AS FILED ON OCTOBER 16, 1995
PRELIMINARY COPY
CONFIDENTIAL, FOR USE
OF THE COMMISSION ONLY
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[ X ] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ X ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ADVANTAGE COMPANIES, INC.
(Name of Registrant as Specified in its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3)
[ X ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common stock, par value $.01 per share, of Advantage Companies, Inc.
(2) Aggregate number of securities to which transaction applies:
4,942,938
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
Pursuant to the Agreement and Plan of Merger, dated as of
September 25, 1995, by and among Advantage Companies, Inc., THORN
Americas, Inc. and THORN Acquisition Corp., the price per share is
$17.50 for 3,768,922 shares, and $18.50 for 1,174,016. Accordingly,
the filing fee of $17,535.09 was calculated as 1/50 of 1% of the
cash payment pursuant to the Agreement and Plan of Merger, which is
equal to the sum of the products of (i) $17.50 per share and the
3,768,922 shares and (ii) $18.50 per share and the 1,174,016 shares.
(4) Proposed maximum aggregate value of transaction:
$87,675,431
(5) Total fee paid:
$17,535.09
[ ] 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: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
[ADVANTAGE COMPANIES, INC. LETTERHEAD & LOGO]
November _____, 1995
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders of Advantage Companies, Inc. (the "Company"), to be
held at the Company's corporate offices at 9323 East 37th Street
North, Wichita, Kansas, on December 20, 1995, at 10:00 a.m. Central
Time. A Notice of the Special Meeting, a Proxy and a Proxy
Statement containing information about the matters to be acted upon
are enclosed. All holders of the Company's outstanding shares of
common stock as of the close of business on November 10, 1995 (the
"Record Date") will be entitled to notice of and to vote at the
Special Meeting.
At the Special Meeting, you will be asked to consider and vote
upon a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of September 25, 1995 (the "Merger Agreement"), by
and among the Company, THORN Americas, Inc., a Delaware corporation
("THORN") and THORN Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of THORN ("Acquisition"), and the
transactions contemplated thereby. Pursuant to the terms of the
Merger Agreement, among other things, (i) Acquisition will be
merged with and into the Company, with the Company being the
surviving corporation (the "Merger"), and (ii) each outstanding
share of the Company's common stock, par value $.01 per share (the
"Common Stock") (other than shares of Common Stock held by THORN,
Acquisition, or their subsidiaries, in the Company's treasury, or
by any holder who shall have perfected appraisal rights under the
Delaware General Corporation Law) will be converted into the right
to receive the Purchase Price. As used herein, "Purchase Price"
means (a) for stockholders other than those party to the option
agreement entitled the Advantage Agreement with THORN dated July 9,
1995, as amended on October 6, 1995 (the "Advantage Agreement"),
$18.50 per share (without interest) in cash, and (b) for
stockholders party to the Advantage Agreement, $17.50 per share
(without interest) in cash.
The stockholders who executed the Advantage Agreement own in the
aggregate 77% of the outstanding shares of Common Stock as of the
Record Date and have agreed to vote their shares for the approval
and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Merger. Thus, the passage of
the proposal to adopt and approve the Merger Agreement and the
transactions contemplated thereby, including the Merger, is assured
without the vote of any other stockholder.
Your Board of Directors has determined that the terms of the
Merger Agreement and the Merger are fair to, and in the best
interests of, the Company and the stockholders of the Company. The
Company"s directors have unanimously approved and adopted the
Merger Agreement and the transactions contemplated thereby,
including the Merger, and recommend that the stockholders of the
Company vote for the approval and adoption of the Merger Agreement
and the Merger. The Board has received a written opinion of George
K. Baum & Company, which has acted as financial advisor to the
Company in connection with the Merger, as to the fairness, from a
financial point of view, of the consideration to be received by the
Company"s stockholders (other than the parties to the Advantage
Agreement, THORN, Acquisition and other persons specifically
excluded from the opinion).
Whether or not you plan to attend the Special Meeting, please
complete, sign and date the accompanying Proxy and return it in the
enclosed postage prepaid envelope as soon as possible so that your
shares of Common Stock will be represented at the Special Meeting.
If you attend the Special Meeting you may vote in person even if
you have previously returned your Proxy. Details concerning the
proposed Merger and other important information appear in the
accompanying Proxy Statement, which you are urged to read
carefully.
Sincerely,
DANIEL J. TAYLOR
Chairman and Chief Executive Officer
PRELIMINARY COPY
CONFIDENTIAL, FOR USE
OF THE COMMISSION ONLY
ADVANTAGE COMPANIES, INC.
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS
TO BE HELD
December 20, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Advantage Companies, Inc., a Delaware corporation (the "Company"), will be held
at the corporate offices of the Company at 9323 East 37th Street North,
Wichita, Kansas on December 20, 1995, at 10:00 a.m., Central Time, for the
following purposes:
(1) To consider and vote upon a proposal to adopt and approve an Agreement
and Plan of Merger dated as of September 25, 1995 (the "Merger
Agreement"), by and among the Company, THORN Americas, Inc., a Delaware
corporation ("THORN") and THORN Acquisition Corp., a Delaware
corporation ("Acquisition"), pursuant to which, among other things,
(i) Acquisition will be merged with and into the Company
(the "Merger"), and the Company will be the surviving corporation and
will become a wholly-owned subsidiary of THORN, and (ii) each
outstanding share of the Company's common stock, par value $.01 per
share (the "Common Stock") (other than outstanding shares of Common
Stock held by THORN or its subsidiaries, in the treasury of the Company
or any of its subsidiaries, or by any holder who shall have
perfected appraisal rights under the Delaware General Corporation
Law (the "DGCL")), will be converted into the right to receive the
Purchase Price (as used herein, "Purchase Price" means (i) for
stockholders other than those party to the option agreement entitled
the Advantage Agreement with THORN dated July 9, 1995, as amended on
October 6, 1995 (the "Advantage Agreement"), $18.50 per share
(without interest) in cash and (ii) for stockholders party to the
Advantage Agreement, $17.50 (without interest) per share in cash);
and
(2) To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is attached as Annex A to the Proxy
Statement that accompanies this Notice of Special Meeting of Stockholders (this
"Notice") and is incorporated by reference into this Notice.
The Merger Agreement has been approved by the Board of Directors of the
Company (the "Board"). The Board has carefully reviewed and considered the
terms and conditions of the proposed Merger and the Merger Agreement and the
Board believes the Merger and the Merger Agreement are in the best interests of
the Company and its stockholders. The Board has received a written opinion
from George K. Baum & Company, financial advisor to the Company, to the
effect that, as of September 25, 1995, from a financial point of view, the
consideration to be received by the stockholders of the Company (excluding
parties to the Advantage Agreement and certain other directors, officers and
affiliates of the Company) pursuant to the Merger and the Merger Agreement is
fair to such stockholders. The Board recommends a vote FOR the adoption and
approval of the Merger Agreement and the transactions contemplated thereby,
including the Merger.
Under the DGCL and the Company's Certificate of Incorporation and Bylaws,
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote thereon is required to adopt the Merger
Agreement. Under the Advantage Agreement, stockholders holding approximately
77% of outstanding Common Stock have agreed to vote all shares of Common
Stock owned by them in favor of the adoption and approval of the Merger
Agreement and the Merger and have each granted THORN a proxy to vote such
shares in favor of the adoption and approval of the Merger and the Merger
Agreement at any meeting of the stockholders of Advantage. Accordingly,
these stockholders collectively own a sufficient number of shares to approve
and adopt the Merger Agreement and the Merger without the affirmative vote of
any other stockholder. A copy of the Advantage Agreement is attached as Annex B
to the Proxy Statement that accompanies this Notice and into which this
Notice is incorporated by reference.
Only stockholders of record at the close of business on November 10, 1995
shall be entitled to notice of and to vote at the Special Meeting and any
adjournment thereof.
If the Merger is consummated, any stockholders of the Company who do not
vote in favor of adoption and approval of the Merger Agreement and the Merger
and who comply with the requirements of Section 262 of the DGCL shall be
entitled to an appraisal of the fair value of their shares of Common Stock.
See "THE MERGER - APPRAISAL RIGHTS" in the accompanying Proxy Statement for a
statement of the appraisal rights of stockholders and a description of the
procedures required to be followed by them to obtain appraisal of their
shares of Common Stock.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY. PLEASE COMPLETE,
SIGN AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING RETURN
ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY
FOR ANY REASON, YOU MAY DO SO AT ANY TIME BEFORE THE VOTING BY
DELIVERING TO THE COMPANY A WRITTEN NOTICE OF REVOCATION OR A DULY
EXECUTED PROXY BEARING A LATER DATE OR BY ATTENDING THE SPECIAL
MEETING AND VOTING IN PERSON.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR COMMON STOCK AT
THIS TIME. YOU WILL RECEIVE INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR STOCK CERTIFICATE(S) AND RECEIVE A PAYMENT FOR YOUR SHARES OF
COMMON STOCK AFTER THE MERGER IS EFFECTIVE.
By Order of The Board of Directors,
Brenda J. Butler
Corporate Secretary
Wichita, Kansas
November ____, 1995<PAGE>
TABLE OF CONTENTS
PAGE NO.
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AVAILABLE INFORMATION. . . . . . . . . . . .. . . . . . . . . . . . . 3
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conditions to the Merger . . . . . . . . . . . . . . . . . . 6
Effective Time of the Merger . . . . . . . . . . . . . . . . 6
Effects of the Merger. . . . . . . . . . . . . . . . . . . . 6
Tax Consequences to Stockholders . . . . . .. . . . . . . . . 7
Accounting Treatment . . . . . . . . . . . .. . . . . . . . . 7
Termination and Amendment of the Agreement .. . . . . . . . . 7
Regulatory Matters . . . . . . . . . . . . .. . . . . . . . . 7
Appraisal Rights . . . . . . . . . . . . . .. . . . . . . . . 8
THE SPECIAL MEETING. .. . . . . . . . . . . . . . . . . . . . . . . . 8
Date, Time and Place of Special Meeting. . . . . . . . . . . 8
Matters to be Considered at the Meeting. . . . . . . . . . . .8
Vote Required. . . .. . . . . . . . . . . . . . . . . . . . . 8
Broker Non-Votes . .... . . . . . . . . . . . . . . . . . . . 8
Voting of Proxies. . .... . . . . . . . . . . . . . . . . . . 8
Revocability of Proxies. . . . . . . . . . . . . . . . . . . 9
Record Date; Quorum. . . . . . . . . . . . . . . . . . . . . 9
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . 9
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Background of the Transaction . . . . . . . . . . . . . . . . 9
Tidewater Agreements . . . . . .... . . . . . . . . . . . . .10
Letter of Intent . . . . . . . . . . . . . . . . . . . . . .11
The Advantage Agreement. . . . . . . . . . . . . . . . . . .12
Negotiation of Merger Agreement. . . . . . . . . . . . . . .13
Recommendation of the Board; Reasons for the Merger . . . . .13
Opinion of Financial Advisor. . . . . . . . . . . . . . . . .14
Analysis of Stock Trading History. . .. . . . . . . . . . . .15
Analysis of Publicly Traded Comparable Companies . . .. . . .16
Acquisition Transaction Analysis . . . . . . . . . . .. . . .17
Interests of Certain Persons in the Merger. . . . . . . . . .19
Company Options. . . . . . . . . . . . . . . . . . . .. . . .19
Employment Agreements. . . . . . . . . . . . . .. . . . . . .20
Covenant Not to Compete Payment. . . . . . . .. . . . . . . .20
Real Estate Transaction. . . . . . . . . . . .. . . . . . . .20
Bonus Arrangements . . . . . . . . . . . . . .. . . . . . . .20
Tidewater Purchase . . . . . . . . . . . . . .. . . . . . . .21
The Merger Agreement. . . . . . . . . . . . . . . . . . . . .21
Merger Consideration . . . . . . . . . . . . . .. . . . . . .21
Effective Time of the Merger . . . . . . . . . . . . . . . .21
Vote Required of Stockholders. . . . . . . . . . . . . . . .21
Company Options. . . . . . . . . . . . . . . . .... . . . . .22
Representations and Warranties . . . . . . . . . .. . . . . .22
Conditions . . . . . . . . . . . . . . . . . . . .. . . . . .22
Amendment or Termination . . . . . . . . . . . . .. . . . . .23
Conduct of Business by the Company before the Merger .. . . .24
No Solicitation. . . . . . . . . . . . . . . . . . . . . . .24
Expenses of the Merger . . . . . . . . . . . . . . . . . . .25
Payment for Company Common Stock . . . . . . . . . . . . . .25
Settlement of Litigation . . . . . . . . . . . . . . . . . .25
Directors and Officers . . . . . . . . . . . . . . . . . . .25
Certain Federal Income Tax Consequences of the Merger . . . .26
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . .26
Accounting Treatment of Merger. . . . . . . . . . . . . . . .27
Certain Effects of the Merger . . . . . ... . . . . . . . . .27
Appraisal Rights. . . . . . . . . . . . . . . . . . . . . . .27
MARKET PRICES OF THE COMMON STOCK AND DIVIDEND POLICY. . .... . . . .31
Market Information. . . . . . . . . . . . . . . . . . . . . . .31
Dividends. . . . . . . . . . . . . . . . . . . . . .. . . . .32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . .32
BUSINESS INFORMATION CONCERNING THE COMPANY. . . . . .. . . . . . . .34
General Information on Business . . . . . . . . .. . . . . . . .34
Operations of Rental-Purchase Stores . . . . .. . . . . . . .35
Products . . . . . . . . . . . . . . . . . . .. . . . . . . .36
Expansion. . . . . . . . . . . . . . . . . . .. . . . . . . .36
Competition. . . . . . . . . . . . . . . . . .. . . . . . . .38
Other Information. . . . . . . . . . . . . . .... . . . . . .38
Compliance with Environmental Laws and Regulations . . . . .38
Regulations. . . . . . . . . . . . . . . . . . . . .. . . . .38
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . .39
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .39
SELECTED FINANCIAL DATA. . . . . .. . . . . . . . . . . . . . . . . .40
MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . .. . . . .41
CERTAIN INFORMATION CONCERNING ACQUISITION AND THORN . . . .. . . . .46
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . .. . . . . . . . .47
OTHER MATTERS TO COME BEFORE THE MEETING. . . . . ... . . . . . . . .47
INDEX TO FINANCIAL STATEMENTS OF ADVANTAGE COMPANIES, INC. . . .. . F-1
ANNEX A - Agreement and Plan of Merger
ANNEX B-1 - Advantage Agreement
ANNEX B-2 - First Amendment to the Advantage Agreement
ANNEX C - Fairness Opinion
ANNEX D - Section 262 of the Delaware General Corporation Law
Appraisal Rights
ADVANTAGE COMPANIES, INC.
9323 East 37th Street North
Wichita, Kansas 67226
PROXY STATEMENT
SPECIAL MEETING OF THE STOCKHOLDERS
TO BE HELD ON DECEMBER 20, 1995
INTRODUCTION
This Proxy Statement relates to the proposed merger (the "Merger") of THORN
Acquisition Corp., a Delaware corporation ("Acquisition") and a wholly owned
subsidiary of THORN Americas, Inc., a Delaware corporation ("THORN"), with and
into Advantage Companies, Inc., a Delaware corporation (the "Company"),
pursuant to the Agreement and Plan of Merger dated as of September 25, 1995,
by and among THORN, Acquisition and the Company (which agreement shall
hereafter be referred to as the "Merger Agreement"). The Merger will be
consummated on the terms and subject to the conditions set forth in the Merger
Agreement, pursuant to which (a) the Company will become a wholly owned
subsidiary of THORN, (b) each share of common stock of the Company, par value
$.01 per share (the "Common Stock"), then outstanding (other than shares of
Common Stock (i) held in the treasury of the Company or any of its
subsidiaries, (ii) held by any stockholders who perfect their appraisal
rights under the Delaware General Corporation Law (the "DGCL"), or (iii)
beneficially owned by THORN, Acquisition or any of their subsidiaries), will
be converted into the right to receive the Purchase Price. As used herein,
"Purchase Price" means (i) for stockholders other than those party to that
certain option agreement entitled the "Advantage Agreement" dated July 9,
1995 between THORN and certain stockholders of the Company, as amended on
October 6, 1995 (the "Advantage Agreement"), $18.50 per share (without
interest) in cash and (ii) for stockholders party to the Advantage Agreement,
$17.50 per share (without interest) in cash.
The accompanying proxy is solicited by the Board of Directors of the
Company (the "Board" or the "Board of Directors") and will be voted in
accordance with the instructions contained therein, if it is returned duly
executed and is not revoked. If no choice is specified in the proxy,
it will be voted FOR the proposal to approve and adopt the Merger Agreement
and the Merger. A stockholder may revoke a proxy at any time before it is
exercised by delivery of written notice to the Secretary of the Company or by
a duly executed proxy bearing a later date. Approval and adoption of the
Merger Agreement and the Merger will cause the interest of the current
stockholders in the future operations of the Company to cease. The cost of
soliciting proxies will be borne by the Company. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting materials to the
owners of stock held in their name and the Company will reimburse them for
their out of pocket expenses in connection therewith.
This Proxy Statement is being furnished to the holders of record as of
November 10, 1995 (the "Record Date") of shares of the Common Stock in
connection with the solicitation of proxies by the Board of Directors to be
used at the Special Meeting of the Stockholders of the Company (the "Special
Meeting") to be held on December 20, 1995 at 10:00 a.m., Central Time, at the
Company's corporate offices at 9323 East 37th Street North, Wichita, Kansas.
The purpose of the Special Meeting is to vote on the approval and adoption of
the Merger Agreement and the Merger.
The Merger Agreement and the Merger have each been approved by the Board
of Directors. See "The Merger - Background of the Transaction." Under the
DGCL, the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote thereon is required to approve and
adopt the Merger Agreement and the Merger. Pursuant to the Advantage
Agreement, stockholders holding approximately 77% of the outstanding Common
Stock have agreed to vote all shares of Common Stock owned by them in favor
of approval and adoption of the Merger Agreement and the Merger and have each
granted THORN a proxy to vote such shares in favor of approval and adoption
of the Merger Agreement and the Merger at any meeting of the stockholders of
the Company. These stockholders collectively own a sufficient number of shares
of Common Stock to approve and adopt the Merger Agreement and the Merger
without the affirmative vote of any other stockholder of the Company.
THE COMPANY EXPECTS THAT THE MERGER WILL BE CONSUMMATED ON
JANUARY 2, 1996 OR AS PROMPTLY AS PRACTICABLE THEREAFTER, ASSUMING
THAT THE CONDITIONS TO THE MERGER SET FORTH IN THE MERGER
AGREEMENT HAVE BEEN SATISFIED. SEE "THE MERGER - THE MERGER
AGREEMENT - CONDITIONS." ANY STOCKHOLDER WHO WISHES TO DISSENT
FROM THE MERGER AND DEMAND APPRAISAL RIGHTS UNDER THE DGCL
SHOULD READ "THE MERGER - APPRAISAL RIGHTS."
No persons have been authorized to give any information or to make any
representations other than those contained in, or incorporated by reference,
in this Proxy Statement, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, THORN, Acquisition or any other person.
All information contained in this Proxy Statement relating to the Company,
its subsidiaries and their affiliates has been supplied by the Company, and
all information contained in this Proxy Statement relating to THORN,
Acquisition and THORN EMI plc has been supplied by THORN.
THE DATE OF THIS PROXY STATEMENT IS NOVEMBER 16, 1995. This Proxy
Statement is being furnished by the Company and was first mailed on or about
November 17,1995 to holders of record of Common Stock as of the close of
business on the Record Date.
<PAGE>
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 periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Copies of such reports, proxy statements and other information may be
inspected and copied at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549;
and at the public reference facilities of the Commission's regional offices
at 1801 California Street, Suite 4800, Denver, Colorado 80202-2648, and
Suite 1300, 7 World Trade Center, New York, New York 10043. Copies of
such material may be obtained, at prescribed rates, from the Public
Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. This summary is not intended to be
complete and is qualified in all respects by reference to the detailed
information appearing elsewhere in this Proxy Statement and the Annexes
hereto. Capitalized terms used and not defined in the following summary
have the meanings set forth under "INTRODUCTION" above. Stockholders are
urged to read this Proxy Statement and the Annexes hereto in their entirety.
The Parties
Advantage Companies, Inc. (the "Company"). The Company is engaged,
through its consolidated subsidiaries COMCOA, Inc. ("COMCOA"), AdvantEdge
Rental Purchase, Inc. ("AdvantEdge"), and Rental Corp. of Indiana ("Rental
Corp."), in the business of operating rental/purchase stores which rent and
sell household durable goods such as televisions sets and other consumer
electronic equipment, major appliances and household furniture. COMCOA is
the largest franchisee in THORN's Rent-A-Center system, with mature franchise
territories in Florida, Mississippi, Alabama and Georgia. AdvantEdge,
acquired in January of 1995, now has a total of seven store locations, four
in Colorado and, in a partnership with Rental Corp., three in Indiana, all of
which are operated independently from the Rent-A-Center franchised stores in
COMCOA. The Indiana stores are owned and operated through a general
partnership, the sole partners of which are AdvantEdge and Rental Corp.
The Company's principal executive offices are located at 9323 E. 37th
Street North, Wichita, Kansas 67226-2000, and its telephone number is
(316) 634-0333. See "BUSINESS INFORMATION CONCERNING THE COMPANY."
THORN Americas, Inc. ("THORN"). THORN is a wholly owned subsidiary of
THORN EMI plc, a company existing under the laws of England. THORN and its
franchisors conduct a rental purchase operation in the United States,
currently with 1,234 Rent-A-Center stores in the United States. THORN also
operates 24 Rent-A-Centre stores in Canada and 126 Remco stores in 16 states.
THORN has its principal executive offices located at 8200 E. Rent-A-Center
Drive, Wichita, Kansas 67226-2799 and its telephone number is (316) 636-7368.
See "CERTAIN INFORMATION CONCERNING ACQUISITION AND THORN."
THORN Acquisition Corp. ("Acquisition"). Acquisition is a wholly owned
subsidiary ofTHORN. Acquisition is a recently organized corporation that has
not conducted any business except in connection with the transactions
contemplated by the Merger Agreement and described in this Proxy Statement.
The principal executive offices of Acquisition are located at 8200 E.
Rent-A-Center Drive, Wichita, Kansas 67226-2799, and its telephone number is
(316) 636-7368. See "CERTAIN INFORMATION CONCERNING ACQUISITION AND THORN."
The Special Meeting
Date, Time and Place of Special Meeting. December 20, 1995 at 10:00 a.m.,
Central Time at the corporate offices of the Company at 9323 East 37th Street
North, Wichita, Kansas.
Purpose. To consider and act upon a proposal to approve and adopt the
Merger Agreement and the Merger. See "THE MERGER - The Merger Agreement."
Record Date. November 10, 1995.
Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote thereon as of the Record
Date will be required to approve and adopt the Merger Agreement and the
Merger. Pursuant to the Advantage Agreement, stockholders holding
approximately 77% of the outstanding Common Stock have agreed to vote all
shares of Common Stock owned by them in favor of approval and adoption of
the Merger Agreement and the Merger and have each granted THORN a proxy to vote
such shares in favor of approval and adoption of the Merger Agreement and the
Merger at any meeting of the stockholders of the Company. These stockholders
collectively own a sufficient number of shares of Common Stock to approve
and adopt the Merger Agreement and the Merger without the affirmative vote
of any other stockholder of the Company. See "THE SPECIAL MEETING."
The Merger Agreement
Background of the Merger. See "THE MERGER - Background of the
Transaction."
Recommendation of the Board. The Board has determined that the Merger
Agreement and the Merger are in the best interest of the Company and its
stockholders. The Board has approved and adopted the Merger Agreement and the
Merger and recommends that the stockholders adopt and approve the Merger
Agreement and the Merger. See "THE MERGER - Recommendation of the Board;
Reasons for the Merger."
Exchange of Common Stock. Pursuant to the Merger, each share of Common
Stock (other than outstanding shares of Common Stock held by THORN,
Acquisition or their subsidiaries, in the Company's or any of its
subsidiaries' treasuries, or by any holder who shall have perfected
appraisal rights under the DGCL) will be converted into and represent the
right to receive the Purchase Price. A letter of transmittal for use in
surrendering stock certificates and obtaining payment for surrendered shares
will be made available to stockholders prior to the Effective Time and will
be mailed to stockholders promptly following the Effective Time. See "THE
MERGER - The Merger Agreement - Payment for Company Common Stock."
CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL
AND INSTRUCTIONS ARE OBTAINED AND THEN SHOULD BE SURRENDERED ONLY IN
ACCORDANCE WITH SUCH INSTRUCTIONS.
Opinion of the Company's Financial Advisor. George K. Baum & Company
("GKB") has delivered to the Board its written opinion, dated as of September
22, 1995 and based upon and subject to certain matters as stated therein, to
the effect that, from a financial point of view, the consideration to be
received by stockholders of the Company (excluding parties to the Advantage
Agreement, and other officers, directors and affiliates of the Company) is
fair to such stockholders. A copy of the full text of the written opinion of
GKB, which sets forth among other things, the opinion expressed, assumptions
made, procedures followed, matters considered and limitations of review
undertaken in connection with such opinion, is attached hereto as Annex C
and should be read in its entirety. See "THE MERGER - Opinion of Financial
Advisor."
Interests of Certain Persons in the Merger. In considering the
recommendation of the Board with respect to the Merger Agreement and the
Merger, stockholders should be aware that certain members of the Board and of
the Company's management have certain interests in the Merger that are in
addition to or different from the interests of the stockholders of the Company
generally. See "THE MERGER - Interests of Certain Persons in the Merger."
The Board was aware of these interests and considered them, among other matters,
in approving the Merger and the Merger Agreement. See "THE MERGER -
Recommendation of the Board."
Conditions to the Merger. Consummation of the Merger is subject to
certain, conditions, including without limitation (i) the adoption and
approval of the Merger Agreement and the Merger by the requisite vote of
the stockholders entitled to vote thereon, (ii) expiration or termination
of any applicable waiting period pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), (iii) the absence of
certain statutes, rules, regulations, orders or injunctions prohibiting the
Merger, (iv) the representations and warranties of each party to the
Merger being accurate as of the date of the Merger Agreement and the
Effective Time, (v) performance of each of the parties' respective covenants
and obligations under the Merger Agreement required to be performed prior to
or at the closing, and (vi) dismissal with prejudice of all claims and
counterclaims in the THORN Lawsuit (as defined below) and the execution of a
mutual release by all parties to the THORN Lawsuit. In addition, the
obligations of THORN and Acquisition to consummate the Merger are also
subject to, among others, the following conditions: (i) the total equity of
the Company and its subsidiaries as of November 26, 1995, shall be at least
$30,600,000, subject to certain adjustments as set forth in the Merger
Agreement, (ii) the Company's Preferred Stock shall have been converted
or redeemed prior to the Effective Time, (iii) the Company's paid and payable
transaction expenses, including but not limited to, attorneys' fees,
accounting fees, financial advisor fees and the cost of printing and
mailing this Proxy Statement shall not exceed $250,000, and (iv) THORN
shall have determined in its sole discretion that the business, operations,
results of operations, condition, assets, prospects and liabilities of the
Company and each of its subsidiaries are such that the acquisition of the
Company pursuant to and in accordance with the terms of the Merger Agreement
is in the best interest of THORN.
Effective Time of the Merger. The Merger shall become effective upon the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware (the "Effective Time"). See "THE MERGER - The Merger Agreement -
Effective Time of the Merger."
Effects of the Merger. Pursuant to the Merger, holders of shares of
Common Stock (other than THORN or Acquisition or any direct or indirect
subsidiary of THORN or Acquisition, or the Company or any of its subsidiaries,
or those stockholders who perfect their appraisal rights under the DGCL),
will be entitled to receive the Purchase Price for each share of Common
Stock owned by them. After consummation of the Merger, the Company will
become a wholly owned subsidiary of THORN and the former holders of the Common
Stock will no longer possess any interest in the Company. Upon consummation
of the Merger, the Company will terminate the registration of the Common Stock
under Section 12 of the Exchange Act and the Common Stock will no longer be
listed for trading on NASDAQ. See "THE MERGER -Certain Effects of the
Merger."
Tax Consequences to Stockholders. The receipt of cash by a Company
stockholder pursuant to the Merger will be a taxable transaction for federal
income tax purposes and may also be taxable under applicable state, local
and foreign tax laws. See "THE MERGER - Certain Federal Income Tax
Consequences of the Merger." ALL STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS.
Accounting Treatment. The Merger will be accounted for under the
"purchase" method of accounting. See "THE MERGER - Accounting Treatment of
Merger."
Termination and Amendment of the Agreement. The Merger Agreement may
be amended in writing signed by the parties to the Merger Agreement, but may
not be amended after adoption of the Merger by the stockholders of the Company
in any manner which decreases the Purchase Price to the stockholders who are
not parties to the Advantage Agreement, or changes the form thereof or
which adversely affects the rights of the Company's stockholders hereunder
without the approval of such stockholders. The Merger Agreement may be
terminated by mutual written consent of the parties or by either THORN or the
Company if any court or governmental authority shall have issued an order,
decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree or ruling shall
become final and non-appealable. The Merger Agreement is also terminable
by either THORN or the Company at any time after January 31, 1996 if the
Merger shall not have occurred by such date, provided that this date may be
extended for up to ninety (90) days if the Merger has not been consummated
because of delays in the regulatory approval process, and provided further that
the right to terminate shall not be available to any party whose failure
to fulfill any obligation under the Merger Agreement has been the cause of
the failure of the Merger to have occurred by such date. The Company has
the right to terminate the Merger Agreement upon any breach of
representations or warranties or upon a breach of any covenant or agreement of
THORN or Acquisition which is not cured within ten (10) business days
following notice of such breach. THORN may terminate the Merger Agreement
if (i) in its sole discretion, it determines that any fact revealed by the
Company pursuant to its duties to notify THORN of certain matters under the
Merger Agreement makes it not in THORN's best interest to consummate the
Merger, (ii) the Company breaches any representation or warranty contained in
the Merger Agreement, (iii) the Company breaches any covenant or agreement
contained in the Merger Agreement which is not cured within ten (10)
business days following notice of such breach, or (iv) the parties to the
Advantage Agreement do not execute the Amendment to the Advantage Agreement
extending the Termination Date and the non-compete agreements, prior to
October 31, 1995. See "THE MERGER - The Merger Agreement - Amendment
or Termination."
Regulatory Matters. The following regulatory actions are required for
consummation of the Merger: (i) the filing of a Certificate of Merger in
accordance with the DGCL, (ii) compliance with any applicable requirements
of the HSR Act, (iii) compliance with the applicable requirements of the
Exchange Act. See "THE MERGER - The Merger Agreement - Conditions" and
"Regulatory Approvals".
Appraisal Rights. If the Merger is consummated, holders of shares of
Common Stock who comply with the requirements of Section 262 of the DGCL will
be entitled to statutory appraisal rights. See "THE MERGER - Appraisal
Rights" and "Annex D."
THE SPECIAL MEETING
Date, Time and Place of Special Meeting. The Special Meeting of the
Stockholders of the Company will be held on December 20, 1995, at
10:00 a.m., Central Time, at the corporate offices of the Company at 9323 East
37th Street North, Wichita, Kansas.
Matters to be Considered at the Meeting. At the Special Meeting,
holders of Common Stock as of the record date will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement and the
Merger. The Company's stockholders will also consider and vote upon such
other matters as may properly come before the Special Meeting.
The Company's Board of Directors has approved the Merger Agreement and
the Merger and recommends that the Company's stockholders vote "FOR" the
approval and adoption of the Merger Agreement and the Merger .
Vote Required. Holders of record of shares of Common Stock as of the
close of business on the Record Date are entitled to one vote per share upon
each matter submitted to a vote of the stockholders of the Company at the
Special Meeting or any adjournment or postponement thereof. Under applicable
provisions of Delaware law and the Company's Bylaws, the approval and
adoption of the Merger Agreement and the Merger require the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock on the
record date entitled to vote on the proposal. Certain stockholders who are
parties to the Advantage Agreement have entered into an agreement with THORN
whereby they agreed to vote all of their shares of Common Stock, which
represent approximately 77% of the outstanding shares of Common Stock, in
favor of approval and adoption of the Merger Agreement and the Merger.
See "THE MERGER - Background of the Transaction - The Advantage Agreement."
Broker Non-Votes. Under applicable Delaware law, if a broker returns
a proxy and does not vote on a certain proposal, such broker non-votes will
count for purposes of determining whether a quorum is present. Under
Section 251(c) of the DGCL, approval and adoption of the Merger Agreement
and the Merger require the affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock entitled to vote thereon. In
voting on the Merger Agreement and the Merger, votes may be cast in favor,
against or abstained. Abstentions and broker non-votes will count as present
for purposes of the proposal and will have the effect of a vote against the
proposal.
Voting of Proxies. Shares of Company Common Stock represented at the
Special Meeting by properly executed proxies received at or prior to the
Special Meeting will be voted in the manner specified by the holders of
such shares. Properly executed proxies that do not contain instructions will
be voted FOR adoption and approval of the Merger Agreement and the Merger.
If any other matters are properly presented at the Special Meeting for
consideration, including, among other things, a proposal to adjourn the
Special Meeting to another time and/or place, the persons named in the form
of proxy enclosed herewith and acting thereunder will have discretion to
vote on such other matters as may be so presented at the Special Meeting.
Revocability of Proxies. The grant of a proxy does not preclude a
stockholder from voting in person or otherwise revoking a proxy. Attendance
at the Special Meeting will not in and of itself constitute revocation of a
proxy. A stockholder may revoke a proxy at any time prior to its exercise
by executing a proxy bearing a later date, by giving written notice of
revocation to the Secretary of the Company, or by voting in person at the
Special Meeting.
Record Date; Quorum. Only holders of Common Stock of record at the close
of business on November 10, 1995 will be entitled to receive notice of and to
vote at the Special Meeting. As of November 10, 1995, the Company had
outstanding ________________ shares of Common Stock. Shares representing
a majority of the outstanding shares of Common Stock must be represented
in person or by proxy at the Special Meeting in order for a quorum to be
present at the Special Meeting.
Appraisal Rights. A holder of Common Stock who does not vote for approval
and adoption of the Merger Agreement and the Merger and who complies with
statutory procedures is entitled to the rights and remedies of a dissenting
stockholder provided in Section 262 of the DGCL, a copy of which is attached
hereto as Annex D. See "THE MERGER - Appraisal Rights."
THE MERGER
Background of the Transaction
For several years senior management of the Company and the Board of
Directors have believed that the Company was undervalued in the public market
for its stock. While the Company has seen steady increases in revenues and
net earnings, resulting in substantial additions to stockholders' equity,
the shares of Common Stock have only been thinly traded at conservative
prices during the two years preceding the announcement of the Merger.
Management of the Company has continued to believe that the extremely
conservative pricing of the Company by the market was due to the limited
opportunities for growth of COMCOA, which was nearly mature in its
Rent-A-Center franchise territories, and thus had little opportunities for
future growth.
In January 1995, Company Chairman and Chief Executive Officer Daniel J.
Taylor discussed the potential interest in the Company of a prospective
purchaser of the business, but the potential purchaser evidenced no serious
interest in purchasing the Company. Mr. Taylor and the Board of Directors
have believed that THORN's franchisor relationship with the Company, and more
recently the litigation with THORN (as described below), have made it
impractical for any other party to make a serious and attractive offer for the
Company.
In addition to exploring the possible sale of the Company, management of
the Company also undertook to identify potential new lines of business to
create growth opportunities for the Company. Because of restrictions
appearing in COMCOA's franchise agreements with THORN, it was determined that
the Company should reorganize and that COMCOA should become a wholly owned
subsidiary of the Company, which became a new public holding company. In
1994, Mr. Taylor formed AdvantEdge and developed concepts and marketing
techniques with respect to a model store in Denver, Colorado. AdvantEdge
was sold to the Company on January 22, 1995 for $1,000 in cash and the
assumption of related liabilities.
On December 27, 1994, prior to the transfer of AdvantEdge to the Company,
THORN filed a lawsuit in the District Court of Sedgwick County, Kansas (the
"THORN Lawsuit"), and included as defendants the Company, COMCOA, AdvantEdge,
Tidewater Rental Corp., a Virginia corporation ("Tidewater"), Mr. Taylor,
Company President James Steckart and Company employees Greg Bunn, Kurt Doerr,
and Edward Stanko, with respect to the AdvantEdge operations, claiming
current and threatened violations of the existing franchise agreements and
development agreements with THORN, breaches of confidential relationships,
unfair competition, and violations of the Kansas Trade Secrets Act. See
"BUSINESS INFORMATION CONCERNING THE COMPANY - Legal Proceedings."
Proceedings in the THORN Lawsuit continued during the winter and spring
of 1995. On April 25, 1995, in connection with informal negotiations
pertaining to the settlement of the THORN Lawsuit, David Egan, THORN General
Counsel and Mr. Taylor first discussed THORN's possible interest in
purchasing the Company. On May 9, 1995, further discussions regarding THORN's
possible purchase of the Company were held. John Slaymaker, THORN's
Executive Vice President, Mr. Egan, and Gary Austerman, THORN's litigation
counsel, met with Michael Dady, litigation counsel for the Company, Ed Brausa,
General Counsel for the Company, and Mr. Taylor. Substantive discussions
regarding the terms of the proposed purchase of the Company by THORN were
held for the first time at a meeting on June 10, 1995 between Mr. Slaymaker
and Mr. Taylor and a "term sheet" outlining the basic terms of the proposed
transaction was presented to Mr. Slaymaker by Mr. Taylor. On June 14, 1995,
Mr. Slaymaker and Mr. Taylor met again and continued their discussions
regarding the proposed transaction and the term sheet proposed by Mr. Taylor.
This meeting was followed by a meeting on June 29, 1995 between Mr. Taylor and
Mr. Slaymaker at which a revised term sheet for the proposed transaction
was prepared.
Tidewater Agreements. Concurrently with the negotiation of the basic
terms of the proposed acquisition of the Company by THORN, THORN also pursued
negotiations with respect to the purchase of Tidewater, a privately held
affiliated company having common management with the Company. Tidewater is
also a Rent-A-Center franchisee, having 20 stores in an area franchise
encompassing a large part of the state of Virginia. Common management
of Tidewater and the Company is as follows:
Name Tidewater Rental Corp. Advantage Companies, Inc.
A. Tracy Burton President Vice President - Marketing
Daniel J. Taylor Vice President Chairman and Chief
Executive Officer
William A. Simon V.P. - Operations Senior V.P.-Administration
Thomas R. Kennalley Treasurer Treasurer
Brenda J. Butler Corporate Secretary Corporate Secretary
In addition, Mr. Burton, Mr. Taylor, Mr. Simon, Mr. Steckart and Leslie G.
Rudd (all of whom are officers, directors or 5% stockholders of the Company)
are stockholders of Tidewater. Messrs. Taylor and Rudd each own over 20% of
Tidewater's common stock. Tidewater and Advantage have had agreements to
share administrative overhead for more than nine (9) years. Discussions
between Mr. Taylor and Mr. Slaymaker also resulted in a tentative agreement
on the basic terms of the purchase of all of the Tidewater common stock
for total consideration of $15,000,000 plus assumption of debt. See "THE
MERGER - Conflicts of Interest - Tidewater Purchase."
Letter of Intent. After the June 29 meeting discussed above, Mr. Taylor
spoke with each of the Board members and with Mr. Rudd regarding the
proposed acquisition of the Company by THORN. Both the Company and THORN
retained legal counsel and engaged in substantive discussions regarding a
formal Letter of Intent and the terms of options demanded by THORN with
respect to the shares held by Board members Mr. Taylor, Daniel M. Carney,
Robert W. Moore and significant stockholder Mr. Rudd. Drafts of the
proposed Letter of Intent were exchanged by the parties, with negotiations
focusing on THORN's requirements regarding the total equity of the Company
at the closing date of the Merger, THORN's demand that certain stockholders
execute the Advantage Agreement and that the Company and certain
stockholders of the Company refrain from soliciting, engaging in
negotiations regarding or approving acquisition proposals from third
parties. The negotiations included discussions with respect to a
"topping" or "bust up" fee requested by THORN in the amount of $1,000,000,
which would have been payable if the Company entered into an acquisition
agreement with any other party. In the final, executed version of the Letter
of Intent, this fee was eliminated and the "no solicitation" provisions
altered to allow the Board to entertain unsolicited offers as necessary or
appropriate for the directors to comply with their fiduciary duties under
applicable law.
The original term sheet reflected a price to be paid for all shares of
Common Stock of $17.50 per share. This amount was negotiated and agreed to
by certain stockholders of the Company and was based upon estimates of the
total number of shares of the Common Stock, Preferred Stock and stock
options outstanding. In the negotiations pertaining to the Letter of
Intent it was discovered that the actual number of shares of Common
Stock options and Preferred Stock were somewhat lower than the estimates.
In an effort to maximize the amount per share to be paid to the other
stockholders, however, Messrs. Taylor, Carney, Moore and Rudd agreed to
accept the price first proposed for their shares ($17.50 per share), allowing
all of the increase to be applied to the other stockholders' shares. For this
reason, the Letter of Intent contemplates that all stockholders other than
Messrs. Taylor, Carney, Moore and Rudd will receive, upon closing of the
Merger, $18.50 per share for each share of Common Stock.
On July 9, 1995, the Board of Directors met to consider the Letter of
Intent proposed by THORN. At the meeting, the Board unanimously approved
entering into the Letter of Intent and directed management of the Company
to engage in negotiations with respect to a definitive Merger Agreement.
The Board considered a number of factors in its decision to pursue the offer
from THORN, including the recent market prices for the Common Stock,
developments in the litigation with THORN, and prior efforts of management
to solicit the interest of qualified buyers. Various valuation methods
were reviewed, including percentage of sales calculations, review of
comparable transactions, and review of recent earnings multiples. The Board
considered THORN, its longstanding relationship with the Company, and the
possible effects of the Merger on the Company's employees and customers.
The THORN Lawsuit as a factor influencing the valuation of the Company was
discussed, as was THORN's unique position as franchisor of the Company's
Rent-A-Center stores. The Company also reviewed the competitive pressures
affecting the Company's Rent-A-Center stores and the rent-to-own industry in
general and concluded that this was the appropriate time to sell the Company.
The Board finally determined that it would be in the best interests of the
Company and its stockholders to accept THORN's proposal and to enter into
the Letter of Intent. The Letter of Intent was executed on July 9, 1995,
and management of the Company was directed to announce the negotiations and
the signing of the Letter of Intent with THORN prior to the opening of
trading in the Common Stock on Monday, July 10, 1995.
Indemnity Agreements. In connection with the Board meeting on July 9,
1995, the Company entered into indemnity agreements with each member of the
Board of Directors (the "Indemnity Agreements"). The Indemnity Agreements
provide, among other things, for the payment by the Company of any
"expenses" incurred by a director in connection with any claim or claims
made against him in a legal proceeding by reason of the fact that he is or
was an officer or director of the Company. Under the Indemnity Agreements,
the term "expenses" includes, without limitation, expenses of investigations
judicial or administrative proceedings or appeals, damages, judgments, fines,
amounts paid in settlement by or on behalf of an indemnitee under the
agreement, attorneys' fees and disbursements and any expenses of establishing
a right to indemnification under the agreement. The Indemnity Agreements
also provide for the advance payment of expenses incurred by an indemnitee in
defending a claim against him in a legal proceeding. Under the Indemnity
Agreements, the Company shall not be obligated to make any payment of
expenses if such payment is prohibited by applicable law, if and to the
extent payment is actually and unqualifiably made to an indemnitee under an
insurance policy or otherwise, or if the expenses result from a claim in a
legal proceeding decided adversely to the indemnitee based upon or
attributable to the indemnitee gaining in fact any personal profit or
advantage to which he was not legally entitled. The agreement also requires
an indemnitee to repay any amounts advanced under the agreement if it shall
be decided in a legal proceeding that he is not entitled to be indemnified by
the Company pursuant to the Indemnity Agreement or otherwise. The
indemnification rights under the Indemnity Agreements are non-exclusive
and the directors retained their rights to indemnification under the
Company's certificate ofincorporation and bylaws and under Delaware law.
The Advantage Agreement. Following the July 9, 1995 Board meeting,
Board members Daniel J. Taylor, Daniel M. Carney, Robert W. Moore, and
stockholder Leslie G. Rudd, executed the Advantage Agreement with THORN, also
dated July 9, 1995, whereby such individuals granted purchase options to
THORN with regard to their Common Stock at $17.50 per share and agreed to
vote their shares of Common Stock in favor of the approval of and
adoption of the Merger Agreement and the Merger (the "Advantage Agreement").
The purchase options originally were to expire on November 30, 1995, subject
to automatic extension if the option could not be exercised because of
actions taken by the four stockholders. On October 6, 1995, in connection
with the execution of the Merger Agreement, the Advantage Agreement was
amended to extend the option expiration date to January 31, 1996, again
subject to extension in certain circumstances. These four individuals agreed
to convert their Preferred Stock into Common Stock prior to the closing date
of the Merger. Under the terms of the Preferred Stock, such conversion
shall be accomplished at the rate of 50 shares of Common Stock for each share
of the Preferred Stock.
Pursuant to the terms of the Advantage Agreement, these four stockholders
have agreed to certain covenants against competition, including a five-year
covenant not to engage in the rent-to-own businesses at any location in the
United States. The four stockholders have agreed to maintain the
confidentiality of proprietary information of the Company and THORN and have
agreed not to hire or solicit for employment any person who shall then be
employed by THORN or who shall have been employed by THORN or any subsidiary
or affiliate thereof within the previous six months. No separate
consideration will be paid to Messrs. Moore, Carney or Rudd for their
covenants, but under the Amendment to the Advantage Agreement dated
October 6, 1995, Mr. Taylor will be paid the sum of $750,000 as consideration
for his covenant not to compete. See "THE MERGER - Interest of Certain Persons
in the Merger - Covenant Not To Compete Agreement."
Negotiation of Merger Agreement. Following the consideration and
execution of the Letter of Intent and the Advantage Agreement, initial drafts
of the Merger Agreement were circulated on July 21, 1995, beginning extended
negotiations of the parties with regard to the terms of the Merger. These
negotiations focused on extensive warranties and representations to be made
by the company, THORN's conditions for closing, and provisions pertaining to
amendment and termination of the Merger Agreement. THORN also undertook an
investigation of the businesses of the Company and each of its subsidiaries.
In mid-August 1995, THORN informed the Company that it was concerned
with the mid-year financial performance of the Company and that it wished to
readdress certain basic issues pertaining to the Purchase Price and total
equity requirements that must be met by the Company. The Company responded
that it believed that the decreases in revenues and volume of customer
contracts experienced by the Company for the periods in question were modest,
were largely seasonal and were also reflective of trends experienced by the
entire industry. Nevertheless, the pace of negotiations slowed until
mid-September, when the principals on each side agreed to modify certain
basic terms of the draft Merger Agreement.
The modified structure for the Merger, now reflected in the Merger
Agreement, extends the effective date of the Merger to the later of
January 2, 1996 or upon satisfaction or waiver of all conditions precedent
to the consummation of the Merger. THORN will review the financial
statements of the Company dated November 26, 1995 in order to verify the total
equity requirement of at least $30,600,000, subject to certain specified
adjustments. THORN must also be satisfied in its sole discretion with the
condition, business, operations, assets, properties and liabilities of the
Company and each of its subsidiaries, as a condition to THORN's obligation
to consummate the Merger. The extension of the time period for closing the
Merger is intended to allow the Company to recover from seasonal lows and
improve its equity position, but there can be no assurance that its
financial performance will be satisfactory to THORN or that the Company
will meet the other conditions for closing the Merger. Any failure to meet
the conditions for closing may result in THORN's refusal to close, extension
of the closing date, or renegotiation of the Purchase Price with the
stockholders who executed the Advantage Agreement. In such event, the
Merger Agreement may be amended by action of the Board, but following
approval and adoption of the Merger Agreement and the Merger at the Special
Meeting of the stockholders to be held on December 20, 1995, no amendment
may be made which decreases the Purchase Price to stockholders (other than
those who are parties to the Advantage Agreement) without the approval of
such stockholders.
Recommendation of the Board; Reasons for the Merger
On September 25, 1995, the Board met to consider the Merger and the Merger
Agreement. After duly considering the terms of the Merger Agreement and the
Merger, the Board determined that (i) the approval and adoption of the Merger
Agreement and the Merger are in the best interests of the Company and its
stockholders other than those party to the Advantage Agreement, (ii) the
Merger provides the best value to the stockholders other than those party to
the Advantage Agreement that is reasonably available, and (iii) the Board
should authorize and approve the execution, delivery and performance by the
Company of the Merger Agreement. The Board unanimously voted to recommend
that the stockholders of the Company approve the Merger and adopt the Merger
Agreement.
In making the determinations and recommendations set forth above, the
Board considered the following factors:
(i) the practical problems under existing franchise agreements with
THORN involved in obtaining a serious bid from any party other than THORN;
(ii) the effect of the ongoing litigation with THORN on the
marketability of the Company to any other party;
(iii) the report from financial advisor George K. Baum & Company
analyzing the Company's enterprise value, the rent-to-own industry as a
whole, and the Company's competitive position therein, and the Company's
business plans and opportunities and the financial, contractual and
operational constraints thereon;
(iv) reports from management of the Company with respect to their prior
attempts to find interested buyers for the Company;
(v) the fact that $18.50 represents the highest per share valuation of
the Company in its history and yields a premium to the market existing for
the shares immediately prior to the announcement of the Letter of Intent;and
(vi) the delivery by GKB of its opinion that the consideration to be
received by the stockholders other than those party to the Advantage Agreement
of $18.50 per share of Common Stock is fair to such stockholders from a
financial point of view.
All of the foregoing factors supported the determinations and
recommendations set forth above. The Board did not assign any specified
weight to the consideration of any of the foregoing factors on an individual
basis.
The Company has been informed by Acquisition that the purpose of the
Merger is to enable THORN to acquire the entire equity interest in the
Company and that it is expected, following the Merger, that the Company's
businesses and operations will be integrated with the other rent-to-own
businesses and operations of THORN.
Opinion of Financial Advisor
George K. Baum & Company ("GKB"), rendered its opinion to the Company to
the effect that as of September 22, 1995, the Purchase Price is fair from a
financial point of view to the stockholders of the Company who are neither
officers nor directors of the Company, nor beneficial owners of at least
five percent of the issued and outstanding Common Stock nor certain
employees of the Company). GKB was not asked to and did not participate in
the negotiations as a financial advisor or otherwise and made no presentation
to the Board. GKB did not issue an opinion, either oral or written, to the
Board until after the Board voted to recommend the Purchase Price to the
Company's stockholders, but the Board reaffirmed such action. The Company
did not impose any limitations on the scope of the investigation made by
GKB with respect to the rendering of GKB's opinion.
The full text of the opinion of GKB dated as of September 22, 1995, which
sets forth the assumptions made, matters considered and limits on the review
undertaken is attached as Annex C to this Proxy Statement pursuant to the
written consent of GKB. The Company stockholders are urged to read the
opinion in its entirety and, in particular, the assumptions made, matters
considered, procedures followed and limits of the review by GKB set forth
therein. GKB's opinion addresses the fairness of the Purchase Price to the
stockholders of the Company (excluding those stockholders set forth above)
from a financial point of view and does not constitute a recommendation to
any Company stockholder as to how such stockholder should vote at the
Special Meeting. The summary of GKB's opinion set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
In rendering its opinion, GKB reviewed, among other things, (i) the terms
of the Merger Agreement; (ii) certain publicly available historical financial
information relating to the Company, including the Annual Reports to
Stockholders and Annual Reports on Form 10-K of the Company for the last
four fiscal years and the subsequent Quarterly Reports on Form 10-Q of the
Company; (iii) certain internal historical financial information for the
Company prepared by the management of the Company; (iv) certain publicly
available financial and stock market data of certain other comparable
companies, the securities of which are publicly traded; (v) certain reported
price and trading activity for the Common Stock; (vi) information contained
in this Proxy Statement; and (vii) such other financial and other information
as it deemed appropriate. GKB also held discussions with members of the
Company management concerning the past and current operations, the financial
conditions, the limited prospects for future expansion of the Company under
its current franchise agreements, and performed such other studies and
analyses as it deemed appropriate.
GKB relied, without independent verification, upon the accuracy and
completeness of all the financial and other information it received from the
Company used as the basis for its opinion. GKB did not make an independent
evaluation or appraisal of the respective assets and liabilities of the
Company or any of its subsidiaries nor was GKB furnished with any such
evaluations or appraisals.
The following is a summary of the financial analyses utilized by GKB in
arriving at its opinion.
Analysis of Stock Trading History. GKB analyzed the history of the
trading prices and trading volume of the Common Stock after December 31,
1990 through July 9, 1995, the date of the Advantage Agreement. In calendar
year 1991 the Common Stock traded at a high of $12.00; a low of $7.25; and a
closing price of $10.75. In calendar year 1992 the Common Stock traded at
a high of $13.75; a low of $10.75; and a closing price of $13.50. In
calendar year 1993 the Common Stock traded at a high of $17.25; a low of
$12.00; and a closing price of $14.25. In calendar year 1994 the Common
Stock traded at a high of $18.25 (which took place on December 27, 1994 the
same day that THORN filed the THORN Lawsuit to, among other things, stop the
Company from expanding operations outside of its current Rent-A-Center
franchise territory as the Company had announced it was going to do in a
December 1, 1994 press release); a low of $13.00; and a closing price of
$16.50. For 1995, through July 9, 1995, the Common Stock traded at a high of
$17.75; a low of $15.25; and a closing price of $16.00 on July 7, 1995.
The cash Purchase Price of $18.50 per share to the public stockholders
represents a premium of 15.625% over the July 7, 1995 closing price of $16.00.
The cash Purchase Price also is a higher price than the stock has ever traded
for in the past. The analysis of the stock trading history supports the
conclusion that the Purchase Price is fair, from a financial point of view,
to the Company's public stockholders.
Analysis of Publicly Traded Comparable Companies. GKB analyzed selected
stock, earnings, and other financial data and ratios of the Company as compared
to corresponding financial data and ratios of comparable rent-to-own
companies. Such data and ratios included stock market per share values,
price/earnings ratios based on the last reported fiscal year earnings,
price/earnings ratios based on estimated current fiscal year earnings (as
reported in available publications), and market value of common equity to
book value ratios. GKB also reviewed income statements and balance sheets of
the comparable companies. Companies comparable to the Company for this
purpose included Aaron Rents, Inc. ("Aaron"), Renters Choice, Inc.
("Choice"), and Rent-Way, Inc. ("Way").
It should be noted that the Company has been public since July of 1983,
while Aaron has been public since November of 1992, Way has been public
since August of 1993, and Choice has been public since January of 1995. The
Company is viewed as mature due to its franchise restrictions while the
other three comparables have no franchise restrictions to hamper growth.
The common equity market value to book value ratios as of July 7, 1995 were
as follows:
Common Equity Market
Value to Book Value
Ratio as of July 7, 1995
Aaron 2.51
Way 6.52
Choice 22.22
Company 3.77*
*Based on the $18.50 per share Purchase Price to the public stockholders.
The price/earnings ratios as of July 7, 1995 were as follows, based on:
(1) last reported fiscal year earnings; (2) latest twelve months ended; and
(3) "street estimates" for the next fiscal year earnings:
Price Earnings Ratios as of July 7, 1995
(1) Last Reported (2) Latest 12 (3) "Street
Fiscal Year Months(3) Estimates"for
Next Fiscal Year
Aaron 13.48 12.81 11.40
Way 175.00 50.00 35.00
Choice 23.53 22.47 22.73
Company 14.80* 15.42* 17.13*
* Based on the $18.50 per share Purchase Price to the public stockholders.
The analysis of the various financial data and ratios for the comparable
companies in relation to those of the Company supports the conclusion that the
Purchase Price is fair, from a financial point of view to the Company's
public stockholders. It should be noted, however, that analysis of the
results of such a comparison is not entirely mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies to which
the Company is being compared. No public company utilized as a comparison
is identical to the Company.
Acquisition Transaction Analysis. In addition to the financial analysis
utilized by GKB in arriving at its opinion, GKB sought to obtain the financial
terms of transactions involving comparable acquisitions of other rent-to-own
companies in order to compare the financial terms of such transactions to
the financial terms of the Merger. To the extent publicly available, GKB
obtained and reviewed the financial terms of five transactions, each of
which involved the acquisition of a rent-to-own company by a publicly held
entity.
The five transactions were:
(A) Choice's acquisition of stores from DEF Investments, Inc.
(the "Choice-DEF" acquisition);
(B) Way's acquisition of the rental merchandise and contracts of five
rental-purchase stores (the "Way-5 Stores" acquisition);
(C) Ways acquisition of D.A.M.S.L. Corp. (the "Way-D.A.M.S.L."
acquisition);
(D) Choice's acquisition of stores from Crown Leasing Corporation and
affiliate (the "Choice-Crown" acquisition); and
(E) Way's acquisition of McKenzie Leasing Corp (the "Way-McKenzie"
acquisition).
The comparisons data derived from the above-transactions is as follows based
on (1) price of transaction; (2) revenues of the acquired assets and/or
entities for the latest fiscal year; (3) revenues of the acquired assets and/or
entities based on annualized revenues from latest reported period; (4)
stores acquired; (5) revenue per store per latest fiscal year; (6) revenue per
store per annualized revenues from latest reported period; (7) price/revenue
per latest fiscal year; (8) price/revenue per annualized revenues from latest
reported period; (9) price per store; (10) price/EBITDA (latest fiscal year);
and (11) price/EBITDA (annualized from latest reported period):
Acquisition Transactions
<TABLE>
<CAPTION>
Transaction (A) (B) (C) (D) (E)
Data Choice-DEF Way-5 Stores Way-DAMSL Choice-Crown Way-McKenzie Company
<S> <C> <C> <C> <C> <C> <C>
(1) Price $24,300,000 $84,097 $3,289,065 $20,600,000 $14,937,500 $94,350,000*
(2) Revenues -
Latest Fiscal
Year $38,618,914 $2,000,000 $9,600,000 $36,379,000 $24,000,000 $71,371,191
(3) Revenues -
Annualized
from Latest
Reported
Period $40,088,379 N/A N/A $33,903,000 N/A $70,066,100
(4) Stores
Acquired 84 5 20 72 45 98
(5)Revenue/Store
for Latest Fiscal
Year $459,750 $400,000 $480,000 $519,700 $533,300 $759,268
(6)Revenue/Store
Annualized
from Latest
Reported
Period $477,245 N/A N/A $470,875 N/A $714,960
(7)Price/Revenue
for Latest Fiscal
Year 0.630 0.492 0.343 0.566 0.622 1.322
(8)Price/Revenue -
Annualized
from Latest
Reported
Period 0.606 N/A N/A 0.608 N/A 1.347
(9) Price Per
Store $289,000 $196,800 $164,453 $286,100 $331,900 $962,755
(10) Price/EBITA -
Latest Fiscal
year 1.339 N/A N/A 1.70 N/A 3.266
(11) Price/EBITA -
Annualized
from Latest
Reported
Period 1.915 N/A N/A N/A N/A 3.120
</TABLE>
*Calculated as if $18.50 per share was paid to all stockholders of the Company.
The summary of the GKB opinion set forth above does not purport to be a
complete description of the analyses performed by GKB. GKB believes that its
analyses and the summary set forth above must be considered as a whole and
that selecting portions of its analyses or of the above summary, without
considering all factors and analyses, could create an incomplete view of the
processes underlying its opinion. In performing its analyses, GKB made
numerous assumptions with respect to general business and economic conditions
and other matters, many of which are beyond the control of the Company. The
analyses performed by GKB 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 sold.
The Board selected GKB based upon its experience and expertise. GKB is
a nationally recognized investment banking firm. GKB, as part of its
investment banking business, is regularly engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and for corporate planning and other purposes. GKB is a full
service securities firm and may, from time to time, effect transactions for
the account of its customers in securities of the Company. Prior to the
Company's engagement of GKB to render the Fairness Opinion, GKB had not
previously been engaged to provide investment banking services to the Company,
although from time to time prior to May 1, 1992, GKB made a market in the
Common Stock. Pursuant to the terms of an engagement letter dated July 12,
1995, the Company has agreed to pay GKB a fee of $55,000 in consideration for
its services in rendering the above-described opinion. Of the total fee
payable to GKB, $17,500 was paid upon execution of the engagement letter,
with $17,500 due upon delivery of the opinion to the Board and $20,000 due
upon mailing of this Proxy Statement. No portion of the fee is contingent
upon stockholder approval of the Merger Agreement. The Company has also
agreed to indemnify GKB against certain liabilities incurred in connection with
its services, including labilities under the federal securities laws.
Interests of Certain Persons in the Merger
In considering the recommendation of the Board with respect to the Merger,
the Company's stockholders should be aware that certain members of the C
ompany's management and of the Board have interests described below that may
present them with actual or potential conflicts of interest in connection
with the Merger.
Company Options. The Merger Agreement also provides that prior to the
Effective Time, each outstanding option to purchase shares of Common Stock
(collectively the "Company Options") granted under the Company's Restated 1988
Incentive Stock Option Plan, the Company's Restated 1993 Non-Qualified Stock
Option Plan, the Restated and Extended Stock Option Agreement with William A.
Simon, and the Company's 1995 Stock Option Plan (collectively, the "Company
Options Plans") shall be canceled by the Company and such holders of the
Company Options shall be entitled to receive from the Company an amount in
cash equal to the product of (x) the excess, if any, of $18.50 over the
respective exercise price thereof and (y) the number of shares of Common
Stock previously subject to the Company Option. The cancellation of all
options, including those which are not currently exercisable, will result in
significant cash payments being made to members of management, including
Messrs. Steckart, Simon, and Burton. In light of the proposed Merger,
certain options which would have otherwise expired or would have been
exercised have been extended by action of the Board, including options
held by Mr. Simon. See "THE MERGER - The Merger Agreement - Company Options."
Employment Agreements. The Merger Agreement provides that President
James G. Steckart, and Mr. Burton, will be offered, at or prior to the
Effective Time, employment agreements with THORN for a period of two (2)
years.
Covenant Not to Compete Payment. THORN has agreed to pay to Mr. Taylor
the sum of $750,000 at closing of the Merger in consideration for his
agreement not to compete with THORN, Acquisition or the Company for a period
of five (5) years following the purchase of the Company Common Stock and
Preferred Stock by THORN. See "THE MERGER - The Advantage Agreement."
Real Estate Transaction. The only real estate owned by the Company is
the Company's headquarters at 9323 East 37th Street North, Wichita, Kansas.
In connection with the negotiation of the Merger Agreement, THORN stated its
intention to move the Company's operations into THORN's headquarters three
blocks west at 8200 East Rent-A-Center Drive, Wichita, Kansas, and that it
did not wish to acquire the Company's owned real estate and certain
computer, telephone, and office equipment, as well as other furnishings and
fixtures located at the Company's headquarters. Mr. Taylor indicated his
interest in acquiring these assets from the Company. The Board, with
Mr. Taylor abstaining, agreed to sell to Property Management Corp. ("PMC"),
the real estate, computer equipment, furnishings, fixtures and specified
office equipment for a cash consideration of $890,000, representing the
aggregate appraised value of the real estate and furniture and furnishings,
and the estimated fair market value of the computers and other equipment.
Mr. Taylor owns 50% of the equity interest in PMC and serves as director and
president of such corporation. For a number of years, the Company obtained
management services from PMC and in the most recent fiscal year ended
January 22, 1995, PMC was paid a total management fee of $1,070,564 by the
Company. It is contemplated that the Company and PMC will enter into a
written agreement with respect to the aforementioned purchase of real
estate, equipment, and furnishings, and that the transaction will be effected
immediately prior to the Merger. PMC's address is 9323 E. 37th Street North,
Wichita, Kansas 67226.
Bonus Arrangements. The Letter of Intent and the Merger Agreement both
contemplate that discretionary bonuses in the aggregate amount of up to
$1,400,000 may be paid to selected key employees, upon certain conditions.
The payment of such bonuses is dependent upon Company performance prior to
Closing, and it is uncertain whether or not any such bonuses will actually
be paid. The recipients of these bonuses, if any, have not been determined at
this time, but may include key members of management. Messrs. Taylor, Carney
and Moore, serving as a special compensation committee of the Board, will
grant any such bonuses immediately prior to the Effective Time. All regular
incentive bonuses accrued on the books of the Company will be paid to the
employees entitled thereto when due and may not be accelerated under the
terms of the Merger Agreement.
Tidewater Purchase. As detailed in "THE MERGER - Background of the
Transaction," certain officers and directors of the Company are also
stockholders, officers and/or directors of Tidewater. On July 9, 1995,
Messrs. Taylor, Burton, Simon, Steckart and Rudd executed a Letter of
Intent and a separate Tidewater Agreement whereby they agreed to sell their
shares in Tidewater. On September 25, 1995, all of the Tidewater
stockholders executed a Stock Purchase Agreement with THORN under which the
common stock of Tidewater may be purchased by THORN for cash consideration
to the stockholders of $15,000,000 in the aggregate, plus assumption and
payment of Tidewater's notes to the stockholders in the amount of $1,575,000.
Closing on the purchase of the Tidewater common stock by THORN is
conditioned upon the effectuation of the Merger or the exercise by THORN of
the options granted under the Advantage Agreement. The Tidewater Stock
Purchase Agreement contains representations and warranties, covenants and
conditions which are similar to those contained in the Merger Agreement.
The Merger Agreement
The Merger Agreement, a copy of which is attached hereto as Annex A,
provides for the Merger of Acquisition with and into the Company. As a
result, the separate corporate existence of Acquisition will terminate, the
common stock of Acquisition will become the common stock of the Company, as
the surviving corporation in the Merger, and the Company will become a
wholly-owned subsidiary of THORN. The descriptions of the terms and
conditions of the Merger and of the Merger Agreement are qualified in their
entirety by the Merger Agreement, which is incorporated herein by reference.
Merger Consideration. Upon consummation of the Merger, each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than outstanding shares of Common Stock held by THORN or its
subsidiaries, the Company's or any of its subsidiaries' treasuries, or by any
holder who shall have perfected appraisal rights under the DGCL), will be
converted into the right to receive the Purchase Price.
Effective Time of the Merger. The Merger will become effective upon the
filing with the Secretary of State of the State of Delaware of the Certificate
of Merger (the "Effective Time"), which will occur as soon as practicable
after the later of the satisfaction or waiver of all of the conditions set
forth in the Merger Agreement and January 2, 1996.
Vote Required of Stockholders. Under the DGCL, the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock entitled to
vote thereon is required to approve and adopt the Merger Agreement and the
Merger. The parties to the Advantage Agreement who hold shares representing
approximately 77% of the outstanding Common Stock have agreed to vote in
favor of the Merger, thus is it is assured that the required majority vote
will be received.
Company Options. The Merger Agreement also provides that immediately
prior to the Effective Time, each outstanding Company Option shall be canceled
by the Company and the holders of the Company Options shall be entitled to
receive an amount in respect thereof equal to the product of (x) the number
of shares previously subject to such Company Options, and (y) the excess of
$18.50 over the exercise price per share previously subject to such Company
Options.
Representations and Warranties. The Merger Agreement contains
representations and warranties from each of the parties thereto. The Company
has made representations regarding, among other things, (i) the Company's
organization, qualification to do business and capitalization, (ii) the
Company's authority to enter into and perform its obligations under the
Merger Agreement, (iii) the delivery of the opinion by GKB, (iv) compliance
of the transactions contemplated by the Merger Agreement with the Company's
Certificate of Incorporation, Bylaws, certain agreements and applicable
laws, (v) the financial statements of the Company, (vi) required filings
with the Securities and Exchange Commission, (vii) the Company's
liabilities, (viii) the absence of adverse changes in the business, results
of operations or financial condition of the Company and its subsidiaries,
taken as a whole since the end of its most recent fiscal year, (ix) the
Company's stockholders' equity, (x) environmental matters, (xi) litigation,
(xii) intellectual property, (xiii) taxes, (xiv) employee benefits, (xv)
certain significant agreements, (xvi) real estate and leases, (xvii) labor
and employment matters, (xviii) inventory, motor vehicles, accounts
receivable and assets necessary to the business of the Company, and (xviii)
insurance.
Conditions. Notwithstanding the approval and adoption of the Merger
Agreement and the Merger by the stockholders, the Merger is subject to certain
conditions pursuant to the Merger Agreement which, if not fulfilled or waived,
permit termination by the party entitled to the benefit thereof. The
obligations of the Company, THORN and Acquisition under the Merger Agreement
are subject to (i) approval and adoption of the Merger Agreement and the
Merger by the holders of a majority of the outstanding Company Common Stock,
(ii) expiration or termination of the applicable waiting period pursuant to
the HSR Act, (iii) the absence of certain statutes, rules, regulations, orders
or injunctions prohibiting the Merger, (iv) the representations and
warranties of each party to the Merger Agreement being accurate as of the date
of the Merger Agreement and the Effective Time, (v) performance of each of
the parties of their respective covenants and obligations under the Merger
Agreement required to be performed prior to or at the Closing, and (vi)
dismissal with prejudice of all claims and counterclaims in the THORN
Lawsuit and the execution of a mutual release by all parties to the THORN
Lawsuit.
The obligations of THORN and Acquisition to consummate the Merger are
also subject to the following conditions: (i) the Company shall have obtained
prior to the consummation of the Merger all required governmental and
third-party consents required for consummation of the transactions
contemplated by the Merger Agreement; (ii) the total equity of the Company
and its subsidiaries as of November 26, 1995, shall be at least $30,600,000,
subject to certain adjustments as set forth in the Merger Agreement;
(iii) the Preferred Stock shall have been converted or redeemed prior to
the Effective Time; (iv) the owner of the Company's Wichita office shall
have executed a lease allowing Acquisition to use the Company's current office
space at no cost for 30 days; (v) the Company's paid and payable transaction
expenses, including but not limited to attorneys' fees, accounting fees,
financial advisor fees and the cost of printing and mailing this Proxy
Statement shall not exceed $250,000; (vi) the directors and officers of the
Company and its subsidiaries shall have resigned effective as of the Closing;
(vii) THORN shall have received an officer's certificate of the Company
certifying the Company's compliance with the Merger Agreement covenants and
the conditions of Closing; (viii) THORN shall have received an opinion of
counsel to the Company dated as of the Closing Date in form and content
satisfactory to THORN and its counsel; (ix) THORN shall have determined in
its sole discretion that as of the Closing Date, the business, operations,
results of operations, condition, assets, prospects and liabilities of the
Company and each of its subsidiaries are such that the acquisition of the
Company pursuant to and in accordance with the terms of the Merger Agreement
is in the best interest of THORN; (x) the Company and the officers and/or
directors of the Company who are parties to the indemnity Agreements shall
have executed an amendment thereto providing for certain limitations on the
indemnification rights of officers and/or directors party to such Indemnity
Agreements and limiting advance payment of litigation costs to indemnities
under such Indemnity Agreements for any claims brought by THORN or
Acquisition; (xi) any litigation matters identified pursuant to the Merger
Agreement shall have been settled by the Company or reserves shall have been
set forth in the financial statements for such matters if such reserves are
required under generally accepted accounting principles; and (xii) THORN
shall have received affidavits or confidentiality agreements stating that
THORN's proprietary computer software system is not being used by
unauthorized third parties who may have obtained such computer information
from the Company.
Amendment or Termination. The Merger Agreement may be amended in
writing signed by the parties to the Merger Agreement, but may not be amended
after approval of and adoption of the Merger Agreement and the Merger by the
stockholders of the Company in any manner which decreases the Purchase Price to
the stockholders who are not parties to the Advantage Agreement, or changes
the form thereof or which adversely affects the rights of the Company
stockholders hereunder without the approval of such stockholders. The Merger
Agreement may be terminated by mutual written consent of the parties or by
either THORN or the Company if any court or governmental authority shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree or
ruling shall become final and non-appealable. The Merger Agreement is also
terminable by either THORN or the Company at any time after January 31, 1996
if the Merger shall not have occurred by such date, provided that this date may
be extended for up to ninety (90) days if the Merger has not been consummated
because of delays in the regulatory approval process, and provided further
that the right to terminate shall not be available to any party whose failure
to fulfill any obligation under the Merger Agreement has been the cause of the
failure of the Merger to have occurred by such date. The Company has the
right to terminate the Merger Agreement upon any breach of representations or
warranties or upon a breach of any covenant or agreement of THORN or
Acquisition which is not cured within ten (10) business days following notice
of such breach. THORN may terminate the Merger Agreement if (i) in its sole
discretion, it determines that any fact revealed by the Company pursuant to
its duties to notify THORN of certain matters under the Merger Agreement makes
it not in THORN's best interest to consummate the Merger; (ii) the Company
breaches any representation or warranty contained in the Merger Agreement;
(iii) the Company breaches any covenant or agreement contained in the Merger
Agreement which is not cured within ten (10) business days following
notice of such breach; or (iv) the parties to the Advantage Agreement do
not execute the Amendment to the Advantage Agreement extending the
termination date and the non-compete agreements, prior to October 31, 1995.
Conduct of Business by the Company before the Merger. The Company has
agreed to conduct its operations prior to the Effective Time in the ordinary
course of business consistent with past practice and has agreed to use its
reasonable best efforts to preserve intact its business organization and
existing business relationships. In this connection, the Company has agreed
not to, among other things, (i) amend its Certificate of Incorporation or
Bylaws, (ii) authorize, issue or sell additional shares (except as required
by existing Company Option Plans), (iii) split, combine or reclassify any of
its shares or pay any dividend or distribution thereon (other than a
regularly scheduled dividend on its Preferred Stock), (iv) incur any
indebtedness for borrowed money or to issue any debt securities or to mortgage
or pledge any of its assets, (v) subject to any exceptions for
discretionary bonus amounts which may be paid prior to the Effective Time
in an aggregate amount not exceeding $1,400,000 and accrued bonus amounts
becoming due and payable in accordance with the terms of any plans or
arrangements in effect as of the date of the Merger Agreement, enter into,
adopt, amend or terminate any employee benefit plan or pay any benefit not
required by any plan or arrangement in effect as of the date of the Merger
Agreement or accelerate the terms for payment of any benefit, (vi) acquire,
sell, lease or dispose of any assets outside the ordinary course of business
or enter into any contract, agreement, commitment or transaction outside the
ordinary course of business consistent with past practice; provided,
however, that the Company will sell the land, building and equipment used
by the Company as its home office in exchange for consideration equal to an
appraisal amount of not less than $500,000, (vii) change any of the
accounting principles or methods of application of said principles or
practices, (viii) except as set forth in Schedule 5.1 to the Merger Agreement,
acquire any corporation, partnership or other business organization or
division thereof or authorize any new capital expenditure or expenditures
which individually are in excess of $25,000 or settle any litigation for
amounts in excess of $5,000 or enter into or amend any contract agreement,
commitment or arrangement with respect to any of the foregoing, (ix) make
any tax election or settle or compromise any tax liability other than in
the ordinary course of business, (x) pay, discharge or satisfy any claims,
liabilities or obligations other than the payment, discharge or satisfaction of
liabilities in the ordinary course of business consistent with past
practice and in accordance with the terms of such liabilities or obligations,
(xi) delay or defer payment of accounts payable or other obligations of the
Company or any of its subsidiaries or accelerate collection of receivables or
other obligations due the Company or any of its subsidiaries. The Company
has agreed to give THORN and its agents and employees access to facilities
and to the books and records of the Company prior to the Effective Time.
No Solicitation. The Merger Agreement provides that the Company and its
subsidiaries will not solicit, initiate or encourage any inquiries or proposals
and will not engage in negotiations or discussions or agree to any other
party's acquisition proposal, whether directly or indirectly, or through any
officer, director, employee, representative or agent. The Board may, however,
engage in negotiations or discussions with other potential acquirers that
make an unsolicited proposal to acquire the Company if the Board of Directors
concludes that it is required to do so in accordance with the Directors
fiduciary obligations to the Company and the stockholders under applicable
law. The Company is required to notify THORN within 12 hours of receipt of
any acquisition, proposal, or any request for non-public information in
connection with any acquisition proposal.
Expenses of the Merger. Under the Merger Agreement, each party is
required to bear its own expenses and costs in connection with the Merger
Agreement and the transactions contemplated thereby. Under the terms of the
Merger Agreement, if the Company's transaction expenses, including legal and
accounting fees, financial advisor fees, and printing and mailing costs,
exceed $250,000, THORN and Acquisition would not be required to effect the
Merger.
Payment for Common Stock. The conversion of the Common Stock into the
right to receive the Purchase Price will occur at the Effective Time without
regard to the dates on which certificates formerly representing Common Stock
are physically surrendered. Prior to the Effective Time, THORN will
designate an agent (the "Paying Agent") to effect payment of the Purchase
Price. The Merger Agreement requires that on or prior to the date of the
Merger, THORN will deposit with the Paying Agent the funds necessary to pay
the aggregate amount of cash the stockholders are entitled to receive upon
surrender of certificates formerly representing Common Stock. Prior to the
Effective Time, a Letter of Transmittal will be made available to and,
promptly following the Effective Time, will be mailed to all stockholders for
use in surrendering their stock certificates to the Paying Agent for payment.
Upon surrender of a certificate for cancellation to the Paying Agent
together with a duly executed and completed letter of transmittal, the holder
of such certificate will be entitled to receive in exchange and in cash,
without interest, an amount equal to the Purchase Price multiplied by the
number of shares of Common Stock formerly represented by the surrendered
certificate, and the surrendered certificate will be canceled. STOCKHOLDERS
SHOULD NOT SURRENDER THEIR CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF
TRANSMITTAL AND INSTRUCTIONS.
Settlement of Litigation. The Merger is conditioned upon the dismissal,
with prejudice, of all claims and counterclaims in the THORN Lawsuit and the
mutual release from liability of all parties with respect to the subject matter
of the THORN Lawsuit.
Directors and Officers. The Merger Agreement provides that if Acquisition,
THORN or their affiliates purchase shares of Common Stock pursuant to the
Advantage Agreement, Aquisition shall be entitled to designate a majority of
the Board, and the Company, upon request by Acquisition, will promptly either
increase the size of the Board or use its reasonable best efforts to secure
the resignation of such number of directors as is necessary to enable
Acquisition's designees to be elected to the Board and shall cause
Acquisition's designees to be so elected. Additionally, promptly upon request
by Acquisition, the Company will use its reasonable best efforts to cause
persons designated by Acquisition to constitute the same percentage as is
on the Board of (i) each committee of the Board, (ii) each board of directors
of each subsidiary of the Company designated by Acquisition, and (iii) each
committee of each such board. The Company's obligation to appoint designees
to the Board shall be subject to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder. Acquisition has indicated to the Company that
it has no current plans to designate any Directors to the Board prior to
the Effective Time.
The Merger Agreement also provides that following any election or
appointment of Acquisition's designees pursuant to the Merger Agreement and
prior to the Effective Time, any amendment of the Merger Agreement or the
Certificate of Incorporation or Bylaws of the Company, any termination of
the Merger Agreement by the Company, any extension by the Company of the
time for the performance of any of the obligations or other acts of THORN or
Acquisition or any waiver of any of the Company's rights hereunder, will
require the concurrence of a majority of the directors of the Company then
in office who are not designees of Acquisition.
Certain Federal Income Tax Consequences of the Merger
This discussion summarizes the material anticipated federal income tax
consequences of the Merger to United States persons (i.e., U.S. citizens or
residents, domestic corporations, domestic partnerships, and trusts or estates
that are subject to federal income tax regardless of the source of their
income) who own shares of Common Stock.
The receipt of cash for Common Stock pursuant to the Merger will be a
taxable transaction for federal income tax purposes, and also may be a taxable
transaction under applicable state, local, foreign and other tax laws.
In general, a stockholder will recognize gain or loss equal to the
difference between such stockholder's tax basis in the Common Stock sold and
the amount of cash received in exchange therefore. Such gain or loss will be
capital gain or loss if the Common Stock is a capital asset in the hands of
the stockholder and will be long-term capital gain or loss if the holding
period for the Common Stock is more than one year. Under present law, net
capital gains (i.e. net long-term capital gains less net short-term capital
losses) of noncorporate stockholders are taxable at a maximum federal
income tax rate of 28%. Various proposals are, at the date of this
Proxy Statement, before Congress, which could result in the lowering of
the maximum capital gains rate for noncorporate stockholders. At this time
it is impossible to say whether any of these proposals will be adopted and,
if adopted, what the effective date of such changes might be.
BECAUSE THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES
NOT NECESSARILY SET FORTH ALL OF THE TAX CONSEQUENCES OF THE
MERGER THAT MAY BE RELEVANT TO A PARTICULAR STOCKHOLDER,
STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
Regulatory Approvals
The HSR Act provides that certain transactions may not be consummated
unless specific information has been furnished to the Antitrust Division of
the Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and specific waiting period requirements have been
satisfied. The consummation of the Merger is subject to such requirements.
Regulations promulgated by the FTC under the HSR Act require that
notification and report forms (the "Forms") be filed by the Company and THORN
with the Antitrust Division and the FTC with respect to the Merger and the
Merger may not be consummated until thirty (30) days after receipt of the
Forms by the Antitrust Division and the FTC, unless such 30 day period is
earlier terminated by such agencies. On July 17, 1995, THORN and the
Company filed the Forms with the FTC and the Antitrust Division relating to
the Merger and requested early termination of the 30 day waiting period.
The waiting period requirement was satisfied by the passage of time on August
17, 1995 without comment from the FTC.
Except as described above, the Company is not aware of any license or
regulatory permit that is material to its business that might be adversely
affected by the Merger, nor of any approval or other action by any
governmental, administrative or regulatory agency or authority, other than
those that have already been obtained, that would be required in connection
with the Merger.
Accounting Treatment of Merger
The Merger will be accounted for under the "purchase" method of accounting.
Certain Effects of the Merger
At the Effective Time, all of the properties, rights, privileges, powers
and franchisees of the Company and Acquisition will vest in the surviving
corporation, and all debts, liabilities, restrictions, disabilities and
duties of the Company and Acquisition will become the debts, liabilities,
restrictions, disabilities and duties of the surviving corporation. The
Certificate of Incorporation of Acquisition in effect immediately prior to the
Effective Time will be the Certificate of Incorporation of the surviving
Corporation until amended in accordance with applicable law. The Bylaws of
Acquisition in effect at the Effective Time will be the Bylaws of the
surviving corporation until amended in accordance with applicable law. The
Company is currently subject to the information filing requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, is required to file reports and other information with
the Securities and Exchange Commission (the "Commission") relating to its
business, financial statements and other matters. As a result of the Merger,
THORN will be the sole stockholder of the Company. The Company will apply to
the Commission for the deregistration of the Common Stock under the Exchange
Act, and as a result the Company will no longer be subject to the reporting
requirements of the Exchange Act. Additionally, trading in the shares of
Common Stock on NASDAQ will cease immediately following the Effective Time.
Appraisal Rights
In the event the Merger is consummated, record holders of Common Stock
who do not vote in favor of adoption of the Merger Agreement and who perfect
their appraisal rights have the right to seek payment in cash of the fair value
of their shares of Common Stock by complying with Section 262 of the DGCL
("Section 262").
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE
LAW PERTAINING TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED
IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS
ENTIRETY AS ANNEX D TO THIS PROXY STATEMENT. ALL REFERENCES IN
SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER" ARE TO THE RECORD
HOLDER OF THE SHARES OF COMMON STOCK AS TO WHICH APPRAISAL RIGHTS
ARE ASSERTED.
Under the DGCL, holders of shares of Common Stock who follow the
procedures set forth in Section 262 will be entitled to have their shares of
Common Stock appraised by the Delaware Court of Chancery and to receive payment
of the "fair value" of such shares, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair
rate of the interest, as determined by such court. Under Section 262, a
corporation must give 20 days prior notice to its stockholders that a merger
proposal will be submitted for approval at a meeting of the stockholders, and
must notify each of its stockholders entitled to appraisal rights that such
appraisal rights are available and include in such notice a copy of
Section 262. This Proxy Statement shall constitute such notice to the holders
of shares of Common Stock and a copy of Section 262 is attached to this Proxy
Statement as Annex D. Any stockholder who wishes to exercise such appraisal
rights or who wishes to preserve his right to do so, should review the
following discussion and Annex D carefully because failure to comply timely
and properly with the procedures specified will result in the loss of
appraisal rights under the DGCL.
A HOLDER OF SHARES OF COMMON STOCK WISHING TO EXERCISE HIS
APPRAISAL RIGHTS (1) MUST NOT VOTE IN FAVOR OF APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE MERGER, AND (2) MUST DELIVER TO THE
COMPANY, AS THE SURVIVING CORPORATION IN THE MERGER, PRIOR TO THE
VOTE ON THE MERGER AGREEMENT AT THE SPECIAL MEETING TO BE HELD ON
DECEMBER 20, 1995, A WRITTEN DEMAND FOR APPRAISAL OF HIS SHARES OF
COMMON STOCK. IN ADDITION, A HOLDER OF SHARES OF COMMON STOCK
WISHING TO EXERCISE HIS APPRAISAL RIGHTS MUST HOLD OF RECORD SUCH
SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS MADE AND
MUST CONTINUE TO HOLD SUCH SHARES UNTIL THE MERGER IS
CONSUMMATED.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record, fully and correctly, as his name appears on his stock
certificate(s). If the shares of Common Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution
of the demand should be made in that capacity, and if the shares of Common
Stock are owned of record by more than one person, as in a joint tenancy and
tenancy in common, the demand should be executed by or on behalf of all joint
owners. An authorized agent, including one or more joint owners, may execute
a demand for appraisal on behalf of a holder of record; however, the agent
must identify the record owner or owners and expressly disclose the fact that,
in executing the demand, the agent is agent for such owner or owners. A record
holder, such as a broker, who holds shares of Common Stock as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares of Common Stock held for one or more beneficial owners while not
exercising such rights with respect to the shares of Common Stock held for
other beneficial owners; in such case, the written demand should set forth
the number of shares of Common Stock as to which appraisal is sought and
where no number of shares of Common Stock is expressly mentioned the demand
will be presumed to cover all shares of Common Stock held in the name of
the record owner. Stockholders who hold their shares of Common Stock in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD
BE SENT OR DELIVERED TO THE COMPANY AT 9323 EAST 37TH STREET NORTH,
WICHITA, KANSAS 67226, ATTENTION: R. EDWARD BRAUSA, GENERAL COUNSEL.
Within 120 days after the Effective Time, but not thereafter, the Company
or any stockholder who has complied with the requirements of Section 262 may
file a petition in the Delaware Court of Chancery demanding a determination of
the "fair value" of the shares of the Common Stock held by any such
stockholders. The Company is under no obligation to and has no present
intention to file a petition with respect to the appraisal of the fair value of
the shares of Common Stock. Accordingly, it is the obligation of the holders
of the Common Stock to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262.
Within 120 days after the Effective Time, any holders of the Common Stock
who have complied with the requirements for exercise of appraisal rights will
be entitled, upon written request, to receive from the Company a statement
setting forth the aggregate number of shares of Common Stock not voted in favor
of approval and adoption of the Merger Agreement and the Merger and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such statement must be mailed to such
holders of the Common Stock within ten days after a written request has been
received.
If a petition for appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the "fair value" of their
shares of Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the "fair
value." Stockholders considering seeking appraisal should be aware that
the "fair value" of their shares of Common Stock as determined under
Section 262 could be more than, the same as or less than the consideration
they would receive pursuant to the Merger Agreement if they did not seek
appraisal of their shares of Common Stock. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible
in court" should be considered in the appraisal proceedings. In addition,
Delaware courts have decided that the statutory appraisal remedy, depending
on factual circumstances, may or may not be a dissenter's exclusive remedy.
The costs of the action may be determined by the court and taxed upon the
parties as the court deems equitable. The court may also order that all or a
portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the shares of Common Stock entitled to
appraisal.
Any holder of shares of Common Stock who has duly demanded an appraisal
in compliance with Section 262 will not, after the Effective Time, be entitled
to vote the shares of Common Stock subject to such demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares
(except dividends or other distributions payable to holders of record of
shares of Common Stock as of a date on or prior to the Effective Time.
If any stockholder who properly demands appraisal of his or its shares of
Common Stock under Section 262 fails to perfect, or effectively withdraws or
loses, his or its right to appraisal, as provided in the DGCL, the shares of
Common Stock of such stockholder will be converted into the right to
receive the Purchase Price in accordance with the Merger. A stockholder will
fail to perfect, or effectively lose or withdraw, his right to appraisal if,
among other things, no petition for appraisal is filed within 120 days after
the Effective Time, or if the stockholder delivers to the Company a written
withdrawal of his demand for appraisal and acceptance of the Merger, except
that any such attempt to withdraw made more than 60 days after the Effective
Time will require the written approval of the Company.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights, in which
event a stockholder will be entitled to receive the Purchase Price in
accordance with the Merger Agreement.
MARKET PRICES OF THE COMMON STOCK
AND DIVIDEND POLICY
Market Information
The Common Stock is traded in the NASDAQ National Market under the symbol
"ADVG." As of August 21, 1995, there were approximately 1,156 stockholder
accounts for the Common Stock, including record holders and persons holding
securities in street name. On November _____, 1995, the last trading day
before the printing of this Proxy Statement, the high and low sales prices of
the Common Stock were $_____________ and $______________, respectively. On
September 25, 1995, the last trading day before the public announcement of
the execution of the Merger Agreement, no shares of Common Stock were traded.
The last day prior to the public announcement of the execution of the Merger
Agreement on which shares of Common Stock were traded was August 31, 1995 and
the high and low sales prices of the Common Stock on that day were $17.50
and $17.50, respectively. On July 7, 1995, the last trading day before the
public announcement that the Company and THORN had entered into a Letter of
Intent regarding a Merger contemplating a distribution to the Company's
public stockholders of $18.50 per share, the high and low sales prices of the
Common Stock were $17.00 and $16.00, respectively. Set forth below, for the
periods indicated, is quarterly price information for the Common Stock as
reported by NASDAQ. The information reflects the high and low sale prices
in the National Market System.
High Low
Fiscal 1994 (traded as COMCOA, Inc.)
1st Quarter. . . . . . . . . . . . . . . . 14 3/4 12 1/4
2nd Quarter. . . .. . . . . . . . . . . . . 15 3/4 12
3rd Quarter. . . .. . . . . . . . . . . . . 17 1/4 12
4th Quarter. . . . . . . . . . . . . . . . 15 3/4 14
High Low
Fiscal 1995 (traded as COMCOA, Inc. until January 4, 1995)
1st Quarter. . . . . . . . . . . . . . . . 15 1/4 14
2nd Quarter. . . . . . .. . . . . . . . . . 15 13 3/4
3rd Quarter. . . . . . . . . . . . . . . . 14 1/2 13
4th Quarter. . . . . . . . . . . . . . . . 18 1/4 13 5/8
High Low
Fiscal 1996
1st Quarter. . . . . . . . . . . . . . . . 16 3/4 15 1/4
2nd Quarter. . . .. . . . . . . . . . . . . 17 15 1/4
3rd Quarter. . . . . . . . . . . . . . . . 17 3/4 16 3/4
Dividends. No cash dividends have ever been declared or paid on the
Common Stock. The Company has adhered to a policy of reinvesting all earnings
and does not anticipate paying any cash dividends on Common Stock prior to t
he Effective Time. The Company has paid regular quarterly dividends on its
Preferred Stock, but such payments have been suspended by agreement with
the Preferred Stock stockholders following the payment of the July 31, 1995
Preferred Stock Dividend.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of October 6, 1995,
obtained from information furnished by the persons named below, concerning the
beneficial stock ownership of each person known to the Company who may be
deemed to be the beneficial owner of more than five percent of its voting
securities. Each beneficial owner has sole investment and voting powers with
respect to such securities except as otherwise noted.
Amount and Nature of Beneficial Ownership
Title of Class
<TABLE>
<CAPTION>
Class A
Name and address Common Preferred Percentage
of Beneficial Owner Stock Stock Total (2) Owned (2)
<S> <C> <C> <C> <C>
Daniel J. Taylor (1) 960,750 3,800 1,150,750 26.0%
9323 East 37th St. North
Wichita, Kansas 67226-2000
Robert W. Moore (1) 849,310 3,900 1,044,310 23.5%
3600 West Main
Norman, Oklahoma 73072
Daniel M. Carney (1) 797,600 2,300 912,600 20.9%
8100 E. 22nd North
Building 1900
Wichita, Kansas 67226
Leslie G. Rudd (1) 661,262 -- 661,262 15.6%
314 Galena
Aspen, Colorado 81611
</TABLE>
(1) As a result of the Advantage Agreement, all shares owned by Messrs.
Taylor, Moore, Carney and Rudd may also be deemed to be beneficially owned by
THORN.
(2) Based on 4,242,938 shares of Common Stock actually outstanding at October
6, 1995, and assumes, for the purpose of calculating this percentage, that all
shares of Class A Preferred Stock owned only by this individual are converted
into Common Stock at the stated conversion rate of 50 to 1, thus increasing
the total number of shares deemed to be outstanding. Until converted, there
are no voting powers with respect to the Preferred Stock.
The following table sets forth certain information as of October 6, 1995,
concerning the number of shares of Common Stock and Preferred Stock
beneficially owned by each director and officer of the Company and by the
directors and officers of the Company as a group. For purposes of this
table, all shares of Common Stock underlying options are considered
beneficially owned. Each beneficial owner has sole investment and voting
powers with respect to such securities as otherwise noted. The Common Stock
and Preferred Stock are the only classes of its equity securities with
shares beneficially owned by any of the Company's officers or directors.
Amount and Nature of Beneficial Ownership
Title of Class
<TABLE>
<CAPTION>
Class A
Name of Common Preferred Percentage
Beneficial Owner Stock Stock Total (1) Owned (1)
<S> <C> <C> <C> <C>
Daniel J. Taylor 960,750 3,800 1,150,750 26.0%
Robert W. Moore 849,310 3,900 1,044,310 23.5%
Daniel M. Carney 797,600 2,300 912,600 20.9%
William A. Simon 128,967 (2) -- 128,967 2.9%
A. Tracy Burton 107,017 (3) -- 107,017 2.5%
James G. Steckart 64,000 (4) -- 64,000 1.5%
Thomas R. Kennalley 9,000 (5) -- 9,000 0.2%
All directors and
officers as a group
(7 persons) 2,916,644 10,000 3,416,644 70.7%
</TABLE>
(1) Based on 4,242,938 shares of Common Stock actually outstanding at
October 6, 1995, and assumes, for the purpose of calculating these totals and
percentages, that all shares of Class A Preferred Stock owned by the individual
on this line of the table are converted into Common Stock at the stated
conversion rate of 50 to 1, and that options to purchase Common Stock
pursuant to the Company's 1988 Incentive Stock Option Plan (see, "Executive
Compensation") held by this individual that are exercisable within 60 days are
exercised, thus increasing the total number of shares deemed to be
outstanding.
(2) Includes 24,000 authorized but unissued shares subject to unexercised
options to purchase Common Stock granted under the Company's 1988 Incentive
Stock Option Plan and 20,000 unissued shares subject to an unexercised
nonqualified option to purchase Common Stock granted in February 1990
and restated and extended in January 1995. Also, includes 1,500 shares
owned by Mr. Simon's spouse of which Mr. Simon disclaims beneficial
ownership.
(3)Includes 20,000 authorized but unissued shares subject to unexercised
options to purchase Common Stock granted under the Company's 1988 Incentive
Stock Option Plan.
(4) Reflects 14,000 authorized but unissued shares subject to unexercised
options to purchase Common Stock granted under the 1988 Incentive Stock
Option Plan. Also, includes 50,000 unissued shares subject to an unexercised
nonqualified option to purchase Common Stock granted in July 1993.
(5) Reflects 9,000 authorized but unissued shares subject to unexercised
options to purchase Common Stock granted under the Company's 1988 Incentive
Stock Option Plan.
BUSINESS INFORMATION CONCERNING THE COMPANY
General Information on Business
Advantage Companies, Inc., a Delaware corporation (the "Company"), was
incorporated in 1994. It is a holding company with three wholly owned
operating subsidiaries, COMCOA, Inc. ("COMCOA"), AdvantEdge Rental Purchase,
Inc. ("AdvantEdge") and Rental Corp. of Indiana ("Rental Corp.").
COMCOA was incorporated in 1983. COMCOA'S original line of business was
designing, installing and servicing computer-controlled PBX and key
telephone systems. COMCOA began transitioning into the Rent-A-Center franchise
store business in the spring of 1984 and sold its telephone business and the
related assets in November of 1984. Since the spring of 1987, the
Rent-A-Center franchise store business has been COMCOA's exclusive line
of active business. COMCOA completed wrapping up and terminating all of
its transition, financial and management commitments from its prior lines
of business during fiscal 1993.
COMCOA currently has franchise rights to open and operate Rent-A-Center
stores for all of Florida and for certain portions of Mississippi, Alabama and
Georgia pursuant to franchise agreements with THORN. Rent-A-Center stores
rent, generally on a weekly or monthly basis, household durable goods such
as television sets and other consumer electronic equipment, major appliances
and household furniture.
Today, COMCOA operates 99 Rent-A-Center stores in its franchise
territories, with 91 stores located in Florida, 2 in Mississippi, 4 in
Alabama and 2 in Georgia. COMCOA acquired 10 of the stores in October of
1989 by an acquisition of all of the stock of an affiliated company, Gulf
States Rental Corp. See "Expansion" below. Five of the stores were opened
by COMCOA during the fiscal year 1990. Ten of the stores were opened by
COMCOA during the fiscal year 1991, 1 store was opened during the fiscal
year 1992, 4 stores were opened during the fiscal year 1993, 10 stores were
opened in the fiscal year 1994, and 5 stores were opened in the fiscal year
ended January 22, 1995. Since January 22, COMCOA has opened 5 and
relocated 2 stores.
On January 22, 1995, the Company acquired 100% of the issued and
outstanding shares of stock of AdvantEdge from Daniel J. Taylor, the Chairman
of the Board of directors of the Company. AdvantEdge had operated a rental
store in Denver for approximately three months. As of the present time,
AdvantEdge has a total of 7 store locations, 4 stores in Colorado, and 3
stores in Indiana. The Colorado store locations are operated independently by
AdvantEdge and the Indiana stores are operated by a general partnership in
which AdvantEdge and Rental Corp. are the sole general partners. These stores
are not part of the Rent-A-Center franchise operated by COMCOA. Presently,
the operations of AdvantEdge and Rental Corp. comprise less than
approximately 3% of the total consolidated revenues of the Company.
Operations of Rental-Purchase Stores. COMCOA and AdvantEdge stores are
operated in accordance with separate and distinct policies and procedures that
management believes maximize profit potential and the efficiency of operations.
Customers order rental merchandise at the store or by telephone. A
sufficient quantity of rental merchandise is held at all store locations, or is
available from local distributors, to fill customer orders promptly. During
the term of a rental agreement, all service and repair is provided at no
additional cost to the customer, unless the problem was caused by the
customer's neglect or misuse of the merchandise. In many instances, this
obligation is met by delivering a substitute unit to be used until the
customer's rented unit is repaired.
Rental agreements provide that the customer may rent merchandise under
terms ranging from one week to one month. Rent is collected in advance for
each rental period, and no down payment or deposit is required. At the end
of the term, the customer may elect to renew the agreement by making an
advance rental payment for the next term or may terminate the agreement
without further obligation. If the customer decides not to renew the rental
agreement, the merchandise is returned by the customer, or picked up, and
is then available for rent to another customer.
If the customer elects to renew the rental agreement for a specified period
of continuous terms, the customer will own the rental unit. Historically,
the term was usually 78 weeks but during the 1995 fiscal year COMCOA and
AdvantEdge began offering customers a variety of payment options including
a retail cash purchase option.
A majority of customers make rental payments in person by cash or money
order. Generally credit cards are not accepted. The rental agreement provides
for payment of a late fee when a customer desires to renew a rental agreement
after failing to make a payment on a scheduled renewal or termination date.
Formal credit investigations of customers prior to entering into a rental
agreement are not conducted, although income sources, residence and other
information furnished by customers are verified and evaluated. Established
procedures are followed when rental payments are missed or rental agreements
are otherwise terminated by customers.
COMCOA stores are typically located in leased space in strip or similar
shopping centers which have larger "anchor" tenants. The Company's
Rent-A-Center stores typically range in size from 3,000 to 5,000 square feet.
Each store is typically manned by two managers and two to four account
managers. Eight percent (8%) of COMCOA's advertising and promotional
budget is expended in national cooperative advertising in conjunction with
Rent-A-Center and its remaining franchisees.
AdvantEdge operations are distinguished from the Rent-A-Center operations
in a number of ways. AdvantEdge stores are typically larger (6,000 to
8,000 square feet) and focus on larger merchandising areas with a more
traditional retail look. As distinguished from COMCOA's Rent-A-Center
stores, the AdvantEdge stores are typically near high-volume roadways and
are similar in appearance to other retail furniture and appliance stores or
outlets. AdvantEdge's marketing and promotion has targeted a more upscale
market in addition to the traditional customer base. Unique lighting,
display and other trade dress are all intended to reinforce AdvantEdge's
upscale appeal.
Products. The products rented by COMCOA and AdvantEdge include a variety
of brands, styles and models of television sets, audio equipment, video
cassette recorders, washers and dryers, refrigerators and freezers, microwave
ovens, furniture and jewelry. Products include name brand products and, to a
lesser extent, minor brand products generally in lower price ranges.
COMCOA and AdvantEdge purchase products directly from manufacturers or
distributors. Although the Company presently expects to continue
relationships with its existing suppliers, there are numerous sources of
products, and the Company does not believe its operations are dependent on
any one or more of its present suppliers.
Expansion. COMCOA signed its original Development Agreement (the
"Development Agreement") with THORN on May 29, 1984, which bound COMCOA to
a 6 year, 27 store development commitment and schedule. Over the years
since 1984, COMCOA and THORN have regularly updated and modified COMCOA's
development commitments to accommodate its ability to move rapidly on the
opportunities available in COMCOA's franchise territories.
COMCOA opened its first 2 Rent-A-Center stores during the last half of
fiscal 1985 and pursued an aggressive program of expansion for several years,
resulting in the creation of a 50 store operation in place at January 23, 1989,
the beginning of fiscal 1990. COMCOA, determined to pursue a slower and more
deliberate course of expansion in fiscal 1990, concentrated its efforts in
markets where it already had a presence. In fiscal year 1990 COMCOA opened
5 new stores compared to 20 new stores during the prior year. On October 2,
1989, COMCOA obtained additional franchise territory (in Alabama, Florida,
Georgia and Mississippi) and 10 Rent-A-Center stores by acquiring all of the
issued and outstanding capital stock of an affiliated franchisee, Gulf States
Rental Corp. ("Gulf States"). Following the acquisition, Gulf States was
liquidated and all of its assets were distributed to COMCOA. Adding the 10
established stores obtained in the Gulf States acquisition, COMCOA ended the
year on January 28, 1990 with 65 stores in operation. COMCOA opened 10 new
stores during the 1991 fiscal year, one new store during the 1992 fiscal year,
4 new stores during the 1993 fiscal year, 10 new stores during the 1994 fiscal
year, and five new stores during fiscal 1995. With 5 stores added and 2 stores
relocated this year, COMCOA now has a total of 99 stores in operation.
During calendar 1993 COMCOA substantially revised its franchise
arrangements with THORN. On October 29, 1993, COMCOA entered into its
Seventh Addendum Agreement, a new Development Agreement, and a new Franchise
Contract. The Development Agreement expands COMCOA's franchise rights to a
minimum of 104 stores, and extends its development commitments and rights,
at the rate of one to four new stores per year through March 31, 2000. The
primary change in the new arrangements with THORN was to stretch out the
length of time COMCOA has to open its 104th store and to exercise early
its 10 year options on its first 84 stores on terms COMCOA believes to be
favorable.
COMCOA's current agreement with THORN provides that upon the successful
completion of 104 stores, COMCOA has a right of first refusal to purchase
options to develop additional Rent-A-Centers in its assigned areas under
THORN's then current terms and conditions for franchise agreements. Though
COMCOA's agreement does not require THORN to grant options to open more than
104 stores in COMCOA's territory, COMCOA does have the right of first
refusal to exercise any such option that THORN may grant. Failure to meet
its store commitment schedule would be a breach of COMCOA's Development
Agreement. Such a breach could trigger several contract remedies for THORN,
including the right to terminate COMCOA's option to open any more new stores,
the right to reduce the number of stores and the size of the territory covered
under the Development Agreement, the right to terminate COMCOA's territorial
exclusivity, and any combination of these remedies. COMCOA's franchise
rights for stores already opened would not be affected by a development
commitment schedule breach. If the Merger does not occur, COMCOA should be
able to meet its current commitment to have open 104 stores by March 31, 2000.
Under the existing Development Agreement as currently modified, at the
time each store is opened, THORN enters into a franchise agreement with
COMCOA for that store. At that time, COMCOA pays a franchise fee of $15,000,
in addition to the $10,000 per store that was paid at the time the
applicable Development Agreement or Addendum Agreement was signed. In
addition, royalty fees are 3% of gross receipts for the first 12 months that
a store is open and 5% of gross receipts thereafter. The first 32 stores
are capped at 4% until their 10 year anniversaries based upon the original
agreement. The first such occurrence was October 4, 1994. The term of
each franchise agreement is for 10 years with a right to renew for an
additional term of 10 years. The terms of the franchise agreements for
the first 84 stores were extended by 10 years pursuant to an October 29,
1993 Addendum Agreement.
The initial investment in each Rent-A-Center store has been approximately
$210,000 (not including franchise fees), with additional investment in
retail merchandise being required as rental volume increases. Historically,
management has found that it has been able to finance its investment in
Rent-A-Center stores through a revolving note with a bank and by the use of
internally generated funds. It is anticipated that these resources will
continue to be adequate to finance the Companies' expansion plans.
In addition to its original store in Denver, AdvantEdge has recently
opened 6 additional stores, 3 in Colorado and, in a partnership with
Rental Corp., 3 in Indiana. The initial investment in each AdvantEdge store
is approximately $400,000, which has been financed by the use of internally
generated funds.
Competition. The consumer durable goods rental business is highly
competitive. According to estimates cited by the Association of Progressive
Rental Organizations ("APRO"), an industry trade association, as of February
1995, there were approximately 7,500 outlets in the United States, the
principal business of which is to provide television sets and other major
home appliances under rental agreements containing ownership options. In a
ddition, competition exists from other sources, such as retail stores and r
ental stores offering short-term rental without purchase options, and
competition may arise from new sources having the expertise and resources
to enter our markets either through expansion of operations or acquisitions.
The primary methods of competition in the consumer durable goods rental
business are rental terms and prices, but other important competitive factors
include quality and training of store personnel, inventory selection, product
availability, prompt customer service and delivery, convenient locations,
advertising and promotions. Increased competition has resulted in shrinking
profit margins, but management believes that the Company's size, ability to
effectively execute the business, its product mix, advertising, purchasing
power and effective marketing programs give strong, competitive positions
to COMCOA and AdvantEdge in the markets where they operate.
The Company's business is not dependent upon any single dominant customer
or supplier.
Other Information. The Company and its subsidiaries have approximately
730 employees, 200 of whom are part-time. Operations are somewhat seasonal,
with sales strongest from October until April (its 4th and 1st quarterly
periods) and tapering off in late spring until the end of September (its
2nd and 3rd quarterly periods).
The Company manages its business based upon 4-week internal accounting
periods. As a result, its quarterly data consists of three 4-week accounting
periods for each of its first three fiscal quarters and four 4-week periods
in its last fiscal quarter.
Compliance with Environmental Laws and Regulations. The Company and its
subsidiaries have not experienced any material effects upon their capital
expenditures, earnings or competitive position attributable to compliance with
federal, state or local laws and regulations governing the discharge of
materials into the environment, or otherwise relating to the protection of
the environment. The Company and its subsidiaries did not make material
capital expenditures for environmental control facilities for the fiscal
year ended January 22, 1995, and they do not anticipate that they will be
required to make any material expenditures for such items for the current or
the succeeding fiscal year.
Regulations. Operations are subject to state laws in Alabama, Colorado,
Florida, Mississippi, Indiana and Georgia. These laws distinguish
"rental-purchase option agreements" from consumer credit and consumer retail
installment sales transactions. The laws currently in force in these
states generally require certain contractual and point-of-sale disclosures
concerning the rental terms and detailed information about the nature and
cost of the customer's purchase and ownership options. They do not subject
rental agreements to state usury laws. The Company has supported the
adoption of such laws because it recognizes the unique nature of
rental-purchase option agreements and provide clarification and useful
information for the customer and a stable regulatory environment.
Properties
The Company's headquarter office consists of approximately 17,000 square
feet of office space purchased during fiscal 1995 and located in Wichita,
Kansas at 9323 East 37th Street North. PMC, corporation controlled by
Mr. Taylor, has entered into a real estate purchase contract with the
Company to purchase the real estate and certain equipment and furnishings
contained therein for the sum of $890,000. It is anticipated that the
sale of property by the Company will occur immediately prior to Closing.
See "THE MERGER - In Interest of Certain Persons in the Merger."
The wholly owned operating subsidiaries of the Company, COMCOA,
AdvantEdge, and Rental Corp. have leased all store location sites. Leased
stores range in size from approximately 3,000 to 8,000 square feet. Generally,
sites are targeted which are in shopping centers that include other anchor
tenants. Most leases have initial terms of three years and include multiple
options of three to four years each. The Company believes that the
aforementioned facilities are adequate and suitable for the business and
administrative activities of the Company.
Legal Proceedings
THORN (doing business as Rent-A-Center), franchisor of COMCOA and of
Tidewater, filed a lawsuit in the District Court of Sedgwick County Kansas on
December 27, 1994. The named corporate defendants are the Company, COMCOA,
Tidewater and AdvantEdge. In addition to corporate entities, the suit named
Daniel J. Taylor, Chairman and Chief Executive Officer of the Company,
James G. Steckart, President and Director, and employees Greg Bunn, Kurt
Doerr and Ed Stanko as defendants. With regard to all individuals except
Mr. Taylor, THORN alleges violation or potential violation of non-disclosure
or confidentiality provisions of staff and managerial employee agreements (and,
therefore, violation of the Kansas Trade Secrets Act) entered into by the
individual defendants when they were employed by Rent-A-Center, Inc.
THORN seeks the court's determination of the efficacy of the employee
agreements and injunctive relief to enforce compliance with the
non-disclosure provisions.
With regard to the corporate defendants, plaintiff has alleged unfair
competition, various breaches of contract of applicable Franchise Contracts
and Development Agreements and violations of the Kansas Trade Secrets Act,
asserting defendants have disclosed or potentially will disclose
Rent-A-Center proprietary and confidential information in connection with
the development and the operation of AdvantEdge's competing rent-to-own stores.
THORN further alleges that the Company's development and operation of
AdvantEdge is violative of the in-term non-competition provisions of
applicable Franchise Contracts and Development Agreements. THORN seeks
declaratory judgment and injunctive relief on these claims.
An Answer and Counterclaim was filed on behalf of all defendants on
January 31, 1995, denying violation of applicable contracts and agreements and
seeking declaratory relief regarding defendants' course of action. On
July 18, 1995, THORN obtained an Order of the District Court staying
proceedings until November 30, 1995 for the expressed purpose of allowing
the parties time to settle their disputes "through certain acquisitions."
The Company expects this stay to be extended by THORN until January 31, 1996.
Prior to the stay, the case had been in the discovery stage.
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
the Company and subsidiaries for the fiscal years noted and for the
twenty-four weeks ending July 9, 1995 and July 10, 1994. The year-end data
is from audited financial statements of the Company. The twenty-four weeks
information has been derived from the unaudited quarterly consolidated
financial statements of the Company. The table should be read in conjunction
with, and is qualified in its entirety by, the Consolidated Financial
Statements of the Company and the notes thereto appearing in this Proxy
Statement.
Selected Financial Data
Advantage Companies, Inc.
<TABLE>
<CAPTION>
Twenty-Four Weeks
Ended Year Ended
7/9/95 7/10/94 1/22/95 1/23/94 1/24/93 1/26/92 1/27/91
Operating Data (In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $34,861 $33,222 $71,371 $67,042 $59,025 52,876 $53,061
Net Earnings 2,655 3,347 6,26 5,818 5,041 4,053 3,500
Net Earnings
per Common and
Common Equivalent
Share-Primary and
Fully Diluted .53 .66 1.25 1.15 1.00 .81 .70
Balance Sheet Data 7/9/95 7/10/94 1/22/95 1/23/94 1/24/93 1/26/92 1/27/91
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets $34,808 $29,643 $32,903 $29,405 $27,593 $22,044 $21,540
Long-term debt and
capital lease
obligations -0- -0- -0- -0- 6,300 5,500 8,878
Stockholders'
Equity 29,073 23,439 26,393 21,493 15,271 11,147 6,999
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Quarterly Periods Ended July 9, 1995 and July 10, 1994
The fiscal year-end of the Company is based upon a 52- to 53-week period
which ends four weeks after the last Sunday in December. The following
discussion pertains to the Company's results of operations for the 12 and 24
week periods ended July 9, 1995 and to its financial condition as of that
date, as of the most recent fiscal year ended January 22, 1995.
At the end of the second quarterly period of the current fiscal year, the
Company owned and operated 98 Rent-A-Center stores and 6 AdvantEdge stores.
During the same period in the previous year, the Company owned and operated
91 Rent-A-Center stores.
Total revenues increased $775,856 or 4.7% compared to the same quarter
last year. Approximately $260,000 of this increase was attributable to
AdvantEdge, which ended the quarter with six store in operation. The Company
acquired this subsidiary in the fourth quarter of last year. The balance of
the revenue increase is attributable to the Company's other subsidiary,
COMCOA, Inc., and its operations of Rent-A-Center stores. Following is a
summary of consolidated revenue changes grouped by store maturation:
SUMMARY OF SECOND QUARTER REVENUE CHANGES
ADVANTAGE COMPANIES, INC.
Twelve Weeks Ended Twelve Weeks Ended
No. of Fiscal Year 7/9/95 7/10/94 Increase Percentage
Stores Opened Revenues Revenues (Decrease) Change
9 1996 $ 172,719 $ -- $172,719 N/A
6 1995 717,317 59,052 658,265 114.7%
10 1994 1,562,281 1,272,052 290,229 22.8%
4 1993 704,801 680,400 24,401 3.5%
75 Prior to 1993 14,187,231 14,556,989 (369,758) (2.5%)
104 TOTAL $17,344,349 $16,568,493 $775,856 4.7%
Costs and operating expenses increased 10.8% over the same quarter in the
previous year. Approximately 46% of this increase is from AdvantEdge, with
the remainder due to COMCOA's increase in revenues and the number of stores
operated.
Operating income decreased by $742,947 or 29.3% as compared to the same
quarter last year. Approximately $550,000 of this decrease is attributable
to start-up losses directly associated with AdvantEdge and another $121,000
attributable to new COMCOA stores opened in the second quarter. The balance of
the decrease is due to a decline is the margins of the existing COMCOA stores.
Twenty-four Weeks Twenty-four Weeks
No. of Fiscal Year Ended 7/9/95 Ended 7/10/94 Increase Percentage
Stores Opened Revenues Revenues (Decrease) Change
9 1996 $ 174,744 $ -- $ 174,744 N/A
6 1995 1,296,201 83,789 1,212,412 1447.0%
10 1994 3,137,031 2,369,659 767,372 32.4%
4 1993 1,425,672 1,345,784 79,888 5.9%
75 Prior to 1993 28,827,226 29,422,924 (595,698) (2.0%)
104 TOTAL $34,860,874 $33,222,156 $1,638,718 4.9%
Costs and operating expenses increased 10.1% over the same 24 week period
in the previous year. Approximately 36% of this increase is from AdvantEdge
with the remainder due to COMCOA's increase in revenues and the number of
stores operated.
Operating income decreased by $1,168,945 or 21.7% as compared to the same
24 week period last year. Approximately $850,000 of this decrease is
attributable to start-up losses directly associated with AdvantEdge, and
another $121,000 attributable to COMCOA stores opened in the second quarter
of this year. The balance of the decrease is due to a decline in the
margins of the existing COMCOA stores.
Fiscal 1995 and Fiscal 1994
During the 1995 fiscal year the stockholders of COMCOA approved a plan of
reorganization which resulted in COMCOA becoming a wholly-owned subsidiary
of a newly-formed holding company, Advantage Companies, Inc. Stockholders of
COMCOA became stockholders of the Company. The holding company structure is
more flexible than a one company structure and provides enhanced opportunities
for growth through the development of multiple entities.
On the last day of the fiscal year the Company purchased the stock of
AdvantEdge, a privately held company that has operated 1 rental purchase store
in Denver, Colorado since November 1994. Six new AdvantEdge stores were opened
during fiscal 1996 in areas outside of COMCOA's markets.
Since the holding company transacted business only during the last 3 weeks
of the fiscal year and AdvantEdge was acquired on the last day of the fiscal
year, the consolidated results of operations of Advantage shown in the
financial statements and discussed herein represent primarily the results of
operations of COMCOA.
COMCOA opened 5 new Rent-A-Center stores during the year ended January 22,
1995, and completed the year with a total of 94 stores in operation. Revenues
increase 6.5% to $71,371,191 as compared to $67,041,977 last year. The table
below is a summary of revenue changes grouped by store maturation.
SUMMARY OF 1995 REVENUE CHANGES - COMCOA, INC.
No. of Fiscal Year Fiscal 1995 Fiscal 1994 Increase Percentage
Stores Opened Revenues Revenues (Decrease) Change
5 1995 $ 669,581 $ -- $ 669,581 N/A
10 1994 5,574,382 1,770,435 3,803,947 214.9%
4 1993 2,935,944 2,101,132 834,812 39.7%
1 1992 537,430 576,813 (39,383) (6.8%)
74 Prior to 1992 61,653,854 62,593,597 (939,743) (1.5%)
94 TOTAL $71,371,191 $67,041,977 $4,329,214 6.5%
COMCOA's increase in revenues this fiscal year is directly attributable to
the increase in volume of rental agreements, and not increased pricing. In
response to increased competition COMCOA has been aggressive in offering
reduced prices and discounts in an effort to attract new customers. As a
result, total revenues for the 79 mature stores (those opened in fiscal 1993
and prior) showed a slight decrease. We were, however, able to increase the
number of customers in our mature stores by 5.5%. It is management's opinion
that by expanding our customer base we will be able to show increases in total
revenues for our mature stores over the next several years. During fiscal
1995, sales of merchandise increased 36.3% to $4,393,847 and the cost of
merchandise sole increased 19.1% to $2,642,901. These increases are
attributable to a new marketing strategy implemented in fiscal 1995 that
provides customers with a variety of payment options, including a retail
purchase option.
Costs and operating expenses were $61,358,485 as compared with $57,282,319
in fiscal 1994, a 7.1% increase. Most of the increase relates directly to the
increase in revenues. Included in other operating expenses in fiscal 1995 is
$72,000 of legal, accounting and filing fees associated with the formation of
the new holding company structure. Interest expense in the fiscal year
1994 included a one-time accrual of $345,217 of interest on a proposed income
tax deficiency of $1,132,571 for the year ended January 27, 1991. The income
tax deficiency arose from an examination by the Internal Revenue Service of
COMCOA's tax return for fiscal year 1991, which resulted in a disallowance of
the method of depreciation for rental inventory used by COMCOA. COMCOA
utilizes the income forecast method of depreciation, which is widely used
throughout the rental-purchase industry, and which COMCOA believes most
accurately matches its depreciation expense to income. The Internal Revenue
Service disallowance was based upon its determination that a form of
depreciation expressed in a term of years must instead be utilized. This
disallowance resulted in the delay of depreciation expenses, which served
to increase COMCOA's taxable income during the audited year. The increased
tax was assessed against COMCOA. In fiscal 1995 COMCOA paid the increased
tax, together with interest thereon, and filed a claim for refund of same.
The claim has been disallowed by the Internal Revenue Service. The Company
is closely following a similar case currently being litigated by another
rental-purchase company against the Internal Revenue Service. The
Company's strategy for pursuing its claim for refund will be influenced by
the outcome of that litigation.
COMCOA, AdvantEdge and certain employees have been named as defendants in
a lawsuit filed by THORN, COMCOA's franchisor. In the suit, the plaintiff
alleges disclosure or potential disclosure of proprietary information in
connection with the development of AdvantEdge. The suit also alleges that such
disclosures and the operation of AdvantEdge are violations of the franchise
contract and employment agreements executed by certain employees during
their former employment with Rent-A-Center, Inc. Before commencing the
development of a second rental-purchase concept, management of Advantage
obtained a favorable opinion of counsel who reviewed all relevant contracts
between THORN and the Company. See "BUSINESS INFORMATION CONCERNING THE
COMPANY - Legal Proceedings."
Fiscal 1994 and Fiscal 1993
The Company opened 10 new Rent-A-Center stores during the year ended
January 23, 1994, and completed the year with a total of 89 stores in
operation. Revenues increased 13.6% to $67,041,977 as compared to $59,025,327
last year. The table below is a summary of revenue changes grouped by
store maturation.
SUMMARY OF 1994 REVENUE CHANGES - COMCOA, INC.
No. of Fiscal Year Fiscal 1994 Fiscal 1993 Increase Percentage
Stores Opened Revenues Revenues (Decrease) Change
10 1994 $ 1,770,435 $ -- $1,770,435 N/A
4 1993 2,101,132 333,830 1,767,302 529.4%
1 1992 576,813 410,779 166,034 40.4%
10 1991 6,528,619 5,919,838 608,781 10.3%
64 Prior to 1991 56,064,978 52,360,880 3,704,098 7.1%
89 TOTAL $67,041,977 $59,025,327 $8,016,650 13.6%
The Company's increase in revenues this fiscal year is directly attributable
to the increase in volume of rental agreements, and not increased pricing.
Costs and operating expenses were $57,282,319 as compared with $51,003,823
in fiscal 1993, a 12.3% increase. Most of the increase relates directly to the
increase in revenues. Also included is a $500,000 charge to compensation
related to the grant of 125,000 nonqualified stock options at $8.00 each.
50,000 options were granted to the then Vice-President - Operations and
25,000 options were granted to each of three Regional Operations Managers.
Interest expense in the last fiscal year included the accrual of $345,217
for additional income taxes for the year ended January 27, 1991, as a result
of an examination by the Internal Revenue Service as described above.
The Company reached a settlement agreement in fiscal 1993 in a lawsuit it
filed in 1985 against a former vendor. The settlement resulted in a gain to
the Company of $400,000, which was shown as other income in fiscal 1993.
On August 24, 1992, two of the Company's stores were extensively damaged
by Hurricane Andrew. One of the stores continued operations, utilizing a
temporary location until the store was rebuilt. The other store operated from
a temporary location through April of 1993, and then was closed pending the
construction of a permanent site. The store was reopened during fiscal
1995. The impact on the Company's revenues and net income from the
damages sustained by Hurricane Andrew was not material.
Liquidity and Capital Resources
The Company's primary sources of funds to finance its business have been
its cash flow provided from operations and bank borrowings. The funds have
been used chiefly to purchase and carry additional rental merchandise for
existing Rent-A-Center stores as well as rental merchandise and the related
assets required for the opening of new stores.
During fiscal 1995 the net cash provided by operating activities totaled
$24.85 million compared to $26.22 million for fiscal 1994.
During the second quarterly period of fiscal 1996, the net cash provided by
operating activities totaled $12,040,527 compared to $10,998,595 in the first
twenty-four weeks of last year. The Company currently has a revolving note
payable agreement with a financial institution that expires April 30, 1996.
The note provides for a maximum amount outstanding of $5 million. Management
believes that this resource, coupled with the anticipated cash flows from
operations, will be sufficient to provide capital to finance existing stores.
Impact of Inflation
Although the Company cannot precisely determine the effects of inflation
on its business, it is management's belief that the effects on revenues and
operating results have not been significant. The cost of rental merchandise,
such as customer electronic equipment, has not changed significantly during
the last three years. The Company is constantly evaluating different
brands, models and suppliers in order to offer the best value to its
customers and still maintain an increasingly favorable relationship between
the depreciation cost of rental merchandise and rental revenues. Other
costs, such as salaries and wages, have increased modestly. Rental
pricing has remained constant since the Company's entrance into the rental
industry.
CERTAIN INFORMATION CONCERNING ACQUISITION AND THORN
Acquisition is a Delaware corporation incorporated in September 1995 for
the purposes of this transaction, with its principal executive offices located
at 8200 East Rent-A-Center Drive, Wichita, Kansas 67226-2799 (telephone number
316-636-7368). Acquisition is a wholly owned subsidiary of THORN.
Acquisition has not engaged in any activities other than in connection
with the Merger and the Merger Agreement. Until the consummation of the
Merger, it is not anticipated that Acquisition will have any significant
assets or liabilities (other than those arising under the Merger Agreement
or in connection with the Merger and the transactions contemplated
thereby) or engage in any activities other than those incident to its
formation, the Merger and financing of the Merger.
THORN is a wholly-owned subsidiary of THORN EMI, plc, a company existing
under the laws of England. THORN and its franchisees conduct a rental-purchase
operation in the United States, currently with 1,234 Rent-A-Center stores in
the United States. THORN also operates 24 Rent-A-Centre stores in Canada and
126 Remco stores in 16 states. THORN has its principal executive offices
located at 8200 East Rent-A-Center Drive, Wichita, Kansas 67226 (telephone
number 316/636-7368).
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Grant Thornton LLP, the Company's independent public
accountants, are expected to be present at the Special Meeting. They will have
the opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
OTHER MATTERS TO COME BEFORE THE MEETING
No other matters are intended to be brought before the Special Meeting
by the Company nor does the Company know of any matters that are expected to
be properly brought before the Special Meeting by others.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By Order of the Board of Directors,
Brenda J. Butler
Secretary
Wichita, Kansas
November ____, 1995
INDEX TO FINANCIAL STATEMENTS OF ADVANTAGE COMPANIES, INC.
Independent Auditors Report. . . . . . .. . . . . . . . . . . . . . .. . . F-2
Consolidated Balance Sheets as of January 22, 1995
and January 23, 1990 . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Earnings for the Years
Ended January 22, 1995, January 23, 1994
and January 24, 1993 . . . . . . . . . . . . .. . . . . . . .. . F-5
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
January 22, 1995, January 23, 1994 and January 24, 1993. . . . . F-6
Consolidated Statements of Cash Flows for the Years Ended
January 22, 1995, January 23, 1994 and January 24, 1993. . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . .F-10
Condensed Consolidated Balance Sheets as of
July 9, 1995 and January 22, 1995 (unaudited). . . . . . . . . .F-20
Condensed Consolidated Statements of Earnings for the
Twelve and Twenty-four Weeks Ended July 9, 1995
and July 10, 1994 (unaudited). . . . . . . . . . . . . . . . . .F-21
Condensed Consolidated Statements of Cash Flows for the
Twenty-four Weeks ended July 9, 1995 and
July 10, 1994 (unaudited). . . . . . . . . . . . . . . . . . . .F-22
Notes to Condensed Consolidated Financial Statements (unaudited) . . . . .F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Advantage Companies, Inc.
We have audited the accompanying consolidated balance sheets of Advantage
Companies, Inc. and Subsidiaries as of January 22, 1995 and January 23, 1994,
and the related consolidated statements of earnings, changes in stockholders'
equity and cash flows for each of the three years in the period ended
January 22, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Advantage
Companies, Inc. and Subsidiaries as of January 22, 1995 and January 23, 1994,
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended January 22, 1995 in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Wichita, Kansas
March 17, 1995
<PAGE>
Advantage Companies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
January 22, January 23,
1995 1994
CURRENT ASSETS
Cash and cash equivalents $2,304,731 $2,226,210
Other receivables 80,871 78,259
Prepaid expenses 311,721 407,736
Deferred income tax benefit 534,314 727,641
--------- ---------
Total current assets 3,231,637 3,439,846
========= =========
RENTAL MERCHANDISE - AT COST 36,211,442 33,876,510
Less accumulated depreciation 17,693,810 17,231,003
18,517,632 16,645,507
PROPERTY AND EQUIPMENT - AT COST
Land 26,400 -
Building and improvements 1,050,763 -
Equipment, furniture and fixtures 4,975,912 4,090,522
Automobiles and trucks 5,481,732 5,020,710
Leasehold improvements 3,601,735 3,059,147
15,136,542 12,170,379
Less accumulated depreciation
and amortization 7,006,358 5,407,022
8,130,184 6,763,357
OTHER ASSETS
Franchise fees - at cost less accumulated
amortization of $1,398,303 in 1995 and
$1,168,475 in 1994 1,008,947 1,191,525
Deferred income tax benefit 1,683,819 1,296,264
Other 330,384 68,434
3,023,150 2,556,223
----------- -----------
$32,902,603 $29,404,933
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
January 22, January 23,
1995 1994
CURRENT LIABILITIES
Accounts payable (includes $86,907 in 1995
and $82,414 in 1994 to related party) $1,239,867 $1,373,359
Accrued interest 4,218 345,217
Accrued compensation 2,765,218 2,561,516
Accrued workers' compensation claims 546,419 471,625
Other accrued expenses 1,097,804 1,143,641
Income taxes payable 355,802 2,017,043
Note payable 500,000 -
--------- ----------
Total current liabilities 6,509,328 7,912,401
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Class A preferred stock - $100 par value;
authorized, 15,000 shares; issued and
outstanding, 14,000 shares 1,400,000 1,400,000
Class B preferred stock, $100 par value;
authorized, 50,000 shares; issued and
outstanding, none - -
Common stock - $.01 par value in 1995 and
no par value ($.01 assigned value)
in 1994; authorized, 10,000,000 shares;
issued, 4,374,000 shares 43,740 43,740
Paid-in capital 5,445,075 5,511,860
Retained earnings 21,509,190 15,416,307
28,398,005 22,371,907
Less treasury stock, at cost - 141,562
common shares in 1995 and 70,350
common shares in 1994 2,004,730 879,375
26,393,275 21,492,532
------------ -----------
$32,902,603 $29,404,933
============ ===========
<PAGE>
Advantage Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year ended
January 22, January 23, January 24,
1995 1994 1993
<S> <C> <C> <C>
Revenues
Rental income $66,977,344 $63,818,893 $56,015,706
Sales of merchandise 4,393,847 3,223,084 3,009,621
71,371,191 67,041,977 59,025,327
Costs and operating expenses
Depreciation and amortization
Rental merchandise 18,871,667 17,755,100 14,866,006
Other 2,414,325 2,086,685 1,648,933
Salaries and wages 15,413,046 14,680,637 13,505,482
Advertising 3,756,525 3,479,267 3,272,006
Cost of merchandise sold 2,642,901 2,218,892 2,126,381
Management fees to
related party 1,070,564 1,005,655 885,501
Other operating expenses 17,189,457 16,056,083 14,699,514
61,358,485 57,282,319 51,003,823
Operating income 10,012,706 9,759,658 8,021,504
Lawsuit settlement - - 400,000
Interest income (expense),net 54,592 (417,131) (339,574)
Earnings before income taxes 10,067,298 9,342,527 8,081,930
Income taxes 3,806,415 3,525,000 3,041,246
----------- ----------- ----------
<S> <C> <C> <C>
NET EARNINGS $6,260,883 $5,817,527 $5,040,684
=========== =========== ==========
<S> <C> <C> <C>
Earnings per common share -
primary and fully diluted $1.25 $1.15 $1.00
=========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
Advantage Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A
preferred Common Paid-in Retained Treasury
stock stock capital earnings stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January
27, 1992 $1,400,000 $43,740 $5,575,050 $4,894,096 $(766,000) $11,146,886
Class A preferred stock
dividends paid - $12 per
share - - - (168,000) - (168,000)
Purchase of 127,750 shares
of common stock for
treasury - - - - (1,596,875) (1,596,875)
Issuance of 83,000 shares
of common stock upon
exercise of stock
options - - 2,280 - 846,000 848,280
Net earnings - - - 5,040,684 - 5,040,684
-------- ------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January
24, 1993 1,400,000 43,740 5,577,330 9,766,780 (1,516,875) 15,270,975
Class A preferred stock
dividends paid - $12 per
share - - - (168,000) - (168,000)
Issuance of 51,000 shares
of common stock upon
exercise of stock
options - - (65,470) - 637,500 572,030
Net earnings - - - 5,817,527 - 5,817,527
------- ------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January
23, 1994 1,400,000 43,740 5,511,860 15,416,307 (879,375) 21,492,532
Class A preferred stock
dividends paid - $12 per
share - - - (168,000) - (168,000)
Purchase of 105,000 shares
of common stock for
treasury - - - - (1,527,858) (1,527,858)
Issuance of 33,788 shares
of common stock upon
exercise of stock
options - - (66,785) - 402,503 335,718
Net earnings - - - 6,260,883 - 6,260,883
--------- ------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January
22, 1995 $1,400,000 $43,740 $5,445,075 $21,509,190 $(2,004,730) $26,393,275
========= ====== ========== =========== =========== ==========
</TABLE>
Class B preferred stock was not issued or outstanding during the periods
presented.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
Advantage Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION> Year ended
January 22, January 23, January 24,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Cash received from customers $66,977,344 $63,818,893 $56,015,706
Cash paid to suppliers and
employees (36,179,406) (33,933,781) (29,931,757)
Interest paid (288,496) (164,131) (274,093)
Income taxes paid (5,661,884) (3,501,648) (3,486,325)
---------- ----------- -----------
Net cash provided by operating
activities 24,847,558 26,219,333 22,323,531
---------- ----------- -----------
Cash flows from investing activities
Purchase of rental merchandise (24,446,236) (19,760,575) (23,168,923)
Purchase of property and equipment (3,463,276) (3,141,537) (2,319,257)
Payments of franchise fees (47,250) (220,000) (105,000)
Proceeds from sales of rental
merchandise 4,393,847 3,223,084 3,009,621
Proceeds from sales of property
and equipment 108,021 140,937 67,208
Cash acquired, net of amount paid for
purchase of AdvantEdge Rental
Purchase, Inc. 45,997 - -
Insurance proceeds - destruction
of property by hurricane - - 441,395
----------- ----------- -----------
Net cash used in investing
activities (23,408,897) (19,758,091) (22,074,956)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from issuance of notes
payable 1,850,000 1,700,000 8,200,000
Repayment of notes payable (1,850,000) (8,000,000) (7,400,000)
Issuance of common stock 335,718 572,030 848,280
Payment of preferred stock
dividends (168,000) (168,000) (168,000)
Purchase of treasury stock (1,527,858) - (1,596,875)
Net cash used in financing
activities (1,360,140) (5,895,970) (116,595)
----------- ----------- ----------
Net increase in cash and cash
equivalents 78,521 565,272 131,980
Cash and cash equivalents at
beginning of year 2,226,210 1,660,938 1,528,958
----------- ----------- ----------
Cash and cash equivalents at
end of year $2,304,731 $2,226,210 $1,660,938
========== ========== ==========
</TABLE>
<PAGE>
Advantage Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION> Year ended
January 22, January 23, January 24,
1995 1994 1993
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities
Net earnings $6,260,883 $5,817,527 $5,040,684
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation of rental merchandise 18,871,667 17,755,100 14,866,006
Other depreciation and amortization 2,414,325 2,086,685 1,648,933
Gain on sales of rental merchandise (1,750,946) (1,004,192) (883,240)
Depreciated amount of rental
merchandise and property and
equipment retired 1,379,839 1,186,139 945,183
Loss on disposal of property and
equipment 70,951 123,646 156,626
Deferred income taxes (194,228) (2,064,806) 272,188
Change in assets and liabilities net of
effect from acquisition
Decrease (increase) in accounts
and note receivable (2,612) 405,481 (466,956)
Decrease (increase) in refundable
income taxes - 71,115 (71,115)
Decrease (increase) in prepaid
expenses 102,712 (179,390) (102,523)
Decrease (increase) in other
assets (25,400) (22,133) 36,781
Increase (decrease) in accounts
payable and accrued liabilities (618,392) 27,118 1,527,116
Increase (decrease) in income
taxes payable (1,661,241) 2,017,043 (646,152)
18,586,675 20,401,806 17,282,847
___________ __________ __________
Net cash provided by oper-
ating activities $24,847,558 $26,219,333 $22,323,531
=========== ========== ==========
</TABLE>
Noncash investing and financing activities
Effective January 22, 1995, the Company purchased all of the capital stock
of AdvantEdge Rental Purchase, Inc. for $1,000. In conjunction with the
acquisition, liabilities were assumed as follows:
Cash $46,997
Fair value of other assets acquired 729,411
Cash paid for capital stock (1,000)
_________
Liabilities assumed $775,408
=========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
Advantage Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently
applied in the preparation of the accompanying consolidated
financial statements follows.
1. HISTORY AND BUSINESS ACTIVITY
The Company develops Rent-A-Center franchises and other rental-
purchase stores for the rental of consumer electronics,
appliances and household furniture in Florida, Mississippi,
Alabama, Georgia and Colorado. Ninety-four (eighty-nine at
January 23, 1994 and eighty at January 24, 1993) Rent-A-Center
stores are open with an additional ten stores expected to be
developed by March 31, 2000 under the current development
agreements. In addition, one other rental-purchase store was
opened during the current fiscal year.
2. PRINCIPLES OF CONSOLIDATION
The 1995 consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, COMCOA, Inc.
(COMCOA) and AdvantEdge Rental Purchase, Inc. (AdvantEdge).
COMCOA is a Rent-A-Center franchisee and AdvantEdge owns and
operates a rental-purchase store. All significant intercompany
transactions are eliminated.
3. REORGANIZATION AND BUSINESS COMBINATION
On January 4, 1995, the stockholders of COMCOA approved a plan of
merger and reorganization which resulted in the owners of COMCOA
exchanging their COMCOA stock for Advantage Companies, Inc.
stock. COMCOA then became a wholly-owned subsidiary of Advantage
Companies, Inc. The ownership of Advantage Companies, Inc.
immediately after the reorganization was identical to the
ownership of COMCOA immediately prior to the reorganization.
Effective January 22, 1995, the Company acquired all of the
outstanding stock of AdvantEdge from a principal stockholder of
the Company for $1,000. The acquisition has been recorded using
the purchase method of accounting and, accordingly, the purchase
price was allocated to assets and liabilities based on their
estimated fair values as of the date of acquisition.
Supplemental pro forma results of operations as if AdvantEdge had
been acquired when its operations started in November 1994 are
not presented as amounts are not significantly different from the
actual consolidated results of operations.
<PAGE>
Advantage Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONSOLIDATED
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
4. FISCAL YEAR
The Company's fiscal year is a 52-53 week year ending on the
fourth Sunday after the last Sunday in December.
5. RENTAL MERCHANDISE
Rental merchandise is rented through agreements providing for
weekly or monthly payments primarily over a term of 52 to 78
weeks. The rental agreements are cancelable by the customer at
any time. Rentals are collected in advance, are nonrefundable
and are included in revenue when received. Rental agreements
include a provision for the transfer of ownership of the
merchandise to the customer at the end of the rental term.
Amounts received from such sales are included in revenue when
received. For dispositions of rental merchandise from other than
sales, the related cost and accumulated depreciation are removed
and the corresponding loss is included in operations.
Rental merchandise is depreciated by the straight-line method
over the standard rental term of each item (primarily 52 to 78
weeks).
6. FRANCHISE FEES
Franchise fees are amortized over a period of ten years which
represents the term of the franchise agreement.
7. PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment are
provided by the straight-line method over the following estimated
useful lives:
Building and improvements 30 years
Equipment, furniture and fixtures 5 or 10 years
Automobiles and trucks 4 years
Leasehold improvements 7 or 10 years
Maintenance, repairs and renewals which neither materially add to
the value of the property nor appreciably prolong its life are
charged to expense as incurred. Gains or losses on dispositions
of property and equipment are included in operations.
<PAGE>
Advantage Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
8. INCOME TAXES
Deferred tax assets and liabilities are determined based on the
differences between the financial accounting and tax basis of
assets and liabilities. Deferred tax assets or liabilities at
the end of each period are determined using the currently enacted
tax rate expected to apply to taxable income in the periods in
which the deferred tax asset or liability is expected to be
settled or realized.
9. SHARES OUTSTANDING AND EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average
number of shares outstanding during the year after consideration
of the dilutive effect of stock options and convertible preferred
stock (see Note I).
10. CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash and cash equivalents includes cash and overnight repurchase
agreements.
NOTE B - LEASES
The Company has operating leases for store locations. The terms
of these leases are generally for three to five years with
options for an additional seven years. Rental expense on
operating leases was $3,099,029, $2,682,541 and $2,355,272 for
1995, 1994 and 1993, respectively. The following is a yearly
schedule of future minimum rental payments under operating
leases:
1996 $3,776,641
1997 2,921,822
1998 1,871,937
1999 616,522
2000 94,659
----------
Total minimum payments required $9,281,581
==========
<PAGE>
NOTE C - RELATED PARTY TRANSACTIONS
The Company is affiliated through common ownership and under
common management control with Tidewater Rental Corp. (TRC) and
Property Management Corp. (PMC). TRC is a franchisee of Rent-A-
Center Stores and PMC is the management company for this
affiliate and the Company. The Company shares corporate
facilities and certain personnel and equipment with these
affiliates. Included in accounts payable at January 22, 1995 and
January 23, 1994 is $86,907 and $82,414, respectively, due to
affiliated companies for management fees and reimbursed expenses.
The management agreement with PMC was terminated on January 22,
1995.
COMCOA paid management fees to PMC for the shared facilities,
personnel and equipment of $1,070,564, $1,005,655 and $885,501 in
1995, 1994 and 1993, respectively.
NOTE D - NOTE PAYABLE
The note payable is a variable rate note to a financial
institution due on April 10, 1995. It bears interest at prime
(prime was 8.50% at January 22, 1995) which is payable quarterly,
beginning January 10, 1995. The note is not collateralized.
Subsequent to January 22, 1995, the note was paid in full.
The Company also has a revolving note to a financial institution
with a maximum balance of $5,000,000 due April 30, 1996. It
bears interest at prime (prime was 8.50% at January 22, 1995)
which is payable quarterly and is not collateralized. The
revolving note did not have a balance at year-end.
In addition, the note provides for the following:
1. A consolidated net worth of twenty million dollars and a
maximum ratio of total debt to net worth of 1.75 to 1.
2. Restrictions from existence of a security interest,
encumbrance or lien upon inventory or accounts receivable
and restrictions on sale of assets.
The maximum amount outstanding for all notes at the end of any
four-week period was $700,000 and $5,000,000 for the years ended
in 1995 and 1994, respectively. The weighted average amount
outstanding during the years ended in 1995 and 1994 was $91,209
and $1,731,593, respectively. The weighted average interest rate
(actual interest rate divided by the weighted average outstanding
payable balance) was 7.41% and 6.11% for the years ended in 1995
and 1994, respectively.
<PAGE>
NOTE E - CONTINGENCY
The Company was named as one of several defendants in a lawsuit
filed by THORN Americas, Inc. (THORN) concerning the company's
Rent-A-Center franchise contract and development agreement with
THORN. The lawsuit was filed in response to the defendant's
involvement with AdvantEdge. The lawsuit seeks to enjoin the
defendants from disclosing propriety information, or operating or
performing any duty or act in relation to the operation of any
stores owned by AdvantEdge or any other rental-purchase stores
other than Rent-A-Center franchise stores. The suit also seeks
to enjoin the Company from employing or seeking to employ any
person who has worked for THORN in the last six months. It is
management's opinion that the Company has good defenses to all of
THORN's claims and that an unfavorable outcome appears unlikely.
<PAGE>
NOTE F - FRANCHISE FEES AND ROYALTY FEES
The Company has entered into franchising agreements to develop
Rent-A-Center franchises. The agreements require a franchise fee
of $25,000 per store, with $10,000 being paid upon grant of the
franchise right and $15,000 paid upon the opening of the store.
In addition, royalty fees are paid based upon the gross receipts
of each store and are expensed when incurred. Royalty fee rates
vary from 3%-5% depending on the specific agreement and the age
of the store.
The Company has entered into an addendum agreement for its Rent-
A-Center franchising agreements which extended each agreement for
a period of ten years. The agreement requires a renewal
franchise fee not to exceed $3,000 per store, and sets the
royalty fee rate at 5% of gross receipts of each store.
As discussed in Note A1, the Company is required to open ten
stores under the current Rent-A-Center development agreement by
March 31, 2000. Failure to develop these stores could have an
effect on future store developments and the Company's franchise
territory, but would not effect existing operations.
NOTE G - RETIREMENT/SAVINGS PLAN
Effective January 14, 1992, the Company established a
contributory 401(k) retirement/savings plan covering all eligible
employees. In order to participate, employees must have
completed twelve months of service and worked 1,000 hours. The
employees may make voluntary contributions to the plan up to 16
percent of the employee's total compensation. The Company
matches the employee's contribution up to 5 percent of the
employee's compensation. Total cost was $259,399, $214,878 and
$302,011 for the years ended 1995, 1994 and 1993, respectively.
NOTE H - INCOME TAXES
Income taxes consist of the following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current $4,000,643 $5,589,806 $2,769,058
Deferred (194,228) (2,064,806) 272,188
---------- ---------- ----------
$3,806,415 $3,525,000 $3,041,246
========== ========== ==========
</TABLE>
NOTE H - INCOME TAXES - Continued
A reconciliation of income taxes computed at the federal
statutory rate of 34% to income tax expense is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income taxes at statutory rate $3,422,881 $3,176,459 $2,747,856
State income taxes, net
of federal tax benefit 405,864 343,914 282,426
Other (22,330) 4,627 10,964
---------- ---------- ----------
$3,806,415 $3,525,000 $3,041,246
========== ========== ==========
</TABLE>
The tax effects of temporary differences that give rise to
deferred tax assets are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Depreciation of rental merchandise
and property and equipment $1,762,444 $1,253,554
Accrued expenses 534,314 727,641
Other (78,625) 42,710
__________ __________
$2,218,133 $2,023,905
========== ==========
</TABLE>
For the year ended January 24, 1993, deferred income tax expense
results from timing differences in the recognition of revenue and
expense for income tax and financial reporting purposes. The
sources of these differences and the tax effect of each are as
follows:
Depreciation $341,403
Accrued expenses (88,453)
Other 19,238
--------
$272,188
========
Advantage Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - INCOME TAXES - CONTINUED
The Internal Revenue Service (IRS) has examined COMCOA's January
27, 1991 federal income tax return and proposed additional taxes
of $1,132,571. The issue concerns the depreciation method for
rental merchandise. For income tax reporting purposes, the
Company uses the income forecasting method of depreciation for
rental merchandise which is widely used throughout the rental-
purchase industry and which the Company believes accurately
matches its depreciation expense to revenues. The IRS
disallowance was based upon its determination that depreciation
expressed in terms of years must instead be utilized.
The Company paid the additional federal tax, plus interest in
fiscal 1995 and anticipates paying additional state taxes.
Accordingly, a provision was included in the 1994 statements for
interest of $345,217 in federal and state taxes payable in the
amount of $1,250,767 with a corresponding increase in the
deferred income tax benefit. The Company filed a claim for
refund which has been disallowed by the IRS and anticipates
filing a suit for refund in the future.
NOTE I - EARNINGS PER COMMON SHARE DATA
The data used in the computation of earnings per common share is
as follows:
<TABLE>
<CAPTION>
Year ended
January 22, January 23, January 24,
1995 1994 1993
<S> <C> <C> <C>
Weighted average common shares
outstanding 4,240,946 4,283,628 4,313,397
Add common stock equivalents
Convertible preferred stock 700,000 700,000 700,000
Common stock options 79,317 70,245 36,597
-------- -------- --------
Shares used in computing pri-
mary earnings per share 5,020,263 5,053,873 5,049,994
========= ========= =========
</TABLE>
The difference between shares for primary and fully diluted
earnings per share was not significant in any year.
NOTE J - STOCKHOLDERS' EQUITY
Class A preferred stock is nonvoting, has a 12% cumulative
dividend rate and each share is convertible into 50 shares of
common stock. The Class A preferred stock is redeemable by the
Company with ninety days' notice at $100 per share and, upon
liquidation, is entitled to $100 per share before any payments
are made to common stockholders. At January 22, 1995 dividends
in arrears on Class A preferred stock were $3 per share or
$42,000, which were paid subsequent to year-end.
The Company has also authorized 50,000 shares of Class B
preferred stock with a par value of $100 per share. The powers,
preferences and rights of the stock will be determined by the
Board of Directors at the time of issuance.
The Company has qualified incentive stock option plans for its
officers and employees. The option price under the plans is the
market price at the date of grant. These options, when granted,
are for five years and are exercisable at various dates as
determined by the Board of Directors. At January 22, 1995,
106,000 options of the total options outstanding are exercisable.
There are 600,000 shares of common stock available under the
plans. At January 22, 1995, there were 60,500 shares reserved
for future grants. Changes in the qualified stock options are as
follows:
<TABLE>
<CAPTION>
Price range
Shares per share
<S> <C> <C>
Outstanding at January 27, 1992 301,500 $6.88 - $13.38
Canceled (25,000) $9.75 - $13.38
Exercised (83,000) $6.88 - $11.75
-------
Outstanding at January 24, 1993 193,500 $9.63 - $13.38
Canceled (22,000) $10.75 - $13.38
Exercised (51,000) $9.63 - $13.38
--------
Outstanding at January 23, 1994 120,500 $9.75 - $11.75
Granted 185,000 $14.00
Canceled (3,000) $10.75 - $11.75
Exercised (42,500) $10.63 - $11.75
--------
Outstanding at January 22, 1995 260,000 $9.75 - $14.00
========
</TABLE>
The Company granted nonqualified stock options to purchase a
total of 30,000 shares to two officers on February 1, 1990. The
options have an exercise price of $8.50. The options were
originally for five years. During the current year 10,000
options were canceled when the officer resigned from the Company.
The option period on the remaining 20,000 options was extended
for another four years. The 20,000 options are exercisable after
July 31, 1995.
The Company also granted nonqualified stock options to purchase a
total of 125,000 shares to one officer and three employees on
July 12, 1993. The options have an exercise price of $8.00.
These options are for five years and are all exercisable at
January 22, 1995. Included in salaries and wages in 1994 is
$500,000 related to the granting of these options which
represents the difference between the fair market value at the
date of grant of $12.00 and the exercise price of $8.00 times the
total options granted. The total amount was included in salaries
and wages in 1994 as the options were issued for past services.
<PAGE>
ADVANTAGE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
July 9, 1995 January 22, 1995
<S> <C> <C>
Cash and cash equivalents $ 2,834,044 $ 2,304,731
Rental merchandise, net 18,563,620 18,517,632
Property and equipment, net 9,171,335 8,130,184
Franchise fees, net 956,446 1,008,947
Deferred income tax benefit 2,218,133 2,218,133
Prepaid expenses 580,795 311,721
Accounts receivable and other 483,615 411,255
----------- -----------
$34,807,988 $32,902,603
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,330,347 $ 1,239,867
Accrued liabilities 1,584,682 1,648,441
Accrued compensation 2,241,704 2,765,218
Income taxes payable 578,190 355,802
Note payable - 500,000
----------- ----------
5,734,923 6,509,328
STOCKHOLDERS' EQUITY
Preferred stock 1,400,000 1,400,000
Common stock 43,740 43,740
Paid-in capital 5,434,950 5,445,075
Retained earnings 24,080,354 21,509,190
----------- ----------
30,959,044 28,398,005
Less treasury stock, at cost
(133,062 at July 9, 1995, and
141,562 at January 22, 1995) 1,885,979 2,004,730
---------- ----------
29,073,065 26,393,275
---------- ----------
$34,807,988 $32,902,603
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
STATEMENTS.
ADVANTAGE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
July 9, July 10, July 9, July 10,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues
Rental income $16,343,498 $15,619,436 $32,654,039 $31,140,933
Sales of merchandise 1,000,851 949,057 2,206,835 2,081,223
--------- ---------- ---------- ----------
17,344,349 16,568,493 34,860,874 33,222,156
Costs and operating expenses
Cost of merchandise sold 820,561 591,178 1,727,005 1,293,093
Depreciation and amortization
Rental merchandise 4,435,210 4,304,391 8,961,385 8,438,166
Other 646,484 540,882 1,256,418 1,076,061
Salaries and wages 4,170,189 3,513,889 8,060,642 6,961,683
Advertising 913,220 842,227 1,817,927 1,702,954
Other operating expenses 4,562,197 4,236,491 8,817,327 8,361,084
--------- ---------- ---------- ----------
15,547,861 14,029,058 30,640,704 27,833,041
---------- ----------- ----------- ----------
Operating income 1,796,488 2,539,435 4,220,170 5,389,115
Net interest income 21,176 1,575 56,342 20,917
----------- ---------- ----------- ----------
Earnings before income taxes 1,817,664 2,541,010 4,276,512 5,410,032
Income taxes 689,745 980,792 1,621,348 2,062,844
__________ __________ __________ __________
NET EARNINGS $ 1,127,919 $ 1,560,218 $ 2,655,164 $3,347,188
=========== =========== =========== ==========
Earnings per common share -
primary and fully diluted $.22 $.31 $.53 $.66
===== ====== ===== ======
Weighted average common
and common equivalent
shares outstanding 5,034,439 5,017,496 5,033,031 5,035,461
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
STATEMENTS.
<PAGE>
ADVANTAGE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Twenty-four Weeks Ended
July 9, 1995 July 10, 1994
<S> <C> <C>
Net cash provided by operating activities $12,040,527 $10,998,595
Cash flows from investing activities
Purchase of rental merchandise (11,060,697) (11,222,978)
Purchase of property and equipment (2,211,242) (1,425,045)
Payment of initial franchise fees (54,000) (45,000)
Proceeds from sales of rental merchandise 2,206,835 2,081,223
Proceeds from sales of property and equipment 83,264 -
---------- -----------
Net cash used in investing activities (11,035,840) (10,611,800)
---------- -----------
Cash flows from financing activities
Purchase of treasury stock - (1,527,857)
Proceeds from issuance of note payable - 500,000
Repayment of note payable (500,000) (500,000)
Issuance of common stock 108,626 211,510
Payment of preferred stock dividends (84,000) (84,000)
------ -------
Net cash used in financing activities (475,374) (1,400,347)
------ -------
Net increase (decrease) in cash 529,313 (1,013,552)
Cash and cash equivalents at beginning of period 2,304,731 2,226,210
--------- --------
Cash and cash equivalents at end of period $ 2,834,044 $ 1,212,658
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
STATEMENTS.
<PAGE>
ADVANTAGE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Condensed consolidated financial statements
The consolidated balance sheet of Advantage Companies, Inc. ("Advantage" or
the "Registrant") as of July 9, 1995, the consolidated statements of earnings
for the twelve and twenty-four week periods ended July 9, 1995 and July 10,
1994, and the consolidated statements of cash flows for the periods then ended
have been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations
and cash flows at July 9, 1995 and for all periods presented have been made.
The consolidated balance sheet at January 22, 1995 has been taken from the
audited consolidated financial statements at that date, and condensed. Certain
other information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these condensed consolidated financial statements be read in conjunction
with the Company's audited consolidated financial statements and notes
thereto included in its January 22, 1995 annual report to shareholders. The
consolidated results of operations for the periods ended July 9, 1995,
are not necessarily indicative of the consolidated operating results for
the full year.
B. Income Taxes
The Internal Revenue Service (IRS) has examined COMCOA's January 27, 1991
federal income tax return and proposed additional taxes of $1,132,571. The
issue concerns the depreciation method for rental merchandise. For income
tax reporting purposes, the Company uses the income forecasting method of
depreciation for rental merchandise which is widely used throughout the
rental-purchase industry and which the Company believes accurately matches
its depreciation expenses to revenues. The IRS disallowance was based upon
its determination that depreciation expressed in terms of years must instead
be utilized.
The Company paid the additional federal tax, plus interest in fiscal 1995
and anticipates paying additional state taxes. Accordingly, a provision was
included in the fiscal 1994 statements for interest of $346,217 and federal
and state taxes payable in the amount of $1,250,767 with a corresponding
increase in the deferred income tax benefit. The Company filed a claim for
refund which has been disallowed by the IRS, and has the option to file a
suit for refund in the future.
C. Earnings per share
Class A preferred stock for the period is included in the per share
computations. Primary and fully diluted earnings per common share are
considered equal in all periods that are presented. The data used in the
computation of earnings per common share is as follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
July 9, July 10, July 9, July 10,
1995 1995 1995 1995
<S> <C> <C> <C> <C>
Weighted average common share 4,238,741 4,241,349 4,236,810 4,255,299
Add common stock equivalents:
Convertible preferred
stock 700,000 700,000 700,000 700,000
Common stock options 95,698 76,150 96,221 80,162
-------- -------- -------- ---------
5,034,439 5,017,496 5,033,031 5,035,461
========== ========== ========= =========
</TABLE>
D. Contingency
The Company was named as one of several defendants in a lawsuit filed by THORN
Americas, Inc. (THORN) concerning the Company's Rent-A-Center franchise
contract and development agreement with THORN. The lawsuit was filed in
response to the defendant's involvement with AdvantEdge. The lawsuit seeks
to enjoin the defendants from disclosing propriety information, or operating
or performing any duty or act in relation to the operation of any stores
owned by AdvantEdge or any other rental-purchase stores other than
Rent-A-Center franchise stores. The suit also seeks to enjoin the Company
from employing or seeking to employ any person who has worked for THORN in the
last six months.
Negotiations between the parties have resulted in the signing of a letter of
intent betweenthe Company and THORN pursuant to which the Company would be
acquired by THORN. The letter of intent calls for consideration of $18.50 per
share of Common Stock to be paid to all Company's stockholders other than
Daniel J. Taylor, Robert W. Moore, Daniel M. Carney and Leslie G. Rudd, who
will receive $17.50 per share. In July 1995, THORN obtained an order of
the court staying proceedings in the lawsuit until November 30, 1995 for the
purpose of allowing the parties time to settle their disputes "through
certain acquisitions."
(Side 1)
Advantage Companies, Inc.This Proxy is Solicited on Behalf of The Board of
Directors 9323 E. 37th Street North Wichita, Kansas 67226
The undersigned hereby appoints Daniel J. Taylor and William A. Simon, each
with the power to appoint his substitute and hereby authorizes them to
represent and to vote, as designated below, all the shares of common stock of
ADVANTAGE COMPANIES, INC., held of record by the undersigned on November 10,
1995, the record date, at the special meeting of stockholders to be held
December 20, 1995, or any adjournments thereof.
1. Proposal to approve and adopt the Agreement and Plan of Merger dated as of
September 25, 1995, by and among the Company, THORN Americas, Inc., a Delaware
corporation ("THORN") and THORN Acquisition Corp., a Delaware corporation
("Acquisition"), pursuant to which, among other things, (i) Acquisition will
merge with and into the Company and the Company will be the surviving
corporation and will become a wholly-owned subsidiary of THORN, and (ii) each
outstanding share of the Company's common stock par value $.01 per share (other
than outstanding shares of common stock held by THORN or its subsidiaries, in
the Company's or any of its subsidiaries treasuries, or by any holder who
shall have perfected appraisal rights under the Delaware General Corporation
Law), will be converted into the right to receive the Purchase Price (as used
herein, "Purchase Price" means (i) for stockholders other than those party to
the option agreement entitled the Advantage Agreement with THORN dated July 9,
1995, as amended on October 6, 1995 (the "Advantage Agreement"), $18.50 per
share (without interest) in cash, and (ii) for stockholders party to the
Advantage Agreement, $17.50 (without interest) per share in cash).
FOR _________ AGAINST _________ ABSTAIN _________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR.
2. In their discretion on such other matters as may properly come before the
meeting.
Side 2)
Shares represented by all properly executed proxies will be voted in
accordance with the instructions appearing on the proxy. IN THE ABSENCE
OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF
THE PLAN AND AGREEMENT OF MERGER AND IN THE DISCRETION OF THE PROXY HOLDERS
AS TO ANY OTHER MATTERS.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation,
please sign in full corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by authorized person.
Do you plan to attend the meeting? Yes _______ No _________
Dated: ________________,19___ ____________________________________
Signature
PLEASE MARK SIGN, DATE AND RETURN
RETURN THIS PROXY CARD PROMPTLY _____________________________________
USING THE ENCLOSED ENVELOPE. Signature, if held jointly
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ADVANTAGE COMPANIES, INC.
THORN AMERICAS, INC.
AND
THORN ACQUISITION CORP.
DATED AS OF
SEPTEMBER 25, 1995
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September
25, 1995, is by and among ADVANTAGE COMPANIES, INC., a Delaware
corporation (the "Company"), THORN AMERICAS, INC., a Delaware
corporation ("Parent"), and THORN ACQUISITION CORP., a Delaware
corporation ("Acquisition).
WHEREAS, the Boards of Directors of Parent, Acquisition
and the Company each have approved the acquisition of the Company
by Parent upon the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, in furtherance thereof, upon the terms and
subject to the conditions of this Agreement, (i) Acquisition would
be merged (the "Merger") with and into the Company in accordance
with the General Corporation Law of the State of Delaware
("Delaware Law") and (ii) each share of common stock, par value
$0.01 per share (the "Common Stock"), of the Company (the
"Shares"), issued and outstanding immediately prior to the
Effective Time (as defined in Section 1.2 hereof) would, except as
otherwise expressly provided herein, be converted into the right to
receive the Merger Consideration (as defined in Section 1.7(a)
hereof); and
WHEREAS, on July 9, 1995, Parent and certain stockholders
of the Company entered into an option agreement entitled the
Advantage Agreement, as amended on October 6, 1995 (the "Option
Agreement"), pursuant to which such stockholders agreed, among
other things, to grant Parent an irrevocable option to purchase
from them all of (i) the Common Stock owned by such stockholders in
exchange for $17.50 per Share (without interest) in cash, and (ii)
the Company's Class A Cumulative Convertible Preferred Stock, par
value $100 per share (the "Preferred Stock"), owned by such
stockholders in exchange for $17.50 multiplied by fifty (50), or
$875, for each share of Preferred Stock (without interest) in cash.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to
be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time and upon
the terms and subject to the conditions of this Agreement and
Delaware Law, Acquisition shall be merged with and into the
Company, whereupon the separate corporate existence of Acquisition
shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation").
Section 1.2 Effective Time; Closing. As soon as
practicable after the later of (a) January 2, 1996 and (b) the
satisfaction or waiver of the conditions set forth in Article VI,
the parties hereto will file a certificate of merger with the
Secretary of State of the State of Delaware and make all other
filings or recordings required by Delaware Law in connection with
the Merger. The Merger shall become effective at such time as the
certificate of merger is duly filed with the Secretary of State of
the State of Delaware (the "Effective Time"). Prior to such
filing, a closing (the "Closing") shall be held at the offices of
Parent, 8200 East Rent-A-Center Drive, Wichita, Kansas 67226, or
such other place as the parties shall agree, for the purpose of
confirming the satisfaction or waiver of the conditions set forth
in Article VI. The date on which the Closing occurs is referred to
herein as the "Closing Date."
Section 1.3 Effects of the Merger; Subsequent Actions.
(a) The Merger shall have the effects set forth in
Delaware Law. Without limiting the generality of the foregoing,
and subject thereto and any other applicable laws, at the Effective
Time all of the properties, rights, privileges, powers and
franchises of the Company and Acquisition shall vest in the
Surviving Corporation, and all debts, liabilities, restrictions,
disabilities and duties of the Company and Acquisition shall become
the debts, liabilities, restrictions, disabilities and duties of
the Surviving Corporation.
(b) If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to vest, perfect or confirm of
record or otherwise in the Surviving Corporation its right, title
or interest in, to or under any of the rights, properties or assets
of the Company or Acquisition acquired or to be acquired by the
Surviving Corporation as a result of or in connection with the
Merger, or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of the Company or
Acquisition, all such deeds, bills of sale, assignments, assumption
agreements and assurances and to take and do, in the name and on
behalf of each of such corporations or otherwise, all such other
actions and things as may be necessary or desirable to vest,
perfect or confirm of record or otherwise any and all right, title
and interest in, to and under such rights, properties or assets of
the Surviving Corporation or otherwise to carry out this Agreement.
Section 1.4 Certificate of Incorporation and By-Laws.
(a) The certificate of incorporation of Acquisition
in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until
amended in accordance with applicable law.
(b) The by-laws of Acquisition in effect at the
Effective Time shall be the by-laws of the Surviving Corporation
until amended in accordance with applicable law.
Section 1.5 Directors. The directors of Acquisition at
the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the certificate
of incorporation and by-laws of the Surviving Corporation and until
his or her successor is duly elected and qualified.
Section 1.6 Officers. The officers of Acquisition at
the Effective Time shall be the initial officers of the Surviving
Corporation, each to hold office in accordance with the certificate
of incorporation and by-laws of the Surviving Corporation and until
his or her successor is duly appointed and qualified.
Section 1.7 Conversion of Shares. At the Effective
Time, by virtue of the Merger and without any action on the part of
Parent, Acquisition, the Company or the holder of any of the
following securities:
(a) Each Share issued and outstanding immediately
prior to the Effective Time (other than Shares to be cancelled
pursuant to Section 1.7(b) hereof and Dissenting Shares (as defined
in Section 2.1 hereof)), shall by virtue of the Merger and without
any action on the part of the holder thereof be converted into the
right to receive the Merger Consideration. As used herein, "Merger
Consideration" means (i) for stockholders other than those party to
the Option Agreement, $18.50 per Share (without interest) in cash
and (ii) for stockholders party to the Option Agreement, $17.50 per
Share (without interest) in cash.
(b) Each Share which is issued and outstanding
immediately prior to the Effective Time and owned by Parent or
Acquisition or any direct or indirect subsidiary of Parent or
Acquisition, or which is held in the treasury of the Company or any
of its subsidiaries, shall be cancelled and retired and no payment
of any consideration shall be made with respect thereto.
(c) Each share of common stock, par value $0.01 per
share, of Acquisition issued and outstanding immediately prior to
the Effective Time shall be converted into and become one validly
issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of the Surviving Corporation.
Section 1.8 Stock Options. Prior to the Effective Time,
each outstanding option ("Employee Option") issued, awarded or
granted pursuant to the Company's Restated 1988 Incentive Stock
Option Plan, the Company's Restated 1993 Non-Qualified Stock Option
Plan, the Restated and Extended Stock Option Agreement with William
A. Simon or the Company's 1995 Incentive Stock Option Plan (the
"Company Plans") to purchase Shares shall be cancelled by the
Company, and each holder of a cancelled Employee Option who is not
a party to the Option Agreement shall be entitled to receive from
the Company in consideration for the cancellation of such Employee
Option an amount in cash (less applicable withholding Taxes (as
defined in Section 3.10 hereof)) equal to the product of (i) the
number of Shares previously subject to such Employee Option and
(ii) the excess, if any, of $18.50 over the exercise price per
Share previously subject to such Employee Option. The parties
agree that the aggregate cash consideration for cancellation of all
outstanding options shall not exceed the sum of $2,839,625, and
that any such amounts paid in cancellation of Employee Options may
be subtracted, if necessary, from the Total Equity Requirement set
forth in Section 6.3(d) hereof. Holders of Employee Options
electing to receive the cash payment referred to in this Section
1.8 shall not be entitled to receive Common Stock upon the exercise
of any Employee Option.
Section 1.9 Stockholders' Meeting. The Company, acting
through its Board of Directors (the "Board"), shall in accordance
with applicable law as soon as practicable following the date
hereof:
(i) duly call, give notice of, convene
and hold an annual or special meeting of its stockholders
(the "Stockholders' Meeting") for the purpose of
considering and taking action upon this Agreement;
(ii) include in the Proxy Statement (as
defined in Section 3.7 hereof), subject to the Board's
fiduciary duties, the recommendation of the Board that
stockholders of the Company vote in favor of the approval
and adoption of this Agreement and the transactions
contemplated hereby; and
(iii) use its reasonable best efforts (A)
to obtain and furnish the information required to be
included by it in the Proxy Statement and, after
consultation with Parent and Acquisition, respond
promptly to any comments made by the Securities and
Exchange Commission (the "SEC") with respect to the Proxy
Statement and any preliminary version thereof and cause
the Proxy Statement to be mailed to its stockholders at
the earliest practicable time and (B) subject to the
Board's fiduciary duties under applicable law, to obtain
the necessary approvals by its stockholders of this
Agreement and the transactions contemplated hereby.
At such meeting, each of Parent and Acquisition will vote (and will
cause each of its affiliates to vote) any Shares owned by it (or
its affiliates) in favor of adoption of this Agreement and the
transactions contemplated hereby.
ARTICLE II
DISSENTING SHARES; EXCHANGE OF SHARES
Section 2.1 Dissenting Shares. Notwithstanding anything
in this Agreement to the contrary, Shares outstanding immediately
prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such Shares in accordance with Section 262
of Delaware Law ("Dissenting Shares") shall not be converted into
a right to receive the Merger Consideration unless such holder
fails to perfect or withdraws or otherwise loses his right to
appraisal. If, after the Effective Time, such holder fails to
perfect or withdraws or loses his right to appraisal, such Shares
shall be treated as if they had been converted as of the Effective
Time into the right to receive the Merger Consideration without
interest thereon. The Company shall give Acquisition or Parent
prompt notice of any demands received by the Company for appraisal
of Shares, and, prior to the Effective Time, Acquisition shall have
the right to participate in all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the Company
shall not, except with the prior written consent of Acquisition,
make any payment with respect to, or settle or offer to settle, any
such demands.
Section 2.2 Exchange of Certificates.
(a) From and after the Effective Time, a bank or
trust company to be designated by Parent (the "Paying Agent") shall
act as exchange agent in effecting the exchange for the Merger
Consideration of certificates (the "Certificates") that, prior to
the Effective Time, represented Shares. Upon the surrender of each
such Certificate formerly representing Shares, together with a
properly completed letter of transmittal, the Paying Agent promptly
shall pay the holder of such Certificate the Merger Consideration
multiplied by the number of Shares formerly represented by such
Certificate, in exchange therefor, and such Certificate shall
forthwith be cancelled. Until so surrendered and exchanged, each
such Certificate (other than Certificates representing Dissenting
Shares or Shares held by Parent, Acquisition or the Company, or any
direct or indirect subsidiary thereof) shall represent solely the
right to receive the Merger Consideration. No interest shall be
paid or accrue on the Merger Consideration. If the Merger
Consideration (or any portion thereof) is to be delivered to any
person other than the person in whose name the Certificate formerly
representing Shares surrendered in exchange therefor is registered,
it shall be a condition to such exchange that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the person requesting such exchange
shall pay to the Paying Agent any transfer or other Taxes required
by reason of the payment of the Merger Consideration to a person
other than the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of the Paying Agent that such
Tax has been paid or is not applicable.
(b) At Closing, Parent or Acquisition shall have
deposited, or caused to be deposited, in trust with the Paying
Agent the Merger Consideration to which holders of Shares shall be
entitled at the Effective Time pursuant to Section 1.7(a) hereof.
(c) The Merger Consideration shall be invested by
the Paying Agent, as directed by Parent, provided such investments
shall be limited to direct obligations of the United States of
America, obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of
principal and interest, commercial paper rated of the highest
quality by Moody's Investors Services, Inc. or Standard & Poor's
Corporation or certificates of deposit issued as to all principal
and interest by federal deposit insurance issued by a commercial
bank having at least $100,000,000 in assets.
(d) Promptly following the date which is six months
after the Effective Time, the Paying Agent shall deliver to Parent
all cash and documents in its possession relating to the
transactions described in this Agreement, and the Paying Agent's
duties shall terminate. Thereafter, each holder of a Certificate
formerly representing a Share may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor
the Merger Consideration, without any interest thereon.
(e) Promptly after the Effective Time, the Paying
Agent shall mail to each record holder of Certificates that
immediately prior to the Effective Time represented Shares a form
of letter of transmittal and instructions for use in surrendering
such Certificates and receiving the Merger Consideration in
exchange therefor.
(f) After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation
of any Shares. If, after the Effective Time, Certificates formerly
representing Shares are presented to the Surviving Corporation or
the Paying Agent, they shall be cancelled and exchanged for the
Merger Consideration, as provided in this Article II, subject to
applicable law in the case of Dissenting Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Parent and
Acquisition as follows:
Section 3.1 Organization and Qualification;
Subsidiaries.
(a) Each of the Company and its subsidiaries is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted
and as proposed to be conducted.
(b) Each of the Company and its subsidiaries is
duly qualified or licensed and in good standing to do business in
each jurisdiction (including any foreign country) in which the
property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing
necessary.
(c) The Company has heretofore furnished to Parent
true, complete and correct copies of its certificate of
incorporation (the "Certificate of Incorporation") and its by-laws
(the "By-Laws") and the equivalent organizational documents of each
of its subsidiaries, each as amended to the date hereof. The
Certificate of Incorporation, By-Laws and such equivalent
organizational documents are in full force and effect. The Company
is not in violation of any of the provisions of the Certificate of
Incorporation or By-Laws and no subsidiary of the Company is in
violation of any of the provisions of such subsidiary's equivalent
organizational documents. All minutes of the Company and each of
its subsidiaries are contained in the minute books of the Company
and each of its subsidiaries, which have been made available to
Parent, and such minute books contain a complete and accurate
record of the substance of all actions taken at all meetings of the
Board, the board of directors of each of the Company's subsidiaries
and of all committees thereof.
(d) Schedule 3.1(d) sets forth a complete and
correct list of all subsidiaries of the Company, which list sets
forth the amount of capital stock of or other equity interests in
such subsidiaries owned by the Company, directly or indirectly.
There are no irrevocable proxies with respect to the shares of
capital stock of such subsidiaries, and no equity securities of any
of the subsidiaries are or may become required to be issued by
reason of any options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of any
capital stock of any subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any subsidiary
is bound to issue additional shares of its capital stock or
securities convertible into or exchangeable for such shares. All
of the shares of capital stock of such subsidiaries so owned by the
Company are owned by it free and clear of any claim, lien,
encumbrance or agreement with respect thereto. No entity in which
the Company owns, directly or indirectly, less than a 50% equity
interest is, individually or when taken together with all other
such entities, material to the business of the Company and its
subsidiaries, taken as a whole.
Section 3.2 Capitalization of the Company and its
Subsidiaries. The authorized capital stock of the Company consists
of (i) 10,000,000 Shares of which, as of the date of this
Agreement, 4,242,938 Shares were issued and outstanding and 131,062
Shares were held as treasury shares of the Company, (ii) 15,000
shares of Preferred Stock, of which, as of the date of this
Agreement, 14,000 shares were issued and outstanding, and (iii)
50,000 shares of Class B Preferred Stock, par value $100 per share,
of which, as of the date of this Agreement, no shares were issued
and outstanding. All outstanding shares of capital stock of the
Company have been validly issued, duly authorized, fully paid,
nonassessable and free of preemptive rights. As of the date of
this Agreement, Employee Options to purchase an aggregate of
381,500 Shares were outstanding and the weighted average exercise
price of such Employee Options was $11.27 per Share. The only
Employee Options (or any other option or related stock appreciation
right) in existence are set forth above and no additional Employee
Options (or any other option or related stock appreciation right)
have been granted since June 1, 1995 (other than extensions of
preexisting Employee Options set forth on Schedule 3.2). As of the
date of this Agreement, 700,000 Shares were issuable upon
conversion of the Preferred Stock. Each share of Preferred Stock
is convertible into fifty (50) Shares. Except as set forth above,
there are outstanding (i) no shares of capital stock or other
voting securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (iii) no options, subscriptions,
warrants, convertible securities, calls or other rights to acquire
from the Company, and no obligation of the Company to issue,
deliver or sell any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting
securities of the Company and (iv) no equity equivalents,
performance shares, interests in the ownership or earnings of the
Company or other similar rights issued by the Company
(collectively, "Company Securities"). Except as contemplated by
this Agreement, there are no outstanding obligations of the Company
or any of its subsidiaries to repurchase, redeem or otherwise
acquire any Company Securities, other than the Company's
obligations hereunder to redeem (subject to conversion by the
holder thereof) the Preferred Stock. Each of the outstanding
shares of capital stock of each of the Company's subsidiaries is
duly authorized, validly issued, fully paid and nonassessable and
is directly or indirectly owned by the Company, free and clear of
all security interests, liens, claims, pledges, charges, voting
agreements or other encumbrances of any nature whatsoever
(collectively, "Liens"). There are no existing options, calls or
commitments of any character relating to the issued or unissued
capital stock or other equity securities of any subsidiary of the
Company.
Section 3.3 Authority Relative to this Agreement;
Fairness Opinion. The Company has all necessary corporate power
and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions
contemplated hereby. The Board, at a meeting duly called and held
prior to the date of this Agreement, (i) determined that this
Agreement and the transactions contemplated hereby, including the
Merger, are in the best interests of the stockholders of the
Company (other than stockholders who are party to the Option
Agreement, Parent, Acquisition or their affiliates), (ii) approved
this Agreement and the transactions contemplated hereby, including
the Merger, (iii) subject to its fiduciary duties, resolved to
recommend that the stockholders of the Company approve and adopt
this Agreement and the Merger and (iv) resolved to redeem (subject
to conversion by the holder thereof), effective immediately prior
to the Merger, all of the outstanding Preferred Stock. George K.
Baum & Company, the Company's financial advisor, has delivered to
the Board its written opinion to the effect that, as of the date of
such opinion, the consideration to be received by the holders of
Shares (other than stockholders who are party to the Option
Agreement, Parent, Acquisition or their affiliates, and other
officers and employees specifically excluded from the opinion)
pursuant to the Merger is fair to such holders from a financial
point of view. As of the date hereof, the Company has been
authorized by George K. Baum & Company to permit the inclusion of
such fairness opinion in the Proxy Statement referred to in Section
3.7 hereof. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board and no
other corporate proceedings or action on the part of the Company
are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than, with respect to the
Merger, the approval and adoption of this Agreement by the holders
of a majority of the outstanding Shares and the filing of the
appropriate merger documents as required by Delaware Law). The
Company elected not to be governed by Section 203 of the Delaware
Law pursuant to Article XI of the Certificate of Incorporation, so
as to render inapplicable to such transactions, including, without
limitation, the Merger and the purchase of Shares, if any, pursuant
to the Option Agreement, the restrictions on business combinations
contained in Section 203 of the Delaware Law. This Agreement has
been duly and validly executed and delivered by the Company and,
assuming it constitutes a valid and binding agreement of the other
parties hereto, constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with its
terms.
Section 3.4 Non-Contravention; Required Filings and
Consents. Except as set forth on Schedule 3.4:
(a) The execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions
contemplated hereby (including the Merger) do not and will not
(i) violate, breach, contravene, terminate or conflict with the
Certificate of Incorporation or By-Laws or the equivalent
organizational documents of any of the Company's subsidiaries; (ii)
assuming that all consents, authorizations and approvals
contemplated by subsection (b) below have been obtained and all
filings described therein have been made, contravene, violate or
conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, injunction, order, writ, award or
decree binding upon or applicable to the Company, any of its
subsidiaries or any of their respective properties; (iii) conflict
with, or result in the breach or termination of any provision of or
constitute a default (with or without the giving of notice or the
lapse of time or both) under, or give rise to any right of
termination, cancellation, or loss of any benefit to which the
Company or any of its subsidiaries is entitled under any provision
of any agreement, commitment, arrangement, trust, lease, contract,
license or other instrument binding upon the Company, any of its
subsidiaries or any of their respective properties, or allow the
acceleration of the performance of, any debt, liability or
obligation of the Company or any of its subsidiaries under any
indenture, mortgage, deed of trust, license, lease, contract,
instrument or other agreement to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective assets or properties is
subject or bound; or (iv) result in the creation or imposition of
any Lien on any asset of the Company or any of its subsidiaries.
(b) The execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions
contemplated hereby (including the Merger) by the Company require
no action by or in respect of, or filing with, any governmental
body, agency, official or authority (either domestic or foreign)
other than (i) the filing of a certificate of merger in accordance
with Delaware Law; (ii) compliance with any applicable requirements
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"); (iii) compliance with any applicable
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and state securities, takeover and Blue Sky
laws; and (iv) such actions or filings which, if not taken or made,
would not prevent the consummation by the Company of the
transactions contemplated by this Agreement.
Section 3.5 SEC Reports.
(a) The Company has filed all required forms,
reports and documents with the SEC since January 1, 1990. The
Company has provided to Parent, in the form filed with the SEC, the
Company's (i) Annual Reports on Form 10-K for each of the last five
fiscal years, (ii) Quarterly Reports on Form 10-Q for the quarters
ended since January 1, 1990, (iii) all proxy statements or
information statements relating to meetings or actions by consent
of the Company's stockholders since January 1, 1990 and (iv) all
other reports or registration statements filed by the Company with
the SEC since January 1, 1990 (collectively, the "SEC Reports").
The SEC Reports, as amended through the date of this Agreement,
were prepared in accordance with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the
Exchange Act. As of their respective dates, none of the SEC
Reports, including, without limitation, any financial statements or
schedules included therein (the "Financial Statements"), contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except as set forth on
Schedule 3.5(a), the audited consolidated financial statements and
unaudited consolidated interim financial statements of the Company
included in the SEC Reports fairly present, in conformity with
generally accepted accounting principles applied on a consistent
basis, the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods
then ended. The Company has heretofore provided complete and
correct copies of each of the SEC Reports to Parent.
(b) Except as disclosed in the Financial Statements
or as set forth on Schedule 3.5(b), the Company and its
subsidiaries have no debts, financial obligations or liabilities of
any nature (whether accrued, absolute, contingent or otherwise),
except for liabilities incurred in the ordinary course of business
since January 23, 1995.
Section 3.6 Absence of Certain Changes. Since January
23, 1995, except as set forth in Schedule 3.6, neither the Company
nor any of its subsidiaries has (i) declared, set aside or paid any
dividend or other distribution (whether in cash, stock, or property
or any combination thereof) in respect of its capital stock, (ii)
entered into, adopted, terminated, amended or increased the
benefits paid or payable under any severance, termination, deferred
or other compensation agreement or arrangement with any director,
officer or employee, other than extensions of preexisting Employee
Options as set forth on Schedule 3.2, (iii) changed any of the
accounting principles, or methods of application of said
principles, or practices used by the Company, (iv) settled any
litigation for amounts in excess of $5,000, (v) granted any
Employee Options (or other options or similar stock appreciation
rights), other than extensions of preexisting Employee Options as
set forth on Schedule 3.2, (vi) granted any bonuses other than as
specifically permitted by this Agreement, (vii) delayed or deferred
payment of accounts payable or other obligations of the Company or
any of its subsidiaries or accelerated the collection of
receivables or other obligations due the Company or any of its
subsidiaries or (viii) entered into any transaction, or conducted
its business or operations, outside of the ordinary course of
business. Since January 23, 1995, no event, fact, condition,
change or effect has occurred that will or could, individually or
in the aggregate, have an adverse effect on the business of the
Company.
Section 3.7 Proxy Statement. The proxy or information
statement or similar materials distributed to the Company's
stockholders in connection with the Merger, including any
amendments or supplements thereto (the "Proxy Statement"), shall
not, at the time filed with the SEC, at the time mailed to the
Company's stockholders, at the time of the Stockholders' Meeting or
at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information provided
by Parent or Acquisition specifically for use in the Proxy
Statement. The Proxy Statement will comply with the requirements
of Section 1.9 hereof and will comply as to form with the
provisions of the Exchange Act and the rules and regulations
thereunder.
Section 3.8 Finder's Fee. No broker, finder, investment
banker or other intermediary is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and
on behalf of the Company.
Section 3.9 Absence of Litigation. Except as disclosed
in Schedule 3.9, as of the date hereof, there is no action, suit,
claim, investigation or proceeding pending or threatened, nor is
there any valid basis for any claim, against the Company or any of
its subsidiaries or any of their respective properties before any
court or arbitrator or any administrative, regulatory or
governmental body, or any agency or official. Except as disclosed
on Schedule 3.9, as of the date hereof, there is no action, suit,
claim, investigation or proceeding pending or threatened, nor is
there any valid basis for any claim, against the Company or any of
its subsidiaries or any of their respective properties before any
court or arbitrator or any administrative, regulatory or
governmental body, or any agency or official which (i) challenges
or seeks to prevent, enjoin, alter or delay the Merger or any of
the other transactions contemplated hereby or (ii) alleges criminal
action or inaction. Except as disclosed on Schedule 3.9, as of the
date hereof, neither the Company nor any of its subsidiaries nor
any of their respective properties is subject to any order, writ,
judgment, injunction, decree, determination or award which would
prevent or delay the consummation of the transactions contemplated
hereby.
Section 3.10 Taxes. Except as set forth in Schedule
3.10, (a) the Company and its subsidiaries have filed, been
included in or sent, all returns, declarations and reports and
information returns and statements required to be filed or sent by
or relating to any of them relating to any Taxes (as defined below)
with respect to any income, properties or operations of the Company
or any of its subsidiaries (collectively, "Returns"); (b) as of the
time of filing, the Returns correctly reflected in all respects the
facts regarding the income, business, assets, operations,
activities and status of the Company and its subsidiaries and any
other information required to be shown therein; (c) the Company and
its subsidiaries have timely paid all Taxes that are due and
payable, whether or not such Taxes were shown on any Return; (d)
the Company and its subsidiaries have made or will make provision
for all Taxes payable for any periods that end before the Effective
Time for which no Returns have yet been filed and for any periods
that begin before the Effective Time and end after the Effective
Time to the extent such Taxes are attributable to the portion of
any such period ending at the Effective Time; (e) the charges,
accruals and reserves for taxes reflected on the books of the
Company and its subsidiaries are adequate to cover the Tax
liabilities accruing or payable by the Company and its subsidiaries
in respect of periods prior to the date hereof; (f) neither the
Company nor any of its subsidiaries is delinquent in the payment of
any Taxes or has requested any extension of time within which to
file or send any Return, which Return has not since been filed or
sent; (g) no deficiency for any Taxes has been proposed, asserted
or assessed against the Company or any of its subsidiaries (or any
member of any affiliated or combined group of which the Company or
any of its subsidiaries is or has been a member for which either
the Company or any of its subsidiaries could be liable); (h)
neither the Company nor any of its subsidiaries has granted any
extension of the limitation period applicable to any Tax claims;
(i) neither the Company nor any of its subsidiaries is subject to
liability for Taxes of any person (other than the Company or its
subsidiaries), including, without limitation, liability arising
from the application of U.S. Treasury Regulation Section 1.1502-6
or any analogous provision of state, local or foreign law; (j)
neither the Company nor any of its subsidiaries is or has been a
party to any tax sharing agreement with any corporation which is
not currently a member of the affiliated group of which the Company
is currently a member; (k) no claim has ever been made by an
authority in a jurisdiction where any of the Company and its
subsidiaries does not file Returns that it is or may be subject to
taxation by that jurisdiction; (l) each of the Company and its
subsidiaries has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other
third party; (m) none of the Company and its subsidiaries has made
any payments, is obligated to make any payments, or is a party to
any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code Sec. 162
(as unreasonable compensation), Code Sec. 162(m) or Code Sec. 280G;
and (n) Schedule 3.10 lists all Returns that currently are the
subject of audit.
"Taxes" means with respect to any person (i) any net
income, gross income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, value-
added, windfall profits, custom duty or other tax, governmental
fee, capital stock, social security (or similar), unemployment,
disability, transfer, registration, alternative or add-on minimum,
estimated or other like assessment or charge of any kind
whatsoever, together with any interest and any penalty, addition to
tax or additional amount imposed by any taxing authority (domestic
or foreign) on such person and (ii) any liability of the Company or
any subsidiary for the payment of any amount of the type described
in clause (i) as a result of being a member of an affiliated or
combined group.
Section 3.11 Employee Benefits.
(a) Schedule 3.11(a) contains a true and complete
list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay,
hospitalization or other medical, dental, life, disability or other
insurance, supplemental unemployment benefits, profit-sharing,
pension, savings or retirement plan, program, agreement or
arrangement, plans within the meaning of section 125 of the Code,
retiree medical plans and any trust fund, plan, program or
arrangement funding any plan (including any voluntary employee
beneficiary association within the meaning of section 501(c)(9) of
the Code), and each other employee benefit plan, program, agreement
or arrangement, sponsored, maintained or contributed to or required
to be contributed to by the Company, any of its subsidiaries or by
any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with the Company or any of its
subsidiaries would be deemed a "single employer" within the meaning
of section 4001 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), for the benefit of any employee or
terminated employee of the Company, any of its subsidiaries or any
ERISA Affiliate (the "Plans"). Schedule 3.11(a) identifies each of
the Plans that is an "employee benefit plan," as that term is
defined in section 3(3) of ERISA (the "ERISA Plans").
(b) With respect to each Plan, the Company has
heretofore delivered to Parent true and complete copies of each of
the following documents (to the extent applicable):
(i) a copy thereof;
(ii) a copy of the three most recent
annual reports and actuarial reports, if required under
ERISA, and the most recent report prepared with respect
thereto in accordance with Statement of Financial
Accounting Standards No. 87, Employer's Accounting for
Pensions;
(iii) a copy of the most recent actuarial
report prepared with respect thereto in accordance with
Statement of Financial Accounting Standards No. 106,
Employer's Accounting for Non-Pension Postretirement
Benefits;
(iv) a copy of the most recent Summary
Plan Description, summaries of all modifications,
administrative forms and other documents that constitute
a part of or are incident to the administration of the
Plans;
(v) copies of any insurance contracts and
administrative service contracts;
(vi) if the Plan is funded through a
trust or any third party funding vehicle, a copy of the
trust or other funding agreement and the latest financial
statements thereof;
(vii) the most recent determination
letter received from the Internal Revenue Service with
respect to each Plan intended to qualify under section
401(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and any pending determination letter
request; and
(viii) Schedule 3.11(a) also shall
contain a written description of all communications
regarding any Plan to employees or former employees who
may be affected by this transaction.
(c) Neither the Company, nor any subsidiary, nor
any ERISA Affiliate or predecessor maintains or has ever maintained
a plan which is or was subject to (i) the minimum funding
requirements of ERISA or the Code or (ii) Title IV of ERISA.
(d) Neither the Company, nor any of its
subsidiaries, nor any ERISA Affiliate, nor any ERISA Plan, nor any
trust created thereunder, nor any trustee or administrator thereof
has engaged in a transaction in connection with which the Company,
any of its subsidiaries or any ERISA Affiliate, any ERISA Plan, any
such trust, or any trustee or administrator thereof, or any party
dealing with any ERISA Plan or any such trust could be in violation
of sections 404, 405, or 406 of ERISA or could be subject to either
a civil penalty assessed pursuant to section 409, 502(i) or 502(l)
of ERISA or a Tax imposed pursuant to section 4975 or 4976 of the
Code.
(e) No ERISA Plan is a "multiemployer pension
plan," as defined in section 3(37) of ERISA, nor is any ERISA Plan
a plan described in section 4063(a) of ERISA. Neither the Company,
nor any subsidiary, nor any ERISA Affiliate or predecessor has ever
maintained, contributed to or been required to contribute to a
"multiemployer pension plan" as defined in section 3(37) of ERISA.
(f) Each Plan has been operated and administered in
accordance with its terms and applicable law, including but not
limited to ERISA and the Code.
(g) Each ERISA Plan intended to be qualified within
the meaning of section 401(a) of the Code and each related trust
intended to be qualified within the meaning of section 501(a) of
the Code has been established and operated so as to be qualified
and tax exempt under such sections. Nothing has occurred or, in
connection with the transactions contemplated by this Agreement,
will occur, which would adversely affect the qualified status of
such plans and trusts. In the event the Company (or any affiliated
entity) sponsors or maintains a voluntary employee beneficiary
association with the meaning of section 501(c)(9) of the Code, all
necessary governmental approvals for obtaining tax exempt status
have been obtained, and such determination letter is dated on or
after January 1, 1985.
(h) No amounts payable under the Plans as a result
of or in connection with the consummation of the transactions
contemplated by this Agreement will fail to be deductible for
federal income tax purposes by application of section 162(m),
section 280G or section 404 of the Code.
(i) Except as set forth on Schedule 3.11(i), no
Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current
or former employees of the Company or any ERISA Affiliate beyond
their retirement or other termination of service (other than (i)
coverage mandated by applicable law or (ii) death benefits or
retirement benefits under any "employee pension plan," as that term
is defined in section 3(2) of ERISA).
(j) Except as provided in Schedule 3.11(j), the
consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or officer of
the Company or any ERISA Affiliate to severance pay, unemployment
compensation or any other payment, except as expressly provided in
this Agreement or (ii) accelerate the time of payment or vesting,
or increase the amount of compensation due any such employee or
officer.
(k) There are no pending or threatened claims by or
on behalf of any Plan, by any employee or beneficiary covered under
any such Plan, or otherwise involving any such Plan (other than
routine claims for benefits).
(l) The Company has reserved the right to amend or
terminate any Plan.
(m) Neither the Company nor any ERISA Affiliate has
any announced plan or legally binding commitment to create any
additional Plans which are intended to cover employees or former
employees of the Company or any ERISA Affiliate or to amend or
modify any existing Plan which covers or has covered employees or
former employees of the Company or any ERISA Affiliate.
(n) No event has occurred in connection with which
the Company or any ERISA Affiliate or any Plan, directly or
indirectly, could be subject to any liability (i) under any
statute, regulation or governmental order relating to any Plans or
(ii) pursuant to any obligation of the Company or any ERISA
Affiliate to indemnify any person against liability incurred under
any such statute, regulation or order as they relate to the Plans.
Section 3.12 Compliance. Except as set forth on
Schedule 3.12, neither the Company nor any of its subsidiaries is
in violation of, or has violated, or has received any notification
of any asserted present or past failure to comply with, any
applicable provisions of (i) any laws, rules, statutes, orders,
ordinances or regulations or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise,
or other instrument or obligations to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are bound
or affected.
Section 3.13 Environmental Matters.
(a) Except as set forth on Schedule 3.13, the
Company and its subsidiaries are in compliance with all applicable
Environmental Laws (which compliance includes, but is not limited
to, the possession by the Company and its subsidiaries of all
permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and
conditions thereof).
Except as set forth on Schedule 3.13, neither the
Company nor any of its subsidiaries has received any communication
(written or oral), whether from a governmental authority, private
party, citizens group, employee or otherwise, that alleges that the
Company is not in such compliance, and there are no past or present
actions, activities, circumstances, conditions, events or incidents
that would prevent or interfere with such compliance in the future.
(b) Except as set forth on Schedule 3.13, there is
no Environmental Claim pending or threatened against the Company or
any of its subsidiaries or against any person or entity whose
liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by
operation of law.
(c) Except as set forth on Schedule 3.13, there are
no past or present actions, activities, circumstances, conditions,
events or incidents (including, without limitation, the release,
emission, discharge, presence or disposal of any Hazardous
Material) which could form the basis of any Environmental Claim
against the Company or any of its subsidiaries or against any
person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries has or may have retained or
assumed either contractually or by operation of law.
(d) Except as set forth on Schedule 3.13, neither
the Company nor any of its subsidiaries has, and no other person
has, Released, placed, stored, buried or dumped Hazardous Materials
on, beneath or adjacent to any property owned, operated or leased
or formerly owned, operated or leased by the Company or any of its
subsidiaries, and neither the Company nor any of its subsidiaries
has received notice that it is a potentially responsible party for
the Cleanup of any property, whether or not owned or operated by
the Company or any of its subsidiaries.
(e) The Company and its subsidiaries have delivered
to Parent true, complete and correct copies and results of any
reports, studies, analyses, tests or monitoring possessed or
initiated by the Company or any of its subsidiaries pertaining to
Hazardous Materials in, on, beneath or adjacent to the property
owned or leased by the Company or any of its subsidiaries or
regarding the Company's and its subsidiaries' compliance with
applicable Environmental Laws.
(f) Except as set forth on Schedule 3.13, no
transfers of permits or other governmental authorizations under
Environmental Laws, and no additional permits or other governmental
authorizations under Environmental Laws, will be required to permit
the Company and its subsidiaries or the Surviving Corporation and
its subsidiaries, as the case may be, to be in full compliance with
all applicable Environmental Laws for the period immediately
following the transactions contemplated hereby, as conducted by the
Company and its subsidiaries immediately prior to the date hereof.
To the extent that such transfers or additional permits and other
governmental authorizations are required, the Company and its
subsidiaries agree to use reasonable best efforts to effect such
transfers and obtain such permits and other governmental
authorizations at the time such transfers, permits and other
governmental authorizations are required by law.
(g) The following terms as used in this Section
shall have the following meanings:
"Cleanup" means all actions required by governmental
entities or Environmental Laws to: (1) cleanup, remove, treat or
remediate Hazardous Materials in the indoor or outdoor environment;
(2) prevent the Release of Hazardous Materials so that they do not
migrate, endanger or threaten to endanger public health or welfare
of the indoor or outdoor environment; (3) perform preremedial
studies and investigations and postremedial monitoring and care; or
(4) respond to any government requests for information or documents
in any way relating to cleanup, removal, treatment or remediation
or potential cleanup, removal, treatment or remediation of
Hazardous Materials in the indoor or outdoor environment.
"Environmental Claim" means any claim, action, cause
of action, investigation or notice (written or oral) by any person
or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, Cleanup
costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of,
based on or resulting from (a) the presence, or Release into the
indoor or outdoor environment, of any Hazardous Materials at any
location, whether or not owned or operated by the Company or any of
its subsidiaries or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means all federal, state, local
and foreign laws, regulations and ordinances relating to pollution
or protection of human health or the environment, including without
limitation, laws relating to Releases or threatened Releases of
Hazardous Materials into the indoor or outdoor environment
(including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
Release, disposal, transport or handling of Hazardous Materials and
all laws, regulations and ordinances with regard to recordkeeping,
notification, disclosure and reporting requirements respecting
Hazardous Materials.
"Hazardous Materials" means all substances defined
as Hazardous Substances, Oils, Pollutants or Contaminants in the
National Oil and Hazardous Substances Pollution Contingency Plan,
40 C.F.R. Secion 300.5, or defined as such by, or regulated as such
under, any Environmental Law.
"Release" means any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or
outdoor environment (including, without limitation, ambient air,
surface water, groundwater and surface or subsurface strata) or
into or out of any property, including the movement of Hazardous
Materials through or in the air, soil, surface water, groundwater
or property.
Section 3.14 Intellectual Property.
(a) Schedule 3.14 contains an accurate and complete
description of all domestic and foreign patents, patent
applications, patent licenses, shop rights, trademarks, trademark
registrations and applications therefore, service marks, service
mark registrations and applications therefor, logos, trade names,
assumed names, copyright registrations and applications therefor,
which are used by the Company, any of its subsidiaries or which are
presently owned or held by the Company or any of its subsidiaries
or under which the Company or any of its subsidiaries owns or holds
any license, or in which the Company or any of its subsidiaries
owns or holds any direct or indirect interest, other than those
rights granted or licensed by Parent (collectively, the
"Intellectual Property Rights"). Schedule 3.14 further sets forth:
(i) the nature of such Intellectual Property Rights; (ii) the owner
of such Intellectual Property Right; (iii) the jurisdiction by or
in which such Intellectual Property Right has been issued or
registered or in which an application for such issuance or
registration has been filed, including the respective registration
or application numbers; and (iv) licenses, sublicenses and other
agreements as to which the Company or any of its subsidiaries is a
party and pursuant to which the Company, any of its subsidiaries or
any other person or entity is authorized to use such Intellectual
Property Right, process, design, invention, know-how, trade secret
or other proprietary information (collectively, the "Company
Intellectual Property").
(b) Except as set forth on Schedule 3.14, the
Company or any of its subsidiaries does not infringe or unlawfully
or wrongly use any patent, trademark, tradename, service mark,
copyright, trade secret, confidential or proprietary right or any
similar rights owned or claimed by another.
(c) Except as set forth in Schedule 3.14, the
Company or any of its subsidiaries does not know of any use that
has been or is now being made by another of the Company
Intellectual Property or that would infringe such rights.
(d) Except as set forth on Schedule 3.14, the
Company or any of its subsidiaries is the sole and exclusive owner
of or possesses valid licenses and rights to use all Company
Intellectual Property necessary to conduct the businesses of the
Company and any of its subsidiaries as they are currently being
conducted.
(e) Except as set forth on Schedule 3.14, neither
the Company nor any of its subsidiaries has sold, licensed or
otherwise disposed of or transferred or granted any interest in the
Company Intellectual Property. The Company and each of its
subsidiaries have taken all reasonable measures, which may or may
not have included the institution of litigation, to maintain and
protect the Company Intellectual Property and all such rights
remain valid and enforceable.
(f) Except as set forth on Schedule 3.14, no claims
have been asserted by any person to the use or validity of any of
the Company Intellectual Property or challenging or questioning the
validity or effectiveness of any license or agreement related
thereto, and there is no valid basis for any such claim. None of
the Company Intellectual Property is subject to any outstanding
order, judgment, decree, stipulation or agreement restricting the
use thereof by the Company or any of its subsidiaries or
restricting the licensing thereof by the Company or any of its
subsidiaries to any other person or entity. Except as set forth on
Schedule 3.14, the Company and any of its subsidiaries have not
entered into any agreement to indemnify any other person or entity
against any charge of infringement of any Company Intellectual
Property.
Section 3.15 Insurance.
(a) Schedule 3.15(a) sets forth a complete and
correct list of all insurance policies (including a brief summary
of the nature and terms thereof and any amounts paid or payable to
the Company or any of its subsidiaries thereunder, their respective
expiration dates, deductibles and stop-loss thresholds) providing
coverage in favor of the Company or any of its subsidiaries or any
of their respective properties. Each such policy is valid, in full
force and effect and will remain in full force at least through the
respective dates set forth in Schedule 3.15(a) and effect without
the payment of additional premiums other than additional premiums
in the ordinary course prior to the Effective Time, no notice of
termination, cancellation or reservation of rights has been
received with respect to any such policy, there is no default with
respect to any provision contained in any such policy, and there
has not been any failure to give any notice or present any claim
under any such policy in a timely fashion or in the manner or
detail required by any such policy.
(b) The Company and its subsidiaries have insurance
in an amount and of a type normal in the ordinary course for
businesses similar to the Company and its subsidiaries. Other than
as set forth on Schedule 3.15(b), neither the Company nor any of
its subsidiaries has received notice of any proposed increase in
premiums or deductible amounts, decrease in coverage or termination
of any policy.
Section 3.16 Labor Matters. Except as set forth in
Schedule 3.16, neither the Company nor any of its subsidiaries is
a party to any collective bargaining or other labor union contract
or labor union agreement applicable to persons employed by the
Company or any of its subsidiaries, no collective bargaining
agreement is being negotiated by the Company or any of its
subsidiaries and no activities or proceedings of any labor union
are being held to organize any of their respective employees.
There is no labor dispute, strike or work stoppage against the
Company or any of its subsidiaries pending or threatened which may
interfere with the respective business activities of the Company or
any of its subsidiaries. The Company and its subsidiaries are in
compliance with all federal, state and local laws, including
without limitation the rules and regulations of the Department of
Labor and the Office of Federal Contract Compliance Programs,
respecting employment and employment practices, terms and
conditions of employment and wages and hours and not engaged in any
unfair labor practice. There is no unfair labor practice complaint
against either the Company or any of its subsidiaries pending or
threatened before the National Labor Relations Board. Except as
set forth on Schedule 3.16, no charges with respect to or relating
to the Company or any of its subsidiaries are threatened or pending
before the Equal Employment Opportunity Commission or any state,
local or foreign agency responsible for the enforcement of labor or
employment laws or for the conduct of an investigation of or
relating to the Company or any of its subsidiaries and no such
investigation is in process.
Section 3.17 Real Property. Except for the Company's
Wichita office, which will be sold prior to Closing, the Company
and its subsidiaries do not own any real property in fee simple.
Schedule 3.17(a) sets forth a list of all real property leased by
the Company or its subsidiaries (collectively, the "Properties").
The Company and its subsidiaries hold good and valid leasehold
title and estate in the Properties, in each case free and clear of
all mortgages, deeds of trust, pledges, liens, security interests,
claims, mechanic's or materialmen's liens, charges, easements,
restrictive covenants, rights-of-way and other encumbrances. There
are no eminent domain proceedings pending or threatened against any
of the Properties.
The Company hereby represents that:
(a) All buildings, structures and equipment located
on the Properties are structurally sound and are in good operating
condition and repair (ordinary wear and tear excepted), and are
usable in the ordinary course of business;
(b) Except as set forth in existing title insurance
policies and reports delivered to Parent pursuant to Section 3.15
hereto, the Company and its subsidiaries have not received written
notice (i) of any dispute from any contiguous boundary owners
concerning contiguous boundary lines, (ii) that any of the
Properties (or the buildings, structures or improvements thereon),
or the Company's or any of its subsidiaries' operations, violate
the zoning or planning laws, ordinances, rules or regulations of
the city, county or state in which they are located, or any
building regulations or codes of such city, county or state, or
land use laws or regulations applicable to the Properties, and that
no such violations exist or (iii) of any claims of others to rights
over, under, across or through any of the Properties by virtue of
use or prescription;
(c) All permits, approvals, authorizations or
licenses required or necessary for the use of any of the Properties
have been obtained and are in full force and effect;
(d) Neither the Company nor any of its subsidiaries
has sublet, and is not subletting, all or any part of any of the
Properties, and has not assigned all or any part of its interest in
any of the leases;
(e) Schedule 3.17(e) sets forth a list of all
service and maintenance contracts affecting the Properties and all
utility and management contracts affecting the Properties to which
the Company or any of its subsidiaries is a party or to which said
properties are subject and which, in any individual contract,
obligate the Company to pay more than $12,000 in any year. All
such contracts are currently in full force and effect, and there is
no default, or action or omission which with the giving of notice
or passage of time or both would constitute a default, thereunder.
Copies of all such contracts have been delivered to Parent. In
addition, the Company has previously delivered to Parent copies of
the most recently issued bills for real estate tax assessments
against any or all of the Properties;
(f) All the Properties are free and clear of any
agreements to sublease (or to grant an assignment of lease),
options to sublease (or to grant an assignment of lease) or rights
of first refusal relating thereto. All real property with respect
to which the Company or any of its subsidiaries has an agreement to
purchase, lease or sublease, option to purchase, lease, or sublease
or right of first refusal relating thereto is set forth on Schedule
3.17(f);
(g) All the Properties are currently zoned in the
zoning category which permits operation of said properties as now
used, operated and maintained. Neither the Company nor any of its
subsidiaries has requested, applied for, or given consent to, and
there are no pending, zoning variances or changes with respect to
any of the Properties. The consummation of the transactions
contemplated herein will not result in a violation of any
applicable zoning ordinance or the termination of any applicable
zoning variance now existing, and if the improvements on the
Properties are damaged or destroyed subsequent to the Effective
Time, the repair or replacement of the same by Parent to the
condition existing immediately prior to the Effective Time will not
violate applicable zoning ordinances (assuming there has been no
change in such zoning ordinances);
(h) All buildings, structures or improvements owned
and/or leased by the Company or any of its subsidiaries on any of
the Properties are located entirely within the property boundary
lines of such properties and do not encroach onto adjoining lands,
and there are no encroachments of buildings, structures or
improvements from adjoining lands onto such properties;
(i) The Properties (i) currently have access to, at
or within their property boundary lines to all gas, water,
electricity, storm sewer, sanitary sewer, telephone and all other
utilities necessary or beneficial to the current operation of the
Properties, and all of such utilities are adequate and sufficient
for the current operation of such properties and (ii) are
contiguous to and have vehicular and pedestrian access to and from
physically open and publicly dedicated public streets;
(j) Except as set forth on Schedule 3.17(j), and
except for repair and maintenance in the ordinary course of
business, no construction, improvements, or expansion is currently
on-going at any of the Properties;
(k) The Company or its subsidiaries hold valid
leasehold estate pursuant to each lease by which real properties
are leased, as shown on Schedule 3.17(a), and enjoys peaceful and
undisturbed possession thereunder. The Company has previously
delivered to Parent complete and accurate copies of all such
scheduled leases. All such leases shall continue in full force and
effect (without default) after the Effective Time and the
consummation of the transactions contemplated by this Agreement
without the consent, approval or act of any other party;
(l) Neither the Company nor any of its subsidiaries
has received written notice of any pending, proposed or threatened
proceedings or governmental or quasi-governmental actions to
condemn or take by the power of eminent domain (or to purchase in
lieu thereof), or otherwise to take or restrict the right to use or
occupy, any of the Properties; and
(m) Neither the Company nor any of its subsidiaries
has received notification that it is in violation of any applicable
antipollution, health or other law, ordinance or regulation in
respect of its structures or their operation, which violation
remains uncured, and no such violation exists.
Section 3.18 Contracts and Commitments. Schedule 3.18
contains a true and complete list of (i) all agreements and other
commitments for the purchase of any materials or supplies; (ii) all
employment and consulting agreements; (iii) all license agreements
with third parties; (iv) other than rental agreements with
customers, all leases, whether for real property or personal
property; (v) all loan agreements, mortgages or indentures; (vi)
all agreements, arrangements or commitments with any director,
officer, employee, stockholder or beneficial owner of any of the
outstanding Common Stock or Preferred Stock of the Company or any
of their affiliates; and (vii) all other arrangements, commitments
and understandings (written or oral) to which the Company or any of
its subsidiaries is a party or by which it or its properties are
bound that require (or that the Company has reason to believe it
will require) payment by any party to the agreement, commitment or
understanding of, or the performance by any party to the agreement,
commitment or understanding of services having a value of, more
than $25,000 in the aggregate. True and complete copies of the
Company's and all of its subsidiaries' agreements, commitments and
understandings, or in the case of unwritten agreements, commitments
and understandings, summaries thereof, referred to in Schedule 3.18
(collectively, the "Commitments") have been delivered to Parent or
Acquisition.
Except as set forth in Schedule 3.18, (i) all of the
Commitments are valid, binding and enforceable and in full force
and effect in accordance with their respective terms and there is
no existing default that would permit the other party to a
Commitment to terminate the Commitment, not to perform its
obligations under the Commitment or accelerate the payment of
money, and no condition exists that, with notice or lapse of time
or both, would constitute a default on any Commitment, by the
Company or any of its subsidiaries or any other party under any
Commitment; (ii) all of the respective parties' covenants and
obligations under all Commitments accrued to date have been
performed; (iii) no party has made or asserted or has any defense,
setoff or counterclaim under any Commitment; (iv) neither the
Company nor any of its subsidiaries has notice that any party under
any Commitment has exercised any option granted to it to cancel or
terminate its Commitment, to shorten the term of its Commitment or
to renew or extend the term (other than automatic renewals) of the
Commitment and the Company has not received any notice of
termination of any Commitment; (v) neither the Company nor any of
its subsidiaries has received any notice (written or otherwise) of
cancellation or termination of, or any expression or indication of
an intention or desire to cancel or terminate, any of the
Commitments; and (vi) no Commitment is the subject of, or has been
threatened to be made the subject of, any arbitration, suit or
other legal proceeding. Except as noted on Schedule 3.18, every
contract listed on such schedule may be assigned or otherwise
transferred pursuant to this Agreement or the transactions
contemplated hereby without the consent of any third party.
Section 3.19 Employees. Except as set forth on Schedule
3.19, the Company (i) has not been informed of any current plans of
any home office or multi-unit management personnel of the Company
to terminate their employment with the Company; (ii) agrees that
employees of the Company have no greater rights upon termination as
a result of this Agreement and the transactions contemplated herein
and (iii) agrees to use its reasonable best efforts to ensure that
this Agreement and the transactions contemplated herein will not
cause the termination of any employees of the Company.
Section 3.20 Licenses and Permits. The Company and its
subsidiaries have obtained all licenses, product and establishment
registrations, franchises, permits, easements, certificates,
consents, rights and privileges necessary or appropriate to the
conduct of the Company's and its subsidiaries' businesses
(collectively, the "Licenses," all of which are set forth on
Schedule 3.20, which shall be delivered by the Company as a
supplemental Schedule at least two (2) business days prior to
Closing). The Licenses are valid and in full force at the
Effective Time and will remain valid and in full force from and
after the Effective Time.
Section 3.21 Products Liability. Except as set forth on
the Company's form customer agreements listed on Schedule 3.21,
neither the Company nor any of its subsidiaries has given or made
any warranties to third parties with respect to any products rented
or sold by it except for the warranties imposed by the provisions
of the applicable commercial codes. No state of facts or the
occurrence of any event exists to form the basis of any present
claim against the Company or any of its subsidiaries for product
liability on account of any express or implied warranty which is
not fully covered by insurance.
Section 3.22 Inventory; Motor Vehicles; Accounts
Receivable; Assets Necessary to Business.
(a) Inventory. Each of the Company and its
subsidiaries has inventory of a quantity and quality sufficient to
conduct, and reasonably related to the needs of, its business.
Except for inventory in repair which shall not exceed 1,700 units
of inventory, all inventory of the Company and each of its
subsidiaries is in good working order and rentable condition.
(b) Motor Vehicles. All motor vehicles of the
Company and each of its subsidiaries are listed on Schedule
3.22(b). The Company expressly warrants (i) that such vehicles,
subject to ordinary wear and tear, are mechanically sound and are
in good working order and condition to perform in the manner needed
for the operation of the Company's business; (ii) are in good
cosmetic condition, so as to convey the high quality image of the
Company's business; (iii) are in compliance with all applicable
statutes, ordinances and regulations, including, without
limitation, those related to safety; and (iv) are owned by the
Company or its subsidiaries free and clear of all liens, security
interests, encumbrances or other restrictions on title.
(c) Accounts Receivable. All accounts and notes
receivable of the Company or any of its subsidiaries, whether
reflected in the balance sheet(s) or otherwise, represent sales
actually made in the ordinary course of business, are assets of the
Company or any of its subsidiaries and are current and fully
collectible net of any reserves shown on the balance sheet(s) which
reserves are adequate and were calculated consistent with past
practice and experience). Except as set forth on Schedule 3.22(c),
each of the accounts and notes receivable either has been collected
in full or will be collected in full, without any setoff, within 30
days after the day on which it became due and payable.
(d) Assets Necessary to Business. The Company or
its subsidiaries have good, valid, indefeasible and marketable
title to all properties and assets, real, personal and mixed,
tangible and intangible, and are parties to all leases, licenses
and other agreements, currently being used or that are reasonably
necessary to permit it to carry on their businesses and operations
as presently conducted, except for the Company's Wichita office and
the furniture and equipment therein, which may be sold prior to
Closing.
Section 3.23 Bank Accounts. Schedule 3.23 sets forth
the names and locations of all banks in which the Company or its
subsidiaries have an account or safe deposit box, the amounts
therein or the contents thereof, and the names of all persons
authorized to draw thereon or have access thereto.
Section 3.24 Seller's Documentation. All documents
supplied by the Company and its subsidiaries to Parent or
Acquisition for the Company's and its subsidiaries' businesses
including customer agreements, payment cards, ledgers and similar
records, and other information related to the Company's and its
subsidiaries' businesses are true, accurate and complete.
Section 3.25 Disclosure. Schedule 3.25 lists any
information, of which management of the Company is aware, that is
(a) material to the business of the Company or to the transactions
contemplated by this Agreement, and (b) not already disclosed in
the Schedules hereto or in any representation or warranty to Parent
or Acquisition contained in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
Each of Parent and Acquisition represents and warrants to
the Company as follows:
Section 4.1 Organization. Each of Parent and
Acquisition is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted.
Section 4.2 Authority Relative to this Agreement. Each
of Parent and Acquisition has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the
board of directors of Acquisition and Parent, and no other
corporate proceedings on the part of Parent or Acquisition are
necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and
validly executed and delivered by each of Parent and Acquisition
and, assuming it constitutes a valid and binding agreement of the
other parties hereto, constitutes a legal, valid and binding
agreement of each of Parent and Acquisition, enforceable against
each of Parent and Acquisition in accordance with its terms.
Section 4.3 Non-Contravention; Required Filings and
Consents.
(a) The execution, delivery and performance by
Parent and Acquisition of this Agreement and the consummation of
the transactions contemplated hereby (including the Merger) do not
and will not (i) contravene or conflict with the Certificate of
Incorporation or By-Laws of Parent or Acquisition; (ii) assuming
that all consents, authorizations and approvals contemplated by
subsection (b) below have been obtained and all filings described
therein have been made, contravene or conflict with or constitute
a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Parent or
Acquisition or any of their respective properties; (iii) conflict
with, or result in the breach or termination of any provision of or
constitute a default (with or without the giving of notice or the
lapse of time or both) under, or give rise to any right of
termination, cancellation, or loss of any benefit to which Parent
or Acquisition is entitled under any provision of any agreement,
contract, license or other instrument binding upon Parent,
Acquisition or any of their respective properties, or allow the
acceleration of the performance of, any obligation of Parent or
Acquisition under any indenture, mortgage, deed of trust, lease,
license, contract, instrument or other agreement to which Parent or
Acquisition is a party or by which Parent or Acquisition or any of
their respective assets or properties is subject or bound; or (iv)
result in the creation or imposition of any Lien on any asset of
Parent or Acquisition.
(b) The execution, delivery and performance by
Parent and Acquisition of this Agreement and the consummation of
the transactions contemplated hereby (including the Merger) by
Parent and Acquisition require no action by or in respect of, or
filing with, any governmental body, agency, official or authority
(either domestic or foreign) other than (i) the filing of a
certificate of merger in accordance with Delaware Law; (ii)
compliance with any applicable requirements of the HSR Act; (iii)
compliance with any applicable requirements of the Exchange Act and
state securities, takeover and Blue Sky laws; and (iv) such actions
or filings which, if not taken or made, would not, individually or
in the aggregate, prevent the consummation of the Merger.
Section 4.4 Proxy Statement. None of the information
provided by Parent or Acquisition specifically for use in the
Proxy Statement shall, at the time filed with the SEC, at the time
mailed to the Company's stockholders, at the time of the
Stockholders' Meeting or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
are made, not misleading.
Section 4.5 Availability of Funds. Parent and
Acquisition will have available at the Closing sufficient funds to
enable them to consummate the transactions contemplated by this
Agreement and the Option Agreement.
Section 4.6 Absence of Litigation. As of the date
hereof, there is no action, suit, claim, investigation or
proceeding pending or threatened against, Parent or Acquisition or
any of their respective properties before any court or arbitrator
or any administrative, regulatory or governmental body, or any
agency or official which challenges or seeks to prevent, enjoin,
alter or delay the Merger or any of the date hereof, neither
Parent nor Acquisition nor any of their respective properties is
subject to any order, writ, judgment, injunction, decree,
determination or award which would prevent or delay the
consummation of the transactions contemplated hereby.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business of the Company. Except
as otherwise expressly provided in this Agreement, during the
period from the date hereof to the Effective Time, the Company and
its subsidiaries will each conduct its operations according to its
ordinary course of business consistent with past practice, and the
Company and its subsidiaries will each use its reasonable best
efforts to preserve intact its business organization, to maintain
the quantity and quality of its customer rental agreements, to keep
available the services of its officers and employees and to
maintain existing relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having
business relationships with it. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this
Agreement, as required by law or as set forth in Schedule 5.1,
prior to the Effective Time, neither the Company nor any of its
subsidiaries will, without the prior written consent of Parent:
(a) amend the Certificate of Incorporation or By-
Laws or equivalent organizational documents;
(b) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any
class or any other securities or equity equivalents (including,
without limitation, stock appreciation rights), except for Employee
Option payments contemplated by Section 1.8 hereof with respect to
Company Plans as in effect as of June 1, 1995, or upon any
redemption and conversion of Preferred Stock in accordance with the
terms of this Agreement, or amend any of the terms of any such
securities or agreements outstanding as of the date hereof, other
than the extension and acceleration of vesting of the Employee
Options;
(c) split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other
distribution (whether in cash, stock, or property or any
combination thereof) in respect of its capital stock (provided,
that the Company may pay its previously declared regular quarterly
Preferred Stock dividend on July 31, 1995, in an aggregate amount
not to exceed $42,000, subject to the provisions of Section
6.3(d)), or, except for the redemption of the Preferred Stock
pursuant hereto, redeem, repurchase or otherwise acquire any of its
securities or any securities of its subsidiaries, except for cash
settlement of the Employee Options in accordance with the terms of
Section 1.8 hereof;
(d) (i) incur any indebtedness for borrowed money
or issue any debt securities or assume, guarantee or endorse the
obligations of any other person; (ii) make any loans, advances or
capital contributions to, or investments in, any other person;
(iii) pledge or otherwise encumber shares of capital stock of the
Company or any of its subsidiaries; or (iv) mortgage or pledge any
of its assets, tangible or intangible, or create or suffer to exist
any Lien thereupon;
(e) enter into, adopt, amend or terminate (other
than extensions and acceleration of vesting of existing Employee
Options in accordance with Section 1.8 hereof) any bonus, profit
sharing, 401(k) plan, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance
unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund or other arrangement
for the benefit or welfare of any director, officer or employee, or
increase in any manner the compensation or benefits of any
director, officer or employee (other than normal salary increases
in the ordinary course of business for non-executive employees) or
pay any benefit not required by any plan or arrangement as in
effect as of the date hereof or accelerate the terms for payment of
any benefit if such acceleration is not required by any plan or
arrangement as in effect as of the date hereof; provided, however,
that the Company may pay discretionary bonus amounts to its
employees prior to the Effective Time in an aggregate amount not
exceeding $1,400,000 subject to the provisions of Section 6.3(d)
hereof; provided, in addition, that the Company may pay accrued
bonus amounts as such accrued bonuses become due and payable in
accordance with the terms of any plan or arrangement as in effect
as of the date hereof; provided, that such bonus amounts may be
paid only when due and may not be accelerated;
(f) acquire, sell, lease or dispose of any assets
outside the ordinary course of business or enter into any contract,
agreement, commitment or transaction outside the ordinary course of
business consistent with past practice; provided, however, that the
Company will sell the land, building and equipment used by the
Company as its home office in exchange for consideration equal to
an appraisal amount of not less than $500,000, subject to the
provisions of Section 6.3(d);
(g) change any of the accounting principles, or
methods of application of said principles, or practices used by it;
(h) except as set forth on Schedule 5.1, (i)
acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization
or division thereof; (ii) authorize any new capital expenditure or
expenditures which, individually, is in excess of $25,000; (iii)
settle any litigations for amounts in excess of $5,000; or (iv)
enter into or amend any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(i) make any Tax election or settle or compromise
any Tax liability, other than in the ordinary course of business;
(j) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction of liabilities in the ordinary course of
business consistent with past practice and in accordance with the
terms of such liabilities or obligations;
(k) delay or defer payment of accounts payable or
other obligations of the Company or any of its subsidiaries or
accelerate collection of receivables or other obligations due the
Company or any of its subsidiaries;
(l) take any action outside of the ordinary course
of business (except in accordance with the provisions of Sections
5.1(c), (e) and (f) hereof), including but not limited to making
any unauthorized distributions; or
(m) take, or agree in writing or otherwise to take,
any of the actions described above in Section 5.1.
Section 5.2 Boards of Directors and Committees; Section
14(f).
(a) Promptly following the purchase by Acquisition,
Parent or their affiliates of Shares pursuant to the Option
Agreement, Acquisition shall be entitled to designate a majority of
the Company's Board, and the Company shall, upon request by
Acquisition, promptly either increase the size of the Board or use
its reasonable best efforts to secure the resignation of such
number of directors as is necessary to enable Acquisition's
designees to be elected to the Board and shall cause Acquisition's
designees to be so elected. Promptly upon request by Acquisition,
the Company will use its reasonable best efforts to cause persons
designated by Acquisition to constitute the same percentage as is
on the Board of (i) each committee of the Board, (ii) each board of
directors of each subsidiary of the Company designated by
Acquisition and (iii) each committee of each such board.
(b) The Company's obligations to appoint designees
to the Board shall be subject to Section 14(f) of the Exchange Act,
and Rule 14f-1 promulgated thereunder. As promptly as practicable
following the date of this Agreement, the Company shall take all
actions required pursuant to Section 14(f) and Rule 14f-1 in order
to fulfill its obligations under this Section 5.2 and shall file
with the SEC and distribute to its stockholders such information as
is required under Section 14(f) and Rule 14f-1. Parent or
Acquisition will supply to the Company in writing and be solely
responsible for any information with respect to either of them and
their nominees, officers, directors and affiliates required by
Section 14(f) and Rule 14f-1.
(c) Following the election or appointment of
Acquisition's designees pursuant to this Section 5.2 and prior to
the Effective Time, any amendment of this Agreement or the
Certificate of Incorporation or By-Laws, any termination of this
Agreement by the Company, any extension by the Company of the time
for the performance of any of the obligations or other acts of
Parent or Acquisition or any waiver of any of the Company's rights
hereunder, will require the concurrence of a majority of the
directors of the Company then in office who are not designees of
Acquisition.
Section 5.3 Proxy Statement.
(a) The Company shall, as promptly as practicable
following the date hereof, prepare and file the Proxy Statement
with the SEC under the Exchange Act. As soon as practicable
following completion of review of the Proxy Statement by the SEC,
the Company shall mail the Proxy Statement to its stockholders who
are entitled to vote at the Stockholders' Meeting. Subject to the
Board's fiduciary duties, the Proxy Statement shall contain the
recommendation of the Board that the stockholders of the Company
approve and adopt this Agreement and the Merger.
(b) The Company, Parent and Acquisition shall
cooperate with one another in the preparation and filing of the
Proxy Statement and shall use their reasonable best efforts to
promptly obtain and furnish the information required to be included
in the Proxy Statement and to respond promptly to any comments or
requests made by the SEC with respect to the Proxy Statement. Each
party hereto shall promptly notify the other parties of the receipt
of comments of, or any requests by, the SEC with respect to the
Proxy Statement, and shall promptly supply the other parties with
copies of all correspondence between such party (or its
representatives) and the SEC (or its staff) relating thereto. The
Company, Parent and Acquisition each agrees to correct any
information provided by it for use in the Proxy Statement which
shall have become, or is, false or misleading.
Section 5.4 Access to Information. (a) Subject to
applicable law and the agreements set forth in Section 5.4(b),
between the date hereof and the Effective Time, the Company will
give each of Parent and Acquisition and their counsel, financial
advisors, auditors, and other authorized representatives reasonable
access to all employees, landlords, suppliers, customers, vendors,
plants, offices, warehouses and other facilities and to all books
and records of the Company and its subsidiaries, will permit each
of Parent and Acquisition and their respective counsel, financial
advisors, auditors and other authorized representatives to make
such inspections as Parent or Acquisition may reasonably require
and will cause the Company's officers and those of its subsidiaries
to furnish Parent or Acquisition or their representatives with such
financial and operating data and other information with respect to
the business and properties of the Company and any of its
subsidiaries as Parent or Acquisition may from time to time
reasonably request. No investigation pursuant to this Section
5.4(a) shall affect any representations or warranties of the
parties herein or the conditions to the obligations of the parties
hereunder.
(b) Parent and Acquisition will keep confidential
and not divulge (except to its employees, counsel, accountants and
other advisors who need to know such information in connection with
the Merger) any confidential information obtained by them regarding
the business and finances of the Company; provided, however, that
this prohibition will not include any information (i) known
generally to the public, (ii) accessible to third parties on an
unrestricted basis or (iii) of a type generally considered
nonconfidential by persons engaged in the same or similar business.
Section 5.5 Reasonable Best Efforts. Subject to the
terms and conditions herein provided, each of the parties hereto
agrees to use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things
reasonably necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement. Without limiting the generality of
the foregoing, Parent, Acquisition and the Company shall cooperate
with one another: (i) in the preparation and filing of any required
filings under the HSR Act and the other laws referred to herein;
(ii) in determining whether action by or in respect of, or filing
with, any governmental body, agency, official or authority (either
domestic or foreign) is required, proper or advisable or any
actions, consents, waivers or approvals are required to be obtained
from parties to any contracts, in connection with the transactions
contemplated by this Agreement; and (iii) in seeking timely to
obtain any such actions, consents and waivers and to make any such
filings. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party hereto
shall take all such necessary action.
Section 5.6 Public Announcements. Parent and
Acquisition, on the one hand, and the Company, on the other hand,
will consult with each other before issuing any press release with
respect to the transactions contemplated by this Agreement, and
shall not issue any such press release prior to such consultation,
except as may be required by applicable law or by applicable rules
of any securities exchange.
Section 5.7 Notification of Certain Matters. The
Company shall give prompt notice to Parent or Acquisition, and
Parent or Acquisition shall give prompt notice to the Company, upon
becoming aware of (i) the occurrence, or non-occurrence, of any
event the occurrence, or non-occurrence of which would cause any
representation or warranty contained in this Agreement to be untrue
or inaccurate, (ii) any fact which was in existence on the date of
this Agreement and, if known on such date, would have been required
to be set forth or described in the Schedules hereto, and (iii) any
failure of the Company, Parent or Acquisition, as the case may be,
to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, that the
delivery of any notice pursuant to this Section 5.7 shall not limit
or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 5.8 Treatment of Preferred Stock; Termination of
Stock Plans. (a) The Company will use its reasonable best efforts
to cause the holders of the Preferred Stock to convert their
Preferred Stock to Common Stock prior to the Effective Time;
provided that the Company will take all necessary actions to cause
any Preferred Stock not so converted to be redeemed for $100 per
share, together with the amount of accrued dividends as may have
accumulated thereon through the date of redemption, in accordance
with the terms of the Certificate of Incorporation prior to the
Effective Time.
(b) The Company shall terminate all of the Company
Plans as of the Effective Time.
Section 5.9 No Solicitation.
(a) The Company and its subsidiaries are not
engaged in and will not engage in any discussions or negotiations
with any third parties with respect to any Acquisition Proposal (as
defined below). The Company and its subsidiaries shall not,
directly or indirectly, through any officer, director, employee,
representative or agent or any of its subsidiaries, (i) solicit,
initiate, or encourage any inquiries or proposals that constitute,
or would lead to, a proposal or offer for a sale of the Common
Stock or the Preferred Stock, a merger, consolidation, business
combination, sale of substantial assets, sale of a substantial
percentage of shares of capital stock (including, without
limitation, by way of a tender offer) or similar transactions
involving the Company or any of its subsidiaries, other than the
transactions contemplated by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), (ii) subject to the fiduciary duties of
the Board under applicable law, engage in negotiations or
discussions concerning, or provide any non-public information to
any person or entity relating to, any Acquisition Proposal or (iii)
subject to the fiduciary duties of the Board under applicable law,
agree to, approve or recommend any Acquisition Proposal.
(b) The Company shall notify Parent immediately (in
no case later than 12 hours) after receipt by the Company or any of
its subsidiaries of any Acquisition Proposal or any request for
non-public information in connection with an Acquisition Proposal
or for access to the properties, books or records of the Company or
any of its subsidiaries by any person or entity that informs the
Company or any of its subsidiaries that it is considering making,
or has made, an Acquisition Proposal. Such notice shall indicate
the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact.
(c) Subject to the fiduciary duties of the Board
under applicable law, the Board will not withdraw or modify its
recommendation made pursuant to Section 1.9 hereof.
Section 5.10 Employee Matters. At or prior to the
Effective Time, Parent will offer to enter into two-year employment
agreements with James G. Steckart and A. Tracy Burton. In
addition, at or prior to the Effective Time, Parent will offer to
enter into one-year employment agreements with Messrs. Edward J.
Stanko, Michael S. Taylor and Kurt B. Doerr.
Section 5.11 Office Lease. At Parent's option at
Closing, the Surviving Corporation and the owner of the Company's
Wichita office will execute a lease allowing Acquisition to use the
Company's current office space at no cost for thirty (30) days from
the Closing Date; provided, however, that Parent shall pay utility
and telephone expenses for such office space during the 30-day
period.
Section 5.12 Insurance. The Company and its
subsidiaries shall maintain the insurance coverage specified in
Section 3.15 hereto in full force and effect through the Closing.
Section 5.13 Consents of Third Parties. The Company and
its subsidiaries shall obtain, prior to Closing, consents of all
third parties to change in control of the Company with respect to
all leases, licenses, product and establishment registrations,
contracts and commitments that require such consents.
Section 5.14 Taxes. The Company and its subsidiaries
shall be responsible for payment of taxes, including any and all
income taxes, sales taxes, use taxes and personal property taxes
related to periods through the Closing Date including taxes arising
out of this transaction, such payments to be made in whole or in
part, but no later than such time as such taxes become due and
payable.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1 Conditions to the Company's, Parent's and
Acquisition's Obligation to Effect the Merger. The respective
obligations of the Company, Parent and Acquisition to effect the
Merger are subject to the satisfaction or waiver at or prior to the
Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall
have been adopted by the affirmative vote of the stockholders of
the Company by the requisite vote in accordance with Delaware Law;
(b) HSR Act. Any waiting period applicable to the
Merger under the HSR Act shall have terminated or expired; and
(c) No Injunction. No statute, rule, regulation,
executive order, decree, ruling, injunction or other order shall
have been enacted, entered, promulgated or enforced by any court or
governmental authority of competent jurisdiction which prohibits
the Merger or makes the Merger illegal.
Section 6.2 Conditions to Company's Obligation to Effect
the Merger. The obligations of the Company to effect the Merger
are subject to the satisfaction or waiver at or prior to the
Effective Time of the following conditions:
(a) Representations and Warranties. All
representations and warranties of Parent and Acquisition shall be
true and correct when made and continuously shall remain true and
be reaffirmed and remade at and as of the Effective Time, as if
made at and as of such time;
(b) Covenants. Each of Parent and Acquisition
shall have performed all of its covenants and obligations under
this Agreement required to be performed by it prior to or at
Closing; and
(c) Dismissal of Lawsuit. The lawsuit captioned as
Case No. 94 C 3532, THORN Americas, Inc. v. COMCOA, Inc.; Tidewater
Rental Corp.; AdvantEdge Rental Purchase Inc.; Advantage Companies,
Inc.; and certain other parties, pending in the 18th Judicial
District Court of Sedgwick County, Kansas, shall have been
dismissed with prejudice and the parties to such action shall have
entered into a mutual release from liability with respect to the
subject matter of such action.
Section 6.3 Conditions to Parent's and Acquisition's
Obligations to Effect the Merger. The obligations of Parent and
Acquisition to effect the Merger are subject to the satisfaction or
waiver at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. All
representations and warranties of the Company (as supplemented
pursuant to Section 5.7 of this Agreement) shall be true and
correct as of the date of this Agreement and at and as of the
Effective Time, as if made at and as of such time, and Parent and
Acquisition shall have received a certification of the Company
signed by the president and chief executive officer and the chief
financial officer of the Company to that effect dated the Closing
Date;
(b) Covenants. The Company shall have performed
all of its covenants and obligations under this Agreement required
to be performed by it prior to or at Closing;
(c) Consents. The Company shall have obtained,
prior to the consummation of the Merger, all required governmental
and third-party consents required for consummation of the
transactions contemplated by this Agreement;
(d) Total Equity. The Total Equity of the Company
and its subsidiaries, as of November 26, 1995, was at least
$30,600,000. As used herein, "Total Equity" means the Company's
stockholders' equity, calculated in a manner consistent with the
audited annual financial statements of the Company; provided, that
the Total Equity calculation shall not include (i) any amounts
attributable to the exercise of, Employee Options pursuant to
Section 1.8 hereof, (ii) any adjustment for any redemption of
Preferred Stock pursuant to Section 5.8(a) hereof or (iii) any
adjustment related to amounts recorded on the Financial Statements
for the 1993 compensatory non-qualified stock option grants. The
Company, however, may subtract from the Total Equity requirement of
$30,600,000 amounts paid for early cancellation of Employee Options
pursuant to Section 1.8 hereof. Prior to the Closing Date, Parent
shall have verified that the Total Equity amount as of November 26,
1995 was as required above. The accrual of bonus amounts as set
forth in Section 5.1(e) hereof must be reflected in the calculation
of the November 26 Total Equity. All earnings for the period on
and after November 27, 1995, through the Closing Date shall accrue
on a dollar for dollar basis and be added to the November 26 Total
Equity, and the entire amount of such accrued Total Equity will be
delivered to Parent and Acquisition at Closing;
(e) Lease. The owner of the Company's Wichita
office shall have executed a lease allowing Acquisition to use the
Company's current office space at no cost for thirty (30) days in
accordance with Section 5.11;
(f) Reasonable Expenses. The Company's paid and
payable transaction expenses, including but not limited to,
attorneys' fees, accounting fees, financial advisor fees of George
K. Baum & Company, Proxy Statement printing and mailing costs
(collectively, "Reasonable Expenses"), shall not exceed $250,000;
(g) Preferred Stock. The Company's Preferred Stock
shall have been converted or redeemed prior to the Effective Time;
(h) Lawsuit Dismissal. All counterclaims relating
to the lawsuit captioned as Case No. 94 C 3532, THORN Americas,
Inc. v. COMCOA, Inc.; Tidewater Rental Corp.; AdvantEdge Rental
Purchase Inc.; Advantage Companies, Inc.; and certain other
parties, pending in the 18th Judicial District Court of Sedgwick
County, Kansas, shall have been dismissed with prejudice and the
parties to such action shall have entered into a mutual release
from liability with respect to the subject matter of such action;
(i) Officer's Certificate. Evidence satisfactory
to Parent and Acquisition, in the form of an officers' certificate
of the Company, signed by the president and chief executive officer
and the chief financial officer of the Company, certifying
compliance by the Company with the terms and conditions of Article
V and Section 6.3 hereof;
(j) Resignations. The directors and officers of the
Company and its subsidiaries immediately prior to the Closing shall
have resigned effective as of the Closing;
(k) Opinion of Counsel. Parent shall have received
an opinion of counsel to the Company, dated as of the Closing Date,
in the form of Exhibit A, hereto and satisfactory to Parent and its
counsel;
(l) Condition of Company. The Parent shall have
determined, in its sole discretion, that as of the Closing Date,
the business, operations, results of operations, condition, assets,
prospects and liabilities of the Company and each of its
subsidiaries are such that the acquisition of the Company pursuant
to and in accordance with the terms of this Agreement is in the
best interest of the Parent; provided that in making such
determination the Parent shall not be subject to any requirement of
reasonableness;
(m) Amendments to Indemnity Agreements. All
parties to indemnification agreements with the Company shall have
executed an amendment thereto in the form of Exhibit B attached
hereto;
(n) Litigation Settlement. The litigation matters
set forth on Schedule 6.3(n) hereto shall have been settled by the
Company or reserves shall have been set forth in the Financial
Statements for such matters if such reserves are required by GAAP;
and
(o) Computer Software Confidentiality. Parent
shall have received affidavits or confidentiality agreements, in a
form satisfactory to Parent, stating that Parent's proprietary
computer software system is not being used by unauthorized third
parties who obtained such computer information from the Company.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.1 Termination. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the
Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) by mutual written consent of Parent,
Acquisition and the Company;
(b) by Parent or the Company if any court or
governmental authority of competent jurisdiction shall have issued
an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and
nonappealable;
(c) by Parent or the Company, at any time after
January 31, 1996 if the Merger shall not have occurred by such
date; provided, that the right to terminate this Agreement under
this subparagraph (c) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause or resulted in the failure of the Merger to have occurred by
such date; and provided, further, that this date shall be extended
no more than ninety (90) days if the Merger has not been
consummated because of delays in the regulatory approval process;
(d) by Parent, if (i) in Parent's sole discretion
it determines that any fact revealed pursuant to a supplemental
representation and warranty as required by Section 5.7 of this
Agreement makes it not in Parent's best interest to consummate the
Merger, (ii) there shall have been a breach of any representation
or warranty of the Company contained herein, (iii) there shall have
been a breach of any covenant or agreement of the Company contained
herein which shall not have been cured prior to ten (10) business
days following notice of such breach, or (iv) the Amendment to the
Advantage Agreement extending the termination date and noncompete
agreements shall not have been executed by each party thereto prior
to October 31, 1995; or
(e) by Company if there shall have been a breach of
any representation, warranty, covenant or agreement of Parent or
Acquisition contained herein which would prevent the consummation
of the Merger which shall not have been cured prior to ten (10)
business days following the notice of such breach.
Section 7.2 Effect of Termination. In the event of the
termination and abandonment of this Agreement pursuant to Section
7.1, this Agreement shall forthwith become void and have no effect,
without any liability on the part of any party hereto, other than
the provisions of Sections 5.4 and 7.3. The termination of this
Agreement shall not relieve any party from liability for any breach
of this Agreement.
Section 7.3 Fees and Expenses. Each party shall bear
its own expenses and costs in connection with this Agreement and
the transactions contemplated hereby.
Section 7.4 Amendment. Subject to Section 5.2(c), this
Agreement may be amended by action taken by the Company, Parent and
Acquisition at any time before or after adoption of the Merger by
the stockholders of the Company but, after any such approval, no
amendment shall be made which decreases the Merger Consideration to
the stockholders who are not parties to the Option Agreement or
changes the form thereof or which adversely affects the rights of
the Company's stockholders hereunder without the approval of such
stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties
hereto.
Section 7.5 Extension; Waiver. Subject to Section
5.2(c), at any time prior to the Effective Time, the Company, on
the one hand, and Parent and Acquisition, on the other hand, may
(i) extend the time for the performance of any of the obligations
or other acts of the other party, (ii) waive any inaccuracies in
the representations and warranties of the other party contained
herein or in any document, certificate or writing delivered
pursuant hereto, or (iii) waive compliance by the other party with
any of the agreements or conditions contained herein. Any
agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of
such rights.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Survival. The representations, warranties,
covenants and agreements made herein shall not survive beyond the
Effective Time.
Section 8.2 Entire Agreement; Assignment. This
Agreement (including the Schedules hereto) (i) constitutes the
entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, among the parties with
respect to the subject matter hereof and (ii) shall not be assigned
by operation of law or otherwise; provided that Acquisition may
assign its rights and obligations in whole or in part to any
subsidiary or affiliate of Parent (provided that such transferee
agrees in writing to be bound by this Agreement), but no such
assignment shall relieve Acquisition of its obligations hereunder
if such assignee does not perform such obligations.
Section 8.3 Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing and
shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in person, by facsimile or by registered or
certified mail (postage prepaid, return receipt requested), to the
other party as follows:
if to Parent or Acquisition:
THORN Americas, Inc.
8200 East Rent-A-Center Drive
Wichita, Kansas 67226-2799
Fax: 316-636-7328
Attention: P. David Egan, Senior
Vice President and General Counsel
with copies to:
Shook, Hardy & Bacon P.C.
One Kansas City Place
1200 Main Street, Suite 3100
Kansas City, Missouri 64105-2118
Fax: 816-421-5547
Attention: Jennings J. Newcom
if to the Company:
Advantage Companies, Inc.
9323 East 37th Street North
Wichita, Kansas 67226-2000
Fax: 316-634-3340
Attention: Law Department
with copies to:
Shughart, Thomson & Kilroy, P.C.
1800 Twelve Wyandotte Plaza
120 West 12th Street
Kansas City, Missouri 64105
Fax: 816-374-0509
Attention: Robert T. Schendel
or to such other address as the person to whom notice is given may
have previously furnished to the other in writing in the manner set
forth above.
Section 8.4 Governing Law. This Agreement shall be
governed by and construed in accordance with the law of the State
of Delaware, without regard to the principles of conflicts of law
thereof.
Section 8.5 Parties in Interest. This Agreement shall
be binding upon and inure solely to the benefit of each party
hereto and its successors and permitted assigns, and nothing in
this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
Section 8.6 Remedies. The parties hereto agree that
irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and
that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or in equity.
Section 8.7 Descriptive Headings. The descriptive
headings herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
Section 8.8 Consent to Jurisdiction. Each of the
parties hereto hereby irrevocably and unconditionally consents to
submit to jurisdiction of the courts of the State of Kansas for any
litigation arising out of or relating to this Agreement and the
transactions contemplated hereby, waives any objection to laying of
venue of any such litigation in the courts located in the State of
Kansas and agrees not to plead or claim in any court in the State
of Kansas that such litigation brought therein has been brought in
an inconvenient forum.
Section 8.9 Certain Definitions. For purposes of this
Agreement, the term:
(a) "affiliate" of a person means a person that
directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the
first mentioned person;
(b) "control" (including the terms "controlled by"
and "under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or
cause the direction of the management policies of a person, whether
through the ownership of stock, as trustee or executor, by contract
or credit arrangement or otherwise;
(c) "generally accepted accounting principles"
shall mean the generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession in
the United States, in each case applied on a basis consistent with
the manner in which the audited financial statements for the fiscal
year of the Company ended January 22, 1995 were prepared;
(d) "person" means an individual, corporation,
partnership, association, trust, unincorporated organization, other
entity or group (as defined in Section 13(d)(3) of the Exchange
Act); and
(e) "subsidiary" or "subsidiaries" of any person
means any corporation, partnership, joint venture or other legal
entity of which such person (either alone or through or together
with any other subsidiary), owns, directly or indirectly, any stock
or other equity interests the holder of which is generally entitled
to vote for the election of the board of directors or other
governing body of such corporation, partnership, joint venture or
other legal entity.
Section 8.10 Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed
to be an original, but all of which shall constitute one and the
same agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its representatives
thereunto duly authorized, all as of the day and year first above
written.
THORN AMERICAS, INC.
By: John H. Slaymaker
Name: John H. Slaymaker
Title: Executive Vice President
THORN ACQUISITION CORP.
By: John H. Slaymaker
Name: John H. Slaymaker
Title: Executive Vice President
ADVANTAGE COMPANIES, INC.
By: Daniel J. Taylor
Name: John H. Slaymaker
Title: Executive Vice President
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 The Merger. . . . . . . . . . . . . . . . . . . 2
Section 1.2 Effective Time; Closing. . . . . . . . . . 2
Section 1.3 Effects of the Merger; Subsequent
Actions. . . . . . . . . . . . . . . . . . 2
Section 1.4 Certificate of Incorporation and
By-Laws. . . . . . . . . . . . . . . . . . 3
Section 1.5 Directors. . . . . . . . . . . . . . . . . 3
Section 1.6 Officers . . . . . . . . . . . . . . . . . 3
Section 1.7 Conversion of Shares . . . . . . . . . . . 4
Section 1.8 Stock Options. . . . . . . . . . . . . . . 4
Section 1.9 Stockholders' Meeting. . . . . . . . . . . 5
ARTICLE II DISSENTING SHARES; EXCHANGE OF SHARES . . . . . 6
Section 2.1 Dissenting Shares. . . . . . . . . . . . . 6
Section 2.2 Exchange of Certificates.. . . . . . . . . 6
ARTICLE III REPRESENTATIONS AND WARRANTIES. . . . . . . . . 8
Section 3.1 Organization and Qualification;
Subsidiaries.. . . . . . . . . . . . . . . 8
Section 3.2 Capitalization of the Company and its
Subsidiaries . . . . . . . . . . . . . . . 9
Section 3.3 Authority Relative to this Agreement;
Fairness Opinion . . . . . . . . . . . . . 11
Section 3.4 Non-Contravention; Required Filings
and Consents . . . . . . . . . . . . . . . 12
Section 3.5 SEC Reports. . . . . . . . . . . . . . . . . . 13
Section 3.6 Absence of Certain Changes. . . . . . . . . . . 14
Section 3.7 Proxy Statement . . . . . . . . . . . . . . . . 14
Section 3.8 Finder's Fee. . . . . . . . . . . . . . . . . . 15
Section 3.9 Absence of Litigation . . . . . . . . . . . . . 15
Section 3.10 Taxes . . . . . . . . . . . . . . . . . . . . . 15
Section 3.11 Employee Benefits . . . . . . . . . . . . . . . 17
Section 3.12 Compliance. . . . . . . . . . . . . . . . . . . 21
Section 3.13 Environmental Matters . . . . . . . . . . . . . 21
Section 3.14 Intellectual Property . . . . . . . . . . . . . 24
Section 3.15 Insurance. . . . . . . . . . . . . . . . . . . 26
Section 3.16 Labor Matters . . . . . . . . . . . . . . . . . 26
Section 3.17 Real Property . . . . . . . . . . . . . . . . . 27
Section 3.18 Contracts and Commitments . . . . . . . . . . . 30
Section 3.19 Employees . . . . . . . . . . . . . . . . . . . 31
Section 3.20 Licenses and Permits. . . . . . . . . . . . . . 31
Section 3.21 Products Liability. . . . . . . . . . . . . . . 32
Section 3.22 Inventory; Motor Vehicles; Accounts Receivable;
Assets Necessary to
Business . . . . . . . . . . . . . . . . . 32
Section 3.24 Seller's Documentation. . . . . . . . . . . . . 33
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
ACQUISITION . . . . . . . . . . . . . . . . . . 33
Section 4.1 Organization. . . . . . . . . . . . . . . . . . 34
Section 4.2 Authority Relative to this Agreement. . . . . . 34
Section 4.3 Non-Contravention; Required Filings
and Consents . . . . . . . . . . . . . . . 34
Section 4.4 Proxy Statement . . . . . . . . . . . . . . . . 35
Section 4.5 Availability of Funds . . . . . . . . . . . . . 35
Section 4.6 Absence of Litigation . . . . . . . . . . . . . 35
ARTICLE V COVENANTS. . . . . . . . . . . . . . . . . . . . . . 36
Section 5.1 Conduct of Business of the Company. . . . . . . 36
Section 5.2 Boards of Directors and Committees;
Section 14(f). . . . . . . . . . . . . . . 39
Section 5.3 Proxy Statement. . . . . . . . . . . . . . . . 40
Section 5.4 Access to Information . . . . . . . . . . . . . 40
Section 5.5 Reasonable Best Efforts . . . . . . . . . . . . 41
Section 5.6 Public Announcements. . . . . . . . . . . . . . 42
Section 5.7 Notification of Certain Matters. . . . . . . . 42
Section 5.8 Treatment of Preferred Stock;
Termination of Stock Plans . . . . . . . . 42
Section 5.9 No Solicitation . . . . . . . . . . . . . . . . 43
Section 5.10 Employee Matters. . . . . . . . . . . . . . . . 43
Section 5.11 Office Lease. . . . . . . . . . . . . . . . . . 44
Section 5.12 Insurance . . . . . . . . . . . . . . . . . . . 44
Section 5.13 Consents of Third Parties . . . . . . . . . . . 44
Section 5.14 Taxes . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER. . . . 44
Section 6.1 Conditions to the Company's, Parent's
and Acquisition's Obligation to
Effect the Merger. . . . . . . . . . . . . 44
Section 6.2 Conditions to Company's Obligation to
Effect the Merger. . . . . . . . . . . . . 45
Section 6.3 Conditions to Parent's and
Acquisition's Obligations to
Effect the Merger. . . . . . . . . . . . . 46
ARTICLE VII TERMINATION; AMENDMENT; WAIVER. . . . . . . . . 48
Section 7.1 Termination. . . . . . . . . . . . . . . . 48
Section 7.2 Effect of Termination . . . . . . . . . . . . . 49
Section 7.3 Fees and Expenses. . . . . . . . . . . . . 49
Section 7.4 Amendment . . . . . . . . . . . . . . . . . . . 49
Section 7.5 Extension; Waiver . . . . . . . . . . . . . . . 50
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . 50
Section 8.1 Survival . . . . . . . . . . . . . . . . . 50
Section 8.2 Entire Agreement; Assignment . . . . . . . 50
Section 8.3 Notices. . . . . . . . . . . . . . . . . . 51
Section 8.4 Governing Law. . . . . . . . . . . . . . . 52
Section 8.5 Parties in Interest. . . . . . . . . . . . 52
Section 8.6 Remedies . . . . . . . . . . . . . . . . . 52
Section 8.7 Descriptive Headings . . . . . . . . . . . 52
Section 8.8 Consent to Jurisdiction. . . . . . . . . . 52
Section 8.9 Certain Definitions. . . . . . . . . . . . 52
Section 8.10 Counterparts. . . . . . . . . . . . . . . . . . 53
SCHEDULES
Schedule 3.1(d) Subsidiaries
Schedule 3.2 Extensions of Pre-Existing Employee Options
Schedule 3.4 Non-Contravention; Filings and Consents
Schedule 3.5(a) Financial Statement Disclosure
Schedule 3.5(b) Undisclosed Financial Obligations
Schedule 3.6 Changes Since January 23, 1995
Schedule 3.9 Litigation
Schedule 3.10 Taxes
Schedule 3.11(a) Employee Benefit Plans
Schedule 3.11(i) Benefits Beyond Retirement or Termina-
tion
Schedule 3.11(j) Severance Pay and Acceleration of
Vesting of Stock Options
Schedule 3.12 Compliance
Schedule 3.13 Environmental Matters
Schedule 3.14 Intellectual Property
Schedule 3.15(a) Insurance Policies
Schedule 3.15(b) Notice of Insurance Matters
Schedule 3.16 Labor Matters
Schedule 3.17(a) Leased Real Property
Schedule 3.17(e) Real Property Service and Maintenance
Contracts
Schedule 3.17(f) Agreements or Options to Purchase Real
Property
Schedule 3.17(j) Construction, Improvement or Expansion
Projects
Schedule 3.18 Contracts and Commitments
Schedule 3.19 Employee Matters
Schedule 3.20 Licenses and Permits
Schedule 3.21 List of Form Customer Agreements
Schedule 3.22(b) Motor Vehicles
Schedule 3.22(c) Accounts Receivable
Schedule 3.23 Bank Accounts
Schedule 3.25 Material Matters
Schedule 5.1 Conduct of Business Prior to Closing
Schedule 6.3(n) Litigation Matters to be Settled or
Reserved for in Financial Statements
EXHIBITS
A Opinion of Company's Counsel
B Amendment to Indemnity Agreement
ANNEX B-1
ADVANTAGE AGREEMENT
THIS AGREEMENT dated as of July 9, 1995, by and among
THORN AMERICAS, INC., a Delaware corporation ("THORN"), and the
shareholders of ADVANTAGE COMPANIES, INC., a Delaware corporation
("Advantage"), who are signatories hereto (each, a "Shareholder"
and collectively, the "Shareholders").
WHEREAS, simultaneously with the execution and delivery
of this Agreement, THORN and Advantage are entering into a letter
of intent (the "Proposal"), which provides, among other things,
upon the terms and subject to the conditions thereof, that (i) a
newly formed subsidiary of THORN will be merged with and into
Advantage in accordance with the General Corporation Law of the
State of Delaware and (ii) each share of common stock, par value
$0.01 per share, of Advantage (the "Shares") issued and
outstanding at the effective time of the merger will, except as
otherwise expressly provided in the Proposal or in the Definitive
Agreement (as defined in the Proposal), be converted into the
right to receive $17.50 per Share (without interest) in cash (the
"Purchase Price"); and
WHEREAS, in order to induce THORN to enter into the
Proposal and subsequently, into the Definitive Agreement, each
Shareholder desires to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements contained herein, and
intending to be legally bound hereby, THORN and the Shareholders
agree as follows.
Section 1. Capitalized Terms. Capitalized terms
used but not defined herein shall have the meanings assigned to
such terms in the Proposal.
Section 2. Representations and Warranties of the
Shareholders. Each of the Shareholders hereby represents and
warrants to THORN as follows:
(a) Each Shareholder owns the number of equity
securities of Advantage set forth opposite the name of such
Shareholder on Schedule A hereto, and no Shareholder owns any
equity securities of Advantage other than those shown on such
Schedule.
(b) Each Shareholder has good and marketable title to
such Shareholder's Shares and Preferred Stock, free and clear of
any liens, encumbrances, restrictions on transfer or rights of
others.
(c) Other than as disclosed on Schedule A attached
hereto, there are no options or other rights to acquire any
Shares or Preferred Stock from any Shareholder or any equity
securities from Advantage, to which any Shareholder is a party,
other than this Agreement.
(d) The execution and delivery of this Agreement, and
the consummation of the transactions herein provided, do not and
will not violate any agreement binding upon any Shareholder; and
this Agreement is the valid and binding agreement of each
Shareholder, enforceable against each Shareholder in accordance
with its terms.
Section 3. Representations and Warranties of THORN.
THORN hereby represents and warrants to the Shareholders that
this Agreement has been duly authorized by all necessary
corporate action on the part of THORN, has been duly executed by
a duly authorized officer of THORN and constitutes a valid and
binding agreement of THORN enforceable against THORN in
accordance with its terms.
Section 4. Covenants. Each Shareholder agrees:
(a) not to (either directly or indirectly) sell,
transfer, pledge, assign, hypothecate or otherwise dispose of, or
enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge,
assignment, hypothecation or other disposition of such
Shareholder's Shares, Preferred Stock or options or other rights
to obtain an equity interest in Advantage;
(b) not to (either directly or indirectly) grant any
proxy to any person regarding his\her ownership of any Shares or
Preferred Stock, deposit such securities into a voting trust or
enter into a voting agreement regarding such securities that
would be inconsistent with the terms of this Agreement;
(c) not to (either directly or indirectly) take any
action which would make any representation, warranty or covenant
of such Shareholder untrue or incorrect; and
(d) to convert into Shares all of such Shareholder's
shares of Preferred Stock prior to the Closing Date.
Section 5. Voting Agreement; Proxy.
(a) For so long as this Agreement is in effect, the
Shareholders shall vote, or cause to be voted, all of their
respective Shares in favor of the approval and adoption of the
merger as provided for in the Definitive Agreement and the
transactions contemplated therein.
(b) For so long as this Agreement is in effect, in any
meeting of the stockholders of Advantage, however called, and in
any action by consent of the stockholders of Advantage, the
Shareholders shall vote or cause to be voted all of their
respective Shares: (i) against any action or agreement that
would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation of Advantage
under the Proposal or the Definitive Agreement or of the
Shareholders under this Agreement; and (ii) against any action or
agreement that would impede, interfere with or discourage the
transactions contemplated by the Proposal or the Definitive
Agreement, including, without limitation: (1) any extraordinary
corporate transaction, such as a merger, reorganization or
liquidation involving Advantage or any of its subsidiaries, (2) a
sale or transfer of a material amount of assets of Advantage or
any of its subsidiaries or the issuance of securities by
Advantage or any of its subsidiaries; provided, however, that
Advantage may issue bonus and severance awards and transfer the
land, building and equipment used by Advantage as its home office
to Mr. Taylor subject to the total equity condition set forth in
paragraph 1 of the Proposal, (3) any change in the Advantage
Board of Directors (other than as contemplated by the Proposal or
the Definitive Agreement), (4) any change in the present
capitalization or dividend policy of Advantage or any of its
subsidiaries (other than as contemplated by the Proposal or the
Definitive Agreement) or (5) any other material change in
Advantage's or any of its subsidiaries' corporate structure or
business.
(c) Upon the execution of this Agreement, each
Shareholder shall grant THORN an irrevocable proxy appointing
THORN or its designee(s), with full power of substitution, its
attorney and proxy to vote all such Shareholder's Shares at any
meeting of the stockholders of Advantage, however called, or in
connection with any action by written consent by the stockholders
of Advantage. Each Shareholder acknowledges and agrees that such
proxy, if and when given, will be coupled with an interest, will
be irrevocable and shall not be terminated by operation of law or
otherwise upon the occurrence of any event and that no subsequent
proxies will be given (and if given will not be effective).
Section 6. Option to Purchase Shareholders' Shares
and Preferred Stock.
(a) Each Shareholder grants to THORN an irrevocable
option (the "Option") (i) to purchase all Shares owned by such
Shareholder at the Option Closing (as defined below) at the
Purchase Price multiplied by the number of Shares owned by such
Shareholder and (ii) to purchase all shares of Preferred Stock
owned by such Shareholder at the Option Closing at the Purchase
Price multiplied by fifty for each share of Preferred Stock so
purchased (all such amounts being the "Aggregate Purchase
Price"), all payable at the Option Closing.
(b) The Option may be exercised by THORN at any time
during the period commencing on the date first above written and
ending on the Expiration Date (as defined below); provided,
however, that the Option must be exercised with respect to the
Shares and Preferred Stock of all Shareholders.
(c) In the event that THORN wishes to exercise the
Option, THORN shall give written notice to each Shareholder of
its intention to exercise the Option. The closing of the
purchase of the Shareholders' Shares and Preferred Stock
hereunder (the "Option Closing") shall take place in Wichita,
Kansas, on a date and at a time designated by THORN at the time
that it gives notice of its intention to exercise the Option
(which date and time may be one day after the delivery of such
notice or earlier if reasonably practicable).
(d) The Option shall expire on November 30, 1995 (the
"Expiration Date"), except that if the Option cannot be exercised
by reason of any applicable judgment, decree or order granted
upon the application of the Shareholders, the Expiration Date of
the Option shall be extended until five business days after such
impediment to exercise shall have been removed.
(e) In the event THORN exercises the Option, THORN
shall make payment of the Aggregate Purchase Price to the
Shareholders at the Option Closing by delivering immediately
available funds. At the Option Closing, the Shareholders shall
transfer, assign and deliver to THORN certificates evidencing the
Shares and Preferred Stock, which shall be duly endorsed in
blank, or be accompanied by stock powers duly executed in blank,
with all necessary transfer tax stamps affixed and cancelled and
signatures guaranteed.
(f) In the event THORN exercises the Option, THORN and
the Shareholders each will execute and deliver all such further
documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated
hereby.
(g) In the event of any change in the number of Shares
or Preferred Stock outstanding by recapitalization, declaration
of a stock split or combination or payment of a stock dividend,
the exercise of stock options, conversion of preferred stock or
the like, the number of Shares or shares of Preferred Stock, as
the case may be, subject to the Option and the per share payments
to be made to the Shareholders shall be adjusted appropriately.
<PAGE>
Section 7. Noncompetition.
The provisions of this Section 7 will not be applicable
until THORN purchases the Shares and the Preferred Stock.
(a) The Shareholders hereby acknowledge that the
identity and particular needs of THORN'S and Advantage's clients
are not generally known and are confidential information; that,
in THORN'S and Advantage's business, information is an extremely
valuable commodity because of the importance of marketing and
business strategies with respect to profitability; that THORN and
Advantage have a proprietary interest in the information
concerning the identity of its clients, its marketing and
business strategies, and its prices and profit margins; that
THORN and Advantage have a legitimate interest in preserving and
protecting its customer contacts and good will; that THORN and
Advantage's customer lists, marketing information, price lists,
accounting procedures, business plans and the like are the
private, privileged, and confidential information of THORN and
Advantage respectively; and that THORN and Advantage have a
legitimate interest in protecting their confidential information
and other proprietary information from even the threat of disclo-
sure.
(b) The Shareholders severally agree that they shall
not directly or indirectly, individually or with others, engage
in the business of rent-to-own, rentals or retail installment
sales transactions of consumer household durable goods, including
televisions, video cassette recorders, stereos, furniture,
appliances, jewelry, pagers, computers or like or similar
consumer household durable goods merchandise rented or sold by
THORN, or any subsidiary, affiliate or franchisee thereof, for a
period of five years following the purchase of Shares and the
Preferred Stock by THORN, at any location within the United
States of America.
(c) During the term of the Shareholders's franchise
relationship, the Shareholders have had access to and become
familiar with the confidential information and other proprietary
information of THORN and Advantage, including but not limited to
the information referred to in paragraph (a) above. The Sh-
areholders acknowledge that such information is owned by and
shall continue to be owned solely by THORN and Advantage. The
Shareholders jointly and severally agree that they will not,
individually or with others, directly or indirectly, at any time
in the future following the purchase of the Shares and the
Preferred Stock by THORN, divulge, communicate, use to the
detriment of THORN, or any subsidiary or affiliate thereof, or
for the benefit of any person or organization any Proprietary
Information. As used in this Agreement, "Proprietary
Information" means information disclosed as a result of or
related to such Shareholder's relationship with Advantage or any
of its affiliates, whether or not acquired during business hours,
concerning Advantage's or it affiliates' business, research
activities, operations, products, manufacturing or other
processes, services, customers, customer scattergrams, customer
lists, vendors and costs and pricing policies, including, but not
limited to, information relating to research, development,
marketing demographics, methods, expertise, techniques,
inventions, equipment, purchasing, merchandising and selling,
including, but not limited to, reports relating to inventory,
administration, profit and loss, and similar financial documents;
provided, however, this prohibition will not include any
information (i) known generally to the public, (ii) accessible to
third parties on an unrestricted basis or (iii) of a type
generally considered nonconfidential by persons engaged in the
same or similar business.
(d) The Shareholders jointly and severally agree that
for a period of five years following the purchase of the Shares
and the Preferred Stock by THORN, they will not, directly or
indirectly, solicit the employment or engagement of the
consulting or other services of any person who shall then be
employed by THORN or who shall have been employed by THORN or any
subsidiary or affiliate thereof (including Advantage or Tidewater
Rental Corp.), at any time within the previous six months, except
as provided in the Definitive Agreement.
(e) The Shareholders acknowledge that each has
carefully read and considered the provisions of this Section 7
and, having done so, agree that the restrictions are reasonable
and necessary restrictions for purposes of protecting the value
received by THORN, which includes the expectation of THORN or any
subsidiary or affiliate thereof, of expanding their business
without competition from the Shareholders for a five-year period
following the purchase of the Shares and the Preferred Stock by
THORN, and for an indefinite period regarding the confidentiality
provisions in Section 7(c). The parties further agree that the
geographic area described in Section 7(b) above are reasonable.
(f) In the event that, notwithstanding the foregoing,
any part of the covenants set forth in this Section 7 shall be
held to be invalid or unenforceable, the remaining parts thereof
shall nevertheless continue to be valid and enforceable as though
the invalid or unenforceable parts had not been included therein.
In the event that any provision of this Section 7 relating to
time periods and/or areas of restriction shall be declared by a
court of competent jurisdiction to exceed the maximum time period
or areas such court deems reasonable and enforceable, said time
period and/or areas of restriction shall be deemed to become and
thereafter be the maximum time period and/or areas which such
court deems reasonable and enforceable. Any provision of this
Section 7 otherwise prohibited by or unenforceable under any
applicable law or public policy in any jurisdiction which cannot
be reformed in accordance with the provisions herein shall, as to
such jurisdiction, be ineffective without affecting any other
provision of this Section or shall be deemed to be severed or
otherwise modified to conform with such law or public policy; and
the remaining provisions of this Agreement shall remain in force,
provided that the purpose of this Agreement can be effected. To
the full extent, however, that the provisions of such applicable
law or public policy may be waived, this Agreement shall be
deemed to be a waiver thereof. The parties hereto understand and
agree that all of the covenants set forth herein are and shall be
separately enforceable, and the parties shall promptly meet to
negotiate a substitute for any invalid provision in order to
preserve, to the extent legally possible, the original intent of
this Agreement.
(g) It is agreed by the parties hereto that THORN
would be irreparably damaged by reason of any violation of the
provisions of this Section 7 and that any remedy at law for a
breach of the provisions of this Section would be inadequate.
Therefore, THORN shall be entitled to seek injunctive or other
equitable relief in a court of competent jurisdiction against the
Shareholders, their agents, employees, affiliates, partners or
other associates, for any breach or threatened breach of this
Section without the necessity of proving actual monetary loss.
It is expressly understood that the remedy described in this
Section 7(g) shall not be the exclusive remedy of THORN for any
breach of this Agreement, and THORN shall be entitled to seek
such other relief or remedy, at law or in equity, to which it may
be entitled as a consequence of any breach of this Agreement,
including its expenses in enforcing this Section 7, including
attorneys' fees.
Section 8. No Solicitation.
(a) None of the Shareholders is engaged in any
discussions or negotiations with third parties with respect to
any Acquisition Proposal (as defined below). The Shareholders
shall not, individually or with others, directly or indirectly,
through any employee, representative or agent (i) solicit,
initiate or encourage any inquiries or proposals that constitute,
or would lead to, a proposal or offer for a sale of the Shares or
the Preferred Stock, a merger, consolidation, business
combination, sale of substantial assets, sale of a substantial
percentage of Shares of capital stock (including, without
limitation, by way of a tender offer) or similar transactions
involving Advantage or any of its subsidiaries, other than the
transactions contemplated by this Agreement, the Proposal or the
Definitive Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any nonpublic information to any person or
entity relating to, any Acquisition Proposal or (iii) agree to,
approve or recommend any Acquisition Proposal.
(b) The Shareholders shall notify THORN immediately
(in no later than 24 hours) after receipt by any Shareholder of
any Acquisition Proposal or any request for non-public
information in connection with an Acquisition Proposal or for
access to the properties, books or records of Advantage by any
person or entity that informed such party that it is considering
making, or has made, an Acquisition Proposal. Such notice shall
be made orally or by facsimile and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions
of such proposal, inquiry or contract.
Section 9. Public Announcements. THORN and the
Shareholders will consult with each other before issuing any
press release with respect to the transactions contemplated by
this Agreement, the Proposal and the Definitive Agreement, and
shall not issue any press release prior to such consultation,
except as may be required by applicable law. Promptly upon
execution of this Agreement and the Proposal, THORN and Advantage
shall issue a joint press release.
Section 10. Specific Performance. The parties
hereto agree that irreparable damage would occur in the event any
provision of this Agreement was not performed in accordance with
the terms hereof and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
Section 11. Expenses. Each party shall bear its own
expenses and costs in connection with this Agreement and the
transactions contemplated hereby.
Section 12. Survival. Except as otherwise set forth
in this Agreement, all of the representations, warranties and
covenants contained herein shall survive the exercise of the
Option and the Closing Date indefinitely and shall be deemed to
have been made as of the date hereof and as of the Closing Date.
Notwithstanding anything contained herein to the contrary, the
representations, warranties and covenants made herein by the
Shareholders shall be joint and several.
Section 13. Amendment; Assignment. This Agreement
may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the
parties hereto. No party to this Agreement may assign any of its
rights or obligations under this Agreement without the prior
written consent of the other parties and provided that such
transferee agrees in writing to be bound under this Agreement;
provided, however, that THORN may assign its rights under this
Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of THORN or to THORN.
As used herein, "THORN" includes THORN and its affiliates.
Section 14. Parties in Interest. This Agreement
shall be binding upon and inure solely to the benefit of each
party hereto and its successors and permitted assigns, and
nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever.
Section 15. Notices. All notices, requests, claims,
demands and other communications hereunder, unless this Agreement
expressly provides otherwise, shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt)
by delivery in person, by facsimile or by registered or certified
mail (postage prepaid, return receipt requested), to the other
party as follows:
(a) If to THORN, to:
THORN Americas, Inc.
8200 East Rent-A-Center Drive
Wichita, Kansas 67226-2799
Fax: 316-636-7328
Attention: P. David Egan, Senior Vice
President and
General Counsel
with a copy to:
Shook, Hardy & Bacon P.C.
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2118
Fax: 816-421-5547
Attention: Jennings J. Newcom
(b) If to the Shareholders, to:
Daniel J. Taylor
9323 East 37th Street North
Wichita, Kansas 67226-2000
Fax: 316-634-3340
and
Robert W. Moore
9323 East 37th Street North
Wichita, Kansas 67226-2000
Fax: 316-634-3340
and
Daniel M. Carney
9323 East 37th Street North
Wichita, Kansas 67226-2000
Fax: 316-634-3340
and
Leslie G. Rudd
9323 East 37th Street North
Wichita, Kansas 67226-2000
Fax: 316-634-3340
with a copy to:
Advantage Companies, Inc.
9323 East 37th Street North
Wichita, Kansas 67226-2000
Fax: 316-634-3340
Attention: Law Department
and
<PAGE>
Shughart, Thomson & Kilroy, P.C.
1800 Twelve Wyandotte Plaza
120 West 12th Street
Kansas City, Missouri 64105
Fax: 816-374-0509
Attention: Robert T. Schendel
Section 16. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Kansas without giving effect to the provisions thereof
relating to conflicts of laws.
Section 17. Termination. This Agreement shall
terminate, unless this Agreement expressly provides otherwise,
upon the earlier of (i) the Closing Date, (ii) the Expiration
Date or (iii) notice of termination being given by THORN to the
Shareholders. No such termination shall relieve any party from
liability for any breach of this Agreement.
Section 18. Severability. The provisions of this
Agreement shall be deemed severable and the invalidity or
unenforceability of any provision shall not affect the validity
or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any
person or entity or any circumstance, is invalid or
unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid and
unenforceable provision and (b) the remainder of this Agreement
and the application of such provision to other persons, entities
or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
Section 19. Entire Agreement. This Agreement
constitutes the entire agreement among the parties hereto with
respect to the subject matter hereof and supersedes all other
prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
Section 20. Descriptive Headings. The descriptive
headings herein are inserted for convenience of reference only
and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
Section 21. Consent to Jurisdiction. Each of the
parties hereto hereby irrevocably and unconditionally consents to
submit to jurisdiction of the courts of the State of Kansas for
any litigation arising out of or relating to this Agreement and
the transactions contemplated hereby, waives any objection to
laying of venue of any such litigation in the courts located in
the State of Kansas and agrees not to plead or claim in any court
in the State of Kansas that such litigation brought therein has
been brought in an inconvenient forum.
Section 22. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one
and the same agreement.
IN WITNESS WHEREOF, THORN and the Shareholders have
caused this Agreement to be duly executed on the date first above
written.
THORN AMERICAS, INC.
By: /S/ John H. Slaymaker
Name: John H. Slaymaker
Title: Executive Vice
President
SHAREHOLDERS:
/s/ Daniel J. Taylor
Daniel J. Taylor
/s/ Robert W. Moore
Robert W. Moore
/s/ Daniel M. Carney
Daniel M. Carney
/s/ Leslie G. Rudd
Leslie G. Rudd<PAGE>
SCHEDULE A
ADVANTAGE
Shares of Shares of Total Shares
Common Preferred of Common Stock
Name Stock Stock at Closing Date (1)
Daniel J. Taylor 960,750 3,800 1,150,750
Robert W. Moore 849,310 3,900 1,044,310
Daniel M. Carney 797,600 2,300 912,600
Leslie G. Rudd 661,262 None 661,262
-------- ----- ---------
3,268,922 10,000 3,768,922
========= ===== =========
1) Assuming conversion of Preferred Stock.
ANNEX B-2
FIRST AMENDMENT TO THE ADVANTAGE AGREEMENT
BY AND AMONG
THORN AMERICAS, INC.
AND
CERTAIN SHAREHOLDERS OF ADVANTAGE COMPANIES, INC.
THIS FIRST AMENDMENT TO THE ADVANTAGE AGREEMENT (the "First
Amendment") is made and entered into as of October 6, 1995, by
and among THORN AMERICAS, INC., a Delaware corporation ("THORN"),
and certain shareholders of ADVANTAGE COMPANIES, INC., a Delaware
corporation ("Advantage") (each, a "Shareholder" and
collectively, the "Shareholders").
WHEREAS, the parties have entered into the Advantage
Agreement dated as of July 9, 1995, by and among THORN and the
Shareholders (the "Advantage Agreement"); and
WHEREAS, the parties wish to extend the term of the
Advantage Agreement; and
WHEREAS, Mr. Taylor has served as Chairman of the Board of
Advantage for many years and has vast experience in the business
of Advantage, which may be distinguished both qualitatively and
quantitatively from the experience of the other Shareholders; and
WHEREAS, the Shareholders acknowledge that THORN would not
acquire Advantage if Mr. Taylor declined to refrain from
competing with THORN after consummation of the transactions
contemplated by the Agreement and Plan of Merger by and among
Advantage, THORN and THORN Acquisition Corp., dated September 25,
1995.
NOW, THEREFORE, in consideration of the agreements and
understandings set forth herein and for other good and valuable
consideration, the receipt and adequacy of which is hereby
acknowledged, THORN and the Shareholders, intending to be legally
bound, hereby agree as follows:
1. Amendment to Section 6(d). Section 6(d) of the Advantage
Agreement is hereby amended to read in its entirety as follows:
(d) The Option shall expire on January 31, 1996 (the
"Expiration Date"), except that if the Option cannot be
exercised by reason of any applicable judgment, decree or
order granted upon the application of any shareholder of
Advantage, the Expiration Date of the Option shall be
extended until five business days after such impediment to
exercise shall have been removed.
2. Amendment to Section 7. Section 7 of the Advantage
Agreement is hereby amended and supplemented by adding the
following paragraph:
(h) THORN agrees to pay, at the time the provisions of this
Section 7 become applicable, the sum of
______________________ Dollars ($____________), as
consideration for Mr. Taylor's promise not to compete with
the businesses of Advantage, THORN or THORN Acquisition
Corp., as such promise is set forth in the preceding
paragraphs of this Section 7.
3. Agreement. The Advantage Agreement, as amended by this
First Amendment, is reaffirmed and shall remain in full force and
effect.
4. Counterparts. This Amendment may be executed in any number
of counterparts and any party hereto may execute any such
counterpart, each of which when executed and delivered shall be
deemed to be an original and all of which counterparts taken
together shall constitute but one and the same instrument.
5. Defined Terms. All capitalized terms not otherwise defined
herein shall have the meanings assigned to them in the Advantage
Agreement.
IN WITNESS WHEREOF, each of the parties has executed this
First Amendment as of the day and year first above written.
THORN AMERICAS, INC.
By: /s/ John H. Slaymaker
Name: John H. Slaymaker
Title: Executive Vice President
SHAREHOLDERS:
/s/ Daniel J. Taylor
Daniel J. Taylor
/s/ Robert W. Moore
Robert W. Moore
/s/ Daniel M. Carney
Daniel M. Carney
/s/ Leslie G. Rudd
Leslie G. Rudd
ANNEX C
George K. Baum & Company
Board of Directors
Advantage Companies, Inc.
9323 E. 37th Street North
Wichita, Kansas 67206
Gentlemen:
You have asked us to render our opinion as to the fairness, from a
financial point of view, to the Public Stockholders (as hereinafter defined) of
Advantage Companies, Inc. ("Advantage") of the tender rate of $18.50 in cash
(without interest) for each share of Advantage Common Stock, par value $0.01,
("Tender Rate") tendered in the acquisition (the "Acquisition") of Advantage by
THORN Americas, Inc. ("THORN") pursuant to the Agreement and Plan of
Acquisition dated July 9, 1995 (the "Acquisition Agreement"). "Public
Stockholders" shall mean, for purposes of this opinion, holders of Advantage
Common Stock who are neither officers or directors of Advantage, employees of
Advantage excluded by request of Advantage, nor beneficial owners of five
percent or more of the issued and outstanding Advantage Common Stock. No o
pinion is expressed as to the fairness of the Tender Rate to the Advantage
non-public stockholders.
In rendering our opinion, George K. Baum & Company reviewed, among other
things, (i) the terms of the Acquisition Agreement; (ii) certain publicly
available historical financial information relating to Advantage, including the
Annual Report to Stockholders and Annual Reports of Form 10-K of Advantage for
the last four fiscal years and the subsequent Quarterly Reports on Form 10-Q of
Advantage; (iii) certain internal historical financial information for Advantage
prepared by management; (iv) certain publicly available financial and stock
market data of certain other comparable companies, the securities of which are
publicly traded; (v) certain reported price and trading activity for Advantage
Common Stock; (vi) information contained in the proxy statement/prospectus to be
used in connection with the Acquisition (the "Proxy Statement/Prospectus") and
(vii) such other financial and other information as we deemed appropriate.
George K. Baum & Company also held discussions with members of senior management
of Advantage concerning the past and current operations, the financial
condition, and the prospects of Advantage, and performed such other studies
and analyses as we deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of all of the financial and other information used by
us as the basis of our opinion.
It should be noted that this opinion is based, in part, on economic, market
and other conditions as in effect on, and information made available to us as
of, the date hereof, and does not represent an opinion as to what value
Advantage Common Stock actually will have if and when the Acquisition is
consummated. Such actual value could be affected by changes in such market
conditions, general economic conditions and other factors which generally
influence the price of securities. Furthermore, any valuation of securities
is only an approximation, subject to uncertainties and contingencies all of
which are difficult to predict and beyond the control of the firm preparing
such valuation.
George K. Baum & Company, as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, secondary distri-
butions of securities, private placements and for corporate planning and other
purposes. In the ordinary course of our business, we may, from time to time,
effect transactions for the accounts of our customers in securities of
Advantage and receive customary compensation in connection therewith.
<PAGE>
Board of Directors
Advantage Companies, Inc.
September 22, 1995
Page 2
Prior to Advantage's engagement of George K. Baum & Company to render this
opinion, we had not previously been engaged to provide investment banking
services to Advantage.
It is understood that this letter is only for the information of the Board
of Directors of Advantage and is not to be quoted or referred to, in whole or
in part, in any registration statement, prospectus, or proxy statement, or
in any other written document used in connection with the offering or sale
of securities, nor shall this letter be used for any other purposes, without
George K. Baum & Company's prior written consent, provided, however, that we
hereby consent to the inclusion of this opinion in the Proxy
Statement/Prospectus so long as the opinion is quoted in full and the Proxy
Statement/Prospectus is dated within five days of the date hereof.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the Tender Rate is fair from a financial point of view to the Advantage Public
Stockholders.
Respectfully submitted,
GEORGE K. BAUM & COMPANY
ANNEX D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds
shares of Stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the
mergerer or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of
this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depositor representing an
interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger
or consolidation to be effective pursuant to Sections 251, 252, 254, 257,
258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or
series of stock, which stock, or depository receipts in
respect thereof, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving
corporation as provided in subsection (f) of Section 251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms
of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or
depository receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of
stock or depository receipts at the effective date of the
merger or consolidation will be either listed on a
national securities exchange or designated as a national
market system security on an interdealer quotation system
by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares
or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for
the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any
merger or consolidation in which the corporation is a constituent
corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or
(c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228 or 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or
consolidation or within 10 days thereafter, shall notify each
of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of
the constituent corporation, and shall include in such notice
a copy of this section. The notice shall be sent by certified
or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of the notice,
demand in writing from the surviving or resulting corporation
the appraisal of his shares. Such demand will be sufficient
if it reasonable informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger
or consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof
and who is otherwise entitled to appraisal rights, may file a
petition in the Court of Chancery demanding a determination of the
value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of
the merger or consolidation, any stockholder shall have the right
to withdraw his demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after
the effective date of the merger or consolidation, any stockholder
who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such written statement
shall be mailed to the stockholder within 10 days after his written
request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d)
hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after such
service file in the office of the Register in Chancery in which the
petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares
have not been reached by the surviving or resulting corporation.
If the petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly
verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on
the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day
of the hearing, in a newspaper of general circulation published in
the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section and
who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded appraisal for their
shares and who hold stock represented by certificates to submit
their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Court
may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their
fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger of consolidation,
together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to borrow
money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled
to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders
of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The
Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and
expenses of experts, to be charged pro rata against the value of
all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights
as provided in subsection (d) of this section shall be entitled to
vote such stock for any purpose or to receive payment of dividends
or other distributions on the stock (except dividends or other
distributions payable to stockholders of record at a date which is
prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be
filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and
an acceptance of the merger or consolidation, either within 60 days
after the effective date of the merger or consolidation as provided
in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as
to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems
just.
(1) The shares of the surviving or resulting corporation
to which the shares of such objecting stockholders would have
been converted had they assented to the merger or
consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
