AS FILED ON NOVEMBER 22, 1995
REVISED PRELIMINARY COPY
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
[ ] 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)
[ ] 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
[ X ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee
was paid previously. Identify the previous filing
by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid: $17,535.09
2) Form, Schedule or Registration Statement No.:
Schedule 14A
3) Filing Party: Advantage Companies, Inc.
4) Date Filed: October 16, 1995
Advantage Companies, Inc.
December ___, 1995
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders (the "Special Meeting") of Advantage Companies, Inc.
(the "Company"), to be held at the Company's 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 record of the Company's
outstanding shares of common stock, par value $.01 per share (the
"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 or any adjournment or postponement thereof.
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 (the "Merger"), and the Company
will be the surviving corporation and will become a wholly owned
subsidiary of THORN, and (ii) each outstanding share, immediately
prior to the effective time of the Merger, of the Common Stock
(other than shares of Common Stock held by THORN, Acquisition or
their 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) will be
converted into the right to receive the Purchase Price. As used
herein, "Purchase Price" means (a) for stockholders of the Company
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.
Following the Merger, the former holders of the Common Stock will
no longer have an opportunity to continue their interests in the
Company and therefore will not share in its future earnings and
potential growth.
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 such stockholders have agreed to vote their shares
of Common Stock 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 affirmative vote of
any other stockholder of the Company.
The Board of Directors of the Company (the "Board") 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 Board has 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 information appear in the accompanying
Proxy Statement, which you are urged to read carefully.
Sincerely,
DANIEL J. TAYLOR
Chairman and Chief Executive Officer
<PAGE>
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 (the "Special Meeting") of Advantage Companies, Inc.,
a Delaware corporation (the "Company"), will be held at the 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 and a wholly owned subsidiary of
THORN ("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,
immediately prior to the effective time of the Merger,
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 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 of the Company 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. A form of Proxy also accompanies this Notice.
The Merger Agreement and the Merger have been approved and
adopted 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 fair to and
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.
Following the Merger, the former holders of the Common Stock will
no longer have an opportunity to continue their interests in the
Company and therefore will not share in its future earnings and
potential growth. 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 approve and adopt the Merger Agreement and the Merger.
Under the Advantage Agreement, stockholders holding approximately
77% of the outstanding shares of 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 the Company. Accordingly, such 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 of the Company. 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 the Company 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
Wichita, Kansas Corporate Secretary
November ___, 1995
TABLE OF CONTENTS
PAGE NO.
INTRODUCTION. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AVAILABLE INFORMATION . . . . . . . .. . . . . . . . . . . . . . . . . . . 2
SUMMARY . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Advantage Companies, Inc. (the "Company"). . . .. . . . . . . . . 4
THORN Americas, Inc. ("THORN") . . . . . . . . .. . . . . . . . . 4
THORN Acquisition Corp. ("Acquisition"). . . . .. . . . . . . . . 4
The Special Meeting. . . . . . . . . . . . . . . . .. . . . . . . . . 4
Date, Time and Place of Special Meeting. . . . .. . . . . . . . . 4
Purpose. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 5
Record Date. . . . . . . . . . . . . . . . . . .. . . . . . . . . 5
Vote Required. . . . . . . . . . . . . . . . . .. . . . . . . . . 5
The Merger . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 5
Background of the Merger . . . . . . . . . . . .. . . . . . . . . 5
Recommendation of the Board. . . . . . . . . . .. . . . . . . . . 5
Effective Time of the Merger . . . . . . . . . .. . . . . . . . . 5
Exchange of Common Stock . . . . . . . . . . . .. . . . . . . . . 5
Opinion of the Company's Financial Advisor . . .. . . . . . . . . 6
Interests of Certain Persons in the Merger . . .. . . . . . . . . 6
Conditions to the Merger . . . . . . . . . . . .. . . . . . . . . 7
Effects of the Merger. . . . . . . . . . . . . .. . . . . . . . . 7
Tax Consequences to Stockholders . . . . . . . .. . . . . . . . . 7
Accounting Treatment . . . . . . . . . . . . . .. . . . . . . . . 7
Termination and Amendment of the Agreement . . .. . . . . . . . . 7
Regulatory Matters . . . . . . . . . . . . . . .. . . . . . . . . 8
Appraisal Rights . . . . . . . . . . . . . . . .. . . . . . . . . 8
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Date, Time and Place of Special Meeting. . .. . . . . . . . . . . 9
Matters to be Considered at the Meeting. . .. . . . . . . . . . . 9
Vote Required. . . . . . . . . . . . . . . .. . . . . . . . . . . 9
Broker Non-Votes . . . . . . . . . . . . . . . . . . . . . . 9
Voting of Proxies. . . . . . . . . . . . . . . . . . . . . . . . 9
Revocability of Proxies. . . . . . . . . . . . . . . . . . . . .10
Record Date; Quorum. . . . . . . . . . . . . . . . . . . . . . .10
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . .10
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Background of the Transaction. . . . . . . . . . . . . . . . . . .10
Tidewater Agreements . . . . . . . . . . . . . . . . . . . . . .11
Letter of Intent . . . . . . . . . . . . . . . . . . . . . . . .12
Indemnity Agreements . . . . . . . . . . . . . . . . . . . . . .13
The Advantage Agreement. . . . . . . . . . . . . . . . . . . .13
Negotiation of Merger Agreement. . . . . . . . . . . . . . . . .14
Recommendation of the Board; Reasons for the Merger. . . . . . .15
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . .16
Analysis of Stock Trading History. . . . . . . . . . . . . . . .17
Analysis of Publicly Traded Comparable Companies . . . . . . . .18
Acquisition Transaction Analysis . . . . . . . . . . . . . . . .19
Interests of Certain Persons in the Merger . . . . . . . . . . . . .24
Company Options. . . . . . . . . . . . . . . . . . . . . . . . .24
Employment Agreements. . . . . . . . . . . . . . . . . . .. . . .24
Covenant Not to Compete Payment. . . . . . . . . . . . . . . . .24
Real Estate Transaction. . . . . . . . . . . . . . . . . . . . .24
Bonus Arrangements . . . . . . . . . . . . . . . . . . . . . . .25
Tidewater Purchase . . . . . . . . . . . . . . . . . . . . . . .25
THORN Lawsuit. . . . . . . . . . . . . . . . . . . . . . . . . .25
Security Ownership . . . . . . . . . . . . . . . . . . . . . . .26
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . .26
Merger Consideration . . . . . . . . . . . . . . . . . . . . . .26
Effective Time of the Merger . . . . . . . . . . . . . . . . . .26
Vote Required of Stockholders. . . . . . . . . . . . . . . . . .26
Company Options. . . . . . . . . . . . . . . . . . . . . . . . .26
Representations and Warranties . . . . . . . . . . . . . . . . .27
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . .27
Amendment or Termination . . . . . . . . . . . . . . . . . . . .28
Conduct of Business by the Company before the Merger . . . . . .29
No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . .30
Expenses of the Merger . . . . . . . . . . . . . . . . . . . . .30
Payment for Common Stock . . . . . . . . . . . . . . . . . . . .30
Settlement of Litigation . . . . . . . . . . . . . . . . . . . .30
Directors and Officers . . . . . . . . . . . . . . . . . . . . .31
Federal Income Tax Consequences of the Merger. . . . . . . . . . . .31
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . .32
Accounting Treatment of Merger . . . . . . . . . . . . . . . . . .32
Certain Effects of the Merger. . . . . . . . . . . . . . . . . . . .32
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . .33
MARKET PRICES OF THE COMMON STOCKAND DIVIDEND POLICY. . . . . . . . . . .36
Market Information . . . . . . . . . . . . . . . . . . . . . . . . .36
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . .37
SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT . . . . . .37
BUSINESS INFORMATION CONCERNING THE COMPANY . . . . . . . . . . . . .39
General Information on Business. . . . . . . . . . . . . . . . . . .39
Operations of Rental-Purchase Stores . . . . . . . . . . . . . .40
Products . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Expansion. . . . . . . . . . . . . . . . . . . . . . . . . . .41
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . .43
Other Information. . . . . . . . . . . . . . . . . . . . . . . .43
Compliance with Environmental Laws and Regulations . . . . . . .43
Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . .43
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .44
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . .45
MANAGEMENT'S DISCUSSION AND ANALYSIS. . . . . . . . . . . . . . . . .47
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . .47
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . .51
Impact of Inflation. . . . . . . . . . . . . . . . . . . . . . .52
CERTAIN INFORMATION CONCERNING ACQUISITION AND THORN. . . . . . . 52
INDEPENDENT PUBLIC ACCOUNTANTS. . . . . . . . . . . . . . . . . .. . . . .52
OTHER MATTERS TO COME BEFORE THE MEETING. . . . . . . . . . . . . . . .53
INDEX TO FINANCIAL STATEMENTS OF ADVANTAGE COMPANIES, INC . . . . . . . .54
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
<PAGE>
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"), outstanding immediately prior to the
effective time of the Merger (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 of the Company 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 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. Such 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."
If the Merger is not consummated, the Company intends to continue
its business, including expansion of its nearly mature Rent-A-
CenterTM business and of its new AdvantEdge Rental Purchase, Inc.
("AdvantEdge") stores. The THORN Lawsuit (as defined and discussed
below) will be vigorously defended. Company management will,
however, continue to seek opportunities to maximize stockholder
value, and may pursue a possible sale of the Company to a third
party or to members of management. Presently, however, there are
no such plans or interested bidders other than THORN.
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 ___, 1995. This
Proxy Statement is being furnished by the Company and was first
mailed on or about November ___, 1995 to holders of record of
Common Stock as of the close of business on the Record Date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in accordance therewith files 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
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511,
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-CenterTM 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-CenterTM 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-CenterTM
stores in the United States. THORN also operates 24 Rent-A-Centre
stores in Canada and 126 RemcoTM stores in 16 states. THORN has its
principal executive offices located at 8200 E. THORN 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 of THORN. 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.THORN 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. See "THE SPECIAL
MEETING - Date, Time and Place of Special Meeting."
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 shares of 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. Such 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 - Vote
Required."
The Merger
Background of the Merger. Merger negotiations in May and June
of 1995 between the Company and THORN resulted in tentative
agreement with regard to price and the four largest shareholders of
the Company indicated their willingness to accept $17.50 per share
of Common Stock. Later calculations revealed that the actual
number of shares of Common Stock, together with shares of Common
Stock issuable upon conversion of Preferred Stock and exercise of
outstanding options, was somewhat lower than previously estimated.
This difference allowed for an increase in the Purchase Price to
$18.50 for shares other than those held by the four largest
shareholders. The four largest shareholders have executed the
Advantage Agreement and have agreed to accept the original offer of
$17.50 as the Purchase Price for their shares. Under the Advantage
Agreement, these four stockholders have agreed to vote their shares
of Common Stock in favor of the adoption and approval of the Merger
and the Merger Agreement. Together, their shares represent
approximately 77% of the outstanding shares of Common Stock, thus
the Merger Agreement and the Merger are assured to receive the
affirmative vote of the required majority of the shareholders. 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 interests of and
fair to 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."
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."
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 treasury of the
Company or any of its subsidiaries, 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. The
Purchase Price is $18.50 per share of Common Stock, except that the
four largest shareholders in the Company have agreed to accept
$17.50 per share. A letter of transmittal for use in surrendering
stock certificates and obtaining payment for surrendered shares
will be made available to and will be mailed to stockholders
promptly following 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. These
interests include, among other things, (i) certain arrangements
with respect to outstanding options to purchase Common Stock
granted under Company stock option plans; (ii) employment
agreements to be offered by THORN to the Company's President, James
G. Steckart and its Vice President-Marketing, A. Tracy Burton;
(iii) the payment of Seven Hundred Fifty Thousand and No/100
Dollars ($750,000.00) at closing of the Merger to the Company's
Chairman and Chief Executive Officer, Daniel J. Taylor in
consideration for his agreement not to compete with THORN,
Acquisition or the Company for a period of five (5) years after the
closing date; (iv) the agreement to sell the Company's
headquarter's real estate and certain computer, telephone and
office equipment and fixtures and furniture located at the
headquarters to Property Management Corp., a company in which Mr.
Taylor owns fifty (50%) percent of the equity interest and of which
he is President and a Director, for consideration based on
appraisal of such property; (v) certain bonuses which may be paid
to selected key employees under the Merger Agreement; (vi) the sale
of Tidewater Rental Corp., ("Tidewater"), a privately held
affiliated company having certain common ownership and management
with the Company, by the stockholders thereof to THORN; (vii) the
agreement to dismiss with prejudice all claims and counterclaims in
the lawsuit filed on December 27, 1994 in the District Court of
Sedgwick County, Kansas naming as defendants the Company, COMCOA,
AdvantEdge, Tidewater, Mr. Taylor, Mr. Steckart and company
employees Greg Bunn, Kurt Doerr, and Edward Stanko (the "THORN
Lawsuit"); and (viii) the significant percentage of Common Stock
owned by Company directors, Mr. Taylor, Mr. Robert W. Moore and
David M. Carney. 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; Reasons
for the Merger."
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
Agreement being accurate as of the date of the Merger Agreement and
continuously through 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 and the execution of a mutual release from
liability 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 Class A
Cummulative Convertible Preferred Stock, par value $100 per share
(the "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, as of the closing date of the Merger, 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. See "THE MERGER - The Merger Agreement
- - Conditions."
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 holders of the shares formerly
representing Common Stock will no longer possess any interest in
the Company other than the right to receive the Purchase Price.
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
the NASDAQ Stock Market ("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 - 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 thereto 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, ruling or other action shall have 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 or
resulted in the failure of the Merger to have occurred by such
date. Pursuant to the Merger Agreement, the Company has the such
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 contained therein, which would
prevent the consummation of the Merger and 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 an amendment to the Advantage
Agreement extending the termination date thereof and the term of
the noncompete agreements included therein, prior to October 31,
1995. See "THE MERGER - The Merger Agreement - Amendment or
Termination." The parties to the Advantage Agreement executed the
Amendment to the Advantage Agreement on October 6, 1995. See "THE
MERGER - Background of the Transaction - The Advantage Agreement."
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. Each holder of the Common Stock who does not
vote in favor of the Merger Agreement and the Merger and who
complies with the statutory procedures set forth in Section 262 of
the DGCL is entitled to the rights and remedies of dissenting
stockholders provided in Section 262 of the DGCL, a copy of which
is attached hereto as Annex D. Stockholders desiring to exercise
such rights must not vote in favor of the Merger Agreement and the
Merger and must deliver to the Company a written demand for
appraisal prior to the vote on the Merger Agreement and the Merger.
A holder of Common Stock who wishes to exercise appraisal rights
must be the record holder on the date the written demand is made
and must continue to hold such shares through the Effective Time.
Within one hundred twenty (120) days of the Effective Time, but not
thereafter, the Company or any such stockholder may file a petition
in the Delaware Chancery Court demanding a determination of the
fair value of the Common Stock. A stockholder may withdraw a
demand for appraisal by delivering a written withdrawal to the
Company; however, any attempt to withdraw an appraisal demand more
than sixty (60) days after the Effective Time will require the
written approval of the Company and no appraisal proceeding in the
Delaware Chancery Court may be dismissed without the approval of
the Court. 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 Board of Directors has approved and adopted 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 of Common Stock 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 the DGCL 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 approval and adoption of
the Merger Agreement and the Merger. Certain stockholders who are
parties to the Advantage Agreement have 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 the DGCL, 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 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 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 4,242,938 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 the statutory procedures detailed in Section 262
of the DGCL 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-CenterTM franchise territories, and thus had little
opportunities for future growth.
In January 1995, Company Chairman and Chief Executive Officer
Daniel J. Taylor discussed the possible interest in the Company of
a potential purchaser of the business, but the potential purchaser
evidenced no serious interest in purchasing the Company. Such
discussions were conditioned upon the confidentiality of the
discussions and of the identity of the potential purchaser. Mr.
Taylor and the Board of Directors have believed that THORN's
franchisor relationship with the Company, and more recently the
THORN Lawsuit, 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 of AdvantEdge by
the Company.
On December 27, 1994, prior to the transfer of AdvantEdge to the
Company, THORN filed the THORN Lawsuit in the District Court of
Sedgwick County, Kansas, and included as defendants the Company,
COMCOA, AdvantEdge, Tidewater Rental Corp., a Virginia corporation
("Tidewater"), Mr. Taylor, Company President James Steckart and
Company employees Mr. Bunn, Mr. Doerr, and Mr. 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
ownership and management with the Company. Tidewater is also a
Rent-A-CenterTM franchisee, having 20 stores in a franchise area
encompassing a large part of the state of Virginia. Common
management of Tidewater and the Company is as follows:
Name Tidewater Rental Advantage Companies
Corp. 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 and/or 5%
stockholders of the Company) are stockholders of Tidewater.
Messrs. Taylor and Rudd each own over 20% of Tidewater's common
stock, par value $1.00 per share (the "Tidewater 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. On July 9, 1995, Messrs. Taylor, Burton, Simon, Steckart and
Rudd entered into a letter of intent with THORN (the "Tidewater
Letter of Intent") and all of the stockholders of Tidewater and
THORN executed the Tidewater Agreement (the "Tidewater Agreement").
See "THE MERGER - Interests of Certain Persons in the Merger -
Tidewater Purchase."
Letter of Intent. After the June 29, 1995 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 a 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 executed version of the letter of intent dated July
9, 1995 (the "Letter of Intent"), this fee was eliminated and the
"no solicitation" provisions were 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 Common
Stock, Preferred Stock and Company stock options outstanding. In
the negotiations pertaining to the Letter of Intent it was
discovered that the actual number of shares of Common Stock, shares
of Common Stock subject to options and shares of Preferred Stock
were somewhat lower than the previous 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 such 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 such 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 THORN Lawsuit, and prior efforts of management
to solicit the interest of qualified buyers of the Company.
Various valuation methods were reviewed, including percentage of
sales calculations, review of comparable transactions, and review
of recent earnings multiples. Mr Taylor noted that the proposed
transaction with THORN represented approximately 125% of prior year
revenues, and 14.5 times prior year earnings, and stated his belief
that these ratios compared favorably with recent comparable
transactions in the rent-to-own industry. The Board considered
THORN, its longstanding relationship with the Company, and the
possible effects of the Merger on the Company's employees and
customers. Factors negatively affecting the marketability of the
Company to parties other than THORN were discussed, including the
THORN Lawsuit and THORN's position as franchisor of the Company's
Rent-A-CenterTM stores. With respect to the THORN Lawsuit, the
Board determined that the consideration to be paid by THORN should
not, and that THORN's offer did not appear to, reflect any discount
related to the litigation. Although discussions about the proposed
transaction arose out of settlement negotiations pertaining to the
THORN Lawsuit, the Board felt that the litigation should not be
considered with respect to price. The Company also reviewed the
competitive pressures affecting the Company's Rent-A-CenterTM stores
and the rent-to-own industry in general and concluded that this was
the appropriate time to sell the Company. The purchase of
Tidewater by THORN was not discussed or considered as a factor in
the Board's decision regarding THORN's offer for 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
and/or officer of the Company 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 and/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 each of the Indemnity Agreements.
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 Indemnity Agreements also require 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 Agreements or otherwise. The
indemnification rights under the Indemnity Agreements are non-
exclusive and the directors retain their rights to indemnification
under the Company's Certificate of Incorporation and Bylaws and
under the DGCL. Pursuant to a condition contained in the Merger
Agreement, the parties to the Indemnity Agreements executed
amendments thereto providing for certain limitations on the
indemnification rights of indemnitees under the Indemnity
Agreements and limiting advance payment of litigation costs to
indemnitees for any claims brought by THORN or Acquisition.
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 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 and adoption of the Merger Agreement and the Merger. The
purchase options granted to THORN pursuant to the Advantage
Agreement originally were to expire on November 30, 1995, subject
to automatic extension if the option could not be exercised
because of actions taken by any of Messrs. Taylor, Carney, Moore or
Rudd. 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. The four individuals party to
the Advantage Agreement agreed to convert their Preferred Stock
into Common Stock prior to the closing date of the Merger. Under
the terms of the Company's Certificate of Incorporation, such
conversion shall be accomplished at the rate of 50 shares of Common
Stock for each share of Preferred Stock. All of the individual
parties to the Advantage Agreement have agreed to convert their
shares of Preferred Stock prior to the Merger and will then
receive, pursuant to the Merger Agreement, $17.50 per share of
Common Stock resulting from such conversion of the Preferred Stock.
Pursuant to the terms of the Advantage Agreement, Messrs.
Taylor, Carney, Moore and Rudd have agreed to certain covenants
against competition, including a five-year covenant not to engage
in the rent-to-own business at any location in the United States.
Such individuals 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 such covenants, but under the First 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 with the businesses of the Company, THORN or Acquisition.
See "THE MERGER - Interests of Certain Persons in the Merger -
Covenant Not To Compete Payment."
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 consummation of the Merger, 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, largely
seasonal and reflective of trends experienced by the entire
industry. Nevertheless, the pace of negotiations slowed until mid-
September, when the principals for THORN and the Company agreed to
modify certain basic terms of the draft Merger Agreement, including
increases in the Total Equity requirement and the added condition
that THORN be satisfied in its sole discretion with the business,
operations and assets of the Company, as described below.
The modified structure for the Merger, now reflected in the
Merger Agreement, extends the closing 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 contained in
the Merger Agreement. See "THE MERGER - The Merger Agreement -
Conditions." The Conditions include, among other things, a
requirement that the "Total Equity" of the Company and its
subsidiaries as of November 26, 1995 be at least $30,600,000. The
term "Total Equity" means the Company's stockholders equity,
calculated in a manner consistent with the audited annual
consolidated financial statements of the Company; provided, that
the Total Equity calculation shall not include (i) any amounts
attributable to the exercise of options pursuant to the Merger
Agreement (See "THE MERGER - The Merger Agreement - Company
Options"), (ii) any adjustment for any redemption of Preferred
Stock pursuant to the Merger Agreement (See "THE MERGER - The
Merger Agreement - Conditions"), or (iii) any adjustments related
to amounts recorded on the financial statements for 1993
compensatory nonqualified stock option grants by the Company,
certain bonus payments which might be paid subsequent to November
26, 1995 and the sale of the Company's headquarters in Wichita,
Kansas. The Company, however, may subtract from the Total Equity
requirement of $30,600,000 amounts paid for early cancellation of
Company Options pursuant to the Merger Agreement. Prior to the
consummation of the Merger, THORN shall verify that the Total
Equity amount as of November 26, 1995 is in compliance with the
foregoing requirement. 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. Such satisfaction would include, but not be limited
to, a favorable review of the Company's rental contract portfolio,
employee turnover considerations, the physical condition of the
Company's stores, satisfactory relationships with the Company's
customers and the Company's overall operating condition, as well as
the overall financial condition of the Company. The Merger
Agreement provides that THORN's determination with respect to the
business, operations, results of operations, conditions, assets,
prospects and liabilities of the Company is not subject to any
requirement of reasonableness. This condition gives THORN very
broad rights to refuse to consummate the Merger if it is in any way
dissatisfied with any of the foregoing aspects of the Company.
The extension of the time period for consummation of 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 consummation of
the Merger. Any failure to meet the conditions for consummation of
the Merger may result in THORN's refusal to consummate the Merger,
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, 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) limited growth opportunities under existing franchise
agreements with THORN which affected the Company's
ability to obtain an attractive bid from any party other
than THORN;
(ii) the effect of the THORN Lawsuit on the marketability of
the Company to any other party;
(iii) the report from GKB 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 of Common
Stock 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 of the Company (other
than those party to the Advantage Agreement and
specifically excluding officers, directors, and employees
of the Company) 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 and each of its subsidiaries' businesses
and operations will be integrated with the other rent-to-own
businesses and operations of THORN.
Opinion of Financial Advisor
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, but did make a presentation to the Board with regard to
its opinion on September 25, 1995. 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 (the "Fairness Opinion"), 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
Fairness 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 Fairness
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 Fairness Opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such
Fairness Opinion.
In rendering its Fairness 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, and 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.
GKB was not retained to review the Tidewater purchase or to
provide any advice or opinion with respect thereto. See "THE
MERGER - Background of the Transaction - Tidewater Agreements."
The Fairness Opinion does not consider the separate Tidewater
purchase. In addition, GKB has not reviewed and its Fairness
Opinion does not consider the proposed real estate transaction
between the Company and a corporation controlled by Mr. Taylor.
See "THE MERGER - Interests of Certain Persons in the Merger - Real
Estate Transaction."
The following is a summary of the financial analyses utilized
by GKB in arriving at its Fairness 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-CenterTM 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 predecessor to 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 analysis of the
various financial data and ratios for the comparable companies in
relation to those of the Company are (1) the Company's slow down in
its revenue growth rate since January 23, 1994, including the first
two quarters of 1995-1996 and (2) the Company's profit margin drops
in the first two quarters of 1995-1996. The comparables have had
higher revenue growth rates over the same relative time period, as
well as improvement in profit margins. 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
(3) "Street
(1) Last Reported (2) Latest Estimates"
Fiscal Year Months 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 stockholders (excluding those
stockholders set forth above). 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 Fairness 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 seven transactions,
each of which involved the acquisition of a rent-to-own company by
a publicly held entity.
The seven transactions were:
(A) Choice's acquisition of stores from DEF Investments, Inc.
(the "Choice-DEF" acquisition);
(B) Way's acquisition of D.A.M.S.L. Corp. (the "Way-
D.A.M.S.L." acquisition);
(C) Pro Rental, Inc. purchase of MRTO Holdings (the "MRTO"
acquisition);
(D) Way's acquisition of the rental merchandise and contracts
of five rental-purchase stores (the "Way-5 Stores" acquisition);
(E) Choice's acquisition of stores from Crown Leasing
Corporation and affiliate (the "Choice-Crown" acquisition);
(F) Way's acquisition of McKenzie Leasing Corp (the "Way-
McKenzie" acquisition); and
(G) Choice's acquisition of Pro Rental, Inc. ("Pro-Rental")
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) price as multiple of
monthly revenues per latest fiscal year; (5) price as multiple of
monthly revenues per annualized revenues per latest reported
period; (6) stores acquired; (7) revenue per store per latest
fiscal year; (8) revenue per store per annualized revenues from
latest reported period; (9) price/revenue per latest fiscal year;
(10) price/revenue per annualized revenues from latest reported
period; (11) price per store; (12) price/EBITDA (latest fiscal
year); and (13) price/EBITDA (annualized from latest reported
period). For this purpose, "EBITDA" is earnings before interest,
taxes, depreciation and amortization.
<PAGE>
Analysis of Selected Transactions Within the Rent-to-Own Industry
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(A) (B) (C) (D)
Acquiror RCII Rent-Way,Inc. Pro-Rental,Inc. Rent-Way,Inc.
Date Entity April,1993 May, 1994 July, 1995 February,1995
Acquired(a) DEFInvestments D.A.M.S.L.Corp. MRTO Holdings 5 Rental Stores
(1) Price $24,300,000 $7,000,000 $9,500,000 $1,015,000
(2) Revenues
- - Latest
Fiscal Year $38,618,914 Approx.9,600,000 63,408,635 Approx.$2,000,000
(3) Revenues
- - Annualized
from Latest
Reported
Period $40,088,379 N/A 64,578,060 N/A
(4) Price as
a Multiple of
Monthly
Revenues
Latest
Fiscal Year 7.6 x 8.8 x 1.8 x 6.1 x
(5) Price as
a Multiple
of Monthly
Rev.- latest
per.
annualized 7.3 x N/A 1.8 x N/A
(6) Stores
Acquired 84 20 135 5
(7)
Revenue/Store
for Latest
Fiscal Year 459,749 Approx.480,000 469,694 $400,000
(8)
Revenue/Store
Annualized
from Latest
Reported
Period 477,243 N/A 478,356 N/A
(9)
Price/Revenue
for Latest
Fiscal Year 0.63 x 0.73 x 0.15 x 0.51 x
(10)
Price/Revenue -
Annualized
from Latest
Reported
Period 0.61 x N/A 0.15 x N/A
(11) Price
Per Store 289,286 350,000 70,370 203,000
(12)
Price/EBITDA
- - Latest
Fiscal year 1.82 x N/A 0.56 x N/A
(13)
Price/EBITDA
- - Annualized
from Latest
Reported
Period 1.92 x N/A 0.54 x N/A
</TABLE>
(a) Amounts for Crown Leasing Corporation only reflect Rent-to-Own
Division.
(b) Calculated as if $18.50 per share was paid to all stockholders of the
Company.
Analysis of Selected Transactions Within the Rent-to-Own Industry (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(E) (F) (G) (H)
Acquiror RCII Rent-Way,Inc. RCII THORN
Date Entity April, 1995 July,1995 August, 1995 Pending
Acquired (a) Crown Leasing McKenzie Leasing Pro Rental, Inc. Advantage Cos.
(1) Price $20,600,000 $17,010,200 $38,400,000 $94,200,000 (b)
(2) Revenues - Latest
Fiscal Year 35,130,112 22,663,726 65,820,353 71,371,191
(3) Revenues -
Annualized from
Latest Reported
Period 33,069,160 21,992,512 N/A 69,721,748
(4) Price as a
Multiple of
Monthly Revenues
Latest Fiscal
Year 7.0 x 9.0 x 7.0 x 15.8 x
(5) Price as a Multiple
of Monthly Rev.-
latest per.
annualized 7.5 x 9.3 x N/A 16.2 x
(6) Stores
Acquired 72 45 135 104
(7) Revenue/Store for
Latest Fiscal
Year 487,918 503,638 487,558 686,261
(8) Revenue/Store
Annualized from
Latest Reported
Period 459,294 488,722 N/A 670,401
(9) Price/Revenue for
Latest Fiscal
Year 0.59 x 0.75 x 0.58 x 1.32 x
(10) Price/Revenue -
Annualized from
Latest Reported
Period 0.62 x 0.77 x N/A 1.35 x
(11) Price Per
Store 286,111 378,004 284,444 905,769
(12) Price/EBITDA -
Latest Fiscal
year 2.05 x 1.95 x 1.61 x 3.01 x
(13) Price/EBITDA -
Annualized from
Latest Reported
Period 2.65 x 2.68 x N/A 3.26 x
</TABLE>
(a) Amounts for Crown Leasing Corporation only reflect Rent-to-Own Division.
(b) Calculated as if $18.50 per share was paid to all stockholders of
the Company.
The data indicates that the Purchase Price is at the upper end
of pricing for similar industry transactions. Based on monthly
revenue multiple, the price is 76% higher than the next highest
price of the latest fiscal year and 74% higher than the next
highest price for the annualized revenues from the latest reported
period. Based on price per store, the price per store is 140%
higher than the next highest. Based on earnings before interest,
taxes, depreciation, and amortization, multiple, the multiple is
47% higher than the next highest multiple based on the latest
fiscal year and 22% higher than the next highest multiple based on
the annualized revenues from the latest reported period.
The above comparisons, which are all higher than any of the
selected transactions, supports the conclusion that the Purchase
Price is fair, from a financial point of view, to the Company's
public stockholders.
The summary of the Fairness 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 the Fairness 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 Fairness 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 and adoption of the Merger
Agreement and the Merger. 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 Company'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 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 Incentive 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 (less applicable withholding taxes)
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. None of the
Company Options are held by any individual party to the Advantage
Agreement. 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 Company 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
Messrs. Steckart and Burton, will be offered, at or prior to the
Effective Time, two year employment agreements with THORN .
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 Common Stock and Preferred Stock by THORN. See
"THE MERGER - Background of the Transaction - 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
THORN 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, building, computer equipment,
furnishings, fixtures and specified office equipment for a cash
consideration of $890,000, representing the aggregate appraised
value of the real estate, building 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, building, 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 - Tidewater Agreements," 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 the Tidewater Letter of Intent
and all of the stockholders of Tidewater executed the 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 (the "Tidewater Stock
Purchase Agreement") under which the common stock of Tidewater may
be purchased by THORN for cash consideration to such stockholders
of $15,000,000 in the aggregate, plus assumption and payment of
Tidewater's notes to certain of its 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 Merger, however, is not conditioned upon the
closing of the Tidewater Stock Purchase Agreement. The Tidewater
Stock Purchase Agreement contains representations and warranties,
covenants and conditions which are similar to those contained in
the Merger Agreement. The consideration to be paid by THORN to the
Tidewater shareholders was negotiated by the parties to the
Tidewater Stock Purchase Agreement. Management of the Company
believes that the Purchase Price to be paid by THORN with respect
to the Common Stock of the Company represents a higher valuation
than the consideration to be paid in the Tidewater Purchase, when
evaluated as a multiple of current earnings.
THORN Lawsuit. As detailed in "THE MERGER - Background of the
Transaction" and "BUSINESS INFORMATION CONCERNING THE COMPANY -
Legal Proceedings", the Company, COMCOA, AdvantEdge, Tidewater, Mr.
Taylor, Mr. Steckart and Company employees Messrs. Bunn, Doerr and
Stanko are all defendants in the THORN Lawsuit. As noted in "THE
MERGER - The Merger Agreement - 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. Therefore, in addition to the Company
and its subsidiaries, the other defendants to the THORN Lawsuit
would benefit from the dismissal of the THORN Lawsuit and the
release from liability with respect thereto. Quantification of the
benefits to be received by such other defendants is not practicable
as the relief sought in the THORN Lawsuit is primarily declaratory
and injunctive in nature. To date, the Company has borne all legal
costs and expenses associated with defense of the THORN lawsuit on
behalf of all defendants thereto.
Security Ownership. As detailed in "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT", Company directors Mr.
Taylor, Mr. Moore and Mr. Carney beneficially own, in the
aggregate, 3,107,660 shares of Common Stock representing 70.4% of
the shares of Common Stock outstanding (assuming full conversion of
Preferred Stock). Each of the foregoing individuals is a party to
the Advantage Agreement and will be entitled to receive $17.50 per
share upon consummation of the Merger.
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 Common Stock issued and outstanding immediately prior to
the Effective Time (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 the right to receive the Purchase Price.
Effective Time of the Merger. The Effective Time 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 approval and adoption of the
Merger Agreement and the Merger is assured without the affirmative
vote of any other stockholder of the Company.
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 a cash amount in
respect thereof (less applicable withholding taxes) equal to the
product of (x) the number of shares previously subject to such
Company Options, and (y) the excess, if any, of $18.50 over the
exercise price per share previously subject to such Company
Options; provided, however, the aggregate cash consideration for
cancellation of the Company Options shall not exceed $2,839,625.
The Company shall terminate all of the Company Option Plans as of
the Effective Time.
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 and its subsidiaries' organization, qualification
to do business and capitalization, (ii) the Company's and its
subsidiaries' authority to enter into and perform its obligations
under the Merger Agreement, (iii) the delivery of the Fairness
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 Commission, (vii) the Company's liabilities, (viii) the absence
of certain 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)
environmental matters, (x) litigation, (xi) intellectual property,
(xii) taxes, (xiii) employee benefits, (xiv) certain significant
agreements, (xv) real estate and leases, (xvi) labor and employment
matters, (xvii) 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 Common Stock entitled to
vote thereon, (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 continuously through 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 consummation of the Merger, and (vi)
dismissal with prejudice of all claims and counterclaims in the
THORN Lawsuit and the execution of a mutual release from liability
by all parties to the THORN Lawsuit regarding any claims or
counterclaims relating thereto.
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 (all of the
holders of the Preferred Stock have expressed their intention to
convert the Preferred Stock held by them immediately prior to
consummation of the Merger and the Comapny should not be required
to and has no present intention to redeem the Preferred Stock);
(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 of the Merger;
(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 indemnitees under such Indemnity Agreements for any claims
brought by THORN or Acquisition (such an amendment to each of the
Indemnity Agreements has been executed by the parties thereto);
(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 thereto 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 have 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 First Amendment to the
Advantage Agreement extending the termination date thereof and the
term of the non-compete agreements contained therein, prior to
October 31, 1995 (the First Amendment to the Advantage Agreement
was executed by all the parties to the Advantage Agreement on
October 6, 1995).
Conduct of Business by the Company before the Merger. The
Company and each of its subsidiaries 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 and each of its subsidiaries has agreed not
to (without the prior written consent of THORN), among other
things, (i) amend its Certificate of Incorporation or Bylaws, (ii)
authorize, issue, deliver 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 or
(xii) take any action outside the ordinary course of business,
except as specifically permitted by the Merger Agreement. The
Company has agreed to give THORN and Acquisition and their counsel,
financial advisors, auditors and other authorized representatives
access to employees, landlords, suppliers, customers, vendors and
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 or approve 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 its 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 effectuate the exchange of certificates formerly
representing shares of Common Stock for the Purchase Price. The
Merger Agreement requires that on or prior to the date of the
Merger, THORN or Acquisition will deposit with the Paying Agent the
funds necessary to pay the Purchase Price. 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. Until surrender and exchange, each such certificate
(other than certificates representing shares of Common Stock held
by THORN, Acquisition, the Company or any subsidiary thereof or by
individuals who have perfected their appraisal rights pursuant to
the DGCL) shall represent solely the right to receive the Purchase
Price. 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
to the claims and counterclaims 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, Acquisition 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
thereunder, will require the concurrence of a majority of the
directors of the Company then in office who are not designees of
Acquisition.
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 franchises 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
officers and directors of Acquisition at the Effective Time will
become the officers and directors of the surviving corporation.
The Company is currently subject to the information filing
requirements of the Exchange Act, and in accordance therewith, is
required to file reports and other information with 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 THROUGH THE EFFECTIVE DATE.
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. No
appraisal proceeding in the Court of Chancery may be dismissed
without the approval of the Court.
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 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 the Effective Time. The Company
has paid regular quarterly dividends on its Preferred Stock, but
such payments have been suspended by agreement with the holders of
the Preferred Stock 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.
<TABLE>
Amount and Nature of Beneficial Ownership
Title of Class
<CAPTION>
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 of Common
Stock and Preferred Stock 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 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 except 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.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
Title of Class
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 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 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 non-qualified
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
The Company was incorporated in 1994. It is a holding company
with three wholly owned operating subsidiaries, COMCOA, AdvantEdge
and 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-CenterTM 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-
CenterTM 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-
CenterTM stores for all of Florida and for certain portions of
Mississippi, Alabama and Georgia pursuant to franchise agreements
with THORN. Rent-A-CenterTM 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-CenterTM 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 ("Gulf States"). See
"BUSINESS INFORMATION CONCERNING THE COMPANY - General Information
on Business - 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, 1995 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 Mr. Taylor, the
Chairman of the Board 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-CenterTM 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-CenterTM 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-CenterTM and its
remaining franchisees.
AdvantEdge operations are distinguished from the Rent-A-CenterTM
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-CenterTM 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-CenterTM 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-CenterTM stores by acquiring all of the issued and
outstanding capital stock of Gulf States, an affiliated franchisee.
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-CentersTM
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-CenterTM 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-CenterTM 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.
Since the execution of the Letter of Intent on July 9, 1995, the
Company's expansion plans, with respect to both Rent-A-CenterTM and
AdvantEdge stores, has effectively been halted. If the Merger is
not consummated, the Company would expect to resume expansion under
its preexisting plans.
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 addition, competition exists from other sources, such
as retail stores and rental 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 headquarters 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, a
corporation controlled by Mr. Taylor, has entered into an Agreement
of Purchase and Sale 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 the Merger. See "THE
MERGER - Interests of Certain Persons in the Merger - Real Estate
Transaction."
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-CenterTM), 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 Messrs. Taylor, Steckart, and
employees Messrs. Bunn, Doerr and 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-CenterTM 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 thirty-six ending October 1, 1995 and October 2, 1994.
The year-end data is from audited financial statements of the
Company. The thirty-six 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>
Thirty-six Weeks
Ended Year Ended
<S> <C> <C> <C> <C> <C> <C> <C>
10/1/95 10/2/94 1/22/95 1/23/94 1/24/93 1/26/92 1/27/91
Operating Data (In thousands except per share data)
Revenues $50,874 $49,082 $71,371 $67,042 $59,025 $52,876 $53,061
Net Earnings 3,41 4,540 6,261 5,818 5,041 4,053 3,500
Net Earnings per Common
and Common Equivalent
Share-Primary and
Fully Diluted .68 .90 1.25 1.15 1.00 .81 .70
Balance Sheet Data 10/1/95 10/2/94 1/22/95 1/23/94 1/24/93 1/26/92 1/27/91
Total Assets $37,592 $32,691 $32,903 $29,405 $27,593 $22,044$21,540
Long-term debt and
capitallease
obligations -0- -0- -0- -0- 6,300 5,500 8,878
Stockholders'
Equity 29,801 24,681 26,393 21,493 15,271 11,147 6,999
Book Value per
Common Share 6.69 5.50 5.91 4.67 3.26 2.27 1.31
</TABLE>
The following table sets forth supplemental consolidated
quarterly financial data for the Company and subsidiaries for each
of the quarterly periods within the two most recent fiscal years
and the thirty-six week interim period ended October 1, 1995. Such
supplemental financial data 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.
<TABLE>
<CAPTION>
Supplemental Quarterly Financial Data
Fiscal Year Ended January 22, 1995:
<S> <C> <C> <C> <C>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
Revenues $16,653,663 $16,568,493 $15,859,889 $22,289,146
Rental Income Less
Merchandise
Depreciation $11,387,722 $11,315,045 $10,618,638 $14,784,272
Operating Income $ 2,849,680 $ 2,539,435 $ 1,906,961 $ 2,716,630
Net Earnings $ 1,786,970 $ 1,560,218 $ 1,193,134 $ 1,720,561
Net Earnings
Per Common Share $ .35 $ .31 $ .24 $ .35
Weighted Average
Common and Common
Share
Equivalents 5,068,287 5,017,496 4,992,401 5,015,683
Fiscal Year Ended January 23, 1994:
Revenues $15,847,995 $15,671,863 $15,047,627 $20,474,492
Rental Income Less
Merchandise
Depreciation $10,953,177 $10,722,216 $10,285,748 $14,102,652
Operating Income $ 2,775,628 $ 2,149,797 $ 1,502,548 $ 3,331,685
Net Earnings $ 1,694,093 $ 1,486,105 $ 941,003 $ 1,694,326
Net Earnings Per
Common Share $ .34 $.30 $ .18 $ .33
Weighted Average
Common and Common
ShareEquivalents 4,992,418 5,016,110 5,088,317 5,100,147
Interim Period Ended October 1, 1995:
Revenues $17,516,525 $17,344,349 $16,013,303 -----
Rental Income Less
Merchandise
Depreciation $11,784,366 $11,908,288 $10,926,908 -----
Operating Income $ 2,423,682 $ 1,796,488 $ 1,148,830 -----
Net Earnings $ 1,527,245 $ 1,127,919 $ 758,915 -----
Net Earnings Per
Common Share $ .30 $ .22 $ .15 -----
Weighted Average
Common Share
Equivalents 5,030,640 5,034,439 5,056,201 -----
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Quarterly Periods Ended October 1, 1995 and October 2, 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 36 week periods ended October 1, 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 third quarterly period of the current fiscal
year, the Company owned and was operating 98 Rent-A-Center stores
and 7 AdvantEdge Rental Purchase stores. During the same period in
the previous year, the Company owned and operated 93 Rent-A-Center
stores.
Total revenue increased $153,414 or 1% compared to the same
quarter last year. Total revenues attributable to AdvantEdge
subsidiary were $473,386 for the quarter. The Company acquired
this subsidiary in the fourth quarter of last year. This increase
in revenues from AdvantEdge more than offset the decrease in
revenues experienced by the Company's other subsidiary, COMCOA in
its operation of Rent-A-Center stores. Total revenues of COMCOA
decreased $319,972 or 2% for the quarter due to a decrease in the
volume of rental agreements. Management believes that the numerous
hurricanes and tropical storms affecting the southeastern United
States during the quarter had a significant negative impact on the
volume of rental agreements. Following is a summary of
consolidated revenue changes grouped by store maturation:
<TABLE>
<CAPTION>
Summary of Third Quarter Revenue Changes
Advantage Companies, Inc.
Fiscal Twelve Weeks Twelve Weeks
No. Year Ended 10/1/95 Ended 10/2/94 Increase Percentage
Stores Ended Revenues Revenues (Decreae) Change
<S> <C> <C> <C> <C> <C>
10 1996 $ 504,032 $ -- $ 504,032 N/A
6 1995 719,136 72,371 646,765 893.7%
10 1994 1,380,329 1,275,264 105,065 8.2%
4 1993 628,551 651,949 (23,398) (3.6%)
75 Prior to 1993 12,781,255 13,860,305 (1,079,050) (7.8%)
105 TOTAL $16,013,303 $15,859,889 $ 153,414 1.0%
</TABLE>
Costs and operating expenses increased 6.5% over the same quarter
in the previous year. Depreciation expenses of rental merchandise
decreased 4% from the prior year, primarily due to the decrease in
the number of rental agreements and the corresponding decrease in
items in rental inventory. Other costs and operating expenses
increased 11.5%, due primarily to growth in the number of stores
open.
Consolidated operating income for the quarter includes the loss
incurred by AdvantEdge in the amount of $448,979 due to start-up
costs and new store losses. Also included in consolidated
operations are the Company's costs of approximately $100,000
associated with the proposed acquisition by THORN. These two
factors are responsible for the majority of the 40% decrease in
operating income.
Total revenues attributable to the AdvantEdge were $832,945 for
the thirty-six weeks ended October 1, 1995. This accounts for 46%
of the year to date increase in total revenues. The remainder of
the increase is derived from growth in COMCOA stores. Following is
a summary of consolidated revenue changes grouped by store
maturation:
<TABLE>
<CAPTION>
Fiscal Thirty-six Weeks Thirty-six Weeks
No. of Year Ended 10/1/95 Ended 10/2/94 Increase Percentage
Stores Opened Revenues Revenues (Decrease) Change
<S> <C> <C> <C> <C> <C>
10 1996 $ 678,776 $ -- $ 678,776 N/A
6 1995 2,015,337 156,160 1,859,177 1190.6%
10 1994 4,517,360 3,644,923 872,437 23.9%
4 1993 2,054,223 1,997,733 56,490 2.8%
75 Prior to 1993 41,608,481 43,283,229 (1,674,748) (3.9%)
105 TOTAL $50,874,177 $49,082,045 $ 1,792,132 3.7%
</TABLE>
Costs and operating expenses increased 9% over the same thirty-
six week period in the previous year, due primarily to growth in
the number of stores. The increase in cost of merchandise sold is
due primarily to the higher undepreciated value of merchandise
purchased early or rented for the required term by customers who
rented merchandise for shorter terms than previously available in
a program introduced in fiscal 1995. The Company introduced the
program in response to competitive pressures to offer shorter
rental term requirements for ownership.
Included in the year-to-date consolidated operating income is the
loss incurred by AdvantEdge in the amount of $1,100,070, due to
start-up costs and new store losses. Also included in consolidated
operations are the parent company' costs of approximately $100,000
associated with the proposed acquisition by THORN Americas, Inc.
and $190,000 in legal fees to defend a lawsuit filed by THORN
regarding AdvantEdge.
Net property and equipment increased 12% since the end of the
preceding fiscal year due to the opening of ten new stores during
the year. Accrued compensation decreased 12% during the same
period due to the payment of annual bonuses for fiscal 1995.
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-CenterTM 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.
<TABLE>
<CAPTION>
SUMMARY OF 1995 REVENUE CHANGES - COMCOA, INC.
No. of Fiscal Year Fiscal 1995 Fiscal 1994 Increase Percentage
Stores Opened Revenues Revenues (Decrease)Change
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
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 sold 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. Salaries and wages
increased 8.7% from fiscal 1994 without regard to the $500,000
expense in 1994 for stock compensation. This increase is due
primarily to the increase in the number of stores. 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.
During fiscal 1995 the Company purchased land and a building and
remodeled the building to be used as its corporate headquarters.
The Company had leased office space in previous years. Equipment,
furniture and fixtures increased $885,390 during fiscal 1995.
Approximately $300,000 of this increase is related to additional
equipment to furnish the Company's new building. The remainder of
the increase is due to the opening of new stores. The increases in
autos and trucks and leasehold improvements are both due to the
growth in the number of stores open during the year. The deferred
income tax benefit increased 29% during the year due to an increase
in the dollar amounts of temporary differences between book and
taxable income.
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-CenterTM 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.
<TABLE>
<CAPTION>
SUMMARY OF 1994 REVENUE CHANGES - COMCOA, INC.
No. of Fiscal Year Fiscal 1994 Fiscal 1993 Increase Percentage
Stores Opened Revenues Revenues (Decrease) Change
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
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
non-qualified 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-CenterTM and
AdvantEdge 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 third quarterly fiscal 1996, the net cash provided by
operating activities totaled $18,101,466 compared to $16,561,940 in
the first thirty-six weeks of last year. The Registrant 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 THORN Drive, Wichita, Kansas
67226-2799 (telephone number 316-636-7368). As of the date of this
Proxy Statement, THORN owns all of the issued and outstanding
shares of Acquisition's common stock. The board of directors of
Acquisition has adopted a resolution adopting and approving the
Merger Agreement and the sole stockholder of Acquisition has
approved and adopted the Merger Agreement and the Merger.
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-CenterTM stores in the United States. THORN also
operates 24 Rent-A-Centre stores in Canada and 126 RemcoTM stores in
16 states. THORN has its principal executive offices located at
8200 East THORN 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
Corporate Secretary
Wichita, Kansas
November ___, 1995
<PAGE>
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-9
Condensed Consolidated Balance Sheets as of
October 1, 1995 and January 22, 1995 (unaudited) . . .. . . . .F-17
Condensed Consolidated Statements of Earnings for the
Twelve and Thirty-six Weeks Ended October 1, 1995
and October 2, 1994 (unaudited). . . . . . . . . . . . . . . .F-18
Condensed Consolidated Statements of Cash Flows for the
Thirty-six Weeks ended October 1, 1995 and
October 2, 1994 (unaudited). . . . . . . . . . . .. . . . . . .F-19
Notes to Condensed Consolidated Financial Statements (unaudited) .. . . .F-20
<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 34,314 727,641
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.
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
<TABLE>
ADVANTAGE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<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
NET EARNINGS $ 6,260,883 $ 5,817,527 $ 5,040,684
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.
<TABLE>
ADVANTAGE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<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
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
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
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.
<TABLE>
ADVANTAGE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<CAPTION>
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>
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
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 consideration
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.
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
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.
ADVANTAGE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
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>
ADVANTAGE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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:
1995 1994 1993
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
ADVANTAGE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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:
1995 1994 1993
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
The tax effects of temporary differences that give rise to deferred
tax assets are as follows:
1995 1994
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
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
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.
<PAGE>
ADVANTAGE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - INCOME TAXES - Continued
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:
Year ended
January 22, January 23, January 24,
1995 1994 1993
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
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.
ADVANTAGE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - STOCKHOLDERS' EQUITY - Continued
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:
Price range
Shares per share
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
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.
Part 1. Financial Information
Item 1. Financial Statements
ADVANTAGE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
ASSETS
October 1, 1995 January 22, 1995
Cash and cash equivalents $ 6,224,026 $ 2,304,731
Rental merchandise, net 18,031,369 18,517,632
Property and equipment, net 9,155,580 8,130,184
Franchise fees, net 964,957 1,008,947
Deferred income tax benefit 2,218,133 2,218,133
Prepaid expenses 498,628 311,721
Accounts receivable and other 499,345 411,255
$37,592,038 $32,902,603
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 3,241,531 $ 1,239,867
Accrued liabilities 1,606,558 1,648,441
Accrued compensation 2,442,824 2,765,218
Income taxes payable 500,395 355,802
Note payable -- 500,000
7,791,308 6,509,328
STOCKHOLDERS' EQUITY
Preferred stock 1,400,000 1,400,000
Common stock 43,740 43,740
Paid-in capital 5,433,200 5,445,075
Retained earnings 24,797,269 21,509,190
31,674,209 28,398,005
Less common shares of treasury stock,
at cost (131,062 at October 1, 1995,
and 141,562 at January 22,
1995) 1,873,479 2,004,730
29,800,730 26,393,275
$37,592,038 $32,902,603
The accompanying notes are an integral part of these statements.
<TABLE>
ADVANTAGE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
Oct. 1, 1995 Oct. 2, 1994 Oct. 1, 1995 Oct. 2, 1994
<S> <C> <C> <C> <C>
Revenues
Rental income $15,071,794 $14,928,831 $47,725,833 $46,069,764
Sales of merchandise 941,509 931,058 3,148,344 3,012,281
16,013,303 15,859,889 50,874,177 49,082,045
Costs and operating expenses
Cost of merchandise sold 697,594 585,988 2,424,599 1,879,081
Depreciation and amortization
Rental merchandise 4,144,886 4,310,193 13,106,271 12,748,359
Other 658,614 561,154 1,915,032 1,637,215
Salaries and wages 4,095,181 3,598,171 12,155,823 10,559,854
Advertising 886,794 820,041 2,704,721 2,522,995
Other operating expenses 4,381,404 4,077,381 13,198,731 12,438,465
14,864,473 13,952,928 45,505,177 41,785,969
Operating income 1,148,830 1,906,961 5,369,000 7,296,076
Net interest income 46,602 1,836 102,944 22,753
Earnings before
income taxes 1,195,432 1,908,797 5,471,944 7,318,829
Income taxes 436,517 715,663 2,057,865 2,778,507
NET EARNINGS $ 758,915 $ 1,193,134 $ 3,414,079 $ 4,540,322
Earnings per common
share - primary
and fully diluted $ .15 $ .24 $ .68 $ .90
Weighted average common
and common equivalent
shares outstanding 5,056,201 4,992,401 5,042,518 5,020,330
</TABLE>
The accompanying notes are an integral part of these statements.
ADVANTAGE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (decrease) in cash and cash equivalents
Thirty-six Weeks Ended
October 1, 1995 October 2, 1994
Net cash provided by operating activities $18,101,466 $16,561,940
Cash flows from investing activities
Purchase of rental merchandise (14,014,190) (15,175,298)
Purchase of property and equipment (2,801,906) (2,538,190)
Payment of initial franchise fees (116,250) (45,000)
Proceeds from sales of rental merchandise 3,148,344 3,012,281
Proceeds from sales of property and equipment 108,454 --
Net cash used in investing activities (13,675,548) (14,746,207)
Cash flows from financing activities
Purchase of treasury stock -- (1,527,857)
Proceeds from issuance of note payable -- 750,000
Repayment of note payable (500,000) (750,000)
Issuance of common stock 119,377 302,468
Payment of preferred stock dividends (126,000) (126,000)
Net cash used in financing activities (506,623) (1,351,389)
Net increase in cash and cash equivalents 3,919,295 464,344
Cash and cash equivalents at beginning of period 2,304,731 2,226,210
Cash and cash equivalents at end of period $ 6,224,026 $ 2,690,554
The accompanying notes are an integral part of these statements.
ADVANTAGE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. Condensed consolidated financial statements
The condensed consolidated balance sheet of Advantage Companies, Inc.
("Advantage" or the "Registrant") as of October 1, 1995, the consolidated
statements of earnings for the twelve and thirty-six week periods ended
October 1, 1995 and October 2, 1994, and the condensed consolidated
statements of cash flows for the periods then ended have been prepared by
the Registrant, 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 October 1, 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 Registrant'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 October 1, 1995, are not necessarily indicative of the consolidated
operating results for the full year.
B. Income Taxes
The Internal Revenue Service (IRS) has examined the January 27, 1991 federal
income tax return of COMCOA, Inc. ("COMCOA") and proposed additional taxes
of $1,132,571. The issue concerns the depreciation method for rental
merchandise. For income tax reporting purposes, COMCOA uses the income
forecasting method of depreciation for rental merchandise which is widely used
throughout the rental-purchase industry and which COMCOA 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.
COMCOA 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 $345,217 and
federal and state taxes payable in the amount of $1,250,767 with a
corresponding increase in the deferred income tax benefit. COMCOA 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.
COMCOA has continued to use the income forecasting method of depreciating
rental merchandise. The IRS has requested information concerning the
depreciation method used by COMCOA for rental merchandise on its 1992, 1993
and 1994 tax returns. COMCOA is in the process of providing this detail.
It is expected that the IRS will propose an adjustment to depreciation
expense for these years, resulting in additional tax to COMCOA. As these
adjustments are only for temporary differences, any additional tax owed
would increase the deferred income tax benefit.
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 Thirty-six Weeks Ended
Oct. 1, 1995 Oct. 2, 1994 Oct. 1, 1995 Oct. 2, 1994
<S>
Weighted average <C> <C> <C> <C>
common shares 4,242,819 4,225,190 4,238,813 4,245,262
Add common stock equivalents:
Convertible
preferred stock 700,000 700,000 700,000 700,000
Common stock options 113,382 67,211 103,705 75,068
5,056,201 4,992,401 5,042,518 5,020,330
</TABLE>
D. Contingency
The Registrant was named as one of several defendants in a lawsuit filed by
THORN Americas, Inc. (THORN) concerning the Registrant's Rent-A-Center
franchise contract and development agreement with THORN. The lawsuit was
filed in response to the defendant's involvement with AdvantEdge Rental
Purchase, Inc. ("AdvantEdge"), a wholly-owned subsidiary. 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
Registrant 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 between the Registrant and THORN pursuant to which the Registrant
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 Registrant's
stockholders other than Daniel J. Taylor, Robert W. Moore, Daniel M. Carney
and Leslie G. Rudd, who will receive $17.50 per share. THORN has stayed
proceedings in the lawsuit until November 30, 1995, and has agreed to
further stay proceedings until January 1996, for the purpose of allowing
the parties time to settle their disputes "through certain acquisitions."
On September 25, 1995, the Registrant signed a formal Agreement and Plan of
Merger for a subsidiary of THORN Americas, Inc. to acquire the Registrant.
The transaction, with a cash purchase price to the public shareholders of
$18.50 per share of Registrant common stock, is subject to the vote of the
shareholders of Registrant. Certain majority shareholders of Registrant
have entered into an option agreement in which they will vote in favor of
the sale of and grant THORN the option to purchase their security holdings
at $17.50 per share. The definitive agreement sets a closing for January,
1996 and is subject to THORN's satisfaction with the financial performance
and condition of Registrant.
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
<PAGE>
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.
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: /s/ Daniel J. Taylor
Name: Daniel J. Taylor
Title: Chief Executive Officer and
Chairman of the Board
<PAGE>
TABLE OF CONTENTS
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 . . . . . . . . . . . . . . . . . . . . 3
Section 1.8 Stock Options. . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.9 Stockholders' Meeting. . . . . . . . . . . . . . . . . . . . 4
ARTICLE II DISSENTING SHARES; EXCHANGE OF SHARES . . . . . . . . . . . . . 5
Section 2.1 Dissenting Shares. . . . . . . . . . . . . . . . . .. . . . . 5
Section 2.2 Exchange of Certificates.. . . . . . . . . . . . . .. . . . . 5
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . .. . . . . . 6
Section 3.1 Organization and Qualification; Subsidiaries. . .. . . . . . 6
Section 3.2 Capitalization of the Company and its Subsidiaries. . . . . 7
Section 3.3 Authority Relative to this Agreement; Fairness
Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.4 Non-Contravention; Required Filings and Consents. . .. . . . 9
Section 3.5 SEC Reports. . . . . . . . . . . . . . . . . . . . .. . . . 10
Section 3.6 Absence of Certain Changes. . . . . . . . . . . . . .. . . . 10
Section 3.7 Proxy Statement . . . . . . . . . . . . . . . . . . .. . . . 11
Section 3.8 Finder's Fee. . . . . . . . . . . . . . . . . . . . .. . . . 11
Section 3.9 Absence of Litigation . . . . . . . . . . . . . . . .. . . . 11
Section 3.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.11 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . 13
Section 3.12 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . 16
Section 3.14 Intellectual Property. . . . . . . . . . . . . . . . . . . . 19
Section 3.15 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.16 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.17 Real Property. . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.18 Contracts and Commitments. . . . . . . . . . . . . . . . . . 24
Section 3.19 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.20 Licenses and Permits . . . . . . . . . . . . . . . . . . . . 25
Section 3.21 Products Liability . . . . . . . . . . . . . . . . . . . . . 25
Section 3.22 Inventory; Motor Vehicles; Accounts Receivable;
Assets Necessary to Business . . . . . . . . . . . . . . . 25
Section 3.23 Bank Account . . . . . . . . . . . . . . . . . .. . . . . . 26
Section 3.24 Seller's Documentation . . . . . . . . . . . . . . . . . . . 26
Section 3.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.1 Organization. . . . . . . . . . . . . . . . . . . . . . .. . 27
Section 4.2 Authority Relative to this Agreement. . . . . . . . . . . . . 27
Section 4.3 Non-Contravention; Required Filings and Consents. . . . . . . 27
Section 4.4 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.5 Availability of Funds . . . . . . . . . . . . . . . . . . . . 28
Section 4.6 Absence of Litigation . . . . . . . . . . . . . . . . . . . . 28
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . .. . . . . . . . 29
Section 5.1 Conduct of Business of the Company. . . . . . . . . . . . . . 29
Section 5.2 Boards of Directors and Committees; Section 14(f) . . . . . . 31
Section 5.3 Proxy Statement. . . . . . . . . . . . . . . . . .. .. . . . 32
Section 5.4 Access to Information . . . . . . . . . . . . . . . . . . . . 32
Section 5.5 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . 33
Section 5.6 Public Announcements. . . . . . . . . . . . . . . . . . . . . 33
Section 5.7 Notification of Certain Matters. . . . . . . . . . . . . . . 34
Section 5.8 Treatment of Preferred Stock; Termination of Stock
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.9 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.10 Employee Matters . . . . . . . . . . . . . . . . .. . . . . . 35
Section 5.11 Office Lease . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.12 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.13 Consents of Third Parties. . . . . . . . . . . . . . . . . . 35
Section 5.14 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . . . . . . . 36
Section 6.1 Conditions to the Company's, Parent's and
Acquisition's Obligation to Effect the Merger . . . . . . . . 36
Section 6.2 Conditions to Company's Obligation to Effect
the Merger. . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.3 Conditions to Parent's and Acquisition's
Obligations to Effect the Merger . . . . . . . . . . . . . . 37
ARTICLE VII TERMINATION; AMENDMENT; WAIVER . . . . . . . . . . . . . . . 39
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . 40
Section 7.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.5 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.1 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.2 Entire Agreement; Assignment. . . . . . . . . . . . . . . . . 41
Section 8.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.5 Parties in Interest . . . . . . . . . . . . . . . . . . . . . 42
Section 8.6 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.7 Descriptive Headings. . . . . . . . . . . . . . . . . . . . . 43
Section 8.8 Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . 43
Section 8.9 Certain Definitions . . . . . . . . . . . . . . . . . . . . . 43
Section 8.10 Counterparts . . . . . . . . . . . . . . . . . . . . . .. . . 44
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 Termination
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
<PAGE>
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") (A) 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 (B) 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.
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
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
SCHEDULE A
ADVANTAGE
<TABLE>
<CAPTION>
Shares of Shares of Total Shares
Common Preferred of Common Stock
Name Stock Stock at Closing Date*
<S> <C> <C> <C>
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
</TABLE>
* 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 Seven Hundred Fifty
Thousand Dollars ($750,000.00), 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
<PAGE>
ANNEX C
George K. Baum & Company
Investment Bankers
Member
New York Stock Exchange, Inc.
Chicago Stock Exchange, Inc.
November 22, 1995
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
opinion 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
Board of Directors
Advantage Companies, Inc.
November 22, 1995
Page 2
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 distributions 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. 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 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,
/s/ George K. Baum & Company
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
merger 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 Secion 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 Secions 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 Secion 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 Secions 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 Secion 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 Secions 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.
