $.01 $(.17)
Weighted average number of
common shares outstanding
Basic and diluted.................... 2,025,711 2,054,046
June 30,
---------------------------------
1997 1998
--------------- ---------------
Balance Sheet Data (Historical):
Working capital 2,225,056 1,761,305
Total assets 3,554,676 3,532,215
Stockholders' equity 3,163,625 2,813,955
-36-
<PAGE>
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The accompanying unaudited pro forma combined condensed financial statements
reflect the historical condensed balance sheets and condensed statements of
operations of the Company and Steiner. The unaudited pro forma combined
condensed financial statements of operations for the year ended December 31,
1997 and for the six months ended June 30, 1998 have been prepared as if the
acquisition had occurred on January 1, 1997. The unaudited pro forma combined
condensed balance sheet has been prepared as if the acquisition occurred on June
30, 1998. The statements are based on accounting for the business combination as
a reverse acquisition, whereby the Company will be the surviving corporate
entity, but Steiner is the accounting acquirer. As Steiner is the accounting
acquirer in a transaction accounted for as a purchase in accordance with
generally accepted accounting principles, the purchase price has been allocated
to the Company's assets and liabilities based upon preliminary estimates of
their respective fair values. The pro forma information may not be indicative of
the results that actually would have occurred if the Merger had been in effect
from and on the dates indicated or which may be obtained in the future.
-37-
<PAGE>
Unaudited Pro Forma Combined
Condensed Balance Sheet
June 30, 1998
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
Metro Tel Steiner-Atlantic Adjustments Combined
---------- ---------------- ----------- ----------
Assets
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 475,508 $ 828,390 $ 1,303,898
Accounts receivable - net 486,144 1,021,213 1,507,357
Inventory 1,434,147 2,767,624 $ 149,314 (1) 4,351,085
Other assets 78,766 228,245 307,011
----------------- ---------------- -------------- ----------------
Total current assets 2,474,565 4,845,472 149,314 7,469,351
Fixed assets - net 151,346 146,461 297,807
Deferred income taxes 133,000 (46,000) (9) 87,000
Goodwill 763,628 (763,628) (2) 313,917
313,917 (3)
Other assets 9,676 148,651 158,327
----------------- ---------------- -------------- ----------------
Total assets $ 3,532,215 $ 5,140,584 $ (346,397) $ 8,326,402
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $ 1,000,000 $ 494,678 (15) -
(1,494,678) (16)
Current portion of long-term debt 200,000 182,258 (16) 382,258
Accounts payable and accrued liabilities $ 713,260 1,221,222 1,934,482
Customer deposits 389,371 389,371
----------------- ---------------- -------------- ----------------
Total current liabilities 713,260 2,810,593 (817,742) 2,706,111
Deferred Income taxes $ 5,000 $ 5,000
Long-term debt 216,613 1,312,420 (16) 1,529,033
Stockholders' equity:
Common stock at par 52,007 169,750 (169,750) (4) 172,531
120,524 (5)
Treasury stock (68,750) (68,750)
Additional paid-in capital 2,152,423 - 381,104 (6) 2,533,527
Retained earnings 678,275 1,943,628 (678,275) (6) 1,448,950
(494,678) (15)
----------------- ---------------- -------------- ----------------
Total stockholders' equity 2,813,955 2,113,378 (841,075) 4,086,258
----------------- ---------------- -------------- ----------------
Total liabilities and stockholders' equity $ 3,532,215 $ 5,140,584 $ (346,397) $ 8,326,402
============ ============= ============ =============
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Combined Condensed Financial Statement
-38-
<PAGE>
Unaudited Pro Forma Combined Condensed Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 Year Ended December 31, 1997
----------------------------------------------------------- --------------------------------------------------------
Historical Historical Pro Forma Pro Forma Historical Historical Pro Forma Pro Forma
Metro Tel Steiner-Atlantic Adjustments Combined Metro Tel Steiner-AtlanticAdjustments Combined
--------- ---------------- ----------- -------- --------- --------------------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 2,086,147 $ 7,747,321 $ 9,833,468 $ 4,148,930 $ 14,093,632 $ 18,242,562
Cost of sales 1,438,571 5,686,339 7,124,910 2,531,317 10,344,113 $ 159,650 (7) 13,035,080
----------- ----------- ---------- ---------- ------------- ------------ ------------- ------------
Gross profit 647,576 2,060,982 2,708,558 1,617,613 3,749,519 (159,650) 5,207,482
Selling, general 959,699 1,698,058 $12,567(10) 1,970,190 1,252,585 3,474,421 (25,133) (8) 3,951,873
and (375,000)(11) (750,000)(11)
administrative (300,000)(12)
Research and 96,660 96,660 218,155 218,155
development
----------- ----------- ---------- ---------- ------------- ------------ ------------- ------------
Operating (408,783) 362,924 687,567 641,708 146,873 275,098 615,483 1,037,454
income (loss)
Interest expense 26,509 69,290(14) 95,799 60,940 162,166(14) 223,106
Interest and other 7,511 277,778 285,289 8,939 295,967 304,906
income
----------- ----------- ---------- ---------- ------------- ------------ ------------- ------------
Income (loss) (401,272) 614,193 618,277 831,198 155,812 510,125 453,317 1,119,254
before tax
Income tax (110,600) 424,487(9) 313,887 78,300 350,763 (9) 429,063
expense (benefit)
----------- ----------- ---------- ---------- ------------- ------------ ------------- ------------
Net income $(290,672) $ 614,193 $193,790 $ 517,311 $ 77,512 $ 510,125 $ 102,554 $ 690,191
(loss) =========== =========== ========== ========== ============= ============ ============= ============
Weighted average shares outstanding
Basic 2,054,046 4,820,954(5) 6,875,000 2,051,268 4,820,954 (5) 6,872,222
Diluted 2,054,046 4,869,554(13) 6,923,600 2,074,668 4,820,954 (5) 6,895,622
Earnings (loss)
per common
share
Basic $ (0.14) $ 0.08 $ 0.04 $ 0.10
Diluted (0.14) 0.07 0.04 0.10
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Combined Condensed Financial Statement
-39-
<PAGE>
Notes To Unaudited Pro Forma Combined Condensed Financial Statements
(1) Adjustment for purchase accounting applied to the Company's net assets
acquired by Steiner.
(2) Adjustment to eliminate goodwill recorded on the Company's historical
financial statements.
(3) To reflect excess of cost over acquired net assets. Such goodwill and
related amortization is subject to possible adjustment resulting from
completion of the valuation of the Company's assets and liabilities.
(4) To reflect elimination of Steiner Common Stock at par purchased by the
Company.
(5) To reflect issuance of 4,720,954 shares of the Company's common stock to
former Steiner stockholders and 100,000 shares to the Company's investment
banking advisor.
(6) To reflect elimination of the Company's historical retained earnings and
adjustment to additional paid-in-capital for purchase accounting.
(7) Adjustment for additional cost of goods sold due to write-up of the
Company's inventory in purchase accounting.
(8) To reflect elimination of amortization on historical Company goodwill of
$29,817 and new amortization on excess of purchase price over acquired net
assets of the Company of $4,684 using an estimated life of 15 years.
(9) The estimated tax effect on the pro forma adjustments and the combined
operations.
(10) To reflect elimination of amortization on historical Company goodwill of
of $14,909 and new amorization on excess purchase price over acquired net
assets of the Company of $2,342 using an estimated life of 15 years.
(11) Adjustment for excess executive compensation over amount agreed upon in
employment agreements that will be entered into upon consummation of the
transaction.
(12) To reflect elimination of $300,000 of non-recurring transaction costs.
(13) To reflect issuance of 4,720,954 shares of the Company's common stock to
former Steiner stockholders and 100,000 shares to the Company's investment
banking advisor and an adjustment of 48,600 shares for the assumed
exercise of outstanding stock options of the Company.
(14) Adjustment for additional interest expense incurred on debt used by
Steiner to pay undistributed S-corporation earnings to Steiner
shareholders per the Merger Agreement.
(15) To reflect additional debt and payment of undistributed S-corporation
earnings to Steiner shareholders. (16) Adjustment to reclassify existing
debt arrangements to term loan.
-40-
<PAGE>
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table presents, for the periods indicated and on the
basis indicated in the footnote to the table, the: (a) book value per common
share and (b) income (loss) from continuing operations per common share: (i) on
a historical basis for the Company and Steiner and (ii) on a pro forma basis for
the Company, assuming the Merger had been effective at January 1, 1997 and June
30, 1997 assuming the Merger had been effective at the date and for the period
presented. The following data should be read in conjunction with the historical
financial statements and the Selected Pro Forma Combined Condensed Financial
Statements of the Company and Steiner included elsewhere in this Proxy
Statement. See "INDEX TO FINANCIAL STATEMENTS".
<TABLE>
<CAPTION>
Per Share of Common Stock
-------------------------
Book Value(1) Income (Loss)(1)
------------- ----------------
<S> <C> <C>
The Company - Historical
As of June 30, 1998 and for the year then ended................ 1.37 (.17)
Steiner - Historical
As of December 31, 1997 and for the year then ended ........... .11
Year ended December 31, 1996 and .............................. .73 .18
As of June 30, 1998 and for the six months then ended ......... .13
Six months ended June 30, 1997................................. .45 .08
The Company Equivalent Pro Forma Combined
Year ended December 31, 1997................................... .10
Six months ended June 30, 1998................................. .08
</TABLE>
- --------
1 Book value and income (loss) per share date for Steiner is based upon
4,720,954 weighted average common shares outstanding for the dates and
-41-
<PAGE>
MARKET PRICES OF COMPANY'S COMMON STOCK; DIVIDENDS
The Company's Common Stock is traded on the NASDAQ. The table below
sets forth for the quarterly periods indicated the high and low closing per
share sales prices for the Company's Common stock, as reported by the NASDAQ:
On May 14, 1998, the trading day preceding the initial public
announcement by the Company of the Merger, the high and low sale prices of the
Company's Common stock on the NASDAQ were 1 1/8 and 7/8 per share, respectively.
On ________, 1998, shortly preceding the date of this Proxy Statement, the high
and low sale prices of the Company's Common Stock on the NASDAQ were ____ and
___ per share, respectively.
The number of record holders of the Company's Common Stock as of _____,
1998 was ___.
No cash dividends were declared or paid in 1998, 1997 or in 1996. The
Merger Agreement prohibits the Company from declaring or paying any dividends
prior to the consummation of the Merger. See "THE MERGER - Terms of the Merger
Agreement - Certain Covenants Prior to Closing". It is not the intention of the
Company upon the consummation of the Merger to pay dividends in the immediate
future. Rather, it is anticipated that earnings will, for some period of time,
be retained to help finance the growth of the Company and its business. See "THE
MERGER - Additional Effects of the Merger - Dividend Policy of the Company."
-42-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF STEINER'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto contained elsewhere in this Proxy
Statement.
Results of Operations.
Comparison of Six Months Ended June 30, 1998 and. June 30, 1997.
Net sales increased by $1,235,875 (19.0%) during the six month period
ending June 30, 1998 from the same period of 1997. Sales of dry-cleaning
equipment decreased by 12.2% due to a decrease in the number of dry-cleaning
plants being opened. This decrease was offset by increases in sales of laundry
equipment (65.6%), coin laundry equipment (16.9%) and spare parts (11.5%).
Steiner's gross profit margin, expressed as a percentage of net sales,
decreased during the first six months of 1998 to 26.6% from 28.9% for the same
period of 1997. The decrease is mostly attributable to the change in the mix of
product sales.
Commissions and other income increased by $14,674 (20.2%) during the
six month period of 1998 compared to the same period of 1997.
Selling, general and administrative expenses increased by $102,126
(6.4%) during the six month period of 1998 but as a percentage of total revenues
decreased to 21.7% from 24.8% during the same period of 1997. This increase was
primarily due to increases in salaries (4.9%), telephone expenses (61.0%),
professional fees (23.1%), conventions (64.4%), maintenance and repairs (102.8%)
miscellaneous expenses (69.4%) and bad debt expenses of $39,948. These increases
were mostly offset, by reductions in commissions (54.0%), advertising (9.7%),
office expense (16.6%) and depreciation and amortization (19.7%).
Other income increased by $144,030 (from $19,851 to $163,881), mostly
due to an increase in management fees from an affiliated company. The Company
believes that interest expense will increase as a result of increased borrowings
to fund a cash distribution to shareholders prior to completion of the Merger.
Comparison of Years Ended December 31, 1997 vs. December 31, 1996.
Net sales increased by $235,815 (1.7%) in 1997 over 1996. Sales of dry
cleaning equipment decreased by 16.4% due to a decrease in the number of dry
cleaning plants being opened. This decrease in sales of dry cleaning equipment
was offset by increases in sales of laundry equipment (4.3%), coin laundry
equipment (32.6%) and spare parts (16.8%).
-43-
<PAGE>
Steiner's gross profit margin, expressed as a percentage of sales,
decreased to 26.6% in 1997 from 28.2% in 1996. The decrease in gross profit
margin is mainly attributable to the change in the mix of product sales.
Commissions and other income decreased by $2,091 (1.3%) in 1997 over
1996.
Selling, general and administrative expenses increased in 1997 by
$76,076 (2.2%) and as a percentage of sales to 24.6% from 24.5% in 1996. This
increase was primarily due to increases in salaries (2.0%), payroll taxes
(23.4%), commissions (14.1%) and a one time loss associated with an
international transaction. These increases were largely offset by reductions in
telephone expense (17.4%), depreciation and amortization (13.5%), convention
expenses (55.7%), postage and freight (55.2%) and maintenance and repairs
(35.7%).
Other income decreased by $120,665 (60.4%) in 1997 over 1996, mainly
due to a reduction in management fee income associated with an affiliated
company.
Financial Position and Liquidity
For the six month period ending June 30, 1998, cash increased by
$196,059. Of the cash generated by operating activities ($1,748,579), $614,193
was derived from net income and $15,621 was derived from non-cash expenses for
depreciation and amortization along with $39,948 for bad debt expense.
Additional cash from operating activities was provided by a decrease in
inventories ($340,679), a decrease in accounts and lease receivables ($251,443)
and a decrease in other assets ($49,415). Cash also increased due to an increase
in accounts payable ($352,187) and customer deposits ($85,093). Cash of $15,043
was used in investing activities to purchase capital assets. Cash of $1,537,477
was used in financing activities for the repayment of debt ($100,000) and to
fund a cash distribution to shareholders ($1,937,477) which offset new
borrowings of $500,000 from Steiner's line of credit. Steiner believes that the
cash which it expects to generate from operations will be sufficient to meet
operational needs in 1998, however Steiner is anticipating increased borrowing
to fund future distributions to shareholders at the completion of the Merger.
During the year ended December 31, 1997 cash increased by $49,492. Of
the cash generated by operating activities ($446,618), $510,125 was derived from
net income and $34,643 was derived from non-cash expenses for depreciation and
amortization along with $21,799 for bad debt expense. Additional cash from
operating activities was provided by a decrease in inventories ($73,249), an
increase in accounts payable and accrued expenses ($70,597) and an increase in
customer deposits ($124,406). These were offset by an increase in accounts and
lease receivables ($373,356) and other assets ($14,845). Cash of $80,406 was
used in investing activities to purchase capital assets ($30,406) and invest in
an affiliate ($50,000). Cash of $316,720 was used in financing activities to
support additional borrowings ($500,000), repayment of debt ($216,720) and to
fund a cash distribution to shareholders ($600,000). Steiner believes that the
cash which it expects to generate from operations will be sufficient to meet
operational needs in 1998.
-44-
<PAGE>
STEINER'S BUSINESS
Business.
General. Founded in 1960, Steiner is a supplier of dry cleaning
equipment, industrial laundry equipment and steam boilers, offering over 30
lines of commercial systems to customers in South Florida, the Caribbean and
Central and South American markets ("Latin America"). Steiner's services
include: (1) designing and planning "turn-key" laundry and/or dry cleaning
systems to meet the layout, volume and budget needs of a variety of
institutional and retail customers, (2) supplying replacement equipment and
parts to its customers, (3) providing warranty and preventive maintenance
through factory-trained technicians and service managers, (4) selling its own
line of dry cleaning systems to customers in the United States, the Caribbean
and Latin America, and (5) selling process steam systems and boilers.
Steiner's laundry equipment includes washers and dryers, including
coin-operated machines, boilers, water reuse and heat reclamation systems,
flatwork ironers and automatic folders. Steiner's dry cleaning equipment
includes dry cleaning machines, garment presses, finishing equipment, and
sorting and distributing conveyors. Steiner's marketing staff sells to a
customer base that includes franchise and independent drycleaners, hotels,
motels, hospitals, cruise lines, nursing homes, governmental institutions and
distributors. Steiner operates in three leased adjacent facilities totaling
approximately 47,000 square feet in Miami, and has approximately 30 non-union
employees.
History. Steiner was founded in 1960 by William K. Steiner. Steiner
initially operated as a distributor of dry cleaning systems and boilers, and as
a rebuilder of laundry, dry cleaning and boiler equipment. Steiner expanded in
1972 when it began distributing institutional laundry equipment to hotels,
motels and hospitals. In 1980, Steiner began importing dry cleaning systems from
an English manufacturer, and four years later, Steiner developed a relationship
with an Italian manufacturer of dry cleaning systems. In 1990, Steiner
established its own branded product line with the introduction of an updated dry
cleaning system under the Aero-Tech label, substantially all of which is
currently manufactured exclusively for Steiner in Italy.
Product Lines. Steiner offers a broad line of over 30 laundry and dry
cleaning systems and boilers and over 1,000 accessory parts. Steiner's products
are manufactured by a number of suppliers. Steiner also markets a complete line
of dry cleaning equipment under its Aero-Tech trademark. Steiner's product lines
are positioned and priced to appeal to customers in the high-end, mid-range and
value priced markets. Suggested prices for most of Steiner's products range from
approximately $5,000 to $50,000. Steiner's product line offers its customers a
"one-stop shop" for laundry and dry cleaning systems, boilers and accessories.
Business Strategy. Steiner's primary objective is to increase its
revenues and profitability through growth in its existing markets and expansion
into new geographical areas. To accomplish its goal, Steiner has implemented a
business strategy containing four major elements: (1) continue geographic
expansion, particularly in the fast-growing Caribbean and Latin American
markets; (2) pursue suitable acquisition candidates that would augment or
complement Steiner's existing operations, (3) expand the Aero-Tech
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brand dry cleaning equipment, including developing and marketing new technology
dry cleaning machines to capitalize on anticipated regulatory changes concerning
solvents, and (4) expand its high margin parts business.
(1) Geographical Expansion. Steiner's management believes that the
international market provides an opportunity for growth since Steiner has not
attained a significant degree of market penetration in either Latin America or
the Caribbean. Although subject to certain risks, Steiner believes broadening
its international sales will provide it access to markets which have high growth
potential. To accomplish its goal, Steiner plans to grow by emphasizing exports
from the United States, and entering into distribution agreements with strong
regional partners that minimize Steiner's capital exposure and maximize its
access to local markets.
(2) Pursue Strategic Acquisitions. Steiner currently seeks selected
acquisitions to enhance and broaden its product lines, to obtain new product
lines and to expand its overall customer base. Steiner's management believes the
dry cleaning equipment and laundry distribution business is about to enter a
consolidation phase. Underlying causal factors include: aging of business
founders and their desire for liquidity; need for volume gains in order to
obtain lower prices from manufacturers and maintain margins in the competitive
market place; financing restraints and the need to modernize accounting and
management information systems. In addition, for a number of manufacturers, a
stronger independent distribution system could result in a greater market
penetration of their products. Steiner intends to seek to acquire companies that
have (1) an established customer base, (2) a reputation for quality service, (3)
a product line compatible with Steiner's current and anticipated products, and
(4) the potential to benefit from Steiner's centralized purchasing power.
Steiner's strategy is to acquire complementary businesses inexpensively and to
introduce economies and enhanced distribution capabilities in order to maximize
the value of acquired assets. Historically, Steiner has obtained new products
and broadened its customer base by employing experienced personnel from within
the industry. Any future acquisition may result in the use of Steiner's cash,
necessitate borrowings or result in the sale or issuance of debt or equity
securities to private sources or in public markets. The issuance of any debt
could result in the incurrence of significant interest expense and an obligation
to repay such debt in priority to payments to Steiner's stockholders. The
issuance of equity could result in substantial dilution in the equity interest
of existing stockholders. Although Steiner is considering acquisitions and is
currently engaged in various stages of discussions with regard to potential
acquisitions, Steiner is not presently a party to any commitment with respect to
any acquisition.
(3) Develop and Market Advanced Technology DryCleaning Systems Under
the Aero-Tech Brand Name. Steiner's management believes that there is a
considerable opportunity to substantially expand sales of its Aero-Tech line.
Currently the Aero-Tech product line has sales of approximately $2.0 million.
Aero-Tech is a full line of dry cleaning machines. Steiner plans to broaden the
product line to include other dry cleaning equipment, such as laundry and dry
cleaning presses. Steiner's brand strategy is to become a national distributor
and build recognition and customer loyalty. Steiner's management anticipates
that during the next three to five years, environmental and safety-related
factors will receive increased emphasis from regulatory agencies as anticipated
changes by federal and state regulatory agencies become effective. Steiner
believes that such changes represent an opportunity to obtain increased sales
and market share for the Aero-Tech line.
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(4) Expand Steiner's High Margin Parts Business. One of Steiner's
long-term strategy objectives is to increase its parts sales. Each machine sold
by Steiner represents the potential for additional sales based upon the
subsequent need for parts. Steiner estimates that on average, sales of
replacement parts over the equipment life can represent up to 15% of the initial
sale price of the equipment. Steiner currently offers its customers a
comprehensive inventory of over 1,000 different parts that are ready to ship
within 24 hours. Steiner's management believes that sales of parts are less
cyclical than original equipment sales, offer greater growth potential long-term
and generally afford a higher profit margin. Steiner has consistently expanded
its parts business by increasing market penetration and broadening its product
offerings. Steiner's sales of parts increased from approximately $1.825 million
in 1993 to approximately $3.0 million in 1997. Steiner plans to continue to
expand its parts business by identifying and developing new market niches such
as increasing its international distribution activities and expanding its
product line.
Sources of Supply. Steiner purchases laundry and dry cleaning systems,
boilers and other products from a number of manufacturers, none of which
accounted for more than 20% of its purchases for the twelve months ended June
30, 1998. Steiner has established long-standing relationships with many of the
leading laundry, dry cleaning and boiler manufacturers. Steiner's management
believes these supplier relationships provide Steiner with a substantial
competitive advantage, including exclusivity in certain products and areas and
favorable prices and terms. Therefore, the loss of a major vendor relationship
could affect Steiner's business. Historically, Steiner has not experienced
difficulty in purchasing desired products from its suppliers and believes it has
good working relationships with its suppliers.
In 1990, Steiner introduced its own line of dry cleaning equipment,
marketed under the Aero-Tech brand name, manufactured exclusively for Steiner in
Italy. This line represented approximately 13% of Steiner's revenues for the
twelve months ended June 30, 1998. Steiner does not have a formal contract with
its Italian manufacturer, but relies on its long-standing relationship with it.
Steiner collaborates in the design and closely monitors the quality of the
manufactured product and believes its Aero-Tech systems exceed the environmental
regulations set by safety and environmental regulatory agencies. Steiner must
place its orders with its Italian manufacturer prior to the time Steiner has
received all of its orders. However, because of Steiner's close working
relationship with its Italian manufacturer, Steiner can adjust orders rapidly
and efficiently to reflect a change in customer demands.
According to its arrangement with its manufacturer, Steiner purchases
dry cleaning systems from its manufacturer in Italian lire. However, in the case
of a substantial decline in the value of the U.S. dollar against the Italian
lire or the implementation of custom duties, import controls or trade barriers
with Italy, Steiner has the ability to have its Aero-Tech line manufactured by
other international suppliers. Imports into the United States are affected by
the cost of transportation, the imposition of import duties and increased
competition from greater production demands abroad. The United States and Italy
may, from time to time, impose new quotas, duties, tariffs or other restrictions
or adjust prevailing quotas, duty or tariff levels, which could affect Steiner's
margins on its Aero-Tech systems. United States customs duties presently are
approximately 1% of invoice cost on dry cleaning systems.
Customers and Markets. Steiner's customer base consists of
approximately 350 customers in the United States, the Caribbean and Latin
America. Steiner's customers include dry cleaning chains and institutions,
cruise
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lines, and government agencies. No customer accounted for more than 10% of
Steiner's revenues during Steiner's fiscal year ended December 31, 1997 or the
six months ended June 30, 1998.
The following table sets forth the approximate geographic distribution
of Steiner's sales for the six months ended June 30, 1998:
Revenues % of Total
-------- ----------
United States $5,316,711 68.6%
Latin America $1,217,397 15.7%
Caribbean $1,147,918 14.8%
Other $ 65,295 .9%
------------ -----
Total $7,747,321 100.0%
============ =====
Sales, Marketing and Customer Support. Steiner's laundry and dry
cleaning equipment products are marketed in the United States, the Caribbean,
Mexico and other Latin American countries. Steiner employs seven sales
executives to market its products in South Florida and the international
markets. Aero-Tech products are sold by the same seven sales executives. Steiner
supports its products by representative advertising in trade publications,
participating in trade shows and engaging in regional promotions and sales
incentive programs. A substantial portion of Steiner's equipment sales are
obtained by telephone and fax inquiries originated by the customer or by Steiner
and significant repeat sales are derived from existing customers.
Steiner seeks to become the single supplier of laundry and dry cleaning
equipment to each of its customers. Steiner currently offers over 30 lines of
commercial laundry, dry cleaning and boiler systems, along with a comprehensive
parts inventory consisting of over 1,000 parts and accessories. Steiner's
product lines are offered under a wide range of price points to address the
needs of a diverse customer base. By providing "one-stop" shopping, Steiner
believes it is better able to attract and support potential customers who can
choose from Steiner's broad product line.
Steiner seeks to establish customer satisfaction by offering (1) an
on-site training and preventive maintenance program performed by factory trained
technicians and service managers; (2) design and layout assistance; (3)
maintenance of a comprehensive parts and accessories inventory and same day or
overnight availability; and (4) competitive pricing. Steiner provides a
toll-free support line to resolve customer service problems and estimates that
it resolves approximately 75% of the service inquiries on the first call.
Steiner trains its sales and service employees to provide service and
customer support. Steiner uses specialized classroom training, instructional
videos and vendor sponsored seminars to educate employees about product
information. In addition, Steiner's technical staff has prepared comprehensive
training manuals, written in English and Spanish, relating to specific training
procedures. Steiner's technical personnel are continuously updated and retrained
as new technology is developed. Steiner monitors service
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technicians' continued educational experience and fulfillment of requirements in
order to evaluate their competence. All of Steiner's service technicians receive
service bulletins, service technicians' tips and continued training seminars.
Facilities. Steiner's executive offices and main distribution center
are housed in three leased adjacent facilities totaling approximately 47,000
square feet in Miami, Florida. Steiner believes its facilities are adequate for
its present needs and that suitable space would be available to accommodate its
future needs. Steiner currently has three separate leases on its facilities in
Miami, Florida. The following table sets forth certain information concerning
the leases at these facilities:
Approximate
Facility Sq. Ft. Expiration Annual Rent (1)
- -------- ------- ---------- ---------------
Miami, Florida (2) 27,000 October 2004 $88,616
Miami, Florida 8,000 Month to Month $21,300
Miami, Florida (3) 12,000 December, 1999 $26,520
[arms length issue]
(1) Annual rent includes 6.5% sales tax.
(2) Facility owned by William K. Steiner. The lease includes a right to
renew for an additional ten-year term at a rent to be agreed upon by
the parties. Steiner and the Company believe the terms of this lease
are at least as favorable as could be obtained from unaffiliated third
parties .
(3) Lease contains one three-year lease extension with adjustments for
changes in the Consumer Price Index.
Trademarks. Steiner is the owner of United States service mark
registrations for the names Aero- Tech, Logitrol, Petro-Star, Aqua Star and
Enviro-Star. Steiner intends to use and protect these or related service marks,
as necessary. Steiner believes its trademarks and service marks have significant
value and are an important factor in the marketing of its products.
Competition. The laundry and dry cleaning equipment distribution
business is highly competitive and fragmented with over 100 full-line or
partial-line equipment distributors in the United States. Steiner's management
believes that no distributor supplies more than 6% of the market and that
substantially all such distributors are independently owned and, with the
exception of several regional distributors, operate primarily in local markets.
Competition is based on price, product quality, delivery and support services
provided by the distributor to the customer. In South Florida, Steiner's
principal domestic market, Steiner's primary competition is derived from two
full-line distributors which operate out of the Miami area. In the export
market, Steiner primarily competes with a wholesale distributor located in the
Northeast and anticipates increased competition from other distributors, as the
export market grows. As Steiner expands the sale of its Aero-Tech line to its
distributors on a national level, it competes with over a dozen manufacturers of
dry cleaning equipment whose products are distributed nationally. Steiner
competes by offering an extensive product selection, value-added services, such
as product inspection and quality
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assurance, toll-free customer support line, reliability, warehouse location,
price and, with the Aero-Tech line, competitive special features and
exclusivity.
Environmental Regulations. Over the past several decades in the United
States, federal, state and local governments have enacted environmental
protection laws in response to public concerns about the environment. A number
of industries, including the dry cleaning and laundry equipment industry, are
subject to these evolving laws and implementing regulations. As a supplier to
the industry, Steiner serves customers who are primarily responsible for
compliance with environmental regulations. Among the federal laws that Steiner
believes are applicable to the industry, are the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), which provides for
the investigation and remediation of hazardous waste sites; the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), which regulates
generation and transportation of hazardous waste as well as its treatment,
storage, and disposal; and the Occupational Safety and Health Administration Act
("OSHA"), which regulates exposure to toxic substances and other health and
safety hazards in the workplace. Most states and a number of localities have
laws that regulate the environment which are at least as stringent as the
federal laws. In Florida, environmental matters are regulated by the Florida
Department of Environmental Protection which generally follows the Environmental
Protection Agency's ("EPA") policy in the EPA's implementation of CERCLA and
RCRA and closely adheres to OSHA's standards.
Product Liability and Insurance. Steiner's business entails the risk of
product liability claims. Although Steiner has not experienced any major product
liability claims to date, such claims could have an adverse impact on it.
Steiner maintains product liability insurance with coverage of $1,000,000
million per occurrence and a $10 million umbrella policy with a major national
insurance company.
Employees. Steiner currently employs 30 employees, of whom 3 are
executive management, 10 are sales and marketing, 9 are administrative and
clerical, 4 are technicians and 4 are in warehouse support. None of Steiner's
employees are subject to a collective bargaining agreement, nor has Steiner
experienced any work stoppages. Steiner believes that its relations with
employees are excellent.
Weissco Development, Inc. Weissco Development, Inc. ("Weissco") is a
Florida corporation, wholly-owned by an Agreement Shareholder. Weissco is
engaged in the business of leasing commercial space in newly constructed
shopping centers and re-leasing the space to dry cleaning or laundry operators.
In certain instances, Weissco will construct a dry cleaning or laundry operation
and re-lease the space on a "turn-key" basis or will sell equipment to the
operator. Weissco pays virtually all of its pre-tax profits to Steiner as a
management fee. For the six month period ended June 30, 1998 Steiner received
$150,000 in management fees from Weissco and for the twelve month period ended
December 31, 1997, Steiner received $40,000 in management fees from Weissco.
Pursuant to the Merger Agreement, a condition precedent to the Company's
obligation to consummate the Merger is that Steiner shall have entered into an
agreement with Weissco, on terms reasonably satisfactory to the Company,
pursuant to which Weissco agrees to pay 100% of its pre-tax profits to the
Company as a management fee.
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Executive Officers and Directors. Pursuant to the Merger Agreement,
upon the consummation of the Merger the following designees of Steiner will
become members of the Boards of Directors of each of the Company and Steiner:
MICHAEL S. STEINER - Michael S. Steiner, (42), has been President and
Chief Executive Officer of Steiner since 1988. He owns 50% of Steiner's Common
Stock. Pursuant to the Merger Agreement he will receive 2,360,477 shares of the
Company's Common Stock for his Steiner Common Stock, and will own approximately
35% of the issued and outstanding shares of the Company's Common Stock. Before
joining Steiner, he was engaged as an attorney specializing in business and tax
law. Pursuant to the Merger Agreement, upon consummation of the Merger, he will
be President and Chief Executive Officer of each of the Company and Steiner.
WILLIAM K. STEINER - William K. Steiner, (68), has been Chairman of the
Board of Steiner since he founded the Company in 1960. He owns 50% of Steiner's
Common Stock. Pursuant to the Merger Agreement he will receive 2,360,477 shares
of the Company's Common Stock for his Steiner Common Stock, and will own
approximately 35% of the issued and outstanding shares of the Company's Common
Stock. Upon consummation of the Merger, he will be Chairman of the Boards of
Directors of each of the Company and Steiner.
[ THIRD STEINER NOMINEE ]
[ FOURTH STEINER NOMINEE]
Executive Compensation. Steiner has been a subchapter S Corporation
under the Internal Revenue Code since June 1, 1987, and will continue that
status until the Effective Date of the Merger. Upon consummation of the Merger,
Michael S. Steiner will receive an annual salary at the rate of $175,000 from
the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto contained elsewhere in this Proxy
Statement.
Results of Operations
Comparison of Year Ended June 30, 1998 Vs. June 30, 1997
Net sales were $43,741 (1.1%) lower in fiscal year 1998 than in fiscal
1997. Reference is made to the table for information concerning sales by product
lines of the Company during the two-year period ended June 30, 1998. Sales of
telephone test equipment decreased by $19,934 (.6%) in fiscal 1998 from fiscal
1997, mostly due to a decrease of 42.6% in sales of transmission test equipment,
which offset
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increases of 6.2% in outside plant test sets and 10.3% in installer's test sets.
The increases in outside plant and installer's test sets were mainly
attributable to the introduction and sales of new products, while the decrease
in transmission test equipment sales was due to the effects of a mature product
line. Sales of customer premise equipment decreased by $37,603 (31.1%) in fiscal
1998 over fiscal 1997, mainly due to a decrease in dialer sales (63.1%) which
offset an increase in call handling products (87.5%). The increase in call
handling products was due to newly introduced products, while the decrease in
dialer sales was attributable to the reduced demand for dialers in the domestic
market. Sales of miscellaneous products and services increased by $13,796 (8.6%)
in fiscal 1998 over fiscal 1997, due mainly to increased sales of spare parts
and repairs. The Company implemented selective price increases during the third
quarter of fiscal 1998; however, because of the limited portion of the year in
which the new prices were in effect, the price increases had minimal impact on
reported sales.
The Company's gross profit margin, expressed as a percentage of sales,
decreased to 33.0% in fiscal 1998 from 37.8% in fiscal 1997, mainly due to a one
time-write off of $105,917 for obsolete and discontinued inventory. In addition,
overhead expenses increased by 9.1% due to increases in salaries, payroll
expenses and depreciation which offset decreases in supplies, factory travel and
freight expenses.
Selling, general and administrative expenses increased in fiscal 1998
by $37,251 (3.1%) and as a percentage of sales to 32.5% in fiscal 1998 from
31.2% in fiscal 1997. This increase was mainly due to an increase in sales
expense (9.4%) which results from increases in commissions, royalties and
salaries which offset a reduction in travel and entertainment expenses.
Increased sales expenses also offset a reduction in general and administrative
expenses of 2.3%, which was due to reductions in most accounts except for
professional fees connected with the hiring of an investment banking firm.
A reserve of $300,000 was included in fiscal 1998 for expenses
necessary to cover professional fees associated with the proposed Merger with
Steiner.
Research and development expenses were $9,306 (3.9%) lower in fiscal
1998 than in fiscal 1997, mainly due to lower salary expenses, payroll costs and
supplies.
Royalties, interest and other income increased by $3,927 (62.8%) in
fiscal 1998 from fiscal 1997, mostly due to increased cash balances invested for
most of fiscal 1998.
The provision for income taxes was a credit of $150,000 or 30% of the
pre-tax loss in fiscal 1998 compared to a change of $13,000 or 51.7% of the
pre-tax profit in fiscal 1997.
Financial Position and Liquidity
During the year ended June 30, 1998, cash decreased by $23,107. Cash
provided by operating activities was $56,986, of which $349,670 was used to fund
an operating loss, $108,000 was reserved, for deferred income taxes, $15,477 was
used to reduce accounts payable and $35,070 was used by prepaid expenses . These
reductions were offset by non-cash expenses of depreciation and amortization
($74,012), and decreases in accounts receivable ($64,313), and inventories
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($82,192). In addition, there was an increase of $344,686 in accrued expenses
primarily related to professional fees associated with the merger. The Company
believes that its present cash and the cash it expects to generate from
operations will be sufficient to meet operational needs in fiscal 1999.
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THE COMPANY'S BUSINESS
General. The Company was incorporated under the laws of the State of
Delaware on June 30, 1963. Its executive offices are located at 250 South
Milpitas Boulevard, Milpitas, California 95035, and its telephone number is
408-946-4600. Since its inception, the Company has been engaged in the
manufacture and sale of telephone test and customer premise equipment utilized
by telephone and telephone interconnect companies in the installation and
maintenance of telephone equipment. Through internal research and development
and through acquisition, the Company has added various product lines to its
telephone test and customer premise product lines.
Product Lines. The following table sets forth the approximate net sales
of each of the Company's two products lines and of its other products and
services, as a group, and the percentages which such sales bear to total net
sales during each of the three years ended June 30, 1998:
<TABLE>
<CAPTION>
1998 1997
---- ----
Amount % Amount %
------ -- ------ --
(dollars in thousands)
<S> <C> <C> <C> <C>
Telephone Test
Equipment $3,582 93% $3,602 93%
Customer Premise
Equipment 83 2% 121 3%
Other Products and
Services 174 5% 160 4%
--- --- --- ---
$3,839 100% $3,883 100%
</TABLE>
The downsizing of the Regional Bell Operating Companies ("RBOCs")
during the past several years has reduced the number of Telecom craft personnel
who are potential users of the Company's test equipment and, accordingly, the
Company's sales. To reduce the impact that has occurred as a result of the
downsizing of the RBOCs, through research and development, the Company has begun
introducing new products aimed at reducing its dependence on the RBOCs and is
entering into new markets, principally the public utility and data industry, for
its existing and new products.
Telephone Test Equipment. The Company manufactures and sells a line of
telephone test equipment which includes portable test sets, which are designed
for use in locating high resistance faults resulting from moisture in exchange
cables and by cable splicers on exchange and toll cables for identification of
cable wires and other tone-testing purposes; linemen's rotary and/or touch-tone
testing handsets and portable line test sets for use by telephone installers,
repairmen and central office personnel; hand and pole exploring coils which are
used in cable fault finding; solid state conversion amplifier kits;
Volt-Ohmmeter test sets; and Cable Hound(R), a portable electronic unit that
locates and determines the depth of underground cable and metal pipes primarily
for the telephone, utility and construction industries.
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In addition, the Company manufactures a line of transmission test
equipment used in telephone company central office installations by operating
companies, long distance telephone resellers and large companies who own their
own networks. Among these products are digital and analog rack-mounted test
systems, portable transmission test sets, remote test systems and fiber optic
test sets.
Customer Premise Equipment. The Company manufactures and markets a line
of telephone station and peripheral products, including telephone call
sequencers (which answer calls on up to 12 incoming unattended lines, provide
the caller with an appropriate message and place the calls in queue until
answered by an attendant) and a line of digital announcers (which provide a
pre-programmed message with the ability to ring through at the end of the
message if so desired by the caller). This product line also includes a series
of specialty telephone products, including call diverters (call forwarding
devices used both by end-users and in telephone company central offices), speed
dialers, specialty telephones and amplified handsets for the hearing impaired.
In addition, the Company has begun distributing a line of Channel
Service Units/Data Service Units (CSU/DSU) for the data industry. These devices
are used to terminate a digital channel on a customer's premises and enable
computer data to be transmitted and received at high speeds over the telephone
line without the use of a modem.
Other Products and Services. In addition, the Company sells a variety
of accessory products, primarily head sets and alligator clips. The Company also
sells spare parts for its product lines and provides repair services for its
products.
Methods of Distribution. The Company presently sells its products
through its own regional sales managers and sales representatives who assist the
Company's national telephone equipment distributors. Sales managers are
presently based in Georgia and California. In addition, the Company maintains an
in-house sales staff at its facilities in Milpitas, California.
Competition. Competition is high with respect to each of the Company's
product lines. However, as the products contained in such lines are varied and
similar products contain varying features, neither the Company nor any of its
competitors is a dominant factor in any product line market, except for
linemen's test sets for which Dracon, a division of Harris Corporation, is
dominant.
The principal method of competition for each of the Company's products
is price and product features, with service and warranty having a relatively
less significant impact. The Company believes its product lines are
competitively priced. Many of the Company's competitors have greater financial
resources and have more extensive research and development and marketing staffs
than the Company.
Raw Materials. The basic materials used in the manufacture of the
Company's telephone test equipment and telephone station and peripheral
telephone equipment consist of electronic components. The Company utilizes many
suppliers and is not dependent on any supplier. Its raw materials generally are
readily available from numerous suppliers.
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Patents and Trademarks. The Company has obtained a number of patents
and has a number of trademarks which are used to identify its product lines. No
patent or trademark is considered to be material to the Company's overall
operations. The Company also pays royalties to third parties under arrangements
permitting the Company to manufacture various items in its product lines.
Principal Customers. The Company is not dependent upon any single
customer. However, North Supply Company, a national distributor of telephone
products, accounted for approximately 15% and 19% of the Company's net sales for
the years ended June 30, 1998 and 1997, respectively. The Company believes that,
should it for any reason lose this distributor, the Company would not be
adversely impacted since these sales would be absorbed by other distributors.
Research and Development. The Company is regularly engaged in the
design of new products and improvement of existing products for all of its
product lines. The amount specifically allocated to research and development
activities in fiscal 1997 and 1998, principally salaries, was $238,061, and
$228,755 respectively. All research and development is Company-sponsored,
except for products designed for the Company by unaffiliated third parties
compensated by either a lump-sum payment or on a royalty basis.
The Company intends to continue its policy of reviewing potential
acquisitions of new product lines, additional products for its existing product
lines and the enhancement of its production and distribution capabilities. Such
acquisitions could lead to the issuance of notes, use of the general working
capital of the Company and/or issuance of shares of the Company's capital stock.
Compliance with Environmental and Other Governmental Laws and
Regulations. Certain of the Company's customer premise equipment products that
connect to public telephone networks need Federal Communications Commission (or,
in the case of foreign sales, the equivalent agency in the foreign country in
which they will be sold) approval prior to their sale. The Company does not
believe that compliance with Federal, state and local environmental and other
laws and regulations which have been adopted have had, or will have, a material
effect on its capital expenditures, earnings or competitive position.
Employees. As of August 31, 1998, the Company had in its employ 31
persons on a full-time basis. Of these, 19 were engaged in production, 3 in
engineering, 5 in sales and 4 in administration.
Foreign and Government Sales. Export sales were approximately $252,000
and $189,000 in fiscal 1997 and 1998, respectively. Such export sales were made
principally to Europe, Canada and South America. Most export sales are made
primarily through distributors and agents. Foreign sales are affected by the
strength of the United States dollar. Revenues from sales to the United States
government (none of the contracts relating thereto being subject to
renegotiation of profits or termination at the election of the government) are
immaterial.
Properties. The Company's manufacturing operations are conducted in
approximately 21,500 square feet of space in Milpitas, California (which
includes warehouse and administrative facilities and which, since September 1,
1996, has also housed the Company's executive offices ) under a lease expiring
on March 31, 1999. The Company believes its facilities, including machinery and
equipment, are suitable and
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adequate for its present operations. The Company does not anticipate unusual
capital expenditures due to aging, repair or replacement of machinery and
equipment.
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PROPOSAL NO. 2
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
On June 25, 1998, the Company's Board of Directors voted to adopt an
amendment to the Company's Certificate of Incorporation (the "Proposed
Amendment"). A copy of the Proposed Amendment is attached to this Proxy
Statement as Exhibit C and is incorporated herein by this reference. The
Proposed Amendment would increase the number of authorized shares of the
Company's Common Stock from 6,000,000 to 15,000,000.
Adoption of the Proposed Amendment will require the affirmative vote of
the holders of a majority of the outstanding shares of the Company's Common
Stock. It is a condition precedent to Steiner's obligation to consummate the
Merger that the Proposed Amendment be adopted. See "THE MERGER Terms of the
Merger Agreement - Conditions to Closing." The Board of Directors recommends a
vote "FOR" adoption of the Proposed Amendment. The Proposed Amendment, if
adopted, will become effective only upon consummation of the Merger.
As noted above, the Proposed Amendment, if adopted, will increase the
number of authorized shares of the Company's Common Stock from 6,000,000 to
15,000,000. As of the date of this Proxy Statement, there were 2,054,046 shares
of the Company's Common Stock issued and outstanding. Upon consummation of the
Merger, an additional 4,720,954 shares of the Company's Common Stock will be
issued, increasing the outstanding shares of the Company's Common Stock to
6,775,000. Therefore, the Merger could not be effected without increasing the
number of authorized shares of the Company's Common Stock. In addition to the
shares of the Company's Common Stock that will be issued and outstanding upon
the consummation of the Merger, options for up to 725,000 shares of the
Company's Common Stock will have been issued pursuant to the Company's option
plans (see "PROPOSAL NO. 4 - AMENDMENT OF THE 1991 Plan"), and 100,000 shares
will be issued to Slusser. See "THE MERGER - Background of the Proposed Merger
Opinion of the Company's Financial Adviser." The Company would then have
available for future use approximately 7,400,000 shares of the Company's Common
Stock that are both unissued and unreserved. The Company has no present intended
use for the shares of the Company's Common Stock which are being authorized in
connection with the Proposed Amendment but which will remain unissued and
unreserved after consummation of the Merger.
The Board considers the size of the proposed increase in the number of
authorized shares of the Company's Common Stock desirable, as it gives the Board
the necessary flexibility to issue Common Stock in connection with, among other
possible uses, stock dividends and splits, acquisitions, financings, and for
other general corporate purposes, without incurring the expense and delay
incident to obtaining stockholder approval of an amendment to the Company's then
existing certificate of incorporation increasing the number of authorized shares
of the Company's Common Stock at the time of such action (except as may be
required for a particular issuance by applicable law or by the rules of any
national securities association or stock exchange on which the Company's Common
Stock may then be listed). The authorization of the additional shares could
enable the Board of Directors of the Company to render more difficult or
discourage an attempt by another person or entity to obtain control of the
Company. Such additional shares could be
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issued by the Board in a public or private sale, merger or similar transaction,
increasing the number of outstanding shares and thereby diluting the equity
interest and voting power of a party attempting to obtain control of the
Company. However, after the consummation of the Merger the composition of stock
ownership will make it impracticable for an unaffiliated third party to attempt
a hostile takeover of the Company, since Steiner's shareholders, Michael S.
Steiner and William K. Steiner, would beneficially own, individually,
approximately 69% of the Company's Common Stock. See "THE MERGER - Information
Concerning Steiner - Executive Officers and Directors".
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PROPOSAL NO. 3
AMENDMENT OF THE 1991 PLAN
On June 25, 1998, the Company's Board of Directors voted to amend the
Company's 1991 Stock Option Plan (as amended by its shareholders on October 25,
1996) (the "1991 Plan"). The 1991 Plan is designed to provide an incentive to
key employees (including directors and officers who are key employees) of the
Company and its present and future subsidiaries and to offer an additional
inducement in obtaining the services of such individuals. The proposed amendment
would increase the number of incentive stock options that a stock option
committee would be allowed to issue from 250,000 to 850,000, of which, pursuant
to the Merger Agreement, incentive stock options would be granted to current
employees of Steiner, other than Steiner's shareholders, to purchase up to
500,000 shares of the Company's Common Stock, depending on the market value of
the Company's Common Stock on the date of consummation of the Merger, at an
exercise price of the greater of fair market value per share on the Closing Date
or $1.00 per share. Options for 145,000 shares of the Company's Common Stock
have been granted under the 1991 Plan. Accordingly, upon the granting of options
to Steiner's employees for 500,000 shares of the Company's Common Stock, options
granted under the 1991 Plan for an aggregate of 645,000 shares of the Company's
Common Stock will be outstanding. In addition, options are outstanding for
80,000 shares of the Company's Common Stock granted to non-employee directors
under 1984 and 1994 non-employee director stock option plans.
The approval of the amendment to the 1991 Plan will require the
affirmative vote of the holders of a majority of the shares present, in person
or by proxy, at the Meeting. It is a condition precedent to Steiner's obligation
to consummate the Merger that the amendment to the 1991 Plan be approved. See
"THE MERGER - Terms of the Merger Agreement - Conditions to Closing." The Board
of Directors recommends a vote "FOR" approval of the 1991 Plan.
The following summary of certain material features of the 1991 Plan
does not purport to be complete.
Description of the 1991 Plan
The purpose of the 1991 Plan is to promote the interests of the Company
and to provide participants with a proprietary interest in the Company. All key
employees of the Company and Steiner will be eligible to receive options under
the 1991 Plan.
The 1991 Plan is administered by a committee comprised of members of
the Compensation Committee (the "Committee") appointed by the Board of Directors
(the "Board of Directors"). The Committee has authority, subject to the terms of
the 1991 Plan, to determine when and to whom to make grants of options, the
number of shares to be covered by the grants, the types and terms of options,
and the exercise price of options and to prescribe, amend and rescind rules and
regulations relating to the 1991 Plan.
In addition, the Board of Directors may amend, alter, suspend,
discontinue or terminate the 1991 Plan at any time; provided, however, that no
such amendment, alteration, suspension, discontinuation or
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termination shall be made without shareholder approval if such approval would
(a) change the class of those eligible to receive options, (b) increase the
maximum number of shares of Common Stock for which options may be granted under
the 1991 Plan, (c) extend the term of the 1991 Plan or (d) materially increase
the benefits to participants under the 1991 Plan. No termination, suspension or
amendment of the 1991 Plan shall, without the consent of the holder of an
existing option affected thereby, adversely affect his rights under such option.
The power of the Committee to construe and administer any options granted under
the 1991 Plan prior to the termination or suspension of the 1991 Plan
nevertheless shall continue after such termination or during such suspension.
Under the terms of the 1991 Plan, "incentive stock options" ("ISOs"),
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and non-qualified stock options ("NSOs") may be granted to
eligible employees. Shares subject to issuance under the 1991 Plan may be
authorized and unissued shares or treasury shares.
Each ISO may be exercised over a period determined by the Committee in
its discretion, but not to exceed 10 years from the date of grant. In addition,
in the case of an ISO granted to an individual who, at the time such ISO is
granted, owns shares possessing 10% or more of the total combined voting power
of all classes of stock of the Company or its parent or subsidiary corporations
(a "10% Stockholder"), the exercise period for an ISO may not exceed five years
from the date of grant. In the case of a NSO, the exercise period shall in all
cases be determined by the Committee.
The exercise price of an option may not be less than the fair market
value of the shares of the Common Stock on the date of grant, except that, in
the case of an ISO granted to a 10% Stockholder, the option exercise price may
not be less than 110% of such fair market value on the date of grant.
If the employment of the grantee terminates for any reason, other than
by reason of death or disability, options may be exercised by the grantee within
the three-month period following the date of grant, or, if the grantee is
terminated for cause or the grantee's employment terminates without the consent
of the Company, the options shall become null and void. If the grantee dies or
becomes disabled while employed, all outstanding awards, to the extent then
vested, may, generally, be exercised by the grantee within one year after the
grantee's termination by reason of disability or, in the event of the grantee's
death, by the person or persons to whom the grantee's rights pass. In no case
may options be exercised later than the expiration date specified in the grant.
Options may be transferred by a grantee only by will or by the laws of descent
and distribution, and during his or her lifetime may be exercised only by the
grantee.
The shares of Common Stock purchased pursuant to an option may be paid
in cash, by certified check or, if and to the extent provided by the Committee,
by broker's advance or by delivery of previously acquired shares of Common Stock
with a fair market value equal to the total purchase price, or in a combination
of such methods.
1 BOOK VALUE AND INCOME (LOSS) PER SHARE DATE FOR STEINER IS BASED UPON
NOTWITHSTANDING ANY OTHER PROVISION OF THE 1991 PLAN, IN THE EVENT OF
ANY CHANGE IN THE OUTSTANDING COMMON STOCK BY REASON OF A STOCK
DIVIDEND, STOCK SPLIT, STOCK COMBINATION, RECAPITALIZATION, MERGER OR
CONSOLIDATION IN WHICH THE COMPANY IS THE SURVIVING CORPORATION,
REORGANIZATION OR THE LIKE, THE AGGREGATE
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NUMBER AND KIND OF SHARES SUBJECT TO THE 1991 PLAN, THE AGGREGATE
NUMBER AND KIND OF SHARES SUBJECT TO EACH OUTSTANDING OPTION AND THE
EXERCISE PRICE THEREOF SHALL BE APPROPRIATELY ADJUSTED BY THE BOARD OF
DIRECTORS, WHOSE DETERMINATION SHALL BE CONCLUSIVE.
IN THE EVENT OF (A) THE LIQUIDATION OR DISSOLUTION OF THE COMPANY, (B)
A MERGER OR CONSOLIDATION IN WHICH THE COMPANY IS NOT THE SURVIVING CORPORATION,
OR (C) ANY OTHER CAPITAL REORGANIZATION IN WHICH MORE THAN 50% OF THE SHARES OF
COMMON STOCK ENTITLED TO VOTE IN THE ELECTION OF DIRECTORS ARE EXCHANGED,
OUTSTANDING OPTIONS SHALL TERMINATE, UNLESS OTHER PROVISION IS MADE THEREFOR IN
THE TRANSACTION.
New Plan Benefits
Options granted under the 1991 Plan are determined by the Committee in
its sole discretion as described above. Accordingly, the individual awards are
not determinable.
Federal Income Tax Consequences of Participation in the 1991 Plan
The following summary of the Federal income tax consequences of the
grant and exercise of nonqualified and incentive stock options awarded under the
1991 Plan, and the disposition of shares purchased pursuant to the exercise of
such stock options, is intended to reflect the current provisions of the Code
and the regulations thereunder. This summary is not intended to be a complete
statement of applicable law, nor does it address state and local tax
considerations.
No income will be realized by an optionee upon grant of a nonqualified
stock option. Upon exercise of a nonqualified stock option, the optionee will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the underlying stock over the option exercise price
(the "Spread") at the time of exercise. The Spread will be deductible by the
Company for federal income tax purposes subject to the possible limitations on
deductibility under sections 28OG and 162(m) of the Code of compensation paid to
executives designated in those sections. The optionee's tax basis in the
underlying shares acquired by exercise of a nonqualified stock option will equal
the exercise price plus the amount taxable as compensation to the optionee. Upon
sale of the shares received by the optionee upon exercise of the nonqualified
stock option, any gain or loss is generally long-term or short-term capital gain
or loss, depending on the holding period. The optionee's holding period for
shares acquired pursuant to the exercise of a nonqualified stock option will
begin on the date of exercise of such option.
Pursuant to currently applicable rules under Section 16(b) of the
Exchange Act, the grant of an option (and not its exercise) to a person who is
subject to the reporting and short-swing profit provisions under section 16 of
the Exchange Act (a "Section 16 Person") begins the six-month period of
potential short-swing liability. The taxable event for the exercise of an option
that has been outstanding at least six months ordinarily will be the date of
exercise. If an option is exercised by a Section 16 Person within six months
after the date of grant, however, taxation ordinarily will be deferred until the
date which is six months after the date of grant, unless the person has filed a
timely election pursuant to section 83(b) of the Code to be taxed on the date of
exercise. Pursuant to the rules under Section 16(b) of the Exchange Act, the six
month period of potential short-swing liability may be eliminated if the option
grant (i) is approved in
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advance by the Board of Directors (or a committee composed solely of two or more
non-employee directors) or (ii) approved in advance, or subsequently ratified by
the Company's shareholders no later than the next annual meeting of
shareholders. Consequently, the taxable event for the exercise of an option that
satisfies either of the conditions described in clauses (i) or (ii) above will
be the date of exercise.
The payment by an optionee of the exercise price, in full or in part,
with previously acquired shares will not affect the tax treatment of the
exercise described above. No gain or loss generally will be recognized by the
optionee upon the surrender of the previously acquired shares to the Company,
and shares received by the optionee, equal in number to the previously
surrendered shares, will have the same tax basis as the shares surrendered to
the Company and will have a holding period that includes the holding period of
the shares surrendered. The value of shares received by the optionee in excess
of the number of shares surrendered to the Company will be taxable to the
optionee. Such additional shares will have a tax basis equal to the fair market
value of such additional shares as of the date ordinary income is recognized,
and will have a holding period that begins on the date ordinary income is
recognized.
The Code requires that, for incentive stock option treatment, shares
acquired through exercise of an incentive stock option cannot be disposed of
before two years from the date of grant and one year from the date of exercise.
Incentive stock option holders will generally incur no federal income tax
liability at the time of grant or upon exercise of such options. However, the
Spread will be taken into account in determining alternative minimum tax
liability at the time of exercise. If the optionee does not dispose of the
shares before two years from the date of grant and one year from the date of
exercise, the difference between the exercise price and the amount realized upon
disposition of the shares will constitute long term capital gain or loss, as the
case may be. Assuming both the holding periods are satisfied, no deduction will
be allowable to the Company for federal income tax purposes in connection with
the grant or exercise of the option. If, within two years of the date of grant
or within one year from the date of exercise, the holder of shares acquired
through the exercise of an incentive stock option disposes of such shares, the
optionee will generally realize ordinary taxable compensation at the time of
such disposition equal to the difference between the exercise price and the
lesser of the fair market value of the stock on the date of initial exercise or
the amount realized on the subsequent disposition, and such amount will
generally be deductible by the Company for federal income tax purposes, subject
to the possible limitations on deductibility under sections 28OG and 162(m) of
the Code for compensation paid to executives designated in those sections.
The foregoing constitutes a brief summary of the principal federal
income tax consequences of the transactions based on current federal income tax
laws. This summary is not intended to be exhaustive and does not describe state,
local or foreign tax consequences.
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PROPOSAL NO. 4 - ELECTION OF DIRECTORS
Nominees for Election as Directors
The Board of Directors of the Company currently consists of four
members. All of the directors are elected annually and hold office until the
next succeeding Annual Meeting of Stockholders or until their respective
successors are duly elected and qualified. It is intended that the persons named
in the proxy as proxies will, except as noted below, vote "FOR" the election of
the following nominees as directors:
Michael Epstein
Lloyd Frank
Venerando J. Indelicato
Michael Michaelson
Each of the foregoing persons currently serves as a director of the
Company and was most recently elected as such at the Annual Meeting of
Stockholders held on November 5, 1997. The Board of Directors of the Company
does not contemplate that any of such nominees will become unable to serve. If,
however, any of such nominees should become unable to serve before the Meeting,
proxies solicited by the Board of Directors will be voted by the persons named
as proxies therein in accordance with the best judgment of such proxies.
Notwithstanding the foregoing, upon consummation of the Merger the
Company's Board of Directors would consist of six members, two of whom have been
designated by the Company and four of whom have been designated by Steiner.
Messrs. Indelicato and Frank are the Company's designees as directors, and would
therefore continue as directors of the Company after the Effective Time of the
Merger. Messrs. Epstein and Michaelson would, by virtue of the Merger Agreement
and the Certificates of Merger to be filed thereunder, be removed from the
Company's Board of Directors at the Effective Time. If for whatever reason the
Merger does not occur, Messrs. Epstein and Michaelson would continue to hold
office as directors of the Company as set forth above.
The following table sets forth the name, age, business experience for
the past five years and other directorships of each of the Company's directors:
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Name, Age and Other Positions, Period Served as Director and
if any, with the Company Business Experience Past 5 Years
- ----------------------------------- --------------------------------
Michael Epstein, 60 Director from August 1990 until
September 1991 and continuously
since January 1, 1994. Has been
an independent investor since
December 1995. For more than
five years prior thereto, was
an investment banker with the
investment banking firm of
Allen & Company Incorporated.
Lloyd Frank, 73 Director since 1977. Has been a
member of the law firm
Secretary of Parker Chapin
Flattau & Klimpl, LLP for more
than the past five years. The
Company retained Parker Chapin
Flattau & Klimpl during the
Company's last fiscal year and
is retaining that firm during
the Company's current fiscal
year. Also, serves as a
director of Park
Electrochemical Corporation.
Venerando J. Indelicato, 65 Director since 1966. Has been
President and Treasurer
President and Treasurer of the
Company for more than the past
five years. Michael Michaelson,
75 Director since 1978. Has
been an independent publishing
and marketing consultant for
more than the past 5 years.
Also serves as a director of
Allied Devices Corp. and Retail
Entertainment Group, Inc.
Meetings of the Board of Directors
During the Company's fiscal year ended June 30, 1998, its Board of
Directors held five meetings. Each director attended each of the meetings of the
Board of Directors and the committees on which he served which were held that
fiscal year.
The Board of Directors has standing Audit and Compensation Committees.
The Board does not have a standing Nominating Committee.
The Board's Audit Committee, whose members are Messrs. Michael Epstein,
Lloyd Frank and Michael Michaelson, is authorized to examine and consider
matters related to the audit of the Company's accounts, the financial affairs
and accounts of the Company, the scope of the independent auditors' engagement
and their compensation, the effect on the Company's financial statements of any
proposed changes in generally accepted accounting principles, disagreements, if
any, between the Company's independent auditors and management, matters of
concern to the independent auditors resulting from the audit, and the results of
the independent auditors' review of internal accounting controls. This committee
is also authorized to nominate independent auditors, subject to approval by the
Board of Directors. The Audit Committee held one meeting during the year ended
June 30, 1998.
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The members of the Compensation Committee are Messrs. Michael Epstein,
Lloyd Frank and Michael Michaelson. This committee approves salaries of all
employees of the Company in excess of $50,000 per annum and bonuses to persons
whose annual compensation (including bonuses) would exceed $50,000 per annum,
administers (including granting options under) the 1991 Plan, approves changes
in retirement plans and reviews the Company's other employee benefit
arrangements. The Compensation Committee held one meeting during the year ended
June 30, 1998.
Executive Officers
The following sets forth the name, age and business experience for the
past five years of each of the Company's executive officers, together with all
positions and offices held with the Company by such executive officers. Officers
are appointed to serve until the meeting of the Board of Directors following the
next Annual Meeting of Stockholders and until their successors have been elected
and have qualified:
Venerando J. Indelicato has served as President, Treasurer and a
Director of the Company since 1966.
Richard Wildman has served as Executive Vice-President of the Company
since 1996.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as at September __, 1998,
with respect to the shares of Common Stock which are beneficially owned by (i)
any person (including any "group", as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934), who is known to the Company to be the
beneficial owner of more than five percent of the Company's outstanding Common
Stock, (ii) the executive officer of the Company named in the Summary
Compensation Table under the caption "Executive Compensation", below, (iii) each
director and nominee to serve as a director of the Company and (iv) all
executive officers and directors of the Company as a group:
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<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Beneficial Owner Ownership (1) of Class (2)
- ---------------- ------------- ------------
<S> <C> <C>
Venerando J. Indelicato 259,150(3) 12.3%
12307 Marblehead Drive
Tampa, FL 33626
Madeline Indelicato 136,219(4) 6.5%
12307 Marblehead Drive
Tampa, FL 33626
Norma Beidler 154,246 7.5%
R.D. 1
Accord, N.Y. 12404
Barry Traub 118,492(5) 5.8%
243 Vallejo Street
San Francisco, CA 94111
Michael Michaelson 127,900(6)(7) 6.2%
135 East 71st Street
New York, N.Y. 10021
Michael Epstein 17,500(8) *
7 Northwood Court
Woodbury, N.Y. 11797
Lloyd Frank 32,625(6)(9) 1.6%
25 Central Park West
New York, N. Y. 10023
Richard Wildman 23,750(10) 1.2%
210 Likely Drive
Alamo, CA 94507
Executive officers and 460,925(11) 22.4%
directors as a group
(5 persons)
- ------------------------
</TABLE>
1. Except as noted in the following footnotes, all beneficially owned shares
are owned with sole voting and investment power.
2. Asterisk indicates less than one percent.
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3. Includes 432 shares owned jointly with his wife, Madeline Indelicato, and
50,000 shares which are not outstanding but which are subject to issuance
upon exercise of presently exercisable options granted to Mr. Indelicato
under the Company's 1991 Stock 1991 Plan. Excludes all shares owned
beneficially by Mrs. Indelicato referred to below in this table (except the
aforementioned 432 shares), as to which Mr.
Indelicato disclaims beneficial ownership.
4. Includes 432 shares owned jointly with her husband, Venerando J. Indelicato.
Excludes all shares owned beneficially by Mr. Indelicato referred to above
in this table (except the aforementioned 432 shares), as to which Mrs.
Indelicato disclaims beneficial ownership.
5. Includes 100,000 shares owned by a partnership in which Mr. Traub is the
sole general partner.
6. Includes 20,000 shares which are not outstanding but which are subject to
issuance upon exercise of presently exercisable options granted pursuant to
stock option contracts between the Company and such non-employee director
which were approved by stockholders and 10,000 shares which are not
outstanding but which are subject to issuance upon exercise of presently
exercisable options granted pursuant to the Company's 1994 Non-Employee
Director Stock 1991 Plan.
7. Excludes 41,364 shares (2.0% of the Company's outstanding Common Stock)
owned by Mr. Michaelson's wife, as to which Mr. Michaelson disclaims
beneficial ownership.
8. Represents the portion of options granted pursuant to the Company's 1984 and
1994 Non-Employee Director Stock 1991 Plans which are exercisable within 60
days after September 1, 1998.
9. Excludes 21,494 shares (1.0% of the Company's outstanding Common Stock)
owned by Mr. Frank's wife, as to which Mr. Frank disclaims beneficial
ownership.
10. Includes 18,750 shares which are not outstanding but which are subject to
issuance upon exercise of the portion of options granted to Mr. Wildman
under the Company's 1991 Stock 1991 Plan which are presently exercisable or
exercisable within 60 days after September 1, 1998.
11. Includes 146,250 shares which are not outstanding but which are subject to
issuance upon exercise of the portion of options which are presently
exercisable or exercisable within 60 days after September 1, 1998. Excludes
198,645 shares (9.7% of the Company's outstanding Common Stock) owned by
spouses of the Company's executive officer and directors, as to which such
executive officers and directors disclaim beneficial ownership.
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Executive Compensation
The following table sets forth information concerning the compensation of
Venerando J. Indelicato, the Company's Chief Executive Officer and Richard
Wildman, the Company's Executive Vice President, the Company's only executive
officers whose cash compensation exceeded $100,000 during the Company's fiscal
year ended June 30, 1998, for services in all capacities to the Company during
the Company's 1998, 1997 and 1996 fiscal years:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
All Other
Name and Principal Position Year Salary Options# Compensation
- --------------------------- ---- ------ ------- ------------
<S> <C> <C> <C> <C>
Venerando J. Indelicato 1998 $172,676(1) -- $9,000(2)
President and Chief 1997 $172,676 -- $9,000
Executive Officer 1996 $172,640 -- $9,000
Richard Wildman 1998 $152,423 -- $9,000(2)
Executive Vice President 1997 $94,711 50,000 $5,038
</TABLE>
(1) The Company is a party to an Employment Agreement with Mr.
Indelicato pursuant which he serves as Chief Executive Officer of
the Company at an annual salary of $173,000, subject to increase
and bonuses in the discretion of the Company's Board of Directors,
for a term expiring on June 30, 2001.
(2) "All Other Compensation" for fiscal 1998 includes (i) $6,000,
representing the Company's contribution allocated to Messrs.
Indelicato and Wildman under the Company's Profit Sharing Plan in
fiscal 1998 and (ii) $3,000, which was the Company's matching
contribution in fiscal 1998 to Messrs. Indelicato's and Wildman's
deferred compensation under the Company's Profit Sharing Plan
pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended.
Compensation of Directors
Each non-employee director receives a fee of $5,000 per annum. Directors are
also reimbursed for out-of-pocket expenses incurred in connection with
performing their duties. In the event that the Board of Directors holds more
than four meetings during a fiscal year in addition to its meeting held on the
date of the Annual Meeting of Stockholders, each director receives $750 for each
such additional meeting such director attends.
Pursuant to the Company's 1994 Non-Employee Director Stock 1991 Plan, each
non-employee director of the Company serving on August 24, 1994 was granted an
option to purchase 10,000 shares of the Company's Common Stock and each person
who subsequently becomes a non-employee director is also to be granted an option
to purchase 10,000 shares of the Company's Common Stock at an exercise price
equal to 100% of the fair market value of the Company's Common Stock on the date
of grant. Each option is for
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a term of ten years and vests over a four-year period commencing one year after
the date of grant (with vesting credit given for any service on the Board of
Directors prior to the date of grant).
1998 Fiscal Year-End Option Values
No options were granted to Mr. Indelicato or Mr. Wildman during the
Company's fiscal year ended June 30, 1998 and neither Mr. Indelicato nor Mr.
Wildman acquired shares upon the exercise of stock options during the Company's
fiscal year ended June 30, 1998. The following table contains information
concerning the number and value, at June 30, 1998, of unexercised options held
by Messrs. Indelicato and Wildman:
Value of
Number of Unexercised
Unexercised In-the-Money
Options Held at Options Held at
Fiscal Year-End Fiscal Year-End
(Exercisable/ (Exercisable/
Name Unexercisable) Unexercisable)(1)
- ---- ---------------- ------------------
Venerando J. Indelicato 50,000/0 $14,125/$0
Richard Wildman 12,500/37,500 $ 4,297/$12,891
(1) At fiscal year end, the market value of such shares (the mean between the
low bid and high asked quotations on the NASDAQ Stock Market) exceeded the
exercise price of the underlying shares.
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FINANCIAL STATEMENTS
The Company's audited financial statements as of June 30, 1997 and
1998, and for the years ended June 30, 1997 and 1998, are annexed hereto.
Steiner's unaudited financial statements as of June 30, 1998 and for the six
months ended June 30, 1998, and Steiner's audited financial statements as of
December 31, 1996 and 1997, and for the years ended December 31, 1996 and 1997
are annexed hereto. An "Index to Financial Statements" is set forth on the last
two pages of this Proxy Statement, and is immediately followed by the aforesaid
financial statements.
INDEPENDENT ACCOUNTANTS
Grant Thornton LLP, independent public accountants, have audited the
financial statements of the Company since 1985. The selection of Grant Thornton
LLP was based upon the recommendation of the Board's Audit Committee, which
reviewed the professional competence of the firm and its audit scope. The Board
selects the Company's independent accountants each year upon the recommendation
of the Board's Audit Committee. BDO Seidman, independent public accountants,
have audited the financial statements of Steiner since 1993. The election of BDO
Seidman was based upon the recommendation of the management of Steiner, who
reviewed the professional competence of the firm and its audit scope. Assuming
that the Merger is consummated, the Company's Board of Directors will meet after
the Merger to determine the Company's independent accountants for the year
ending June 30, 1999.
A representative of Grant Thornton LLP will be present at the Meeting
to respond to appropriate questions of stockholders and to make a statement if
he so desires. A representative of BDO Seidman will also be present at the
Meeting to respond to appropriate questions of stockholders regarding Steiner
and to make a statement if he so desires.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 1999
Annual Meeting of Stockholders, which the Company contemplates holding in
September, 1999, must be received at the company's principal executive offices
located at 250 South Milipitas Boulevard, Milipitas, California 95035, on or
before ______, 1999 for consideration for inclusion in the Company's Proxy
Statement and form of proxy relating to that meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Company's management does
not know of any business, other than that mentioned above, which will be
presented for consideration at the Meeting. However, if any other matters should
properly come before the Meeting, it is the intention of the persons named in
the accompanying form of proxy to vote the proxies in accordance with their
judgment on such matters.
-71-
<PAGE>
Stockholders may obtain, without charge, a copy of the Company's Annual
Report on Form 10-K for the year ended June 30, 1998, which the Company has
filed with the Securities and Exchange Commission, by writing Lloyd Frank,
Secretary, Metro-Tel Corp., 250 South Milipitas
Boulevard, Milipitas, California 95035.
By Order of the Board of Directors,
Lloyd Frank, Secretary
Date: September , 1998
-72-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page Numbers
------------
METRO-TEL CORP.
Report of Independent Certified Public Accountants F-2
Balance Sheets as of F-3
June 30, 1997 and June 30, 1998
Statements of Operations for the years ended F-5
June 30, 1997 and 1998
Statement of Changes in Stockholders' Equity F-6
Statements of Cash Flows for the years ended F-7
June 30, 1997 and 1998
Notes to Financial Statements for the F-8
years ended June 30, 1997 and 1998
STEINER-ATLANTIC CORP.
Report of Independent Certified Public Accountants F-2
Balance Sheets at December 31, 1997 F-3
and June 30, 1998 (unaudited)
Statements of Income for the years ended December 31, 1996 and 1997 F-4
and for the six months ended June 30, 1997 and 1998 (unaudited)
Statements of Shareholders Equity for the years ended December 31, 1996 F-5
and 1997 and for the six months ended June 30, 1998 (unaudited)
Statements of Cash Flows for the years ended December 31, 1996 and 1997 F-6
and for the six months ended June 30, 1997 and 1998 (unaudited)
Summary of Significant Accounting Policies F-7
Notes to Financial Statements F-10
-73-
<PAGE>
METRO-TEL CORP.
Index to Financial Statements
Report of Independent Certified Public Accountants F-2
Balance Sheets as of F-3
June 30, 1997 and June 30, 1998
Statements of Operations for the years ended F-5
June 30, 1997 and 1998
Statement of Changes in Stockholders' Equity F-6
for the years ended June 30, 1997 and 1998
Statements of Cash Flows for the years ended F-7
June 30, 1997 and 1998
Notes to Financial Statements for the F-8
years ended June 30, 1997 and 1998
F-1
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Stockholders
Metro Tel Corp.
We have audited the accompanying balance sheets of Metro Tel Corp. as of June
30, 1997 and 1998, and the related statements of operations, changes in
stockholders' equity 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Metro Tel Corp. as of June 30,
1997 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
San Jose, California
August 10, 1998
F-2
<PAGE>
Metro Tel Corp.
BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS
1997 1998
------ -----
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 498,615 $ 475,508
Trade receivables, net of allowance for doubtful accounts of
$10,000 in 1997 and 1998 550,457 486,144
Inventories 1,516,339 1,434,147
Prepaid expenses and other 43,696 78,766
-------------- ---------------
Total current assets 2,609,107 2,474,565
DEFERRED INCOME TAXES 27,000 133,000
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 486,683 566,732
Furniture and fixtures 76,883 76,927
Leasehold improvements 8,765 8,765
--------------- ---------------
572,331 652,424
Less accumulated depreciation and amortization 457,671 501,078
--------------- ---------------
114,660 151,346
OTHER ASSETS
Goodwill, net of accumulated amortization of $399,255 in 1997 793,444 763,628
and $429,071 in 1998
Other, net 10,465 9,676
--------------- ---------------
803,909 773,304
$3,554,676 $3,532,215
================ ================
</TABLE>
The accompanying notes are an integral part of these
statements.
F-3
<PAGE>
Metro Tel Corp.
BALANCE SHEETS (continued)
June 30,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1998
------ ----
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 212,171 $ 196,694
Accrued liabilities 171,880 216,566
Accrued expenses related to pending acquisition - 300,000
--------------- ------------
Total current liabilities 384,051 713,260
DEFERRED INCOME TAXES 7,000 5,000
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, 6,000,000 shares authorized,
2,080,296 shares issued and 2,054,046 shares
outstanding in 1997 and 1998 52,007 52,007
Additional paid-in capital 2,152,423 2,152,423
Retained earnings 1,027,945 678,275
--------------- -------------
3,232,375 2,882,705
Less 26,250 shares of treasury stock - at cost (68,750) (68,750)
--------------- -------------
3,163,625 2,813,955
$ 3,554,676 $ 3,532,215
=============== ==============
</TABLE>
The accompanying notes are an integral part of these
statements.
F-4
<PAGE>
Metro Tel Corp.
STATEMENTS OF OPERATIONS
Years ended June 30,
<TABLE>
<CAPTION>
1997 1998
------ ----
<S> <C> <C>
Net sales $ 3,882,818 $ 3,839,077
Cost of goods sold 2,413,529 2,570,561
-------------- ---------------
Gross profit 1,469,289 1,268,516
Selling, general and administrative expenses 1,212,361 1,249,612
Expenses related to pending acquisition - 300,000
Research and development 238,061 228,755
Interest and other income (6,254) (10,181)
---------------- ---------------
1,444,168 1,768,186
Earnings (loss) before provision for income taxes 25,121 (499,670)
Provision for income taxes 13,000 (150,000)
--------------- ---------------
NET EARNINGS (LOSS) $ 12,121 $ (349,670)
=============== ===============
Earnings (loss) per common share - Basic and diluted $.01 $(.17)
Weighted average number of common shares outstanding -
Basic and diluted 2,025,711 2,054,046
</TABLE>
The accompanying notes are an integral part of these
statements.
F-5
<PAGE>
Metro Tel Corp.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Common Stock Additional
$.025 Par Value Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
------ ------ ---------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996 2,030,296 $50,757 $2,107,173 $1,015,824 $(68,750) $3,105,004
Net earnings - - - 12,121 - 12,121
Stock options exercised 50,000 1,250 45,250 - - 46,500
------------- ------------- ------------- ------------- ------------- --------------
Balance at June 30, 1997 2,080,296 52,007 2,152,423 1,027,945 (68,750) 3,163,625
Net loss - - - (349,670) - (349,670)
-------------- ------------- ------------- ------------- ------------- -------------
Balance at June 30, 1998 2,080,296 $52,007 $2,152,423 $ 678,275 $(68,750) $2,813,955
============== ============= ============== ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these
statements.
F-6
<PAGE>
Metro Tel Corp.
STATEMENTS OF CASH FLOWS
Years ended June 30,
<TABLE>
<CAPTION>
1997 1998
------ ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss) $ 12,121 $(349,670)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities
Depreciation and amortization 66,558 74,012
Deferred income taxes (3,000) (108,000)
(Increase) decrease in operating assets:
Trade receivables 165,646 64,313
Inventories (102,960) 82,192
Prepaid expenses and other assets (18,345) (35,070)
Increase (decrease) in operating liabilities:
Accounts payable 2,203 (15,477)
Accrued liabilities (2,324) 44,686
Accrued expenses related to pending acquisition - 300,000
Income taxes payable (18,866) -
------------ ---------
Net cash provided by operating activities 101,033 56,986
Cash flows from investing activities:
Capital expenditures (60,842) (80,093)
Cash flows from financing activities:
Issuance of common stock 46,500 -
------------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 86,691 (23,107)
Cash and cash equivalents at beginning of year 411,924 498,615
----------- ----------
Cash and cash equivalents at end of year $498,615 $ 475,508
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 60,127 $ 1,989
</TABLE>
The accompanying notes are an integral part of these
statements.
F-7
<PAGE>
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Metro Tel Corp. (the "Company") is a Delaware corporation engaged
principally in the manufacture and sale of telephone test equipment and
customer premise equipment, as well as related accessories. The
principal market for the Company's products is the United States. A
summary of the significant accounting policies applied in the
preparation of the accompanying financial statements follows:
1. Revenue Recognition
Sales are recorded as products are shipped.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is
principally determined by the weighted average method, which
approximates the first-in, first-out ("FIFO") method.
3. Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization
are provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated useful
lives (generally 5 to 10 years), on a straight-line basis.
Depreciation and amortization of property and equipment was
$36,740 and $43,407 in fiscal 1997 and 1998, respectively.
4. Goodwill
Goodwill, representing cost in excess of the book value of net
assets acquired, is being amortized on a straight-line basis
over a period of 40 years. On an ongoing basis, management
reviews the valuation and amortization of goodwill to
determine possible impairment by comparing the carrying value
to the undiscounted future cash flows of the related assets.
5. Income Taxes
Deferred income taxes are recognized for temporary differences
between the financial statement and income tax bases of assets
and liabilities and loss carryforwards and tax credit
carryforwards for which income tax benefits are expected to be
realized in future years. A valuation allowance is established
to reduce deferred tax assets if it is more likely than not
that all, or some portion, of such deferred tax assets will
not be realized. The effect on deferred
F-8
<PAGE>
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
taxes of a change in tax rates is recognized in the statement
of operations in the period that includes the enactment date.
6. Earnings (Loss) Per Common Share
The Company has adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share, for all periods presented. SFAS No. 128 requires a dual
presentation of basic and diluted earnings per share ("EPS").
Basic earnings (loss) per common share is based upon the
weighted average number of shares of common stock outstanding
during the year. Common stock equivalents are included in the
weighted average number of common shares outstanding, for
purposes of calculating diluted earnings per share, when their
effect is dilutive. The effect of common stock equivalents on
earnings (loss) per share is anti-dilutive in 1997 and 1998.
The adoption of SFAS No. 128 for fiscal 1997 had no impact on
previously reported earnings per share.
7. Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents for purposes of the statement of cash flows.
8. Principal Customers
The Company sells its products principally to companies in the
telecommunications industry and to distributors, with its
credit risk being dependent on the economic conditions of the
industry and generally prevailing economic conditions. The
Company performs ongoing credit evaluations of its customers
and does not generally require collateral. Sales to two
customers accounted for 19% and 10% of total sales for fiscal
1997 and 15% and 11% of total sales for fiscal 1998. Two
customers accounted for 18% and 16% of trade receivables at
June 30, 1997 and 15% and 13% of trade receivables at June 30,
1998.
9. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required 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
F-9
<PAGE>
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
NOTE B - INVENTORIES
The components of inventories are summarized as follows:
June 30,
----------------------
1997 1998
---- ----
Raw materials $692,368 $640,414
Work-in-process 232,818 289,498
Finished goods 591,153 504,235
$1,516,339 $1,434,147
========== ==========
NOTE C - STOCK OPTIONS
The Company has in effect a 1991 Stock Option Plan and a 1994
Non-Employee Director Stock Option Plan that authorize the grant of
options to purchase 250,000 and 100,000 shares, respectively, of the
Company's common stock to key management employees of the Company and
members of the Company's Board of Directors, respectively. The plans
provide that option prices will not be less than the fair market value
per share on the date the option is granted. Accordingly, no
compensation cost has been recognized for options granted under the
plans. Had compensation cost for the plans been determined based on the
fair value of the options at the grant dates consistent with the method
prescribed in SFAS No. 123, Accounting for Stock-Based Compensation,
the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below. Pro forma amounts for
1997 and 1998 may not be indicative of pro forma results in future
periods because the pro forma amounts below do not include pro forma
compensation cost for options granted prior to fiscal 1996.
F-10
<PAGE>
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1998
NOTE C - STOCK OPTIONS (continued)
1997 1998
---------- -------
Net earnings (loss)
As reported $12,121 $(349,670)
Pro forma 2,087 (357,311)
Per share
As reported $0.01 $(.17)
Pro forma 0.00 (.17)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options pricing model with the following
weighted-average assumptions used for grants in 1997 (there were no
grants in 1998): no dividend yield; expected volatility of 90%;
risk-free interest rate of 5.9%; and expected lives of 4 years.
In addition, in each of June 1991 and May 1993, the Company granted
stock options to purchase 30,000 shares of its common stock to
nonemployee directors at an exercise price of $1.19 and $1.00 per
share, respectively, the fair market values on the dates of grant.
These options were not granted pursuant to the Company's stock option
plans. Options for 20,000 shares expired in May 1996. The remaining
options to purchase 40,000 shares are exercisable over a ten-year
period.
A summary of the status of options granted under the Company's stock
options plans, including options granted to non-employee directors
prior to the 1994 Plan, as of June 30, 1997 and 1998, and changes
during the years ended on those dates, is presented below.
<TABLE>
<CAPTION>
1997 1998
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 231,000 $0.98 225,000 $0.98
Granted 90,000 0.90 - -
Exercised (50,000) 0.93 - -
Canceled or expired (46,000) 0.85 - -
225,000 $0.98 225,000 $0.98
Weighted average grant-date fair value of
options granted during the year $0.65 -
</TABLE>
F-11
<PAGE>
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1998
NOTE C - STOCK OPTIONS (continued)
The following information relates to stock options outstanding at June
30, 1998:
Range of exercise prices $0.81-$1.19
Options outstanding 225,000
Weighted average exercise price of options outstanding $0.98
Weighted average remaining contractual life (years) 8
Options exercisable 209,000
Weighted average exercise price of options exercisable $0.98
NOTE D - INCOME TAXES
The provision (benefit) for income taxes is summarized as follows:
June 30,
-----------------------
1997 1998
---- -----
Current
Federal $11,000 $(40,000)
State 5,000 (2,000)
Deferred (3,000) (108,000)
--------- ----------
$13,000 $(150,000)
========= ==========
The tax effects of temporary differences which give rise to deferred
tax assets (liabilities) are summarized as follows:
June 30,
-------------------
1997 1998
----- ----
Deferred tax assets (liabilities)
Acquisition costs $ - $99,000
Operating loss carryforward - 7,000
Inventory capitalization 15,500 14,000
Vacation accrual 8,500 10,000
Trade receivables 3,000 3,000
Depreciation (7,000) (5,000)
-------- ---------
20,000 128,000
Valuation allowance - -
-------- ---------
Net deferred tax asset $20,000 $128,000
======= =========
F-12
<PAGE>
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1998
The following is a reconciliation of the provision for income taxes to
the Federal statutory income tax rate:
June 30,
---------------------
1997 1998
---- ----
Federal statutory rate 34.0% (34.0)%
State taxes, net of Federal benefit 6.5 (4.2)
Amortization of goodwill 13.2 2.0
Effect of operating loss carryback - 5.5
Effect of graduated Federal tax rates (11.9) -
Other, net 9.9 .7
------ --------
51.7% (30.0)%
====== ========
NOTE E - ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
June 30,
-----------------------
1997 1998
---- ----
Payroll and employee benefits $80,934 $108,387
Profit-sharing contributions 49,589 54,528
Accrued professional fees 36,000 36,000
Other 5,357 17,651
----------- ----------
$171,880 $216,566
=========== ==========
NOTE F - EMPLOYEE BENEFIT PLANS
The Company maintains a profit-sharing plan which covers substantially
all employees. Annual contributions, determined at the discretion of
the Board of Directors, were $49,589 in fiscal 1997 and $54,527 in
fiscal 1998.
The Company also maintains a 401(k) retirement plan which covers
substantially all employees and provides for voluntary employee
contributions with employer matching contributions of up to 2% of the
employee's compensation. The Company's matching contribution for this
401(k) retirement plan was $19,000 for both fiscal 1997 and 1998.
F-13
<PAGE>
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1998
NOTE G - COMMITMENTS AND CONTINGENCIES
Leases
The Company occupies a manufacturing and warehouse facility in
California pursuant to a noncancelable operating lease expiring in
March 1999. This lease does not contain a renewal option. The minimum
rental commitment under this lease, at June 30, 1998, is $87,000.
Rent expense charged to operations (including rent under a
noncancelable lease for an office facility in New York which expired in
February 1997) was $147,000 and $116,000 for fiscal 1997 and 1998,
respectively.
Employment Agreements
The Company is obligated under an employment agreement, expiring June
30, 2001, with an officer to pay $173,000 per annum. The Company is
also a party to an employment arrangement with another executive
officer pursuant to which he is receiving a salary of $150,000 per
annum since July 1, 1997.
Royalty Agreement
The Company is presently obligated pursuant to a royalty agreement to
pay the greater of 10% of sales of certain products or $75,000 per
year. Payments were $79,800 and $113,000 for fiscal 1997 and 1998,
respectively. The Company is also obligated pursuant to a second
royalty agreement to pay 10% of annual sales of certain other products.
Payments under the second royalty agreement were $27,000 and $10,000
for fiscal 1997 and 1998, respectively.
NOTE H - EXPORT SALES
Export sales were approximately $252,000 and $189,000 in fiscal 1997
and 1998, respectively.
NOTE I - FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximated fair
value as of June 30, 1997 and 1998.
F-14
<PAGE>
Metro Tel Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1998
NOTE J - SUBSEQUENT EVENTS
On July 1, 1998, the Company and Steiner-Atlantic Corporation
("Steiner") entered into an agreement which provides for the merger of
a newly-formed Subsidiary of the Company with and into Steiner. Upon
completion of the merger, Steiner will become a wholly-owned subsidiary
of the Company and the Company would issue 4,270,954 shares of common
stock to the present shareholders of Steiner, which would represent
approximately 69% of the shares to be outstanding immediately following
the completion of the merger. In addition, the Company will grant
options at 100% of fair market value for the purchase of up to 500,000
shares of its common stock to employees of Steiner other than Steiner
shareholders.
For financial accounting purposes, this transaction will be accounted
for as a reverse acquisition of the Company by Steiner.
F-15
<PAGE>
Steiner-Atlantic Corp.
Index to Financial Statements
Report of Independent Certified Public Accountants F-2
Balance Sheets at December 31, 1997 and June 30, 1998 (unaudited) F-3
Statements of Income for the years ended December 31, 1996 and 1997 F-4
and for the six months ended June 30, 1997 and 1998 (unaudited)
Statements of Shareholders' Equity for the years ended December 31, 1996 F-5
and 1997 and for the six months ended June 30, 1998 (unaudited)
Statements of Cash Flows for the years ended December 31, 1996 F-6
and 1997 and the six months ended June 30, 1997 and 1998 (unaudited)
Summary of Accounting Policies F-7
Notes to Financial Statements F-10
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Steiner-Atlantic Corp.
Miami, Florida
We have audited the accompanying balance sheet of Steiner-Atlantic Corp. as of
December 31, 1997 and the related statements of income, shareholders' equity and
cash flows for each of the two years in the period 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Steiner-Atlantic Corp. at
December 31, 1997, and the results of its operations and its cash flows for each
of the two years in the period then ended in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
Miami, Florida BDO Seidman, LLP
April 1, 1998, except for Note 1
which is as of July 1, 1998
F-2
<PAGE>
Steiner-Atlantic Corp.
Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 632,331 $ 828,390
Accounts receivable (Note 7) 1,214,523 1,021,213
Current portion of lease receivables (Notes 2 and 7) 193,562 161,007
Inventories 3,108,303 2,767,624
Other current assets (Note 6) 116,653 67,238
- ---------------------------------------------------------------------------------------------------------------
Total current assets 5,265,372 4,845,472
Lease receivables - due after one year (Notes 2 and 7) 214,177 148,651
Property and equipment, at cost - net of accumulated
depreciation and amortization (Note 3) 147,039 146,461
- ---------------------------------------------------------------------------------------------------------------
$ 5,626,588 $ 5,140,584
Liabilities and Shareholders' Equity
Current liabilities
Line of credit (Note 5) $ 500,000 $ 1,000,000
Accounts payable and accrued expenses (Note 6) 869,035 1,221,222
Customer deposits 304,278 389,371
Current portion of term loan (Note 5) 200,000 200,000
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 1,873,313 2,810,593
Term loan, less current portion (Note 5) 316,613 216,613
- ------------------------------------------------------------------------------------------------------------
Total liabilities 2,189,926 3,027,206
- ------------------------------------------------------------------------------------------------------------
Commitments (Notes 6, 8 and 9)
- ------------------------------------------------------------------------------------------------------------
Shareholders' equity Common stock, $.50 par value:
Authorized shares - 600,000; issued and
outstanding 339,500 shares 169,750 169,750
Retained earnings 1,448,950 1,448,950
Undistributed shareholders' earnings 1,817,962 494,678
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,436,662 2,113,378
- ------------------------------------------------------------------------------------------------------------
$ 5,626,588 $ 5,140,584
============================================================================================================
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
F-3
<PAGE>
Steiner-Atlantic Corp.
Statements of Income
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
------------------------------ -----------------------------
1996 1997 1997 1998
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Net Sales $ 13,857,817 $ 14,093,632 $ 6,511,446 $ 7,747,321
Commissions and other income 157,900 155,809 72,714 87,388
- ------------------------------------------------------------------------------------------------------------------------------
Total 14,015,717 14,249,441 6,584,160 7,834,709
- ------------------------------------------------------------------------------------------------------------------------------
Cost of sales 9,953,041 10,344,113 4,628,985 5,686,339
Selling, general and administrative expenses (Note 6) 3,398,345 3,474,421 1,595,932 1,698,058
- ------------------------------------------------------------------------------------------------------------------------------
Total 13,351,386 13,818,534 6,224,917 7,384,397
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income 664,331 430,907 359,243 450,312
- ------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 138,426 100,158 55,591 40,390
Management fee income (Note 6) 145,000 40,000 - 150,000
Interest expense (83,543) (60,940) (35,740) (26,509)
- ------------------------------------------------------------------------------------------------------------------------------
Total Other Income 199,883 79,218 19,851 163,881
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 864,214 $ 510,125 $ 379,094 614,193
==============================================================================================================================
Net income per share $ 2.55 $ 1.50 $ 1.12 $ 1.81
Weighted average number of shares of
common stock outstanding 339,500 339,500 339,500 339,500
Pro forma amounts (unaudited):
Net income $ 864,214 $ 510,125 $ 379,094 614,193
Provision for income taxes (Note 4) 329,935 195,555 144,722 231,939
- ------------------------------------------------------------------------------------------------------------------------------
Pro forma net income (unaudited) $ 534,279 $ 314,570 $ 234,372 $ 382,254
==============================================================================================================================
Pro forma net income per share (unaudited) $ 1.57 $ .93 $ .69 $ 1.13
Weighted average number of shares of common stock
outstanding 339,500 339,500 339,500 339,500
==============================================================================================================================
</TABLE>
See accompanying summary of significant
accounting policies and notes to financial statements.
F-4
<PAGE>
Steiner-Atlantic Corp.
Statements of Shareholders' Equity
For the years ended December 31, 1996 and 1997
and for the six months ended June 30, 1998
<TABLE>
<CAPTION>
Undistributed Total
Common Retained Shareholders' Stockholders'
Stock Earnings Earnings Equity
- ------------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 169,750 $ 1,448,950 $ 1,813,623 $ 3,432,323
Distributions - - (770,000) (770,000)
Net income - - 864,214 864,214
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 169,750 1,448,950 1,907,837 3,526,537
Distributions - - (600,000) (600,000)
Net income - - 510,125 510,125
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 169,750 1,448,950 1,817,962 3,436,662
Distributions - - (1,937,477) (1,937,477)
Net income - - 614,193 614,193
- ------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 (unaudited) $ 169,750 $ 1,448,950 $ 494,678 $ 2,113,378
========================================================================================================================
</TABLE>
See accompanying summary of significant accounting
policies and notes to financial statements.
F-5
<PAGE>
Steiner-Atlantic Corp.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31, Six months ended June 30,
1996 1997 1997 1998
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by operating activities:
Net income $ 864,214 $ 510,125 $ 379,094 $ 614,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense 19,414 21,799 - 39,948
Depreciation and amortization 40,064 34,643 14,622 15,621
Net changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and lease receivables 331,387 (373,356) (91,154) 251,443
Inventories (185,972) 73,249 69,903 340,679
Other current assets 32,998 (14,845) (77,328) 49,415
Other assets 134,720 - (3,160) -
Increase (decrease) in:
Accounts payable and accrued expenses (89,415) 70,597 131,436 177,187
Customer deposits (35,138) 124,406 243,442 85,093
- -------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 1,112,272 446,618 666,855 1,573,579
- -------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities:
Loan to affiliate - (50,000) - -
Capital expenditures (23,850) (30,406) - (15,043)
- -------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (23,850) (80,406) - (15,043)
- -------------------------------------------------------------------------------------------------------------------------------
Cash used for financing activities:
Borrowings (repayments) under line of credit (net) (300,000) 500,000 - 500,000
Payments on term loan (183,334) (216,720) (116,666) (100,000)
Cash distributions to shareholders (770,000) (600,000) (200,000) (1,937,477)
Borrowings from shareholder 250,000 - - -
Repayment of loan from shareholder (250,000) - - -
Borrowings from related company - - - 175,000
- -------------------------------------------------------------------------------------------------------------------------------
Cash used for financing activities (1,253,334) (316,720) (316,666) (1,362,477)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (164,912) 49,492 350,189 196,059
Cash and cash equivalents at beginning of period 747,751 582,839 582,839 632,331
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 582,839 $ 632,331 $ 933,028 $ 828,390
Supplemental Information:
Cash paid for:
Interest $ 83,543 $ 60,940 $ 35,740 $ 26,509
===============================================================================================================================
</TABLE>
See accompanying summary of significant
accounting policies and notes to financial statements.
F-6
<PAGE>
Steiner-Atlantic Corp.
Summary of Significant Accounting Policies
Unaudited with respect to the six months ended June 30, 1997 and 1998
Nature of Business Steiner-Atlantic Corp. ("Steiner") sells
commercial and industrial laundry and dry
cleaning equipment, boilers and replacement
parts.
Steiner primarily sells to customers located
in the United States, the Caribbean and
Latin America.
Inventories Equipment inventories are valued at the
lower of cost (determined on the specific
identification basis) or market. Replacement
part inventories are valued at the lower of
cost or market determined on the first-in
first-out method.
Property, Equipment Property and equipment are stated at cost.
and Depreciation Depreciation and amortization are calculated
on the accelerated or straight-line methods
for financial reporting purposes and the
accelerated method for income tax purposes
over lives of five to seven years for
furniture and equipment and the life of the
lease for leasehold improvements.
Income Taxes Steiner has elected to be taxed as an S
Corporation under applicable provisions of
the Internal Revenue Code. Under such
election, shareholders include Steiner's
income in their own federal income tax
returns. Accordingly, Steiner is not subject
to income taxes.
The pro forma provisions for income taxes
and net income assume that Steiner was
subject to income tax.
For the purpose of the pro forma provision
for income taxes, Steiner has adopted the
provisions of Statement of Financial
Accounting Standards (SFAS) 109, Accounting
for Income Taxes for all periods presented.
Under the asset and liability method of SFAS
109, deferred taxes are recognized for
differences between financial statement and
income tax bases of assets and liabilities.
Statement of For purposes of this statement, cash
Cash Flows equivalents include all highly liquid
investments with original maturities of
three months or less.
F-7
<PAGE>
Steiner-Atlantic Corp.
Summary of Significant Accounting Policies
Unaudited with respect to the six months ended June 30, 1997 and 1998
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
reporting period. Actual results could
differ from those estimates.
Earnings Per Share Net income and pro forma net
income per share are based on the weighted
average number of shares of common stock
outstanding during each period.
Fair Value of The Company's financial instruments consist
Financial Instruments principally of cash, accounts receivable,
leases receivables, accounts payable and
accrued expenses. The carrying amounts of
such financial instruments as reflected in
the balance sheet approximate their
estimated fair value as of December 31,
1997. The estimated fair value is not
necessarily indicative of the amounts the
Company could realize in a current market
exchange or of future earnings or cash
flows.
New Accounting In June 1997, the Financial Accounting
Pronouncement Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise
and Related Information," which Steiner will
adopt as required for all periods beginning
after December 15, 1997. This statement
requires the disclosure of certain
information about operating segments in the
financial statements. It also requires that
public companies report certain information
about their products and services, the
geographic areas in which they operate and
their major customers.
The new standard is effective for financial
statements for periods beginning after
December 15, 1997 and requires comparative
financial information for earlier years to
be restated. Disclosure is not required for
interim periods during the first year. The
adoption of this new standard is not
expected to have a significant impact on
Steiner's financial statements.
Interim Financial The financial statements for the six months
Statements ended June 30, 1998 and 1997 are unaudited.
In the opinion of management, such financial
statements include all adjustments
(consisting only of normal recurring
accruals) necessary for a fair presentation
of financial position and the results of
operations. The results of operations for
interim periods are not necessarily
indicative of the results to be expected for
the full year.
F-8
<PAGE>
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
1. General On July 1, 1998, Metro-Tel Corp.
("Metro-Tel") and Steiner-Atlantic Corp.
("Steiner") entered into a merger agreement,
whereby Metro-Tel will acquire all the
issued and outstanding shares of capital
stock of Steiner in exchange for 4,720,954
shares of Metro-Tel. In addition, Metro-Tel
will issue up to 500,000 shares of its
common stock or grant options for the
purchase of up to 500,000 shares of its
common stock to shareholders and employees
of Steiner.
For financial accounting purposes, this
transaction will be accounted for as a
reverse acquisition of Metro-Tel by Steiner.
2. Lease Receivables Lease receivables result from customer
leases of equipment under arrangements which
qualify as sales-type leases. At June 30,
1998, annual future lease payments, net of
deferred interest ($57,164 at June 30,
1998), due under these leases are as
follows:
Year ending June 30,
--------------------------------------------
1999 $ 161,007
2000 68,026
2001 41,659
2002 24,016
2003 12,628
Thereafter 2,322
--------------------------------------------
$ 309,658
============================================
3. Property and Major classes of property and equipment
Equipment consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------------------------------------------------
<S> <C> <C>
Furniture and equipment $ 433,535 $ 448,578
Leasehold improvements 237,682 237,682
-------------------------------------------------------
Total cost 671,217 686,260
Less accumulated depreciation
and amortization 524,178 539,799
-------------------------------------------------------
$ 147,039 $ 146,461
=======================================================
</TABLE>
F-9
<PAGE>
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
4. Income Taxes The following are the components of pro forma
(Unaudited) income tax provision:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1996 1997 1997 1998
---------------------------------------------------------------
Current
<S> <C> <C> <C> <C>
Federal $ 279,616 $ 189,074 $ 131,487 $ 195,910
State 47,864 32,366 22,508 33,536
---------------------------------------------------------------
327,480 221,440 153,995 229,446
---------------------------------------------------------------
Deferred
Federal 2,096 (22,102 ) (7,918) 2,129
State 359 (3,783 ) (1,355) 364
---------------------------------------------------------------
2,455 (25,885 ) (9,273) 2,493
Total $ 329,935 $ 195,555 $ 144,722 $ 231,939
===============================================================
</TABLE>
The pro forma provision for income taxes
represents the estimated income taxes that
would have been reported had Steiner not
been an S Corporation and had been subject
to Federal and state income taxes.
The reconciliation of pro forma income tax
computed at the United States federal
statutory tax rate of 34% to the proforma
provision for income taxes is as follows:
F-10
<PAGE>
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1996 1997 1997 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax at the United
States statutory rate $ 293,833 $ 173,443 $ 128,892 $ 208,826
State income taxes, net
of federal benefit 31,827 18,865 13,961 22,374
Other 4,275 3,247 1,869 739
------------------------------------------------------------------------
Total $ 329,935 $ 195,555 $ 144,722 $ 231,939
========================================================================
</TABLE>
If Steiner was subject to income taxes, a
deferred tax liability would be recorded,
through a charge to operations, for the tax
effect of cumulative temporary differences
between financial and tax reporting. Such
deferred tax liability results principally
from temporary differences relating to the
allowance for doubtful accounts and
depreciation and would have amounted to
approximately $20,000 at June 30, 1998 had
Steiner been subject to federal and state
taxes at such date.
5. Credit Agreement The credit agreement with a commercial bank
includes a line of credit of $2,250,000 and
a term loan initially of $1,000,000. At June
30, 1998 and December 31, 1997, Steiner had
available lines of credit in the amount of
$1,250,000 and $1,750,000, respectively, and
owed $416,613 and $516,613, respectively,
under the term loan. The term loan is due in
60 monthly payments of $16,667, plus
interest through August 2000. The line of
credit is due on demand and is available for
working capital purposes and the issuance of
import letters of credit and bankers
acceptances. Borrowings under the agreement
bear interest at the prime rate (8?% at June
30, 1998 and 8?% at December 31, 1997), are
collateralized by all of Steiner's assets,
and are personally guaranteed by the
shareholders. The agreement requires
maintenance of certain financial ratios and
contains other restrictive covenants.
At June 30, 1998 and December 31, 1997,
Steiner had outstanding letters of credit
aggregating approximately $0 and $35,000,
respectively.
F-11
<PAGE>
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
6. Related Party During the years ended December 31, 1996 and
Transactions 1997 and the six months ended June 30, 1997
and 1998, Steiner charged management fees of
$145,000, $40,000, $0 and $150,000,
respectively, to a company under common
ownership. At December 31, 1997, $50,000 is
due from such company and is included in
other current assets in the accompanying
balance sheet. During 1998, the related
company made a non-interest bearing advance
of $325,000, payable on demand, to Steiner.
At June 30, 1998, $175,000 is due to such
company and is included in accounts payable
and accrued expenses in the accompanying
balance sheet.
Steiner leases warehouse and office space
from a shareholder under an operating lease
which expires in October 2004. Minimum
future rental commitments under this lease
approximate $90,000 per annum through
October 2004.
7. Concentrations of Steiner places its excess cash in overnight
Credit Risk deposits with a large national bank.
Concentration of credit risk with respect to
trade and lease receivables is limited due
to a large customer base. Trade and lease
receivables are generally collateralized
with equipment sold.
8. Commitment Steiner leases additional warehouse space
under operating leases which expire in
December 1999, with an option to renew for
an additional three year period. Minimum
future rental commitments under these leases
approximate $50,000 a year. Rent expense,
including rentals paid to related parties,
aggregated $138,768 and $141,700 for the
years ended December 31, 1996 and 1997 and
$71,650 and $70,850 for six months ended
June 30, 1997 and 1998, respectively.
9. Deferred Steiner adopted a participatory deferred
Compensation compensation plan wherein it matches
Plan employee contributions up to 1% of an
eligible employee's yearly compensation. All
employees are eligible to participate in the
plan after one year of service. Steiner
provided for $7,368 and $10,792 for the
years ended December 31, 1996 and 1997 and
$5,260 and $5,735 for the six months ended
June 30, 1997 and 1998, respectively, in
contributions. The plan is tax exempt under
Section 401(k) of the Internal Revenue Code.
10. Export Sales Net sales includes export sales to
nonaffiliated customers as follows for the
years ended December 31, 1996 and 1997 and
for the six months ended June 30, 1997 and
1998:
F-12
<PAGE>
Steiner-Atlantic Corp.
Notes to Financial Statements
Unaudited with respect to the six months ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1996 1997 1997 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Caribbean $ 1,345,301 $ 1,793,076 $ 365,591 $ 1,147,918
Latin America 1,314,838 1,595,797 500,976 1,217,397
Other 381,528 560,639 245,256 65,295
-----------------------------------------------------------------------
$ 3,041,667 $ 3,949,512 $1,111,823 $ 2,430,610
=======================================================================
</TABLE>
F-13
<PAGE>
EXHIBIT A
AGREEMENT OF MERGER
AMONG
METRO-TEL CORP.,
METRO-TEL ACQUISITION CORP.,
STEINER-ATLANTIC CORP.,
WILLIAM STEINER and
MICHAEL S. STEINER
Dated as of July 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION...................................................................1
RECITALS.......................................................................1
ARTICLE 1: THE MERGER..........................................................1
1.1 Merger................................................................1
1.2 Continuing Corporate Existence........................................1
1.3 Effective Date........................................................2
1.4 Corporate Government..................................................2
1.5 Rights And Liabilities of The Surviving Corporation...................2
1.6 Closing...............................................................3
1.7 Tax Consequences......................................................3
ARTICLE 2: CONVERSION OF SHARES; TREATMENT OF OPTIONS..........................3
2.1 Conversion of Shares..................................................3
2.2 Additional Shares to be Issued........................................4
2.3 Fractional Shares.....................................................4
2.4 Stock Options.........................................................4
2.5 Adjustment............................................................4
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................5
3.1 Organization And Good Standing of The Company.........................5
3.2 Capitalization of The Company.........................................5
3.3 Due Authorization; Binding Effect.....................................5
3.4 Capital Stock of Company Subsidiaries And Other Ownership Interests...6
3.5 Corporate Power And Authority.........................................6
3.6 Absence of Restrictions And Conflicts.................................6
3.7 Financial Statements And Records of The Company.......................7
3.8 No Material Undisclosed Liabilities...................................7
3.9 Absence of Certain Changes............................................7
3.10 Tax Returns; Taxes....................................................9
3.11 Title, Condition of Assets...........................................10
3.12 Intellectual Property................................................12
3.13 Contracts............................................................12
3.14 Licenses and Permits.................................................13
3.15 Compliance With Laws.................................................14
-i-
<PAGE>
3.16 Insurance And Surety Agreements......................................14
3.17 Relationships........................................................14
3.18 Employee Benefit Plans...............................................15
3.19 Labor Relations......................................................16
3.20 Environmental Matters................................................16
3.21 Questionable Payments................................................17
3.22 Brokers And Finders..................................................17
3.23 Accuracy of Information Furnished....................................17
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF PARENT...........................17
4.1 Organization And Good Standing of Parent.............................17
4.2 Capitalization of Parent.............................................17
4.3 Due Authorization, Binding Effect....................................18
4.4 Capital Stock of Company Subsidiaries and Other Ownership Interests..18
4.5 Corporate Power and Authority........................................18
4.6 Absence of Restrictions and Conflicts................................19
4.7 Parent SEC Reports...................................................19
4.8 Financial Statements and Record of Parent............................20
4.9 No Material Undisclosed Liabilities..................................20
4.10 Absence of Certain Changes...........................................20
4.11 Tax Returns; Taxes...................................................22
4.12 Title, Condition of Assets...........................................23
4.13 Intellectual Property................................................24
4.14 Contracts............................................................24
4.15 Licenses and Permits.................................................25
4.16 Insurance and Surety Agreements......................................26
4.17 Relationships........................................................26
4.18 Employee Benefit Plans...............................................26
4.19 Labor Relations......................................................27
4.20 Questionable Payments................................................28
4.21 Brokers and Finders..................................................28
4.22 Compliance with Laws.................................................28
4.23 Accuracy of Information Furnished....................................28
ARTICLE 5: COVENANTS OF THE COMPANY AND PARENT................................29
5.1 Notice of Any Material Change........................................29
5.2 Cooperation..........................................................29
5.3 Public Disclosure....................................................29
5.4 Submission to Parent Shareholders....................................30
5.5 Proxy Statement......................................................30
-ii-
<PAGE>
ARTICLE 6: COVENANTS OF THE COMPANY AND AGREEMENT
SHAREHOLDERS..............................................30
6.1 Access...............................................................30
6.2 Conduct of Business Prior to Closing Date............................31
6.3 Shareholder Approval.................................................32
6.4 No Solicitations.....................................................32
6.5 Best Efforts.........................................................33
ARTICLE 7: COVENANTS OF PARENT ...............................................33
7.1 Access...............................................................33
7.2 Conduct of Business Prior to Closing Date............................33
7.3 No Solicitations.....................................................35
7.4 Tax Certifications...................................................34
7.5 Best Efforts.........................................................35
ARTICLE 8: SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNITY.................................................35
8.1 Survival.............................................................35
8.2 Indemnification......................................................36
ARTICLE 9: CONDITIONS PRECEDENT...............................................36
9.1 Conditions to Each Party's Obligations...............................36
9.2 Conditions to Obligations of The Company.............................37
9.3 Conditions to Obligations of Parent..................................38
ARTICLE 10: REGISTRATION RIGHTS...............................................39
10.1 Demand Registration Rights for Registrable Securities: Filing of
Registration Statement...............................................39
10.2 Piggyback Registrations..............................................40
10.3 Expenses of Registration.............................................40
10.4 Furnishing of Documents..............................................41
10.5 Amendments and Supplements...........................................41
10.6 Duration.............................................................41
10.7 Further Information..................................................41
10.8 Indemnification......................................................42
-iii-
<PAGE>
ARTICLE 11: MISCELLANEOUS.....................................................43
11.1 Termination..........................................................43
11.2 Expenses.............................................................44
11.3 Entire Agreement.....................................................45
11.4 Counterparts.........................................................45
11.5 Notices..............................................................45
11.6 Successors And Assigns...............................................46
11.7 Governing Law........................................................46
11.8 Waiver And Other Action..............................................46
11.9 Severability.........................................................47
11.10 Section Headings.....................................................47
11.11 Construction.........................................................47
APPENDIX I....................................................................A1
Articles of Merger............................................................A1
Amended and Restated Plan of Merger...........................................A2
-iv-
<PAGE>
AGREEMENT OF MERGER
INTRODUCTION
This Agreement of Merger (the "Agreement") is made as of the
1st day of July, 1998, among Metro-Tel Corp., a Delaware corporation ("Parent");
Metro-Tel Acquisition Corp., a Florida corporation (the "Subsidiary"), which is
a wholly-owned direct subsidiary of Parent; Steiner-Atlantic Corp., a Florida
corporation ( the "Company"); and each of William Steiner and Michael S.
Steiner, sole shareholders of the company (each an "Agreement Shareholder" and,
collectively, the "Agreement Shareholders").
RECITALS
The respective Boards of Directors of the Parent and the Company, as
well as the Agreement Shareholders, have determined that it is in the best
interests of their respective corporations to cause the Subsidiary to merge into
the Company, all upon the terms and provisions, and subject to the conditions,
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto covenant and agree as follows:
ARTICLE 1
THE MERGER
1.1 MERGER. In accordance with the provisions of the Florida
Business Corporation Act ("FBCA"), at the Effective Date (as hereinafter
defined), the Subsidiary shall be merged (the "Merger") into the Company, and
the Company shall be the surviving corporation (from and after the Effective
Date, as defined in Section 1.3, the "Surviving Corporation") and as such shall
continue to be governed by the laws of the State of Florida.
1.2 CONTINUING CORPORATE EXISTENCE. Except as may otherwise be
set forth herein, the corporate existence and identity of the Company, with all
its purposes, powers, rights, privileges, immunities and franchises, shall
continue unaffected and unimpaired by the Merger, and the corporate existence
and identity of the Subsidiary, with all its purposes, powers, rights,
privileges, immunities and franchises, at the Effective Date, shall be merged
with and into that of the Company, and the Surviving Corporation shall be vested
fully therewith and the separate corporate existence and identity of the
Subsidiary shall thereafter cease except to the extent continued by statute.
<PAGE>
1.3 EFFECTIVE DATE. The Merger shall become effective upon the
filing of Articles of Merger and Amended and Restated Plan of Merger attached
hereto as Appendix I with the Department of State of the State of Florida
("Department of State") on the Closing Date (as defined herein) or as soon as
thereafter practicable pursuant to Section 607.1105 of the FBCA (the "Effective
Date").
1.4 CORPORATE GOVERNMENT.
(a) The Articles of Incorporation of the Company, as
in effect on the Effective Date, shall continue in full force and effect, and
shall be the Articles of Incorporation of the Surviving Corporation.
(b) The Bylaws of the Company, as in effect as of the
Effective Date, shall continue in full force and effect and shall be the Bylaws
of the Surviving Corporation.
(c) From and after the Effective Date, Michael S.
Steiner shall be the President and Chief Executive Officer of the Surviving
Corporation and Parent, and Venerando J. Indelicato shall be the Chief Financial
Officer of the Surviving Corporation and Parent.
(d) At the Effective Time the Boards of Directors of
the Surviving Corporation and Parent shall (a) be set at five members, and (b)
consist of (i) three members to be designated by the Surviving Corporation prior
to the filing of the Proxy Statement referred to in Section 5.6 hereof, and (ii)
two members to be designated by Parent prior to the filing of such Proxy
Statement.
1.5 RIGHTS AND LIABILITIES OF THE SURVIVING CORPORATION. At
the Effective Date, the Surviving Corporation shall have the following rights
and obligations:
(a) The Surviving Corporation shall have all the
purposes, powers, rights, privileges, immunities and franchises, and shall be
subject to all the duties and liabilities, of a corporation organized under the
laws of the State of Florida.
(b) The Surviving Corporation shall possess all of
the purposes, powers, rights, privileges, immunities and franchises, of either a
public or private nature, of the Company and the Subsidiary, and all property,
real, personal and mixed, all debts due on whatever account, including
subscription to shares, all other chooses in action and every other interest of
or belonging or due to the Company and the Subsidiary shall be taken and deemed
to be transferred or vested in the Surviving Corporation without further act or
deed.
(c) The Surviving Corporation shall thenceforth be
responsible and liable for all liabilities and obligations of the Company and
the Subsidiary, and any claim existing or action or proceeding pending by or
against the Subsidiary or the Company may be prosecuted as if the Merger had not
occurred or the Surviving Corporation may be substituted in its place.
-2-
<PAGE>
Neither the rights of creditors nor any liens upon the property of the
Subsidiary or the Company shall be impaired by the Merger.
1.6 CLOSING. Consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, P.A., commencing at 11:00 a.m., local
time, (i) within five (5) business days after the date on which the annual
meeting of Parent's Shareholders described in Section 6.3 (the "Annual Meeting")
occurs or (ii) as soon as possible thereafter when each of the other conditions
set forth in Article 9 have been satisfied or waived; and shall proceed promptly
to conclusion, or at such other place, time and date as shall be fixed by mutual
agreement between Parent and the Company. The day on which the Closing shall
occur is referred to herein as the "Closing Date". At the Closing, each party
will cause to be prepared, executed, delivered and filed with the Department of
State of the State of Florida Articles of Merger and all other appropriate and
customary documents as any party or its counsel may reasonably request for the
purpose of consummating the transactions contemplated by this Agreement. All
actions taken at the Closing shall be deemed to have been taken simultaneously
at the time the last of any such actions is taken or completed.
1.7 TAX CONSEQUENCES. It is intended that the merger shall
constitute a reorganization described in Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code. The parties shall treat the transactions contemplated
hereby consistently with such intention.
ARTICLE 2
CONVERSION OF SHARES; TREATMENT OF OPTIONS
2.1 CONVERSION OF SHARES.
(a) As of the Effective Date, by virtue of the Merger
and without any action on the part of any holder thereof:
(i) Subject to Section 2.2 below, each of
the 339,500 shares of Common Stock, $.50 par value,
of the Company ("Company Common Stock") issued and
outstanding immediately prior to the Effective Date
shall be converted into 13.90561 shares of Common
Stock, $.25 par value, of Parent ("Parent Common
Stock");
(ii) Each share of Company Common Stock
issued and held immediately prior to the Effective
Date in the Company's treasury shall be cancelled and
retired without payment of any consideration therefor
and shall cease to exist; and
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(iii) Each share of Common Stock, par value
$.001 per share, of the Subsidiary issued and
outstanding immediately prior to the Effective Date
shall be converted into one share of Common Stock,
par value $.001 per share, of the Surviving
Corporation.
2.2 ADDITIONAL SHARES TO BE ISSUED. As additional
consideration for the shares of Company Common Stock owned by the Agreement
Shareholders, if ISOs for less than 500,000 Shares are granted pursuant to
Section 2.4 of this Agreement, as of the Effective Date Parent shall deliver to
each of the Agreement Shareholders one-half of the number of Shares that,
together with the number of Shares covered by the ISOs granted pursuant to
Section 2.4 of this Agreement, aggregate 500,000 Shares.
2.3 FRACTIONAL SHARES. No certificate or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of the Company Common Stock certificates, and notwithstanding anything
contained in Section 2.1 to the contrary, the number of shares of Parent Common
Stock to which each holder of Company Common Stock shall be entitled at the
Effective Time shall be rounded (up or down, as the case may be) to the closest
whole number of shares of Parent Common Stock.
2.4 STOCK OPTIONS. At the Closing, Parent shall deliver to the
Agreement Shareholders' designees, who shall be employees of the Company on the
Closing Date other than the Agreement Shareholders, Incentive Stock Options
("ISOs") under the Company's 1991 Stock Option Plan (as amended October 25,
1996) (the "Stock Option Plan"), effective as of the Effective Date, providing
for ISOs on shares of Parent Common Stock ("Shares"), at an exercise price of
the greater of (i) the fair market value per Share (as defined in paragraph 6 of
the Stock Option Plan) on the Closing Date or (ii) $1.00 per Share (the
"Exercise Price"), for the number of Shares that, multiplied by the Exercise
Price per Share, yields an aggregate Exercise Price of $500,000.
2.5 ADJUSTMENT. If, between the date of this Agreement and the
Effective Date the outstanding shares of Company Common Stock or Parent Common
Stock shall have been changed into a different number of shares or a different
class by reason of any stock dividend, split-up, stock combination, exchange of
shares, reclassification, readjustment or the like with a record date within
such period, the number of shares of Parent Common Stock issued pursuant to the
Merger and all other relevant amounts shall be adjusted to appropriately reflect
such change.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Subsidiary, subject to the terms and conditions contained herein, as follows:
3.1 ORGANIZATION AND GOOD STANDING OF THE COMPANY. The Company
is a corporation duly organized, validly existing and active under the laws of
the State of Florida.
3.2 CAPITALIZATION OF THE COMPANY.
(a) The authorized capital stock of the Company
consists of 600,000 shares of common stock, $.50 par value. As of the close of
business on June 30, 1998, there are 339,500 shares of Company Common Stock
issued and outstanding. There are no shares of Company Common Stock held in the
Company's treasury. All of the issued and outstanding shares of Company Common
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights.
(b) Other than as set forth in Section 3.2(b) of the
Company's Disclosure Schedule, there are no voting trusts, shareholder
agreements or other voting arrangements to which the Company is a party or, to
the knowledge of the Company, to which any of the shareholders of the Company
are a party or bound.
(c) There is no outstanding subscription, contract,
convertible or exchangeable security, option, warrant, call, put or other right
obligating the Company to issue, sell, exchange, or otherwise dispose of, or to
purchase, redeem or otherwise acquire, shares of, or securities convertible into
or exchangeable for, capital stock of the Company.
(d) Each Agreement Shareholder owns 50% of the
Company's issued and outstanding Company Common Stock.
3.3 DUE AUTHORIZATION; BINDING EFFECT. The Company has the
corporate power and authority to execute and deliver this Agreement and, subject
to the approval of this Agreement by its shareholders, to perform its
obligations under this Agreement and the other documents executed or to be
executed by the Company in connection with this Agreement. The execution,
delivery and performance by the Company of this Agreement and the other
documents executed or to be executed by Company in connection with this
Agreement and the Merger have been duly authorized by the Board of Directors of
the Company, and the Agreement Shareholders have committed to approve this
Agreement. This Agreement and the other documents which have been executed and
which will be executed by the Company in connection
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with this Agreement have been, or will have been when executed and delivered, as
the case may be, duly executed and delivered by the Company and are, or will be
when executed and delivered, the legal, valid and binding obligations of the
Company enforceable in accordance with their terms except that (a)
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights; (b) the availability of equitable
remedies may be limited by equitable principles of general applicability; and
(c) rights to indemnification and contribution may be limited by considerations
of public policy. Upon the filing of the Articles of Merger and the Amended and
Restated Plan of Merger, annexed hereto as Appendix I, with the Department of
State of the State of Florida, the Merger will be a valid and effective merger
under the FBCA. No shareholder of the Company is entitled to assert dissenter's
rights under Section 607.1302 of the FBCA. The transactions contemplated herein
do not constitute a "control-share acquisition" and are not otherwise subject to
the provisions of Section 607.0902 of the FBCA.
3.4 CAPITAL STOCK OF COMPANY SUBSIDIARIES AND OTHER OWNERSHIP
INTERESTS. The Company is not the record or beneficial owner of any equity
interest in any corporation, joint venture, partnership or other entity.
3.5 CORPORATE POWER AND AUTHORITY. The Company has the
corporate power and authority and all licenses and Governmental Permits (as
defined in Section 3.14) required by governmental authorities to own, lease and
operate their properties and assets and to carry on its business as currently
being conducted, except where the failure to have any such licenses and
Governmental Permits would not, individually or in the aggregate, have a
material adverse effect on the business, results of operation, working capital,
assets, liabilities, condition (financial or otherwise) or prospects of the
Company.
3.6 ABSENCE OF RESTRICTIONS AND CONFLICTS. Except as set forth
in Section 3.6 of the Disclosure Schedule, the execution, delivery and
performance of this Agreement, the consummation of the Merger and the other
transactions contemplated by this Agreement and the fulfillment of and
compliance with the terms and conditions of this Agreement do not and will not,
with the passing of time or the giving of notice or both, subject only to the
approval of this Agreement by the Company's shareholders, violate or conflict
with, constitute a breach of or default under, result in the loss of any benefit
under or permit the acceleration of any obligation under (i) any term or
provision of the Articles of Incorporation or Bylaws of the Company, (ii) any
Contract (as defined in Section 3.13) or Governmental Permit (as defined in
Section 3.14) except where any such violations, conflicts, breaches, defaults,
losses of benefit or accelerations would not, individually or in the aggregate,
have a material adverse effect on the business, results of operation, working
capital, assets, liabilities, condition (financial or otherwise) or prospects of
the Company, (iii) any judgment, decree or order of any court or governmental
authority or agency to which the Company is a party or by which the Company or
any of its properties is bound, or (iv) any statute, law, regulation or rule
applicable to the Company except where any such violations, conflicts, breaches,
defaults, losses of benefit or accelerations would not, individually or in the
aggregate, have a material adverse effect on the business, results of operation,
working capital, assets, liabilities, condition (financial or otherwise) or
prospects of the
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Company. Except for compliance with the applicable requirements of the
Securities Act of 1933 (the "Securities Act"), the Securities Exchange Act of
1934 (the "Exchange Act"), and applicable state securities laws and the filing
of Articles of Merger with the Department of State, no consent, approval, order
or authorization of, or registration, declaration, except as set forth in
Section 3.6 of the Disclosure Schedule, or filing with, any governmental agency
or public or regulatory unit, agency, body or authority (under any Governmental
Permit or otherwise) or any third party (under any contract or otherwise) is
required in connection with the execution, delivery or performance of this
Agreement by the Company or the consummation of the transactions contemplated
hereby or the ownership and operation by the Surviving Corporation of its
businesses and properties after the Effective Date in substantially the same
manner as now owned and operated.
3.7 FINANCIAL STATEMENTS AND RECORDS OF THE COMPANY. The
Company has delivered to Parent and the Subsidiary true, correct and complete
copies of the balance sheets of the Company as of December 31, 1997 (the
"Company Balance Sheet") and December 31, 1996 and the statements of income and
undistributed shareholders' earnings, and statements of cash flows of the
Company for the fiscal years then ended, including the notes thereto, in each
case examined by and accompanied by the report thereon of BDO Seidman, LLP. (the
"Company Financial Statements"). The Company Financial Statements have been
prepared from, and are in accordance with, the books and records of the Company
and present fairly, in all material respects, the assets, liabilities and
financial position of the Company as of the dates thereof, and its results of
operations and changes in financial position for the periods then ended, in each
case in conformity with generally accepted accounting principles, consistently
applied, except as noted therein. Since December 31, 1997, there has been no
change in accounting principles applicable to, or methods of accounting utilized
by, the Company. The books and records of the Company have been and are being
maintained in accordance with good business practice, reflect only valid
transactions, are complete and correct in all material respects, and present
fairly in all material respects the basis for the financial position and results
of operations of the Company set forth in the Company Financial Statements.
3.8 NO MATERIAL UNDISCLOSED LIABILITIES. There are no material
liabilities or obligations of the Company of any nature, whether absolute,
accrued, contingent or otherwise, other than the liabilities and obligations
that are reflected, accrued, or reserved against on the Company Balance Sheet
(for which the reserves are appropriate and reasonable) and those incurred in
the ordinary course of business and consistent with past practices since
December 31, 1997.
3.9 ABSENCE OF CERTAIN CHANGES.
(a) Since December 31, 1997, the Company has operated
in the ordinary course of business and in a manner consistent with the manner in
which it operated prior to January 1, 1998. Without limiting the generality of
the foregoing, the Company has not (except as may result from the transactions
contemplated by this Agreement or as set forth in Section 3.9(a) of the
Company's Disclosure Schedule) to any material extent:
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(i) suffered any material adverse change in
its business, results of operations, working capital,
assets, liabilities, condition (financial or
otherwise), prospects or the manner of conducting its
business;
(ii) suffered any damage or destruction to,
or loss of, assets, whether or not covered by
insurance, which property or assets are material to
the operations or business of the Company;
(iii) forgiven, compromised, canceled,
released, waived or permitted to lapse any material
rights or claims;
(iv) entered into or terminated any
agreement, commitment or transaction, or agreed to
make any changes in any leases or agreements, other
than leases, agreements, transactions and commitments
entered into in the ordinary course of business;
(v) written up, written down or written off
the book value of any material amount of assets other
than in the ordinary course of business;
(vi) declared, paid or set aside for payment
any dividend or distribution with respect to the
Company's capital stock;
(vii) redeemed, purchased or otherwise
acquired, or sold or granted or otherwise disposed
of, directly or indirectly, any of the Company's
capital stock or securities or any rights to acquire
such capital stock or securities which are
outstanding as of the date of this Agreement;
(viii) failed to pay or discharge when due
any liabilities, the failure to pay or discharge
which will have, individually or in the aggregate, a
material adverse effect on the business, working
capital, assets, liabilities, condition (financial or
otherwise) or prospects of the Company;
(ix) encumbered assets, purchased or sold
any assets outside the ordinary course of business or
made any material capital expenditure;
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(x) entered into any employment, consulting,
compensation or collective bargaining agreement with
any person or group;
(xi) entered into, adopted or amended any
employee benefit plan;
(xii) entered into any other transaction
other than in the ordinary course of business; or
(xiii) entered into any agreement to do any
of the foregoing.
(b) The Company is not aware of any pending or
contemplated legislation or changes in rules, regulations or administrative
orders which, if enacted or implemented, would, individually or in the
aggregate, have a material adverse effect on the business, results of
operations, working capital, assets, liabilities, condition (financial or
otherwise) or prospects of the Company.
3.10 TAX RETURNS; TAXES.
(a) The Company has duly filed or caused to be filed
on a timely basis (giving effect to properly obtained extensions of time) with
the appropriate authorities all Tax Returns (as defined below) required to be
filed by it and all such Tax Returns are true, correct and complete in all
material respects; has paid in full on a timely basis all Taxes (as defined
below) required to be paid; and has fully accrued on its books or has
established adequate reserves on its latest balance sheet (a true and correct
copy of which has been provided to Parent), prepared in accordance with
generally accepted accounting principles consistently applied, for all Taxes
which have accrued but not are yet due; and has timely and properly collected or
withheld, paid over and reported to the appropriate governmental authorities all
Taxes required to have been collected or withheld by it. The Company has no tax
liabilities other than those reflected on the Company Financial Statements and
those arising in the ordinary course of business since the date thereof. The
Company has made available to Parent true, complete and correct copies of the
Company's federal income tax and other Tax Returns filed by it.
(b) No Taxing authority has asserted any adjustment
that could result in an additional Tax for which the Company is or may be
liable; there is no pending audit, examination, investigation, dispute,
proceeding or claim (collectively, "Proceeding") relating to any Tax for which
the Company is or may be liable and, to the knowledge of the Company, no Taxing
authority is contemplating such a Proceeding; no statute of limitations with
respect to any Tax for which the Company or is or may be liable has been waived
or extended; and the Company is not a party or subject to any Tax sharing or any
Tax allocation agreement, arrangement or understanding.
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(c) The Company is not a "consenting corporation"
within the meaning of Section 341(f) of the Code (or any comparable state, local
or foreign Tax provision). The Company is not a party to any contract,
agreement, plan or arrangement that, individually or collectively, could give
rise to any payment that would not be deductible by reason of Section 162, 280G
or 404 of the Code (or any comparable state, local or foreign Tax provision).
The Company does not have any "tax-exempt use property" within the meaning of
Section 168(h) of the Code (or any comparable state, local or foreign Tax
provision). The Company has never made or been required to make an election
under Section 338 of the Code (or any comparable state, local or for eign Tax
provision).
(d) The Company is not, and was not at any time
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code,
a United States real property holding corporation within the meaning of Section
897(c)(2) of the Code and the regulations thereunder.
(e) For purposes of this Agreement, "Tax" shall mean
any tax, fee, levy, assessment or other governmental charge imposed by the
United States, any state, local or foreign government or subdivision or agency
of any of the foregoing, including without limitation, any income, franchise,
gross receipts, property, sales, use, service, value added, withholding, social
security, estimated, accumulated earnings, transfer, license, privilege,
payroll, profits, capital stock, employment, unemployment, excise, ad valorem,
severance, stamp, occupancy, customs or occupation tax for which the taxpayer is
or may be liable, including without limitation, as a member of a consolidated
group pursuant to Treasury Regulation ss.1.1502-6 (or any comparable state,
local or foreign Tax provision), as a transferee under Section 6901 of the Code
(or any comparable state, local or foreign Tax provision) or under any Tax
sharing or Tax allocation agreement, arrangement or understanding.
(f) For purposes of this Agreement, "Tax Returns"
shall mean all returns, amended returns, declarations, reports, estimates,
information returns and statements relating to Taxes which are or were filed or
required to be filed under applicable law, whether on a consolidated, combined,
unitary or separate basis or otherwise.
3.11 TITLE, CONDITION OF ASSETS.
(a) The Company has good and marketable title to all
of the Assets (as hereinafter defined) reflected on the Company Balance Sheet,
and all Assets thereafter acquired by it (except for Assets disposed of by it in
the ordinary course of business). All such Assets are used in connection with
the operation of the businesses of the Company. Except as set forth in Section
3.11(a) of the Disclosure Schedule, the Assets are subject to no mortgage,
security interest, pledge, lien, claim, encumbrance or charge, or restraint or
transfer whatsoever other than Permitted Liens (as hereinafter defined) and no
currently effective financing statement with respect to any of its Assets has
been filed under the Uniform Commercial Code in any jurisdiction. Section
3.11(a) of the Disclosure Schedule sets forth a description of the indebtedness
secured by the financing statements listed thereon, including the principal
balance of such indebtedness and
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accrued but unpaid interest thereon as at December 31, 1997 and interest rate
applicable thereto. Except with respect to the constituent instruments
underlying the financing statements listed in Section 3.11(a) of the Disclosure
Schedule, the Company is not a party to any financing statement or any security
agreement authorizing any secured party thereunder to file any financing
statement. No person other than the Company has any right to the use or
possession of any of the Assets. All Assets which are real property or tangible
personal property, whether owned or leased, are in good operating condition and
repair, excepting normal wear and tear, and are sufficient to enable the Company
to operate its business in a manner consistent with its operation during the
immediately preceding twelve (12) months.
(b) Set forth on Section 3.11(b) of the Disclosure
Schedule is a true and correct list of leases, conditional sales, licenses or
similar arrangements to which the Company is a party or to which the Company or
any Asset used by the Company in connection with the operation of its business
is subject. The Company has delivered to Parent a complete and correct copy of
each lease, conditional sale, license and other arrangement listed in Section
3.11(b) of the Disclosure Schedule. All of said arrangements are valid, binding
and enforceable in accordance with their respective terms and are in full force
and effect. The Company is not in default under one or more of such
arrangements, except to the extent such defaults would not, individually or in
the aggregate, have a material adverse effect on the business, results of
operations, working capital, assets, liabilities, condition (financial or
otherwise) or prospects of the Company and has not received any written notice
alleging any default, set-off, or claim of default. To the knowledge of the
Company, the parties to such arrangements are not in default of their respective
obligations under any of such arrangements, and there has not occurred any event
which, with the passage of time or giving of notice (or both), would constitute
such a default or breach under any of such arrangements.
(c) As used herein, the term "Assets" means all
tangible and intangible assets including, without limitation, all real property,
tangible personal property (including, without limitation, fixed and moveable
equipment, trucks, cars and other vehicles, furnishings, inventory and
supplies), contract rights, leasehold interests, goodwill, tradenames,
trademarks, and, to the extent permitted by law, all permits, licenses and other
governmental approvals.
(d) As used herein, the term "Permitted Liens" means:
(i) carriers', warehousemen's, mechanics,
materialmen's, repairmen's or other like liens
arising in the ordinary course of business which are
(i) not overdue for a period of more than 30 days or
(ii) being contested in good faith and by appropriate
proceedings, provided that if such contest has
continued for more than 30 days, the amount thereof
has been bonded at the end of such 30-day period;
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(ii) deposits to secure the performance of
bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations
of like nature incurred in the ordinary course of
business;
(iii) rights of lessors under leases set
forth in Section 3.11(b) of the Disclosure Schedule;
(iv) pledges or deposits in connection with
worker's compensation, unemployment insurance, and
other social security legislation; and
(v) liens for Taxes not yet due and payable.
3.12 INTELLECTUAL PROPERTY. Except as set forth in Section
3.12 of the Disclosure Schedule, the Company has no permits, licenses and
registrations granted to or by the Company (including applications therefor) for
the use of: its corporate name, any trade or service mark, copyright, patent,
process, operational manual, technique and similar property by the Company
(collectively, the "Proprietary Assets"). The Company owns all of the
Proprietary Assets necessary to operate its business. No claim has been asserted
by any person challenging the validity of any Proprietary Asset or the use
thereof by the Company. The Proprietary Assets used by the Company in its
operations may continue to be used by the Surviving Corporation without the
consent of, or payment of consideration to, any other person.
3.13 CONTRACTS. To the knowledge of the Company, Section 3.13
of the Disclosure Schedule contains a complete and correct list of all of the
following categories of material agreements, contracts, arrangements and
commitments ("Contracts"), including summaries of oral contracts (except
immaterial oral contracts terminable at will), to which the Company is bound,
including, without limitation:
(a) each contract or agreement for the employment or
retention of, or collective bargaining, severance or termination agreement with,
any director, officer, employee, consultant, agent, employee or group of
employees;
(b) each profit sharing, thrift, bonus, incentive,
deferred compensation, stock option, stock purchase, severance pay, pension,
retirement, hospitalization, insurance or other similar plan, agreement or
arrangement;
(c) each agreement or arrangement (including letter
of intent) for the purchase or sale of any assets, properties or rights outside
the ordinary course of business (by purchase or sale of assets, purchase or sale
of capital stock, merger or otherwise) which is currently in effect;
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(d) each contract which contains any provisions
requiring the Company to indemnify or act for, or guarantee the obligation of,
any other person or entity;
(e) each agreement restricting the Company from
conducting business of any nature anywhere in the world;
(f) each partnership or joint venture contract or
similar arrangement or agreement which is likely to involve a sharing of profits
or future payments with respect to the business (or any portion thereof) of the
Company;
(g) each lease, license, conditional sales contract
or similar arrangement for real or personal property or any Proprietary Asset;
and
(h) each other agreement not made in the ordinary and
normal course of business which involves consideration of more than $15,000; and
(i) each letter of intent or agreement in principle
to enter into any Contract (whether or not binding, in whole or in part).
True, correct and complete copies of each Contract have been
provided or made available to Parent and, except as provided in Section 3.13 of
the Disclosure Schedule, each remains in full force and effect in accordance
with the copies provided to Parent. Each of the Contracts was entered into and
requires performance only in the ordinary course of business. The Company is not
in material default under any Contract and no default or right of set-off has
been asserted, either by or against the Company under any Contract. To the
knowledge of the Company, the parties to the Contracts, other than the Company,
are not in material default of any of their respective obligations under the
Contracts, and there has not occurred any event, which with the passage of time
or the giving of notice (or both), would constitute a material default or breach
under any Contract. All amounts payable by the Company under the Contracts are
on a current basis. No Contract is terminable nor requires a payment in the
event of the Merger or a change in control of the Company.
3.14 LICENSES AND PERMITS. Section 3.14 of the Disclosure
Schedule sets forth a description of all material licenses and other material
governmental or other regulatory permits, approvals and authorizations required
for the operation of the business of the Company to: (a) provide the services
which the Company is providing or the Company in the past has provided, (b) own
or hold under lease the properties and Assets it owns or holds under lease and
(c) perform all of its obligations under Contracts to which it is a party or
subject (collectively, the "Governmental Permits"). The Company has delivered to
Parent copies of all of the Governmental Permits. The Company owns, possesses or
has the legal right to use the Governmental Permits, free and clear of all
liens, pledges, claims or other encumbrances of any nature whatsoever. The
Company has obtained and possesses (and during all periods in which it has
provided services and conducted business possessed), in good standing, all
Governmental Permits required by applicable
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governmental authorities in order to perform such services and conduct such
businesses except where failure to have such Governmental Permits in good
standing would not, individually or in the aggregate, have a material adverse
effect on the business, working capital, results of operation, assets,
liabilities, condition (financial or otherwise) or prospects of the Company. The
Company is not in material default under any Governmental Permits, and the
Company has not received any notice of any default or any other claim or
proceeding relating to, any such Governmental Permits.
3.15 COMPLIANCE WITH LAWS. The Company has been in compliance
with all applicable laws, regulations, ordinances and administrative orders of
any jurisdiction to which it or its business or its use or occupancy of
properties or any part thereof are subject, except where the failure to be in
compliance would not, individually or in the aggregate, have a material adverse
effect on the business, results of operation, working capital, assets,
liabilities, condition (financial or otherwise) or prospects of the Company.
Except as set forth in Section 3.15 of the Disclosure Schedule, there is no
pending material suit, claim, action or litigation, or administrative,
arbitration or other proceeding or governmental investigation or inquiry, nor,
to the knowledge of the Com pany, are any such proceedings, investigations or
inquiries, threatened or contemplated nor (ii) are there any unasserted claims
(whether or not the potential claimant may be aware of the claim) of any nature
that might be asserted against the Company. Except as set forth in Schedule 3.15
of the Disclosure Schedule, the Company is not subject to any judgment, decree,
injunction or order of any court or any governmental restriction.
3.16 INSURANCE AND SURETY AGREEMENTS. Section 3.16 of the
Disclosure Schedule contains a complete and correct list of: (a) all policies of
malpractice, fire, liability and other forms of insurance held or owned by the
Company; and (b) all bonds, indemnity agreements and other agreements of
suretyship made for or held by the Company, including a brief description of the
character of the bond or agreement and the name of the surety or indemnifying
party. Section 3.16 of the Disclosure Schedule sets forth for each such
insurance policy the name of the insurer, the amount of coverage, the type of
insurance included under each such policy and of any claims made thereunder.
Such policies are owned by and payable solely to the Company, and said policies
or renewals or replacements thereof are outstanding and duly in force. All
insurance policies maintained by the Company is in full force and effect, all
premiums due on such policies have been paid, and the Company has not been
advised by any of its insurance carriers of an intention to terminate or modify
any such policies, nor has the Company failed to comply with any of the material
conditions contained in any such policies.
3.17 RELATIONSHIPS.
(a) Except as disclosed in Section 3.17 of the
Disclosure Schedule, no Agreement Shareholder, or affiliate of the Company has,
or at any time within the last two (2) years has had, an ownership interest in
any business, corporate or otherwise, that is a party to, or in any property
that is the subject of, any business relationship or arrangement of any kind
relating to the operation or business of, or which may be binding upon, the
Company or its Assets.
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(b) Section 3.17 of the Disclosure Schedule contains
a complete and correct list of all persons known by the Company to be affiliates
of the Company.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Section 3.18 of the
Disclosure Schedule, there are no employee benefit plans (including
previously-maintained plans) or arrangements of any type (including, without
limitation, plans described in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended and the regulations thereunder ("ERISA")),
under which the Company has or in the future could have directly, or indirectly
through a Commonly Controlled Entity (within the meaning of section 414(b), (c),
(m) and (o) of the Internal Revenue Code of 1986, as amended and the regulations
thereunder ("Code")), any liability with respect to any current or former
employee of the Company or any Commonly Controlled Entity (collectively, the
"Benefit Plans"). No such Benefit Plan is "multiple employer plan" (within the
meaning of the Code or ERISA) or subject to Title IV of ERISA.
(b) With respect to each Benefit Plan (where
applicable): the Company has delivered to the Parent complete and accurate
copies of (i) all plan texts and agreements; (ii) all material employee
communications; (iii) the most recent annual report; (iv) the most recent annual
and periodic accounting of plan assets; (v) the most recent determination letter
received from the Internal Revenue Service; and (vi) the most recent actuarial
valuation.
(c) With respect to each Benefit Plan: (i) if
intended to qualify under Code section 401(a) or 403(a), such Benefit Plan so
qualifies, and its related trust is exempt from taxation under Code section
501(a); (ii) such Benefit Plan has been administered in accordance with its
terms and applicable law; (iii) no event has occurred and there exists no
circumstance under which the Company could directly, or indirectly through a
Commonly Controlled Entity, incur liability under ERISA, the Code or otherwise
(other than routine claims for benefits); (iv) there are no actions, suits or
claims pending (other than routine claims for benefits) or, to the knowledge of
the Company, threatened, with respect to any Benefit Plan or against the assets
of any Benefit Plan; (v) no "accumulated funding deficiency" (as defined in
section 302 of ERISA) has occurred; (vi) no "prohibited transaction" (as defined
in section 406 of ERISA or in section 4975 of the Code) has occurred; (vii) no
"reportable event" (as defined n section 4043 of ERISA) has occurred; (viii) all
contributions and premiums due have been made on a timely basis; and (ix) all
contributions made or required to be made under any Benefit Plan meet the
requirements for deductibility under the Code, and all contributions which have
not been made have been properly recorded on the books of the Company or the
applicable Commonly Controlled Entity.
(d) With respect to each Benefit Plan which is a
"welfare plan" (as defined in ERISA section 3(1)): (i) no such plan provides
medical or death benefits (whether or not insured) with respect to current or
former employees beyond their termination of employment (other than coverage
mandated by law); (ii) there are no reserves, assets, surplus or prepaid
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premiums under any such plan; and (iii) the Company and any Commonly Controlled
Entity have complied with the requirements under Code section 4980B.
(e) The consummation of the transactions contemplated
by this Agreement will not (i) entitle any individual to severance pay, or (ii)
accelerate the time of payment, vesting or increase the amount of compensation
due to any such individual.
3.19 LABOR RELATIONS. To the knowledge of the Company, the
Company is in compliance with all federal and state laws respecting employment
and employment practices, terms and conditions of employment, wages and hours,
and is not engaged in any unfair labor or unlawful employment practice. There is
no unlawful employment practice or discrimination charge pending or, to the
knowledge of the Company, threatened against the Company before the Equal
Employment Opportunity Commission or any other governmental authority. Except as
set forth in Section 3.19 of the Disclosure Schedule, there is no unfair labor
practice charge or complaint, grievance or arbitration against the Company
pending or, to the knowledge of the Company, threatened against the Company
before the National Labor Review Board or any other govern mental authority.
Since January 1, 1992 the Company has not experienced nor, to the knowledge of
the Company, is there threatened, any labor strike, dispute, slowdown or
stoppage or any representation question respecting its employees. There is no
collective bargaining agreement that is binding on the Company.
3.20 ENVIRONMENTAL MATTERS. Except as set forth in Section
3.20 of the Company's Disclosure Schedule, the Company has not received any
written communication from any person or entity (including any Governmental
Entity) stating that it may be a potentially responsible party under any
applicable state, federal and local laws, regulations and rules, including
common law, judgments, decrees and orders relating to pollution, the
preservation of the environment, and the release of material into the
environment ("Environmental Law") with respect to any actual or alleged
environmental contamination or the release of any hazardous substances; neither
the Company nor, to the Company's knowledge, any Governmental Entity is
conducting or has conducted any environmental remediation or environmental
investigation which could reasonably be expected to result in material liability
or expense for the Company under Environmental Law; and the Company has not
received any request for information under Environmental Law from any
Governmental Entity with respect to any actual or alleged environmental
contamination or the release of any hazardous substance, except, in each case,
for communications, environmental remediation and investigations and requests
for information which would not, individually or in the aggregate, have a
material adverse effect; (ii) the Company has not received any written
communication from any person or entity (including any Governmental Entity)
stating or alleging that the Company may have violated any Environmental Law, or
that the Company has caused or contributed, or has liability with respect to any
environmental contamination, except, in each case, for statements and
allegations of violations and statements and allegations of responsibility or
liability which would not, individually or in the aggregate, have a material
adverse effect; and (iii) to the Company's knowledge, the Company has no
liabilities under Environmental Law that,
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individually or in the aggregate, have had or may reasonably be expected to
result in a material adverse effect.
3.21 QUESTIONABLE PAYMENTS. Neither the Company, nor any
director, officer, affiliate or employee of the Company: (a) have used any
corporate funds of the Company to make any payment to any officer or employee of
any government, or to any political party or official thereof, where such
payment either (i) is unlawful under laws applicable thereto; or (ii) would be
unlawful under the Foreign Corrupt Practices Act of 1977, as amended; nor (b)
has used any corporate funds of the Company for making payments to any person if
such payment constituted an illegal payment, bribe, kickback, political
contribution or other similar questionable payment.
3.22 BROKERS AND FINDERS. None of the Company or any of its
officers, directors and employees has employed any broker, finder or investment
banker or incurred any liability for any investment banking fees, financial
advisory fees, brokerage fees or finders' fees in connection with the
transactions contemplated hereby.
3.23 ACCURACY OF INFORMATION FURNISHED. No representation or
warranty in this Agreement (including information contained in the Disclosure
Schedule) made by the Company nor any information relating to the Company which
has been delivered by the Company to Parent contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not false or misleading. The Company has disclosed in the Disclosure
Schedule, and at all times through the Effective Date will disclose, to Parent,
all facts known to it that, individually or in the aggregate, are material to
the business, results of operations, working capital, assets, liabilities,
condition (financial or otherwise) or prospects of the Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrant to the Company as follows:
4.1 ORGANIZATION AND GOOD STANDING OF PARENT. Parent and
Subsidiary are corporations duly organized, validly existing and in good
standing under the laws of the States of Delaware and Florida, respectively.
4.2 CAPITALIZATION OF PARENT.
(a) The authorized capital stock of Parent consists
of 6,000,000 shares of common stock, $.025 par value, and 2,000,000 shares of
preferred stock, $1.00 par value. As
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of March 31, 1998, there were (i) 2,054,046 shares of Parent Common Stock issued
and outstanding and no shares of Parent preferred stock issued and outstanding,
(ii) 225,000 shares of Parent Common Stock reserved for issuance under stock
option and other employee and director benefit plans, and (iii) 26,250 shares of
Parent Common Stock held in Parent's treasury. In addition, Parent will be
reserving 500,000 shares of Parent Common Stock for issuance pursuant to Section
2.3 and Section 2.4 of this Agreement. The Parent Common Stock to be issued
pursuant to the Merger, when issued and delivered, will be duly authorized,
validly issued, fully paid and nonassessable.
(b) There are no voting trusts, shareholder
agreements or other voting arrangements to which the Parent is a party or, to
the knowle dge of the Parent, to which any of the shareholders of the Parent is
a party or bound.
(c) Except as set forth in Parent SEC Reports (as
defined in Section 4.6 herein), there is no outstanding subscription, contract,
convertible or exchangeable security, option, warrant, call, put or other right
obligating the Parent to issue, sell, exchange, or otherwise dispose of, or to
purchase, redeem or otherwise acquire, shares of, or securities convertible into
or exchangeable for, capital stock of the Parent.
4.3 DUE AUTHORIZATION, BINDING EFFECT. Each of Parent and
Subsidiary has the corporate power and authority to execute, deliver and perform
its obligations under this Agreement and the other documents executed or to be
executed by it in connection with this Agreement and to consummate the Merger.
The execution, delivery and performance by Parent and Subsidiary of this
Agreement and the other documents executed or to be executed by Parent or
Subsidiary, as applicable, in connection with this Agreement have been duly
authorized by all necessary corporate action. This Agreement and the other
documents which have been executed and which will be executed by Parent and
Subsidiary in connection with this Agreement have been, or will have been, as
the case may be, duly executed and delivered by Parent and Subsidiary and are,
or will be when executed and delivered, the legal, valid and binding obligations
of Parent and Subsidiary, as the case may be, enforceable in accordance with
their terms except that (i) enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights; (ii)
the availability of equitable remedies may be limited by equitable principles of
general applicability; and (iii) rights to indemnification and contribution may
be limited by considerations of public policy.
4.4 CAPITAL STOCK OF COMPANY SUBSIDIARIES AND OTHER OWNERSHIP
INTERESTS. Other than Subsidiary, Parent is not the record or beneficial owner
of any equity interest in any corporation, joint venture, partnership or other
entity.
4.5 CORPORATE POWER AND AUTHORITY. Parent has the corporate
power and authority and all licenses and Governmental Permits (as defined in
Section 3.15 except that, in lieu of pertaining to the Company, for purposes of
this Section, such definition shall pertain to Parent) required by governmental
authorities to own, lease and operate its properties and assets
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and to carry on its business as currently being conducted, except where the
failure to have any such licenses and Governmental Permits would not,
individually or in the aggregate, have a material adverse effect on the
business, results of operation, working capital, assets, liabilities, condition
(financial or otherwise) or prospects of the Company.
4.6 ABSENCE OF RESTRICTIONS AND CONFLICTS. The execution,
delivery and performance of this Agreement, the consummation of the Merger and
the other transactions contemplated by this Agreement and the fulfillment of and
compliance with the terms and conditions of this Agreement do not and will not,
with the passing of time or the giving of notice or both, violate or conflict
with, constitute a breach of or default under, result in the loss of any benefit
under or permit the acceleration of any obligation under (i) any term or
provision of the Certificate of Incorporation or Bylaws of Parent or the
Articles of Incorporation or Bylaws of the Subsidiary, or (ii) any contract or
permits, except where such violations, conflicts, breaches, defaults, losses or
accelerations would not, individually or in the aggregate, have a material
adverse effect on the business, results of operation, working capital, assets,
liabilities, condition (financial or otherwise) or prospects of Parent and its
subsidiaries taken as a whole, or (iii) any judgment, decree or order of any
court or governmental authority or agency to which Parent or its subsidiaries is
a party or by which Parent or the subsidiaries or any of their properties are
bound, or (iv) any statute, law, regulation or rule applicable to Parent or its
subsidiaries, except where such violations, conflicts, breaches, defaults,
losses or accelerations would not, individually or in the aggregate, have a
material adverse effect on the business, results of operation, working capital,
assets, liabilities, condition (financial or otherwise) or prospects of Parent
and its subsidiaries taken as a whole. Except for compliance with the applicable
requirements of the Securities Act, the Exchange Act, and applicable state
securities laws and the filing of Articles of Merger with the Department of
State, and consents listed on the Disclosure Schedule, to the Parent's
knowledge, no consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental agency or public or regulatory
unit, agency, body or authority or, except for the approvals which have been
obtained, any third party is required in connection with the execution, delivery
or performance of this Agreement by Parent or the Subsidiary or the consummation
of the transactions contemplated hereby or the ownership and operation by the
Surviving Corporation of its businesses and properties after the Effective Date
in substantially the same manner as now owned and operated.
4.7 PARENT SEC REPORTS. Parent has made available to the
Company (i) Parent's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, (ii) proxy statements relating to Parent's
meetings of shareholders and (iii) all other reports or registration statements,
each as amended or supplemented prior to the date hereof, filed by Parent with
the SEC since January 1, 1995 (items (i) through (iii), as amended or
supplemented as described above, including all disclosures incorporated therein
by reference, being referred to as the "Parent SEC Reports"). As of their
respective dates, the Parent SEC Reports did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Since January 1, 1995, Parent has timely
filed all forms, reports and
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documents with the SEC required to be filed by it pursuant to the federal
securities laws and the SEC's rules and regulations thereunder, each of which
Parent SEC Reports complied as to form, at the time such form, report or
document was filed, in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the applicable rules and regulations
thereunder.
4.8 FINANCIAL STATEMENTS AND RECORDS OF PARENT. Parent has
delivered to the Company true, correct and complete copies of: (i) the balance
sheets of Parent as of June 30, 1997 and June 30, 1996 and the related
statements of income, changes in stockholders' equity and cash flows of Parent
for the fiscal years then ended, including the notes thereto, as contained in
the Parent's Annual Report on Form 10-KSB for the year ended June 30, 1997, in
each case examined by and accompanied by the report thereon of Grant Thornton
LLP, and (ii) the consolidated balance sheets of Parent as of March 31, 1998
("Parent Balance Sheet") and the consolidated statements of operations and cash
flows of Parent for the fiscal quarters ended March 31, 1998 and 1997, including
the notes thereto, as contained in the Parent's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 (all of the foregoing financial statements
in (i) and (ii) being referred to herein as the "Parent Financial Statements").
Parent Financial Statements have been prepared from, and are in accordance with,
the books and records of Parent and present fairly, in all material respects,
the assets, liabilities and financial position of Parent as of the dates thereof
and their results of operations and changes in financial position for the
periods then ended, in each case in conformity with generally accepted
accounting principles, consistently applied, except as noted therein. Since June
30, 1997, there has been no change in accounting principles applicable to, or
methods of accounting utilized by, Parent. The books and records of Parent have
been and are being maintained in accordance with good business practice, reflect
only valid transactions, are complete and correct in all material respects, and
present fairly in all material respects the basis for the financial position and
results of operations of Parent and its subsidiaries set forth in Parent
Financial Statements.
4.9 NO MATERIAL UNDISCLOSED LIABILITIES. There are no material
liabilities or obligations of Parent of any nature, whether absolute, accrued,
contingent or otherwise, other than the liabilities and obligations that are
reflected, accrued, or reserved against on the Parent Balance Sheet (for which
the reserves are appropriate and reasonable) and those incurred in the ordinary
course of business and consistent with past practices since March 31, 1998.
4.10 ABSENCE OF CERTAIN CHANGES.
(a) Since March 31, 1998, Parent has operated in the
ordinary course of business and in a manner consistent with the manner in which
it operated prior to March 31, 1998. Without limiting the generality of the
foregoing, Parent has not (except as may result from the transactions
contemplated by this Agreement):
(i) suffered any material adverse change in
its business, results of operations, working capital,
assets,
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liabilities, condition ( financial or otherwise),
prospects or the manner of conducting its business;
(ii) suffered any damage or destruction to,
or loss of, assets, whether or not covered by
insurance, which property or assets are material to
the operations or business of Parent;
(iii) forgiven, compromised, canceled,
released, waived or permitted to lapse any material
rights or claims;
(iv) entered into or terminated any
agreement, commitment or transaction, or agreed to
make any changes in any leases or agreements, other
than leases, agreements, transactions and commitments
entered into in the ordinary course of business;
(v) written up, written down or written off
the book value of any amount of assets;
(vi) declared, paid or set aside for payment
any dividend or distribution with respect to Parent's
capital stock;
(vii) redeemed, purchased or otherwise
acquired, or sold or granted or otherwise disposed
of, directly or indirectly, any of Parent's capital
stock or securities or any rights to acquire such
capital stock or securities which are outstanding as
of the date of this Agreement;
(viii) failed to pay or discharge when due
any liabilities, the failure to pay or discharge
which will have, individually or in the aggregate, a
material adverse effect on the business, working
capital, assets, liabilities, condition (financial or
otherwise) or prospects of Parent.
(ix) encumbered assets, purchased or sold
any assets outside the ordinary course of business or
made any material capital expenditure;
(x) entered into any employment, consulting,
compensation or collective bargaining agreement with
any person or group;
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(xi) entered into, adopted or amended any
employee benefit plan;
(xii) entered into any other transaction
other than in the ordinary course of business; or
(xiii) entered into any agreement to do any
of the foregoing.
(b) Parent is not aware of any pending or
contemplated legislation or changes in rules, regulations or administrative
orders which, if enacted or implemented, would, individually or in the
aggregate, have a material adverse effect on the business, results of
operations, working capital, assets, liabilities, condition (financial or
otherwise) or prospects of Parent.
4.11 TAX RETURNS; TAXES.
(a) Parent has duly filed or caused to be filed on a
timely basis (giving effect to properly obtained extensions of time) with the
appropriate authorities all Tax Returns (as defined below) required to be filed
by it and all such Tax Returns are true, correct and complete in all material
respects; has paid in full on a timely basis all Taxes (as defined below)
required to be paid; and has fully accrued on its books or has established
adequate reserves on its latest balance sheet (a true and correct copy of which
has been provided to the Company), prepared in accordance with generally
accepted accounting principles consistently applied, for all Taxes which have
accrued but not are yet due; and has timely and properly collected or withheld,
paid over and reported to the appropriate governmental authorities all Taxes
required to have been collected or withheld by it. Parent has no tax liabilities
other than those reflected on the Parent Financial Statements and those arising
in the ordinary course of business since the date thereof. Parent has made
available to the Company true, complete and correct copies of Parent's federal
income tax and other Tax Returns filed by it.
(b) No Taxing authority has asserted any adjustment
that could result in an additional Tax for which Parent is or may be liable;
there is no pending audit, examination, investigation, dispute, proceeding or
claim (collectively, "Proceeding") relating to any Tax for which Parent is or
may be liable and, to the knowledge of Parent, no Taxing authority is
contemplating such a Proceeding; no statute of limitations with respect to any
Tax for which Parent or is or may be liable has been waived or extended; and
Parent are not a party or subject to any Tax sharing or any Tax allocation
agreement, arrangement or understanding.
(c) Parent is not a party to any contract, agreement,
plan or arrangement that, individually or collectively, could give rise to any
payment that would not be deductible by reason of Section 162, 280G or 404 of
the Code (or any comparable state, local or foreign Tax provision). Parent does
not have any "tax-exempt use property" within the meaning of Section
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168(h) of the Code (or any comparable state, local or foreign Tax provision).
Parent has never made or been required to make an election under Section 338 of
the Code (or any comparable state, local or foreign Tax provision).
(d) Parent is not, and was not at any time during the
applicable period
specified in Section 897(c)(1)(A)(ii) of the Code, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code and the
regulations thereunder.
(e) For purposes of this Agreement, "Tax" shall mean
any tax, fee, levy, assessment or other governmental charge imposed by the
United States, any state, local or foreign government or subdivision or agency
of any of the foregoing, including without limitation, any income, franchise,
gross receipts, property, sales, use, service, value added, withholding, social
security, estimated, accumulated earnings, transfer, license, privilege,
payroll, profits, capital stock, employment, unemployment, excise, ad valorem,
severance, stamp, occupancy, customs or occupation tax for which the taxpayer is
or may be liable, including without limitation, as a member of a consolidated
group pursuant to Treasury Regulation ss.1.1502-6 (or any comparable state,
local or foreign Tax provision), as a transferee under Section 6901 of the Code
(or any comparable state, local or foreign Tax provision) or under any Tax
sharing or Tax allocation agreement, arrangement or understanding.
(f) For purposes of this Agreement, "Tax Returns"
shall mean all returns, amended returns, declarations, reports, estimates,
information returns and statements relating to Taxes which are or were filed or
required to be filed under applicable law, whether on a consolidated, combined,
unitary or separate basis or otherwise.
4.12 TITLE, CONDITION OF ASSETS.
(a) Parent has good and marketable title to all of
the Assets reflected on the Parent Balance Sheet, and all Assets thereafter
acquired by them (except for Assets disposed of by it in the ordinary course of
business). All such Assets are used in connection with the operation of the
businesses of Parent. Except as set forth in Section 4.12(a) of the Disclosure
Schedule, the Assets are subject to no mortgage, security interest, pledge,
lien, claim, encumbrance or charge, or restraint or transfer whatsoever other
than Permitted Liens (as hereinafter defined) and no currently effective
financing statement with respect to any of its Assets has been filed under the
Uniform Commercial Code in any jurisdiction. Section 4.12(a) of the Disclosure
Schedule sets forth a description of the indebtedness secured by the financing
statements listed thereon, including the principal balance of such indebtedness
and accrued but unpaid interest thereon as at March 31, 1998 and interest rate
applicable thereto. Except with respect to the constituent instruments
underlying the financing statements listed in Section 4.12(a) of the Disclosure
Schedule, Parent is not a party to any financing statement or any security
agreement authorizing any secured paery thereunder to file any financing
statement. No person other than Parent has any right to the use or possession of
any of the Assets. All Assets which are real property or tangible personal
property, whether owned or leased, are in good operating condition and repair,
excepting normal wear and
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tear, and are sufficient to enable Parent to operate its business in a manner
consistent with its operation during the immediately preceding twelve (12)
months.
(b) Set forth on Section 4.12(b) of the Disclosure
Schedule is a true and correct list of leases, conditional sales, licenses or
similar arrangements to which Parent is a party or to which Parent or any Asset
used by Parent in connection with the operation of its business is subject. The
Company has delivered to Parent a complete and correct copy of each lease,
conditional sale, license and other arrangement listed in Section 4.12(b) of the
Disclosure Schedule. All of said arrangements are valid, binding and enforceable
in accordance with their respective terms and are in full force and effect.
Parent is not in default under one or more of such arrangements, except to the
extent such defaults would not, individually or in the aggregate, have a
material adverse effect on the business, results of operations, working capital,
assets, liabilities, condition (financial or otherwise) or prospects of Parent
and has not received any written notice alleging any default, set-off, or claim
of default. To the knowledge of Parent, the parties to such arrangements are not
in default of their respective obligations under any of such arrangements, and
there has not occurred any event which, with the passage of time or giving of
notice (or both), would constitute such a default or breach under any of such
arrangements.
4.13 INTELLECTUAL PROPERTY. Except as set forth in Section
4.13 of the Disclosure Schedule, Parent has no proprietary assets. Parent owns
all of the Proprietary Assets necessary to operate its business. No claim has
been asserted by an person challenging the validity of any Proprietary asset or
the use thereof by Parent.
4.14 CONTRACTS. To the knowledge of Parent, Section 4.14 of
the Disclosure Schedule contains a complete and correct list of all of the
following categories of material agreements, contracts, arrangements and
commitments ("Contracts"), including summaries of oral contracts (except
immaterial oral contracts terminable at will), to which Parent is bound,
including, without limitation:
(a) each contract or agreement for the employment or
retention of, or collective bargaining, severance or termination agreement with,
any director, officer, employee, consultant, agent, employee or group of
employees;
(b) each profit sharing, thrift, bonus, incentive,
deferred compensation, stock option, stock purchase, severance pay, pension,
retirement, hospitalization, insurance or other similar plan, agreement or
arrangement;
(c) each agreement or arrangement (including letter
of intent) for the purchase or sale of any assets, properties or rights outside
the ordinary course of business (by purchase or sale of assets, purchase or sale
of capital stock, merger or otherwise) which is currently in effect;
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(d) each contract which contains any provisions
requiring Parent to indemnify or act for, or guarantee the obligation of, any
other person or entity;
(e) each agreement restricting Parent from conducting
business of any nature anywhere in the world;
(f) each partnership or joint venture contract or
similar arrangement or agreement which is likely to involve a sharing of profits
or future payments with respect to the business (or any portion thereof) of
Parent;
(g) each lease, license, conditional sales contract
or similar arrangement for real or personal property or any Proprietary Asset;
and
(h) each other agreement not made in the ordinary and
normal course of business which involves consideration of more than $15,000; and
(g) each letter of intent or agreement in principle
to enter into any Contract (whether or not binding, in whole or in part).
True, correct and complete copies of each Contract have been
provided or made available to the Company and, except as provided in Section
4.14 of the Disclosure Schedule, each remains in full force and effect in
accordance with the copies provided to the Company. Each of the Contracts was
entered into and requires performance only in the ordinary course of business.
Parent is not in material default under any Contract and no default or right of
set-off has been asserted, either by or against Parent under any Contract. To
the knowledge of Parent, the parties to the Contracts, other than Parent, are
not in material default of any of their respective obligations under the
Contracts, and there has not occurred any event, which with the passage of time
or the giving of notice (or both), would constitute a material default or breach
under any Contract. All amounts payable by Parent under the Contracts are on a
current basis. No Contract is terminable nor requires a payment in the event of
the Merger or a change in control of Parent
4.15 LICENSES AND PERMITS. Section 4.15 of the Disclosure
Schedule sets forth a description of all material licenses and other material
governmental or other regulatory permits, approvals and authorizations required
for the operation of the business of Parent to: (a) provide the services which
Parent is providing or Parent in the past has provided, (b) own or hold under
lease the properties and Assets it owns or hold under lease and (c) perform all
of its obligations under Contracts to which it is a party or subject
(collectively, the "Governmental Permits"). Parent has delivered to the Company
copies of all of the Governmental Permits. Parent owns, possesses or has the
legal right to use the Governmental Permits, free and clear of all liens,
pledges, claims or other encumbrances of any nature whatsoever. Parent has
obtained and possesses (and during all periods in which it has provided services
and conducted business possessed), in good standing, all Governmental Permits
required by applicable governmental authorities in order to perform such
services and conduct such businesses except where failure to have such
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Governmental Permits in good standing would not, individually or in the
aggregate, have a material adverse effect on the business, working capital,
results of operation, assets, liabilities, condition (financial or otherwise) or
prospects of Parent. Parent is not in material default under any Governmental
Permits, and Parent has not received any notice of any default or any other
claim or proceeding relating to, any such Governmental Permits.
4.16 INSURANCE AND SURETY AGREEMENTS. Section 4.16 of the
Disclosure Schedule contains a complete and correct list of: (a) all policies of
malpractice, fire, liability and other forms of insurance held or owned by
Parent; and (b) all bonds, indemnity agreements and other agreements of
suretyship made for or held by Parent, including a brief description of the
character of the bond or agreement and the name of the surety or indemnifying
party. Section 4.16 of the Disclosure Schedule sets forth for each such
insurance policy the name of the insurer, the amount of coverage, the type of
insurance included under each such policy and of any claims made thereunder.
Such policies are owned by and payable solely to Parent, and said policies or
renewals or replacements thereof are outstanding and duly in force. All
insurance policies maintained by Parent are in full force and effect, all
premiums due on such policies have been paid, and has not been advised by any of
its insurance carriers of an intention to terminate or modify any such policies,
nor has Parent failed to comply with any of the material conditions contained in
any such policies.
4.17 RELATIONSHIPS.
(a) Except as disclosed in Section 4.17 of the
Disclosure Schedule, no affiliate of Parent has, or at any time within the last
two (2) years has had, an ownership interest in any business, corporate or
otherwise, that is a party to, or in any property that is the subject of, any
business relationship or arrangement of any kind relating to the operation or
business of, or which may be binding upon, Parent or its Assets.
(b) Section 4.17 of the Disclosure Schedule contains
a complete and correct list of all persons known by the Company to be affiliates
of the Company.
4.18 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Section 4.18 of the
Disclosure Schedule, there are no employee benefit plans (including
previously-maintained plans) or arrangements of any type (including, without
limitation, plans described in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended and the regulations thereunder ("ERISA")),
under which Parent has or in the future could have directly, or indirectly
through a Commonly Controlled Entity (within the meaning of section 414(b), (c),
(m) and (o) of the Internal Revenue Code of 1986, as amended and the regulations
thereunder ("Code")), any liability with respect to any current or former
employee of Parent or any Commonly Controlled Entity (collectively, the "Benefit
Plans"). No such Benefit Plan is "multiple employer plan" (within the meaning of
the Code or ERISA) or subject to Title IV of ERISA.
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(b) With respect to each Benefit Plan (where
applicable): Parent has delivered to the Company complete and accurate copies of
(i) all plan texts and agreements; (ii) all material employee communications;
(iii) the most recent annual report; (iv) the most recent annual and periodic
accounting of plan assets; (v) the most recent determination letter received
from the Internal Revenue Service; and (vi) the most recent actuarial valuation.
(c) With respect to each Benefit Plan: (i) if
intended to qualify under Code section 401(a) or 403(a), such Benefit Plan so
qualifies, and its related trust is exempt from taxation under Code section
501(a); (ii) such Benefit Plan has been administered in accordance with its
terms and applicable law; (iii) no event has occurred and there exists no
circumstance under which Parent could directly, or indirectly through a Commonly
Controlled Entity, incur liability under ERISA, the Code or otherwise (other
than routine claims for benefits); (iv) there are no actions, suits or claims
pending (other than routine claims for benefits) or, to the knowledge of Parent,
threatened, with respect to any Benefit Plan or against the assets of any
Benefit Plan; (v) no "accumulated funding deficiency" (as defined in section 302
of ERISA) has occurred; (vi) no "prohibited transaction" (as defined in section
406 of ERISA or in section 4975 of the Code) has occurred; (vii) no "reportable
event" (as defined n section 4043 of ERISA) has occurred; (viii) all
contributions and premiums due have been made on a timely basis; and (ix) all
contributions made or required to be made under any Benefit Plan meet the
requirements for deductibility under the Code, and all contributions which have
not been made have been properly recorded on the books of Parent or the
applicable Commonly Controlled Entity.
(d) With respect to each Benefit Plan which is a
"welfare plan" (as defined in ERISA section 3(1)): (i) no such plan provides
medical or death benefits (whether or not insured) with respect to current or
former employees beyond their termination of employment (other than coverage
mandated by law); (ii) there are no reserves, assets, surplus or prepaid
premiums under any such plan; and (iii) Parent and any Commonly Controlled
Entity have complied with the requirements under Code section 4980B.
(e) The consummation of the transactions contemplated
by this Agreement will not (i) entitle any individual to severance pay, or (ii)
accelerate the time of payment, vesting or increase the amount of compensation
due to any such individual.
4.19 LABOR RELATIONS. To the knowledge of Parent, Parent is in
compliance with all federal and state laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, and is not
engaged in any unfair labor or unlawful employment practice. There is no
unlawful employment practice or discrimination charge pending or, to the
knowledge of the Company, threatened against Parent before the Equal Employment
Opportunity Commission or any other governmental authority. Except as set forth
in Section 4.18 of the Disclosure Schedule, there is no unfair labor practice
charge or complaint, grievance or arbitration against Parent pending or, to the
knowledge of the Company, threatened against the Company before the National
Labor Review Board or any other governmental authority. Since January 1, 1992
Parent has not experienced nor, to the knowledge of Parent, is there threatened,
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any labor strike, dispute, slowdown or stoppage or any representation question
respecting its employees. There is no collective bargaining agreement that is
binding on Parent.
4.20 QUESTIONABLE PAYMENTS. Neither Parent, nor any director,
officer, affiliate or employee of Parent: (a) have used any corporate funds of
Parent to make any payment to any officer or employee of any government, or to
any political party or official thereof, where such payment either (i) is
unlawful under laws applicable thereto; or (ii) would be unlawful under the
Foreign Corrupt Practices Act of 1977, as amended; nor (b) has used any
corporate funds of Parent for making payments to any person if such payment
constituted an illegal payment, bribe, kickback, political contribution or other
similar questionable payment.
4.21 BROKERS AND FINDERS. Neither Parent nor the Subsidiary
nor any of their respective officers, directors and employees has employed any
broker, finder or investment banker or incurred any liability for any investment
banking fees, financial advisory fees, brokerage fees or finders' fees in
connection with the transactions contemplated hereby, except for the fees of
Slusser pursuant to that certain letter agreement dated July 21, 1997, as
amended, a true, complete and correct copy of which has been furnished to the
Company.
4.22 COMPLIANCE WITH LAWS. Parent has been and is in
compliance with all applicable laws, regulations, ordinances and administrative
orders of any jurisdiction to which its businesses or its use or occupancy of
properties or any part thereof are subject except where the failure to be in
compliance would not, individually or in the aggregate, have a material adverse
effect on the business, results of operation, working capital, assets,
liabilities, condition (financial or otherwise) or prospects of Parent and its
subsidiaries taken as a whole. Except as set forth in the Parent SEC Reports,
there is no pending material suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry, nor, to the best of Parent's knowledge, (i) are any such proceedings,
investigations or inquiries, threatened or contemplated nor (ii) are there any
unasserted claims (whether or not the potential claimant may be aware of the
claim) of any nature that might be asserted against Parent, which pending,
threatened, contemplated or unasserted matter are reasonably likely to have,
individually or in the aggregate, a material adverse effect on the business,
results of operations, working capital, assets, liabilities, condition
(financial or otherwise) or prospects of Parent and its subsidiaries taken as a
whole. Parent is not subject to any judgment, decree, injunction, or order of
any court or any governmental restriction applicable to Parent which is
reasonably likely (i) to have a material adverse effect on the business, results
of operations, working capital, assets, liabilities, condition (financial or
otherwise) or pros pects of Parent and its subsidiaries taken as a whole or (ii)
to cause limitation on the Surviving Corporation's ability to operate the
business of the Company after the Closing.
4.23 ACCURACY OF INFORMATION FURNISHED. No representation or
warranty in this Agreement made by Parent nor any information relating to Parent
or its subsidiaries which has been delivered by Parent to the Company contains
any untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not false or misleading.
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ARTICLE 5
COVENANTS OF THE COMPANY AND PARENT
5.1 NOTICE OF ANY MATERIAL CHANGE. Each of the Company and
Parent shall, promptly after the first notice or occurrence thereof but not
later than the Closing Date, advise the other in writing of any event or the
existence of any state of facts that:
(a) would make any of its representations and
warranties in this Agreement untrue in any material respect as if such
representation and warranty had been made at and as of such intervening date; or
(b) would otherwise constitute, individually or in
the aggregate, a material adverse change in the business, results of operation,
working capital, assets, liabilities or condition (financial or otherwise) or
prospects of Parent or the Company.
5.2 COOPERATION. Each of the parties hereto shall, and shall
cause each of its Affiliates to, use its best efforts to:
(a) proceed promptly to make or give the necessary
applications, notices, requests and filings in order to obtain at the earliest
practicable date and, in any event, before the Closing Date, the approvals,
authorizations and consents necessary to consummate the transactions
contemplated by this Agreement;
(b) cooperate with and keep the others informed of
any matter which may result in a failure by such party to fulfill any covenant
of such party or which may provide the other party with a right to terminate
this Agreement; and
(c) take such actions as the other may reasonably
request to consummate the transactions contemplated by this Agreement and use
its best efforts and diligently attempt to satisfy, to the extent within its
control, all conditions precedent to the obligations to close this Agreement.
5.3 PUBLIC DISCLOSURE. Subject to their respective legal
obligations, neither the Company nor Parent shall issue any press release or
otherwise publicize the transactions contemplated herein without the consent or
approval of the other; provided, however, the parties hereto consent to the
issuance of the press release which the parties have simultaneously herewith
approved, and providing copies hereof to any governmental agency which legal
counsel to a party may advise such party may be required and providing
additional information, limited in scope to the discussion contained in the
press release, in response to unsolicited questions resulting from such press
release or reports.
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5.4 SUBMISSION TO PARENT SHAREHOLDERS. The Parent shall call a
meeting of its shareholders as soon as practicable following the execution and
delivery of this Agreement for the purpose of obtaining the approval of the
requisite number of its shareholders respecting (i) the Merger and the other
transactions contemplated by this Agreement and the other Merger Documents (ii)
issuance of the ISOs provided for in Section 2.3 hereof, and (iii) the amendment
and restatement of the Certificate of Incorporation of Parent (the "Parent
Shareholder Approval"). The Parent Corporation, through its Board of Directors,
shall recommend such approval to its shareholders in accordance with applicable
laws, unless the Board of Directors in good faith believes its fiduciary duty
requires otherwise.
5.5 PROXY STATEMENT.
(a) Parent shall promptly file a proxy statement
(which proxy statement, together with any and all amendments and supplements
thereto and all information incorporated by reference therein, is referred to
herein as the "Proxy Statement"), under and pursuant to the provisions of the
Securities Act. Parent agrees to use its best efforts to respond to the comments
of the SEC, and Parent shall promptly mail the Proxy Statement to its
shareholders.
(b) The Company agrees to provide as promptly as
practicable to Parent such information concerning its business and financial
statements and affairs as, in the reasonable judgment of Parent, may be required
or appropriate for inclusion in the Proxy Statement or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with
Parent's counsel and auditors in the preparation of the Proxy Statement.
(c) The Company represents, warrants and covenants to
Parent that none of the information supplied by it for inclusion or
incorporation by reference, and Parent and Sub sidiary represent, warrant and
covenant to the Company that none of the information supplied by them for
inclusion or incorporation by reference, in the Proxy Statement, will, at the
date mailed to shareholders of Parent and at the time of the meeting of
shareholders of Parent to be held to approve this Agreement, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
ARTICLE 6
COVENANTS OF THE COMPANY AND AGREEMENT SHAREHOLDERS
6.1 ACCESS. During the period until the Effective Date, the
Company shall afford to Parent and Parent's officers, employees, accountants,
counsel, and other authorized representatives, full access during regular
business hours to the assets, properties, books, Contracts, commitments and
records of the Company and will furnish or use its best efforts to cause its
representatives to furnish promptly to Parent such additional financial and
operating data and other documents and information (certified if requested and
reasonably susceptible to certification)
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relating to its business and properties as Parent or its representatives may
from time to time reasonably request. No investigation pursuant to this Section
6.1 shall effect, add to or subtract from any representation or warranty
contained in this Agreement, any condition to the obligations of the parties
hereto to consummate the Merger, nor the right of the Parent to indemnification
pursuant to Section 8.2 hereunder.
6.2 CONDUCT OF BUSINESS PRIOR TO CLOSING DATE. During the
period until the Closing Date, the Company shall (unless otherwise consented to
in writing by Parent) conduct its operations in the ordinary and usual course of
business consistent with past and current practices, and shall use its best
efforts to maintain and preserve intact its business organization and goodwill,
to retain the services of its key officers and employees, and to maintain
satisfactory relationships with its customers, suppliers and others having
business relationships with it. Without limiting the foregoing, the Company
without the prior approval of Parent:
(a) shall not incur additional obligations, or prepay
any obligations, for borrowed money, encumber assets, purchase or sell any
assets outside the ordinary course of business, commit to material capital
expenditures or increase or authorize an increase in employee compensations or
benefits (except that the Company (i) may reasonably borrow under its $2,250,000
existing line of credit commitment, and (ii) may borrow from an institution on
terms reasonably satisfactory to Parent, an amount sufficient to pay bonuses to
the Agreement Shareholders and the distribution to the Agreement Shareholders
pursuant to Section 6.2 (e) (ii) of this Agreement, in an aggregate amount equal
to the Company's earnings and profits for the period January 1, 1998 to and
including the Closing Date);
(b) shall confer, from time to time, with one or more
representatives of Parent as reasonably requested to report material operational
matters and the general status of ongoing operations;
(c) shall notify Parent of any emergency or other
change in the normal course of the Company business and of any governmental
complaints, investigations, hearings or inquiries (or communications indicating
that the same may be contemplated) including, without limitation, complaints,
investigations, hearings or inquiries relating to any Governmental Permits held
by the Company or which could result from the consummation of the transaction
contemplated hereby;
(d) shall not issue or sell any shares of the capital
stock of the Company or issue, sell or grant options, warrants or rights to
purchase or subscribe to any of the capital stock of the Company or rights or
obligations convertible into or exchangeable for any shares of the capital stock
of the Company, or make any changes (by stock dividend, split-up, combination,
recapitalization, reclassification, reorganization or otherwise) in the capital
structure of the Company;
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(e) shall not declare, pay or set aside for payment
any dividend or other distribution in respect of the capital stock or other
equity securities of the Company, provided, however that the Company may pay to
the Agreement Shareholders, an amount equal to the sum of (i) the Company's
Accumulated Adjustments Account and (ii) the Company's earnings and profits from
January 1, 1998, to and including the Closing Date, and the Company shall not
redeem, purchase or otherwise acquire any shares of the capital stock or other
securities of the Company or rights or obligations convertible into or
exchangeable for any shares of the capital stock or other securities of the
Company;
(f) shall not settle, compromise or discharge any
lawsuit, claim or proceeding where the proposed settlement amount for all such
settlements, compromises and discharges would exceed $25,000;
(g) shall not intentionally take any action that, and
shall not intentionally fail to take any action the failure to take which, would
cause or permit any of its representations and warranties contained in this
Agreement to be untrue in any material respect at the Closing; or
(h) shall not enter into any agreement,
understanding, arrangement or letter of intent (whether or not binding in whole
or in part) to do any of the things which it has covenanted not to do without
the prior approval of the Parent.
6.3 SHAREHOLDER APPROVAL. The Agreement Shareholders agree to
vote or cause to be voted, at a meeting of the Company's shareholders to be
called and held as soon as practicable, all shares of Company Common Stock over
which they have, directly or indirectly, voting control, in favor of the
approval of this Agreement and all transactions contemplated hereby.
6.4 NO SOLICITATIONS. From May 12, 1998 until the Effective
Date or, if earlier, the date this Agreement is terminated or abandoned as
provided in Section 10.1, neither the Company nor any Agreement Shareholder
shall (nor did they) directly or indirectly (i) solicit or initiate any
discussion with or (ii) enter into negotiations or agreements with, or furnish
any information to, any corporation, partnership, person or other entity or
group (other than Parent, an Affiliate of Parent or their authorized
representatives) concerning any proposal for a merger, sale of substantial
assets, sale of shares of stock or securities or other takeover or business
combination transaction (the "Acquisition Proposal") involving the Company, and
the Company and the Agreement Shareholders will instruct their officers,
directors, advisors and financial and legal representatives and consultants
(collectively, the "Representatives") not to take any action contrary to the
foregoing provisions of this sentence; provided, however, that the Company and
its Representatives shall not be prohibited from taking any action described in
clause (ii) above to the extent such action is taken by, or upon the authority
of, the Board of Directors of the Company in the exercise of the Board's good
faith judgment as to its fiduciary duties to the shareholders of the Company,
which judgment is based upon the written advice of independent, outside legal
counsel that a failure of the Board of Directors of the Company to take such
action would be likely to constitute a breach of its fiduciary duties to such
shareholders. The Company will notify Parent
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promptly in writing if the Company becomes aware that any inquiries or proposals
are received by, any information is requested from or any negotiations or
discussions are sought to be initiated with, the Company with respect to an
Acquisition Proposal. Each time, if any, that the Board of Directors of the
Company determines, upon written advice of such legal counsel and in the
exercise of its good faith judgment as to its fiduciary duties to shareholders,
that it must enter into negotiations with or furnish any information that is not
publicly available to, any corporation, part nership, person or other entity or
group (other than Parent, an Affiliate of Parent or their representatives)
concerning any Acquisition Proposal, the Company will give Parent prompt notice
of such determination (which shall include a copy of the written advice of such
legal counsel).
6.5 BEST EFFORTS. The Company shall use its best efforts to
cause all of the conditions precedent set forth in Sections 9.1 and 9.3 hereof
to be fulfilled.
ARTICLE 7
COVENANTS OF PARENT
7.1 ACCESS. During the period until the Effective Date, Parent
shall afford to the Company and the Company's officers, employees, accountants,
counsel, and other authorized representatives, full access during regular
business hours to the assets, properties, books, Contracts, commitments and
records of Parent and will furnish or use its best efforts to cause its
representatives to furnish promptly to the Company such additional financial and
operating data and other documents and information (certified if requested and
reasonably susceptible to certification) relating to its business and properties
as the Company or its representatives may from time to time reasonably request.
No investigation pursuant to this Section 6.1 shall effect, add to or subtract
from any representation or warranty contained in this Agreement, any condition
to the obligations of the parties hereto to consummate the Merger, nor the right
of the Company to indemnification pursuant to Section 8.2 hereunder.
7.2 CONDUCT OF BUSINESS PRIOR TO CLOSING DATE. During the
period until the Closing Date, Parent shall (unless otherwise consented to in
writing by the Company) conduct its operations in the ordinary and usual course
of business consistent with past and current practices, and shall use its best
efforts to maintain and preserve intact its business organization and goodwill,
to retain the services of its key officers and employees, and to maintain
satisfactory relationships with its customers, suppliers and others having
business relationships with it. Without limiting the foregoing, Parent without
the prior approval of the Company:
(a) shall not incur additional obligations, or prepay
any obligations, for borrowed money, encumber assets, purchase or sell any
assets outside the ordinary course of business, commit to material capital
expenditures or increase or authorize an increase in employee compensation or
benefits;
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(b) shall confer, from time to time, with one or more
representatives of the Company as reasonably requested to report material
operational matters and the general status of ongoing operations;
(c) shall notify the Company of any emergency or
other change in the normal course of the Company business and of any
governmental complaints, investigations, hearings or inquiries (or
communications indicating that the same may be contemplated) including, without
limitation, complaints, investigations, hearings or inquiries relating to any
Governmental Permits held by Parent or which could result from the consummation
of the transaction contemplated hereby;
(d) shall not issue or sell any shares of the capital
stock of Parent or issue, sell or grant options, warrants or rights to purchase
or subscribe to any of the capital stock of Parent or rights or obligations
convertible into or exchangeable for any shares of the capital stock of Parent,
or make any changes (by stock dividend, split-up, combination, recapitalization,
reclassification, reorganization or otherwise) in the capital structure of
Parent;
(e) shall not declare, pay or set aside for payment
any dividend or other distribution in respect of the capital stock or other
equity securities of Parent, and not redeem, purchase or otherwise acquire any
shares of the capital stock or other securities of Parent or rights or
obligations convertible into or exchangeable for any shares of the capital stock
or other securities of Parent;
(f) shall not settle, compromise or discharge any
lawsuit, claim or proceeding where the proposed settlement amount for all such
settlements, compromises and discharges would exceed $25,000;
(g) shall not intentionally take any action that, and
shall not intentionally fail to take any action the failure to take which, would
cause or permit any of its representations and warranties contained in this
Agreement to be untrue in any material respect at the Closing; or
(h) shall not enter into any agreement,
understanding, arrangement or letter of intent (whether or not binding in whole
or in part) to do any of the things which it has covenanted not to do without
the prior approval of the Company.
7.3 NO SOLICITATIONS. From May 12, 1998 until the Effective
Date or, if earlier, the date this Agreement is terminated or abandoned as
provided in Section 10.1, Parent shall not (nor did it) directly or indirectly
(i) solicit or initiate any discussion with or (ii) enter into negotiations or
agreements with, or furnish any information that is not publicly available to,
any corporation, partnership, person or other entity or group (other than the
Company, an Affiliate of the Company or their authorized representatives)
concerning any Acquisition Proposal involving Parent, and Parent will instruct
its Representatives not to take any action contrary to the foregoing provisions
of this sentence; provided, however, that Parent and its Representatives shall
not be
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prohibited from taking any action described in clause (ii) above to the extent
such action is taken by, or upon the authority of, the Board of Directors of
Parent in the exercise of the Board's good faith judgment as to its fiduciary
duties to the shareholders of the Company, which judgment is based upon the
written advice of independent, outside legal counsel that a failure of the Board
of Directors of Parent to take such action would be likely to constitute a
breach of its fiduciary duties to such shareholders. Parent will notify the
Company promptly in writing if Parent becomes aware that any inquiries or
proposals are received by, any information is requested from or any negotiations
or discussions are sought to be initiated with, Parent with respect to an
Acquisition Proposal. Each time, if any, that the Board of Directors of Parent
determines, upon written advice of such legal counsel and in the exercise of its
good faith judgment as to its fiduciary duties to shareholders, that it must
enter into negotiations with or furnish any information that is not publicly
available to, any corporation, partnership, person or other entity or group
(other than Parent, an Affiliate of the Company or their Representatives)
concerning any Acquisition Proposal, Parent will give the Company prompt notice
of such determination (which shall include a copy of the written advice of such
legal counsel).
7.4 TAX CERTIFICATIONS. For purposes of ensuring that the
Merger will be treated as a tax-free reorganization under Sections 368(a)(1)(A)
and 368(a)(2)(E) of the Code, each of Parent and Subsidiary have delivered to
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., counsel to the Company,
a letter in the form heretofore approved by the parties.
7.5 BEST EFFORTS. Parent and Subsidiary shall use their best
efforts to cause all of the conditions precedent in Sections 9.1 (subject in the
case of Section 9.1(a) to the judgment of its Board of Directors) and 9.2 hereof
to be fulfilled.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY
8.1 SURVIVAL. The representations, warranties, covenants and
agreements contained in this Agreement, or in any document delivered pursuant to
the provisions of, or in connection with, this Agreement shall not survive the
making of this Agreement and any examination made by or on behalf of the parties
hereto, the Closing and the Merger; provided, however, that the representations,
warranties, covenants and agreements respecting Taxes, contained in Section 3.10
of this Agreement, shall continue to survive until three months subsequent to
the date on which all taxable periods of the Company prior to the Effective Date
shall be closed to any further assessment of Taxes by the expiration of the
applicable statutes of limitations, after giving effect to any extensions
thereof by waiver or otherwise. Notwithstanding the foregoing, any claim
respecting Taxes made by an Indemnified Party (as defined in Section 8.2) under
the provisions of Section 8.2 within the period described above, shall be
considered to be timely made even if such claim is not resolved until after the
expiration of the aforesaid period.
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8.2 INDEMNIFICATION.
(a) The Agreement Shareholders hereby agree to
indemnify and hold Parent, the Surviving Corporation and their affiliates
(collectively, the "Indemnified Parties") harmless from and against the full
amount of any loss, claim, damage, liability, cost or expense (including
attorneys' fees), judgments, fines and amounts paid in settlement of any claim,
action, suit, proceeding or investigation, resulting to the Indemnified Parties
(collectively, a "Loss"), either directly or indirectly, from any breach of or
inaccuracy in the surviving representations, warranties covenants and agreements
respecting Taxes, made by the Company or the Agreement Shareholders in Section
3.10 of this Agreement, or in any certificate or document delivered by or on
behalf of the Company or the Agreement Shareholders pursuant to any of the
provisions of, or in connection with Section 3.10 of this Agreement. If it is
determined that, as a matter of public policy, the indemnification provided for
in this Section 8.2 is unavailable to an Indemnified Party as contemplated,
then, to the extent not determined to be prohibited by public policy, the
Indemnifying Party shall contribute to the amount paid or payable by the
Indemnified Party as a result of such Loss in such proportion as is appropriate
to reflect not only the relative benefits received by the Indemnified Party and
the indemnifying party from the transactions contemplated by this Agreement, but
also the relative fault of the Indemnified Party and the indemnifying party, as
well as any other relevant equitable considerations.
(b) No Agreement Shareholder shall be entitled to
assert, and no Agreement Shareholder shall assert, any right to subrogation,
contribution or reimbursement against Parent, the Surviving Corporation or any
shareholder of the Company, the Surviving Corporation or Parent with respect to
any amounts paid or payable by such Agreement Shareholder under this Section
8.2.
ARTICLE 9
CONDITIONS PRECEDENT
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. Except as may be
waived by both the Company and Parent, the respective obligations of each party
to consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction, on or before the Closing Date, of each of the following
conditions:
(a) CORPORATE APPROVALS. This Agreement shall have
been approved and adopted by the affirmative vote of the holders of a majority
of all of the outstanding shares of Company Common Stock. This Agreement and the
transactions contemplated hereby shall have been approved by the Board of
Directors of Parent.
(b) LITIGATION; ILLEGALITY. No action or proceeding
before any court or administrative agency, by any government agency or any other
person shall have been
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instituted or threatened challenging or otherwise relating to the Merger, or
which otherwise would, if adversely determined, materially and adversely affect
Parent or the Company. No action, statute, rule or regulation shall have been
proposed or enacted by any state, Federal or foreign government or governmental
agency which would render the parties unable to consummate the Merger or make
the Merger illegal or prohibit, restrict or delay consummation of the Merger.
(c) GOVERNMENTAL CONSENTS. Other than the filing of
Articles of Merger, as described in Article 1, all authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations or
terminations of waiting periods imposed by any governmental authority, the
failure to obtain which would have a material adverse effect on Parent and its
subsidiaries, including the Surviving Corporation and its subsidiaries, taken as
a whole, shall have been filed, occurred or been obtained.
9.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. Except as may be
waived by the Company, the obligations of the Company to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or before the Closing Date of each of the following conditions:
(a) COMPLIANCE WITH COVENANTS AND CONDITIONS. Parent
shall have, or shall have caused to be, satisfied or complied with and performed
in all material respects all terms, covenants and conditions of this Agreement
to be complied with or performed by Parent on or before the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by Parent in Sections 4.1, 4.3, 4.4, 4.5,
4.6, 4.7, 4.8, 4.9, 4.10 and (except for changes contemplated in this Agreement
which pertain to Section 4.2) 4.11 of this Agreement and in all certificates and
other documents delivered by Parent to the Company pursuant hereto or in
connection with the transactions contemplated hereby shall have been true and
correct as of the date hereof, and shall be true and correct in all material
respects at the Closing Date with the same force and effect as if such
representations and warranties had been made at and as of the Closing Date,
except for changes permitted or contemplated by this Agreement.
(c) TAX OPINION. The Company shall have received the
opinion of Greenberg Traurig Hoffman Lipoff Rosen and Quentel, P.A., counsel to
the Company, dated as of the Closing Date, substantially to the effect that, on
the basis of facts and representations set forth in such opinion consistent with
the state of facts existing at the Effective Date, for federal income tax
purposes that (i) the Merger constitutes a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code; (ii) no gain or loss will be
recognized by the Company's shareholders as a result of the Merger; (iii) the
tax basis of the Parent Common Stock to be received by the shareholders of the
Company will be equal to the tax basis of their Company Common Stock and
(assuming that the shareholder holds the Company Common Stock as a capital asset
at the Effective Date) the holding period of their Parent Common Stock will
include the
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holding period of the Company Common Stock; and (iv) the Company will not
recognize gain or loss as a result of the Merger.
(d) OPINION. The Company shall have received an
opinion of Parker Chapin Flattau & Klimpl, LLP, counsel to Parent, dated as of
the Closing Date, in form and substance reasonably satisfactory to the Company
and its counsel, as to the matters specified in Section 4.1, the last sentence
of Section 4.2(a) and Section 4.3.
(e) MATERIAL ADVERSE CHANGES. Subsequent to March 31,
1998, there shall have occurred no material adverse change in the business,
results of operations or prospects, of Parent.
(f) CERTIFICATES. The Company shall have received a
certificate or certificates, executed on behalf of Parent by an executive
officer of Parent, to the effect that the conditions contained in Sections
9.2(a), (b) and (d) have been satisfied.
(g) OTHER. The Company shall have received such other
instruments, documents and certificates, if any, which are required to be
delivered pursuant to the provisions of this Agreement or which may be
reasonably requested.
9.3 CONDITIONS TO OBLIGATIONS OF PARENT. Except as may be
waived by Parent, the obligations of Parent to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each of the following conditions:
(a) COMPLIANCE WITH COVENANTS AND CONDITIONS. The
Company and the Agreement Shareholders shall have, or shall have caused to be,
satisfied or complied with and performed in all material respects all terms,
covenants and conditions of this Agreement to be complied with or performed by
them on or before the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties made by the Company in this Agreement, the
Company Disclosure Schedule and in all certificates and other documents
delivered by the Company pursuant hereto or in connection with the transactions
contemplated hereby shall have been true and correct in all material respects as
of the date hereof, and shall be true and correct in all material respects at
the Closing Date with the same force and effect as if such representations and
warranties had been made at and as of the Closing Date, except for changes
permitted or contemplated by this Agreement.
(c) OPINION. Parent shall have received (i) an
opinion of Greenberg Traurig Hoffman Lipoff Rosen and Quentel, P.A., counsel for
the Company, dated as of the Closing Date, in form and substance reasonably
satisfactory to Parent and its counsel, as to the matters specified in Section
3.1, the last sentence of Section 3.2(a), and Section 3.3.
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(d) MATERIAL ADVERSE CHANGES. Since December 31, 1997
there shall have occurred no material adverse change in the business, results of
operations, customer or employee relations, working capital, assets, condition
(financial or otherwise) or prospects of the Company, other than as set forth in
Schedule 3.9.
(e) WAREHOUSE AND OFFICE LEASE. The Company shall
have obtained the written consent of William K. Steiner to the assignment to the
Surviving Corporation of the October 6, 1995 lease between William K. Steiner
and the Company covering 290 N.E. 68 Street, 297 N.E. 67 Street, and 277 N.E. 67
Street, Miami, Florida 33138 (the "Premises"), which written consent shall
contain an absolute and unconditional indemnification and hold harmless of the
Parent, the Company, the Surviving Corporation and their affiliates from and
against the full amount of any loss, claim, damage, liability, cost or expense
(including attorneys' fees), judgments, fines and amounts paid in settlement of
any claim, action, suit, proceeding or investigation relating to any alleged
violations of Environmental Law with respect to any actual or alleged
environmental contamination or the release of any hazardous substances at or on
the Premises.
(f) WEISSCO. The Company shall have entered into an
agreement, on terms reasonably satisfactory to Parent, with Weissco Development
Inc. ("Weissco") and the Agreement Shareholders, pursuant to which, among other
things, Weissco agrees to pay 100% of its pre-tax profits to the Surviving
Corporation as a management fee.
(g) AEROTECH. The Company shall have acquired from
Aero-Tech USA, Inc. all of its right, title and interest in and to the name
"Aerotech".
(h) CERTIFICATES. Parent shall have received a
certificate or certificates, executed on behalf of the Company, to the effect
that the conditions in Sections 9.3(a), (b), (d), (e), (f) and (g) have been
satisfied.
(i) OTHER. Parent shall have received such other
instruments, documents, and certificates, if any, which are required to be
delivered pursuant to the provisions of this Agreement or which may be
reasonably requested.
ARTICLE 10
REGISTRATION RIGHTS
The Agreement Shareholders and any Holder (as defined herein)
shall have the following registration rights with respect to the Parent Common
Stock issued to them hereunder (the "Registrable Securities"):
10.1 DEMAND REGISTRATION FOR REGISTRABLE SECURITIES: FILING OF
REGISTRATION STATEMENT. Parent, at its own expense, will prepare and file, as
promptly as practicable after receipt of a written request from the Holder(s) of
at least fifty (50%) percent
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of the Registrable Securities, a registration statement on such appropriate form
of the Securities and Exchange Commission (the "Commission") as shall be
selected by Parent to effect the registration of such number of Registrable
Securities specified in such request for resale from time to time by such
Holder(s) thereof (the "Registration Statement") and shall undertake to cause
such Registration Statement to become effective and remain effective so as to
cause such Registrable Securities to be registered under the Securities Act, and
registered, qualified or exempted under the state securities laws of such
jurisdictions as any Holder reasonably requests until such time as such
Registrable Securities may be resold pursuant to Rule 144, as promulgated under
the Securities Act. For purposes of this Article, a person is deemed to be a
"Holder" of Registrable Securities whenever such person is the record owner of
such stock.
10.2 PIGGYBACK REGISTRATIONS. If, at any time, Parent proposes
or is required to register any of its Common Stock under the Securities Act
(other than pursuant to (i) registrations on such form or similar form(s) solely
for registration of securities in connection with an employee benefit plan or
dividend reinvestment plan or a merger or consolidation, or (ii) a demand
registration under Section 10.1) on a registration statement on Form S-1, Form
S-2 or Form S-3 (or an equivalent general registration form then in effect),
whether or not for its own account, Parent shall give prompt written notice of
its intention to do so to each of the Holders of record of Registrable
Securities. Upon the written request of any Holder, made within 15 days
following the receipt of any such written notice (which request shall specify
the maximum number of Registrable Securities intended to be disposed of by such
Holder and the intended method of distribution thereof), Parent shall use its
best efforts to cause all such Registrable Securities, the Holders of which have
so requested the registration thereof, to be registered under the Securities Act
(with the Common Stock which Parent at the time proposes to register) to permit
the sale or other disposition by the Holders (in accordance with the intended
method of distribution thereof) of the Registrable Securities to be so
registered. No registration effected under this Section 10.2 shall relieve
Parent of its obligations to effect demand registration. If, at any time after
giving written notice of its intention to register any Common Stock and prior to
the effective date of the registration statement filed in connection with such
registration, Parent shall determine for any reason not to register or to delay
registration of such Common Stock, Parent may, at its election, give written
notice of such determination to all Holders of record of Registrable Securities
and (i) in the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
abandoned registration, without prejudice, however, to the rights of Holders
under Section 10.1, and (ii) in the case of a determination to delay such
registration of its Common Stock, shall be permitted to delay the registration
of such Registrable Securities for the same period as the delay in registering
such other equity securities. Any Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any registration
statement pursuant to this Section 10.2 by giving written notice to Parent of
its request to withdraw; provided, however that (i) such request must be made in
writing prior to the earlier of the execution of the underwriting agreement or
the execution of the custody agreement with respect to such registration and
(ii) such withdrawal shall be irrevocable and, after making such withdrawal, a
Holder shall no longer have any right to include Registrable Securities in the
registration as to which such withdrawal was made.
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10.3 EXPENSES OF REGISTRATION. Parent shall pay all expenses
in connection with the registration, qualification and/or exemption of the
Registrable Securities, including any SEC and state securities or "blue-sky"
laws registration and filing fees, printing expenses, fees and disbursements of
Parent's counsel and accountants, transfer agent's and registrar's fees, fees
and disbursements of experts used by Parent in connection with such
registration, qualification and/or exemption, and expenses incidental to any
amendment or supplement to the Registration Statement or prospectuses contained
therein. Parent shall not, however, be liable for any sales, broker's or
underwriting commissions upon sale by any Holder of any of the Registrable
Securities.
10.4 FURNISHING OF DOCUMENTS. Parent shall furnish to the
Holders such reasonable number of copies of the Registration Statement, such
prospectuses as are contained in the Registration Statement and such other
documents as the Holder may reasonably request in order to facilitate the
offering of the Registrable Securities.
10.5 AMENDMENTS AND SUPPLEMENTS. Parent shall prepare and
promptly file with the SEC and promptly notify the Holders of the filing of such
amendments or supplements to the Registration Statement or prospectuses
contained therein as may be necessary to correct any statements or omissions if,
at the time when a prospectus relating to the Registrable Securities is required
to be delivered under the Securities Act, any event shall have occurred as a
result of which any such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Parent shall also
advise the Holders promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of the Registration Statement or the initiation or threatening of
any proceeding for that purpose and promptly use its reasonable best efforts to
prevent the issuance of any stop order or to obtain its withdrawal if such stop
order should be issued. If, after a Registration Statement becomes effective,
Parent advises the Holders that Parent considers it appropriate that the
Registration Statement (and all other registration statements of Parent then
effective and outstanding) be amended, the Holders shall suspend any further
sales of the Registrable Securities until Parent advises the Holders that the
Registration Statement has been amended, which amendment shall be made promptly.
10.6 DURATION. Parent shall maintain the effectiveness of the
Registration Statement until such time as Parent reasonably determines, based on
an opinion of counsel, that the Holders will be eligible to sell all of the
Registrable Securities then owned by the Holders, without the need for continued
registration of the Registrable Securities, in the three month period
immediately following the termination of the effectiveness of the Registration
Statement.
10.7 FURTHER INFORMATION. If Registrable Securities owned by a
Holder is included in any registration, such Holder shall furnish Parent such
information regarding itself as Parent may reasonably request and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
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10.8 INDEMNIFICATION
(a) Parent will indemnify and hold harmless the
Holders and each person, if any, who controls a Holder within the meaning of the
Securities Act, from and against any and all losses, damages, liabilities, costs
and expenses to which the Holders or any such controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that, Parent will not be liable in any such case
to the extent that any such loss, damage, liability, cost or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in reliance upon and strict conformity with
information furnished by or on behalf of any Holder or such controlling person
in writing specifically for use in the preparation thereof.
(b) Each of the Holders, jointly and severally, will
indemnify and hold harmless Parent and each person, if any, who controls Parent
within the meaning of the Securities Act, from and against any and all losses,
damages, liabilities, costs and expenses to which Parent or any such controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission was so made in
reliance upon and in strict conformity with written information furnished by or
on behalf of any Holder specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party of
notice of the commencement of any action involving the subject matter of
paragraph (a) or (b) of this Section 10.8, such indemnified party will, if a
claim thereof is to be made against the indemnifying party pursuant to the
provisions of said paragraph (a) or (b), promptly notify the indemnifying party
of the commencement thereof, but the omission to so notify the indemnifying
party will not relieve it from any liability which it may have hereunder unless
the indemnifying party has been materially prejudiced thereby nor will such
failure to so notify the indemnifying party relieve it from any liability which
it may have to any indemnified party otherwise than hereunder. In case such
action is brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the, right
to participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and the indemnifying
party and there
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is a conflict of interest which would prevent counsel for the indemnifying party
from also representing the indemnified party, the indemnified party or parties
shall have the right to select separate counsel to participate in the defense of
such action on behalf of such indemnified party or parties. After notice from
the indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said paragraph (a) or (b) for any legal or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation, unless: (i)
the indemnified party shall have employed counsel in accordance with the
provisions of the preceding sentence; (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
or the action; or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
Notwithstanding anything to the contrary set forth in this Article 10, no
indemnifying party shall have the right to settle or compromise any action for
which it has assumed the defense without the express written consent of the
indemnified party.
(d) In the event any of the Registrable Securities
are sold by any Holder or Holders in an underwritten public offering consented
to by Parent, Parent shall provide indemnification to the underwriters of such
offering and any person controlling any such underwriter on behalf of the Holder
or Holders making the offering; provided, however, that Parent shall not be
required to consent to any such underwriting or to provide such indemnification
in respect of the matters described in the proviso to the first sentence of
Section 10.8(a).
ARTICLE 11
MISCELLANEOUS
11.1 TERMINATION.
(a) This Agreement and the transactions contemplated
hereby may be terminated at any time on or before the Closing Date:
(i) by mutual consent of the Company and
Parent;
`
(ii) by the Company or Parent if either
receive an Acquisition Proposal under circumstances
that do not violate the respective obligations under
Sections 6.4 or 7.3 hereof;
(iii) by the Company or Parent, if the other
party receives an Acquisition Proposal under
circumstances that
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violate that party's obligations under Sections 6.4
or 7.3 hereof;
(iv) by Parent if there has been a material
misrepresentation or breach of warranty in the
representations and warranties of the Company set
forth herein, or if there has been any material
failure on the part of the Company to comply with its
obligations hereunder which failure, if capable of
cure, is not cured within thirty (30) days after the
giving of written notice thereof to the Company by
Parent;
(v) by the Company if there has been a
material misrepresentation or breach of warranty in
the representations and warranties of Parent set
forth herein, or if there has been any material
failure on the part of Parent to comply with its
obligations hereunder which failure, if capa ble of
cure, is not cured within thirty (30) days after the
giving of written notice thereof to Parent by the
Company; or
(vi) by either Parent or the Company if the
transactions contemplated by this Agreement have not
been consummated by December 31, 1998, unless such
failure of consummation is due to the failure of the
terminating party to perform or observe any covenant,
agreement or condition hereof to be performed or
observed by it at or before the Closing Date.
(b) In the event of the termination of this Agreement
pursuant to Section 11.1(a) hereof, this Agreement, except for the provisions of
Section 11.2 of this Agreement, shall forthwith become void and have no effect,
without any liability on the part of any party or its Affiliates, directors,
officers or shareholders; provided, however, that nothing in this Section 11.1
or in Section 11.2 shall relieve any party to this Agreement of liability for
breach of this Agreement (it being understood that termination pursuant to
Section 11.1(a)(i), (ii) or (vi) other than as a result of a party's failure to
perform or observe a covenant, agreement or condition shall not be deemed to be
a breach of this Agreement).
11.2 EXPENSES. If the transactions contemplated by this
Agreement are not consummated, each party hereto shall pay its own expenses
incurred in connection with this Agreement and the transactions contemplated
hereby.
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11.3 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule
and the exhibits hereto contain the complete agreement among the parties with
respect to the transactions contemplated hereby and supersede all prior
agreements and understandings among the parties with respect to such
transactions. The parties hereto have not made any representation or warranty
except as expressly set forth in this Agreement, the Disclosure Schedule and any
certificate or schedule delivered pursuant hereto. The obligations of any party
under any agreement executed pursuant to this Agreement shall not be affected by
this Section.
11.4 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which, when so executed and delivered, shall be
deemed an original, and all such counterparts together shall constitute only one
original.
11.5 NOTICES. Any notices, requests, demands or other
communications required or permitted hereunder shall be in writing and shall be
(i) hand delivered, (ii) sent by Federal Express, Express Mail or similar
overnight delivery service, (iii) sent by certified or registered mail, return
receipt requested or (iv) sent by telecopy, in any case addressed as follows (or
to such other address as a party shall have designated by notice given to the
other party pursuant hereto), and shall be deemed given (i) when delivered if
hand delivered, (ii) the next business day after sent if given by Federal
Express, Express Mail or other overnight delivery service, (iii) the date
received if sent by certified or registered mail, return receipt requested or
(iv) the date transmitted if telecopied (such date to be confirmed by printed
confirmation produced by the trans mitting telecopier which shall specify the
date and time of such or transmission and that such transmission has been made
without error):
(i) If to the Company:
Steiner-Atlantic Corp.
290 N.E. 68 Street
Miami, Florida 33138
Attention: Michael S. Steiner, President
Telecopier: (305) 751-4903
with a copy (which shall not constitute notice) to:
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Harold E. Berritt
Telecopier: (305) 579-0717
(ii) if to any Agreement Shareholder:
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Steiner-Atlantic Corp.
290 N.E. 68 Street
Miami, Florida 33138
Attention: Michael S. Steiner, President
Telecopier: (305) 751-4903
with a copy (which shall not constitute notice) to:
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Harold E. Berritt
Telecopier: (305) 579-0717
(iii) if to Parent:
Metro-Tel Corp.
250 South Milpitas Boulevard
Milpitas, California 95033
Attention: Venerando J. Indelicato
Telecopier: (813) 814-0822
with a copy (which shall not constitute notice) to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Lloyd Frank
Telecopier: (212) 704-6288
11.6 SUCCESSORS AND ASSIGNS. This Agreement and the rights,
interests and obligations hereunder shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors and assigns.
11.7 GOVERNING LAW. Except in instances where the laws of
another jurisdiction mandatorily govern, this Agreement shall be construed and
enforced in accordance with the laws of the State of Florida, without regard to
choice of law provisions.
11.8 WAIVER AND OTHER ACTION. Any provision of this Agreement
may be waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may be amended, modified or supplemented, either prior
to or after approval of this
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Agreement by shareholders of the Company, only by a written instrument executed
by the party against which enforcement of the amendment, modification or
supplement is sought.
11.9 SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid or unenforceable, such provision shall be fully
severable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision were never a part hereof; the
remaining provisions hereof shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance; and, in lieu of such illegal, invalid, or unenforceable provision,
there shall be added, automatically as part of this Agreement, a provision as
similar in its terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.
11.10 SECTION HEADINGS. Section and other headings are for
reference purposes only and shall not affect the interpretation or construction
of this Agreement.
11.12 CONSTRUCTION. All words used herein shall be construed
to be of such gender or number as the circumstances require. Unless otherwise
specifically noted, the words "herein," "hereof," "hereby," "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular Section, subsection, paragraph, clause or other subdivision of this
Agreement. For purposes of determining when a corporate entity shall have
"knowledge" of a particular fact or other matter, the knowledge of any person
who is presently serving as a director or officer of such corporate entity shall
be attributable to the corporate entity.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
METRO-TEL CORP. STEINER-ATLANTIC CORP.
By: /S/ Venerando J. Indelicato By: /S/ Michael S. Steiner
---------------------------- -----------------------
Venerando J. Indelicato Michael S. Steiner
President President
METRO-TEL ACQUISITION CORP.
/S/ William Steiner
----------------------
William Steiner
By: /S/ Venerando J. Indelicato /S/ Michael S. Steiner
----------------------- ----------------------
Venerando J. Indelicato Michael S. Steiner
President
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APPENDIX I
ARTICLES OF MERGER
OF
METRO-TEL ACQUISITION CORP.
INTO
STEINER-ATLANTIC CORP.
To the Secretary of State
State of Florida
Pursuant to the provisions of the Florida Business Corporation Act, the domestic
corporations herein named do hereby adopt the following articles of merger.
(a) Annexed hereto and made a part hereof is the Amended and
Restated Plan of Merger for merging Metro-Tel Acquisition Corp. with and into
Steiner-Atlantic Corp. as approved and adopted by written consent of the sole
shareholder of Metro-Tel Acquisition Corp. on , 1998, in accordance with the
provisions of Section 607.0704 of the Florida Business Corporation Act, and
approved and adopted at a meeting by the shareholders of Steiner-Atlantic Corp.,
on , 1998 pursuant to the provisions of Section 607.1103 of the Florida Business
Corporation Act.
(b) Steiner-Atlantic Corp., will continue its existence as the
surviving corporation under its present name pursuant to the provisions of the
Florida Business Corporation Act.
Executed on , 1998
METRO-TEL ACQUISITION CORP.
By:
Name:
Title:
STEINER-ATLANTIC CORP.
By:
Name:
Title
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AMENDED AND RESTATED PLAN OF MERGER (the "Plan of Merger") adopted by
Metro-Tel Acquisition Corp., a business corporation organized under the laws of
the State of Florida, by resolution of its Board of Directors on _____ , 1998
and adopted by Steiner-Atlantic Corp., a business corporation organized under
the laws of the State of Florida, by resolution of its Board of Directors on
_____, 1998.
1 The names of the corporations planning to merge are Metro-Tel
Acquisition Corp., a business corporation organized under the laws of the State
of Florida, and Steiner-Atlantic Corp., a business corporation organized under
the laws of the State of Florida. The name of the surviving corporation into
which Metro-Tel Acquisition Corp. plans to merge is Steiner-Atlantic Corp.
2 Metro-Tel Acquisition Corp. and Steiner-Atlantic Corp. shall,
pursuant to the provisions of the Florida Business Corporation Act, be merged
with and into Steiner-Atlantic Corp., which shall be the surviving corporation
at the effective time and date of the merger and which is sometimes hereinafter
referred to as the "surviving corporation", and which shall continue to exist as
said surviving corporation under its present name pursuant to the provision of
the Florida Business Corporation Act. The separate existence of Metro-Tel
Acquisition Corp., which is sometimes hereinafter referred to as the
"non-surviving corporation", shall cease at the effective time and date of the
merger in accordance with the provisions of the Florida Business Corporation
Act.
3 The Articles of Incorporation, as amended to date, of the surviving
corporation at the effective time and date of the merger shall be the Articles
of Incorporation of said surviving corporation and said Articles of
Incorporation shall continue in full force and effect until further amended and
changed in the manner prescribed by the provisions of the Florida Business Cor
poration Act.
4 The present bylaws of the surviving corporation will be the bylaws of
said surviving corporation and will continue in full force and effect until
changed, altered or amended as therein provided and in the manner prescribed by
the provisions of the Florida Business Corporation Act.
5 As of the effective time and date of the merger and without any
action on the part of any holder thereof:
(i) Each share of common stock, $.001 par value, of
Steiner-Atlantic Corp. ("Company Common Stock") issued and outstanding
immediately prior to the effective time and date of the merger shall be
converted into 13.90561 shares of common stock, $.025 par value, of
Metro-Tel Corp. ("Parent Common Stock"), the sole shareholder of
Metro-Tel Acquisition Corp.
(ii) Each share of Company Common Stock issued and held
immediately prior to the effective time and date of the merger in the
treasury of Steiner-Atlantic Corp. shall be canceled and retired
without payment of any consideration therefor and shall cease to exist.
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(iii) Each share of common stock, $.001 par value, of
Metro-Tel Acquisition Corp., issued outstanding immediately prior to
the effective time and date of the merger shall be converted into one
share of common stock, $.001 par value, of the surviving corporation.
6 The Plan of Merger herein made and approved shall be submitted to the
shareholders of the surviving corporation for their approval or rejection in the
manner prescribed by the provisions of the Florida Business Corporation Act.
7 In the event that the Plan of Merger shall have been approved by the
Board of Directors of Metro-Tel Corp., the shareholder of the non-surviving
corporation entitled to vote thereon and by the shareholders entitled to vote of
the surviving corporation entitled to vote thereon in the manner prescribed by
the provisions of the Florida Business Corporation Act, the non-surviving
corporation and the surviving corporation hereby stipulate that they will cause
to be executed and filed and/or recorded any document or documents prescribed by
the laws of the State of Florida, and that they will cause to be performed all
necessary acts therein and elsewhere to effectuate the merger.
8 The Board of Directors and the proper officers of the non-surviving
corporation and the Board of Directors and the proper officers of the surviving
corporation, respectively, are hereby authorized and empowered to do any and all
acts and things, and to make, execute, deliver, file, and/or record any and all
instruments, papers, and documents which shall be or become necessary, proper or
convenient to carry out or put into effect any of the provisions of this Plan of
Merger or of the merger herein provided for.
-A3-
<PAGE>
EXHIBIT B
August 12, 1998
The Board of Directors
Metro-Tel Corp.
250 South Milpitas Boulevard
Milpitas, California 95033
Gentlemen:
You have requested our opinion from a financial point of view
concerning the fairness of the transaction described below to the present
stockholders of Metro-Tel Corp. (the "Company"). The Company and
Steiner-Atlantic Corp. ("Steiner-Atlantic") have entered into an Agreement of
Merger among Metro-Tel Corp., Metro-Tel Acquisition Corp., Steiner-Atlantic
Corp., William Steiner and Michael Steiner (the "Agreement") pursuant to which a
wholly owned direct subsidiary of the Company shall be merged with and into
Steiner-Atlantic with Steiner-Atlantic being the surviving corporation. We
understand that, pursuant to the Agreement, the Company will issue as
consideration 4,720,954 shares of its common stock to the shareholders of
Steiner-Atlantic, and incentive stock options to purchase up to 500,000 shares
of its common stock at an exercise price of the greater of the fair market value
per share on the closing date or $1.00 per share, to Steiner- Atlantic employees
other than William and Michael Steiner.
It is our understanding that on a fully diluted basis the
Steiner-Atlantic shareholders will then own approximately sixty nine percent
(69%) of the combined company, and the Metro-Tel shareholders will then own
approximately thirty percent (30%) of the combined company.
In connection with this opinion, we have made such reviews, analysis
and inquiries as we have deemed necessary and appropriate under the
circumstances. Among other things we have:
1. Reviewed certain publicly available financial statements and other
business information relating to the Company;
2. Reviewed certain available financial statements and business
information concerning Steiner-Atlantic;
<PAGE>
3. Reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by management, including
management's projections;
4. Reviewed certain internal financial statements and other financial
and operating data concerning Steiner-Atlantic prepared by management, including
management's projections;
5. Compared the financial performance of the Company and the prices and
trading activity of the Company's common stock with that of certain other
publicly-traded companies and their securities that we deemed to be relevant;
6. Compared the financial performance of Steiner-Atlantic with that of
certain publicly traded companies that we deemed to be relevant;
7. Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that we deemed to be relevant;
8. Participated in certain discussions and negotiations among
representatives of the Company and Steiner-Atlantic;
9. Reviewed the price and trading volume history of the Company's
common stock from December 1993 through the date of this opinion;
10. Reviewed the Agreement; and
11. Conducted such other studies, analysis and inquiries as we deemed
appropriate, including our assessment of general economic, market and monetary
conditions.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. We have assumed and relied upon the accuracy of the projections by
the management of the Company and Steiner- Atlantic without assuming any
responsibility for independent verification or calculation thereof. In
connection with such estimates and with respect to the financial projections of
the Company and Steiner-Atlantic, we have relied upon and assumed, without
independent verification, that they have been reasonably prepared and reflect
the best currently available data and judgments of management. We have not
performed an appraisal of the physical assets of the Company or Steiner-Atlantic
for the purposes of this opinion.
We have acted as financial advisor to the Board of Directors of the
Company in respect to the transaction outlined in the Agreement. We will receive
a fee four our services, which is
<PAGE>
contingent upon closing the transaction pursuant to the Agreement. In addition,
the Company has agreed to indemnify us for certain liabilities arising out of
our engagement. We have in the past provided financial advisory services to the
Company, and we have received a fee for rendering these services.
We are not expressing any opinion herein as to the prices at which
Metro-Tel shares will trade following the consummation of the Merger.
This letter is prepared solely for the use of the Board of Directors of
Metro-Tel Corp and does not constitute a recommendation to any shareholder of
the Company or Steiner-Atlantic as to how such stockholder should vote on the
proposed Merger.
Slusser Associates, Inc. as a customary part of its investment banking
business is engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, private placements, and valuations for estate,
corporate and other purposes.
Based upon the foregoing, and in reliance thereon, it is our opinion as
investment bankers that the above described transaction is fair from a financial
point of view to the present Metro-Tel Corp. shareholders as of the date of this
letter.
Very truly yours,
Slusser Associates, Inc.
By: /s/ Peter Slusser
-------------------------
Peter Slusser
<PAGE>
EXHIBIT C
FORM OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES
OF COMMON STOCK FROM
6,000,000 TO 15,000,000 SHARES
The first paragraph of Article Fourth of the Certificate of
Incorporation, which refers to the authorized shares of the corporation, is
hereby amended to read as follows:
"FOURTH. The total number of shares of capital stock which the
Corporation is authorized to issue is 15,200,000 shares consisting of:
(1) 15,000,000 shares of Common Stock, having a par value
of $.025 per share; and
(2) 200,000 shares of Preferred Stock having a par value
of $1.00 per share..."
<PAGE>
METRO-TEL CORP.
|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
November ____, 1998
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Venerando J. Indelicato and Lloyd
Frank, and each of them, proxies, with full power of substitution, to vote at
the Annual Meeting of Stockholders of Metro-Tel Corp. to be held on
____________, November ___, 1998 (including any adjournments or postponements
thereof), according to the number of votes the undersigned might cast and with
all powers the undersigned would possess if personally present, upon the matter
specified below, as more fully described in the accompanying Notice of such
meeting and Proxy Statement, receipt of which is hereby acknowledged, and with
discretionary power upon such other business as may come before the meeting,
hereby revoking any proxies heretofore given.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1) Approve and adopt the Merger Agreement For Against Abstain
|_| |_| |_|
2) Amendment of Certificate of Incorporation to
increase the number authorized shares of Common Stock For Against Abstain
|_| |_| |_|
3) Amendment of 1991 Stock Option Plan For Against Abstain
|_| |_| |_|
4) Election of Directors: For All
For Withhold Except
|_| |_| |_|
</TABLE>
MICHAEL EPSTEIN, LLOYD FRANK,
VENERANDO J. INDELICATO AND MICHAEL MICHAELSON.
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
Each properly executed proxy will be voted in accordance with the
specifications made above. If no specifications are made, the shares represented
by this proxy will be voted "FOR" all listed nominees.
Please sign your name or names exactly as set forth hereon. When stock
is in the name of more than one person, each such person should sign the proxy.
When signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which you are acting. Proxies executed by corporations
should be signed by a duly authorized officer.
Stockholders who desire to have stock voted at the meeting are
requested to fill in, date, sign and return this proxy. No postage is required
if returned in the enclosed envelope and mailed in the United States.
Date
----------------------------
Please be sure to sign and date
this Proxy in the box below.
- --------------------------------------------------------------------------------
--------------------------------------------------------------------------
Stockholder sign above Co-holder (if any) sign above
+------------------------------------------------------------------------------+
Detach above card, sign, date and mail in postage paid envelope provided.
METRO-TEL CORP.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
