SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to section 240.14a-11(c) or section
240.14a-12
SAVOIR TECHNOLOGY GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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 fee is calculated and state how it was
determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
SAVOIR TECHNOLOGY GROUP, INC.
254 East Hacienda Avenue
Campbell, California 95008
(408) 379-0177
To the Stockholders of Savoir Technology Group, Inc.:
You are cordially invited to attend a Special Meeting of Stockholders
of Savoir Technology Group, Inc. (the "Company") to vote on the proposed merger
(the "Merger") of STG Acquisition Corp., a Delaware corporation ("Acquisition
Sub") and wholly owned subsidiary of the Company, with and into MCBA Systems
Inc., an Alabama corporation ("MCBA"). The Special Meeting will begin at 10:30
a.m., local time, at the principal executive offices of the Company, 254 East
Hacienda Avenue, Campbell, California 95008, on June 4, 1998.
At the Special Meeting, you will be asked to consider and vote on a
proposal to approve and adopt the Agreement and Plan of Reorganization, dated as
of November 22, 1997, by and among the Company, MCBA, Michael N. Gunnells and
John Harkins (together, the "Selling Shareholders"), as amended by the First and
Second Amendments to Agreement and Plan of Reorganization, dated as of March 27,
1998 and April 23, 1998, respectively, by and among the Company, Acquisition
Sub, MCBA, the Selling Shareholders, and as the same may be amended from time to
time (the "Merger Agreement"), and the transactions contemplated thereby,
including the Merger and the issuance of shares of the common stock, par value
$0.01 per share, of the Company (the "Common Stock") to the Selling
Shareholders. The Merger Agreement provides that Acquisition Sub will be merged
with and into MCBA, and MCBA, as the surviving corporation in the Merger, will
become a wholly owned subsidiary of the Company. The Selling Shareholders will
receive up to an aggregate of 900,000 shares of Common Stock in exchange for all
of the outstanding shares of MCBA's common stock. In addition, the Selling
Shareholders will have the right to receive up to an aggregate of 1,500,000
additional shares of Common Stock as earn-out payments (the "Earn-Out Payments")
to be paid in the first quarters of 1999 and 2000 if MCBA continues to meet
certain profit-based benchmarks. A copy of the Merger Agreement, as amended, is
attached as Annex A to the accompanying Proxy Statement.
The presence, in person or by proxy, of a majority of the shares of
Common Stock and of Series A Preferred Stock, par value $0.01 per share, on an
as converted basis (together, the "Capital Stock"), entitled to vote is
necessary to constitute a quorum for the transaction of business at the Special
Meeting. The affirmative vote of a majority of the shares of Capital Stock
present, in person or by proxy, and entitled to vote is required to approve the
Merger Agreement and the transactions contemplated thereby, including the Merger
and the issuance of shares of Common Stock to the Selling Shareholders. The
Board of Directors of the Company (the "Board") has fixed the close of business
on April 6, 1998 (the "Record Date") for determination of stockholders (the
"Stockholders") entitled to notice of and to vote at the Special Meeting. Only
holders of record of shares of Capital Stock at the close of business on the
Record Date are entitled to notice of, and to vote at, the Special Meeting.
The Board, after careful consideration, has unanimously approved the
Merger Agreement and the transactions contemplated thereby and determined that
the Merger is fair and in the best interests of the Company and the
Stockholders. The Board unanimously recommends that you vote FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby,
including the Merger and the issuance of shares of Common Stock to the Selling
Shareholders. In reaching its determination, the Board considered, among other
things, the opinion of Alliant Partners as to the fairness of the consideration
to be paid to the Selling Shareholders, including the Earn-Out Payments, from a
financial point of view. For further information, see "The Merger--Background of
the Merger" and "The Merger--Reasons for the Merger; Recommendation of the
Board" in the accompanying Proxy Statement. A copy of Alliant Partners' opinion
is attached as Annex B to the accompanying Proxy Statement. You are urged to
read the opinion in its entirety for further information with respect to the
assumptions made, matters considered and limits of the reviews undertaken by
Alliant Partners.
<PAGE>
IT IS VERY IMPORTANT THAT YOUR SHARES OF CAPITAL STOCK BE REPRESENTED
AT THE SPECIAL MEETING, WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. THEREFORE,
YOU SHOULD COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT AS SOON AS
POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT YOUR
SHARES ARE REPRESENTED AT THE SPECIAL MEETING.
THE NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND THE PROXY STATEMENT
DESCRIBING THESE IMPORTANT MATTERS ARE ATTACHED. If you require assistance in
completing your proxy or have questions about voting procedures or the Proxy
Statement, please contact James W. Dorst, the Company's Chief Financial Officer,
at (408) 379-0177.
P. Scott Munro
Chairman of the Board
Campbell, California
April 30, 1998
<PAGE>
SAVOIR TECHNOLOGY GROUP, INC.
254 East Hacienda Avenue
Campbell, California 95008
(408) 379-0177
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1998
To the Stockholders of Savoir Technology Group, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders
(including any adjournments or postponements thereof, the "Special Meeting"), of
Savoir Technology Group, Inc., a Delaware corporation (the "Company"), will
begin at 10:30 a.m., local time, at the principal executive offices of the
Company, 254 East Hacienda Avenue, Campbell, California 95008, on June 4, 1998.
The purpose of the Special Meeting, which is more fully described in
the accompanying Proxy Statement, is to approve and adopt the Agreement and Plan
of Reorganization, dated as of November 22, 1997, by and among the Company, STG
Acquisition Corp., a Delaware corporation ("Acquisition Sub") and wholly owned
subsidiary of the Company, MCBA Systems, Inc., an Alabama corporation ("MCBA"),
Michael N. Gunnells and John Harkins (together, the "Selling Shareholders"), as
amended by the First and Second Amendments to Agreement and Plan of
Reorganization, dated as of March 27, 1998 and April 23, 1998, respectively, by
and among the Company, Acquisition Sub, MCBA, the Selling Shareholders, and as
the same may be amended from time to time (the "Merger Agreement"), and the
transactions contemplated thereby, including the Merger and the issuance of
shares of the common stock, par value $0.01 per share, of the Company (the
"Common Stock") to the Selling Shareholders. The Merger Agreement provides that
Acquisition Sub will be merged with and into MCBA, and MCBA, as the surviving
corporation in the Merger, will become a wholly owned subsidiary of the Company
(the "Merger"). The Selling Shareholders will receive up to an aggregate of
900,000 shares of Common Stock in exchange for all of the outstanding shares of
MCBA's common stock. In addition, the Selling Shareholders will have the right
to receive up to an aggregate of 1,500,000 additional shares of Common Stock as
earn-out payments (the "Earn-Out Payments") to be paid in the first quarters of
1999 and 2000 if MCBA continues to meet certain profit-based benchmarks. A copy
of the Merger Agreement, as amended, is attached as Annex A to the accompanying
Proxy Statement.
The presence, in person or by proxy, of a majority of the shares of
Common Stock and of Series A Preferred Stock, par value $0.01 per share, on an
as converted basis (together, the "Capital Stock"), entitled to vote is
necessary to constitute a quorum for the transaction of business at the Special
Meeting. The affirmative vote of a majority of the shares of Capital Stock
present, in person or by proxy, and entitled to vote is required to approve the
Merger Agreement and the transactions contemplated thereby, including the Merger
and the issuance of shares of Common Stock to the Selling Shareholders. The
Board of Directors of the Company (the "Board") has fixed the close of business
on April 6, 1998 (the "Record Date") for determination of stockholders (the
"Stockholders") entitled to notice of and to vote at the Special Meeting. Only
holders of record of shares of Capital Stock at the close of business on the
Record Date are entitled to notice of, and to vote at, the Special Meeting. A
complete list of Stockholders of entitled to vote will be available for
examination, for proper purposes, during ordinary business hours at the
Company's principal executive offices, 254 East Hacienda Avenue, Campbell,
California 95008, during the 10 days prior to the Special Meeting.
The Board, after careful consideration, has unanimously approved the
Merger Agreement and the transactions contemplated thereby and determined that
the Merger is fair and in the best interests of the Company and the
Stockholders. The Board unanimously recommends that you vote FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby,
including the Merger and the issuance of shares of Common Stock to the Selling
Shareholders. In reaching its determination, the Board considered, among other
things, the opinion of Alliant Partners as to the fairness of the consideration
to be paid to the Selling Shareholders, including the Earn-Out Payments, from a
financial point of view. For further information, see "The Merger--
<PAGE>
Background of the Merger" and "--Reasons for the Merger; Recommendation of the
Board" of the accompanying Proxy Statement. A copy of Alliant Partners' opinion
is attached as Annex B to the accompanying Proxy Statement. You are urged to
read the opinion in its entirety for further information with respect to the
assumptions made, matters considered and limits of the reviews undertaken by
Alliant Partners.
If you would like to attend the Special Meeting and your shares are
held by a broker, bank or other nominee, you must bring to the Special Meeting a
recent brokerage statement or a letter from the nominee confirming your
beneficial ownership of the shares. You must also bring a form of personal
identification. In order to vote your shares at the Special Meeting, you must
obtain from the nominee a proxy issued in your name.
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF CAPITAL
STOCK YOU OWN. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU
ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
ITS EXERCISE BY (1) ATTENDING AND VOTING IN PERSON AT THE SPECIAL MEETING, (2)
GIVING NOTICE OF REVOCATION OF THE PROXY AT THE SPECIAL MEETING OR (3)
DELIVERING TO THE SECRETARY OF THE COMPANY (A) A WRITTEN NOTICE OF REVOCATION OR
(B) A DULY EXECUTED PROXY RELATING TO THE SAME SHARES AND MATTERS TO BE
CONSIDERED AT THE SPECIAL MEETING, BEARING A DATE LATER THAN THE PROXY
PREVIOUSLY EXECUTED. ATTENDANCE AT THE SPECIAL MEETING WILL NOT IN AND OF ITSELF
CONSTITUTE A REVOCATION OF A PROXY. ALL WRITTEN NOTICES OF REVOCATION AND OTHER
COMMUNICATIONS WITH RESPECT TO REVOCATION OF PROXIES SHOULD BE SENT TO THE
COMPANY'S SECRETARY AT THE COMPANY'S CORPORATE OFFICES AT THE ADDRESS LISTED
ABOVE, AND MUST BE RECEIVED BEFORE THE TAKING OF THE VOTE AT THE SPECIAL
MEETING. UNLESS REVOKED IN ONE OF THE MANNERS SET FORTH ABOVE, PROXIES WILL BE
VOTED AT THE SPECIAL MEETING AS DESCRIBED ABOVE.
If you have any questions or require additional material, please
contact James W. Dorst, the Company's Chief Financial Officer, at (408)
379-0177.
P. Scott Munro
Secretary
Campbell, California
April 30, 1998
<PAGE>
SAVOIR TECHNOLOGY GROUP, INC.
254 East Hacienda Avenue
Campbell, CA 95008
(408) 374-6919
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PROXY STATEMENT
--------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1998
This Proxy Statement (the "Proxy Statement") is furnished in connection
with the solicitation by the Board of Directors (the "Board") of Savoir
Technology Group, Inc., a Delaware corporation (the "Company"), of proxies for
use at the Special Meeting of Stockholders (including any adjournments or
postponements thereof, the "Special Meeting") of the Company to be held at 10:30
a.m., local time, at the offices of the Company, 254 East Hacienda Avenue,
Campbell, California 95008, on June 4, 1998.
The purpose of the Special Meeting, which is more fully described
herein, is to approve and adopt the Agreement and Plan of Reorganization, dated
as of November 22, 1997, by and among the Company, STG Acquisition Corp., a
Delaware corporation ("Acquisition Sub") and wholly owned subsidiary of the
Company, MCBA Systems, Inc., an Alabama corporation ("MCBA"), Michael N.
Gunnells and John Harkins (together, the "Selling Shareholders"), as amended by
the First and Second Amendments to Agreement and Plan of Reorganization, dated
as of March 27, 1998 and April 23, 1998, respectively, by and among the Company,
Acquisition Sub, MCBA, the Selling Shareholders, and as the same may be amended
from time to time (the "Merger Agreement"), and the transactions contemplated
thereby, including the Merger and the issuance of shares of the common stock,
par value $0.01 per share, of the Company (the "Common Stock") to the Selling
Shareholders. The Merger Agreement provides that Acquisition Sub will be merged
with and into MCBA, and MCBA, as the surviving corporation in the Merger, will
become a wholly owned subsidiary of the Company (the "Merger"). The Selling
Shareholders will receive up to an aggregate of 900,000 shares of Common Stock
in exchange for all of the outstanding shares of MCBA's common stock. In
addition, the Selling Shareholders will have the right to receive up to an
aggregate of 1,500,000 additional shares of Common Stock as earn-out payments
(the "Earn-Out Payments") to be paid in the first quarters of 1999 and 2000 if
MCBA continues to meet certain profit-based benchmarks.
A copy of the Merger Agreement, as amended, is attached as Annex A to
this Proxy Statement and is incorporated herein by reference. This Proxy
Statement describes the material portions of the Merger Agreement. The
description of the Merger Agreement set forth herein is subject to, and is
qualified in its entirety by reference to, the text of the Merger Agreement.
The presence, in person or by proxy, of a majority of the shares of
Common Stock and of Series A Preferred Stock (the "Series A Preferred Stock"),
par value $0.01 per share, on an as converted basis (together, the "Capital
Stock"), entitled to vote is necessary to constitute a quorum for the
transaction of business at the Special Meeting. The affirmative vote of a
majority of the shares of Capital Stock present, in person or by proxy, and
entitled to vote is required to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger and the issuance of
shares of Common Stock to the Selling Shareholders. The Board has fixed the
close of business on April 6, 1998 (the "Record Date") for determination of
stockholders of the Company (the "Stockholders") entitled to notice of and to
vote at the Special Meeting. Only holders of record of shares of Capital Stock
at the close of business on the Record Date are entitled to notice of, and to
vote at, the Special Meeting. A complete list of Stockholders entitled to vote
will be available for examination, for proper purposes, during ordinary business
hours at the Company's corporate offices, 254 East Hacienda Avenue, Campbell,
California 95008, during the 10 days prior to the Special Meeting.
The Board, after careful consideration, has unanimously approved the
Merger Agreement and the transactions contemplated thereby and determined that
the Merger is fair and in the best interests of the Company
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<PAGE>
and the Stockholders. The Board unanimously recommends that you vote FOR
approval and adoption of theMerger Agreement and the transactions contemplated
thereby, including the Merger and the issuance of shares of Common Stock to the
Selling Shareholders. In reaching its determination, the Board considered, among
other things, the opinion of Alliant Partners as to the fairness of the
consideration to be paid to the Selling Shareholders, including the Earn-Out
Payments, from a financial point of view. For further information, see "The
Merger--Background of the Merger" and "--Reasons for the Merger; Recommendation
of the Board." A copy of Alliant Partners' opinion is attached as Annex B. You
are urged to read the opinion in its entirety for further information with
respect to the assumptions made, matters considered and limits of the reviews
undertaken by Alliant Partners.
All information contained in this Proxy Statement relating to the
Company and the Acquisition Sub has been provided by the Company. All
information contained in this Proxy Statement with respect to MCBA has been
provided by MCBA.
This Proxy Statement, the accompanying Notice of Special Meeting, the
proxy and the other enclosed documents are first being mailed to the
Stockholders on or about May 4, 1998.
The Common Stock is listed for trading on The Nasdaq Stock Market's
National Market ("Nasdaq") under the symbol "SVTG." On April 29, 1998, the last
sale price of the Common Stock as reported on the Nasdaq was $10.625 per share.
On November 21, 1997, the last trading day before public announcement of the
execution of the Merger Agreement, the last sale price of the Common Stock as
reported on the Nasdaq was $10.625 per share, the high sale price was $10.75 per
share and the low sale price was $10.25 per share.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT.
STOCK- HOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT IN ITS ENTIRETY.
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY THE STOCKHOLDERS.
The date of this Proxy is April 30, 1998.
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<PAGE>
TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION..........................................................5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................5
FORWARD-LOOKING STATEMENTS.....................................................6
SUMMARY........................................................................7
The Special Meeting.......................................................7
The Merger................................................................8
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE COMPANY............... 12
SELECTED HISTORICAL FINANCIAL DATA OF MCBA................................... 13
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA (UNAUDITED)................... 14
COMPARATIVE PER SHARE DATA................................................... 16
RISK FACTORS................................................................. 17
Risks Relating to Reliance on the Opinion of the Company's Financial
Advisor; Deterioration in MCBA's Financial Performance.............. 17
Integration Risks Relating to the Merger................................ 17
Dilution of the Stockholders............................................ 17
Control of the Company by the Selling Shareholders...................... 18
Conditions to Closing................................................... 18
Termination of the Merger Agreement and Termination Fees................ 18
THE COMPANIES................................................................ 19
Savoir Technology Group, Inc............................................ 19
STG Acquisition Corp.................................................... 19
MCBA Systems, Inc....................................................... 19
THE SPECIAL MEETING.......................................................... 20
Matters to be Considered................................................ 20
Required Vote........................................................... 20
Voting and Revocation of Proxies........................................ 20
Record Date; Stock Entitled to Vote; Quorum............................. 21
Solicitation of Proxies................................................. 21
Other Matters........................................................... 21
THE MERGER................................................................... 22
Background of the Merger................................................ 22
Reasons for the Merger; Recommendation of the Board..................... 23
MCBA's Reasons for the Merger; Recommendation of MCBA Board of Directors 24
Opinion of the Company's Financial Advisor.............................. 24
Certain Financial Forecasts............................................. 28
Merger Consideration.................................................... 29
Effective Time of the Merger............................................ 29
Effect of the Merger.................................................... 29
Accounting Treatment.................................................... 29
Certain United States Federal Income Tax Consequences................... 29
Interests of Certain Persons in the Transaction......................... 30
Percentage Ownership Interest of the Selling Shareholders After the
Merger............................................................. 30
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<PAGE>
Page
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Governmental and Regulatory Approvals................................... 31
Resales of the Common Stock............................................. 31
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA.............................. 32
MCBA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 35
PRICE OF COMMON STOCK........................................................ 38
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................... 39
Effect of the Merger.................................................... 39
Directors and Officers; Articles of Incorporation and Bylaws............ 39
Merger Consideration.................................................... 39
Earn-Out Payments....................................................... 39
Escrow for Initial Consideration........................................ 40
Earn-Out Escrow......................................................... 40
Promissory Note......................................................... 40
Representations and Warranties of MCBA and the Selling Shareholders..... 40
Representations and Warranties of the Company........................... 41
Covenants Relating to Conduct of Business............................... 41
Additional Agreements................................................... 42
Conditions to Obligations of the Company, MCBA and the Selling
Shareholders....................................................... 42
Conditions to Obligations of the Company................................ 42
Conditions to Obligations of MCBA and the Selling Shareholders.......... 43
Best Efforts............................................................ 43
Indemnification......................................................... 43
Termination and Termination Fee......................................... 44
Amendment and Waiver.................................................... 44
Fees and Expenses....................................................... 44
Registration Rights Agreement........................................... 44
IRA Agreement........................................................... 44
Employment Agreement.................................................... 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............... 45
EXPERTS...................................................................... 49
LEGAL MATTERS................................................................ 49
OTHER INFORMATION AND STOCKHOLDER PROPOSALS.................................. 49
ANNEX A: MERGER AGREEMENT
ANNEX B: ALLIANT PARTNERS OPINION
ANNEX C: MCBA SYSTEMS, INC. AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 1997
ANNEX D: MCBA SYSTEMS, INC. UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE
YEARS ENDED DECEMBER 31, 1995 AND 1996
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<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OTHER PERSON. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION
OF A PROXY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
ANY SUCH SOLICITATION IN SUCH JURISDICTION.
THE DELIVERY OF THE PROXY STATEMENT DOES NOT, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and may be available at the
following Regional Offices of the Commission: Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New
York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such materials can be obtained at prescribed rates from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Company makes filings of reports, proxy
statements and other information pursuant to the Exchange Act with the
Commission electronically, and such materials may be inspected and copied at the
Commission's Web site (http://www.sec.gov). In addition, material filed by the
Company can be inspected at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006, on which the shares of Common Stock are
listed.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents and, while such summaries contain all
material provisions of such documents, each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission or attached as an annex hereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission (File No.
0-11560) and are incorporated herein by reference: (i) Annual Report of the
Company on Form 10-K, as amended, for the fiscal year ended December 31, 1997;
(ii) Current Reports of the Company on Form 8-K (A) dated August 29, 1997, as
amended on February 17, 1998, (B) dated September 30, 1997, as amended on
December 12, 1997 and February 17, 1998, (C) dated February 12, 1998; and (D)
dated March 9, 1998; and (iii) the description of the Company's capital stock
contained in the Company's Registration Statement on Form S-1 (Registration
Statement No. 2-86846), including any amendments and reports filed for the
purpose of updating such description.
The Annual Report of the Company on Form 10-K, as amended, for the
fiscal year ended December 31, 1997 listed under item (i) above is also being
mailed to the Stockholders together with this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE
WITHOUT CHARGE TO EACH PERSON TO WHOM A PROXY STATEMENT IS DELIVERED, UPON
WRITTEN OR ORAL REQUEST OF SUCH PERSON AND BY FIRST CLASS MAIL OR OTHER
EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, A
COPY OF ANY AND ALL INFORMATION THAT HAS BEEN INCORPORATED BY REFERENCE IN
THE PROXY, NOT INCLUDING EXHIBITS TO THE INFORMATION THAT IS INCORPORATED BY
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<PAGE>
REFERENCE, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
INTO THE INFORMATION THAT THE PROXY STATEMENT INCORPORATES). REQUESTS
SHOULD BE DIRECTED TO SAVOIR TECHNOLOGY GROUP, INC., 254 EAST HACIENDA AVENUE,
CAMPBELL, CALIFORNIA 95008, ATTN: JAMES W. DORST, CHIEF FINANCIAL OFFICER
(TELEPHONE (408) 379-0177). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS
IN ADVANCE OF THE SPECIAL MEETING, ANY SUCH REQUEST SHOULD BE MADE BY MAY 5,
1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the occurrence of the Special Meeting shall be deemed to be incorporated by
reference in this Proxy Statement and to be a part hereof from the date of
filing such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy Statement.
Trademarks of other corporations and organizations are referenced in
this Proxy Statement.
FORWARD-LOOKING STATEMENTS
This Proxy Statement includes "forward-looking statements" within the
meaning of various provisions of the Securities Act of 1933, as amended (the
"Securities Act") and the Exchange Act. All statements, other than statements of
historical facts, included in this Proxy Statement that address activities,
events or developments that the Company expects or anticipates will or may occur
in the future, including such things as future capital expenditures (including
the amount and nature thereof), business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of the Company's
and its subsidiaries' business and operations, plans, references to future
success and other such matters, are forward-looking statements. These statements
are based on certain assumptions and analyses made by the Company in light of
its experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. However, whether actual results and
developments will conform to the Company's expectations and predictions is
subject to a number of risks and uncertainties, including: the significant
considerations and risks discussed in this Proxy Statement; general economic,
market or business conditions; the opportunities (or lack thereof) that may be
presented to and pursued by the Company and its subsidiaries; competitive
actions by other companies; changes in laws or regulations; and other factors,
many of which are beyond the control of the Company and its subsidiaries. See
"Risk Factors." Consequently, all of the forward-looking statements made in this
Proxy Statement are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company and its subsidiaries or their
business or operations.
-6-
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT, IN THE ATTACHED ANNEXES HERETO AND IN THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS PROXY
STATEMENT AND THE ATTACHED ANNEXES IN THEIR ENTIRETY.
THE SPECIAL MEETING
TIME AND PLACE; RECORD DATE. The Special Meeting of Stockholders will
begin at 10:30 a.m., local time, at the offices of the Company, 254 East
Hacienda Avenue, Campbell, California 95008, on June 4, 1998. Stockholders of
record at the close of business on the Record Date are entitled to notice of,
and to vote at, the Special Meeting. The date of the mailing of this Proxy
Statement to the Stockholders will be on or about April 13, 1998. At the close
of business on the Record Date, the Company had 7,797,302 shares of Capital
Stock issued and outstanding, consisting of 5,530,610 shares of Common Stock and
2,207,100 shares of Series A Preferred Stock, equivalent to 2,266,692 shares of
Common Stock on an as converted basis. Each share of Capital Stock is entitled
to one vote, and, for purposes of the Special Meeting, the shares of Common
Stock and of Series A Preferred Stock will vote as a single class. See "The
Special Meeting--Record Date; Stock Entitled to Vote; Quorum."
MATTERS TO BE CONSIDERED. The purpose of the Special Meeting is to
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the Merger, pursuant to which Acquisition Sub will merge with and into MCBA, and
MCBA will continue as the surviving corporation and a wholly owned subsidiary of
the Company, the separate corporate existence of Acquisition Sub will terminate
and the Selling Shareholders will receive shares of Common Stock. See "The
Special Meeting--Matters to be Considered."
REQUIRED VOTE. The presence, in person or by proxy, of a majority of
the shares of Capital Stock entitled to vote is necessary to constitute a quorum
for the transaction of business at the Special Meeting. The affirmative vote of
a majority of the shares of Capital Stock present, in person or by proxy, and
entitled to vote is required to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger and the issuance of
shares of Common Stock to the Selling Shareholders. If such approval is
received, the closing of the Merger is expected to occur as soon as practicable
following the Special Meeting (the "Closing Date"). The Merger will become
effective upon the filing of an agreement of merger, together with any required
related certificates (together the "Certificates of Merger"), with the
Secretaries of State of the State of Alabama and the State of Delaware (the
"Effective Time"). See "The Special Meeting--Required Vote."
VOTING OF PROXIES. All shares of Capital Stock represented by a
properly executed proxy received in time for the Special Meeting will be voted
in the manner specified in the proxy. Proxies that do not contain any
instruction to vote for or against or to abstain from voting on a particular
matter will be voted in accordance with the recommendations of the Board. See
"The Special Meeting--Voting and Revocation of Proxies."
ADJOURNMENTS; REVOCABILITY OF PROXIES. If the Special Meeting is
adjourned, for whatever reason, the approval of the Merger Agreement shall be
considered and voted upon by the Stockholders at the subsequent, reconvened
meeting, if any.
You may revoke your proxy at any time prior to its exercise by (i)
attending and voting in person at the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
revocation of a proxy), (ii) giving notice of revocation of your proxy at the
Special Meeting or (iii) delivering to the Secretary of the Company (A) a
written notice of revocation or (B) a duly executed proxy relating to the same
shares and matters to be considered at the Special Meeting, bearing a date later
than the proxy previously executed. Attendance at the Special Meeting will not
in and of itself constitute a revocation of proxy. All written notices of
revocation and other communications with respect to revocation of proxies should
be sent to the Company's
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<PAGE>
Secretary at the Company's corporate offices at the address listed above, and
must be received before the taking of the votes at the Special Meeting. Unless
revoked in one of the manners set forth above, proxies will be voted at the
Special Meeting as described above. See "The Special Meeting--Voting and
Revocation of Proxies."
SOLICITATION OF PROXIES. The Company will bear the cost of the
solicitation of proxies and the cost of printing and mailing this Proxy
Statement. In addition to solicitation by mail, the directors, officers and
employees of the Company may solicit proxies from the Stockholders by telephone,
telegram or personal interview. Such directors, officers and employees will not
be additionally compensated for any such solicitation but may be reimbursed for
reasonable out-of-pocket expenses in connection therewith. Arrangements will
also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial owners
of shares held of record by such persons, and the Company will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in connection therewith. ChaseMellon Shareholder Services LLC will assist in the
solicitation of proxies by the Company for an estimated fee of $5,500 plus
reasonable out-of-pocket expenses. See "The Special Meeting--Solicitation of
Proxies." If you have any questions or require additional material, please call
James W. Dorst, the Company's Chief Financial Officer, at (408) 379-0177.
OTHER MATTERS. Management of the Company ("Management") knows of no
business that will be presented for consideration at the Special Meeting other
than as stated in the Notice of Special Meeting. If, however, other matters are
properly brought before the Special Meeting, it is the intention of the persons
named in the accompanying form of proxy to vote the shares represented thereby
on such matters in accordance with their best judgment. See "The Special
Meeting--Other Matters."
For additional information relating to the Special Meeting, see "The
Special Meeting."
THE MERGER
PARTIES TO THE MERGER.
SAVOIR TECHNOLOGY GROUP, INC. The Company is a value-added distributor
and reseller of commercial mid-range computer systems (file servers and
workstations), peripheral equipment and a full range of storage products and
software. The Company also integrates and configures personal computers,
workstations and servers, as well as provides and remarkets installation and
technical support services. The Company has its headquarters in Northern
California's "Silicon Valley," and serves the entire United States with three
distribution and integration centers and eight sales offices. The Company was
incorporated in California in 1975, and changed its state of incorporation to
Delaware in August 1997. Previously known as Western Micro Technology, Inc., the
Company changed its name to Savoir Technology Group, Inc. in November 1997. The
Company's principal executive office is located at 254 East Hacienda Avenue,
Campbell, California 95008, and its telephone number is (408) 379-0177.
See "The Companies--Savoir Technology Group, Inc."
STG ACQUISITION CORP. Acquisition Sub is a Delaware corporation formed
solely for the purpose of engaging in the transactions contemplated by the
Merger Agreement and has conducted its operations as contemplated thereby.
Acquisition Sub maintains its principal executive office at 254 East Hacienda
Avenue, Campbell, California 95008, and its telephone number is (408) 379-0177.
See "The Companies--STG Acquisition Corp."
MCBA SYSTEMS, INC. MCBA is a value-added distributor and reseller of
commercial mid-range computer systems and software of International Business
Machines Corporation ("IBM"). MCBA also provides network configuration and
technical support services to its customers. The IBM hardware that MCBA
distributes includes the RS/6000, the AS/400, Networking, and the S/390. MCBA is
one of only four distributors nationwide that IBM permits to sell the S/390.
MCBA is a privately held corporation incorporated in 1992 pursuant to the laws
of
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<PAGE>
Alabama. MCBA's executive offices are located at 4955 Corporate Drive, Suite
300, Huntsville, Alabama 35805, and its telephone number is (205) 890-2000. See
"The Companies--MCBA Systems, Inc."
EFFECT OF THE MERGER. At the Effective Time, Acquisition Sub will be
merged with and into MCBA, and MCBA will continue as the surviving corporation
and a wholly owned subsidiary of the Company, the separate corporate existence
of Acquisition Sub will terminate and the Selling Shareholders will receive
shares of Common Stock. Each share of MCBA common stock issued and outstanding
or deemed to be outstanding by virtue of any security that is convertible into,
exercisable or exchangeable for any capital stock of MCBA (the "MCBA Shares")
will be converted automatically into that number of newly issued shares of
Common Stock equal to an aggregate of up to 900,000 divided by the number of
issued and outstanding MCBA Shares. Such number of shares will be reduced by
that number of shares of Common Stock equal to the unpaid balance of principal
and interest pursuant to the Promissory Note (the "Promissory Note"), dated
March 31, 1998, issued by MCBA to the Company in the aggregate principal amount
of $480,000 and accruing interest at 8.5% per annum. See "The Merger--Merger
Consideration" and "--Effect of the Merger."
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD. The Board, at a
meeting duly called and held, has (i) determined that the Merger Agreement is
fair to and in the best interests of the Company and the Stockholders and (ii)
unanimously recommended that the Stockholders approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger and
the issuance of shares of Common Stock to the Selling Shareholders. The reasons
for the Merger and recommendation of the Board with respect to the Merger was
based on a number of factors, including, among other things: (i) MCBA's
strengths and capabilities, including its status as one of only four
distributors in the United States authorized to resell IBM's S/390(R) mainframe
systems, its status as an IBM Premier Business Partner for the past two years
and the experience of its technical staff; (ii) MCBA's geographic location in
the Southeast United States and the need for the Company to have a complete
national geographic presence to fully serve its customers; (iii) the terms of
the Merger Agreement and the forms of related agreements; (iv) the opinion of
Alliant Partners dated as of November 22, 1997 that, based on and subject to the
matters stated therein, the consideration proposed to be paid by the Company to
the Selling Shareholders pursuant to the Merger Agreement was fair to the
Company and the Stockholders; (v) current industry, economic and market
conditions and trends, the Company's need to expand both internally and through
acquisitions in order to remain competitive in an industry that is undergoing
rapid consolidation, and the business and prospects of the merged Company and
MCBA; (vi) IBM's preference and favorable pricing arrangements to do business
with large business partners; (vii) other potential complementary strengths and
synergistic benefits of the merged companies and (viii) the historical trading
prices and trading activity of the Common Stock and the potential for increased
financial performance as a result of the Merger beyond what the Company could
achieve on a stand-alone basis. See "The Merger--Background of the Merger" and
"--Reasons for the Merger; Recommendation of the Board."
MERGER CONSIDERATION. Pursuant to the Merger Agreement, the Selling
Shareholders will receive up to an aggregate of up to 900,000 shares of Common
Stock in exchange for the MCBA Shares. Such number of shares will be reduced by
that number of shares of Common Stock equal to the unpaid balance of principal
and interest pursuant to that certain Promissory Note. In addition, the Selling
Shareholders will have the right to receive up to an aggregate of 1,500,000
additional shares of Common Stock as Earn-Out Payments to be paid in the first
quarters of 1999 and 2000 if MCBA continues to meet certain profit-based
benchmarks. See "The Merger--Merger Consideration."
EARN-OUT PAYMENTS. As a result of the Merger and in addition to the
aggregate of up to 900,000 shares of Common Stock to be received as initial
consideration, the Selling Shareholders will have the right to receive up to an
aggregate of 1,500,000 additional shares of Common Stock as Earn-Out Payments to
be paid in the first quarters of 1999 and 2000 if MCBA continues to meet certain
profit-based benchmarks. The Earn-Out Payments will be based on the excess of
MCBA Net Pretax Profit over $1,800,000. The Earn-Out Payments will be paid in
Common Stock in equal portions to each of the Selling Shareholders. The Common
Stock issued as Earn-Out Payments will be disbursed first from the Earn-Out
Escrow (defined herein), and any remaining shares will be
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<PAGE>
newly issued shares of Common Stock. The Company will also have the right of
set-off against the Earn-Out Payments for any claims for indemnification,
uncollected accounts receivable or unsold inventory against MCBA or the Selling
Shareholders. See "Certain Provisions of the Merger Agreement--Earn-Out
Payments."
ACCOUNTING TREATMENT. The Merger will be accounted for by the Company
as a purchase of MCBA for financial accounting purposes in accordance with
generally accepted accounting principles. See "The Merger--Accounting
Treatment."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. Although the
Merger is intended to qualify as a tax-free reorganization under the Internal
Revenue Code (the "Code"), for federal income tax purposes, none of the Company,
Acquisition Sub or MCBA will recognize gain or loss as a result of the Merger,
irrespective of whether the Merger does in fact so qualify. See "The
Merger--Certain United States Federal Income Tax Consequences."
OPINION OF THE COMPANY'S FINANCIAL ADVISOR. On November 22, 1997,
Alliant Partners delivered its opinion, which was subsequently confirmed in
writing (the "Alliant Partners Opinion"), to the Board to the effect that, as of
such date, and based upon the assumptions made, matters considered and limits of
review set forth in such opinion, the Merger Agreement and the transactions
contemplated thereby, including the Merger and the issuance of shares of Common
Stock to the Selling Shareholders, was fair to the Company and the Stockholders
from a financial point of view. A copy of the Alliant Partners Opinion, which
sets forth the assumptions made, matters considered and certain limitations on
the scope of review undertaken by Alliant Partners, is attached as Annex B to
this Proxy Statement. Stockholders are urged to read the Alliant Partners
Opinion in its entirety. See "The Merger--Opinion of the Company's Financial
Advisor."
CONDITIONS TO THE MERGER. The obligations of the parties to the Merger
Agreement to consummate the Merger are subject to various conditions, including,
without limitation, the absence of any injunction or other legal restraint or
prohibition preventing the consummation of the Merger. The obligation of the
Company to consummate the Merger is subject to various conditions, including,
without limitation, obtaining Stockholder approval of the Merger Agreement. See
"Certain Provisions of the Merger Agreement--Conditions to Obligations of the
Company, MCBA and the Selling Shareholders," "--Conditions to Obligations of the
Company" and "--Conditions to Obligations of MCBA and the Selling Shareholders."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. At the closing of the
Merger, the Selling Shareholders will beneficially own an aggregate of up to
900,000 shares of Common Stock. Such number of shares will be reduced by that
number of shares of Common Stock equal to the unpaid balance of principal and
interest pursuant to the Promissory Note. The Selling Shareholders will also
have voting rights with respect to an additional aggregate of 300,000 shares of
Common Stock to be placed in an escrow against the Earn-Out Payments (the
"Earn-Out Escrow"). At the close of business on the Record Date, the Company had
7,797,302 shares of Capital Stock issued and outstanding, consisting of
5,530,610 shares of Common Stock and 2,207,100 shares of Series A Preferred
Stock, equivalent to 2,266,692 shares of Common Stock on an as converted basis.
The Selling Shareholders will therefore own approximately 11.5% and have voting
rights with respect to approximately 15.4% of the outstanding Capital Stock at
the closing of the Merger. As a condition precedent to the Company's obligation
to close the Merger Agreement, Michael N. Gunnells, one of the Selling
Shareholders, will enter into an Employment Agreement with the Company.
Concurrent with the closing of the Merger Agreement, the Company and the Selling
Shareholders will enter into a Registration Rights Agreement pursuant to which
the Selling Shareholders may require the Company, subject to the terms and
conditions thereof, to register the shares of Common Stock received by them in
the Merger for sale in accordance with the Securities Act. See "The
Merger--Interests of Certain Persons in the Transaction."
TERMINATION OF THE MERGER AGREEMENT AND TERMINATION FEE. The Merger
Agreement may be terminated at any time by mutual agreement of the parties. The
Merger Agreement may also be terminated by either party if: (i) there is a
material breach of the Merger Agreement by the other party that has not been
cured or waived
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<PAGE>
prior to the closing date thereunder; (ii) the Merger has not been consummated
on or before June 5, 1998 through no fault of either party; (iii) if any of the
conditions to closing to such party's obligations under the Merger Agreement are
not satisfied or waived; or (iv) if any court or governmental entity of
competent jurisdiction will have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action will have become final and
nonappealable (provided that the right to terminate the merger Agreement
pursuant to this section will not be available to any party who has not used its
reasonable best efforts to cause such order to be lifted). In the event the
Merger Agreement is terminated by any party as a result of the breach of or
failure to satisfy a condition to closing under the Merger Agreement, with the
exception of the Stockholders' approval of the Merger Agreement, the party that
has failed to satisfy its conditions to closing will be required to pay the
other party a termination fee of $250,000 within two business days of such
termination. Among other things, the Company's inability to obtain the
Stockholders' approval of the Merger Agreement pursuant to this Proxy Statement
would result in the Company's obligation to pay the termination fee. The
termination fee will be the sole remedy of either party in the event of a
termination of the Merger Agreement. See "Certain Provisions of the Merger
Agreement--Termination and Termination Fee."
ADDITIONAL AGREEMENTS; REGISTRATION RIGHTS AGREEMENT; IRA AGREEMENT AND
EMPLOYMENT AGREEMENT. The Company, MCBA and the Selling Shareholders have made
certain additional agreements under the Merger Agreement. See "Certain
Provisions of the Merger Agreement--Additional Agreements." Concurrent with the
closing of the Merger Agreement, the Company and the Selling Shareholders will
enter into a Registration Rights Agreement pursuant to which the Selling
Shareholders may require the Company, subject to the terms and the conditions
thereof, to register under the Securities Act all or part of the Common Stock
received in connection with the Merger. See "Certain Provisions of the Merger
Agreement--Registration Rights Agreement." As a condition precedent to the
Company's obligation to close the Merger Agreement, the Company and Innovative
Business Systems, Inc., an Alabama corporation ("Innovative") will enter into an
IRA Agreement. See "Certain Provisions of the Merger Agreement--IRA Agreement."
As an additional condition precedent to the Company's obligation to close the
Merger Agreement, the Company and Mr. Gunnells will enter into an employment
agreement. See "Certain Provisions of the Merger Agreement--Employment
Agreement."
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<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The selected consolidated financial data as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997 have
been derived from, and should be read in conjunction with, the audited
consolidated financial statements of the Company and related notes thereto
incorporated herein by reference. These consolidated financial statements have
been audited by Coopers & Lybrand L.L.P., independent accountants, whose report
thereon is also incorporated herein by reference. The selected consolidated
financial data as of December 31, 1993, 1994 and 1995 and for each of the two
years in the period ended December 31, 1994 are derived from audited
consolidated financial statements of the Company not incorporated herein by
reference. See "Available Information," "Incorporation of Certain Documents by
Reference," and "Forward-Looking Statements."
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1994 1995 1996 1997
------------- -------------- ------------- ------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales..................................... $ 96,843 $ 119,285 $ 106,462 $ 131,697 $ 237,884
Selling, general and administrative expense... 16,373 16,958 13,703 13,716 25,969
Restructuring costs........................... 1,510 -- 3,600 -- --
Income (loss) from continuing operations...... (1,091) (1,002) (5,098) 2,338 3,310
Discontinued operations, net of tax........... 524 387 -- --
------------ ------------- ------------ ------------- --------------
Net income (loss)............................. $ (567) $ (615) $ (5,098) $ 2,338 $ 3,310
============ ============= ============ ============= ==============
Per share - diluted:
Income (loss) from continuing operations...... $ (0.31) $ (0.27) $ (1.36) $ 0.52 $ 0.55
Income from discontinued operations........... $ 0.15 $ 0.10 -- -- --
Net income (loss)............................. $ (0.16) $ (0.17) $ (1.36) $ 0.52 $ 0.55
Number of shares used in per share calculation 3,474 3,669 3,756 4,513 5,976
As of December 31,
1993 1994 1995 1996 1997
-------------- -------------- ------------- ------------- -------------
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................... $ 12,021 $ 12,334 $ 7,312 $ 7,448 $ 6,454
Net trade accounts receivable................. 13,365 15,170 14,258 25,943 76,664
Inventories................................... 17,467 18,959 15,251 26,142 36,841
Total assets.................................. 34,975 37,898 35,899 63,276 186,888
Long-term debt, less current portion.......... 52 65 117 53 22,330
Stockholders' equity.......................... 13,976 14,424 11,004 15,714 47,080
</TABLE>
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF MCBA
The selected historical financial data of MCBA for each of the four years as
of and in the period ended December 31, 1996 have been derived from the
unaudited financial statements of MCBA which, in the opinion of MCBA's
management, include all adjustments, consisting only of normal, recurring
adjustments, necessary for the fair presentation of the financial condition and
the results of operations for the unaudited periods. The selected historical
financial data of MCBA as of and in the period ended December 31, 1997 have been
derived from the audited financial statements of MCBA. The audited financial
statements as of and for the period ended December 31, 1997 are attached hereto
as Annex C. The unaudited financial statements as of and for the periods ended
December 31, 1995 and 1996 are attached hereto as Annex D.
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1994 1995 1996 1997
------------- -------------- ------------- ------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (unaudited)
Net sales..................................... $ 653 $ 3,760 $ 11,920 $ 19,473 $ 26,879
Selling, general and administrative
expenses.................................... 147 450 1,229 1,711 3,110
------------- -------------- ------------- ------------- --------------
Net income.................................... $ 45 $ 379 $ 713 $ 486 $ 26
============= ============== ============= ============= ==============
Net income per share.......................... $ 45 $ 379 $ 713 $ 486 $ 26
Number of shares used in per share calculation 1 1 1 1 1
As of December 31,
1993 1994 1995 1996 1997
-------------- -------------- ------------- ------------- --------------
BALANCE SHEET DATA:
Working capital............................... $ (11) $ 25 $ 1,105 $ 205 $ 95
Trade accounts receivable..................... 51 181 2,313 3,267 4,554
Inventories................................... 0 0 788 0 0
Total assets.................................. 595 677 3,208 3,476 4,693
Shareholders' equity.......................... 134 513 189 207 100
</TABLE>
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<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA (UNAUDITED)
The selected unaudited pro forma consolidated financial information of the
Company (the "Selected Pro Forma Financial Information"), as adjusted to give
effect to the Merger and the acquisition of Star Management Services, Inc.
("SMS"), have been derived from, and should be read in conjunction with, the
unaudited pro forma consolidated financial information, including the notes
thereto, appearing elsewhere in this Proxy Statement. See "Unaudited Pro Forma
Consolidated Financial Data." The pro forma adjustments presented are based upon
available information and certain assumptions that Management believes are
reasonable under the circumstances. The Selected Pro Forma Consolidated
Financial Data gives effect to the Merger and the acquisition of SMS, each
accounted for as a purchase. The pro forma consolidated balance sheet data
presents the combined financial position of the Company (including SMS, acquired
September 30, 1997) and MCBA as of December 31, 1997 assuming that the Merger
had occurred as of December 31, 1997. Such pro forma information is based upon
the historical balance sheet data of the Company, MCBA and SMS as of that date.
The pro forma statement of income data for the years ended December 31, 1997
give effect to the Merger and acquisition of SMS as if it had occurred on
January 1, 1997. Such pro forma information is based upon the historical
statement of income data of the Company, MCBA and SMS as of such dates. The Pro
Forma Financial Information is qualified in its entirety by reference to, and
should be read in conjunction with, the consolidated financial statements of the
Company and related notes thereto, incorporated herein by reference, and the
audited financial statements of MCBA attached hereto as Annex C. The Pro Forma
Financial Information is provided for informational purposes only and does not
purport to be indicative of the results that would have actually been obtained
had the Merger been completed on the dates indicated or that may be expected to
occur in the future. See "Available Information," "Incorporation of Certain
Documents by Reference", "Selected Historical Consolidated Financial Data of the
Company", "Selected Historical Financial Data of MCBA" and "Forward-Looking
Statements."
<TABLE>
<CAPTION>
The Company, SMS
and MCBA Combined(1)
--------------------
Year Ended
December 31, 1997
--------------------
<S> <C>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA:
Net Sales............................................... $ 334,667
Cost of goods sold...................................... 289,911
--------------------
Gross profit............................................ 44,757
Selling, general and administrative expenses............ 37,359
--------------------
Operating income........................................ 7,398
Interest expense........................................ 6,321
Other income............................................ --
Income tax provision.................................... 431
--------------------
Net income.............................................. $ 646
====================
Net income per share.................................... $ .09
====================
Number of shares used in per share calculation.......... 7,336
====================
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $ 6,465
Total assets............................................ 200,907
Total stockholders' equity.............................. 56,422
Book value per share (2)................................ $ 6.59
- ----------
(1) On March 31, 1998 the Company loaned $480,000, to be used for general
working capital purposes, in exchange for the Promissory Note. MCBA
may elect to repay the Promissory Note in full prior to the Closing or
may offset the unpaid balance of principal and interest against the
initial consideration of 900,000 shares of Common Stock payable to the
Selling Shareholders. In the event that the entire unpaid balance
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<PAGE>
of the Promissory Note is offset against such initial consideration, the
Pro Forma Consolidated Statement of Income Data would show net income of
approximately $618,000, the number of shares used in the per share
calculation would be approximately 7,290 shares and net income per share
would be approximately $0.08 for the period presented. The Pro Forma
Consolidated Balance Sheet would show working capital of $5,958, total
assets would remain unchanged, stockholder's equity would be $55,942 and
book value per share would be $6.63.
(2) Computed by dividing pro forma consolidated stockholders' equity by the
number of outstanding shares of Common Stock, preferred stock as converted
and 900,000 shares of Common Stock to be issued in the transaction.
</TABLE>
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<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of the
Company and MCBA and combined per share data on an unaudited pro forma basis
after giving effect to the Merger on a purchase basis of accounting, assuming
that 900 shares of the Company's common stock are issued in exchange for one
share of MCBA common stock in the Merger. The Company did not pay any dividends
on its Common Stock in 1997. Because MCBA is a Subchapter S corporation, MCBA
made a distribution to shareholders of $133,169 in 1997. This data should be
read in conjunction with selected historical financial data, the unaudited pro
forma combined financial information, and the separate historical financial
statements of the Company and MCBA and notes thereto (which are included
elsewhere in or incorporated by reference in this Proxy Statement). The pro
forma combined financial data are not necessarily indicative of the operation
results that would have been achieved had the Merger been consummated as of the
beginning of the period presented and should not be construed as representative
of future operations.
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
HISTORICAL - THE COMPANY
Net income per share - diluted......................... $ 0.55
Book value per share(1)................................ 6.15
HISTORICAL - MCBA
Net income per share - diluted......................... 26.00
Book value per share(1)................................ 100.00
PRO FORMA COMBINED NET INCOME PER SHARE - DILUTED
Per Company share...................................... 0.09
Equivalent MCBA share(2)............................... 81.00
PRO FORMA COMBINED BOOK VALUE PER SHARE(3)
Per Company share...................................... 6.59
Equivalent MCBA share(2)............................... 5,932.00
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(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock and preferred stock, on an
as converted basis, outstanding at the end of the period.
(2) The MCBA equivalent pro forma combined per share amounts are calculated by
multiplying the combined pro forma per share amounts by the Exchange Ratio
of 900 shares of the Company for each share of MCBA Common Stock.
(3) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common
stock outstanding at the end of the period assuming the conversion of
preferred stock and issuance of 900,000 shares of Common Stock in the
transaction. On March 31, 1998 the Company loaned $480,000, to be used for
general working capital purposes, in exchange for the Promissory Note.
MCBA may elect to repay the Promissory Note in full prior to the Closing
or may offset the unpaid balance of principal and interest against the
initial consideration of 900,000 shares of Common Stock payable to the
Selling Shareholders. In the event that the entire unpaid balance of the
Promissory Note is offset against such initial consideration, the Pro
Forma Combined Book Value Per Company Share would be $6.63.
</TABLE>
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROXY STATEMENT, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER AND
THE ISSUANCE OF SHARES OF COMMON STOCK TO THE SELLING SHAREHOLDERS.
This Proxy Statement contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and
elsewhere in this Proxy Statement. See "Forward-Looking Statements."
RISKS RELATING TO RELIANCE ON THE OPINION OF THE COMPANY'S FINANCIAL
ADVISOR; DETERIORATION IN MCBA'S FINANCIAL PERFORMANCE. In rendering its
opinion, Alliant Partners relied upon unaudited financial data of MCBA for the
twelve months ended October 31, 1997, which was the only financial data of MCBA
available at the time the opinion was rendered. For the twelve months ended
October 31, 1997, MCBA's earnings were $1.050 million (reflecting a tax rate as
if MCBA were taxed as a "C" corporation) and earnings before interest and taxes
("EBIT") were $1.795 million. As reflected in MCBA's audited financial data as
of and for the year ended December 31, 1997, attached hereto as Annex C, the
financial performance of MCBA materially deteriorated in the last two months of
1997. Based on such audited financial data, MCBA's earnings were approximately
$15,209 (reflecting a tax rate as if MCBA were taxed as a "C" corporation) and
EBIT was $26,001. As a result of such significant change in MCBA's financial
performance since the rendering of the opinion of Alliant Partners, Stockholders
should not place undue reliance on such opinion or the description of the
opinion of the Company's Financial Advisor set forth in this Proxy Statement,
including, but not limited to, the comparable and transaction analyses. There
can be no assurance that, had the opinion been based on the December 31, 1997
financial data of MCBA, the financial analyses performed by Alliant Partners in
rendering the opinion would have substantiated the fairness, from a financial
point of view, of the Merger. See "The Merger--Opinion of the Company's
Financial Advisor" and "MCBA Management's Discussion and Analysis of Financial
Condition and Results of Operations."
INTEGRATION RISKS RELATING TO THE MERGER. In the event the Merger is
completed, the Company's ability to achieve the anticipated benefits thereof
will depend in part upon whether the integration of the businesses of the
Company and MCBA is accomplished in an efficient and effective manner. The
combination of the two businesses will require, among other things, integration
of the Company's and MCBA's respective management and sales personnel,
coordination of their sales and marketing efforts, conversion of MCBA's computer
system (including inventory, order entry and financial reporting) to the
Company's system, and integration of the businesses' products and physical
facilities. The difficulties of such integration may be increased by the
necessity of coordinating geographically separated organizations. The
integration of certain operations following the acquisition of MCBA will require
the dedication of management resources that may temporarily distract attention
from the day-to-day business of the Company after the acquisition of MCBA. The
inability of Management to integrate the operations of the two businesses
successfully could have a material adverse effect on the business and the
results of operations of the Company. In addition, as commonly occurs with
mergers and acquisitions of companies in the technology sector, during the
pre-acquisition and integration phases, aggressive competitors may undertake
formal initiatives to attract customers and to recruit key employees through
various incentives. There can be no assurance that the announcement of the
acquisition of MCBA or the consummation thereof will not materially adversely
affect the selling and buying patterns of manufacturers and present and
potential customers of the Company and MCBA.
DILUTION OF THE STOCKHOLDERS. At the closing of the Merger, the Selling
Shareholders will receive up to an aggregate of 900,000 shares of newly issued
shares of Common Stock. Such number of shares will be reduced by that number of
shares of Common Stock equal to the unpaid balance of principal and interest
pursuant to the Promissory Note. In addition, the Selling Shareholders will have
the right to receive up to an aggregate of 1,500,000 additional newly issued
shares of Common Stock as Earn-Out Payments to be paid in the first quarters of
1999 and 2000 if MCBA continues to meet certain profit-based benchmarks. See
"Certain Provisions of the Merger Agreement--Earn-Out Payments." As a result of
the Merger the Company may issue up to 2,400,000 newly issued shares of Common
Stock.
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CONTROL OF THE COMPANY BY THE SELLING SHAREHOLDERS. At the closing of
the Merger, the Selling Shareholders will beneficially own up to an aggregate of
900,000 shares of Common Stock. Such number of shares will be reduced by that
number of shares of Common Stock equal to the unpaid balance of principal and
interest pursuant to the Promissory Note. The Selling Shareholders will also
have voting rights with respect to an additional aggregate of 300,000 shares of
Common Stock to be placed in the Earn-Out Escrow. At the close of business on
the Record Date, the Company had 7,797,302 shares of Capital Stock issued and
outstanding, consisting of 5,530,610 shares of Common Stock and 2,207,100 shares
of Series A Preferred Stock, equivalent to 2,266,692 shares of Common Stock on
an as converted basis. The Selling Shareholders will therefore own approximately
11.5% and have voting rights with respect to approximately 15.4% of the
outstanding Capital Stock at the closing of the Merger. In addition, the Selling
Shareholders will have the right to receive up to an aggregate of 1,500,000
additional shares of Common Stock as Earn-Out Payments to be paid in the first
quarters of 1999 and 2000 if MCBA continues to meet certain profit-based
benchmarks. Therefore, as a result of the Merger, the Selling Shareholders have
the potential to control an aggregate of up to 2,400,000 shares of Capital
Stock. See "Certain Provisions of the Merger Agreement--Earn-Out Payments" and
"--Earn-Out Escrow."
CONDITIONS TO CLOSING. The respective obligations of the Company and
MCBA to consummate the Merger Agreement are subject to the satisfaction of
various conditions set forth in the Merger Agreement, including, among other
things: (i) the Company obtaining the consent of the Stockholders to the Merger
Agreement; (ii) the Company obtaining the consent of IBM Credit Corporation
("ICC"), Canpartners Investments IV, LLC and Robert Fleming Inc. to the Merger
Agreement; (iii) receipt of all applicable regulatory approvals; (iv) the
absence of any order prohibiting consummation of the Merger Agreement; (v) the
representations and warranties of the Company and MCBA set forth in the Merger
Agreement remaining true and correct in all material respects as of the Closing
Date; (vi) the Company and MCBA having performed in all material respects each
of their respective obligations required to be performed at or prior to the
Closing Date; and (vii) the satisfaction or waiver of certain additional
conditions. See "Certain Provisions of the Merger Agreement--Conditions to
Obligations of the Company, MCBA and the Selling Shareholders," "--Conditions to
Obligations of the Company" and "--Conditions to Obligations of MCBA and the
Selling Shareholders." There can be no assurance that the Company and MCBA will
be able to satisfy in a timely manner any of the other conditions precedent to
closing the Merger Agreement.
TERMINATION OF THE MERGER AGREEMENT AND TERMINATION FEES. The Merger
Agreement may be terminated at any time by mutual agreement of the parties. The
Merger Agreement may also be terminated by either party if: (i) there is a
material breach of the Merger Agreement by the other party that has not been
cured or waived prior to the closing date thereunder; (ii) the Merger has not
been consummated on or before June 5, 1998 through no fault of either party;
(iii) if any of the conditions to closing to such party's obligations under the
Merger Agreement are not satisfied or waived; or (iv) if any court or
governmental entity of competent jurisdiction will have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
will have become final and nonappealable (provided that the right to terminate
the merger Agreement pursuant to this section will not be available to any party
who has not used its reasonable best efforts to cause such order to be lifted).
See "Certain Provisions of the Merger Agreement--Conditions to Obligations of
the Company, MCBA and the Selling Shareholders," "--Conditions to Obligations of
the Company" and "--Conditions to Obligations of MCBA and the Selling
Shareholders."
In the event the Merger Agreement is terminated by any party as a
result of the breach of or failure to satisfy a condition to closing under the
Merger Agreement, with the exception of the consent of the Stockholders to the
Merger Agreement, the party that failed to satisfy its conditions to closing
will be required to pay the other party a termination fee of $250,000 within two
business days of such termination. Among other things, the Company's inability
to obtain the consent of the Stockholders to the Merger Agreement pursuant to
this Proxy Statement will result in the Company's obligation to pay such a
termination fee. The termination fee will be the sole remedy of either party in
the event of a termination. See "Certain Provisions of the Merger
Agreement--Termination and Termination Fee."
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THE COMPANIES
SAVOIR TECHNOLOGY GROUP, INC. The Company is a value-added distributor
and reseller of commercial mid-range computer systems (file servers and
workstations), peripheral equipment and a full range of storage products and
software. The Company also integrates and configures personal computers,
workstations and servers, as well as provides and remarkets installation and
technical support services. The Company has its headquarters in Northern
California's "Silicon Valley," and serves the entire United States with three
distribution and integration centers and eight sales offices. The Company was
incorporated in California in 1975 and changed its state of incorporation to
Delaware in August 1997. Previously known as Western Micro Technology, Inc., the
Company changed its name to Savoir Technology Group, Inc. in November 1997. The
Company's principal executive office is located at 254 East Hacienda Avenue,
Campbell, California 95008, and its telephone number is (408) 379-0177.
Management believes the Company is one of the top 10 resellers of all
IBM mid-range computer systems and one of the top four resellers of IBM's
RS/6000 mid-range computer systems. In 1996, the Company had over $44.4 million
in sales of IBM mid-range systems, $30.3 million of which were RS/6000 systems.
Since the divestiture of its components distribution business in July 1995, the
Company has focused upon expanding its mid-range distribution and reseller
business through a combination of acquisitions and internal growth. Whereas
sales revenues from the Company's systems business were $21.3 million for the
quarter ended September 30, 1995, revenues from this business were $37.8 million
for the quarter ended December 31, 1996.
The Company distributes a focused line of mid-range systems to
value-added resellers ("VARs"), industry remarketers ("IRs") and independent
software vendors ("ISVs") who incorporate commercial applications software and
sell an integrated computer system to end-user customers. Recognizing the
consolidation trend in the mid-range distribution industry, the Company
commenced its acquisition strategy in December 1994 with the acquisition of
First Computer Corporation ("FCC"). Over the past nine quarters, the Company has
completed five additional acquisitions. Through its acquisition of International
Data Products, LLC ("IDP") in November 1996, the Company initiated its own IR
business, buying IBM mid-range systems from IBM under a special program for
industry remarketers and reselling them directly to end-users. In addition, the
Company offers its personal computer and workstation customers a single source
for their hardware, software and service needs through its Computer and
Peripherals Group ("CPG"). The end-users of the Company's systems represent a
wide variety of industries including financial, instrumentation,
telecommunications, computer, industrial and consumer products. In 1996, the
Company had approximately 1,000 customers, none of which represented more than
7% of the Company's net sales.
STG ACQUISITION CORP. Acquisition Sub is a Delaware corporation formed
solely for the purpose of engaging in the transactions contemplated by the
Merger Agreement and has conducted its operations as contemplated thereby.
Acquisition Sub maintains its principal executive office at 254 East Hacienda
Avenue, Campbell, California 95008, and its telephone number is (408) 379-0177.
MCBA SYSTEMS, INC. MCBA is a value-added distributor and reseller of
commercial mid-range computer systems and software of IBM. MCBA also provides
network configuration and technical support services to its customers. The IBM
hardware that MCBA distributes includes the RS/6000, the AS/400, Networking and
the S/390. MCBA is one of only four distributors nationwide that IBM permits to
sell the S/390. MCBA's principal executive office is located at 4955 Corporate
Drive, Suite 300, Huntsville, Alabama 35805, and its telephone number is (205)
890-2000.
MCBA distributes IBM mid-range systems to over 150 VARs, IRs and ISVs
that incorporate commercial applications software and sell an integrated
computer system to small- and medium-sized end-user customers. The products MCBA
distributes are resold to customers in a wide variety of industries including
medical, distribution, manufacturing, telecommunications, agriculture, state and
local government, education and waste management. No single customer currently
accounts for more than 4% of MCBA's annual net sales.
MCBA focuses on selling and marketing a relatively small number of high
quality mid-range systems and integrated products. MCBA's sales and support
personnel advise and assist customers with respect to product
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selection and configuration. MCBA considers this advice and assistance to be an
integral part of its overall sales efforts. By providing a high level of
service, product knowledge and technical support, MCBA seeks to develop a
closer, longer-lasting and more profitable relationship with its customers.
MCBA's sales personnel include inside customer service representatives
assigned to each customer who receive orders, provide pricing information,
assist in technical support and assist in the total service to customers. These
sales representatives also make on-site calls to customers at least once a year.
MCBA employs a technical support staff to support customers with hardware and
software technical questions on all of the IBM platforms MCBA distributes. MCBA
also provides administrative assistance to customers including order entry,
leasing, pricing and ordering IBM services and billing.
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED. At the Special Meeting, the Stockholders will
be asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the proposed
merger of Acquisition Sub with and into MCBA and the issuance of shares of
Common Stock to the Selling Shareholders. The Merger Agreement provides that
Acquisition Sub will be merged with and into MCBA and MCBA, as the surviving
corporation in the Merger, will become a wholly owned subsidiary of the Company.
The Selling Shareholders will receive an aggregate of up to 900,000 shares of
Common Stock in exchange for the MCBA Shares. Such number of shares will be
reduced by that number of shares of Common Stock equal to the unpaid balance of
principal and interest pursuant to the Promissory Note. In addition, the Selling
Shareholders will have the right to receive up to an aggregate of 1,500,000
additional shares of Common Stock as Earn-Out Payments to be paid in the first
quarters of 1999 and 2000 if MCBA continues to meet certain profit-based
benchmarks. See "The Merger--Merger Consideration" and "Certain Provisions of
the Merger Agreement--Earn-Out Payments."
The Board, after careful consideration, has unanimously approved the
Merger Agreement and the transactions contemplated thereby and determined that
the Merger is fair and in the best interests of the Company and the
Stockholders. The Board unanimously recommends that you vote FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby,
including the Merger and the issuance of shares of Common Stock to the Selling
Shareholders. In reaching its determination, the Board considered, among other
things, the opinion of Alliant Partners as to the fairness of the consideration
to be paid to the Selling Shareholders, including the Earn-Out Payments, from a
financial point of view. For further information, see "The Merger--Background of
the Merger" and "--Reasons for the Merger; Recommendation of the Board." A copy
of the Alliant Partners Opinion is attached as Annex B. You are urged to read
the Alliant Partners Opinion in its entirety for further information with
respect to the assumptions made, matters considered and limits of the reviews
undertaken by Alliant Partners.
REQUIRED VOTE. Although the General Corporation Law of the State of
Delaware and the certificate of incorporation and bylaws of the Company do not
require the Company to obtain Stockholder approval of the Merger Agreement, the
rules of The Nasdaq Stock Market require the Company to obtain Stockholder
approval of the issuance of such shares due to the number of authorized but
unissued shares of Common Stock potentially issued pursuant to the Merger
Agreement. The presence, in person or by proxy, of a majority of the shares of
Capital Stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the Special Meeting. The affirmative vote of a
majority of the shares of Capital Stock present, in person or by proxy and
entitled to vote is required to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger and the issuance of
shares of Common Stock to the Selling Shareholders.
VOTING AND REVOCATION OF PROXIES. Shares of Capital Stock that are
entitled to vote and are represented by a proxy properly signed and received at
or prior to the Special Meeting, unless subsequently properly revoked, will be
voted in accordance with the instructions indicated thereon. If a proxy is
signed and returned without indicating any voting instructions, shares of
Capital Stock represented by such proxy will be voted FOR the proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger and the issuance of shares of Common Stock to the
Selling Shareholders.
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You may revoke your proxy at any time prior to its exercise by (i)
attending and voting in person at the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
revocation of a proxy), (ii) giving notice of revocation of your proxy at the
Special Meeting or (iii) delivering to the Secretary of the Company (A) a
written notice of revocation or (B) a duly executed proxy relating to the same
shares and matters to be considered at the Special Meeting, bearing a date later
than the proxy previously executed. Attendance at the Special Meeting will not
in and of itself constitute a revocation of proxy. All written notices of
revocation and other communications with respect to revocation of proxies should
be sent to the Company's Secretary at the Company's corporate offices at the
address listed above, and must be received before the taking of the votes at the
Special Meeting. Unless revoked in one of the manners set forth above, proxies
will be voted at the Special Meeting as described above.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM. Only holders of Capital
Stock at the close of business on April 6, 1998 will be entitled to receive
notice of and to vote at the Special Meeting. At the close of business on the
Record Date, the Company had 7,797,302 shares of Capital Stock issued and
outstanding, consisting of 5,530,610 shares of Common Stock and 2,207,100 shares
of Series A Preferred Stock, equivalent to 2,266,692 shares of Common Stock on
an as converted basis. Each share of Capital Stock is entitled to one vote, and,
for purposes of the Special Meeting, the shares of Common Stock and of Series A
Preferred Stock will vote as a single class. The presence, in person or by
proxy, of a majority of the shares of Capital Stock entitled to vote is
necessary to constitute a quorum for the transaction of business at the Special
Meeting. Votes cast by proxy or in person at the Special Meeting will be
tabulated by the judges of election appointed for the Special Meeting who will
also determine whether or not a quorum is present. The affirmative vote of a
majority of the shares of Capital Stock present, in person or by proxy, and
entitled to vote is required to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger and the issuance of
shares of Common Stock to the Selling Shareholders. Because abstentions will be
counted as present for the purpose of determining whether a quorum is present
but will not be counted as votes cast in favor of the Merger, abstentions have
the same effect as negative votes. Broker non-votes and shares as to which proxy
authority has been withheld with respect to any matter are not deemed to be
present or represented for purposes of determining whether Stockholder approval
of that matter has been obtained. Proxies relating to "street name" shares that
are voted by brokers will be counted as shares of Capital Stock present for
purposes of determining the presence of a quorum on all matters, but will not be
treated as shares having voted at the Special Meeting as to any proposal as to
which authority to vote is withheld by the broker.
SOLICITATION OF PROXIES. The Company will bear the cost of the
solicitation of proxies and of printing and mailing this Proxy Statement. In
addition to solicitation by mail, the directors, officers and employees of the
Company may solicit proxies from Stockholders by telephone, telegram or personal
interview. Such directors, officers and employees will not be additionally
compensated for any such solicitation but may be reimbursed for reasonable
out-of-pocket expenses in connection therewith. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of shares held of
record by such persons, and the Company will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection
therewith. ChaseMellon Shareholder Services LLC will assist in the solicitation
of proxies by the Company for an estimated fee of $5,500 plus reasonable
out-of-pocket expenses.
If you have any questions or require additional material, please
contact James W. Dorst, the Company's Chief Financial Officer, at (408)
379-0177.
OTHER MATTERS. Management knows of no business that will be presented
for consideration at the Special Meeting other than as stated in the Notice of
Meeting. If, however, other matters are properly brought before the Special
Meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
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THE MERGER
BACKGROUND OF THE MERGER. Beginning in 1995, Management and the Board
recognized the increasing consolidation in the information technologies industry
and began to plan and undertake a number of strategic acquisitions. As a result,
Management first contacted the Selling Shareholders in June 1997 to discuss the
potential benefits of a business combination between the Company and MCBA.
Subsequent to these initial conversations, on June 8, 1997, Management
contacted Alliant Partners, the Company's financial advisor, to request that
Alliant Partners begin to research the possible benefits of a business
combination between the Company and MCBA. On June 11, 1997, Alliant Partners
began a review of MCBA's financial information and, later in the month of June,
conducted a series of discussion about potential structures of such a business
combination with Management and the Selling Shareholders.
During the weeks of July 7 and July 14, 1997, Management, the Selling
Shareholders and Alliant Partners began to negotiate the specifics of a merger
transaction between the Company and MCBA. The initial negotiations resulted in
the basic structure of the merger transaction. The initial consideration to the
Selling Shareholders was to be approximately $9 million, payable in Common Stock
with earn-out payments payable in Common Stock, or cash at the option of the
Company, to be based on pretax earnings in excess of $1.8 million to be paid in
the first quarters of 1999 and 2000.
On July 16, 1997, Management outlined these terms in an Outline of
Proposed Terms of the Merger. On July 21, 1997, Management and the Selling
Shareholders indicated their agreement to the Outline of Proposed Terms of the
Merger. However, they also agreed to delay further negotiations towards the
signing of the agreement until the Company had completed its merger with SMS,
due to constraints on the availability of Management and other officers and
representatives of the Company.
On September 19, 1997, the Company sent a first draft of an Agreement
and Plan of Reorganization to MCBA and the Selling Shareholders. After the
closing of the merger with SMS on September 30, 1997, the Company and the
Selling Shareholders resumed negotiation of the specific terms of the Merger
Agreement.
On October 31, 1997, Management reported the status of the negotiations
of the Merger to the Board at the regularly scheduled meeting of the Board.
Alliant Partners also presented a preliminary financial review of MCBA and of
the financial effect of the Merger on the Company. The Board concluded that the
Company should continue negotiations towards the completion of the Merger and
noted that its consummation would require the approval of the Stockholders.
On November 7, 1997, at a special telephonic meeting of the Board,
Management updated the Board on the current state of the negotiations of the
Merger. Management explained that the Company had negotiated a reverse
triangular merger with a purchase price consisting of shares of Common Stock as
initial consideration with additional Earn-Out Payments to be paid in shares of
Common Stock over the following two years based on MCBA meeting certain
profit-based benchmarks. Alliant Partners presented their oral opinion that the
transaction as contemplated was fair to the Company and the Stockholders. The
Board expressed its interest in providing a limit on the amount of Common Stock
that could be earned by the Selling Shareholders as Earn-Out Payments and
unanimously approved the Merger subject to the addition of such a limitation and
the completion of additional legal due diligence.
On November 11, 1997, at a special telephonic meeting of the Board,
Management updated the Board on the current state of the Merger negotiations.
Management explained that, as a result of further negotiations with MCBA, they
had obtained a limitation on the Earn-Out Payments of 1,500,000 shares of Common
Stock and initial consideration in the amount of 900,000 shares of Common Stock.
Alliant Partners again presented orally their opinion that the transaction as
contemplated was fair to the Company and the Stockholders. The Board unanimously
approved the signing of the Merger Agreement, subject to the completion of
further legal due diligence and the receipt of a written fairness opinion from
Alliant Partners.
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On November 22, 1997, the Company completed all legal due diligence and
substantially all financial due diligence and received the final written
fairness opinion from Alliant Partners. The Company, MCBA and the Selling
Shareholders thereafter signed the Merger Agreement on that date.
On March 27, 1998, the Company, MCBA, the Selling Shareholders and
Acquisition Sub entered into a First Amendment to Agreement and Plan of
Reorganization and MCBA issued the Promissory Note to the Company. Among other
things, the First Amendment: extended the date after which the Merger Agreement
may be terminated by either the Company, MCBA or the Selling Shareholders if the
Merger has not been consummated to May 15, 1998 and otherwise extended the dates
of certain other post-closing covenants consistent with such a Closing Date;
provided for the inclusion of Acquisition Sub as a party to the Merger
Agreement; and provided that the initial consideration of 900,000 shares of
Common Stock payable to the Selling Shareholders would be reduced by that number
of shares of Common Stock equal to the unpaid balance of principal and interest
pursuant to the Promissory Note.
On April 23, 1998, the Company, MCBA, the Selling Shareholders and
Acquisition Sub entered into a Second Amendment to Agreement and Plan of
Reorganization to extend the date after which the Merger Agreement may be
terminated by either the Company, MCBA or the Selling Shareholders if the Merger
has not been consummated to June 5.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD. The Board, after
careful consideration, has unanimously approved the Merger Agreement and the
Merger, determined that the Merger is fair and in the best interests of the
Company and the Stockholders and unanimously recommends that you vote FOR
approval and adoption of the Merger Agreement and the transactions contemplated
thereby, including the Merger and the issuance of shares of Common Stock to the
Selling Shareholders. In reaching its determination, the Board considered, among
other things, the opinion of Alliant Partners as to the fairness of the
consideration to be paid to the Selling Shareholders, including the Earn-Out
Payments, from a financial point of view. See "--Background of the Merger" and
"--Opinion of the Company's Financial Advisor."
In reaching its determination, the Board consulted with the Company's
legal and financial advisors and considered a number of factors, including,
among others things, the following principal factors which were material to the
decision of the Board:
1. MCBA's strengths and capabilities such as: (a) MCBA's status as one
of only four distributors in the United States authorized to resell IBM's
S/390(R) mainframe systems and the need for the Company to be able to provide
its customers with a full range of mid-range and mainframe systems, (b) MCBA's
status as an IBM Premier Business Partner for the past two years, an IBM BESTeam
Premier Member and a Lotus Business Partner offering comprehensive
hardware/software systems solutions and consulting services and (c) MCBA's
status as having a technical staff with an average of 20 years' experience in
IBM mid-range products.
2. MCBA's geographic location in the Southeast United States and the
need for the Company to have a complete national geographic presence to fully
serve its customers.
3. The terms of the Merger Agreement and the forms of related
agreements attached as exhibits thereto.
4. The opinion of Alliant Partners dated as of November 22, 1997 that,
based on and subject to the matters stated therein, the consideration proposed
to be paid by the Company to the Selling Shareholders pursuant to the Merger
Agreement was fair to the Company and the Stockholders.
5. The current industry, economic and market conditions and trends, the
Company's need to expand both internally and through strategic acquisitions in
order to remain competitive in an industry that is undergoing rapid
consolidation, and the business, operations, properties, assets, financial
conditions, operating results and prospects of the merged Company and MCBA.
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6. IBM's preference and favorable pricing arrangements to do business
with large business partners.
7. The potential for complementary strengths in customer support,
technical services and marketing services and the potential for synergistic
benefits, including sales penetration, national presence, integration of
regional marketing efforts and operating efficiencies generated by purchasing
leverage, complementary distribution points and processes and management
resources.
8. The historical trading prices and trading activity of the Common
Stock and the potential for growth in revenues and resulting financial
performance as a result of the Merger beyond what the Company could achieve on a
stand-alone basis.
The foregoing discussion of the information and factors considered by
the Board is not intended to be exhaustive but is believed to include all
material factors considered by the Board. In view of the variety of factors
considered in connection with its evaluation of the Merger Agreement, the Board
did not find it practical to, and did not, quantify or otherwise attempt to
assign relative weight to the specific factors considered in reaching its
determination. In addition, individual members of the Board may have given
different weights to different factors. In the course of its deliberations, the
Board did not establish a range of values for MCBA; however, based on the
factors outlined above, the range of values for MCBA presented to the Board by
Alliant Partners and on the presentation and opinion of Alliant Partners, the
Board determined that the Merger Agreement and the transactions contemplated
thereby, including the Merger and the issuance of shares to the selling
Shareholders, are fair to, and in the best interests of, the Company and the
Stockholders.
MCBA'S REASONS FOR THE MERGER; RECOMMENDATION OF MCBA BOARD OF
DIRECTORS. The MCBA Board of Directors ("MCBA Board") believes the Merger is in
the best interest of the MCBA shareholders and would allow the MCBA shareholders
to realize the objectives described below. In approving the Merger, the MCBA
Board considered that the Merger would provide the MCBA shareholders with a
public market for their ownership in MCBA. The MCBA Board also considered that
the Merger will allow the MCBA shareholders to retain an interest in MCBA by
becoming Stockholders. The MCBA Board also evaluated a number of factors,
including the terms and conditions of the Merger Agreement, the amount of Common
Stock offered by the Company, and the prospects of the Company on a historical
basis and of the Company and MCBA on a pro forma combined basis. The MCBA Board
determined that the Company submitted the most favorable offer of several that
were made to MCBA by other companies. After considering the foregoing factors,
the MCBA Board unanimously approved the Merger Agreement and the transactions
contemplated thereby.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR. The Company retained
Alliant Partners to deliver a financial opinion letter in connection with the
Merger. Alliant Partners was selected by the Board to provide a written opinion
based on Alliant Partners' qualifications, expertise and reputation, as well as
Alliant Partners' investment banking relationship and familiarity with the
Company.
THE FULL TEXT OF THE ALLIANT PARTNERS OPINION DATED NOVEMBER 22, 1997
WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY
ALLIANT PARTNERS IN RENDERING THE ALLIANT PARTNERS OPINION, IS ATTACHED AS ANNEX
B TO THIS PROXY STATEMENT. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
ALLIANT PARTNERS OPINION CAREFULLY AND IN ITS ENTIRETY.
STOCKHOLDERS ARE ALSO ADVISED THAT ALLIANT PARTNERS RELIED UPON
UNAUDITED FINANCIAL DATA OF MCBA FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1997 IN
RENDERING ITS OPINION, WHICH WAS THE ONLY FINANCIAL DATA OF MCBA AVAILABLE AT
THE TIME THE OPINION WAS RENDERED. AS REFLECTED IN MCBA'S AUDITED FINANCIAL DATA
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997, ATTACHED HERETO AS ANNEX C, THE
FINANCIAL PERFORMANCE OF MCBA MATERIALLY DETERIORATED IN THE LAST TWO MONTHS OF
1997. AS A RESULT OF SUCH SIGNIFICANT CHANGE IN MCBA'S FINANCIAL PERFORMANCE
SINCE THE RENDERING OF ALLIANT PARTNERS' OPINION, STOCKHOLDERS SHOULD NOT PLACE
UNDUE
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RELIANCE ON THE OPINION OF ALLIANT PARTNERS AND THE DESCRIPTION OF THE OPINION
OF THE COMPANY'S FINANCIAL ADVISOR SET FORTH IN THIS SECTION OF THE PROXY
STATEMENT, INCLUDING, BUT NOT LIMITED TO, THE COMPARABLE AND TRANSACTION
ANALYSES. SEE "RISK FACTORS--RISKS RELATING TO RELIANCE ON THE OPINION OF THE
COMPANY'S FINANCIAL ADVISOR; DETERIORATION IN MCBA'S FINANCIAL PERFORMANCE."
The Company engaged Alliant Partners to act as its financial advisor in
connection with the Merger and to render an opinion as to the fairness from a
financial point of view to the Company of the consideration to be paid by the
Company in connection with the Merger. In conjunction with its duties as
financial advisor to the Company, Alliant Partners recommended the structure of
the acquisition and the amount of consideration to be paid. On November 22,
1997, Alliant Partners rendered its oral opinion, subsequently confirmed in
writing, to the Board that, as of such date, the consideration to be paid by the
Company pursuant to the Agreement was fair to the Company from a financial point
of view. No limitations were placed on Alliant Partners by the Board with
respect to the investigation made or the procedures followed in preparing and
rendering its opinion.
In its review of the Merger, and in arriving at its opinion, Alliant
Partners, among other things: (i) reviewed the publicly available financial
statements of the Company for recent years and interim periods to date and
certain other relevant financial and operating data of the Company made
available to Alliant Partners from published sources; (ii) discussed with
certain members of Management, the business, financial condition and prospects
of the Company; (iii) reviewed certain relevant financial and operating data and
projections of the Company obtained by Alliant Partners from Management; (iv)
reviewed MCBA's company-prepared financial statements for recent years and
interim periods to date and certain other relevant financial and operating data
and projections of MCBA obtained by Alliant Partners from the management of
MCBA; (v) discussed with certain members of the management of MCBA the business,
financial condition and prospects of MCBA; (vi) analyzed the pro forma impact of
the Merger on the Company and MCBA; (vii) reviewed and discussed with Management
and the management of MCBA, the strategic rationale for, and the potential
benefits of, the Merger; (viii) reviewed the recent reported prices and trading
activity for the Company's Common Stock and compared such information and
certain financial information of the Company and MCBA with similar information
for certain other companies engaged in businesses Alliant Partners considered
comparable to those of the Company and MCBA; (ix) reviewed the financial terms,
to the extent publicly available, of certain comparable merger and acquisition
transactions; (x) reviewed the Agreement; (xi) discussed the tax and accounting
treatment of the Merger with the Company and the Company's legal counsel and
accountants; and (xii) performed such other analyses and examinations and
considered such other information, financial studies, analyses and
investigations, and financial, economic and market data as Alliant Partners
deemed relevant.
Alliant Partners did not independently verify any of the information
concerning the Company or MCBA considered in connection with their review of the
Merger and, for purposes of its opinion, Alliant Partners assumed and relied
upon the accuracy and completeness of all such information. In connection with
its opinion, Alliant Partners did not prepare or obtain any independent
evaluation or appraisal of any of the assets or liabilities of the Company or
MCBA. For purposes of their opinion, Alliant Partners assumed that the Merger
will qualify as a tax-free reorganization under the Code for the Selling
Shareholders and that the Merger will be accounted for by the Company as a
purchase transaction. Alliant Partners' opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of the opinion and any subsequent change in such
conditions would require a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description; however, the
summary of the Alliant Partners analyses set forth below describes in all
material respects the presentation by Alliant Partners to the Board. In arriving
at its opinion, Alliant Partners did not attribute any particular weight to any
analyses or factors considered by it, but rather made qualitative judgments as
to the significance and relevance of each analysis and factor. Accordingly,
Alliant Partners believes that its analyses and the summary set forth below must
be considered as a whole. Selecting portions of its analyses, without
considering all factors and analyses, could create an incomplete view of the
processes underlying the analyses set forth in the Alliant Partners presentation
to the Board and its opinion. In performing its analyses, Alliant Partners made
numerous assumptions with respect to industry performance, general business and
economic
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conditions and other matters, many of which are beyond the control of the
Company and MCBA. The analyses performed by Alliant Partners (and summarized
below) are not necessarily indicative of actual values or actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be acquired.
EARN-OUT PAYMENTS. Alliant Partners evaluated the Earn-Out Payments as
a component of its valuation of the transaction and did not ascribe value to
them at closing, but rather valued the Earn-Out Payments over time based on the
financial performance of MCBA over the duration of the Earn-Out Payment period.
To confirm that the Earn-Out Payments as a component of the total consideration
to be paid by the Company in connection with the Merger were fair from a
financial point of view, Alliant Partners simultaneously conducted valuation
analyses that took into account the Earn-Out Payments.
The Earn-Out Payments are based on a multiple of five times the dollar
value that the MCBA Net Pretax Profit Dollars exceeds $1,800,000 for the
immediately preceding year. There are two financial performance calculation
periods, corresponding to the fiscal years 1998 and 1999. The Earn-Out Payments
are to be paid in Common Stock, the value of which will be based on the average
closing price of the Common Stock as reported on the Nasdaq for the 10 trading
days up to, but excluding, the second trading day before December 30, 1998 and
December 30, 1999, as applicable. While there is no absolute cap on the total
dollar value of the Earn-Out Payments, the amount of Common Stock that may be
issued as a result of the Earn-Out Payments cannot exceed 1,500,000 shares of
Common Stock. The Earn-Out Payments are structured to weight the payments to the
1999 period, with payment for the 1998 period limited to 75% of the earned
amount and the payment for the 1999 period amounting to the carryover of 25%, if
any, and 100% of the amount due for 1999. See "Certain Provisions of the Merger
Agreement--Earn-Out Payments."
Based on analyses of projections prepared by MCBA and by adjustments to
such projections made by Alliant Partners, Alliant determined a potential dollar
value range of Earn-out Payments which totaled between zero and approximately
$19.5 million. Based on this range, and on a valuation of the initial
consideration of 900,000 shares of Common Stock of approximately $9.6 million
(based on the last sale price of Common Stock of $10.625, as reported on the
Nasdaq, as of November 21, 1997, the last trading day before the execution of
the Merger Agreement) the range of the total consideration to be paid to the
Selling Shareholders would be between $9.6 million and $29.1 million. However,
in determining whether the Earn-out Payments were fair from a financial point of
view, Alliant Partners considered, in each of the financial analyses set forth
below, whether the incremental contribution of earnings to the Company by the
financial performance of MCBA in a scenario where Earn-Out Payments were earned
would be sufficient to substantiate the additional consideration issued to the
Selling Shareholders, based on reasonable trading multiples for comparable
transactions.
The following is a brief summary of certain financial analyses
performed by Alliant Partners in connection with providing its written opinion
to the Board dated November 22, 1997:
PUBLIC MARKET COMPARABLES ANALYSIS. Alliant Partners reviewed and
compared selected historical and projected financial information of MCBA to
corresponding financial information and ratios of publicly traded companies that
Alliant Partners deemed to be comparable in many respects to MCBA. Such data and
ratios included market value, revenue, earnings before interest and taxes
("EBIT"), net earnings, market value to historical revenues and market value to
historical earnings. Companies used as comparables included selected (i) small
VARs and computer service companies including AlphaNet Solutions, BTG, En Pointe
Technologies, Manchester Equipment and Pomeroy Computer Resources; and (ii)
large VARs and computer service companies including Compucom, Inacom, MicroAge,
Tech Data and Vanstar. Alliant Partners determined that the average multiple of
EBIT for the last twelve months for the small VARs was 13.7X and for the large
VARs was 10.3X. Alliant Partners determined that the average multiple of
earnings for the small VARs was 24.4X and for large VARs was 22.8X. Alliant
Partners further determined that it was appropriate to use an average of the
range of multiples of EBIT for the small and large VARs equal to 12X and on an
average of the range of multiples of earnings for the small and large VARs of
23.6X. Based on the analysis of publicly traded comparable companies, MCBA's
implied equity value ranged from $21.5 million, based on an average multiple of
EBIT of 12X and EBIT for MCBA of
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$1.795 million for the last twelve months, to approximately $24.8 million, based
on an average multiple of earnings of 23.6X and earnings for MCBA of $1.050
million for the last twelve months (reflecting a tax rate as if MCBA were taxed
as a "C" corporation). This compared with an implied equity value of
approximately $9.5 million of MCBA in the Merger, based on the closing price of
the Company on November 22, 1997.
In the event that MCBA were to achieve the maximum projected Earn-Out
Payments of approximately $19.5 million described above, total consideration
could reach approximately $29.1 million. However, were MCBA to be valued based
on the pre-tax income it would have to achieve to realize the maximum projected
Earn-Out Payments, and assuming that valuation multiples otherwise remain
unchanged, MCBA's implied equity value would be between $49.3 million and $60.2
million.
RELATED INDUSTRY TRANSACTIONS. Alliant Partners compared the proposed
merger with selected comparable merger and acquisition transactions. This
analysis included over a dozen comparable public VAR and computer services
industry transactions including the acquisition of Milgray Electronics, Inc. by
Bell Industries, Inc., the acquisition of Micros-to-Mainframes, Inc. by BTG,
Inc. and the acquisition of AmeriData Technologies, Inc. by GE Capital. Such
analysis indicated that for the selected transactions (i) aggregate
consideration as a multiple of latest twelve month ("LTM") sales ranged from
0.02X to 0.53X, with an average of 0.25X, as compared to 0.38X for the
consideration paid in the Merger, (ii) aggregate consideration as a multiple of
LTM EBIT ranged from 5.4X to 16.0X, with an average of 7.2X, as compared to 4.7X
for the consideration paid in the Merger and (iii) aggregate consideration as a
multiple of LTM earnings ranged from 10.6X to 32.1X with an average of 14.8X, as
compared to 8.0X for the consideration paid in the Merger. Based on the analysis
of selected merger and acquisition transactions, MCBA's implied equity value
ranged from approximately $5.5 million to $15.5 million compared to the implied
equity value of approximately $9.5 million in the Merger.
In the event that MCBA were to achieve the maximum projected Earn-Out
Payments of approximately $19.5 million described above, total consideration
could reach approximately $29.1 million. However, were MCBA to be valued based
on the pre-tax income it would have to achieve to realize the maximum projected
Earn-Out Payments, and assuming that valuation multiples otherwise remain
unchanged, MCBA's implied equity value would be between $30.3 million and $37.0
million.
IPO TRANSACTIONS. Alliant Partners compared the proposed merger with
selected comparable initial public offerings ("IPOs") of companies in the VAR
and computer services industry. Selected transactions included the IPOs of
Allstar Systems, Manchester Equipment and XLConnect. Alliant Partners determined
that the average multiple of EBIT and earnings for the IPOs were 15.5X and
37.5X, respectively, and for large VARs the average multiple of EBIT and
earnings was 22.8X. Based on the analysis of IPOs of comparable companies,
MCBA's implied equity value ranged from $27.9 million to approximately $39.3
million, compared to the implied equity value of approximately $9.5 million of
MCBA in the Merger.
In the event that MCBA were to achieve the maximum projected Earn-Out
Payments of approximately $19.5 million described above, total consideration
could reach approximately $29.1 million. However, were MCBA to be valued based
on the pre-tax income it would have to achieve to realize the maximum projected
Earn-Out Payments, and assuming that valuation multiples otherwise remain
unchanged, MCBA's implied equity value would be between $71.6 million and $87.6
million.
CONTRIBUTION ANALYSIS. Alliant Partners analyzed the contribution of
each of the Company and MCBA to certain pro forma financial statement categories
of the Company and MCBA (the "Pro Forma Combined Company"), assuming no revenue
or expense adjustments to the combined companies, including revenue, gross
profit, operating income and adjusted net income (adjusting the pretax income of
MCBA, a Subchapter S Corporation, with the tax rate of the Company). This
contribution analysis was then compared to the respective pro forma ownership
percentages of the Company and the Selling Shareholders of the Pro Forma
Combined Company. Alliant Partners examined the expected contributions to the
Pro Forma Combined Company from the Company and MCBA for revenues, EBIT and net
income for fiscal years 1997, 1998 and 1999. Alliant Partners observed that the
Stockholders are expected to own approximately 90.1% of the equity of the Pro
Forma Combined Company at the close of the Merger, calculated on a fully diluted
basis, and that the Selling Shareholders are
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expected to own 9.9% of the equity of the Pro Forma Combined Company at the
close of the Merger. In fiscal 1997, assuming no revenue or expense adjustment
to the Pro Forma Combined Company, it was estimated that the Company and MCBA
would have contributed approximately 90% and 10%, respectively, of the combined
revenues; approximately 79% and 21%, respectively, of the combined EBIT; and 82%
and 18%, respectively, of the combined net income. In fiscal 1998, it was
estimated that the Company and MCBA would have contributed approximately 88% and
12%, respectively, of the combined revenues; approximately 76% and 24%,
respectively, of the combined EBIT; and 69% and 31%, respectively, of the
combined net income. In fiscal 1999, it was estimated that the Company and MCBA
would have contributed approximately 86% and 14%, respectively, of the combined
revenues; approximately 75% and 25%, respectively, of the combined EBIT; and 66%
and 34%, respectively, of the combined net income.
Alliant Partners, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, corporate restructurings, corporate
partnerings, strategic alliances and valuations for corporate or other purposes.
Alliant Partners is familiar with the Company, having acted as advisor of its
merger with SMS and seven other acquisitions completed by the Company in the
preceding three years. Alliant Partners received customary compensation in
connection with such transactions.
Pursuant to an engagement letter dated November 1, 1997, the Company
has agreed to pay Alliant Partners upon consummation of the Merger a transaction
fee equal to $125,000 in connection with its services as financial advisor to
the Company in connection with the Merger, including the rendering of a fairness
opinion. Such transaction fee is payable upon consummation of the Merger. The
Company has also agreed to reimburse Alliant Partners for its reasonable
out-of-pocket expenses and to indemnify Alliant Partners against certain
liabilities, including liabilities relating to or arising out of Alliant
Partners' engagement as financial advisor.
CERTAIN FINANCIAL FORECASTS. As part of their respective business
planning cycles, management of each of the Company and MCBA from time to time
have prepared financial forecasts regarding their respective anticipated future
operations. MCBA provided certain of such internal forecasts to the Company and
to Alliant Partners, the Company's financial advisors, in the course of
negotiating the proposed merger. The Company also provided certain of such
internal forecasts only to Alliant Partners to assist the Company in assessing
the fairness of the proposed merger. These internal projections included, among
other things, (i) for MCBA, forecasted fiscal 1998 gross revenue, operating
expenses and net profit before taxes of $56.6 million, $52.8 million and $3.7
million, respectively, and forecasted 1999 gross revenue, operating expenses and
net profit before taxes of $82.7 million, $77.8 million and $4.9 million,
respectively; and (ii) for the Company, forecasted fiscal 1998 net sales, total
cost of sales, total operating expenses and net income before taxes of $428.8
million, $374.8 million, $42.6 million and $5.9 million, respectively, and
forecasted fiscal 1999 net sales, total cost of sales, total operating expenses
and net income before taxes of $508.2 million, $445.9 million, $47.4 million and
$10.6 million, respectively .
These internal forecasts were not prepared with a view to public
disclosure or compliance with published guidelines of the Commission or the
guidelines established by the American Institute of Certified Public Accountants
regarding projections or forecasts. Further, independent accountants for the
Company and MCBA, respectively, have not examined, compiled or applied any
procedures to these internal forecasts in accordance with standards established
by the American Institute of Certified Public Accountants and express no opinion
or any assurance on their reasonableness or achievability. While presented with
numerical specificity, these internal forecasts are based upon significant
uncertainties and contingencies that are beyond the control of management of the
Company or MCBA, including the impact of economic conditions, the competitive
environment in which each operates and other factors. See "Forward-Looking
Statements." Accordingly, actual results may differ materially from those
forecasted. The inclusion of these internal forecasts herein should not be
regarded as a representation by the Company, MCBA or any other person that the
internal forecasts are or will prove to be correct. Neither the Company nor MCBA
intends to make publicly available any update or other revisions to any internal
forecast presented above to reflect circumstances existing after the respective
dates of such internal forecast's preparation.
MERGER CONSIDERATION. Pursuant to the Merger Agreement, the Selling
Shareholders will receive an aggregate of up to 900,000 shares of Common Stock
in exchange for the MCBA Shares. Such number of shares
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will be reduced by that number of shares of Common Stock equal to the unpaid
balance of principal and interest pursuant to the Promissory Note. In addition,
the Selling Shareholders will have the right to receive up to an aggregate of
1,500,000 additional shares of Common Stock as Earn-Out Payments to be paid in
the first quarters of 1999 and 2000 if MCBA continues to meet certain
profit-based benchmarks. See "Certain Provisions of the Merger
Agreement--Earn-Out Payments."
EFFECTIVE TIME OF THE MERGER. The Merger will become effective upon the
filing of the Certificates of Merger with the Secretaries of State of the State
of Alabama and the State of Delaware. The filing of the Certificates of Merger
will occur as soon as practicable on or after the satisfaction or waiver of the
conditions to closing of the Merger, including the approval of the Stockholders
at the Special Meeting. Subject to certain limitations, the Merger Agreement may
be terminated by either the Company, MCBA or the Selling Shareholders if, among
other reasons, the Merger has not been consummated on or before June 5, 1998.
See "Certain Provisions of the Merger Agreement--Conditions to Obligations of
the Company, MCBA and the Selling Shareholders," "--Conditions to Obligations of
the Company," "--Conditions to Obligations of MCBA and the Selling Shareholders"
and "--Termination and Termination Fee."
EFFECT OF THE MERGER. At the Effective Time, Acquisition Sub will be
merged with and into MCBA, and MCBA will continue as the surviving corporation
and a wholly owned subsidiary of the Company, the separate corporate existence
of Acquisition Sub will terminate and the Selling Shareholders will receive
shares of Common Stock. All of the assets, property, rights, privileges, powers
and franchises of MCBA and Acquisition Sub will rest in MCBA and all of the
debts/liabilities and duties of MCBA and Acquisition Sub will become the debts,
liabilities and duties of MCBA. Each of the MCBA Shares will be converted
automatically into that number of newly issued shares of Common Stock equal to
an aggregate of up to 900,000 divided by the MCBA Shares. There are currently
5,000 MCBA Shares, and pursuant to the Merger Agreement, MCBA is prohibited from
issuing any additional MCBA Shares or effecting any splits or reorganizations of
the MCBA Shares prior to the Effective Time. Therefore, it is anticipated that
at the Effective Time each of the MCBA Shares will be converted automatically
into up to 180 shares of Common Stock, for an aggregate of up to 900,000 shares
of Common Stock. Such number of shares will be reduced by that number of shares
of Common Stock equal to the unpaid balance of principal and interest pursuant
to the Promissory Note. Also at the Effective Time, the issued and outstanding
shares of capital stock of Acquisition Sub will be converted into and become
5,000 validly issued, fully paid and nonassessable shares of common stock of the
MCBA.
After the Effective Time, all the treasury stock of MCBA and of
Acquisition Sub will automatically be canceled. There will be no further
transfers of MCBA Shares on the stock transfer books of MCBA. If a certificate
representing MCBA Shares is presented to the Company or MCBA for any reason,
such certificates will be deemed void and canceled.
ACCOUNTING TREATMENT. The Merger will be accounted for by the Company
as a purchase of MCBA for financial accounting purposes in accordance with
generally accepted accounting principles.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. Although the
Merger is intended to qualify as a tax-free reorganization under the Code, for
federal income tax purposes none of the Company, Acquisition Sub or MCBA will
recognize gain or loss as a result of the Merger, irrespective of whether the
Merger does in fact so qualify.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION. At the closing of the
Merger, the Selling Shareholders will beneficially own an aggregate of up to
900,000 shares of Common Stock. Such number of shares will be reduced by that
number of shares of Common Stock equal to the unpaid balance of principal and
interest pursuant to the Promissory Note. The Selling Shareholders will also
have voting rights with respect to an additional aggregate of 300,000 shares of
Common Stock to be placed in the Earn-Out Escrow. At the close of business on
the Record Date, the Company had 7,797,302 shares of Capital Stock issued and
outstanding, consisting of 5,530,610 shares of Common Stock and 2,207,100 shares
of Series A Preferred Stock, equivalent to 2,266,692 shares of Common Stock on
an as converted basis. The Selling Shareholders will therefore own approximately
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11.5% and have voting rights with respect to approximately 15.4% of the
outstanding Capital Stock at the closing of the Merger. See "--Percentage
Ownership Interest of the Selling Shareholders After the Merger."
As a condition precedent to the Company's obligation to close the
Merger Agreement, Michael N. Gunnells, a Selling Shareholder, will enter into an
employment agreement with the Company. See "Certain Provisions of the Merger
Agreement--Employment Agreement."
Concurrent with the closing of the Merger Agreement, the Company and
the Selling Shareholders will enter into a Registration Rights Agreement
pursuant to which the Selling Shareholders may require the Company, subject to
the terms and conditions thereof, to register the shares of Common Stock
received by them in the Merger for sale in accordance with the Securities Act.
See "Certain Provisions of the Merger Agreement--Registration Rights Agreement."
At the close of business on the Record Date, directors and officers of
the Company were the beneficial owners of an aggregate of approximately 759,111
shares of Common Stock, representing approximately 13.7% of the Common Stock
issued and outstanding as of the Record Date and approximately 9.7% of the
Capital Stock entitled to vote at the Special Meeting. The directors and
officers of the Company have indicated that they intend to vote their shares of
Capital Stock in favor of the Merger Agreement and the transactions contemplated
thereby, including the Merger and the issuance of shares of Common Stock to the
Selling Shareholders.
The Merger Agreement provides that each of the Company, MCBA and the
Selling Shareholders will indemnify and hold harmless the other, their
affiliates, successors and assigns from certain liabilities, damages, losses,
deficiencies and expenses arising out of the Merger Agreement and related
agreements provided that such obligation will not arise until the total amount
of such claims exceeds $25,000 and, except in the case of willful or intentional
misrepresentations or as otherwise set forth in the Merger Agreement, such
obligation will not exist beyond the total merger consideration. See "Certain
Provisions of the Merger Agreement--Indemnification."
PERCENTAGE OWNERSHIP INTEREST OF THE SELLING SHAREHOLDERS AFTER THE
MERGER. At the closing of the Merger, the Selling Shareholders will beneficially
own an aggregate of up to 900,000 shares of Common Stock. Such number of shares
will be reduced by that number of shares of Common Stock equal to the unpaid
balance of principal and interest pursuant to the Promissory Note. The Selling
Shareholders will also have voting rights with respect to an additional
aggregate of 300,000 shares of Common Stock to be placed in the Earn-Out Escrow.
At the close of business on the Record Date, the Company had 7,797,302 shares of
Capital Stock issued and outstanding, consisting of 5,530,610 shares of Common
Stock and 2,207,100 shares of Series A Preferred Stock, equivalent to 2,266,692
shares of Common Stock on an as converted basis. The Selling Shareholders will
therefore own approximately 11.5% and have voting rights with respect to
approximately 15.4% of the outstanding Capital Stock at the closing of the
Merger. In addition, the Selling Shareholders will have the right to receive up
to an aggregate of 1,500,000 additional shares of Common Stock as Earn-Out
Payments to be paid in the first quarters of 1999 and 2000 if MCBA continues to
meet certain profit-based benchmarks. Therefore, as a result of the Merger, the
Selling Shareholders have the potential to control an aggregate of up to
2,400,000 shares of Common Stock. See "Certain Provisions of the Merger
Agreement--Earn-Out Payments" and "--Earn-Out Escrow."
GOVERNMENTAL AND REGULATORY APPROVALS. The Company does not believe
that any governmental filings, other than the certificates of merger, are
required with respect to the Merger. Consummation of the Merger is conditioned
upon, among other things, the absence of any preliminary or permanent injunction
or other order issued by any federal or state court of competent jurisdiction
that prohibits or restricts the consummation of the Merger.
RESALES OF THE COMMON STOCK. All of the Common Stock issued in
connection with the Merger will be restricted stock and may not be transferred
except pursuant to a subsequent registration or exemption from registration. In
addition, under the terms of the Registration Rights Agreement, the Selling
Shareholders may require the Company, subject to the terms and conditions
thereof, to register under the Securities Act all or part of the Common Stock
received by them in connection with the Merger. See "Certain Provisions of the
Merger Agreement--Registration Rights Agreement."
-30-
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated balance sheet (the "Pro
Forma Balance Sheet") and unaudited pro forma statements of operations (the "Pro
Forma Statement of Operations"), including the notes related thereto (the "Pro
Forma Financial Information") has been prepared to give effect to the Merger and
the acquisition of SMS. The pro forma adjustments presented are based upon
available information and certain assumptions that Management believes are
reasonable under the circumstances.
The Pro Forma Financial Information gives effect to the Merger and the
acquisition of SMS, each accounted for as a purchase. The Pro Forma Balance
Sheet presents the combined financial position of the Company (including SMS,
acquired September 30, 1997) and MCBA assuming that the Merger had occurred as
of December 31, 1997. Such pro forma information is based upon the historical
balance sheet data of the Company and MCBA as of that date. The Pro Forma
Statement of Operations for the year ended December 31, 1997 gives effect to the
Merger and the acquisition of SMS as if it had occurred on January 1, 1997. Such
pro forma information is based upon the historical statement of operations data
of the Company, MCBA and SMS as of such dates.
The Pro Forma Financial Information is qualified in its entirety by
reference to, and should be read in conjunction with, the audited consolidated
financial statements of the Company and related notes thereto, incorporated
herein by reference, and the audited financial statements of MCBA attached
hereto as Annex C. The Pro Forma Financial Information is provided for
informational purposes only and does not purport to be indicative of the results
that would have actually been obtained had the Merger been completed on the
dates indicated or that may be expected to occur in the future. See "Available
Information," "Incorporation of Certain Documents by Reference" and
"Forward-Looking Statements."
-31-
<PAGE>
<TABLE>
SAVOIR TECHNOLOGY GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(in thousands)
(unaudited)
<CAPTION>
Historical
--------------------------------
The Pro Forma Pro Forma
Company MCBA Adjustments Combined(1)
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 2,919 $ 134 $ 3,053
Trade accounts receivable................. 76,664 4,554 81,218
Inventories............................... 36,841 36,841
Other current assets...................... 7,388 7,388
-------------- -------------- ----------------
Total current assets.................. 123,812 4,688 128,500
Property and equipment..................... 4,920 4,920
Goodwill and other intangibles............. 57,537 9,326 (2) 66,863 (2)
Other assets............................... 619 5 624
-------------- -------------- --------------- ----------------
$ 186,888 $ 4,693 $ 9,326 $ 200,907
============== ============== =============== ================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................. $ 7,063 $ 275 $ 7,338
Current portion of long term debt..... 8,516 8,516
Accounts payable.......................... 96,143 4,267 100,410
Accrued expenses.......................... 5,636 51 84 (3) 5,771 (3)
-------------- -------------- --------------- ----------------
Total current liabilities............. 117,358 4,593 84 122,035
Long term debt............................. 22,330 22,330
Other...................................... 120 120
-------------- ----------------
22,450 22,450
Stockholders' equity:
Preferred stock ......................... 18,132 18,132
Common stock ............................. 27,983 9,342 (4) 37,325 (4)
Retained earnings.......................... 965 100 (100) (5) 965 (5)
-------------- -------------- --------------- ----------------
Subtotal stockholders' equity......... 47,080 100 9,242 56,422
-------------- -------------- --------------- ----------------
$ 186,888 $ 4,693 $ 9,326 $ 200,907
============== ============== =============== ================
- ----------
(1) On March 31, 1998 the Company loaned $480,000, to be used for general
working capital purposes, in exchange for the Promissory Note. MCBA may
elect to repay the Promissory Note in full prior to the Closing or may
offset the unpaid balance of principal and interest against the initial
consideration of 900,000 shares of Common Stock payable to the Selling
Shareholders. In the event that the entire unpaid balance of the
Promissory Note is offset against such initial consideration, Notes
Payable would increase $480,000 and common stock equity would decrease by
$480,000.
(2) Represents an estimated increase in organizational costs of $84,000 and
goodwill of $9,242,000 associated with the Merger.
(3) Represents estimated accrued organizational costs of $84,000 associated
with the Merger.
(4) Shares of Common Stock issued as Initial Consideration to the Selling
Shareholders as a result of the Merger. 900,000 shares of Common Stock
issued at an assumed market value of $10.38 per share based on December
31, 1997 closing prices.
(5) Elimination of MCBA's retained earnings of $100,000.
</TABLE>
-32-
<PAGE>
<TABLE>
SAVOIR TECHNOLOGY GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share data)
(unaudited)
<CAPTION>
Historical
The Pro Forma Pro Forma
Company MCBA SMS(1) Adjustments Combined(2)
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales......................... $ 237,884 $ 26,879 $ 69,904 $ 334,667 (3)
Cost of goods sold................ 205,089 23,744 61,078 $ 289,911
------------ ------------ ------------ ------------- -------------
Gross profit...................... 32,795 3,136 8,826 44,757
Selling, general and
administrative expenses........ 25,969 3,110 6,230 2,650 (4) 37,359
(600) (5)
------------ ------------ ------------ ------------- -------------
Operating income.................. 6,826 26 2,596 (2,050) 7,398
Interest expense.................. 3,181 -- -- 3,140 (6) 6,321
Other income......................
Income tax provision.............. 335 -- -- 96 (7) 431
------------ ------------ ------------ ------------- -------------
Net income........................ $ 3,310 $ 26 $ 2,596 $ (5,286) $ 646
============ ============ ============ ============= =============
Net income per share ............. $ .55 $ 26 -- $ $ .09
============ ============ ============ ============= =============
Number of shares used in per
share calculation.............. 5,976 1 -- 1,359 (8) 7,336
============ ============ ============ =============
- ----------
(1) For purposes of the combined pro forma data, SMS' financial data is
presented for the nine-month period ending July 31, 1997 (the SMS
acquisition occurred on September 30, 1997). These amounts have been
combined with the Company and MCBA's calendar years ending December 31,
1997.
(2) On March 31, 1998 the Company loaned $480,000, to be used for general
working capital purposes, in exchange for the Promissory Note. MCBA may
elect to repay the Promissory Note in full prior to the Closing or may
offset the unpaid balance of principal and interest against the initial
consideration of 900,000 shares of Common Stock payable to the Selling
Shareholders. In the event that the entire unpaid balance of the
Promissory Note is offset against such initial consideration, pro forma
interest expense would be approximately $6,368 and pro forma tax expense
would be approximately $412,000 resulting in net income of approximately
$618,000. The number of shares used in the per share calculation would be
approximately 7,290 and net income per share would be approximately $0.08
for the periods presented.
(3) Net sales of IBM products as of December 31, 1997 were approximately
$237.7 million of this total.
(4) Represents estimated amortization of organizational costs and goodwill
associated with the Merger. Organizational costs are amortized over five
years and goodwill is amortized over 15 years for MCBA and 20 years for
SMS.
(5) Reduction in SMS executive compensation costs to reflect SMS acquisition.
(6) Increase in interest expense as a result of the placement of $15,700,000
of subordinated debt and a $10,000,000 senior secured note to finance the
SMS acquisition and $7,350,000 in notes issued to the selling SMS
shareholders. Also includes estimated interest expense as a result of
working capital borrowings required to support increased accounts
receivable balances due to MCBA acquisition.
(7) Income tax effect to provide estimated effective tax rate of 40% for
period shown.
(8) Shares of Common Stock issued as initial consideration to the Selling
Shareholders in the Merger less outstanding shares of MCBA, and 460,000
shares issued in the SMS transaction. This excludes contingent
consideration of up to an additional 1,500,000 shares of the Company's
common stock which will be issuable to the Selling Shareholders upon the
achievement of certain future performance targets. Contingent
consideration will be accounted for as an increase in the purchase price
when such amounts become determinable.
</TABLE>
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<PAGE>
MCBA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is MCBA management's discussion and analysis of the
financial condition and results of operations of MCBA for the fiscal years ended
December 31, 1995, 1996 and 1997. This discussion and analysis should be read in
conjunction with, and is qualified in its entirety by, the audited financial
statements as of and for the period ended December 31, 1997 attached hereto as
Annex C and the unaudited financial statements as of and for the periods ended
December 31, 1995 and 1996 attached hereto as Annex D. Management's discussion
and analysis provides information concerning MCBA's business environment,
consolidated results of operations and liquidity and capital resources. In
addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends that may affect MCBA's future operating results and financial position.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. Such statements are subject
to risks and uncertainties that could cause MCBA's actual results and financial
position to differ materially.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1994 1995 1996 1997
------------- ------------- ------------- ------------- -------------
(in thousands)
(unaudited)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales...................................... $ 653 $ 3,760 $ 11,920 $ 19,473 $ 26,879
Cost of sales.................................. 455 2,948 9,976 17,276 23,743
------------ ------------- ------------ ------------- -------------
Gross margin............................. 198 812 1,944 2,197 3,136
Selling, general and administrative
expenses.................................... 147 450 1,229 1,711 3,110
------------ ------------- ------------ ------------- -------------
Income from operations................... 51 362 715 486 26
Other income (expenses)........................ (6) 17 (2) 0 --
------------ ------------- ------------ ------------- -------------
Net income............................... $ 45 $ 379 $ 713 $ 486 $ 26
============ ============= ============ ============= =============
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales for the year ended December 31, 1997, were $26.9 million
compared to $19.5 million for the year ended December 31, 1996. This increase in
net sales was due to volume increases attributable to an expanding product base
(in particular increases associated with the sales of IBM S/390 main-frame
products).
Gross margins (net sales less related costs of products sold) increased
43% to $3.1 million for the year ended December 31, 1997 compared to $2.2
million for the year ended December 31, 1996. Gross margins as a percentage of
net sales increased from 11.3% to 11.7% for the same period as a result of the
increased percentage of higher margin products in the sales mix (principally
sales of the IBM S/390 Product family).
Selling, general and administrative expenses for the year ended
December 31, 1997 compared to the year ended December 31, 1996 increased
markedly in absolute terms and increased from 8.8% of net sales in 1996 to 11.6%
in 1997. This was a result principally of the payment of a management fee of
$1.3 million to MiniComputer Business Applications, Inc., a related company to
MCBA Systems, Inc. MCBA does business utilizing shared personnel resources with
its affiliate companies Innovative Business Systems, Inc. and Mini-Computer
Business Applications, Inc. Each fiscal year, during the fourth quarter of the
year, MCBA is allocated certain of these personnel costs, reflective of its use
of these resources throughout the year. This adjustment represents allocations
of management, sales support, accounting and information technology employees.
Exclusive of this payment, operating, selling, general and administrative
expenses would have increased slightly and decreased as a percentage of net
sales from 8.8% in 1996 to 6.7% in 1997. Such decrease would have been a result
of the Company's ability to leverage a relatively fixed infrastructure base over
increased net sales revenues.
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<PAGE>
Net income decreased approximately 95% to $26,000 for the year ended
December 31, 1997 compared to $486,000 for the year ended December 31, 1996. In
the absence of the $1.3 million management fee previously mentioned, net income
would have increased over 173% to $1.3 million from $486,000 in 1996.
MCBA is a subchapter S corporation and, therefore, had no income tax
liability for the periods shown.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $19.5 million
compared to $11.9 million for the year ended December 31, 1995. This increase in
net sales was due to volume increases attributable to an expanding customer
base.
Gross margins increased 13.0% to $2.2 million for the year ended
December 31, 1996 from $1.9 million for the year ended December 31, 1995. Gross
margins as a percentage of net sales decreased from 16.3% to 11.3%. Oracle
Corporation ("Oracle") software licenses were written off in the year ended
December 31, 1996 in the amount of $722,000. This write off accounted for a
decrease for the same period in gross margin percentage of 3.7% for the year
ended December 31, 1996. In addition, deeper pricing discounts to attract new
customers and a relative sales mix of lower margin products also contributed to
the decrease in gross margin percentage for that period in the amount of
$722,000. These licenses, purchased for resale to MCBA's customers as a part of
a prior acquisition transaction, were deemed unmarketable and written off
accordingly.
Operating, selling, general and administrative expenses increased 39.2%
to $1.7 million for the year ended December 31, 1996 compared to $1.2 million
for the year ended December 31, 1995. This increase was a result of MCBA
expanding its infrastructure to accommodate an increase in the customer base.
Net income for the year ended December 31, 1996 decreased 31.8%
compared to the year ended December 31, 1995. The Oracle software licenses write
off accounted for a decrease in net income of $722,000 for the year ended
December 31, 1996. Without this write off, the percentage increase in net income
for the year ended December 31, 1996 as compared to the year ended December 31,
1995, would have been 69.4%.
MCBA is a subchapter S corporation and, therefore, had no income tax
liability for the years ending December 31, 1996 and 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for the year ended December 31, 1995 were $11.9 million
compared to $3.8 million for the year ended December 31, 1994. This increase in
net sales was due to volume increases attributed to an expanding customer base.
MCBA's gross margins increased 139.4% to $1.9 million for the year
ended December 31, 1995 from $812,000 for the year ended December 31, 1994.
Gross margins as a percentage of net sales decreased from 21.6% to 16.3% for
that period, a result of deeper discounts to attract new customers and the
increased sales of a mix of lower margin products.
Operating, selling, general and administrative expenses increased
173.1% to $1.2 million for the year ended December 31, 1995 from $450,000 for
the year ended December 31, 1994. This increase was a result of MCBA expanding
its infrastructure to accommodate an increase in the customer base.
Net income for the year ended December 31, 1995 increased 88.1%
compared to the year ended December 31, 1994 due to increasing sales volume.
MCBA is a subchapter S corporation and, therefore, had no income tax
liability for the years ending December 31, 1995 and 1994.
-35-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $95,000 for the year ended December 31, 1997, as
compared to $205,000 for the year ended December 31, 1996. The reduction in
working capital for the nine months ended September 30, 1997 was a result of
distributions made to MCBA's shareholders in excess of the cash generated from
operations. Cash for the period was generated from operations and increases in
accounts payable.
Working capital for the year ended December 31, 1996 was $205,000 as
compared to $1,105,000 for the year ended December 31, 1995. $721,733 of this
decrease in working capital was due to a write off of certain Oracle software
licenses that were viewed as worthless. Cash for the years ending December 31,
1996 and 1995 was generated from operations and increases in accounts payable.
An additional reduction in working capital was a result of distributions made to
the MCBA shareholders.
Working capital for the year ended December 31, 1995 was $1,105,000 as
compared to $25,000 for the year ended December 31, 1994. $721,733 of the
increase in working capital was due to the purchase of certain Oracle software
licenses from an affiliated company. Cash for the years ending December 31, 1995
and 1994 was generated from operations and increases in accounts payable.
Capital and working capital were reduced during the year by distributions made
to the MCBA shareholders.
Working capital for the year ended December 31, 1994 was $25,000 as
compared to ($11,000) for the year ended December 31, 1993. Cash for the years
ending December 31, 1994 and 1993 was generated from operations and increases in
accounts payable. Cash and working capital were reduced during the year by
distributions made to the MCBA shareholders.
-36-
<PAGE>
PRICE OF COMMON STOCK
Since November 4, 1997 the Common Stock has been listed and traded on
the Nasdaq under the symbol "SVTG." Previously, the Common Stock was listed and
traded on the Nasdaq under the symbol "WSTM." The following table shows the high
and low closing prices for the Common Stock for the fiscal periods indicated, as
reported by the Nasdaq:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Year Ended December 31, 1995:
First Quarter.................................... $ 7.50 $4.00
Second Quarter................................... 6.38 2.25
Third Quarter.................................... 6.00 2.94
Fourth Quarter................................... 6.25 5.00
Year Ended December 31, 1996:
First Quarter.................................... 7.00 4.63
Second Quarter................................... 10.75 6.50
Third Quarter.................................... 9.00 5.88
Fourth Quarter................................... 12.25 8.13
Year Ended December 31, 1997:
First Quarter.................................... 14.125 9.625
Second Quarter................................... 13.375 8.875
Third Quarter.................................... 12.50 8.00
Fourth Quarter................................... 12.50 9.1875
Year Ended December 31, 1998:
First Quarter.................................... 12.75 9.625
Second Quarter (through April 29, 1998).......... 13.375 10.625
</TABLE>
At the close of business on the Record Date, there were approximately
243 Stockholders of record of the Common Stock.
On November 21, 1997, the last trading day before public announcement
of the execution of the Merger Agreement, the last sale price of the Common
Stock as reported on the Nasdaq was $10.625 per share, the high sale price was
$10.75 per share and the low sale price was $10.25 per share. On April 29, 1998,
the most recent practicable date prior to the printing of this Proxy Statement,
the last sale price of the Common Stock as reported on the Nasdaq was $10.625
per share. Stockholders should obtain current market prices of the Common Stock.
Since its initial public offering in 1983, the Company has not paid any
cash dividends on Common Stock and it does not have any present intention to
commence payment of any cash dividends. The Company intends to retain earnings,
if any, to provide funds for the operation of and expansion of its business and
to repay indebtedness.
The MCBA Shares are privately held and therefore are not registered or
traded on a securities exchange and there is no established public trading
market for the MCBA Shares. Because MCBA is a Subchapter S corporation, MCBA
made a distribution to shareholders of $133,169 in 1997. MCBA is not aware of
any transactions in the MCBA Shares during the past three years. The Selling
Shareholders are the only holders of MCBA Shares.
-37-
<PAGE>
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
EFFECT OF THE MERGER. At the Effective Time, Acquisition Sub will be
merged with and into MCBA, and MCBA will continue as the surviving corporation
and a wholly owned subsidiary of the Company, the separate corporate existence
of Acquisition Sub will terminate and the Selling Shareholders will receive
shares of Common Stock. All of the assets, property, rights, privileges, powers
and franchises of MCBA and Acquisition Sub will vest in MCBA, and all of the
debts, liabilities and duties of MCBA and Acquisition Sub will become the debts,
liabilities and duties of MCBA. Each of the MCBA Shares will be converted
automatically into that number of newly issued shares of Common Stock equal to
an aggregate of up to 900,000 divided by the MCBA Shares. There are currently
5,000 MCBA Shares, and pursuant to the Merger Agreement, MCBA is prohibited from
issuing any additional MCBA Shares or effecting any splits or reorganizations of
the MCBA Shares prior to the Effective Time. Therefore, it is anticipated that
at the Effective Time each of the MCBA Shares will be converted automatically
into up to 180 shares of Common Stock, for an aggregate of up to 900,000 shares
of Common Stock. Such number of shares will be reduced by that number of shares
of Common Stock equal to the unpaid balance of principal and interest pursuant
to the Promissory Note. Also at the Effective Time, the issued and outstanding
shares of capital stock of Acquisition Sub will be converted into and become
5,000 validly issued, fully paid and nonassessable shares of common stock of
MCBA.
DIRECTORS AND OFFICERS; ARTICLES OF INCORPORATION AND BYLAWS. The
directors and officers of Acquisition Sub immediately prior to the Effective
Time will be the initial directors and officers of the surviving corporation
(MCBA), each to hold office in accordance with the articles of incorporation and
bylaws of MCBA until their respective successors are elected. The directors of
Acquisition Sub are Messrs. Munro and Dorst. The officers of Acquisition Sub are
Messrs. Munro and Dorst. Mr. Munro is also a director of the Company. Messrs.
Munro and Dorst are also officers of the Company.
The certificate of incorporation and bylaws of Acquisition Sub
immediately prior to the Effective Time will be the articles of incorporation
and bylaws of MCBA unless otherwise determined by the Company prior to the
Effective Time.
MERGER CONSIDERATION. Pursuant to the Merger Agreement, the Selling
Shareholders will receive an aggregate of up to 900,000 shares of Common Stock
in exchange for all of the outstanding shares of MCBA's common stock. Such
number of shares will be reduced by that number of shares of Common Stock equal
to the unpaid balance of principal and interest pursuant to the Promissory Note.
In addition, the Selling Shareholders will have the right to receive up to an
aggregate of 1,500,000 additional shares of Common Stock as Earn-Out Payments to
be paid in the first quarters of 1999 and 2000 if MCBA continues to meet certain
profit-based benchmarks. See "--Earn-Out Payments."
EARN-OUT PAYMENTS. As a result of the Merger and in addition to the
900,000 shares of Common Stock to be received as initial consideration, the
Selling Shareholders will have the right to receive up to an aggregate of
1,500,000 additional shares of Common Stock as Earn-Out Payments to be paid in
the first quarters of 1999 and 2000 if MCBA continues to meet certain
profit-based benchmarks.
The Earn-Out Payments will be based on the excess of MCBA Net Pretax
Profit over $1,800,000. MCBA Net Pretax Profit is calculated as MCBA Revenue -
(MCBA Cost of Goods Sold + MCBA Operating Expenses). MCBA Revenue includes all
revenues, fees, promotional payments, marketing development funds, service fees,
fees from IBM Credit Corporation and any other fees or payments derived from
sales through MCBA and IBM S/390(R) sales through the Company and its
affiliates. MCBA's Cost of Goods Sold includes any direct costs associated with
the sale of hardware, software, or any type of services through MCBA. MCBA
Operating Expenses includes those expenses incurred in the operation of MCBA,
excluding any allocations to MCBA of any corporate fees and expenses from the
Company and its affiliates, but including the interest costs of, or income from,
the working capital necessary to the operation of MCBA.
The Earn-Out Payments payable in the first quarter of 1999 (the "1999
Earn-Out Payments") will equal five times the excess of MCBA Net Pretax Profit
for the 12-month period ending December 31, 1998 over
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<PAGE>
$1,800,000. However, 25% of the 1999 Earn-Out Payments will be withheld until
the first quarter of 2000. The Earn-Out Payments payable in the first quarter of
2000 will equal five times the excess of MCBA Net Pretax Profit for the 12-
month period ending December 31, 1999 over $1,800,000 and, so long as MCBA Net
Pretax Profit for the 12-month period ending December 31, 1999 is greater than
$1,800,000, the 25% of the 1999 Earn-Out Payments originally withheld.
The Earn-Out Payments will be paid in Common Stock in equal portions to
each of the Selling Shareholders. The value of Common Stock to be issued will be
based on the average closing price of the Common Stock for the 10 trading days
up to, but excluding, the second trading day before December 30, 1998 and
December 30, 1999, as applicable. The Common Stock issued as Earn-Out Payments
will be disbursed first from the Earn-Out Escrow, see "--Earn-Out Escrow," and
any remaining shares will be newly issued shares of Common Stock.
The Company will also have the right of set-off against the Earn-Out
Payments for any claims for indemnification, uncollected accounts receivable or
unsold inventory against MCBA or the Selling Shareholders. See
"--Indemnification" and "--Additional Agreements."
ESCROW FOR INITIAL CONSIDERATION. The Selling Shareholders have agreed
that 10% of the Common Stock to be issued to the Selling Shareholders as initial
consideration will be placed in escrow as security for indemnification and as
security for uncollected accounts receivable or unsold inventory until six
months after the Effective Time. See "--Additional Agreements" and
"--Indemnification."
EARN-OUT ESCROW. At the Closing, the Company will pay to First Trust of
California, National Association, as escrow agent, 300,000 shares of Common
Stock issued to the Selling Shareholders in equal portions as owners, with
voting and distribution rights in accordance with the Earn-Out Escrow Agreement,
subject only to the failure to achieve the Earn-Out Payments, as security for
indemnification and as security for uncollected accounts receivable or unsold
inventory. See "--Indemnification" and "--Additional Agreements."
PROMISSORY NOTE. On March 27, 1998 the Company, MCBA, the Selling
Shareholders and Acquisition Sub entered into a First Amendment to Agreement and
Plan of Reorganization and MCBA issued the Promissory Note to the Company in the
aggregate principal amount of $480,000.00. MCBA may elect to repay the
Promissory Note in full prior to the Closing or may offset the unpaid balance of
principal and interest against the initial consideration of 900,000 shares of
Common Stock payable to the Selling Shareholders. As a result, the initial
consideration of 900,000 shares of Common Stock payable to the Selling
Shareholders will be reduced by that number of shares of Common Stock equal to
the unpaid balance of principal and interest pursuant to the Promissory Note.
For purposes of this calculation, the value of one share of Common Stock shall
be calculated based on the average closing price of the Common Stock (as quoted
in the Wall Street Journal) for the ten trading days up to, but excluding, the
second trading day before the Closing Date.
REPRESENTATIONS AND WARRANTIES OF MCBA AND THE SELLING SHAREHOLDERS.
The Merger Agreement contains various representations and warranties made by
MCBA and the Selling Shareholders in favor of the Company relating to, among
other things, the following matters (which representations and warranties are
subject, in certain cases, to specified exceptions): (i) affirmation of valid
corporate organization, standing, qualification and similar corporate matters,
except where failure to be so qualified does not have a material effect on the
business of MCBA; (ii) affirmation of capital structure, title to and authority
with respect to the MCBA Shares; (iii) absence of any obligations of MCBA or the
Selling Shareholders to issue shares of capital stock of MCBA and the absence of
voting trusts, proxies or other agreements with respect to the capital stock of
MCBA; (iv) absence of any obligations with respect to capital stock or any
equity investments in other entities; (v) affirmation of corporate authority to
execute, deliver and consummate the Merger Agreement and related documents and
the absence of any violation or breach of provisions of MCBA's charter
documents, bylaws, material agreements or laws by the execution of the Merger
Agreement; (vi) except as disclosed, the absence of the need for any third-party
or governmental consents to the consummation of the Merger Agreement; (vii)
affirmation of the financial statements provided; (viii) absence of any
significant business changes since September 30, 1997 and the absence of
undisclosed liabilities as of December 31, 1996; (ix) affirmation of title
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<PAGE>
to property and assets and the absence of any hazardous substances on any of the
disclosed properties; (x) affirmation of the accounts and notes receivables as
of September 30, 1997; (xi) affirmation of the proper payment of taxes and
certain other tax matters and the absence of any undisclosed tax liabilities;
(xii) affirmation of the list of employees of MCBA and the absence of any
undisclosed profit sharing, stock option, pension, retirement, medical, life
insurance or other employee benefit plan or arrangement; (xiii) compliance with
applicable laws, regulations, orders and other requirements of governmental
authorities; (xiv) absence of pending litigation or known threatened litigation;
(xv) absence of any undisclosed material contracts and the absence of any
default or non-performance of any material contracts; (xvi) affirmation of a
complete list of MCBA's customers; (xvii) affirmation of the inventory list and
the absence of any undisclosed encumbrances on inventory; (xviii) absence of any
known infringements of any third parties' proprietary rights in the conduct of
MCBA's business; (xix) affirmation of the list of all insurance contracts and
their adequacy; (xx) affirmation of the list of all bank accounts and the
absence of any restrictions on the funds therein; (xxi) absence of any
undisclosed dealings or obligations to any brokers or finders in connection with
the Merger Agreement; (xxii) absence of ownership interests of MCBA's officers
or directors in competitors of MCBA; (xxiii) absence of any loans or advances to
any directors, officers or other employees of MCBA; (xxiv) absence of any union
activities among MCBA employees; (xxv) affirmation of a list of all employee
pension benefit plans or other plans governed by ERISA and compliance with all
provisions of ERISA for those plans; (xxvi) affirmation of the existence of the
underlying documents for any copies provided to the Company; (xxvii) affirmation
of the full and accurate disclosure of all information provided to the Company
pursuant to the Merger Agreement; (xxviii) affirmation of the list of accounts
payable as of September 30, 1997 and the absence of any accounts that are past
due or collection actions pending; (xxix) acknowledgement of the restricted
nature of the Common Stock to be received as consideration and the affirmation
that such stock is being acquired for investment purposes and for the Selling
Shareholders' own account; and (xxx) affirmation of the lists of all necessary
governmental licenses or other permits.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Merger Agreement
contains various representations and warranties made by the Company in favor of
MCBA and the Selling Shareholders relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases, to
specified exceptions): (i) affirmation of valid corporate organization,
standing, qualification and similar corporate matters, except where failure to
be so qualified does not have a material effect on the business of the Company;
(ii) affirmation of the capital structure of the Company; (iii) except as
disclosed, the absence of the need for any third-party or governmental consents
to the consummation of the Merger Agreement; (iv) affirmation of the financial
statements provided; (v) accuracy of information contained in certain of the
Company's documents filed with the Commission, including the Proxy Statement,
and compliance in all material respects of such documents with the applicable
requirements of the Securities Act or the Exchange Act; (vi) except as
disclosed, affirmation that the Company's execution and delivery of the Merger
Agreement and the Company's obligations thereunder will not conflict with its
certificate of incorporation, bylaws, material commitments or applicable law and
will not result in any restriction on its properties or assets; (vi) affirmation
that the shares of Common Stock to be delivered to MCBA and the Selling
Shareholders will be duly authorized, validly issued and nonassessable; (vii)
absence of any undisclosed dealings or obligations to any brokers or finders in
connection with the Merger Agreement; and (viii) absence of any significant
business changes since September 30, 1997.
COVENANTS RELATING TO CONDUCT OF BUSINESS. The Merger Agreement
provides that, prior to the Closing Date, MCBA will conduct its business
diligently and in a manner consistent with past practice, will maintain all
insurance covering the business and will use its best efforts to preserve its
current business organization to keep available the services of the employees
and to preserve the present relationships of MCBA with customers, suppliers and
other persons with which MCBA has business relations. Except as set forth in the
Merger Agreement, MCBA and the Selling Shareholders will not: (i) grant any
increase in salaries or new benefits to any employees; (ii) make any change in
its authorized or issued capital stock; (iii) issue any corporate securities of
any nature or options for any of the foregoing, or enter into any contract of
any nature respecting shares of its capital stock or otherwise make any changes
in its capital structure; (iv) make any distribution or payment in respect of
its capital stock or purchase or redeem any equity interests or shares of its
capital stock; (v) amend its articles of incorporation or bylaws; (vi) solicit
or initiate any negotiations with any other party concerning any merger, sale of
substantial assets, sale of stock or other change of control; (vii) acquire any
other business or other material
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assets, except in the ordinary course of business; (viii) lease or otherwise
dispose of any of its assets except in the ordinary course of business and in
any event not in excess of $25,000 for any single item or $50,000 in the
aggregate; or (ix) incur any indebtedness for borrowed money or guarantee any
such indebtedness in excess of $25,000 except pursuant to the existing credit
arrangement with ICC or with respect to the Promissory Note.
ADDITIONAL AGREEMENTS. The Company, MCBA and the Selling Shareholders
have made certain additional agreements under the Merger Agreement, including:
(i) MCBA has agreed to afford the Company and its representatives reasonable
access to its properties, books and other information concerning its business,
properties and personnel as the Company and its representatives may reasonably
request; (ii) each party will take all reasonable actions necessary to comply
promptly with all legal requirements that may be imposed on such party and will
promptly cooperate and furnish information to the other party in connection with
any requirements imposed upon such other party; (iii) each party will act in
good faith in an attempt to satisfy all conditions precedent to its obligation
and those of the other parties to the Merger Agreement; (iv) prior to the
Closing, the Company will give MCBA prompt notice of any amendment to its
certificate of incorporation or bylaws; (v) the Company will continue after the
Closing Date and so long as is necessary in order to permit the Selling
Shareholders to sell the Common Stock received pursuant to the Merger Agreement
to promptly file all SEC reports; (vi) the Common Stock received by the Selling
Shareholders will bear a restrictive legend and stop transfer instructions will
be given to the Company's transfer agent; (vii) the Company will offer,
conditioned on the Closing, continued employment opportunities to certain
identified employees of MCBA; (viii) in the event that the Company, using normal
collection and sales practices, has not on or prior to six months from the
Closing collected of the accounts receivable an amount equal to or greater than
the amount set forth on the MCBA closing date balance sheet (minus any allowance
for doubtful accounts) or sold the inventory reflected on the MCBA closing date
balance sheet, the Selling Shareholders will remit to the Company such
uncollected amounts or the value of such inventory in exchange for the
assignment to the Selling Shareholders of the rights to collect such uncollected
amounts or sell such inventory; (ix) promptly after the Effective Time, MCBA
will deliver to the Company all papers and records of MCBA in MCBA's custody;
(x) the Company and the Selling Shareholders will enter into a Registration
Rights Agreement, see "--Registration Rights Agreement;" (xi) promptly following
the date of the Merger Agreement, the Company will prepare and file this Proxy
Statement; and (xii) as soon as practicable after the execution of the Merger
Agreement, the Company will cause Acquisition Sub to be formed and to become a
party to the Merger Agreement.
CONDITIONS TO OBLIGATIONS OF THE COMPANY, MCBA AND THE SELLING
SHAREHOLDERS. The consummation of the Merger by both the Company, MCBA and the
Selling Shareholders is subject to the following conditions precedent unless
waived by all parties: (i) any and all consents or approvals required from third
parties relating to contracts, agreements, licenses, leases and other
instruments material to the respective business of the Company and MCBA will
have been obtained; (ii) no temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
Agreement will have been issued by any court of competent jurisdiction; (iii)
the Company will have received any and all permits, authorizations, approvals
and orders under federal and state securities laws for the issuance of its
common stock to the Selling Shareholders; and (iv) all necessary consents from
any governmental or regulatory body to the consummation of the Merger will have
been obtained.
CONDITIONS TO OBLIGATIONS OF THE COMPANY. The consummation of the
Merger by the Company is subject to the following conditions precedent unless
waived by the Company: (i) the representations and warranties of MCBA and the
Selling Shareholders will be true and correct in all material respects at the
Closing, MCBA and the Selling Shareholders will have performed all obligations
required under the Merger Agreement and the Company will have received a
certificate to that effect signed by the CEO of MCBA and each of the Selling
Shareholders; (ii) the Board will have approved the Merger Agreement and the
transactions contemplated thereby; (iii) the Company will have received an
opinion of counsel dated as of the Closing Date from MCBA's counsel; (iv) until
the Closing Date, MCBA's financial statements for each month will be delivered
as soon as practicable thereafter to the Company; (v) there will have been no
material adverse changes in the condition, financial or otherwise, of MCBA from
the date of the last audited financial statements; (vi) each of the Selling
Shareholders, Innovative and Mini-Computer Business Applications, Inc., an
Alabama corporation ("Mini-Computer Business Applications"), will have entered
into covenants not to compete with the Company; (vii) the Company and the
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Selling Shareholders will have entered into the Escrow Agreement and
Earn-Out Escrow Agreement; (viii) Mr. Gunnells will have entered into the
employment agreement with the Company, see "--Employment Agreement"; (ix) the
Company will have received from the Selling Shareholders a certificate of
non-foreign status conforming to the requirements of Income Tax Regulations
sections 1.1445-2(b)(2)(i) and (iii); (x) a minimum of 75% of certain listed
employees of MCBA will have accepted continuing employment with the Company;
(xi) the Stockholders will have approved of the Merger Agreement and the
transactions contemplated thereby pursuant to this Proxy Statement; (xii) MCBA's
net assets will exceed its net liabilities as set forth on the most recent
balance sheet by $100,000; (xiii) the Company will have obtained the written
consent of all necessary parties, including IBM, ICC, Canpartners Investments
IV, LLC and Robert Fleming Inc. to the Agreement and the transactions
contemplated thereby; (xiv) Innovative will have entered into the IRA Agreement
with the Company, see "--IRA Agreement"; (xv) MCBA will use its best efforts to
transfer certain leases to which it is a party or obtain subleases on terms
suitable to the Company; and (xvi) MCBA will arrange for its removal as a debtor
to a certain loan agreement between Mini-Computer Business Applications and
First Commercial Bank and for the release of all liens imposed on MCBA pursuant
to such loan agreement.
CONDITIONS TO OBLIGATIONS OF MCBA AND THE SELLING SHAREHOLDERS. The
consummation of the Merger by MCBA and the Selling Shareholders is subject to
the following conditions precedent unless waived by MCBA: (i) the
representations and warranties of the Company will be true and correct in all
material respects at the Closing, the Company will have performed all
obligations required under the Merger Agreement, and MCBA and the Selling
Shareholders will have received a certificate to that effect signed by the CEO
and CFO of the Company; (ii) MCBA and the Selling Shareholders will have
received an opinion of counsel dated as of the Closing Date from the Company's
counsel; and (iii) there will have been no material adverse changes in the
condition, financial or otherwise, of the Company since September 30, 1997.
BEST EFFORTS. The Company, MCBA and the Selling Shareholders will use
their respective best efforts to cause the Closing Date to be not later than
June 5, 1998.
INDEMNIFICATION. The Merger Agreement provides that each of the
Company, MCBA and the Selling Shareholders will indemnify and hold harmless the
other, their affiliates, successors and assigns from certain liabilities,
damages, losses, deficiencies and expenses arising out of the Merger Agreement
and related agreements provided that such obligation will not arise until the
total amount of such claims exceeds $25,000 and, except in the case of willful
or intentional misrepresentations or as otherwise set forth in the Merger
Agreement, such obligation will not exist beyond the total merger consideration.
Resolution of any disputes related to indemnification under the Merger Agreement
will be resolved by arbitration. In the event of arbitration, the non-prevailing
party will be responsible for the reasonable expenses of the prevailing party
subject to certain conditions and exceptions.
As security for MCBA's indemnification obligations, there will be
placed in escrow for six months after the Closing Date with First Trust of
California, National Association, as escrow agent, 10% of the Common Stock to be
received as initial consideration by the Selling Shareholders issued to the
Selling Shareholders in equal portions as owners, with voting and distribution
rights in accordance with the Escrow Agreement, as security for indemnification
and as security for uncollected accounts receivable or unsold inventory. See
"--Indemnification" and "--Covenants Relating to Conduct of Business."
The Company will also have the right of set-off against the Earn-Out
Payments for any claims for indemnification, uncollected accounts receivable or
unsold inventory against MCBA or the Selling Shareholders. See "--Earn-Out
Payments" and "--Covenants Relating to Conduct of Business."
TERMINATION AND TERMINATION FEE. The Merger Agreement may be terminated
at any time by mutual agreement of the parties. The Merger Agreement may also be
terminated by either party if: (i) there is a material breach of the Merger
Agreement by the other party that has not been cured or waived prior to the
closing date thereunder; (ii) the Merger has not been consummated on or before
June 5, 1998 through no fault of either party; (iii) if any of the conditions to
closing to such party's obligations under the Merger Agreement are not satisfied
or waived; or (iv) if any court or governmental entity of competent jurisdiction
will have issued an order, decree
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or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
will have become final and nonappealable (provided that the right to terminate
the merger Agreement pursuant to this section will not be available to any party
who has not used its reasonable best efforts to cause such order to be lifted).
See "--Conditions to Obligations of the Company, MCBA and the Selling
Shareholders," "--Conditions to Obligations of the Company" and "--Conditions to
Obligations of MCBA and the Selling Shareholders."
In the event the Merger Agreement is terminated by any party as a
result of the breach of or failure to satisfy a condition to closing under the
Merger Agreement, with the exception of the consent of the Stockholders to the
Merger Agreement, the party that failed to satisfy its conditions to closing
will be required to pay the other party a termination fee of $250,000 within two
business days of such termination. Among other things, the Company's inability
to obtain the consent of the Stockholders to the Merger Agreement pursuant to
this Proxy Statement will result in the Company's obligation to pay such a
termination fee. The termination fee will be the sole remedy of either party in
the event of a termination.
AMENDMENT AND WAIVER. The Merger Agreement may not be amended except by
an instrument in writing signed on behalf of the Company, MCBA and the Selling
Shareholders. At any time prior to the Effective Time, the Company, MCBA and the
Selling Shareholders may extend the time for performance of any of their
obligations, waive any inaccuracies in the representations and warranties
contained in the Merger Agreement and waive compliance with any of the
agreements or conditions of the Merger Agreement. Any such waiver must be signed
on behalf of the Company, MCBA and the Selling Shareholders.
FEES AND EXPENSES. Except with regard to arbitration expenses related
to indemnification, see "--Indemnification," the Company, MCBA and the Selling
Shareholders will each pay their own fees and expenses incurred incident to the
preparation and consummation of the Merger Agreement.
REGISTRATION RIGHTS AGREEMENT. Concurrent with the closing of the
Merger Agreement, the Company and the Selling Shareholders will also enter into
a Registration Rights Agreement pursuant to which the Selling Shareholders may
require the Company, subject to the terms and the conditions thereof, to
register under the Securities Act all or part of the Common Stock received in
connection with the Merger. The Registration Rights Agreement will terminate
after the later of three years from the Closing Date or when all the shares of
Common Stock received by the Selling Shareholders may immediately be sold
pursuant to Rule 144 or 145 as promulgated by the Commission under the
Securities Act.
IRA AGREEMENT. As a condition precedent to the Company's obligation to
close the Merger Agreement, the Company and Innovative will enter into an IRA
Agreement. Pursuant to the IRA Agreement, the Company will appoint Innovative as
one of its industry remarketer affiliates of IBM products for marketing and sale
to end-users in the United States and Puerto Rico. The appointment is exclusive
with respect to Innovative but not with respect to the Company. Mr. Harkins, one
of the Selling Shareholders, is the president and chief executive officer of
Innovative. The Selling Shareholders are also the sole directors and owners of
the capital stock of Innovative--each owning 50% of the common stock of
Innovative. Mr. Harkins and Innovative will also enter into an Agreement not to
Compete with the Company for a period of three years after the Closing Date.
EMPLOYMENT AGREEMENT. As a condition precedent to the Company's
obligation to close the Merger Agreement, Mr. Gunnells will enter into an
employment agreement with the Company. Mr. Gunnells will also enter into an
Agreement not to Compete with the Company for the greater of three years after
the Closing Date or one year after the termination of active employment of Mr.
Gunnells by the Company.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 6, 1998, the number of
shares of Capital Stock beneficially owned by the directors of the Company and
all directors and executive officers of the Company as a group, and each person
known to the Company to own beneficially more than 5% of the Capital Stock.
Except as otherwise indicated and subject to community property laws where
applicable, each person has sole investment and voting power with respect to the
shares shown. Ownership information is based upon information furnished by the
respective individuals and entities.
<TABLE>
<CAPTION>
Shares
Beneficially
Name of Beneficial Owner(1) Owned(1) Percent(2)
- ------------------------------------------------------------------ ------------ ----------
<S> <C> <C> <C>
Astoria Capital Partners, L.P.(3)
3 Embarcadero Center
San Francisco, CA 94111........................................... 999,149 12.7%
Hemisphere Trading Co.(4)
5796 Shelby Oaks Drive, Suite 12
Memphis, TN 38134................................................. 753,000 9.7
Strome Susskind Investment Management, L.P ("SSIM")
and affiliates(5)
100 Wilshire Avenue
Santa Monica, CA 90491............................................ 590,967 7.4
ROI Capital Management, Inc. ("ROI") and affiliates(6)
One Bush Street, Suite 1150
San Francisco, CA 94104........................................... 590,825 7.5
Canpartners Investments IV, LLC ("CanIV") and affiliates(7)
9665 Wilshire Boulevard, Suite 200
Beverly Hills, CA 90212........................................... 517,616 6.4
Carlton J. Mertens, II(8)......................................... 460,000 5.9
Robert Fleming Inc.(9)
320 Park Avenue
New York, NY 10022................................................ 436,685 5.4
P. Scott Munro(10)................................................ 173,594 2.2
James W. Dorst(11)................................................ 51,219 *
K. William Sickler(12)............................................ 23,313 *
J. Larry Smart(13)................................................ 21,813 *
Robert O'Reilly(14)............................................... 21,359 *
James J. Heffernan(15)............................................ 7,813 *
Angelo Guadagno................................................... 0 *
All executive officers and directors as a Group (8 persons)(16)... 759,111 9.74
- ----------
* Less than one percent (1%).
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(1) Unless otherwise indicated, the beneficial owner has sole voting and
dispositive power over the shares reported in the table. Includes shares
of Common Stock and shares of Series A Preferred on an as converted basis.
Information with respect to beneficial ownership is based upon information
obtained from the Stockholders and from the Company's transfer agent. To
the Company's knowledge, unless otherwise indicated, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission (the
"Commission") and includes voting and investment power with respect to
securities. Shares of Common Stock issuable upon exercise of stock options
exercisable within 60 days of April 6, 1998 or upon exercise of warrants
that are currently exercisable or exercisable within 60 days of April 6,
1998 are deemed to be outstanding and to be beneficially owned by the
person presently entitled to exercise for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
Each share of Series A Preferred Stock is convertible at any time into
shares of the Common Stock at a current ratio of 1.027 shares of Common
Stock for each share of Series A Preferred Stock and is entitled to vote,
without conversion, together with the Common Stock as a single class on an
as converted basis.
(2) Based on 5,494,258 shares of Common Stock and 2,242,500 shares of Series A
Preferred outstanding, equivalent to 2,303,048 shares on an as converted
basis, as of April 6, 1998.
(3) Includes 683,060 shares of Common Stock, 207,000 shares of Series A
Preferred Stock and warrants to purchase 103,500 shares of Common Stock.
Common Stock ownership information is based on Schedule 13G/A dated March
16, 1998 filed jointly by Richard W. Koe, Astoria Capital Management, Inc.
("Astoria Management") and Astoria Capital Partners L.P. ("Astoria
Partners") reporting ownership as follows:
Shares of Common Stock Shared Voting and
Beneficially Owned Dispositive Power
---------------------- -----------------
Astoria Partners.................. 511,414 0
Astoria Management................ 683,060 0
Richard W. Koe.................... 683,060 0
Astoria Partners is an investment limited partnership, whose general
partners are Richard W. Koe and Astoria Management. Astoria Management is
an investment advisor registered under Section 203 of the Investment
Advisors Act of 1940. Richard W. Koe is Astoria Management's president and
sole shareholder. The shares of Series A Preferred Stock and warrant to
purchase share of Common Stock are owned by Astoria Partners. The shares
of Series A Preferred Stock are not registered pursuant to Section 12 of
the Exchange Act; therefore, ownership of such securities does not require
reporting pursuant to Regulation 13D of the Exchange Act. The Company has
no information about the shared voting and dispositive power of such
securities.
(4) Based on Schedule 13G dated March 17, 1998, filed by Hemisphere Trading
Co. Hemisphere Trading Co. is an investment adviser registered under
section 203 of the Investment Advisers Act of 1940 and has sole voting and
dispositive power with regard to all of the 753,000 shares of the Common
Stock covered by such Schedule 13G.
(5) Includes 387,012 shares of Series A Preferred and warrants to purchase
193,506 shares of Common Stock. The shares of Series A Preferred and the
warrants are held as follows: 126,852 shares of Series A Preferred and
warrants to purchase 63,426 shares of Common Stock are held by Strome
Offshore Limited; 125,098 shares of Series A Preferred and warrants to
purchase 62,549 of Common Stock are held by Strome Susskind Hedgecap Fund,
LP; 103,788 shares of Series A Preferred and warrants to purchase 51,894
shares of Common Stock are held by Strome Partners L.P.; and 31,274 shares
of Series A Preferred and warrants to purchase 15,637 shares of Common
Stock are held by Strome Hedgecap Limited. The Series A
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Preferred Stock and warrants are not registered pursuant to Section 12 of
the Exchange Act; therefore ownership of such securities does not require
reporting pursuant to Regulation 13D of the Exchange Act. The Company has
no information about the shared voting and dispositive power of such
securities.
(6) Includes 323,600 shares of Common Stock, 175,000 shares of Series A
Preferred and warrants to purchase 87,500 shares of Common Stock. Common
Stock ownership information is based on Amendment Number 1 to Schedule 13D
dated January 26, 1996 filed jointly by ROI, ROI Partners, L.P. ("PTRS"),
ROI & Lane, L.P. ("R&L"), Mark T. Boyer and Mitchell J. Soboleski
reporting beneficial ownership as follows:
Shares of Common Stock Shared Voting and
Beneficially Owned Dispositive Power
---------------------- -----------------
ROI....................... 323,600 323,600
PTRS...................... 201,000 201,000
R&L....................... 24,000 24,000
Mr. Boyer................. 201,000 201,000
Mr. Soboleski............. 201,000 201,000
Messrs. Boyer and Soboleski are the sole shareholders and President and
Secretary, respectively, of ROI. Messrs. Boyer and Soboleski and ROI are
the general partners of PTRS, which is an investment limited partnership.
ROI is the managing general partner of R&L, which is an investment
partnership.
In addition, the shares of Series A Preferred and the warrants are held as
follows: 60,000 shares of Series A Preferred and warrants to purchase
30,000 shares of Common Stock are held by ROI Offshore Fund Ltd; 100,000
shares of Series A Preferred and warrants to purchase 50,000 shares of
Common Stock are held by PTRS; and 15,000 shares of Series A Preferred and
warrants to purchase 7,500 shares of Common Stock are held by Microcap
Partners, L.P. The Series A Preferred Stock and warrants are not
registered pursuant to Section 12 of the Exchange Act; therefore ownership
of such securities does not require reporting pursuant to Regulation 13D
of the Exchange Act. The Company has no information about the shared
voting and dispositive power of such securities.
(7) Includes 208,000 shares of Series A Preferred Stock and warrants to
purchase 304,000 shares of Common Stock. Common Stock ownership
information is based on a Schedule 13D dated September 30, 1997 filed
jointly by CanIV, Canyon Capital Management, L.P. ("CCM"), Canpartners
Incorporated ("Canpartners"), Mitchell R. Julis, Joshua S. Friedman and R.
Christian B. Evensen, each of whom beneficially owns 512,000 shares and
shares voting and dispositive power over all such shares. Messrs. Julis,
Friedman and Evensen are the sole stockholders of Canpartners. Messrs.
Julis, Friedman and Evensen and Canpartners are the members of CanIV,
which is an investment limited partnership formed to hold securities
through participation agreements for accounts managed by CCM. Canpartners
is the managing general partner of CanIV. CCM is a registered investment
advisor controlled by Canpartners. In addition, 208,000 shares of Series A
Preferred Stock and warrants to purchase 304,000 shares of Common Stock
are held by CanIV. The Series A Preferred Stock and warrants are not
registered pursuant to Section 12 of the Exchange Act; therefore,
ownership of such securities does not require reporting pursuant to
Regulation 13D of the Exchange Act. The Company has no information about
the shared voting and dispositive power of such securities.
(8) Based on Schedule 13D dated September 30, 1997 filed by Mr. Mertens.
(9) Includes 155,000 shares of Series A Preferred Stock and warrants to
purchase 277,500 shares of Common Stock. The shares of Series A Preferred
Stock and warrants are held as follows: (i) 155,000 shares of Series A
Preferred Stock and warrants to purchase 277,500 shares of Common Stock
are held by Robert Fleming Inc. The Series A Preferred Stock and warrants
are not registered pursuant to Section 12 of the Exchange Act; therefore
ownership of such securities does not require reporting pursuant to
Regulation 13D
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<PAGE>
of the Exchange Act. The Company has no information about the shared
voting and dispositive power of such securities.
(10) Includes 162,968 shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of April 6,
1998.
(11) Includes 33,750 shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of April 6,
1998.
(12) Includes 17,813 shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of April 6,
1998.
(13) Includes 7,813 shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of April 6,
1998.
(14) Includes 20,000 shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of April 6,
1998.
(15) Includes 7,813 shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of April 6,
1998.
(16) Includes 250,157 shares subject to stock options that are presently
exercisable or that will become exercisable within 60 days of April 6,
1998.
</TABLE>
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EXPERTS
The consolidated financial statements of the Company incorporated in
this Proxy Statement by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 have been incorporated herein by reference
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of said firm as experts in accounting and auditing. The
audited financial statements of MCBA included as Annex C to this Proxy Statement
for the year ended December 31, 1997 have been included herein in reliance on
the report of Brumbelow and Barnes, P.C., certified public accountants, given on
the authority of said firm as experts in accounting and auditing. The audited
consolidated financial statements of Star Management Services, Inc., included in
the Company's Current Report on Form 8-K dated September 30, 1997, as amended on
December 12, 1997 and February 17, 1998 have been incorporated herein by
reference in reliance on the report of Arthur Andersen LLP, independent public
accountants, given on the authority of said firm as experts in accounting and
auditing.
Representatives of Coopers & Lybrand L.L.P. expect to be present at the
Special Meeting and, while such representatives have stated that they do not
plan to make a statement at such meetings, they will be available to respond to
appropriate questions from shareholders in attendance.
LEGAL MATTERS
Certain legal matters with respect to the Merger will be passed upon
for the Company by Pillsbury Madison & Sutro LLP, Palo Alto, California. Certain
legal matters in connection with the Merger will be passed upon for MCBA and the
Selling Shareholders by Lanier Ford Shaver & Payne LLC, Huntsville, Alabama.
OTHER INFORMATION AND STOCKHOLDER PROPOSALS
As specified in the Company's Proxy Statement dated August 1, 1997 for
its 1997 Annual Meeting of Shareholders, any Stockholder proposals to be
considered for presentation at the 1998 Annual Meeting of Stockholders must have
been received by the Company not later than December 5, 1997.
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SAVOIR TECHNOLOGY GROUP, INC.
The undersigned, revoking all previous proxies relating to its shares
of Capital Stock of SAVOIR TECHNOLOGY GROUP, INC. (the "Shares"), hereby
acknowledges receipt of the Notice of Special Meeting and Proxy Statement in
connection with the Special Meeting of Stockholders to be held at 10:30 a.m. on
June 4, 1998 at SAVOIR TECHNOLOGY GROUP, INC., 254 East Hacienda Avenue,
Campbell, California 95008 and hereby appoints P. SCOTT MUNRO, JAMES W. DORST
and ROBERT O'REILLY, and each of them, the attorneys and proxies of the
undersigned, each with the power of substitution, to vote all the Shares which
the undersigned is entitled to vote at said Special Meeting, and any
adjournments or postponements thereof, upon all matters that may properly come
before the meeting with all the powers the undersigned would have if personally
present. Without otherwise limiting the foregoing general authorization, the
proxies are instructed to vote or act as indicated herein.
This proxy, which is solicited on behalf of the Board of Directors,
will be voted FOR the matters described herein unless the stockholder specifies
otherwise, in which case it will be voted as specified.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE
RECOMMENDA- TIONS OF THE BOARD OF DIRECTORS, PLEASE SIGN THE PROXY. YOU NEED NOT
MARK ANY BOXES.
(continued and to be signed on reverse side)
--Fold and Detach Here--
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING MATTER TO COME BEFORE
THE SPECIAL MEETING:
To consider and vote upon a proposal to approve and adopt the Agreement and Plan
of Reorganization dated as of November 22, 1997, by and among the Company, MCBA
Systems, Inc., an Alabama corporation ("MCBA"), Michael N. Gunnells and John
Harkins (together, the "Selling Shareholders"), as amended by the First and
Second Amendments to Agreement and Plan of Reorganization, dated as of March 27,
1998 and April 23, 1998, respectively, by and among the Company, STG Acquisition
Corp., a Delaware corporation ("Acquisition Sub") and wholly owned subsidiary of
the Company, MCBA and the Selling Shareholders, and as the same may be amended
from time to time (the "Merger Agreement") and the transactions contemplated
thereby, including the proposed merger (the "Merger") of Acquisition Sub with
and into MCBA and the issuance of shares of the common stock, par value $0.01
per share, of the Company (the "Common Stock") to the Selling Shareholders. The
Merger Agreement provides that Acquisition Sub will be merged with and into
MCBA, and MCBA, as the surviving corporation in the Merger, will become a wholly
owned subsidiary of the Company. The Selling Shareholders will receive an
aggregate of up to 900,000 shares of Common Stock in exchange for all of the
outstanding shares of MCBA's common stock. In addition, the Selling Shareholders
will have the right to receive up to an aggregate of 1,500,000 additional shares
of Common Stock as earn-out payments to be paid in the first quarters of 1999
and 2000 if MCBA continues to meet certain profit-based benchmarks.
FOR AGAINST ABSTAIN
/ / / / / /
Dated: , 1998
------------------------------
------------------------------------------
Signature(s) of Stockholder or
Stockholders (Executors, Administrators,
Trustees, etc. should give full title.)
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO
MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
SAVOIR TECHNOLOGY GROUP, INC.,
MCBA SYSTEMS, INC.,
MICHAEL N. GUNNELLS
and
JOHN HARKINS
as amended by the
FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
dated as of March 27, 1998 and the
SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
dated as of April 23, 1998
By and Among
SAVOIR TECHNOLOGY GROUP, INC.,
STG ACQUISITION CORP.,
MCBA SYSTEMS, INC.,
MICHAEL N. GUNNELLS
and
JOHN HARKINS
November 22, 1997
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TABLE OF CONTENTS
-----------------
Page
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ARTICLE 1 DEFINITIONS...................................................A-6
ARTICLE 2 PLAN OF REORGANIZATION; CLOSING...............................A-6
2.1 The Merger....................................................A-6
2.2 Effective Time................................................A-7
2.3 Effect of the Merger..........................................A-7
2.4 Articles of Incorporation and Bylaws..........................A-7
2.5 Directors and Officers........................................A-7
2.6 Effect on Capital Stock.......................................A-7
(a) Plan of Merger; Initial Consideration.................A-7
(b) Capital Stock of Acquisition Sub......................A-8
(c) Treasury Stock and STG Owned Stock....................A-8
2.7 No Further Ownership Rights in MCBA Common Stock..............A-8
2.8 Lost, Stolen or Destroyed Certificates........................A-8
2.9 Taking of Necessary Action; Further Action....................A-8
2.10 Tax Treatment.................................................A-8
2.11 Reorganization................................................A-8
2.12 Earn-Out Payments.............................................A-8
2.13 Closing Date.................................................A-10
2.14 Escrow for Initial Consideration.............................A-11
2.15 Earn-Out Escrow..............................................A-11
2.17 Adjustments to Earn-Out Stock................................A-11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF MCBA AND THE SELLING
SHAREHOLDERS.................................................A-12
3.1 Organization.................................................A-12
3.2 Capital Structure; Title to Shares; Selling Shareholders
Authority...............................................A-12
3.3 Obligations With Respect to Capital Stock....................A-12
3.4 Equity Investments...........................................A-12
3.5 Authority....................................................A-12
3.6 Consents and Approvals.......................................A-13
3.7 Financial Statements.........................................A-13
3.8 Business Changes.............................................A-13
3.9 Fixed Assets; Properties.....................................A-15
3.10 Accounts Receivable; Notes Receivable........................A-15
3.11 Taxes........................................................A-16
3.12 Employees; Compensation......................................A-17
3.13 Compliance with Law..........................................A-17
3.14 Litigation...................................................A-18
3.15 Contracts....................................................A-18
3.16 No Default...................................................A-18
3.17 Business and Customers.......................................A-19
3.18 Inventories..................................................A-19
3.19 Proprietary Rights...........................................A-19
3.20 Insurance....................................................A-20
3.21 Bank Accounts................................................A-20
3.22 Brokers or Finders...........................................A-20
3.23 Related Parties..............................................A-20
3.24 Certain Advances.............................................A-20
A-2
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Page
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3.25 Union Activities.............................................A-21
3.26 ERISA........................................................A-21
3.27 Underlying Documents.........................................A-22
3.28 Full Disclosure..............................................A-22
3.29 Accounts Payable.............................................A-22
3.30 Liabilities..................................................A-22
3.31 Restricted Securities........................................A-23
3.32 Purchase Entirely for Own Account............................A-23
3.33 Permits......................................................A-23
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF STG........................A-23
4.1 Organization.................................................A-23
4.2 Authority....................................................A-23
4.3 Consents and Approvals.......................................A-24
4.4 Capital Structure............................................A-24
4.5 Financial Statements.........................................A-24
4.6 Securities and Exchange Commission Documents.................A-24
4.7 No Conflict..................................................A-24
4.8 Shares of STG Common Stock...................................A-25
4.9 Brokers or Finders...........................................A-25
4.10 Business Changes.............................................A-25
4.11 Rule 144.....................................................A-25
ARTICLE 5 COVENANTS RELATING TO CONDUCT OF BUSINESS....................A-25
5.1 Conduct of Business in Normal Course.........................A-25
5.2 Preservation of Business and Relationships...................A-25
5.3 Maintenance of Insurance.....................................A-25
5.4 Employees and Compensation...................................A-25
5.5 Dividends; Changes in Stock..................................A-26
5.6 Issuance of Securities.......................................A-26
5.7 Governing Documents..........................................A-26
5.8 No Other Bids................................................A-26
5.9 No Acquisitions..............................................A-26
5.10 No Dispositions..............................................A-26
5.11 Indebtedness.................................................A-26
ARTICLE 6 ADDITIONAL AGREEMENTS........................................A-26
6.1 Access to Information........................................A-26
6.2 Legal Conditions.............................................A-27
6.3 Good Faith...................................................A-27
6.4 STG Governing Documents......................................A-27
6.5 Current Available Information................................A-27
6.6 Legend; Stop Transfer Instructions...........................A-27
6.7 Continued Employment of MCBA Employees.......................A-28
6.8 Collection of Accounts Receivable; Sale of Inventory.........A-28
6.9 Books and Records............................................A-28
6.10 Registration Rights..........................................A-28
6.11 Preparation of Proxy Statement; Stockholder Meeting..........A-28
6.12 Formation of Acquisition Sub.................................A-28
ARTICLE 7 CONDITIONS PRECEDENT.........................................A-29
A-3
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Page
----
7.1 Conditions to Obligations of STG and the MCBA Parties........A-29
(a) Third-Party Approvals................................A-29
(b) Legal Action.........................................A-29
(c) Securities Laws......................................A-29
(d) Governmental Consents................................A-29
7.2 Conditions to Obligations of STG.............................A-29
(a) Representations and Warranties.......................A-29
(b) STG Board Approval...................................A-29
(c) Performance of Obligations...........................A-29
(d) Opinion of MCBA's Counsel............................A-30
(e) Financial Statements.................................A-30
(f) No Material Adverse Change...........................A-30
(g) Gunnells, Non-Compete................................A-30
(h) Escrow Agreement.....................................A-30
(i) Earn-Out Escrow Agreement............................A-30
(j) FIRPTA Compliance....................................A-30
(k) Employment Agreement.................................A-30
(l) Acceptance of STG Employment Offers..................A-30
(m) Stockholder Approval.................................A-30
(n) MCBA Closing Date Unaudited Balance Sheet............A-30
(o) Consent of IBM.......................................A-30
(p) Consent of Debt Holders..............................A-30
(q) Innovative Business Systems, Inc.....................A-31
(r) Harkins, Non-Compete.................................A-31
(s) Transfer or Sublease of Leases.......................A-31
(t) Cancellation of Indebtedness.........................A-31
7.3 Conditions to Obligations of the MCBA Parties................A-31
(a) Representations and Warranties.......................A-31
(b) Performance of Obligations of STG....................A-31
(c) Opinion of STG's Counsel.............................A-31
(d) No Material Adverse Change...........................A-31
7.4 Best Efforts.................................................A-31
ARTICLE 8 INDEMNIFICATION AND ESCROW...................................A-32
8.1 Indemnification by MCBA and the Selling Shareholders.........A-32
8.2 Escrow Fund..................................................A-32
8.3 Escrow Period................................................A-33
8.4 Protection of Escrow Fund....................................A-33
8.5 Distributions; Voting........................................A-33
8.6 Claims Upon Escrow Fund......................................A-33
8.7 Objections to Claims.........................................A-33
8.8 Resolution of Conflicts; Arbitration.........................A-34
8.9 Distribution upon Termination of Escrow Period...............A-34
8.10 Escrow Agent's Duties........................................A-34
8.11 Indemnification by STG.......................................A-35
8.12 Indemnification Procedure....................................A-35
ARTICLE 9 TERMINATION, AMENDMENT AND WAIVER............................A-36
9.1 Termination..................................................A-36
9.2 Effect of Termination; Sole Remedy...........................A-36
9.3 Amendment....................................................A-37
A-4
<PAGE>
9.4 Extension; Waiver............................................A-37
ARTICLE 10 GENERAL......................................................A-38
10.1 Notices......................................................A-38
10.2 Headings.....................................................A-38
10.3 Entire Understanding.........................................A-38
10.4 Counterparts.................................................A-38
10.5 Binding Nature...............................................A-38
10.6 Applicable Law...............................................A-38
10.7 Attorneys' Fees..............................................A-39
10.8 Payment of Expenses..........................................A-39
Exhibits
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Exhibit B MCBA Disclosure Schedule
Exhibit C STG Disclosure Schedule
Exhibit 2.15 Form of Earn-Out Escrow Agreement
Exhibit 6.10 Form of Registration Rights Agreement
Exhibit 7.2(d) Form of Opinion of MCBA's Counsel
Exhibit 7.2(g) Form of Michael N. Gunnells' Covenant Not to Compete
Exhibit 7.2(k) Form of Employment Agreement
Exhibit 7.2(q) Form of Innovative IRA
Exhibit 7.2(r) Form of John Harkins and Innovative Covenant Not to Compete
Exhibit 7.3(c) Form of Opinion of STG's Counsel
Exhibit 8.2(a) Form of Escrow Agreement
Schedules
---------
Schedule 3.7 MCBA's Financial Statements
Schedule 3.8(c) MCBA Obligations
Schedule 3.8(d) MCBA Payments
Schedule 3.8(g) MCBA Pledged Collateral
Schedule 3.9(a) Fixed Assets; Properties
Schedule 3.10 Accounts Receivable; Notes Receivable
Schedule 3.11(c) Taxes
Schedule 3.12(b) Compensation
Schedule 3.15 Contracts
Schedule 3.17 Customers
Schedule 3.18 Inventories
Schedule 3.19(a) Proprietary Rights
Schedule 3.20 Insurance
Schedule 3.21 Bank Accounts
Schedule 3.26 Benefit Plans
Schedule 3.29 Accounts Payable
Schedule 3.30 Liabilities
Schedule 3.33 Permits
Schedule 6.7 Employees
A-5
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), made and
entered into as of the 22nd day of November, 1997 by and among SAVOIR TECHNOLOGY
GROUP, INC., a Delaware corporation ("STG"), MCBA SYSTEMS, INC., an Alabama
corporation ("MCBA"), MICHAEL N. GUNNELLS ("Gunnells") and JOHN HARKINS
("Harkins") (such individuals referred to herein collectively as the "Selling
Shareholders" and, together with MCBA, the "MCBA Parties"), as amended by the
FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION, made and entered into
as of the 27th day of March, 1998 by and among STG, STG ACQUISITION CORP., a
Delaware corporation ("Acquisition Corp."), MCBA and the Selling Shareholders
and the SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION, made and
entered into as of the 23rd day of April, 1998 by and among STG, Acquisition
Corp, MCBA and the Selling Shareholders,
W I T N E S S E T H:
WHEREAS, STG will cause a wholly owned Delaware corporation to be
formed as soon as practicable following the date hereof ("Acquisition Sub"); and
WHEREAS, the Boards of Directors of STG and MCBA have each determined
that it is in the best interests of their respective stockholders for STG to
acquire MCBA; and
WHEREAS, in furtherance of the acquisition, Acquisition Sub will merge
with and into MCBA in a reverse triangular merger (the "Merger"), with MCBA to
be the surviving corporation of the Merger; and
WHEREAS, the Merger and this Agreement require the vote of at least a
majority of the shares of common stock, par value $0.01 per share (the "STG
Common Stock"), of STG voting at a meeting duly called for the purpose of voting
on the Merger at which a majority of the outstanding shares are present in
person or by proxy, for the approval thereof (the "STG Stockholder Approval");
and
WHEREAS, upon the effectiveness of the Merger, all of the outstanding
shares of common stock, par value $0.10 per share (the "MCBA Common Stock"), of
MCBA will be converted into STG Common Stock; and
WHEREAS, the Merger is intended to be treated as a tax-free
reorganization pursuant to the provisions of section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), by virtue of the
provisions of section 368(a)(2)(E) of the Code:
NOW, THEREFORE, in consideration of the promises and of the mutual
provisions, agreements and covenants herein contained, STG, MCBA and the Selling
Shareholders agree as follows:
ARTICLE 1
DEFINITIONS
The terms defined in this Agreement shall have their respective defined
meanings whenever such terms are used in this Agreement unless the context
expressly or by necessary implication otherwise requires.
ARTICLE 2
PLAN OF REORGANIZATION; CLOSING
2.1 THE MERGER. At the Effective Time (as defined in Section 2.2
hereof) and subject to and upon the terms and conditions of this Agreement, the
General Corporation Law ("DGCL") of the State of Delaware and Alabama law,
Acquisition Sub shall be merged with and into MCBA, the separate corporate
existence of
A-6
<PAGE>
Acquisition Sub shall cease, and MCBA shall continue as the surviving
corporation (the "Surviving Corporation").
2.2 EFFECTIVE TIME. As promptly as practicable after the satisfaction
or waiver of the conditions precedent set forth in Article 7 hereof, the parties
hereto shall cause the Merger to be consummated by filing the Agreement of
Merger with the Secretary of State of the States of Alabama and Delaware, in
such form as required by, and executed in accordance with, the relevant
provisions of the Alabama Business Corporation Act and the DGCL (the time of
such filing being the "Effective Time").
2.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Alabama law and in
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
all of the assets, property, rights, privileges, powers and franchises of MCBA
and Acquisition Sub shall vest in MCBA, and all of the debts, liabilities and
duties of MCBA and Acquisition Sub shall become the debts, liabilities and
duties of MCBA.
2.4 ARTICLES OF INCORPORATION AND BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of MCBA, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation unless otherwise determined by STG
prior to the Effective Time.
(b) The Bylaws of MCBA, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended
as provided by Alabama law, the Articles of Incorporation of MCBA and the Bylaws
of MCBA.
2.5 DIRECTORS AND OFFICERS. The officers and directors of Acquisition
Sub immediately prior to the Effective Time shall be the initial officers and
directors of the Surviving Corporation, each to hold office in accordance with
the Articles of Incorporation and Bylaws of MCBA and in each case until their
respective successors are duly appointed, qualified and elected.
2.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any further action on the part of Acquisition Sub, MCBA or
their respective shareholders, the following actions shall occur:
(a) PLAN OF MERGER; INITIAL CONSIDERATION. Each share of MCBA Common
Stock issued and outstanding immediately prior to the Effective Time or deemed
to be outstanding by virtue of any security outstanding at the Effective Time
that is convertible into, exercisable or exchangeable for any capital stock of
MCBA (each a "Share" and together the "Shares") will be converted automatically
into the right to receive, and there shall be paid and issued as provided in
this Agreement in exchange for such Share: (i) that number of shares of STG
Common Stock, as shall equal Nine Hundred Thousand (adjusted pursuant to Section
2.17 hereof) divided by the total number of Shares (the "Initial
Consideration"). The aggregate number of shares of STG Common Stock shall be
reduced by that number of shares of STG Common Stock equal to (i) the unpaid
balance of principal and interest pursuant to that certain Promissory Note (the
"Promissory Note"), dated March 31, 1998, issued by MCBA to STG in the aggregate
principal amount of Four Hundred Eighty Thousand Dollars ($480,000.00) divided
by (ii) the value of one share of STG Common Stock which shall be calculated
based on the average closing price of the STG Common Stock (as quoted in the
Wall Street Journal) for the ten (10) trading days up to, but excluding, the
second trading day before the Closing Date. In addition, the Selling
Shareholders shall have the right to receive the Earn-Out Payments as described
in Section 2.12 hereof.
Upon surrender of the certificate or certificates representing the Shares at
the Closing (as defined herein) new certificates for STG Common Stock shall be
issued in accordance with this Section 2.6(a). Such certificates shall include
an appropriate securities law legend, providing, among other things, that the
stock evidenced by the certificates are being acquired for investment purposes
and are restricted securities, as set forth in Section 6.6(a) hereof. Ten
percent (10%) of the Initial Consideration of STG Common Stock will be held by
the escrow agent pursuant to the terms of Article 8 hereof.
A-7
<PAGE>
(b) CAPITAL STOCK OF ACQUISITION SUB. The shares of capital stock of
Acquisition Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and become Five Thousand (5,000) validly issued, fully
paid and nonassessable shares of Common Stock of the Surviving Corporation.
(c) TREASURY STOCK AND STG OWNED STOCK. Each Share issued and held in
MCBA's treasury or owned by STG, and subsidiary of MCBA, STG or Acquisition Sub
shall automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefore.
2.7 NO FURTHER OWNERSHIP RIGHTS IN MCBA COMMON STOCK. All shares of STG
Common Stock issued upon the surrender for exchange of each Share in accordance
with the terms of this Agreement shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares. There shall be no further
registration of transfers on the record of MCBA of Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates evidencing Shares are presented to MCBA or STG for any reason, such
Shares shall be deemed void and canceled.
2.8 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
certificates evidencing Shares shall have been lost, stolen or destroyed, STG
shall issue in exchange for such lost, stolen or destroyed certificates, upon
the making of an affidavit of that fact by the holder thereof, such Shares of
STG Common Stock.
2.9 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Acquisition Sub with the full
right, title and possession of all assets, property, rights, privileges, powers
and franchises of MCBA and Acquisition Sub, the officers and directors of MCBA
and Acquisition Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
2.10 TAX TREATMENT. The parties intend that the Merger be treated as a
reorganization pursuant to the provisions of section 368(a)(1)(A) of the Code,
by virtue of the provisions of section 368(a)(2)(E) of the Code. The parties
hereto agree hereby to report the Merger as such.
2.11 REORGANIZATION. The parties intend to adopt this Agreement as a
plan of reorganization and to consummate the Merger in accordance with the
provisions of section 368(a)(1)(A) of the Code, by virtue of the provisions of
section 368(a)(2)(E) of the Code. The parties believe that the total
consideration to be received in the Merger by the Selling Shareholders,
including the Initial Consideration and the payments received pursuant to
Section 2.12(b), Section 2.12(c) and Section 2.12(f) hereof, is equal to the
total value of the Shares to be surrendered in exchange therefor. No other
transaction other than the Merger represents, provides for or is intended to be
an adjustment to the consideration paid for the Shares. The parties shall not
take a position on any tax returns inconsistent with this Section 2.11. In
addition, STG represents now, and as of the Closing Date, that it presently
intends to continue MCBA's historic business or use a significant portion of
MCBA's business assets in a business (the "MCBA business of STG"). STG has no
current plan or intention to liquidate MCBA, to merge MCBA with and into another
corporation, to sell or otherwise dispose of the capital stock of MCBA or to
cause MCBA to sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business or transfers described in
section 368(a)(2)(C) of the Code. The provisions and representations contained
or referred to in this Section 2.11 shall survive until the expiration of the
applicable statute of limitations.
2.12 EARN-OUT PAYMENTS. The Selling Shareholders shall have the
opportunity to receive additional STG Common Stock pursuant to the following
terms (the "Earn-Out Payments"):
(a) The Earn-out Payments received by the Selling Shareholders will be
based on the following components: (i) an amount equal to the MCBA Net Pretax
Profit Dollars (as defined in Section 2.12(e) hereof) for the twelve (12) month
period ending December 31, 1998 (the "1998 Net Pretax Profit"); (ii) an amount
equal to the MCBA Net Pretax Profit Dollars for the twelve (12) month period
ending December 31, 1999 (the "1999 Net Pretax Profit"; (iii) an amount equal to
five (5) times the amount by which the 1998 Net Pretax
A-8
<PAGE>
Profit exceeds One Million Eight Hundred Thousand Dollars ($1,800,000) (the
"Year 1 Profit Component"); and (iv) an amount equal to five (5) times the
amount by which the 1999 Net Pretax Profit exceeds One Million Eight Hundred
Thousand Dollars ($1,800,000) (the "Year 2 Profit Component").
(b) On or before January 31, 1999, STG shall calculate, and deliver
notice of such calculation to the Selling Shareholders (the "Year 1
Calculation"), the 1998 Net Pretax Profit. If the 1998 Net Pretax Profit exceeds
One Million Eight Hundred Thousand Dollars ($1,800,000), STG shall deliver to
the Selling Shareholders, pursuant to Section 2.12(d) hereof, an Earn-Out
Payment to be paid to the Selling Shareholders equal to 75% of the Year 1 Profit
Component (together, the "1998 Earn-Out Payment").
(c) On or before January 31, 2000, STG shall calculate, and deliver
notice of such calculation to the Selling Shareholders (the "Year 2
Calculation"), the 1999 Net Pretax Profit. If the 1999 Net Pretax Profits exceed
One Million Eight Hundred Thousand Dollars ($1,800,000), STG shall deliver to
the Selling Shareholders, pursuant to Section 2.12(d) hereof, an Earn-Out
Payment to be paid to the Selling Shareholders equal to (i) an amount equal to
25% of the Year 1 Profit Component and (ii) the Year 2 Profit Component
(together, the "1999 Earn-Out Payment").
(d) The Earn-Out Payments shall be paid in STG Common Stock in equal
percentages to each of Gunnells and Harkins subject to the terms of Sections
2.12(f), 2.15 and 2.16 hereof. The value of the STG Common Stock to be issued as
Earn-Out Payments shall be calculated based on the average closing price of the
STG Common Stock (as quoted in the Wall Street Journal) for the ten (10) trading
days up to, but excluding, the second trading day before December 30, 1998 and
December 30, 1999, as applicable. The STG Common Stock held in escrow provided
for in Section 2.15 shall be disbursed from escrow as needed to make the
Earn-Out Payments. The remaining shares of STG Common Stock payable under this
Section 2.12 shall be newly validly issued, fully paid and nonassessable, shares
of STG Common Stock. The aggregate amount of all shares of STG Common Stock
issued as Earn-Out Payments and as Initial Consideration shall not exceed Two
Million Four Hundred Thousand (2,400,000) shares of STG Common Stock, adjusted
pursuant to Section 2.17 hereof.
(e) MCBA Net Pretax Profit Dollars shall be calculated as follows
("MCBA Net Pretax Profit Dollars"): MCBA Revenue - (MCBA Cost of Goods Sold +
MCBA Operating Expenses). For the purposes of this Section 2.12(e) the following
definitions shall apply:
(i) MCBA Revenue shall mean all revenues, fees, promotional
payments, marketing development funds, service fees, fees from IBM
Credit Corporation and any other fees or payments derived from sales
through MCBA and System 390 sales through STG and its affiliates.
(ii) MCBA Cost of Goods Sold shall mean any direct cost
associated with the sales of hardware, software, or any type of
services through MCBA.
(iii) MCBA Operating Expenses shall mean those expenses
incurred in the operation of MCBA. This shall exclude any allocations
to MCBA of any corporate fees and expenses (including, but not limited
to, operating, overhead, administrative or similar costs and expenses)
from STG or any other affiliated company, but shall include the
interest costs of, or income from, the working capital necessary to the
operation of MCBA.
For the purpose of calculating the Earn-Out Payments and MCBA Net
Pretax Profit Dollars, separate books and records shall be maintained by STG
with respect to the MCBA Revenue, MCBA Cost of Goods Sold and MCBA Operating
Expenses. Such books and records shall be maintained in accordance with
generally accepted accounting principles ("GAAP") and classified consistent with
MCBA's past accounting practices.
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(f) The Selling Shareholders will be entitled to reasonable rights to
audit the Earn-Out Payments. Upon receipt of the Earn-Out Calculations from STG,
the Selling Shareholders shall have ten (10) business days in which to request
in writing that STG deliver within ten (10) business days of such request the
books and records, and back up invoices and schedules, to the Selling
Shareholders or their accountant to confirm the Earn-Out Calculations. If within
ten (10) business days after receipt of the Earn-Out Calculations from STG, the
Selling Shareholders do not request such books and records or if within thirty
(30) business days after receipt of such books and records the Selling
Shareholders do not object to the Earn-Out Calculations, STG shall deliver
instructions to its transfer agent to issue and deliver to the Selling
Shareholders the STG Common Stock pursuant to the Earn-Out Payments as soon as
reasonably practicable. If the Selling Shareholders request such books and
records and within thirty (30) business days after receipt of such books and
records, the Selling Shareholders object, in writing to STG, to the Earn-Out
Calculations, STG and the Selling Shareholders shall work together in good faith
to see if they can reach an agreement on the appropriate Earn-Out Payment. If
within fourteen (14) calendar days the parties have not reached an agreement,
the parties shall choose a nationally recognized accounting firm mutually agreed
upon by STG and the Selling Shareholders who shall calculate the appropriate
Earn-Out Payment. If no such agreement can be reached, then each of STG and the
Selling Shareholders shall appoint one nationally recognized accounting firm,
which accounting firms shall pick a third nationally recognized accounting firm
who shall calculate the appropriate Earn-Out Payment. In the event that either
STG or the Selling Shareholders shall fail to select a nationally recognized
firm in accordance with the provisions of this subsection within thirty (30)
days after notice by the other party that such selection should be made, and
such other party has selected a nationally recognized accounting firm pursuant
to the provisions hereof, the nationally recognized accounting firm selected by
such party shall calculate the appropriate Earn-Out Payment. The decision of
such nationally recognized accounting firm shall be conclusive and binding on
both parties. Each of STG and the Selling Shareholders shall pay the costs and
expenses of its own accountant and the Selling Shareholders shall pay the costs
of the nationally recognized accounting firm selected by both parties or their
representatives (the "Independent Accountant"); provided, however, that if a
dispute arises that is resolved by the Independent Accountant and the amount of
the Earn-Out Payment as calculated by the Independent Accountant exceeds by more
than five percent (5%) the Earn-Out Calculations, STG shall pay the costs and
expenses of the Selling Shareholders' and the Independent Accountant's costs and
expenses.
(g) During the period subsequent to Closing and ending on July 15,
2000, (i) STG shall conduct its business in conformity with sound business
practices and consistent with past practices and (ii) STG shall not take any
voluntary action for the purpose of preventing the Selling Shareholders from
being able to earn the Earn-Out Payments or avoiding or seeking to avoid the
observance or performance of any of the terms under this Section 2.12, and shall
at all times in good faith assist in carrying out all such actions as may be
reasonably necessary or appropriate in order to protect the rights of the
Selling Shareholders with respect to its ability to earn the Earn-Out Payments
against impairment. Notwithstanding this Section 2.12(g), nothing contained
herein shall require the officers and directors of STG to maintain STG's
business in a manner or take actions that would violate their fiduciary duties
to STG and its shareholders.
(h) If between the date hereof and July 15, 2000, STG commences a
voluntary case under the federal bankruptcy laws or a petition is filed against
STG under the federal bankruptcy laws (the "Bankruptcy Date") and is not
dismissed within ninety (90) days, the Selling Shareholders shall be entitled to
receive out of the Earn-Out Escrow, as defined in Section 2.15 hereof, an amount
of STG Common Stock equal to the Earn-Out Payments earned by them at the time of
the Bankruptcy Date and, to the extent the Earn-Out Escrow is insufficient to
pay the Earn-Out Payments earned by the Selling Shareholders, the Selling
Shareholders shall be entitled to seek recovery of any remaining Earn-Out
Payments due as unsecured creditors of STG in the related bankruptcy
proceedings.
2.13 CLOSING DATE. The Closing under this Agreement (the "Closing")
shall be held not more than two (2) business days following the satisfaction of
all conditions precedent specified in this Agreement, unless duly waived by the
party entitled to satisfaction thereof. In any event, if the Closing has not
occurred on or before June 5, 1998, this Agreement may be terminated as provided
in Section 9.1(c) hereof. Such date on which the Closing is to be held is herein
referred to as the "Closing Date." The Closing shall be held at the
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offices of Pillsbury Madison & Sutro LLP, 2550 Hanover St., Palo Alto,
California, at 10:00 a.m. on such date, or at such other time and place as STG
and MCBA may agree upon in writing.
2.14 ESCROW FOR INITIAL CONSIDERATION. The Selling Shareholders agree
that ten percent (10%) of the STG Common Stock issued to the Selling
Shareholders pursuant to Section 2.6(a) of this Agreement will be placed in
escrow, as described in Article 8 hereof, as security for indemnification as
provided in Article 8 hereof and for the Selling Shareholders' obligations under
Section 6.8 hereof until six (6) months after the Effective Time. On such date
STG, shall instruct the Escrow Agent to promptly deliver any share certificates
to the Selling Shareholders in equal proportion.
2.15 EARN-OUT ESCROW. At the Closing, STG shall pay to First Trust of
California, National Association, as escrow agent, Three Hundred Thousand
(300,000) shares of STG Common Stock, adjusted pursuant to Section 2.17 hereof,
issued to Gunnells and Harkins in equal proportion as owners, with voting and
distribution rights in accordance with the Earn-Out Escrow Agreement, subject
only to the failure to achieve the Earn-Out Payments described in Section 2.12
hereof, and as security for indemnification as provided in Article 8 hereof and
for the Selling Shareholders' obligations under Section 6.8 hereof. The form of
Escrow Agreement for the Earn-Out Payments is in the form attached hereto as
EXHIBIT 2.15 (the "Earn-Out Escrow Agreement").
2.16 RIGHT OF SET-OFF.
(a) In addition to such other rights and remedies STG may have with
respect to the collection of Indemnifiable Damages (as defined in Section 8.1
hereof) owed by the Selling Shareholders to STG provided for in Article 8
hereof, the collection of Accounts Receivable or the Sale of Inventory (as
defined in Section 6.8 hereof) provided for in Section 6.8 hereof, STG shall
have the right of set-off and shall have the right to charge any part or all of
the Indemnifiable Damages, or uncollected Accounts Receivable or Unsold
Inventory owed by the Selling Shareholders to STG against the Earn-Out Payments
upon compliance with the notice, dispute and arbitration provisions as set forth
in this Section 2.16 (the "Right of Set-Off").
(b) STG shall provide written notice to the Spokesperson (as defined in
Section 8.7 hereof), of STG's intent to exercise its Right of Set-Off (the
"Set-Off Notice"), specifying in reasonable detail the individual items of
Indemnifiable Damages included in the amount so stated, the date each such item
was paid or properly accrued, and the nature of the misrepresentation, breach of
warranty or claim to which such item is related.
(c) For the purpose of a Right of Set-Off pursuant to this Agreement,
each share of STG Common Stock shall be valued at an amount equal to the average
ten (10) day closing price per share of STG Common Stock on The Nasdaq Stock
Market prior to the date on which the STG Common Stock is to be paid as an
Earn-Out Payment.
(d) Upon receipt of the Set-Off Notice, the Spokesperson shall have
thirty (30) days after such delivery to object in writing to any Right of
Set-Off. If the Spokesperson shall object in writing to the Set-Off Notice, the
Spokesperson and STG shall attempt in good faith to agree upon the rights of the
respective parties with respect to each claim therein. If no such agreement can
be reached after good faith negotiation within sixty (60) days after objection
by either the Spokesperson or STG, either STG or the Spokesperson may demand
arbitration of the matter and the matter shall be settled by arbitration
conducted in the manner set forth in Section 8.8 hereof.
(e) STG shall use its best efforts to minimize any liabilities,
damages, deficiencies, claims, judgments, assessments, costs and expenses in
respect of which a Right of Set-Off may be sought under this Agreement, and
shall otherwise comply with all the provisions of Section 8.12 hereof.
2.17 ADJUSTMENTS TO EARN-OUT STOCK. The amount of STG Common Stock
issued as Initial Consideration or Earn-Out Payments shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible int STG Common
Stock),
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reorganization, recapitalization or other like change with respect to STG Common
Stock effected without consideration, occurring after the date hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF MCBA
AND THE SELLING SHAREHOLDERS
Except as otherwise set forth in the disclosure schedule attached
hereto as EXHIBIT B (the "Disclosure Schedule"), MCBA and the Selling
Shareholders represent and warrant to STG as of the date hereof as follows:
3.1 ORGANIZATION. MCBA is a corporation duly organized, validly
existing and in good standing under the laws of the State of Alabama, and is not
required to be qualified in any other jurisdiction except where the failure to
be so qualified will not have a material adverse effect on MCBA and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
3.2 CAPITAL STRUCTURE; TITLE TO SHARES; SELLING SHAREHOLDERS AUTHORITY.
The authorized capital stock of MCBA consists of Ten Thousand (10,000) shares of
common stock, par value $0.10 per share. As of the date hereof and as of the
Closing Date, Five Thousand (5,000) shares of MCBA Common Stock were issued and
outstanding. Gunnells and Harkins are the sole shareholders of MCBA, and each
own Two Thousand Five Hundred (2,500) shares of MCBA Common Stock.
All of the outstanding MCBA Common Stock was issued in compliance with
applicable federal and state securities laws and regulations. All of the
outstanding shares of MCBA Common Stock are duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights created by
statute, MCBA's Articles of Incorporation or Bylaws, or any agreement to which
MCBA or the Selling Shareholders is a party.
Each Selling Shareholder has, and on the Closing Date will have, good
and marketable title to the shares of MCBA Common Stock proposed to be sold by
such Selling Shareholder and full right, power and authority to enter into this
Agreement and to sell, assign, transfer and deliver such shares of MCBA Common
Stock hereunder, free and clear of all voting trust arrangements, liens,
encumbrances, equities, security interests, restrictions and claims whatsoever;
and upon delivery of and payment for such shares of MCBA Common Stock hereunder,
Buyer will acquire good and marketable title thereto, free and clear of all
liens, encumbrances, equities, claims, restrictions, security interests, voting
trusts or other defects of title whatsoever.
3.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. There are no options,
warrants, calls, rights, commitments or agreements of any character to which
MCBA or the Selling Shareholders is a party or by which it is bound obligating
MCBA or the Selling Shareholders to issue any shares of capital stock of MCBA or
obligating MCBA or the Selling Shareholders to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement. There are no voting
trusts, proxies or other agreements with respect to the shares of capital stock
of MCBA.
3.4 EQUITY INVESTMENTS. MCBA does not own any equity stock or interest,
directly or indirectly, in any corporation, partnership, joint venture, firm or
other entity. MCBA has no Subsidiaries (as such term is defined in Section 6.2
hereof).
3.5 AUTHORITY. MCBA has all requisite corporate power and authority to
enter into this Agreement and, subject to satisfaction of the conditions set
forth herein, to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of MCBA. This Agreement has been duly executed and
delivered by MCBA and the Selling Shareholders and constitutes the valid and
binding obligation of MCBA and the Selling Shareholders, enforceable in
accordance with its terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the rights of
creditors and the effect or availability of rules of law governing specific
performance, injunctive relief
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or other equitable remedies. Provided the conditions set forth in Article 7 are
satisfied, the execution and delivery of this Agreement does not nor will not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation under (a) any provision of the Articles of
Incorporation or Bylaws of MCBA or (b) any material agreement or instrument,
permit, franchise, license, judgment, order, decree, rule or regulation of any
court or governmental agency or body applicable to MCBA or the Selling
Shareholders or their respective properties or assets.
3.6 CONSENTS AND APPROVALS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority (a
"Governmental Entity"), is required by or with respect to MCBA or the Selling
Shareholders in connection with the execution and delivery of this Agreement by
MCBA or the Selling Shareholders or the consummation by MCBA or the Selling
Shareholders of the transactions contemplated hereby or thereby, except (a) in
connection, or in compliance, with the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (b) the filing
of the Certificate of Merger with the Secretary of State of the State of Alabama
and appropriate documents with the relevant authorities of other states in which
MCBA is qualified to do business, (c) such filings, authorizations, orders and
approvals as may be required by state takeover laws (the "State Takeover
Approvals") or state securities or "blue sky" laws, and (d) such other consents,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on MCBA or prevent or
result in a third party materially delaying the consummation of the Merger.
3.7 FINANCIAL STATEMENTS. MCBA has furnished STG with audited
statements of income and retained earnings for the fiscal year ended December
31, 1996 and MCBA's audited consolidated balance sheet at December 31, 1996 (the
"MCBA Audited Financials"). MCBA has furnished STG with a reviewed statement of
income and retained earnings for the fiscal year ended December 31, 1995 and
MCBA's reviewed consolidated balance sheet at December 31, 1995 (the "MCBA
Reviewed Financials"). MCBA has furnished STG with an unaudited statement of
income and retained earnings for the Nine (9) month period ended September 30,
1997 and MCBA's unaudited consolidated balance sheet at September 30, 1997 (the
"MCBA Balance Sheet"). All such financial statements are attached hereto as
SCHEDULE 3.7. Prior to Closing, MCBA shall furnish STG with an audited statement
of income and retained earnings for the fiscal year ended December 31, 1997 and
MCBA's audited consolidated balance sheet at December 31, 1997. Within sixty
(60) days following Closing, MCBA will furnish to STG an audited Closing Date
balance sheet of MCBA and statement of income and retained earnings for the
period ended as of the Closing Date (the "Closing Date Balance Sheet"). All of
the above financial statements are hereinafter referred to as the "MCBA
Financial Statements." The MCBA Financial Statements have been and will be
complete, true and accurate in all material respects and, except for any interim
financial statements, have been prepared by an independent certified public
accountant in accordance with GAAP applied on a consistent basis during the
periods involved, and are or will be in accordance with MCBA's books and
records, and fairly present the financial position of MCBA and the results of
its operations as of the date and for the periods indicated thereon. At the date
of the MCBA Balance Sheet (the "MCBA Balance Sheet Date") and as of the Closing
Date, MCBA had and will have no liabilities or obligations, secured or unsecured
(whether accrued, absolute, contingent or otherwise) not reflected on the MCBA
Balance Sheet or Closing Date Balance Sheet or the accompanying notes thereto.
3.8 BUSINESS CHANGES. Since September 30, 1997, except as otherwise
contemplated by this Agreement or as disclosed in writing to STG, MCBA has
conducted its business only in the ordinary and usual course and, without
limiting the generality of the foregoing:
(a) There have been no changes in the condition (financial or
otherwise), business, net worth, assets, properties, employees, operations,
obligations or liabilities of MCBA which, in the aggregate, have had or may be
reasonably expected to have a materially adverse effect on the condition,
business, net worth, assets, prospects, properties or operations of MCBA.
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(b) MCBA has not issued, or authorized for issuance, or entered into
any commitment to issue, any equity security, bond, note or other security of
MCBA.
(c) Except as disclosed on SCHEDULE 3.8(C), MCBA has not incurred debt
for borrowed money, nor incurred any obligation or liability except in the
ordinary and usual course of business and in any event not in excess of ten
Thousand Dollars ($10,000) for any single occurrence.
(d) Except for the payments identified in SCHEDULE 3.8(D), MCBA has not
paid any obligation or liability, or discharged, settled or satisfied any claim,
lien or encumbrance, except for current liabilities in the ordinary and usual
course of business and in any event not in excess of Ten Thousand Dollars
($10,000) for any single occurrence.
(e) MCBA has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock of MCBA.
(f) MCBA has not purchased, redeemed or otherwise acquired or committed
itself to acquire, directly or indirectly, any share or shares of capital stock
of MCBA.
(g) Except as disclosed on SCHEDULE 3.8(G), MCBA has not mortgaged,
pledged, or otherwise encumbered any of its assets or properties, other than
inventory sold in the normal course of business or accounts receivable.
(h) MCBA has not disposed of, or agreed to dispose of, by sale, lease,
license or otherwise, any asset or property, tangible or intangible, except, in
the case of such other assets and property, in the ordinary and usual course of
business, and in each case for a consideration believed to be at least equal to
the fair value of such asset or property and in any event not in excess of Five
Thousand Dollars ($5,000) for any single item or Twenty-Five Thousand Dollars
($25,000) in the aggregate other than inventory sold or returned in the normal
course of business.
(i) MCBA has not purchased or agreed to purchase or otherwise acquire
any securities of any corporation, partnership, joint venture, firm or other
entity; MCBA has not made any expenditure or commitment for the purchase,
acquisition, construction or improvement of a capital asset, except in the
ordinary and usual course of business and in any event not in excess of Five
Thousand Dollars ($5,000) for any single item or Twenty-Five Thousand Dollars
($25,000) in the aggregate.
(j) MCBA has not entered into any transaction or contract, or made any
commitment to do the same, except in the ordinary and usual course of business.
(k) MCBA has not sold, assigned, transferred or conveyed, or committed
itself to sell, assign, transfer or convey, any Proprietary Rights (as defined
in Section 3.19 hereof).
(l) MCBA has not adopted or amended any bonus, incentive,
profit-sharing, stock option, stock purchase, pension, retirement,
deferred-compensation, severance, life insurance, medical or other benefit plan,
agreement, trust, fund or arrangement for the benefit of employees of any kind
whatsoever, nor entered into or amended any agreement relating to employment,
services as an independent contractor or consultant, or severance or termination
pay, nor agreed to do any of the foregoing.
(m) MCBA has not effected or agreed to effect any change in its
directors, officers or key employees.
(n) MCBA has not effected or committed itself to effect any amendment
or modification in its Articles of Incorporation or Bylaws, except as
contemplated in this Agreement.
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3.9 FIXED ASSETS; PROPERTIES.
(a) SCHEDULE 3.9(A) sets forth the real and personal property,
including fixed assets and equipment, owned or leased by MCBA. The MCBA Balance
Sheet reflects and the Closing Date Balance Sheet will reflect all of the
personal property owned or leased and used by MCBA in its business or otherwise
held by MCBA, except for (i) property acquired or disposed of in the ordinary
and usual course of the business of MCBA since the date of such Balance Sheet,
and (ii) personal property not required under GAAP to be reflected thereon.
Except as reflected in the notes to the MCBA Balance Sheet and Closing Date
Balance Sheet or SCHEDULE 3.8(G), MCBA has good and marketable title to all
assets and properties listed on the MCBA Balance Sheet and Closing Date Balance
Sheet and thereafter acquired, free and clear of any imperfections of title,
lien, claim, encumbrance, restriction, charge or equity of any nature
whatsoever, except for the lien of current taxes not yet delinquent. The fixed
assets described in SCHEDULE 3.9(A) constitute all of the tangible personal
property (other than inventory) currently used in the business. All of the fixed
assets reflected on the MCBA Balance Sheet and Closing Date Balance Sheet or
thereafter acquired are in good condition and repair for the requirements of the
business as presently conducted by MCBA.
(b) MCBA has provided STG with a full and complete list of all real and
personal property leased by MCBA or under option to purchase by MCBA. All such
property leased by MCBA is held under valid, existing and enforceable leases.
The operations of MCBA thereon do not violate any applicable material building
code, zoning requirement or classification, or pollution control ordinance or
statute relating to the property or to such operations.
(c) To the best of MCBA's and the Selling Shareholders' knowledge there
are no Hazardous Substances in, under or about the soil, sediment, surface water
or groundwater on, under or around any properties at any time owned, leased or
occupied by MCBA. MCBA has not disposed of any Hazardous Substances on or about
such property. MCBA has not disposed of any materials at any site being
investigated or remediated for contamination or possible contamination of the
environment. "Hazardous Substances" shall mean any substance regulated or
prohibited by any law or designated by any governmental agency to be hazardous,
toxic, radioactive, regulated medical waste or otherwise a danger to health or
the environment.
(d) MCBA has conducted its business in accordance with all applicable
laws, regulations, orders and other requirements of governmental authorities
relating to Hazardous Substances and the use, storage, treatment, disposal,
transport, generation, release and exposure of others to Hazardous Substances.
MCBA has not received any notice of any investigation, claim or proceeding
against MCBA relating to Hazardous Substances and MCBA is not aware of any fact
or circumstance which could involve MCBA in any environmental litigation,
proceeding, investigation or claim or impose any environmental liability upon
MCBA.
3.10 ACCOUNTS RECEIVABLE; NOTES RECEIVABLE. SCHEDULE 3.10 contains a
summary of the accounts receivable of MCBA as of September 30, 1997, together
with an accurate aging of such accounts receivable. The accounts receivable set
forth on SCHEDULE 3.10 and those outstanding and unpaid as of the Closing Date
that will be reflected in the Closing Date Balance Sheet (together, the
"Accounts Receivable") arose out of or will arise out of the bona fide
furnishing of goods and services, each in the operation of the business of MCBA,
and require or will require no additional performance by MCBA. To the best of
MCBA's and the Selling Shareholders' knowledge the Accounts Receivable are
collectible at their full amounts, subject only to the amount of any bad debt
allowance reflected on the Closing Date Balance Sheet. Except as set forth on
SCHEDULE 3.10, the notes receivable are obligations of current customers of
MCBA, whether on an open account or cash on delivery basis, and there are no
disputes between MCBA and any obligor under any such note receivable with
respect to the amount owing or the payment terms thereunder. MCBA has provided
STG with accurate information concerning amounts and aging of Accounts
Receivable and with an accurate customer list of MCBA. MCBA shall prepare an
Accounts Receivable report as of the end of the business day preceding the
Closing Date (the "Report") which shall include MCBA's trade accounts receivable
arising out of the operation of MCBA's business in the ordinary course which are
unpaid as of the Closing Date and which reconciles to the Closing Date Balance
Sheet. The Report shall be attached hereto as of the Closing Date as SCHEDULE
3.10.
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3.11 TAXES.
(a) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any and all taxes, including without limitation (i) any income, profits,
alternative or add-on minimum tax, gross receipts, sales, use, value-added, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, net worth, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or assessment or charge of any kind whatsoever, together with any interest
or any penalty, addition to tax or additional amount imposed by any Governmental
Entity responsible for the imposition of any such tax (domestic or foreign) (a
"Taxing Authority"), (ii) any liability for the payment of any amounts of the
type described in clause (i) above as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof, and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) above
as a result of any express or implied obligation to indemnify any other person.
(b) All Tax returns, statements, reports and forms (including estimated
Tax returns and reports and information returns and reports) required to be
filed with any Taxing Authority with respect to any Taxable period ending on or
before the Effective Time, by or on behalf of MCBA (collectively, the "MCBA
Returns"), have been or will be filed when due (including any extensions of such
due date), and all amounts shown to be due thereon on or before the Effective
Time have been or will be paid on or before such date. The MCBA Financial
Statements fully accrue all actual and contingent liabilities for Taxes with
respect to all periods through the dates thereof in accordance with GAAP. The
MCBA Balance Sheet (i) fully accrues consistent with past practices and in
accordance with GAAP all actual and contingent liabilities for Taxes with
respect to all periods through the MCBA Balance Sheet Date and (ii) properly
accrues consistent with past practices and in accordance with GAAP all
liabilities for Taxes payable after the MCBA Balance Sheet Date with respect to
all transactions and events occurring on or prior to such date. All information
set forth in the notes to the MCBA Financial Statements relating to Tax matters
is true, complete and accurate in all material respects.
(c) No Tax liability since the MCBA Balance Sheet Date has been
incurred other than in the ordinary course of business and adequate provision
has been made for all Taxes since that date in accordance with GAAP on at least
a quarterly or, with respect to employment taxes, monthly basis. MCBA has
withheld and paid to the applicable financial institution or Taxing Authority
all amounts required to be withheld. Except as set forth in SCHEDULE 3.11(C),
all MCBA Returns filed with respect to federal income tax returns for Taxable
years of MCBA in the case of the United States, have been examined and closed
and copies of audit reports previously have been provided to STG or are MCBA
Returns with respect to which the applicable period for assessment under
applicable law, after giving effect to extensions or waivers, has expired. MCBA
has not granted any extension or waiver of the limitation period applicable to
any MCBA Returns.
(d) There is no claim, audit, action, suit, proceeding or investigation
now pending or, to the best knowledge of MCBA, threatened against or with
respect to MCBA in respect of any Tax or assessment. There are no liabilities
for Taxes with respect to any notice of deficiency or similar document of any
Tax Authority received by MCBA which have not been satisfied in full (including
liabilities for interest, additions to tax and penalties thereon and related
expenses). Neither MCBA nor any person on behalf of MCBA has entered into or
will enter into any agreement or consent pursuant to section 341(f) of the Code.
There are no liens for Taxes upon the assets of MCBA except liens for current
Taxes not yet due. Except as may be required as a result of the Merger, MCBA has
not been and will not be required to include any adjustment in Taxable income
for any Tax period (or portion thereof) pursuant to section 481 or 263A of the
Code or any comparable provision under state, local or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Effective Time.
(e) There is no contract, agreement, plan or arrangement, including
without limitation the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of MCBA
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to section 280G or section 162 of the Code
(as determined without regard to section
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280G(b)(4)). Other than pursuant to this Agreement, MCBA is not a party to or
bound by (and will not prior to the Effective Time become a party to or bound
by) any tax indemnity, tax sharing or tax allocation agreement (whether written,
unwritten or arising under operation of federal law as a result of being a
member of a group filing consolidated tax returns, under operation of certain
state laws as a result of being a member of a unitary group, or under comparable
laws of other states or foreign jurisdictions) which includes a party other than
MCBA. None of the assets of MCBA (i) is property that MCBA is required to treat
as owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former section 168(f)(8) of the Code, (ii) directly or indirectly
secures any debt the interest on which is tax exempt under section 103(a) of the
Code, (iii) is "tax exempt use property" within the meaning of section 168(h) of
the Code or (iv) is property the taxable disposition of which would give rise to
"recognized built-in gain" within the meaning of section 1374 of the Code or
comparable provisions of state, local or foreign Tax laws. MCBA has not
participated in (and prior to the Effective Time MCBA will not participate in)
an international boycott within the meaning of section 999 of the Code. MCBA has
previously provided or made available to STG true and correct copies of all MCBA
Returns, and, as reasonably requested by STG, prior to or following the date
hereof, presently existing information statements, reports, work papers, Tax
opinions and memoranda and other Tax data and documents.
(f) Since the date of its incorporation, MCBA has validly elected to
be, has been continuously, and is currently and validly taxable as an "S
corporation" under section 1361, et seq., of the Code and comparable provisions
of applicable state, local and foreign Tax laws. No event has occurred nor will
have occurred prior to the Effective Time which has terminated or will
terminate, under section 1362(d) of the Code or comparable provisions of state,
local or foreign Tax laws, the election of TSI to be so taxable. As of the
Effective Time, and except as set forth in SCHEDULE 3.11(C), MCBA will have no
"accumulated earnings and profits" within the meaning of section 1362(d)(3) of
the Code or comparable provisions of state, local or foreign Tax laws.
(g) MCBA is not liable for and will not prior to the Effective Time
become a party to or liable for, nor will it become liable for in the future as
a result of any actions taken by MCBA or the Selling Shareholders prior to the
Effective Time, any taxes, including, without limitation, any payroll taxes,
incurred by Mini-Computer Business Application, Inc. or Innovative Business
Systems, Inc. (together, the "Affiliated Companies") including, without
limitation, as a result of any tax indemnity, tax sharing or tax allocation
agreement (whether written, unwritten or arising under operation of federal law
as a result of being a member of a group filing consolidated tax returns, under
operation of certain state laws as a result of being a member of a unitary
group, or under comparable laws of other states or foreign jurisdictions). MCBA
is not a party to or liable for, nor is any of the property of MCBA subject to
any liens relating to, the Installment Agreement by and among the Internal
Revenue Service ("IRS"), Mini-Computer Business Applications Inc. and Innovative
Business Systems, Inc. dated as of February 26, 1996.
3.12 EMPLOYEES; COMPENSATION. MCBA has provided in SCHEDULE 3.12(B) a
full and complete list of (a) all directors, officers, employees or consultants
of MCBA as of the date set forth thereon, specifying their names and job
designations, their dates of hire, the total amount paid or payable as wages,
salaries or other forms of direct compensation, the basis of such compensation,
whether fixed or commission or a combination thereof, and (b) except as set
forth on SCHEDULE 3.26, all employee profit sharing, stock option, stock
purchase, pension, bonus, incentive, retirement, medical reimbursement, life
insurance, deferred compensation or any other employee benefit plan or
arrangement. Since September 30, 1997, MCBA has not paid or committed itself to
pay to or for the benefit of any of its directors, officers, employees or
shareholders any compensation of any kind other than wages, salaries and
benefits at the times and rates in effect on SCHEDULE 3.12(B), nor has it
effected or agreed to effect any amendment or supplement to any employee profit
sharing, stock option, stock purchase, pension, bonus, incentive, retirement,
medical reimbursement, life insurance, deferred compensation or any other
employee benefit plan or arrangement except as set forth on SCHEDULE 3.12(B) or
SCHEDULE 3.26. MCBA does not have any bonus plan or obligations with respect to
any bonus plan, except as set forth in SCHEDULE 3.12(B).
3.13 COMPLIANCE WITH LAW. All material licenses, franchises, permits,
clearances, consents, certificates and other evidences of authority of MCBA
which are necessary to the conduct of MCBA's business
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("Permits") are in full force and effect and MCBA is not in violation of any
Permit in any material respect. The business of MCBA has been conducted in
accordance with all applicable laws, regulations, orders and other requirements
of governmental authorities.
3.14 LITIGATION. Except for litigation initiated by MCBA relating to
collections, there is no claim, dispute, action, proceeding, notice, order,
suit, appeal or investigation, at law or in equity, pending against MCBA, or
involving any of its assets or properties, before any court, agency, authority,
arbitration panel or other tribunal (other than those, if any, with respect to
which service of process or similar notice has not yet been made on MCBA), and
none have been threatened. MCBA and the Selling Shareholders are aware of no
facts which, if known to shareholders, customers, governmental authorities or
other persons, would result in any such claim, dispute, action, proceeding, suit
or appeal or investigation. MCBA is not subject to any order, writ, injunction
or decree of any court, agency, authority, arbitration panel or other tribunal,
nor is it in default with respect to any notice, order, writ, injunction or
decree.
3.15 CONTRACTS. Except as provided herein, MCBA has provided STG with a
complete list in SCHEDULE 3.15 of each executory contract and agreement in the
following categories to which MCBA is a party, or by which it is bound in any
respect: (a) agreements for the purchase, sale, lease or other disposition of
equipment, goods, materials, research and development, supplies, studies or
capital assets, or for the performance of services, in any case involving more
than Five Thousand Dollars ($5,000); (b) contracts or agreements for the joint
performance of work or services, and all other joint venture agreements; (c)
management or employment contracts, consulting contracts, collective bargaining
contracts, termination and severance agreements; (d) notes, mortgages, deeds of
trust, loan agreements, security guarantees, debentures, indentures, credit
agreements and other evidences of indebtedness; (e) pension, retirement,
profit-sharing, deferred compensation, bonus, incentive, life insurance,
hospitalization or other employee benefit plans or arrangements (including,
without limitation, any contracts or agreements with trustees, insurance
companies or others relating to any such employee benefit plan or arrangement);
(f) stock option, stock purchase, warrant, repurchase or other contracts or
agreements relating to any share of capital stock of MCBA; (g) contracts or
agreements with agents, brokers, consignees, sales representatives or
distributors; (h) contracts or agreements with any director, officer, employee,
consultant or shareholder; (i) powers of attorney or similar authorizations
granted by MCBA to third parties; (j) licenses, sublicenses, royalty agreements
and other contracts or agreements to which MCBA is a party, or otherwise
subject, relating to technical assistance or to Proprietary Rights (as defined
in Section 3.19 hereof); and (k) other material contracts.
MCBA has not entered into any contract or agreement containing
covenants limiting the right of MCBA or the Selling Shareholders to compete in
any business or with any person. As used in this Agreement, the terms "contract"
and "agreement" include every contract, agreement, commitment, understanding and
promise, whether written or oral.
The contract, dated January 11, 1996 and as amended on January 25,
1996, by and between MCBA and Bluebird Systems (the "Bluebird Contract")
provides that: (i) MCBA is obliged to pay commissions only to those customers
listed on SCHEDULE 3.15 hereto and (ii) MCBA's obligations and liabilities
pursuant to the Bluebird Contract are contractually limited to an amount not to
exceed Five Hundred Thousand Dollars ($500,000). MCBA has no other contractual
obligations to Bluebird Systems or any other person or entity related to
Bluebird Systems.
Except for the loan agreement between Mini-Computer Business
Applications, Inc. and First Commercial Bank pursuant to which MCBA is debtor,
MCBA has no other bank line of credit, loans or other similar contracts or
agreements with banks or financial institutions.
3.16 NO DEFAULT.
(a) Each of the contracts, agreements or other instruments referred to
in Section 3.15 hereof and each of the standard customer agreements or contracts
of MCBA is a legal, binding and enforceable obligation by or against MCBA,
subject only to the effect of applicable bankruptcy, insolvency, reorganization,
moratorium or
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other similar federal or state laws affecting the rights of creditors and the
effect or availability of rules of law governing specific performance,
injunctive relief or other equitable remedies (regardless of whether any such
remedy is considered in a proceeding at law or in equity). To the MCBA Parties'
knowledge, no party with whom MCBA has an agreement or contract is in default
thereunder or has breached any term or provision thereof which is material to
the conduct of MCBA's business.
(b) MCBA has performed, or is now performing, the obligations of, and
MCBA is not in material default (or would by the lapse of time and/or the giving
of notice be in material default) in respect of, any contract, agreement or
commitment binding upon it or its assets or properties and material to the
conduct of its business. No third party has raised any claim, dispute or
controversy with respect to any of the executory contracts of MCBA, nor has MCBA
received written notice or warning of alleged nonperformance, delay in delivery
or other noncompliance by MCBA with respect to its obligations under any of
those contracts, nor are there any facts which exist indicating that any of
those contracts may be totally or partially terminated or suspended by the other
parties thereto.
3.17 BUSINESS AND CUSTOMERS. SCHEDULE 3.17 is a list of all of MCBA's
customers from whom more than Five Thousand Dollars ($5,000) in revenues were
received in the Nine (9) months ended September 30, 1997 and up to the Closing
Date.
3.18 INVENTORIES. The inventories of MCBA consist of items of a quality
and quantity usable and salable (within less than six (6) months from the date
of Closing) in the normal course of the business, subject only to balance sheet
reserves as set forth on the MCBA Balance Sheet or Closing Date Balance Sheet.
MCBA's inventories relating to MCBA's business which are on hand as of the
Closing Date shall be referred to herein as the "Inventories." A physical
inventory shall be taken no earlier than the weekend preceding the date of the
Closing (the "Physical Inventory"). A Physical Inventory list shall be prepared
that includes a description of each Inventory item, the number of units of each
item on hand as of the date of the Physical Inventory and the value of said
Inventory on a lower of cost or market basis (the "Listing"). The Listing is
attached hereto as SCHEDULE 3.18. In addition, a summary of inventory on hand as
of September 30, 1997 is set forth in SCHEDULE 3.18. All items included in such
inventories are owned by MCBA. All inventory on hand at Closing will be set
forth on the Closing Date Balance Sheet. Except for inventory pledged as
collateral to IBM Credit Corporation, no items included in the Inventories have
been pledged as collateral or are held by MCBA on consignment from others. All
the Inventories reflected on the balance sheets included in the Financial
Statements and on the books of MCBA are based on quantities determined from
month-end physical count, and are valued in the Financial Statements at the
lower of cost (last-in, first-out) or market and on a basis consistent with that
of prior periods.
3.19 PROPRIETARY RIGHTS.
(a) MCBA has provided STG with a complete list in writing in SCHEDULE
3.19(A) of all computer software, software programs, patents and applications
for patents, trademarks, trade names, service marks, and copyrights, and
applications therefor, owned or used by MCBA or in which it has any rights or
licenses, except for software used by MCBA and generally available on the
commercial market. MCBA has provided STG with a complete and accurate
description in SCHEDULE 3.19(A) of all agreements of MCBA with each officer,
employee or consultant of MCBA providing MCBA with title and ownership to
patents, patent applications, trade secrets and inventions developed or used by
MCBA in its business. All of such agreements so described are valid, enforceable
and legally binding, subject to the effect of applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the rights of creditors or
availability of rules of law governing specific performance, injunctive relief
or other equitable remedies (regardless of whether any such remedy is considered
in a proceeding at law or in equity).
(b) MCBA owns or possesses licenses or other rights to use all computer
software, software programs, patents, patent applications, trademarks, trademark
applications, trade secrets, service marks, trade names, copyrights, inventions,
drawings, designs, customer lists, proprietary know-how or information, or other
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rights with respect thereto (collectively referred to as "Proprietary Rights"),
used in the business of MCBA, and the same are sufficient to conduct MCBA's
business as it has been and is now being conducted.
(c) To the best of MCBA's and the Selling Shareholders' knowledge, the
operations of MCBA do not conflict with or infringe, and no one has asserted to
MCBA or the Selling Shareholders that such operations conflict with or infringe,
on any Proprietary Rights, owned, possessed or used by any third party. To the
best of MCBA's and the Selling Shareholders' knowledge, there are no claims,
disputes, actions, proceedings, suits or appeals pending against MCBA with
respect to any Proprietary Rights (other than those, if any, with respect to
which service of process or similar notice may not yet have been made on MCBA),
and, none has been threatened against MCBA. To the knowledge of MCBA and the
Selling Shareholders, there are no facts or alleged facts which would reasonably
serve as a basis for any claim that MCBA does not have the right to use, free of
any rights or claims of others, all Proprietary Rights in the development,
manufacture, use, sale or other disposition of any or all products or services
presently being used, furnished or sold in the conduct of the business of MCBA
as it has been and is now being conducted.
(d) To the best of MCBA's and the Selling Shareholders' knowledge, no
employee of MCBA is in violation of any term of any employment contract,
proprietary information and inventions agreement, non-competition agreement, or
any other contract or agreement relating to the relationship of any such
employee with MCBA or any previous employer.
3.20 INSURANCE. MCBA has provided STG with a complete list in SCHEDULE
3.20 of all policies of insurance to which MCBA is a party or is a beneficiary
or named insured. MCBA has in full force and effect, with all premiums due
thereon paid, the policies of insurance set forth therein. All the insurable
properties of MCBA are insured in amounts and coverage and against risks and
losses which are adequate and usually insured against by persons holding or
operating similar properties in similar businesses. There were no claims in
excess of Ten Thousand Dollars ($10,000) asserted under any of the insurance
policies of MCBA in respect of all motor vehicle, general liability,
professional liability, errors and omissions, and worker's compensation claims,
nor medical claims in excess of Twenty-Five Thousand Dollars ($25,000) for the
period from the MCBA incorporation date to the date of this Agreement.
3.21 BANK ACCOUNTS. MCBA has furnished to STG a true and correct list
in SCHEDULE 3.21 setting forth the names and addresses of all banks, other
institutions and state governmental departments at which MCBA has accounts,
deposits or safety deposit boxes, or special deposits required to be held by
such state governmental departments with the nature of such account and the
names of all persons authorized to draw on or give instructions with respect to
such accounts or deposits, or to have access thereto, and the names and
addresses of all persons, if any, holding a power-of-attorney on behalf of MCBA.
All cash in such accounts is held in demand deposits and is not subject to any
restriction or limitation as to withdrawal.
3.22 BROKERS OR FINDERS. Except for dealings with Alliant Partners,
which was retained by STG, MCBA has not dealt with any broker or finder in
connection with the transactions contemplated by this Agreement. MCBA has not
incurred, and shall not incur, directly or indirectly, any liability for any
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.23 RELATED PARTIES. No officer or director of MCBA, or any Affiliate
of any such person, has, either directly or indirectly, (a) an interest in any
corporation, partnership, firm or other person or entity which currently
furnishes or sells services or products which are similar to those furnished or
sold by MCBA, or (b) a beneficial interest in any contract or agreement to which
MCBA is a party or by which MCBA may be bound. For purposes of this SECTION
3.23, there shall be disregarded any interest which arose solely from the
ownership of less than a two percent (2%) equity interest in a corporation whose
stock is regularly traded on any national securities exchange or in the
over-the-counter market.
3.24 CERTAIN ADVANCES. There are no receivables of MCBA owing from
directors, officers, employees, consultants or shareholders of MCBA, or owing by
any affiliate of any director or officer of
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MCBA, other than advances in the ordinary and usual course of business to
officers and employees for reimbursable business expenses which are not in
excess of Two Thousand Five Hundred Dollars ($2,500) for any one individual.
3.25 UNION ACTIVITIES. None of the employees of MCBA are represented by
any union or are parties to any collective bargaining arrangement, and no
attempts are being made to organize or unionize any of the MCBA employees.
3.26 ERISA.
(a) SCHEDULE 3.26 hereto lists all employee pension benefit plans,
multi-employer plans and employee welfare benefit plans (as defined in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) covering active, former or retired employees of MCBA. MCBA has
furnished to STG copies or descriptions of each employment, severance or other
similar contract, arrangement or policy and each plan, agreement, policy or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), vacation benefits, severance benefits, disability
benefits, early retirement benefits, death benefits, hospitalization benefits,
401(k) plans, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock purchase, phantom stock, stock appreciation or
other forms of compensation or post-retirement benefits.
(b) Except as set forth in SCHEDULE 3.26, MCBA and the Selling
Shareholders represent as follows:
(i) MCBA RETIREMENT PLANS; ERISA AFFILIATE RETIREMENT PLANS.
(A) Each benefit plan is in substantial compliance with all
applicable laws and regulatory requirements, and has been administered
substantially in accordance with its terms. MCBA and the Selling
Shareholders know of no circumstances likely to result in the denial or
revocation of taxqualification of any benefit plan intended to be
tax-qualified under Section 401(a) of the Code. No material
liabilities, other than for payment of benefits in the ordinary course,
have been incurred nor, to the knowledge of MCBA or the Selling
Shareholders, do any facts exist which are reasonably likely to result
in any material liability (whether or not asserted as of the date
hereof) of MCBA arising by virtue of any event, act or omission
occurring prior to the Closing Date with respect to any benefit plan.
To the knowledge of MCBA or the Selling Shareholders, no liens under
Code Section 412(n) or ERISA Section 4068(a) nor liabilities under
ERISA Section 4069(a) or Section 4201(a) exist with respect to any
employee benefit plan (within the meaning of Section 3(a) of ERISA) of
the MCBA or any member of an ERISA affiliated group (as defined under
Section 414(b), (c) or (m) of the Code) which would have a material
adverse effect on MCBA, nor do any facts exist which are reasonably
likely to result in the assertion of such liens or liabilities.
(B) MCBA does not sponsor any defined benefit plan as defined
in Section 3(35) of ERISA and has no liability with respect to any
defined benefit plan.
(C) To the best of MCBA's and the Selling Shareholders'
knowledge, with respect to the MCBA, Inc. Employee Savings and
Protection Plan, there has been no breach of fiduciary duty that would
result in liability that would be covered by a fidelity bond required
under Section 412 of ERISA.
(ii) MCBA MULTIEMPLOYER PENSION PLANS; ERISA AFFILIATE MULTIEMPLOYER
PENSION PLANS.
(A) MCBA has not withdrawn from a MCBA multiemployer pension
plan as defined in section 4001(a)(3) of ERISA, in a "complete
withdrawal" or a "partial withdrawal" as defined in sections 4203 and
4205 of ERISA, respectively, so as to result in a liability to MCBA
which has not been fully paid. To the best of MCBA's and the Selling
Shareholders' knowledge, no Affiliate has withdrawn from an Affiliate
multiemployer pension plan in a "complete withdrawal" or a "partial
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withdrawal" as defined in sections 4203 and 4205 of ERISA,
respectively, so as to result in a material liability to MCBA which has
not been fully paid.
(B) To the best of MCBA's and the Selling Shareholders'
knowledge, with respect to each multiemployer pension plan: (i) no such
plan has been terminated or has been in reorganization under ERISA so
as to result in any material liability to MCBA under Title IV of ERISA;
and (ii) no proceeding has been initiated by any person (including the
PBGC) to terminate any such plan so as to result in any such material
liability.
(iii) MCBA WELFARE PLANS. To the best of MCBA's and the Selling
Shareholders' knowledge, each MCBA welfare plan, as defined in section
3(1) of ERISA, has been administered so as to comply with applicable
laws except where the failure to so comply would not have a material
adverse effect.
(iv) MCBA BENEFIT ARRANGEMENTS. To the best of MCBA's and the Selling
Shareholders' knowledge, each MCBA benefit arrangement plan has been
administered so as to comply with applicable laws except where the
failure to so comply would not have a material adverse effect.
(v) NO SEVERANCE OR ACCELERATED BENEFITS TRIGGERED. Except as otherwise
provided in Section 3.26 hereof, no severance, extraordinary
compensation or similar payments are payable to any MCBA employee, nor
are any benefits of any MCBA employee accelerated, under the terms of
any employee benefit plan or agreement with an employee as a
consequence of the transaction contemplated by this Agreement which
would result in a liability for MCBA after the Closing Date for actions
taken on or before the Closing Date.
(vi) NO LIENS. Neither MCBA nor any of the Assets are subject to any
lien under ERISA or the Code.
3.27 UNDERLYING DOCUMENTS. Copies of any underlying documents listed or
described as having been disclosed to STG pursuant to this Agreement have been
furnished to STG. All such documents furnished to STG are true and correct
copies, and there are no amendments or modifications thereto that have not been
disclosed to STG. The minute books of MCBA contain complete and accurate records
of all meetings and other corporate actions taken by the directors and
shareholders of MCBA.
3.28 FULL DISCLOSURE. Any information furnished by MCBA to STG in
writing pursuant to this Agreement (including the Schedules hereto), at any time
prior to the Closing Date, does not and will not contain any untrue statement of
a material fact and does not and will not omit to state any material fact
necessary to make any statement, in light of the circumstances under which such
statement is made, not misleading.
3.29 ACCOUNTS PAYABLE. SCHEDULE 3.29 contains a summary of the accounts
payable of MCBA as of September 30, 1997, together with an accurate aging of
such accounts payable. Those accounts payable and those outstanding on the
Closing Date that will be reflected in the Closing Date Balance Sheet
(collectively, the "Accounts Payable") arose or will arise in the normal and
ordinary course of the business of MCBA. Except as set forth on SCHEDULE 3.29,
the Accounts Payable are not past due and there are no collection actions
currently pending with respect to such Accounts Payable. Also listed in SCHEDULE
3.29 are the accounts payable arising out of the operation of MCBA's business in
the ordinary course which are unpaid as of the Closing Date.
3.30 LIABILITIES. Except as disclosed in the MCBA Balance Sheet or in
SCHEDULE 3.30, there are no liabilities or obligations of any nature to which
MCBA is subject, whether absolute, accrued, contingent or otherwise, and whether
due or to become due. Furthermore, MCBA and the Selling Shareholders know of no
basis for any assertion against MCBA of any such liability or obligation not
fully disclosed in the MCBA Financial Statements or in SCHEDULE 3.30. Except as
otherwise disclosed in SCHEDULE 3.30, the MCBA Financial Statements do not
contain any items of special or nonrecurring income or any other income not
earned in the ordinary course of business, except as expressly disclosed
therein.
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3.31 RESTRICTED SECURITIES. The Selling Shareholders understand that
the STG Common Stock may not be sold, transferred or otherwise disposed of
without registration under the Securities Act of 1933, as amended (the
"Securities Act"), or an exemption therefrom, and that in the absence of an
effective registration statement covering the STG Common Stock or an available
exemption from registration under the Securities Act, the STG Common Stock must
be held indefinitely. In particular, the Selling Shareholders are aware that the
STG Common Stock may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of that Rule are met.
3.32 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
MCBA and the Selling Shareholders in reliance upon the Selling Shareholders'
representation to STG, which by the Selling Shareholders' execution of this
Agreement they hereby confirm, that the STG Common Stock to be purchased by the
Selling Shareholders will be acquired for investment for their own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that the Selling Shareholders have no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, the Selling Shareholders further represent that they
do not have any contract, undertaking, agreement or arrangement with any person
to sell, transfer or grant participations to such person or to any third person,
with respect to the STG Common Stock.
3.33 PERMITS. MCBA's rights in, to or under any governmental licenses,
environmental and other permits, approvals and authorizations which relate to
its assets, are listed in SCHEDULE 3.33.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF STG
Except as otherwise set forth in the disclosure schedule attached
hereto as EXHIBIT C by this Agreement, STG represents and warrants to MCBA and
the Selling Shareholders as of the date hereof as follows:
4.1 ORGANIZATION. STG is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware. STG is duly qualified
to do business and is in good standing in its state of incorporation and in each
other jurisdiction in which it owns or leases property or conducts business,
except where the failure to be so qualified would not have a material adverse
effect on the business of STG. STG has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and possesses all licenses, franchises, rights and privileges
material to the conduct of its business.
4.2 AUTHORITY. STG has all requisite corporate power and authority to
enter into this Agreement and the related agreements contemplated herein, and,
subject to satisfaction of the conditions set forth herein, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of STG. This Agreement
has been duly executed and delivered by STG and constitutes the valid and
binding obligation of STG enforceable in accordance with its terms, subject to
the effect of applicable bankruptcy, insolvency, reorganization or other similar
federal or state laws affecting the rights of creditors and the effect or
availability of rules of law governing specific performance, injunctive relief
or other equitable remedies. Provided the conditions set forth in Article 7
hereof are satisfied, the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation under (a) any provision of the Articles of
Incorporation or Bylaws of STG, or (b) any material agreement or instrument,
permit, license, judgment, order, statute, law, ordinance, rule or regulation
applicable to STG or its properties or assets, other than any such conflicts,
violations, defaults, terminations, cancelations or accelerations which
individually or in the aggregate would not have a material adverse effect on
STG.
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4.3 CONSENTS AND APPROVALS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority (a
"Governmental Entity"), is required by or with respect to STG in connection with
the execution and delivery of this Agreement by STG or the consummation by STG
of the transactions contemplated hereby or thereby, except (a) in connection, or
in compliance, with the provisions of the HSR Act, the Securities Act of 1933,
as amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (b) the filing of the Certificate of Merger with
the Secretary of State of the State of Alabama and appropriate documents with
the relevant authorities of other states in which MCBA is qualified to do
business, (c) such filings, authorizations, orders and approvals as may be
required by state takeover laws (the "State Takeover Approvals") or state
securities or "blue sky" laws, (d) the listing of the STG Common Stock on The
Nasdaq Stock Market, and (e) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, reasonably be expected to have
a material adverse effect on STG or prevent or result in a third party
materially delaying the consummation of the Merger.
4.4 CAPITAL STRUCTURE. The authorized capital stock of STG consists of
25,000,000 shares of Common Stock, par value $0.01 per share, and 10,000,000
shares of Preferred Stock, par value $0.01 per share. As of October 3, 1997,
5,310,655 shares of STG Common Stock were issued and outstanding, and 2,250,500
shares of Series A Preferred Stock were issued and outstanding.
All of the outstanding shares of STG Common Stock are, and any shares
of STG Common Stock issuable upon exercise of any STG Option when issued
pursuant to such exercise will be, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights created by statute, STG's
Articles of Incorporation or Bylaws or any agreement to which STG is a party or
is bound.
4.5 FINANCIAL STATEMENTS. STG has furnished to MCBA its audited
consolidated statement of operations, statement of stockholders' equity and
statement of cash flows for the three (3) fiscal years ended December 31, 1996
and STG's audited consolidated balance sheet at December 31, 1996; and the
unaudited consolidated statement of operations and statement of cash flows for
the nine (9) months ended September 30, 1997 and the unaudited consolidated
balance sheet at September 30, 1997. The balance sheet at September 30, 1997 is
hereinafter referred to as the "STG Balance Sheet," and all such financial
statements are hereinafter referred to collectively as the "STG Financial
Statements." The STG Financial Statements have been and will be prepared in
accordance with GAAP applied on a consistent basis during the periods involved,
and fairly present and will present the consolidated financial position of STG
and the results of its operations as of the date and for the periods indicated
thereon. At the date of the STG Balance Sheet (the "STG Balance Sheet Date"),
neither STG nor its consolidated subsidiaries had any liabilities or
obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise) not reflected on the STG Balance Sheet or the accompanying notes
thereto except for (a) liabilities and obligations as may have arisen in the
ordinary course of business prior to the date of said Balance Sheet and which,
under GAAP, would not have been required to be reflected on such Balance Sheet;
(b) liabilities incurred in the ordinary course of business since the date of
said balance sheet which are usual and normal in amount and type; and (c)
liabilities and obligations as may have arisen as a result of the acquisition of
Star Data Systems, Inc., a Delaware corporation.
4.6 SECURITIES AND EXCHANGE COMMISSION DOCUMENTS. STG has furnished to
MCBA a true and complete copy of STG's Annual Report on Form 10-K, as amended,
for the year ended December 31, 1996, Quarterly Report on Form 10-Q for each of
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997, and
Notice of Annual Meeting and Proxy Statement for STG's 1997 Annual Meeting (the
"STG SEC Documents"). As of their respective filing dates, the STG SEC Documents
comply or will comply in all material respects with the requirements of the
Securities Act or the Exchange Act, and none of the STG SEC Documents contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, except to the extent corrected by a subsequently filed STG SEC
Document.
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4.7 NO CONFLICT. Except as provided in EXHIBIT C, the execution and
delivery of this Agreement by STG and the performance of STG's obligations
hereunder: (a) are not in violation or breach of, and will not conflict with or
constitute a default under, any of the terms of the Articles of Incorporation or
Bylaws of STG or any of its Subsidiaries, or any material contract, agreement or
commitment binding upon STG or any of its assets or properties; (b) will not
result in the creation or imposition of any lien, encumbrance, equity or
restriction in favor of any third party upon any of the assets or properties of
STG; and (c) will not conflict with or violate any applicable law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over STG or any of its assets or
properties.
4.8 SHARES OF STG COMMON STOCK. The shares of STG Common Stock will,
when issued and delivered to the Selling Shareholders in accordance with this
Agreement, be duly authorized, validly issued, fully paid and nonassessable.
4.9 BROKERS OR FINDERS. Except for Alliant Partners, STG has not dealt
with any broker or finder in connection with the transactions contemplated by
this Agreement. Except with respect to Alliant Partners, STG has not incurred,
and shall not incur, directly or indirectly, any liability for any brokerage or
finders' fees or agents commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
4.10 BUSINESS CHANGES. Since September 30, 1997, there have been no
changes in the condition (financial or otherwise), business, net worth, assets,
properties, employees, operations, obligations or liabilities of STG which, in
the aggregate, have had or may be reasonably expected to have a materially
adverse effect on the condition, business, net worth, assets, prospects,
properties or operations of STG.
4.11 RULE 144. Subject to Section 6.6 hereof, the Selling Shareholders
will have the right to sell the shares of STG Common Stock received by them
under this Agreement pursuant to the terms and conditions of Rules 144 and 145
under the Securities Act and the holding period requirement of Rule 144(d) shall
apply to such shares. At Closing, STG will provide a letter from its counsel
addressed to MCBA specifying the method and requirements for transfer of the STG
Common Stock pursuant to Rules 144 and 145.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from the date hereof, and continuing until the
Closing Date, unless earlier terminated in accordance with Section 7.1 hereof,
MCBA and the Selling Shareholders covenant, and agree with STG that:
5.1 CONDUCT OF BUSINESS IN NORMAL COURSE. MCBA shall carry on the
business and its activities diligently and in the ordinary course and shall not
make or institute any unusual or novel methods of purchase, sale, lease,
management, accounting or operation that will vary materially from the methods
used by MCBA as of September 30, 1997. MCBA shall maintain the nature and
quantities of inventories for the business in a normal and customary manner
consistent with prior practice.
5.2 PRESERVATION OF BUSINESS AND RELATIONSHIPS. MCBA shall use its best
efforts to preserve its business organization intact, to keep available its
present employees, and to preserve its present relationships with suppliers,
customers and others having business relationships with it.
5.3 MAINTENANCE OF INSURANCE. Prior to the Closing, MCBA shall maintain
in effect all insurance covering the business. If the Closing shall occur after
a renewal date for any such insurance, MCBA shall renew the insurance on the
same or substantially similar terms, limits of liability and other conditions.
5.4 EMPLOYEES AND COMPENSATION. MCBA shall not do, or agree to do, any
of the following acts: (a) grant any increase in salaries payable or to become
payable to any employee, sales agent or representative; or (b) except as set
forth on SCHEDULE 3.12(B), increase benefits payable to any employee, sales
agent or
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representative under any executive compensation, bonus, pension, profit-sharing,
retirement, deferred compensation, severance, employee stock option or stock
purchase, group life, health and other employee benefit plans, arrangements,
practices or commitments. MCBA shall provide STG with reasonable access to its
employees during normal business hours.
5.5 DIVIDENDS; CHANGES IN STOCK. MCBA shall not and shall not propose
to (a) declare or pay any dividends on or make other distributions in respect of
any of its capital stock, (b) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock of MCBA, or (c)
repurchase or otherwise acquire any shares of its capital stock or rights to
acquire any shares of its capital stock.
5.6 ISSUANCE OF SECURITIES. MCBA shall not issue, deliver, or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock of any class or securities
convertible into, or rights, warrants or options to acquire, any such shares or
other convertible securities.
5.7 GOVERNING DOCUMENTS. MCBA shall not amend its Articles of
Incorporation or Bylaws.
5.8 NO OTHER BIDS. Neither the Selling Shareholders, MCBA nor any of
their respective directors, officers or agents, will, directly or indirectly,
solicit or initiate or encourage any discussions or negotiations with, or
participate in any negotiations with or provide any information to or otherwise
cooperate in any other way with any corporation, partnership, person or other
entity or group (other than STG) concerning any merger, sale of substantial
assets, sale of shares of capital stock or any division of MCBA or control
thereof (collectively an "Acquisition Transaction"). STG shall be promptly
notified in writing by MCBA and the Selling Shareholders of any of the events
referred to in this Section 5.8 including a summary of the material terms of any
other bid and shall be provided with a copy of any such proposal.
5.9 NO ACQUISITIONS. MCBA shall not (a) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or (b) otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to MCBA except in the ordinary course of business consistent with
prior practice.
5.10 NO DISPOSITIONS. Except with contemporaneous notice to STG, MCBA
shall not lease or otherwise dispose of any of its assets (other than the sale
of inventory in the ordinary course of business), individually or in the
aggregate, except in the ordinary course of business consistent with prior
practice and in any event not in excess of Twenty-Five Thousand Dollars
($25,000) for any single item or more than Fifty Thousand Dollars ($50,000) in
the aggregate.
5.11 INDEBTEDNESS. MCBA shall not incur any indebtedness for borrowed
money in an amount exceeding Five Thousand Dollars ($5,000) or guarantee any
such indebtedness or issue or sell any debt securities of MCBA or guarantee any
debt securities of others except in connection with the purchase of inventory
pursuant to the existing credit arrangement with IBM Credit Corporation or with
respect to the Promissory Note.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 ACCESS TO INFORMATION. MCBA shall afford to STG and shall cause its
independent accountants to afford to STG, and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Closing Date to MCBA's properties, books, contracts,
commitments and records and to the independent accountants reasonable access to
the audit work papers and other records of MCBA's accountants. During such
period, MCBA shall use reasonable efforts to furnish promptly to STG (a) a copy
of each report, schedule and other document filed or received by MCBA during
such period
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pursuant to the requirements of federal and state securities laws and the HSR
Act and (b) all other information concerning the business, properties and
personnel of MCBA as STG may reasonably request. STG will not use such
information for purposes other than this Agreement and will otherwise hold such
information in confidence (and STG will cause its consultants and advisors also
to hold such information in confidence). From and after the Closing Date, STG
will provide MCBA or the Selling Shareholders reasonable access to the books and
records to the extent necessary for such persons to respond to a tax audit or in
the event of any governmental action or the defense or prosecution of any
litigation.
6.2 LEGAL CONDITIONS. Each party will take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
such party with respect to this Agreement and will promptly cooperate with and
furnish information to the other party in connection with any such requirements
imposed upon such other party or any Subsidiary of such other party in
connection with this Agreement. As used herein "Subsidiary" means a corporation
whose voting securities are owned directly or indirectly by the "parent"
corporation in such amounts as are sufficient to elect at least a majority of
the Board of Directors. Each party will take, and will cause its Subsidiaries to
take, all reasonable actions to obtain (and to cooperate with the other party
and its Subsidiaries in obtaining) any consent, authorization, order or approval
of, or any exemption by, any governmental authority, or other third party,
required to be obtained or made by such party or its Subsidiaries (or by the
other party or its Subsidiaries) in connection with this Agreement or the taking
of any action contemplated thereby.
6.3 GOOD FAITH. Each party shall act in good faith in an attempt to
cause to be satisfied all the conditions precedent to its obligations and those
of the other parties to this Agreement over which it has control or influence.
Each party will act in good faith and take all reasonable action within its
capability necessary to render accurate as of the Closing Date its
representations and warranties contained in this Agreement. Without limiting the
foregoing, each of STG, MCBA agree to use its reasonable best efforts to take,
or cause to be taken, all actions necessary to comply promptly with all legal
requirements that may be imposed on itself with respect to the Merger (which
actions shall include furnishing all information required under the HSR Act and
in connection with approvals of or filings with any other Governmental Entity)
and shall promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of their
Subsidiaries in connection with the Merger.
6.4 STG GOVERNING DOCUMENTS. STG agrees that, prior to the Closing, it
will give MCBA prompt notice of any amendment to its Articles of Incorporation
or Bylaws.
6.5 CURRENT AVAILABLE INFORMATION. From and after the Closing Date, and
for so long as is necessary in order to permit the Selling Shareholders to sell
the STG Common Stock pursuant to Rule 144 under the Securities Act, STG shall
file on a timely basis all reports required to be filed by it pursuant to
section 13 of the Securities Exchange Act of 1934, as amended, referred to in
paragraph (c)(1) of Rule 144 under the Securities Act. STG is under no
obligation to register the sale, transfer or other disposition of any STG Common
Stock by or on behalf of MCBA or to take any other action necessary in order to
make compliance with an exemption from registration available except as
expressly provided for in this Agreement.
6.6 LEGEND; STOP TRANSFER INSTRUCTIONS. MCBA understands and agrees
that:
(a) the STG Common Stock will bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF
ANY STATE, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED
PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES
LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT REGISTRATION
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AND QUALIFICATION UNDER FEDERAL AND STATE SECURITIES LAWS IS NOT
REQUIRED.
; and
(b) stop transfer instructions will be given to STG's transfer agent
with respect to certificates evidencing the STG Common Stock. STG agrees to
remove promptly such stop transfer instructions and legend upon full compliance
with this Agreement by the undersigned, including, without limitation, a sale or
transfer of STG Common Stock in accordance with Rules 144 and 145.
6.7 CONTINUED EMPLOYMENT OF MCBA EMPLOYEES. Prior to Closing, STG will
offer, conditioned on the closing, continued employment opportunities with
standard STG employment benefit programs (including credit for time of service
with MCBA) to the MCBA employees identified on SCHEDULE 6.7.
6.8 COLLECTION OF ACCOUNTS RECEIVABLE; SALE OF INVENTORY. In the event
STG, using normal collection and sales practices, has not on or prior to six (6)
months from Closing collected of the Accounts Receivable an amount equal to or
greater than the amount set forth on the Closing Date Balance Sheet for the
Accounts Receivable balance (minus any allowance for doubtful accounts) or sold
the Inventory reflected on Closing Date Balance Sheet, the Selling Shareholders
shall remit to STG within thirty (30) days after six (6) months from the Closing
Date (the "Collection Period") the uncollected amount of such accounts or the
value of such Inventory, against STG's assignment to the Selling Shareholders'
of the applicable uncollected Accounts Receivable and unsold Inventory.
Inventory that is returned to and accepted by the vendor in accordance with
MCBA's stock rotation rights and limits will not be subject to this Section 6.8.
In satisfaction of its obligations hereunder, the Selling Shareholders may
deliver shares of STG Common Stock to STG, valued in accordance with the
provisions of Section 8.6(b) hereof. STG may make a claim against the Escrow or
EarnOut Escrow for any amounts owed to STG under this Section 6.8, but it shall
not be STG's sole remedy.
6.9 BOOKS AND RECORDS. Promptly after the Effective Time, MCBA shall
deliver to STG all papers and records in MCBA's care, custody, or control
relating to its assets and the operation thereof, including, without limitation,
all purchasing and sales records, customer and vendor lists and all accounting
and financial records (collectively, the "Books and Records"), including the
minute books, corporate seal and stock records of MCBA.
6.10 REGISTRATION RIGHTS. STG and Selling Shareholders shall enter into
the Registration Rights Agreement in the form attached hereto as EXHIBIT 6.10.
6.11 PREPARATION OF PROXY STATEMENT; STOCKHOLDER MEETING. Promptly
following the date of this Agreement, STG shall prepare and file with the SEC a
Proxy Statement with the SEC. MCBA and the Selling Shareholders shall furnish to
STG all information concerning MCBA and the Selling Shareholders as may be
reasonably requested in connection with such action, and shall: (a) cause all
information so provided to be true and correct in all material respects; (b) not
omit from such information any material fact required to be stated therein or
necessary in order to make such information not misleading, and (c) correct any
information provided by it for use in the Proxy Statement that shall have become
false or misleading
6.12 FORMATION OF ACQUISITION SUB. As soon as practicable following the
execution of this Agreement STG shall cause Acquisition Sub to be formed in the
State of Delaware and to take all corporate action necessary to approve and to
become a party to this Agreement. Each of the parties hereto agrees that upon
formation of Acquisition Sub it shall execute an amendment to this Agreement and
such other documents as may be necessary to cause Acquisition Sub to become a
party to this Agreement.
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ARTICLE 7
CONDITIONS PRECEDENT
7.1 CONDITIONS TO OBLIGATIONS OF STG AND THE MCBA PARTIES. The
obligations of STG and the MCBA Parties to consummate this Agreement shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions unless waived by both STG and MCBA Parties:
(a) THIRD-PARTY APPROVALS. Any and all consents or approvals required
from third parties relating to contracts, agreements, licenses, leases and other
instruments, material to the respective businesses of STG and MCBA shall have
been obtained.
(b) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
this Agreement shall have been issued by any federal or state court and remain
in effect, and no litigation seeking the issuance of such an order or
injunction, shall be pending which, in the good faith judgment of MCBA or STG
has a reasonable probability of resulting in such order, injunction or damages.
(c) SECURITIES LAWS. STG shall have received any and all permits,
authorizations, approvals and orders under federal and state securities laws for
the issuance of the STG Common Stock, including, without limitation, approval of
the California Commissioner of Corporations pursuant to sections 25110 and 25142
of the California Corporate Securities Laws without the imposition of any
conditions adverse to STG or which would require STG to amend its Articles of
Incorporation, Bylaws or any contract. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTIONS 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
(d) GOVERNMENTAL CONSENTS. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated, and other than the filing provided for in Section 2.2 hereof, all
notices, reports and other filings required to be made prior to the Effective
Time by STG and MCBA with, and all consents, registrations, approvals, permits
and authorizations required to be obtained prior to the Effective Time by STG or
MCBA or any of their respective Subsidiaries from, any Governmental Entity in
connection with the execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby shall
have been made or obtained (as the case may be) upon terms and conditions that
are not reasonably likely to have a material adverse effect on the Company.
7.2 CONDITIONS TO OBLIGATIONS OF STG. The obligations of STG to
consummate this Agreement are subject to the satisfaction on or prior to the
Closing Date of the following conditions, unless waived by STG:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of MCBA and the Selling Shareholders- set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as if
made at and as of the Closing Date, except as otherwise contemplated by this
Agreement, and STG shall have received a certificate or certificates signed by
the chief executive officer of MCBA and each of the Selling Shareholders to such
effect.
(b) STG BOARD APPROVAL. STG's Board of Directors shall have approved
this Agreement and the transactions contemplated hereby.
(c) PERFORMANCE OF OBLIGATIONS. MCBA and the Selling Shareholders shall
have performed in all material respects all obligations required to be performed
by each under this Agreement prior to the Closing
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Date, and STG shall have received a certificate signed by the chief executive
officer of MCBA and each of the Selling Shareholders to such effect.
(d) OPINION OF MCBA'S COUNSEL. STG shall have received an opinion dated
as of the Closing Date of Lanier Ford Shaver & Payne P.C., counsel to MCBA, in
substantially the form attached hereto as EXHIBIT 7.2(D).
(e) FINANCIAL STATEMENTS. Until the Closing Date, MCBA's Financial
Statements for each month after the date of the most recent audited financial
statements shall be delivered to STG as soon as practicable thereafter.
(f) NO MATERIAL ADVERSE CHANGE. There shall have been no changes in the
condition (financial or otherwise), business, prospects, employees, operations,
obligations or liabilities of MCBA from the date of the last audited financial
statements which, in the aggregate, have had or may be reasonably expected to
have a materially adverse effect on the financial condition, business, or
operations of MCBA on a consolidated basis.
(g) GUNNELLS, NON-COMPETE. Gunnells shall have entered into a covenant
not to compete, a form of which is attached hereto as EXHIBIT 7.2(G).
(h) ESCROW AGREEMENT. STG, First Trust of California, National
Association and the Selling Shareholders shall have entered into the Escrow
Agreement, a form of which is attached hereto as EXHIBIT 8.2(A).
(i) EARN-OUT ESCROW AGREEMENT. STG, First Trust of California, National
Association and the Selling Shareholders shall have entered into the Earn-Out
Escrow Agreement, a form of which is attached hereto as EXHIBIT 2.15.
(j) FIRPTA COMPLIANCE. STG shall receive from the Selling Shareholders
a certificate of non-foreign status conforming to the requirements of Income Tax
Regulations sections 1.1445-2(b)(2)(i) and (iii).
(k) EMPLOYMENT AGREEMENT. Gunnells shall have entered into an
employment agreement with STG in the form set forth in EXHIBIT 7.2(K) hereof.
(l) ACCEPTANCE OF STG EMPLOYMENT OFFERS. A minimum of Seventy-Five
percent (75%) of employees of MCBA as set forth in SCHEDULE 6.7 shall have
accepted continuing employment with STG.
(m) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved in the manner required by
applicable law or the applicable regulations of any stock exchange or regulatory
body, as the case may be, by the holders of the issued and outstanding shares of
capital stock of STG.
(n) MCBA CLOSING DATE UNAUDITED BALANCE SHEET. MCBA's net assets will
exceed MCBA's net liabilities by One Hundred Thousand Dollars ($100,000) as set
forth on the most recent MCBA Balance Sheet provided pursuant to Section 7.2(e)
hereof.
(o) CONSENT OF IBM. STG shall have received written consent from IBM
Corporation to the Agreement and the transfer of the IRA and the Business
Partner Agreement to STG.
(p) CONSENT OF DEBT HOLDERS. STG shall have received written consent
from all necessary parties, including IBM Credit Corporation, Canpartners
Investments IV, LLC and Robert Fleming Inc. to the Agreement and the related
transactions, including the Registration Rights Agreement.
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(q) INNOVATIVE BUSINESS SYSTEMS, INC. Innovative Business Systems,
Inc., an Alabama corporation, ("Innovative") shall have entered into the IRA
Agreement with STG attached hereto as EXHIBIT 7.2(Q) prior to closing.
(r) HARKINS, NON-COMPETE. Harkins and the Affiliated Companies shall
have entered into a covenant not to compete in substantially the form of EXHIBIT
7.2(R).
(s) TRANSFER OR SUBLEASE OF LEASES. MCBA shall use its best efforts to
provide that all of MCBA's rights and responsibilities under the Standard Office
Lease by and between Arden Realty Limited Partnership and MCBA for that space
known as 300 East Magnolia, Burbank, California (the "Burbank Space"), and the
Lease Agreement by and between The Prudential Insurance Company of America by
its authorized agent, Harber Realty Services, Inc and MCBA for that space known
as Technology Center, 4955 Corporate Drive, Huntsville, Alabama (the "Huntsville
Space"), and any other leases set forth in SCHEDULE 3.9(A) have been transferred
to another party (the "Lease Transferee") and shall provide evidence agreeable
to STG that MCBA no longer has any liabilities under said lease (the "Lease
Assignment"). If MCBA is unable to obtain consent to the Lease Assignment, MCBA
shall have entered into a sublease agreement for the entire office space at the
Burbank Space, and for the office space not used by MCBA at the Huntsville Space
on terms agreeable to STG.
(t) CANCELLATION OF INDEBTEDNESS. MCBA shall arrange for the removal of
MCBA as a debtor to the loan agreement between Mini-Computer Business
Applications, Inc. and First Commercial Bank described in Section 3.15. MCBA
shall also arrange for the release of all liens imposed on MCBA pursuant to such
loan agreement.
7.3 CONDITIONS TO OBLIGATIONS OF THE MCBA PARTIES. The obligations of
the MCBA Parties to consummate the transactions contemplated hereby are subject
to the satisfaction on or prior to the Closing Date of the following additional
conditions unless waived by MCBA:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of STG set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as if made at and as of the
Closing Date, except as otherwise contemplated by this Agreement, and MCBA shall
have received a certificate signed by the chief executive officer and the chief
financial officer of STG to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF STG. STG shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Closing Date, and MCBA shall have received a certificate
signed by the chief financial officer of STG to such effect.
(c) OPINION OF STG'S COUNSEL. MCBA shall have received an opinion dated
the Closing Date of Pillsbury Madison & Sutro LLP, outside counsel to STG, in
substantially the form attached hereto as EXHIBIT 7.3(C).
(d) NO MATERIAL ADVERSE CHANGE. Since September 30, 1997 there shall
have been no changes in the condition (financial or otherwise), business,
prospects, employees, operations, obligations or liabilities of STG which, in
the aggregate, have had or may be reasonably expected to have a materially
adverse effect on the financial condition, business or operations of STG.
7.4 BEST EFFORTS. All the parties hereto shall use their respective
best efforts to cause the Closing Date to be not later than June 5, 1998.
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ARTICLE 8
INDEMNIFICATION AND ESCROW
8.1 INDEMNIFICATION BY MCBA AND THE SELLING SHAREHOLDERS.
(a) The Selling Shareholders, after the Closing, agree to defend and
indemnify STG and their respective affiliates, directors, officers and
shareholders, and their respective successors and assigns (collectively, the
"STG Indemnitees"), against and hold each of them harmless from any and all
losses, liabilities, taxes, claims, suits, proceedings, demands, judgments,
damages, expenses and costs, including, without limitation, reasonable counsel
fees, costs and expenses incurred in the investigation, defense or settlement of
any claims covered by this indemnity (in this Section 8.1 collectively, the
"Indemnifiable Damages") which any such indemnified person may suffer or incur
by reason of (i) the inaccuracy, breach or nonfulfillment of any of the
representations, warranties, covenants or obligations of MCBA or the Selling
Shareholders contained in this Agreement or any documents, certificate or
agreement delivered pursuant hereto; (ii) any claim by any person under any
provision of any federal or state securities law relating to any transaction,
event, act or omission of or by MCBA or the Selling Shareholders occurring
before the Closing Date; or (iii) any acts or omissions of the Affiliated
Companies, or the Selling Shareholders in their capacity as officer or directors
the Affiliated Companies; provided, however, that the total indemnity shall not
exceed the fair market value of the STG Common Stock issued to the Selling
Shareholders, including the Earn-Out Payments, calculated, for each of the
Initial Consideration and each of the Earn-Out Payments, based on the average
Ten (10) day closing price per share of STG Common Stock on The Nasdaq Stock
Market prior to the date on which the Initial Consideration or such Earn-Out
Payment is issued. Nothing herein shall limit in any way STG's remedies (iii) in
the event of breach by MCBA or the Selling Shareholders of any of their
covenants or agreements hereunder which are not also a representation or
warranty or for willful fraud or intentionally deceptive material
misrepresentation or omission by MCBA or the Selling Shareholders in connection
herewith or with the transactions contemplated hereby, (iv) in the event of a
breach of the representations or warranties in Section 3.11(c) hereof or (v) in
the event of any liability of STG or MCBA for any acts or omissions of the
Affiliated Companies, or the Selling Shareholders in their capacity as officer
or directors of the Affiliated Companies.
(b) Without limiting the generality of the foregoing, with respect to
the measurement of Indemnifiable Damages, STG and, after the Closing Date, STG,
MCBA and the affiliates of any of them, shall have the right to be put in the
same financial position as they would have been in had each of the
representations, warranties and covenants of MCBA and the Selling Shareholders
been true and accurate or the same said parties had not breached any such
covenants or had any of the events, claims or liabilities referred to in this
Section 8.1 not occurred or been made or incurred.
(c) The Selling Shareholders will have no liability for indemnification
with respect to this Section 8.1 until the total of all Indemnifiable Damages
with respect to such matters exceeds Twenty-Five Thousand Dollars ($25,000).
However, this Section 8.1(c) will not apply to (i) any breach of any of the
Selling Shareholders' representations and warranties which either the Selling
Shareholders had knowledge of or reason to know of at any time prior to the date
on which such representations and warranties were made or (ii) any intentional
breach by the Selling Shareholders of any representation or warranty. The
Selling Shareholders will be jointly and severally liable for all Indemnifiable
Damages with respect to such breaches.
8.2 ESCROW FUND.
(a) As security for the indemnity provided for in Section 8.1 hereof
and for the provisions of Section 6.8 hereof, a total of ten percent (10%) of
the STG Common Stock to be received by the Selling Shareholders pursuant to this
Agreement, exclusive of the Earn-Out Payments, shall be registered in the name
of First Trust of California, National Association (or other institution
selected by STG with the reasonable consent of the Selling Shareholders) as
escrow agent (the "Escrow Agent"), such deposit to constitute an escrow fund
(the "Escrow Fund") to be governed by the terms set forth herein and in the
Escrow Agreement to be signed by all parties thereto, the form of which is
attached as EXHIBIT 8.2(A). In the event of any conflict between the terms of
this Agreement and the Escrow Agreement, the terms of the Escrow Agreement shall
govern. STG shall
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pay all costs and fees of the Escrow Agent for establishing and administering
the Escrow Fund. Upon compliance with the terms hereof, STG shall be entitled to
obtain indemnity from the Escrow Fund for all Indemnifiable Damages covered by
the indemnity provided for in Section 8.1 hereof and any amounts owed to it
under Section 6.8 hereof.
(b) As additional security for the indemnity provided for in Section
8.1 hereof and for the provisions of Section 6.8 hereof, STG shall be entitled
to obtain indemnity from the Earn-Out Escrow fund provided for in Section 2.15
hereof upon compliance with the terms therein and shall have the Right of
Set-Off against any Earn-Out Payments provided for in Section 2.12 hereof upon
compliance with the terms provided for in Section 2.16 hereof.
8.3 ESCROW PERIOD. The Escrow Fund shall remain in existence until six
(6) months after the Effective Time.
8.4 PROTECTION OF ESCROW FUND. The Escrow Agent shall hold and
safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of STG, and shall hold and dispose of the Escrow Fund only in
accordance with the terms hereof.
8.5 DISTRIBUTIONS; VOTING.
(a) Any dividends payable in securities or other distributions of any
kind (including any shares received upon a stock split, stock dividend or
recapitalization) made in respect of any securities in the Escrow Fund shall be
held in the Escrow Fund subject to the rights of STG. Cash dividends, if any
shall be distributed to the Selling Shareholders.
(b) The Selling Shareholders shall have voting rights with respect to
the shares of stock in the Escrow Fund so long as such stock or other voting
securities are held in the Escrow Fund.
8.6 CLAIMS UPON ESCROW FUND.
(a) Upon receipt by the Escrow Agent on or before the last day of the
Escrow Period of a certificate signed by any officer of STG (an "Officer's
Certificate") stating that STG has paid or properly accrued Indemnifiable
Damages in an aggregate stated amount to which such party is entitled to
indemnity pursuant to this Agreement, and specifying in reasonable detail the
individual items of Indemnifiable Damages included in the amount so stated, the
date each such item was paid or properly accrued, and the nature of the
misrepresentation, breach of warranty or claim to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 8.7 hereof, deliver
to STG out of the Escrow Fund, as promptly as practicable, the number of STG
Common Stock or amount of other assets held in the Escrow Fund to indemnify STG
against such Indemnifiable Damages.
(b) For the purpose of indemnity pursuant to this Agreement, each share
of STG Common Stock in the Escrow Fund shall be valued at an amount equal to the
average ten (10) day closing price per share of STG Common Stock on The Nasdaq
Stock Market prior to the date on which the STG Common Stock is released from
the Escrow as a result of such indemnity.
8.7 OBJECTIONS TO CLAIMS. Upon the time of delivery of an Officer's
Certificate to the Escrow Agent, the Escrow Agent shall deliver a duplicate copy
of such certificate to the Selling Shareholders and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery of STG Common
Stock or other property pursuant to Section 8.6 hereof unless the Escrow Agent
shall have received written authorization from the Spokesperson for the Selling
Shareholders ("Spokesperson"), initially Michael N. Gunnells, but also any
successor as chosen by the Selling Shareholders, to make such delivery. After
the expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of the STG Common Stock or other property in the Escrow Fund in
accordance with Section 8.6 hereof, provided that no such payment or delivery
may be made if
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the Spokesperson shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
8.8 RESOLUTION OF CONFLICTS; ARBITRATION.
(a) If the Spokesperson shall object in writing to the indemnity of the
STG Indemnitees in respect of any claim or claims made in any Officer's
Certificate, the Spokesperson and STG shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Spokesperson and STG should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum
and distribute the STG Common Stock or other property from the Escrow Fund in
accordance with the terms thereof.
(b) If no such agreement can be reached after good faith negotiation
within sixty (60) days after objection by either the Spokesperson or STG, either
STG or the Spokesperson may demand arbitration of the matter and the matter
shall be settled by arbitration conducted by three arbitrators. STG and the
Spokesperson shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The decision of the arbitrators so
selected as to the validity and amount of any claim in such Officer's
Certificate or by the Selling Shareholders shall be final and binding and
conclusive upon the parties to this Agreement, and, notwithstanding anything in
Section 8.7 hereof, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in accordance
therewith, if applicable.
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in the City
of San Jose, California under the rules then in effect of the American
Arbitration Association. A claimant shall be deemed to be the non-prevailing
party in the event that the arbitrators award such claimant less than one-half
(1/2) of the amount claimed by it; otherwise, the other party shall be deemed to
be the non-prevailing party. The non-prevailing party to an arbitration shall
pay its own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the reasonable attorneys' fees and costs
incurred by the other party to the arbitration as well as the amount of any
Indemnifiable Damages awarded and in addition interest thereon from the date of
actual loss or expenditure until the date paid at ten percent (10%) per annum,
or at the maximum rate permitted by applicable law if less than ten percent
(10%) per annum. In addition, if STG is the non-prevailing party, it will pay
for the reasonable travel and lodging expenses of the Selling Shareholders.
8.9 DISTRIBUTION UPON TERMINATION OF ESCROW PERIOD. Immediately
following termination of the Escrow Period, the Escrow Agent shall deliver to
the Selling Shareholders all of the STG Common Stock in the Escrow Fund in
excess of any amount of such STG Common Stock sufficient, in the reasonable
judgment of STG, to satisfy any claims specified in any Officer's Certificate
theretofore properly delivered to the Escrow Agent.
8.10 ESCROW AGENT'S DUTIES.
(a) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein or in the Escrow Agreement and
may rely and shall be protected in relying or refraining from acting on any
instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be liable
for any act done or omitted hereunder as Escrow Agent while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of such good faith.
(b) The Escrow Agent is hereby expressly authorized to disregard any
and all orders by any party who is not authorized to give orders under the
Escrow Agreement, excepting only orders or process of courts of law, and is
hereby expressly authorized to comply with and obey orders, judgments or decrees
of any court. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person by reason of such compliance,
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notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(c) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(d) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
8.11 INDEMNIFICATION BY STG. After the Closing Date, STG shall, as to
those representations, warranties, covenants and agreements which are herein
made or agreed to by STG, indemnify and hold harmless the Selling Shareholders
and MCBA's officers and directors (prior to the Closing) and their heirs and
assigns against and in respect of any damage, deficiency, losses or costs
incurred by the Selling Shareholders resulting from any material
misrepresentation or breach of warranty or any nonfulfillment of any covenant or
agreement on the part of STG under this Agreement; provided, however, that the
total indemnity shall not exceed the fair market value of the STG Common Stock
issued to the Selling Shareholders, including the EarnOut Payments, calculated,
for each of the Initial Consideration and each of the Earn-Out Payments, based
on the average Ten (10) day closing price per share of STG Common Stock on the
Nasdaq Stock Market prior to the date on which the Initial Consideration or such
Earn-Out Payment is issued. Nothing herein shall limit in any way MCBA's or the
Selling Shareholders' remedies in the event of breach by STG of any of its
covenants or agreements hereunder which are not also a representation or
warranty or for willful fraud or intentionally deceptive material
misrepresentation or omission by STG in connection herewith or with the
transactions contemplated hereby.
STG shall reimburse the Selling Shareholders for any liabilities,
damages, deficiencies, claims, actions, suits, proceedings, demands, judgments,
assessments, costs and expenses to which this Section 8.11 relates only if a
claim for indemnification is made by the Selling Shareholders within Two (2)
years from the Closing Date. Without limiting the generality of the foregoing,
with respect to the measure of Indemnifiable Damages, the Selling Shareholders
shall have the right to be put in the same financial position as they would have
been in had each of the representations, warranties and covenants of STG been
true and accurate or the same said parties had not breached any such covenants
or had any of the events, claims or liabilities referred to in this Section 8.11
not occurred or been made or incurred. Any dispute as to indemnification shall
be resolved by arbitration in accordance with Section 8.8 hereof.
8.12 INDEMNIFICATION PROCEDURE. A party seeking indemnification (the
"Indemnitee") shall use its best efforts to minimize any liabilities, damages,
deficiencies, claims, judgments, assessments, costs and expenses in respect of
which indemnity may be sought under this Agreement. The Indemnitee shall give
prompt written notice to the party from whom indemnification is sought (the
"Indemnitor") of the assertion of a claim for indemnification, but in no event
longer than (a) thirty (30) days after service of process in the event
litigation is commenced against the Indemnitee by a third party, or (b) sixty
(60) days after the assertion of such claim. No such notice of assertion of a
claim shall satisfy the requirements of this Section 8.12 unless it describes in
reasonable detail and in good faith the facts and circumstances upon which the
asserted claim for indemnification is based. If any action or proceeding shall
be brought in connection with any liability or claim to be indemnified
hereunder, the Indemnitee shall provide the Indemnitor twenty (20) calendar days
to decide whether to defend such liability or claim. During such period, the
Indemnitee shall take all necessary steps to protect the interests of itself and
the Indemnitor, including the filing of any necessary responsive pleadings, the
seeking of emergency relief or other action necessary to maintain the status
quo, subject to reimbursement from the Indemnitor of its expenses in doing so.
The Indemnitor shall (with, if necessary, reservation of rights) defend such
action or proceeding at its expense, using counsel selected by the insurance
company insuring against any such claim and undertaking to defend such claim, or
by other counsel selected by it and approved by the Indemnitee, which approval
shall not be unreasonably withheld or delayed. The Indemnitor shall keep the
Indemnitee fully apprised at all times of the status of the defense and shall
consult with the Indemnitee prior to the settlement of any indemnified matter.
Indemnitee agrees to use reasonable efforts to cooperate
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with Indemnitor in connection with its defense of indemnifiable claims. In the
event the Indemnitee has a claim or claims against any third party growing out
of or connected with the indemnified matter, then upon receipt of
indemnification, the Indemnitee shall fully assign to the Indemnitor the entire
claim or claims to the extent of the indemnification actually paid by the
Indemnitor and the Indemnitor shall thereupon be subrogated with respect to such
claim or claims of the Indemnitee.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual written consent of MCBA, the Selling Shareholders and
STG;
(b) by either STG, on the one hand, or MCBA and the Selling
Shareholders, on the other hand, if there has been a breach of any material
representation, warranty, covenant or agreement contained in this Agreement on
the part of the other party to this Agreement and, if such breach is curable,
such breach has not been cured within ten (10) days after written notice of such
breach;
(c) by either STG, on the one hand, or MCBA and the Selling
Shareholders, on the other hand, if the Closing shall not have occurred by June
5, 1998.
(d) by STG if any condition to STG's obligation to consummate this
Agreement as provided in Sections 7.1 and 7.2 hereof has not been satisfied or
waived by STG;
(e) by MCBA and the Selling Shareholders if any condition to MCBA's and
the Selling Shareholders' obligation to consummate this Agreement as provided in
Sections 7.1 and 7.3 hereof has not been satisfied or waived by MCBA;
(f) by MCBA and the Selling Shareholders if STG has failed to obtain
approval of the Stockholders of STG to the Agreement and the transactions
contemplated hereby pursuant to Section 7.2(m) hereof.
(g) by either STG, on the one hand, or MCBA and the Selling
Shareholders, on the other hand, if any court or Governmental Entity of
competent jurisdiction shall have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree or ruling or
other action shall have become final and nonappealable; provided, however, that
the right to terminate this Agreement pursuant to this Section 9.1(g) shall not
be available to any party who has not used its reasonable best efforts to cause
such order to be lifted.
9.2 EFFECT OF TERMINATION; SOLE REMEDY.
(a) Notwithstanding any provisions in this Agreement to the contrary,
if the Closing does not occur, (i) neither STG, MCBA nor the Selling
Shareholders shall be entitled to indemnification for the falsity of any
representations or warranties or a breach of any of the covenants and agreements
contained herein to be performed at or prior to the Closing and (ii) STG's,
MCBA's and the Selling Shareholders' sole and exclusive remedy shall be the
receipt of the Termination Fee, if any, as provided in this Section 9.2. In the
event that this Agreement shall be terminated pursuant to Section 9.1 hereof,
all further obligations of the parties hereto under this Agreement (other than
pursuant to Sections 9.2 and 10 hereof) shall terminate without further
liability or obligation of either party to the other party hereunder.
(b) Subject to clause (c) of this Section 9.2 and except with respect
to terminations pursuant to Sections 9.1(a) and 9.1(g) above:
(i) If this Agreement is terminated by any party and (A) all
of the conditions of the Closing set forth in Sections 7.1 and 7.2
(except for the approval of the Stockholders of STG
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to this Agreement and the transactions contemplated hereby pursuant to
Section 7.2(m) hereof) have been, or are reasonably expected to be at
or prior to the Closing, satisfied or waived (or would be satisfied but
for the failure of STG to perform its obligations hereunder), and (B)
the Selling Shareholders are not in breach of this Agreement in any
material respect, STG shall pay to MCBA a termination fee of $250,000
within two (2) business days of such termination, and the payment of
such termination fee shall be the sole remedy of the MCBA and the
Selling Shareholders hereunder. In the event that the Promissory Note
has not been paid in full by MCBA, the termination fee paid by STG
shall be applied against that certain sum owing to STG by MCBA pursuant
to the Promissory Note and, accordingly, the unpaid principal balance
of the Promissory Note shall be decreased by the amount of the
termination fee.
(ii) If this Agreement is terminated by any party and (A) all
of the conditions of the Closing set forth in Sections 7.1 and 7.3
hereof have been, or are reasonably expected to be at or prior to the
Closing, satisfied or waived (or would be satisfied but for the failure
of the Selling Shareholders and MCBA to perform their respective
obligations hereunder), and (B) STG is not in breach of this Agreement
in any material respect, MCBA shall pay to STG a termination fee of
$250,000 within two (2) business days of such termination, and the
payment of such termination fee shall be the sole remedy of STG
hereunder.
(c) The parties hereto expressly agree that (i) the amounts set forth
in Section 9.2(b) hereof are intended to be liquidated damages for harm caused
by termination of this Agreement and are reasonable forecasts of just
compensation in the light of the anticipated harm which would be attributable to
such termination, (ii) losses incurred by reason of termination of this
Agreement would be incapable or difficult of estimation and (iii) otherwise
obtaining an adequate remedy would be inconvenient or nonfeasible.
(d) Notwithstanding the foregoing, neither STG nor MCBA shall be
required to pay such Termination Fee if the reason that the Closing has not
occurred is (i) the HSR Act filing has not cleared (unless the failure to clear
is due to a failure by either party to make the necessary filing or provide the
Federal Trade Commission or the Antitrust Division of the United States
Department of Justice with requested information within a reasonable amount of
time), (ii) a court shall have issued a restraining order ("TRO") or an
injunction (or a TRO or an injunction is threatened) preventing the consummation
or the Closing of the transactions contemplated hereby, (iii) an action shall
have been instituted by any Governmental Body seeking to prevent consummation of
or seeking material damages in connection with the transactions contemplated
hereby and such action continues to be outstanding, (iv) if such termination
occurs and is based on an inaccuracy in the representation or warranty of the
party who would otherwise be obligated to pay such Termination Fee which has not
been waived if the representations and warranties subject to such inaccuracy
were true and correct in all material respects as of the date of this Agreement,
(v) failure to obtain any material third-party approval consent, waiver or
permit necessary for the consummation of the transactions contemplated by this
Agreement (unless the failure is due to a failure by either party to take some
reasonable action) or (vi) by mutual written consent of MCBA, STG and the
Selling Shareholders.
9.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
9.4 EXTENSION; WAIVER. At any time prior to the Closing, STG or the
MCBA Parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or (c) waive compliance with any of the
agreements or conditions for the benefit thereof contained herein. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of all of the
parties hereto.
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ARTICLE 10
GENERAL
10.1 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy, or by
courier service, as follows:
Savoir Technology Group, Inc.
254 E. Hacienda Avenue
Campbell, CA 95008
Attention: Chief Financial Officer
Fax: (408) 370-4597
with a copy to: Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attention: Ms. Katharine A. Martin
Fax: (415) 233-4545
And MCBA Systems, Inc.
4955 Corporate Drive
Huntsville, AL 35806
Attention: Michael N. Gunnells
Fax: (206) 726-9040
with a copy to: Lanier Ford Shaver & Payne P.C.
Suite 5000, 200 West Side Square
Huntsville, AL 35801-4816
Attention: Elizabeth W. Abel
Fax: (205) 533-9322
or to such other persons as may be designated in writing by the
parties, by a notice given as aforesaid.
10.2 HEADINGS. The headings of the several sections of this Agreement
are inserted for convenience of reference only and are not intended to affect
the meaning or interpretation of this Agreement.
10.3 ENTIRE UNDERSTANDING. The terms set forth in this Agreement
including its Schedules and Exhibits are intended by the parties as a final,
complete and exclusive expression of the terms of their agreement and may not be
contradicted, explained or supplemented by evidence of any prior agreement, any
contemporaneous oral agreement or any consistent additional terms. The Schedules
and Exhibits attached to this Agreement are made a part of this Agreement.
10.4 COUNTERPARTS. This Agreement may be executed in counterparts, and
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
10.5 BINDING NATURE. This Agreement shall be binding upon and inure to
the benefit of the parties hereto. No party may assign or transfer any rights
under this Agreement.
10.6 APPLICABLE LAW. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of California without regard
to conflicts of laws provisions thereof.
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10.7 ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
10.8 PAYMENT OF EXPENSES. Except as provided in Section 8.2 hereof,
STG, MCBA and the Selling Shareholders- shall each pay their own fees and
expenses incurred incident to the preparation and carrying out of the
transactions herein contemplated (including legal, accounting and travel).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, all as of the date first above written.
SAVOIR TECHNOLOGY GROUP, INC., a Delaware
corporation
By /S/ P. SCOTT MUNRO
----------------------------------------
Title PRESIDENT & CEO
-------------------------------------
STG ACQUISITION CORP., a Delaware
corporation
By /S/ P. SCOTT MUNRO
----------------------------------------
Title PRESIDENT
-------------------------------------
MCBA SYSTEMS, INC., an Alabama corporation
By /S/ MICHAEL N. GUNNELLS
----------------------------------------
Title PRESIDENT
-------------------------------------
SELLING SHAREHOLDERS
/S/ MICHAEL N. GUNNELLS
------------------------------------------
Michael N. Gunnells
/S/ JOHN HARKINS
------------------------------------------
John Harkins
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ANNEX B
ALLIANT PARTNERS
November 22, 1997
Board of Directors
Western Micro Technology, Inc.
254 East Hacienda
Campbell, CA 95008
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Western Micro Technology, Inc. ("Western" or the
"Company") in connection with the transactions contemplated by the Stock
Purchase Agreement dated November 7, 1997 by and among Western, MCBA Systems,
Inc. ("MCBA"), Mike Gunnels and John Harkins (the "Agreement"), and the issuance
of common stock, without par value, of Western (the "Shares") pursuant thereto.
The total consideration to be paid to Mike Gunells and John Harkins (the
"Stockholders") for the outstanding common stock of MCBA is 900,000 shares of
Western Common Stock to be issued at closing. In addition the Stockholders will
be provided with up to 1,500,000 additional shares based on attainment of pretax
profits in excess of $1.8 Million during 1998 and 1999. The transactions
described above are collectively referred to herein as the "Transaction."
Alliant Partners, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and corporate partnering transactions.
In arriving at our opinion, we have reviewed the Agreement and all of the
Exhibits and schedules, and have reviewed financial, product and other
information that was furnished to us by Western and MCBA. We also have held
discussions with members of the senior management of Western regarding the
historic and current business operations and future risks and prospects of the
Company including their expectation for certain strategic benefits of the
transaction. As part of these discussions, we also reviewed other acquisitions
contemplated by the Company over the last twelve months. In addition, we have
compared certain financial and securities data, both historic and projected, of
MCBA with those of various other companies engaged in businesses we considered
comparable with securities which are traded in public markets, analyzed prices
paid in certain other similar business combinations, and conducted such other
financial studies, analyses and investigations as we deemed appropriate for
purposes of this opinion.
We have assumed, without independent verification, the accuracy, completeness
and fairness of all of the financial statements, product information, marketing
strategies and other information regarding MCBA which has been provided to us by
the Company and its representatives. We did not make any independent evaluation
of MCBA's assets or intellectual property nor did we review any of MCBA's
corporate records.
Based on the foregoing and such other factors as we deem relevant, we are of the
opinion, as of the date hereof, that the consideration to be paid by Western in
connection with the Transaction is fair, from a financial point of view, to
Western and Western's shareholders.
Sincerely Yours,
Alliant Partners
B-1
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ANNEX C
MCBA SYSTEMS, INC.
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1997
TABLE OF CONTENTS
Page(s)
-------
Independent Auditor's Report...........................................C-2
Balance Sheet..........................................................C-3
Statements of Income and Retained Earnings.............................C-4
Statement of Cash Flows................................................C-5
Notes to Financial Statements..........................................C-6 - C-7
C-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors and Stockholders
MCBA Systems, Inc.
We have audited the accompanying balance sheet of MCBA Systems, Inc. as of
December 31, 1997, and the related statements of income, retained earnings, and
cash flows for the year then ended. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MCBA Systems, Inc. as of
December 31, 1997 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Brumbelow and Barnes, P.C.
Brumbelow and Barnes, P.C.
Certified Public Accountants
Huntsville, Alabama
February 18, 1998
C-2
<PAGE>
<TABLE>
BALANCE SHEET
-------------
<CAPTION>
December 31,
1997
------------------
ASSETS
------
<S> <C>
CURRENT ASSETS
Cash..........................................................$ 134,621
Accounts receivable--trade..................................... 4,554,004
-----------------
Total current assets..................................$ 4,688,625
==================
OTHER ASSETS
Deposits...................................................... 4,650
------------------
Total assets..........................................$ 4,693,275
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable.............................................$ 4,266,883
Accrued expenses.............................................. 46,006
Payroll tax liabilities....................................... 5,220
Loans from stockholders....................................... 275,166
------------------
Total current liabilities............................. 4,593,275
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 10,000 shares authorized,
1,000 issued and outstanding............................... 100
Retained earnings............................................. 99,900
------------------
Total stockholders' equity........................... 100,000
------------------
Total liabilities and stockholders' equity............$ 4,693,275
==================
See accompanying notes to financial statements.
</TABLE>
C-3
<PAGE>
<TABLE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
------------------------------------------
<CAPTION>
For the
year ended
December 31,
1997
-----------------
<S> <C>
REVENUE
Product revenue..................................................$ 26,879,401
COST OF SALES
Cost of products and services sold............................... 23,743,581
Gross profit............................................. 3,135,820
-----------------
GENERAL AND ADMINISTRATIVE EXPENSES...................................... 3,109,983
-----------------
Income from operations........................................... 25,837
OTHER INCOME
Other income..................................................... 21
Interest income.................................................. 143
-----------------
Total other income....................................... 164
-----------------
Net income............................................... 26,001
Basic and diluted net income per share...................$ 26.00
=================
Basic and diluted shares used in per share calculation... 1,000
==================
Retained earnings--beginning of year............................. 207,068
Distributions to stockholders........................................... (133,169)
-----------------
Retained earnings--end of year...........................................$ 99,900
=================
See accompanying notes to financial statements.
</TABLE>
C-4
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS
-----------------------
<CAPTION>
For the
year ended
December 31,
1997
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.....................................................$ 26,001
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) decrease in assets
Accounts receivable--trade........................... (1,287,344)
Advances to employee................................ 300
Deposits............................................ (2,384)
Increase (decrease) in liabilities:
Accounts payable.................................... 1,069,658
Accrued expenses.................................... (12,381)
Payroll tax liabilities............................. (8,403)
-----------------
Net cash used by operating activities......... (214,553)
CASH FLOWS FROM INVESTING ACTIVITIES
Loans from stockholders........................................ 275,166
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholders................................. (133,169)
-----------------
Net decrease in cash................................... (72,556)
Cash at beginning of year.............................................. 207,177
-----------------
Cash at end of year....................................................$ 134,621
=================
See accompanying notes to financial statements.
</TABLE>
C-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MCBA Systems, Inc. was incorporated in 1992. The Company markets and
sells computer hardware. The Company operates in the state of Alabama
and sells to customers in the United States.
REVENUE RECOGNITION
Revenue from the sale of computer hardware is recognized at the point
of shipment.
ACCOUNTS RECEIVABLE
At December 31, 1997 the Company had extended unsecured credit to
regular customers amounting to $4,554,004. In management's opinion,
all receivables are fully collectible; therefore, no allowance for
uncollectible accounts is provided.
INCOME TAXES
The Company, with the consent of its shareholders, has elected to be
taxed as an S-Corporation under the Internal Revenue Code for federal
income tax purposes. A similar election has been made for state income
tax purposes. Consequently, taxable income flows directly to the
stockholders to be included in their personal returns. Therefore, no
income tax provision is provided in the accompanying financial
statements.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less
to be cash equivalents. There were no cash equivalents at December 31,
1997.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances at two financial institutions
located in North Alabama. The balance at times may exceed federally
insured limits of $100,000 by the U.S. Federal Deposit Insurance
Corporation. At December 31, 1997 the Company's uninsured cash balance
amounted to $33,444.
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
effective December 31, 1997. SFAS 128 requires the presentation of
basic and diluted earnings per share (EPS). Basic EPS is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted
EPS is computed giving effect to all dilutive potential common shares
that were outstanding during the period.
C-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 2: MAJOR SUPPLIER
The Company primarily sells computer hardware manufactured by
International Business Machines, Inc. (IBM) which it purchases
directly from IBM. Revenue derived from sales of IBM systems at
December 31, 1997 was $26,856,642 which represents approximately 100%
of total revenues. Included in accounts payable to IBM for products
sold to customers was $4,230,483 at December 31, 1997.
Note 3: RELATED PARTY TRANSACTIONS
LOAN FROM STOCKHOLDER: The Company has a loan from stockholder in the
amount of $275,166 with no stated terms. It is management's opinion
that this loan will be satisfied within the current year.
SALES TO RELATED PARTIES: The Company sold computer equipment in the
amount of $2,839,832 to affiliated companies with common ownership.
The transactions were conducted at arms length. Accounts
receivable-trade includes $871,246 due from affiliated companies at
December 31, 1997.
Note 4: EMPLOYEE BENEFIT PLANS
Employees of the Company participate in a 401(k) savings plan of an
affiliated company. The plan covers all employees who are 21 years of
age with one or more years of service. The Company made no matching
contributions for the year ended December 31, 1997.
Note 5: COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases its office facilities under a long-term,
noncancellable operating lease which expires in February 2000. Rent
expense for the year ended December 31, 1997 was $109,086. The Company
also leases computer equipment used in its daily operation. The terms
vary but generally are no longer than two years.
Future minimum rental payments under the Company's noncancellable
operating lease are as follows:
December 31, 1998............................ $ 234,746
December 31, 1999............................ 196,608
December 31, 2000............................ 37,643
---------------
$ 468,997
===============
C-7
<PAGE>
Note 6: EARNINGS PER SHARE
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted
EPS is provided as follows:
Numerator - Basic and Diluted EPS
Income available to common stockholders.......... $ 26,001
============
Denominator - Basic and diluted EPS
Weighted average shares outstanding.............. 1,000
------------
Basic and diluted earnings per share............. $ 26.00
============
There were no potentially dilutive common shares outstanding during
the period.
Note 7: SUBSEQUENT EVENT
MCBA Systems, Inc. is currently negotiating a merger transaction
involving Savoir Technology Group, Inc. (Savoir). The merger would
require the shareholders of MCBA Systems, Inc. to surrender their
ownership in exchange for common stock of Savoir. The outcome of the
merger is pending approval from the stockholders of Savoir.
C-8
<PAGE>
ANNEX D
<TABLE>
MCBA SYSTEMS, INC.
UNAUDITED FINANCIAL STATEMENTS
BALANCE SHEETS
(unaudited)
ASSETS
------
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1996
----------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash........................................................ $ 34,795 $ 207,177
Trade accounts receivable.................................. 2,312,558 (1) 3,266,660 (2)
Employee advances........................................... 2,900 300
Inventory.................................................. 788,365 0
----------------- --------------
Total current assets..................................... 3,138,618 3,474,137
OTHER ASSETS
Deposits.................................................... 0 2,266
Due from affiliates......................................... 69,176 0
----------------- --------------
Total assets............................................. $ 3,207,794 $ 3,476,403
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable............................................ $ 2,013,529 $ 3,197,224
Accrued expenses............................................ 17,838 58,389
Payroll tax liabilities..................................... 1,907 13,622
----------------- --------------
Total current liabilities................................ 2,033,274 3,269,235
LONGTERM LIABILITIES
Due to affiliates........................................... 985,456 0
----------------- --------------
Total liabilities........................................ 3,018,730 0
STOCKHOLDERS' EQUITY
Common Stock, $0.10 par value, 1,000 shares authorized,
issued and outstanding................................... 100 100
Retained earnings........................................... 188,964 207,068
----------------- --------------
Total stockholders' equity............................... 189,064 207,168
----------------- --------------
Total liabilities and stockholders' equity............... $ 3,207,794 $ 3,476,403
================= ==============
- ----------
(1) Net of allowance for doubtful accounts of $12,000.
(2) Net of allowance for doubtful accounts of $48,750.
See accompanying notes to unaudited financial statements.
</TABLE>
D-1
<PAGE>
<TABLE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
(unaudited)
For the Year Ended
DECEMBER 31,
-----------------------------------
1995 1996
----------------- ---------------
<S> <C> <C>
REVENUE
Product revenue................................................ $ 11,919,719 $ 19,472,527
COST OF SALES
Cost of products and services sold............................. 9,975,565 17,275,785
----------------- ---------------
Gross profit................................................... 1,944,154 2,196,742
GENERAL AND ADMINISTRATIVE EXPENSES................................ 1,228,891 1,710,929
----------------- ---------------
Income from operations......................................... 715,263 485,813
OTHER INCOME
Other income................................................... 6 0
Interest income................................................ (2,088) 317
----------------- ---------------
Total other income and expenses............................. (2,082) 317
Net income................................................. $ 713,181 $ 486,130
================= ===============
Basic and diluted net income per share...................... $ 713.18 $ 486.13
================ ===============
Basic and diluted shares used in per share calculation...... 1,000 1,000
================== ===============
Retained earnings--beginning of year............................ 503,483 188,964
Distributions to stockholders...................................... (1,027,700) (468,026)
------------------ ---------------
Retained earnings--end of year..................................... $ 188,964 $ 207,068
================= ===============
See accompanying notes to unaudited financial statements.
</TABLE>
D-3
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
For the For the
year ended year ended
December 31, December 31,
1995 1996
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 713,181 $ 486,130
(Increase) decrease in assets:
Accounts receivable....................................... (1,224,506) (954,102)
Inventories............................................... 197,091 788,365
Employee advances......................................... (2,900) 2,600
Due from affiliates....................................... 68,547 69,176
Increase (decrease) in liabilities:
Accounts payable.......................................... 1,359,969 1,183,695
Accrued expenses.......................................... 4,009 11,715
Payroll tax liabilities................................... (60,814) 40,551
Due to affiliates......................................... -- (985,456)
----------------- -----------------
Net cash provided by operating activities.................. 1,054,577 642,674
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in deposits......................................... -- (2,266)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholders.................................. (1,027,700) (468,026)
----------------- -----------------
Net increase in cash......................................... 26,877 172,382
Cash at beginning of year........................................... 7,918 34,795
----------------- -----------------
Cash at end of year................................................. $ 34,795 $ 207,177
================ ================
See accompanying notes to financial statements.
</TABLE>
D-4
<PAGE>
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MCBA Systems, Inc. was incorporated in 1992. The Company markets and
sells computer hardware. The Company operates in the state of Alabama
and sells to customers in the United States.
REVENUE RECOGNITION
Revenue from the sale of computer hardware is recognized at the point
of shipment.
ALLOWANCE FOR DOUBTFUL ACCOUNTS.
The allowance method is used to account for estimated uncollectible
accounts receivables.
INCOME TAXES
The Company, with the consent of its shareholders, has elected to be
taxed as an S-Corporation under the Internal Revenue Code for federal
income tax purposes. A similar election has been made for state income
tax purposes. Consequently, taxable income flows directly to the
stockholders to be included in their personal returns. Therefore, no
income tax provision is provided in the accompanying financial
statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
Note 2: PREPAID LICENSE/SUBSEQUENT EVENT
In 1987, MCBA obtained a nonexclusive license from a licensor to
market, promote, distribute and grant sublicenses for certain software
programs intended to be embedded in or to support certain of MCBA's
products. The license agreement required the Company to prepay
guaranteed non-refundable license and sublicense fees totaling
$1,000,000.
Subsequent to the balance sheet date management of MCBA wrote off the
prepaid licenses in the year ended December 31, 1996 in the amount of
$721,733. This adjustment reduced net income by $721,733 for the year
ended December 31, 1996. These licenses, purchased for resale to
MCBA's customers as a part of a prior acquisition transaction, were
deemed unmarketable and written off accordingly.
Note 3: EMPLOYEE BENEFIT PLANS
MCBA adopted a 401(k) savings plan on October 1, 1986. Employees who
are 21 years of age, with one or more years of service at MCBA and who
are not covered by collective bargaining agreements are eligible to
participate in the plan.
D-5
<PAGE>
Note 4: MAJOR SUPPLIER
MCBA primarily sells computer hardware manufactured by International
Business Machines, Inc. ("IBM") that is purchased directly from IBM.
Revenues derived from sales of IBM systems at December 31, 1995 were
$11,919,417 and $19,472,527, respectively. This represents 100% of
MCBA's total revenues for both fiscal years. Accounts payable at
December 31, 1995 and 1996 were $1,938,508 and $3,197,224,
respectively, for IBM products sold to customers.
Note 5: EARNINGS PER SHARE FOR THE YEAR ENDED DECEMBER 31, 1995
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted
EPS is provided as follows:
Numerator - Basic and Diluted EPS
Income available to common stockholders.......... $ 713,181
==============
Denominator - Basic and diluted EPS
Weighted average shares outstanding.............. 1,000
--------------
Basic and diluted earnings per share............. $ 713.18
==============
There were no potentially dilutive common shares outstanding during
the period.
Note 6: EARNINGS PER SHARE FOR THE YEAR ENDED DECEMBER 31, 1996
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted
EPS is provided as follows:
Numerator - Basic and Diluted EPS
Income available to common stockholders.......... $ 486,130
==============
Denominator - Basic and diluted EPS
Weighted average shares outstanding.............. 1,000
--------------
Basic and diluted earnings per share............. $ 486.13
==============
There were no potentially dilutive common shares outstanding during
the period.
D-6
