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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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MAXSERV, INC.
(Name of Subject Company)
ON BEHALF OF
MAXSERV, INC.
BY
SPECIAL COMMITTEE OF BOARD OF DIRECTORS
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
005779171
(CUSIP Number of Class of Securities)
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NEIL A. JOHNSON
SENIOR VICE PRESIDENT
MAXSERV, INC.
8317 CROSS PARK DRIVE
AUSTIN, TEXAS 78754
(512) 834-8341
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person filing statement)
COPY TO:
NATHANIEL P. TURNER
CHAIRMAN, SPECIAL COMMITTEE
15303 DALLAS PKWY
SUITE 960 LB-63
DALLAS, TX 75248
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is MaxServ, Inc., a Delaware corporation
("MaxServ" or the "Company"). The address of the principal executive offices of
MaxServ is 8317 Cross Park Drive, Austin, Texas 78754. The title of the class of
equity securities to which this Statement relates is MaxServ's common stock, par
value $0.01 per share (the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to a proposed tender offer that Max Acquisition
Delaware, Inc., a Delaware corporation ("MAD") and a wholly owned subsidiary of
Sears, Roebuck & Co., a New York corporation ("Sears"), and Sears have publicly
disclosed in a Tender Offer Statement on Schedule 14D-1, dated February 4, 1997,
as amended (the "Schedule 14D-1"), to purchase shares of Common Stock upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
February 4, 1997 (the "Offer to Purchase") and the Letter of Transmittal (the
"Letter of Transmittal" and together with the Offer to Purchase, the "Sears
Offer"). The Schedule 14D-1 states that the principal executive offices of Sears
and MAD are located at 3333 Beverly Road, Hoffman Estates, IL 60179.
ITEM 3. IDENTITY AND BACKGROUND.
(a) This statement is being filed on behalf of MaxServ by the Special
Committee of Directors of MaxServ ("Special Committee") pursuant to resolutions
adopted by all the directors of MaxServ as of December 5, 1996 and February 13,
1997. Copies of such resolutions are filed as Exhibits 19 and 20 hereto and
incorporated herein by reference. The Special Committee is comprised of Messrs.
Nathaniel P. Turner, Chairman, Stephen J. Keane and Patrick A. Rivelli, each of
whom is a director of MaxServ not designated by Sears. The address of the
Special Committee is 15303 Dallas Parkway, Suite 960 LB-63, Dallas, Texas 75248.
The name and business address of MaxServ are set forth in Item 1 above.
(b) Reference is made to the information contained under the captions
"Executive Compensation" and "Certain Relationships and Related Transactions" in
the Company's Proxy Statement for the Annual Meeting of Stockholders held on
October 25, 1996 that was mailed to stockholders under cover of letter dated
September 16, 1996 regarding certain contracts, agreements, arrangements and
understandings and certain potential conflicts of interest between MaxServ and
its affiliates and (i) its executive officers, directors and affiliates and (ii)
Sears, its executive officers, directors and affiliates. The relevant sections
thereof are filed as Exhibit 1 hereto and are incorporated herein by reference
and the information contained therein is supplemented and updated by Annex A
hereto, which is incorporated herein by reference. Except as described in
Exhibit 1, in Annex A hereto or elsewhere in this Statement, to the knowledge of
the Company, as of the date hereof, there are no material contracts, agreements,
arrangements or understandings or any actual or potential conflicts of interest,
between MaxServ or its affiliates and (i) its executive officers, directors
(including the members of the Special Committee) or affiliates or (ii) Sears,
its executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) and (b)
AS MORE FULLY DESCRIBED BELOW, THE SPECIAL COMMITTEE HAS UNANIMOUSLY
RECOMMENDED THAT MAXSERV SHAREHOLDERS REJECT THE SEARS OFFER AND NOT TENDER
THEIR SHARES OF COMMON STOCK PURSUANT TO THE SEARS OFFER.
BASED ON THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON FEBRUARY 17,
1997, IF NO MORE THAN 71,093 SHARES ARE PURCHASED PURSUANT TO THE SEARS OFFER,
THE SPECIAL COMMITTEE BELIEVES THAT, WHILE THE MATTER IS NOT FREE FROM DOUBT
UNDER ILLINOIS LAW, SEARS SHOULD NOT BE ABLE TO EFFECT THE SECOND STEP
SQUEEZE-OUT MERGER AT $7.00 PER SHARE CONTEMPLATED BY THE OFFER TO PURCHASE.
This is so because Sears is contractually obligated not to increase its
ownership of
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MaxServ's outstanding voting securities above 64.93% (Sears currently owns
64.28%) without the approval of a majority of the MaxServ directors who are not
affiliated with Sears; provided that the foregoing limitation does not apply if
Sears or certain of its affiliates makes a tender offer for all shares of Common
Stock not owned by them. The Special Committee believes that the tender offer
exception is not available in the absence of a tender offer that is accepted by
a sufficient number of MaxServ shareholders to enable Sears to surpass the
64.93% threshold. ACCORDINGLY, IF ANY SHAREHOLDER HAS ALREADY DEPOSITED SHARES
PURSUANT TO THE SEARS OFFER, THE SPECIAL COMMITTEE URGES EACH SUCH SHAREHOLDER
TO CONSIDER WITHDRAWING ITS SHARES.
THE SPECIAL COMMITTEE ALSO URGES EACH MAXSERV SHAREHOLDER TO CONSULT WITH
ITS INVESTMENT ADVISOR CONCERNING POSSIBLE ALTERNATIVES TO THE SEARS OFFER FOR
THE OPTIMIZATION OF SUCH SHAREHOLDER'S INVESTMENT IN MAXSERV, INCLUDING A SALE
IN THE OPEN MARKET PRIOR TO THE EXPIRATION OF THE SEARS OFFER OR A DISSENT FROM
THE SECOND STAGE SQUEEZE-OUT MERGER AND PARTICIPATION IN AN APPRAISAL PROCEEDING
UNDER DELAWARE LAW IN THE EVENT THAT SUCH MERGER IS EFFECTED. The closing sales
price of MaxServ Common Stock reported on the Nasdaq SmallCap Market on February
14, 1997 was $7 7/16 per share, as compared with a closing sales price of $4 7/8
per share on December 4, 1996, the last full trading day before Sears announced
its interest in acquiring the Public Shares. THERE CAN BE NO ASSURANCE THAT THE
TRADING PRICE OF THE COMMON STOCK WILL NOT RETURN TO ITS PRE-DECEMBER 5, 1996
LEVEL IF SEARS WITHDRAWS THE SEARS OFFER OR OTHERWISE ABANDONS ITS INTEREST IN
ACQUIRING THE PUBLIC SHARES. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE COMMON STOCK. See Annex B for an outline of appraisal
remedies available under Delaware law, and the relevant statutory provisions
relating thereto, that was provided by the Special Committee's Delaware counsel.
Shareholders should note that the perfection of appraisal remedies under
Delaware law requires precise compliance with a number of steps and that the
costs of such a proceeding must be borne by the shareholders seeking appraisal
of their shares unless and until the Delaware Chancery Court determines that
such costs shall be otherwise assessed. In an appraisal proceeding, the Delaware
Chancery Court will determine the fair value of the shares of Common Stock with
respect to which appraisal rights have been perfected. SUCH FAIR VALUE AS
DETERMINED BY THE DELAWARE CHANCERY COURT MAY BE MORE OR LESS THAN THE $7.00 PER
SHARE OF COMMON STOCK OFFERED IN THE SEARS OFFER.
BACKGROUND.
Relationship with Sears
In 1993, Sears acquired a 45.3% equity interest in the Company through a
direct purchase of shares of Common Stock from the Company. As part of the
consideration for the purchase, Sears entered into a seven-year service
agreement with the Company.
In December 1994, Sears became the majority stockholder of the Company
through its purchase of additional shares of Common Stock from the Company. As
part of the consideration for the purchase, Sears transferred its teleparts call
operation to the Company and entered into a ten-year parts service agreement
with the Company. Pursuant to the agreement for such purchase, which is governed
by Illinois law (the "1994 Agreement"), Sears and certain of its affiliates are
effectively prevented from acquiring, without the prior approval of a majority
of the Company's directors who are not affiliated with Sears, additional shares
of Common Stock if as a result of such acquisition they would own more than
64.93% of the Common Stock, except that Sears and such affiliates may acquire
additional shares without regard to such limitation if a tender offer is made by
Sears or any of such affiliates to acquire all outstanding Common Stock not
already owned by them. The 1994 Agreement also provides that the Company shall
take reasonable steps not inconsistent with applicable law or the fiduciary
duties of its directors to cause three nominees of Sears to be included in its
slate of nominees at all meetings of stockholders for the election of directors.
Pursuant to such agreement, three designees of Sears have served and continue to
serve on the Company's Board of Directors.
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Sears currently owns 7,033,333 shares, representing 64.28% of the
10,941,167 shares of Common Stock outstanding as of February 17, 1997. Sears is
also the Company's largest customer, with services provided to Sears accounting
for over 90% of the Company's revenues for fiscal 1996. Sears personnel work
closely with employees of the Company, and Sears typically has representatives
on site at the Company's facilities. The three Sears designees serving on the
Company's eight-person Board of Directors pursuant to the 1994 Agreement are
Daniel A. Mihalovich, Vice President/GM, Product Services of Sears, Thomas D.
Overton, Vice President, Strategy and Business Development, Home Services of
Sears and Stephanie S. Springs, Senior Systems Director, Information Systems of
Sears. As discussed more fully below, Sears has recently filled a vacancy on the
Board with a fourth designee.
Development of New Systems Technology
Background
MaxServ is the leading provider of information services for household
products, delivering diagnostic assistance and support to consumers and
professional technicians involved with the installation, repair, care and
operation of a full range of appliances, personal computers, electronic and
other equipment. MaxServ also provides telemarketing services for replacement
parts and accessories covering all major brand home products, as well as service
order reservations and logistical support for its customers. From its Austin,
Texas headquarters, MaxServ conducts its operations from four service centers in
Alabama, Arizona and Texas.
Traditionally the home product repair market has been comprised of service
organizations that repaired hard goods in the home, particularly appliances,
lawn and garden equipment and electronic products. This market definition has
now broadened to include lifestyle services such as house cleaning, lawn and
landscape care, remodeling, and pest control, creating a vastly expanding home
services market. Improved product quality, changing lifestyles, population
aging, slowed population growth, increased product complexity, the growing trend
toward "smart homes" and other factors are increasing the home services market
potential. Adding complexity to these trends are the increasing demands and
expectations of home consumers for higher quality services.
In early 1995, members of management commenced reassessing the Company's
long-term goals in response to these emerging market dynamics. In late 1995,
building on existing technology, clients and services and industry knowledge,
management developed its vision for a leadership role in this changing service
environment. The key to this new leadership role is the development of a new
systems technology, internally known as "MaxServNet."
Historically the Company has developed its own call-center applications and
leveraged its expertise through the development of customized application
software for sale to third parties. Most recently, the growth of this software
development and sales activity has decreased as the Company concentrated its
resources to support new business activity with Sears and the development of
MaxServNet. If the Company is not acquired by Sears, management intends to
revive the software development business to take advantage of the architectural
concepts developed in MaxServNet and to leverage its competency in this area.
Management believes that the profit margins and revenue growth rates for
software development are in excess of its current core teleservices business
activities with Sears.
MaxServNet
As conceived, MaxServNet will be a systems and network technology that will
facilitate, centralize and standardize the capture, exchange, retrieval and
sharing of information among consumers, retailers, service repair companies,
manufacturers, distributors and warranty insurers. As the focal point for
tracking, warehousing and disseminating information, MaxServNet is conceived to
incorporate and integrate telephonic and electronic capabilities to provide a
single source interactive solution center capable of resolving various service
issues and managing the various activities and processes involved in the
successful delivery of home services.
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Supporting MaxServNet is the nation's largest proprietary database and
library (in paper and microfiche form) of technical, operating and parts
information for home appliance products. The database and library consist of
both Sears and MaxServ owned data. The library for non-Sears brand products is
owned by MaxServ and is available for use by Sears at no cost. The Sears data
and library, excluding customer and certain other data owned by Sears (the
"Excluded Data"), is available for MaxServ's use and may be shared with others,
provided that MaxServ pays Sears a 3 1/2% revenue-based royalty fee for its use.
The Company does not believe that its inability to access the Excluded Data will
adversely affect its future prospects in any material respect. It is planned
that the consumer as well as other industry participants will, for a fee, have
access to the information contained in the database and libraries, other than
the Excluded Data, through phone conversations with MaxServ personnel and
through various electronic access options that are included in the MaxServNet
design.
When fully implemented, consumers could use MaxServNet to:
(1) Place a service request
(2) Obtain information regarding the status of a repair
(3) Receive operating instructions or information
(4) Receive help in the diagnosis of a problem
(5) Place orders for parts
(6) Receive consultation on repair costs vs. replacement
When fully implemented, service providers could use MaxServNet to:
(1) Receive help in problem identification
(2) Receive technical advice on the repair
(3) Obtain technical literature and parts information
(4) Schedule service calls
(5) Identify and locate hard-to-find parts
(6) Place orders for parts
From April 1996 through August 1996, the Company engaged in the research
and design of MaxServNet. During such period from four to 20 personnel,
including newly hired programmers and analysts, were assigned to the project. In
June 1996, the Company retained a consultant to assist with its strategic plan
which principally related to MaxServNet.
At the September 5, 1996 meeting of the Board of Directors, the Company's
strategic planning team, which consists of several employees of the Company and
the consultant retained to assist in the strategic planning process, presented a
conceptual overview of MaxServNet, including a status report on the MaxServNet
plan and a slide presentation outlining the conceptual overview and the possible
uses of MaxServNet by customers in various industries.
In late September 1996, the Company validated its architectural concept by
incorporating components of its recently developed systems services software
into an application systems prototype. Tests of this prototype identified no
technical barriers to the use and implementation of the architectural design and
systems services components. The Company continued to add development personnel
and stepped up its development of a systems services platform. The systems
services platform consists of various tools, objects, reusable system
capabilities and development aids intended to speed up the development process
of MaxServNet. The Company also began to upgrade its communications hardware and
to acquire hardware for its development and testing laboratory.
The initial applications developed on this system services platform are
scheduled to be completed in May 1997. The initial implementation will replace
approximately 35% of the Company's existing systems
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(consumer and PC client care) and add a new servicer management system.
Additional applications on this platform, including electronic commerce
capabilities, are scheduled for development and deployment during fiscal 1998.
Approximately $2.0 million has been invested or committed in this project
to date, including personnel, hardware and software, and another $3.0 million is
anticipated to be invested during the remainder of the fiscal year ending May
31, 1997. Approximately 50 personnel are presently involved in the project,
which personnel are expected to remain involved through the duration of the
project. Investment in the project for fiscal 1998 is expected to be between
$3.0 and $4.0 million. Amounts invested or committed are inclusive of estimated
implementation costs to deploy MaxServNet throughout the Company. While the
Company is aware of no technical barriers to the successful completion and
implementation of MaxServNet, there can be no assurance that the Company will
not in the future encounter delays or cost overruns in the development and
deployment of the new system.
The Sears Offer
On October 14, 1996, approximately five weeks after the presentation of the
MaxServNet concept to the Company's Board of Directors, Mr. Lowell Peters and
Mr. John Pigott, officers of Sears, met with Mr. Charles Bayless, President,
Chief Executive Officer and a director of the Company. According to Mr. Bayless,
the Sears officers stated that Sears was considering several alternatives for
its future relationship with the Company. The first three alternatives assumed
the Company remained public and were: (1) for Sears to curtail or eliminate the
amount of new services that Sears would request the Company to provide; (2) for
Sears to continue using the Company for systems development but develop its own
network support using the Company's software; and (3) for the Company to
continue to develop for Sears both system software and network support. The
fourth alternative assumed that Sears would acquire all of the outstanding
shares of Common Stock of the Company it did not then own (the "Public Shares").
According to Mr. Bayless, Sears indicated it preferred taking the Company
private because it desired to have development of any new proprietary
communications and servicer network taking place within a wholly owned company
so as not to make such network available to potential competitors.
Messrs. Bayless, Peters and Pigott met again on November 13, 1996.
According to Mr. Bayless, Sears offered him an attractive compensation package
if he would remain as Chief Executive Officer of the Company in the event Sears
acquired the Public Shares, and Sears solicited Mr. Bayless' views on retention
proposals for the rest of management and key employees if Sears were to take the
Company private. According to Mr. Bayless, he informed the Sears officers that
he would consider the compensation package and that he believed that the
retention of certain individuals was essential to the success of the Company.
According to Mr. Bayless, he also informed the Sears officers that he would
support Sears' acquisition of the Public Shares if a price for the Public Shares
could be agreed upon. According to Mr. Bayless, Mr. Pigott and Mr. Bayless also
discussed the procedures Sears might follow if it were to seek to acquire the
Public Shares, and Mr. Pigott stated that Sears' next step would be to initiate
discussions with Sunwestern Investment Group and its affiliates (collectively
"Sunwestern"), an 11.7% stockholder of the Company, to assess its level of
interest in selling its shares, as Sears did not then wish to initiate a
transaction to acquire the Public Shares without the support of Sunwestern.
On December 3, 1996, Messrs. Peters and Pigott met with Mr. James F. Leary
and Mr. Patrick A. Rivelli, representatives of certain Sunwestern affiliates.
Messrs. Leary and Rivelli were both directors of the Company at that time (Mr.
Leary later resigned as a director on December 20, 1996), but the parties had
agreed in advance of the meeting that Messrs. Leary and Rivelli would be
attending in their capacities as representatives of Sunwestern. At this meeting,
the Sears officers presented to Messrs. Leary and Rivelli the same alternatives
purportedly presented to Mr. Bayless at the October 14, 1996 meeting and
indicated that while Sears was prepared to pay a premium for the Public Shares
over the then market price, Sears was not prepared to pay a price per Public
Share in the "double digits." Messrs. Leary and Rivelli indicated that
Sunwestern would consider selling its shares if the price offered was
acceptable.
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On December 4, 1996, the Board of Directors of the Company received the
following letter from Sears:
Gentlemen:
Sears, Roebuck & Co. ("Sears"), through a wholly-owned
subsidiary, is interested in pursuing a transaction in which Sears
would acquire all outstanding shares of common stock (the "Shares") of
MaxServ, Inc. ("MaxServ") that Sears does not currently own, as well
as all outstanding warrants to acquire common stock of MaxServ (the
"Warrants").
In light of the presence of designees of Sears on the Board of
Directors of MaxServ, Sears requests that you appoint a committee of
the MaxServ Board of Directors (the "Special Committee") with which
Sears can commence negotiations for such an acquisition. Once the
Special Committee is appointed, Sears anticipates working with the
Special Committee to establish a mutually acceptable price for the
Shares and Warrants, and other essential terms.
Once you have notified us that you have appointed the Special
Committee, we would like to immediately proceed with negotiations. We
look forward to working with the Special Committee to accomplish a
successful transaction for the shareholders of MaxServ.
Sincerely,
SEARS, ROEBUCK AND CO.
by: /s/ JANE J. THOMPSON
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Jane J. Thompson
President, Home Services
Pursuant to a unanimous written consent of directors effective as of
December 5, 1996, the Special Committee was formed and authorized "to consider
and evaluate the fairness of (i) a proposal anticipated to be received from
Sears, pursuant to which Sears would acquire all outstanding shares of common
stock of the Company that Sears does not currently own, and (ii) any third-party
bids; to negotiate any proposal received from Sears or any third-party bidder
with a view towards obtaining the best available transaction for minority
stockholders; to evaluate and negotiate, if appropriate, arrangements related to
the foregoing (including transitional arrangements); to take any other necessary
or appropriate action, including 'shop the company'; and to recommend to this
Board of Directors a response to any final proposal or bid . . . ."
On December 8 and 9, 1996, the Special Committee held an organizational
meeting in Dallas, Texas during which it considered a number of preliminary
issues, including the election of Mr. Turner as Chairman and interviewed
prospective financial and legal advisors. Following completion of the process,
the Special Committee selected special legal counsel and Broadview Associates
LLC as its financial advisor ("Broadview"), subject to the negotiation of a
satisfactory fee arrangement. The Special Committee selected Broadview based on
its expertise in the area of mergers and acquisitions in the information
technology sector, including professional services, telecommunications, call
centers, computer hardware and software, and information services. On December
20, 1996, the Special Committee formally retained Broadview to act as financial
advisor to the Special Committee. A press release announcing this appointment
was released later that date.
On December 18, 1996, Messrs. Peters and Pigott met with the Special
Committee in Dallas at which time Sears provided the Special Committee with an
overview of the reasons Sears wanted to proceed with an acquisition of the
Public Shares. The presentation outlined the alternatives previously reviewed
with Messrs. Bayless, Leary and Rivelli, and why Sears desired to take the
Company private. The Special Committee asked Messrs. Peters and Pigott whether
Sears would consider launching a tender offer for the Public Shares without
Special Committee support if the parties could not agree on a negotiated
acquisition. Mr. Pigott explained that Sears preferred to work with the Special
Committee to reach an agreed-upon value of the Shares. The Special Committee
inquired as to whether Sears would consider selling any portion of the Shares
already owned by Sears given its threat to do so in a recently filed Schedule
13D. Mr. Pigott stated that Sears was not considering and did not intend to sell
any portion of its Shares, but that if the going private transaction could not
be effected, Sears would be forced to rethink its future business relationship
with
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MaxServ including the possibility of selling all or part of its interest in
MaxServ and reducing its business relationship with MaxServ. The Special
Committee also asked Messrs. Peters and Pigott (i) whether Sears would consider
a non-cash offer, and (ii) whether Sears would consider an agreement to delay
commencing a tender offer until the earlier of January 30, 1997 or two weeks
after a proposal on price was presented by Sears to the Special Committee. Mr.
Pigott stated that Sears would not consider a non-cash offer and that he did not
think Sears would agree to such a standstill, but that he would discuss the
proposal with Sears' officers and counsel. The Special Committee had learned
from management that Sears had commissioned an independent consultant to review
all of Sears' teleservices operations, both internally and externally, with
focus on outbound sales services operations. Since the consultant could
recommend consolidation, spin-out and a possible subsequent public offering by
Sears of its outbound call-center operations, the Special Committee also asked
if Sears would consider a provision that would provide the MaxServ shareholders
an opportunity to participate in any additional proceeds from a subsequent sale
of the Company by Sears in the two years following the closing of a purchase of
the Public Shares; this proposal was rejected. On December 24, 1996, Mr. Pigott
advised Mr. Turner that Sears also would not agree to the proposed standstill.
On December 20, 1996, representatives of Broadview and the Chairman of the
Special Committee met with MaxServ's senior management at the Company's
headquarters, one of its largest operating facilities, to review the business
activities and financial performance of the Company. At this meeting, MaxServ's
management demonstrated the existing teleservice operations and the capabilities
of the Company's proprietary call management and technical service software
technology. Management then provided an overview of the ongoing technology
developments relating to MaxServNet. After an extensive review of the current
business and prospective customers and new service offerings, management then
provided Broadview with a forecast for the fiscal year ending May 31, 1997 and
financial assumptions for Broadview to derive financial projections for fiscal
years 1998-2002, including a long-term view of the expected business derived
from both Sears and other third-party customers. MaxServ management thereafter
reviewed and confirmed the financial projections that were derived from its
financial assumptions (the "Projections"). The Projections were not prepared
with a view to public disclosure or compliance with published guidelines of the
Securities and Exchange Commission or the American Institute of Certified Public
Accountants for prospective financial information. While management believes
that the assumptions used in preparing the Projections are reasonable, the
Company's actual results may differ, and may differ materially, from the
Projections. The Projections assume that revenues from Sears grow at an average
annual compound rate of approximately 25% and that revenues from third parties
grow at an average annual compound rate of approximately 85%. The assumed growth
rate for revenues from Sears is consistent with the historical growth rate that
the Company has experienced with Sears. The growth rate for revenues from third
parties is significantly higher than the Company's historical experience based
primarily on management's strategic plan for the deployment of MaxServNet. In
preparing its own projections concerning the Company, Sears assumed an average
annual growth rate in the Company's revenues from Sears of approximately 5% and
an average annual growth rate in the Company's revenues from third parties of
approximately 19%. The Projections are set forth on page 27 of Sears' Offer to
Purchase. The Special Committee notes that Sears incorrectly states that
projected operating income for the fiscal year ending May 31, 2001 in the table
of the Projections set forth on page 27 of the Offer to Purchase is $29.547
million. The correct number is $23.547 million.
On January 4, 1997, the Special Committee met telephonically with its
financial and legal advisors to review MaxServ's short- and long-term business
plans, technology assets and development projects, historical and projected
financial performance, and the current market for the Common Stock. Broadview
advised the Special Committee of the current strategic and financial environment
in which MaxServ operates and the enterprise values and valuation trends related
to comparable companies in the high growth teleservices industry.
Broadview reviewed the Projections, the potential financial impact of
management's estimates regarding the development and implementation of
MaxServNet, and the development of additional Sears business, third-party
business, and the corresponding earnings potential. Broadview reviewed the
potential valuation implications of the Projections relative to a range of
comparable public teleservice companies. Broadview chose similar public
teleservice companies based on both financial parameters and comparable business
activities. Broadview then reviewed an analysis of the revenue multiples of
acquisitions of comparable
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teleservice companies. Broadview completed a discounted cash flow analysis based
on the Projections which included various sensitivity analyses. Broadview also
evaluated the trading price of MaxServ's Common Stock relative to premiums paid
for both minority and majority interests of companies both within the
information technology industry and outside of the information technology
industry from January 1992 to the present. Broadview also presented a
comprehensive analysis of the trading price characteristics of MaxServ's Common
Stock.
Broadview then discussed the significant level of preliminary indications
of interest expressed by independent third-party providers of telephone-based
services in acquiring all or part of the shareholdings of MaxServ at prices
above MaxServ's then current share-price range. All of these expressions of
interest were contingent upon Sears' support for such a transaction. It was also
noted by Broadview that the historic share-price performance of MaxServ had
lagged significantly behind other comparable public teleservice companies since
Sears took control of the business. Broadview noted, among other things, that as
MaxServ's revenue from third-party customers (non-Sears business) increased,
operations could reasonably be expected to generate higher margins and therefore
should begin to realize a share price valuation similar to that which comparable
public teleservice companies currently enjoy. In summary, Broadview concluded
that the realizable range of value of MaxServ, if sold immediately as a complete
entity with Sears' support or if left to run as an independent entity for one to
three years, could well be in excess of $10.00 per share. Broadview then
indicated that the current value of the Public Shares merits an appropriate
discount from this level due to the ownership concentration by Sears, the
dependency on Sears for more than 90% of MaxServ's current business activity,
and the limited number of alternatives available to the Public Shareholders to
maximize the value of their shares since Sears has publicly announced that it
has no intention of selling its interest in the Company.
On January 8, 1997, the members of the Special Committee, their legal
counsel and representatives of Broadview met in Dallas, Texas to discuss, among
other things, Broadview's valuation analysis of MaxServ and to prepare for the
forthcoming meeting with representatives of Sears.
On January 9, 1997, the Special Committee, representatives of Broadview,
counsel to the Special Committee, officers of Sears and counsel to Sears met to
discuss the possible purchase price that might be paid by Sears for the Public
Shares. At the meeting, officers of Sears proposed a range of $6.50 to $6.75 per
Public Share. The Special Committee informed the Sears officers that such a
price range was not acceptable. Mr. Piggott stated that Sears had major plans to
exploit the MaxServ capability and that Sears did not feel that the MaxServ
shareholders "deserved" the benefits of the planned exploitation. Broadview
presented its view regarding the value of MaxServ as a stand-alone entity, in a
sale of the entire enterprise, and specifically, in a sale of the minority
portion of the Company to Sears or another entity. Broadview presented its view
that with Sears' cooperation, the range of value for the entire business, either
under a complete sale or left to run as an independent entity, was higher than
$10.00 per share and could be "in the teens." Broadview then indicated that the
corresponding range of future values for the Public Shares today should be
discounted because of ownership and customer concentration conditions but that
such present value was still in excess of the $6.50-$6.75 per share range Sears
was proposing. Broadview suggested that an adequate price for the Public Shares
would be one that compensated the shareholders for the projected economic value
they would be giving up in a sale to Sears. In view of the high level of
preliminary indications of interest in MaxServ expressed to Broadview by other
potential acquirers, Broadview also questioned whether Sears was adequately
valuing MaxServ's future earnings potential. The Sears officers and the Special
Committee decided that another meeting should be held to evaluate the data
supporting their respective views on values.
On January 14, 1997, representatives of Sears and Broadview met and
exchanged views and data on Sears' and the Special Committee's respective
valuation analyses and assumptions. The discussion focused primarily on
Broadview's public comparables, transaction comparables, discounted cash flow
analysis and management's revenue projections for the Company as compared to
Sears' more conservative projections for the Company. Broadview noted Sears'
unwillingness to discuss alternatives to the acquisition by Sears of the Public
Shares. Broadview observed that Sears' projections for the Company assumed only
modest revenue growth from services provided to Sears and slightly higher growth
from third party business. In addition, Broadview stated that Sears' depressed
financial projections for MaxServ were not reviewed by MaxServ's management and
did not on their face seem to justify or explain Sears' desire to own 100% of
the Company.
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<PAGE> 10
The Special Committee scheduled a meeting with Sears in Chicago for January
16, 1997. Due to inclement weather, the meeting was cancelled and in lieu
thereof, a conference call was held in which the members of the Special
Committee, officers of Sears and counsel and financial advisors to each of the
Special Committee and Sears participated. During the call, representatives of
Merrill Lynch & Co. ("Merrill Lynch"), Sears' financial advisor, and
representatives of Broadview expressed disagreement on each other's methods and
assumptions used in valuing the Company and the Public Shares. The Merrill Lynch
representative stated that Sears already owned control of MaxServ and viewed a
33-38% premium over the trading price of the Common Stock on December 4, 1996 as
adequate for a "typical minority squeeze out." Broadview took exception to
Merrill Lynch's valuation and agreed to follow up in separate conversations with
the Merrill Lynch representative. In addition, the Special Committee and
representatives of Sears expressed differing views on the future prospects of
the Company. The Special Committee was of the view that Sears' assumptions
concerning future revenue growth and third party customer growth did not
adequately reflect the potential impact that the deployment of MaxServNet could
reasonably be expected to have on the Company.
On January 17, 1997, Mr. Pigott and Mr. Turner spoke and reviewed the
current positions of Sears and the Special Committee as to the appropriate price
for the Public Shares by Sears. Mr. Pigott also requested a meeting with
management of the Company to discuss the basis for the Projections. Mr. Turner
stated that a transaction could be structured at $10.00 per share but not at
$8.00 per share and that he did not believe further discussions regarding the
Projections would be productive in resolving the difference between Sears'
valuation and the Special Committee's valuation of the Company since these
valuations had already been exhaustively discussed without any indication of
meaningful flexibility on the part of either party. Mr. Pigott then requested
that Sears be permitted to speak with MaxServ management under the condition
that the Projections would not be discussed. Soon thereafter, Mr. Turner called
Mr. Pigott back and agreed that representatives of Sears could meet with
management of the Company under the foregoing conditions.
On January 18, 1997, Mr. Peters and Mr. Bayless had a telephone
conversation during which Mr. Peters inquired as to the effect that the Sears
proposal was having on employees and management of the Company. He voiced
disappointment that the acquisition was not going well and stated that he felt
that the two sides were too far apart to make near term progress. He stated that
he remained hopeful, however, that Sears' acquisition of the Public Shares could
be concluded quickly.
On January 20, 1997, Mr. Turner left a voicemail message for Mr. Pigott
stating that unless Sears was willing to discuss a price for the Public Shares
within the Special Committee's range, there was no purpose in having the
previously agreed January 23 meeting. Mr. Pigott contacted Mr. Turner and
expressed Sears' view that the meeting on January 23 should still be held, but
that Sears' range had not changed and did not overlap the Special Committee's.
Mr. Turner advised Mr. Pigott that he would speak with the Special Committee and
respond as to whether they believed the meeting should be held. The Special
Committee then directed Broadview to contact Merrill Lynch in an effort to
determine whether the respective financial advisors for the Special Committee
and Sears could further the negotiations.
On January 21, 1997, Broadview and Merrill Lynch spoke telephonically to
discuss in further detail the supporting viewpoints on the respective valuations
of the Public Shares. During this call, the Merrill Lynch representative again
indicated that this situation was a "typical minority squeeze-out" and that the
share price merited for the Public Shareholders was appropriately determined by
a 30%-40% premium paid over the historic share-price range. Broadview stated its
disagreement with this approach and suggested an $8 to $10 share price range
represented a significant discount for Sears compared to the value for the
entire enterprise. Both parties then agreed that the negotiations were proving
constructive and merited further telephonic discussions to attempt to reach
agreement on a mutually acceptable price for the Public Shares. At the
conclusion of the call, Broadview suggested that if Merrill Lynch could convince
Sears to raise its proposal to $8.00 per share, Broadview would recommend to the
Special Committee that it accept such an offer. Broadview had not received the
Special Committee's approval to accept an $8.00 per share offer and told Merrill
Lynch that it was initiating this price proposal on its own initiative, and
there was no assurance such an approval would be forthcoming.
On January 23, 1997, a representative of Merrill Lynch advised
representatives of Broadview that Sears was prepared to offer $7.00 per share to
acquire the shares of MaxServ not owned by it. This information was
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<PAGE> 11
conveyed to Mr. Turner by Broadview. Mr. Turner discussed the proposed offer
with the other members of the Special Committee, and the Special Committee
concluded, based upon its familiarity with MaxServ, the view of Broadview on the
inadequacy of the proposal and other relevant factors, that Sears' $7.00
proposed offer was inadequate. Broadview promptly communicated the Special
Committee's conclusion to Merrill Lynch. Prior to February 17, 1997, the Special
Committee had not received a signed opinion from Broadview as to the adequacy or
inadequacy of the Sears offer.
On January 27, 1997, Sears filed with the Securities and Exchange
Commission an amendment to its Statement on Schedule 13D in which it reported
the withdrawal of its proposed offer. In its amended Schedule 13D, Sears stated,
among other things, that it was evaluating its business relationship with the
Company and that it did not desire to develop new proprietary customer
communications programs within an entity it does not wholly own.
On January 28, 1997, Mr. Turner telephoned Mr. Pigott and emphasized that a
transaction in the $8.00 to $9.00 range would be supported by the Special
Committee. Later on the same day, the members of the Special Committee, their
legal counsel and representatives of Broadview met by telephone and discussed
Sears' withdrawal of its $7.00 proposed offer and the propriety of a press
release. Based upon prior discussions with representatives of Broadview and
other factors, the Special Committee was prepared to request that MaxServ issue
a press release confirming that Sears' recently withdrawn $7.00 offer for the
Public Shares was inadequate. The participants in the meeting then discussed and
revised a form of press release. A revised copy of the press release was
transmitted to Sears for its review and comment. Sears communicated several
suggested revisions to counsel for the Special Committee.
On January 29, 1997, the members of the Special Committee, their legal
counsel and representatives of Broadview again discussed the propriety of a
press release. The Special Committee unanimously approved the issuance of the
following press release in response to Sears' amended Schedule 13D.
SPECIAL COMMITTEE OF MAXSERV, INC. REJECTS SEARS' $7.00 OFFER
AS INADEQUATE; REMAINS WILLING TO NEGOTIATE
Dallas, Texas, Jan 29 -- The Special Committee of the Board of
Directors of MaxServ, Inc. (Nasdaq Small Cap: MXSV) believes that a
public response to the recent Schedule 13D amendment by Sears, Roebuck
and Co., indicating Sears' withdrawal of a proposal to offer $7.00 per
share for the shares of MaxServ it does not currently own, is
appropriate.
The Special Committee, established at the request of Sears to
negotiate a transaction with Sears at a mutually acceptable price,
unanimously rejected Sears' proposal to offer $7.00 per share as
"inadequate." This decision was made after deliberations with the
Special Committee's financial advisor, Broadview Associates, and its
legal counsel and was predicated upon the Special Committee's
assessment of the long-term strategic value of MaxServ, the current
values represented by comparable public teleservice companies,
comparable transactions involving teleservice businesses, and a
discounted cash flow analysis of MaxServ management's long-term
financial forecasts. The Special Committee noted, among other unique
assets, MaxServ's new generation of proprietary call taking software
which is well along in development.
Prior to the filing of the amended Schedule 13D, Sears was
advised that a proposal in the range of $8.00 to $10.00 per share
would be supported by the Special Committee. Subsequent to Sears'
recent filing, the Special Committee further narrowed its range of
acceptable values to between $8.00 and $9.00 per share.
Based upon preliminary inquiries received by Broadview, the
Special Committee believes that the sale of 100% of MaxServ to a third
party in a transaction voluntarily supported by Sears might command a
significantly higher valuation. Sears has repeatedly indicated,
however, that it has no interest in selling its interest in MaxServ,
although it reserved the right to do so in its amended Schedule 13D.
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<PAGE> 12
The Special Committee is committed to working with Sears to
maximize MaxServ's shareholders' value either as an independent public
company, in an acquisition by Sears, or in an acquisition by a third
party with Sears' support.
Management of the Company and the Chairman of the Special Committee
received several inquiries from stockholders and the investment community
concerning the "new proprietary customer communication programs" referred to in
Sears' amended Schedule 13D and the "new generation of proprietary call taking
software" referred to in the Company's press release. Management of the Company
considered issuing a press release concerning the status of MaxServNet and
circulated drafts of a proposed press release to the directors of the Company.
Through letters and telephone calls from Sears' designated directors and Sears'
counsel between January 31 through February 4, 1997, Sears strenuously objected
to the issuance of any such press release. On February 3, 1997 the Sears'
designees on the MaxServ Board of Directors sent the President of MaxServ the
following letter:
February 3, 1997
Mr. Charles F. Bayless
MaxServ, Inc.
8317 Cross Park Drive
Suite 350
Austin, Texas 78754
Re: Proposed Press Release Regarding MaxNet
Dear Rick:
As designees of Sears, Roebuck and Co. ("Sears") on the Board of
Directors (the "Board") of MaxServ, Inc. (the "Company"), we are
responding to the memorandum of Neil Johnson to the Board distributed
on January 31, 1997 that requests comments on the draft press
announcement of the future release of the Company's "next generation"
communication system, MaxNet.
We understand that Kim Ramsey of Akin, Gump, Strauss, Hauer &
Feld, L.L.P., counsel to the Company, advised our counsel that the
Company and the Special Committee of the Board believe it necessary to
issue a press release in response to inquiries they have received as a
result of the Special Committee's statement in its January 29th press
release that the Company's new generation of proprietary call taking
software "is well along in development."
We believe issuing a press release is highly inappropriate at
this time given the lack of adequate and careful consideration of
MaxNet by, as well as insufficient information provided to, the full
Board. We have also been advised by counsel that such release is not
required by law. Before we could consider a public announcement
regarding MaxNet, we believe you and your team need to fully inform
all of the directors regarding the strategy and financial implications
of MaxNet.
In addition, as you know, Sears stated in its Amendment to
Schedule 13D filed with the Securities and Exchange Commission on
January 27, 1997, that Sears does not desire to develop new
proprietary customer communications programs, such as MaxNet, with an
entity it does not wholly own. We have serious concerns that the
content of the proposed press release is misleading and fails to
clearly state Sears position as the customer responsible for over 90%
of the Company's revenues and the owner of over 64% of the common
stock of the Company.
Finally, we question the timing of the release and are concerned
based on its tone and its timing that it may be designed to have a
manipulative impact on the price of the common stock. In light of the
press release issued by the Special Committee on January 29, 1997 with
respect to the pendency of negotiations with Sears regarding a
proposed transaction, we have been advised by counsel that such timing
raises serious concerns under the federal securities laws.
For the above reasons we strongly urge you not to issue the
proposed release, and assume that the proposed release will not be
issued before we otherwise hear from you.
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<PAGE> 13
Very truly yours,
/s/ DANIEL A. MIHALOVICH
Daniel A. Mihalovich
/s/ THOMAS DAVID OVERTON III
Thomas David Overton III
/s/ STEPHANIE SPRINGS
Stephanie Springs
The Special Committee notes that the Sears designated directors were in
attendance at the September 5, 1996 Board meeting at which MaxServNet was
discussed, that Sears' Vice President of Information Services and Sears'
Corporate Executive Vice President of Planning received a special presentation
from management on September 4, 1996 featuring the MaxServNet technology, and
that Sears has full-time resident employees on site at the Company's facilities.
On February 4, 1997, without any prior notice to the Company or the Special
Committee and while continuing to object to any press release concerning
MaxServNet, Sears commenced its unsolicited tender offer to acquire all
outstanding Public Shares at $7.00 per share. In its Offer to Purchase, Sears
indicated its intention following consummation of the Offer to cause MAD and the
Company to consummate a merger of MAD into the Company and cash out each Public
Share not tendered pursuant to the Sears Offer for an amount in cash equal to
the highest price per share paid in the Sears Offer. In its Offer to Purchase,
Sears also disclosed that on February 3, 1997, an officer of Sears received a
letter from Advanced Telemarketing Corporation ("ATC") dated January 29, 1997,
expressing ATC's desire for a meeting with Sears to discuss ATC's interest in
acquiring the Company, and that Sears sent a letter to ATC declining such a
meeting.
On Tuesday, February 4, 1997, the Special Committee, counsel to the Special
Committee, counsel to the Company, representatives of Broadview, Mr. Bayless and
Mr. Neil A. Johnson, the Chief Financial Officer of the Company, convened a
teleconference to discuss the response of the Company and a majority of the
directors to the Sears Offer. The members of the Special Committee and Mr.
Bayless, constituting a majority of the Board, discussed generally the Sears
Offer and concluded that the Company should take appropriate steps to represent
the interests of the holders of the Public Shares in the context of the Sears
Offer. Accordingly, the four directors agreed that Mr. Bayless, as President of
the Company, should call a special meeting of the Board at the request of two of
the independent directors for 5:00 p.m. Wednesday, February 5, 1997. At the
meeting, resolutions to the following effect would be proposed:
1. That James F. Leary, a principal of Sunwestern, be appointed to
fill the vacancy on the Board created by his resignation in December 1996.
2. That the Company's Bylaws be amended to regulate actions by written
consent, including:
(a) a requirement that a stockholder request in writing that the
MaxServ Board establish a record date for the taking of action by
stockholders by written consent in lieu of a meeting, and allow the
MaxServe Board up to 10 days to establish such a record date, which
record date may be up to 10 days after the date on which the record date
is established; and
(b) a provision that no action by written consent without a meeting
shall be effective until such date as independent inspectors certify to
the Company that the consents delivered to the Company represent at
least the minimum number of votes necessary to take the corporate
action.
3. That a new committee of the Board comprised of Messrs. Turner,
Keane, Rivelli, Leary and Bayless be established and that such committee
have plenary power and authority to take any and all action in connection
with all matters relating to Sears' Offer to Purchase, including the
consideration and approval, if appropriate, of defensive measures
(including the specific authority to consider and approve, if appropriate,
the declaration of a dividend distribution of rights, entitling the holder,
in certain instances, to receive, upon exercise, common stock of the
Company, of a value to be determined by such committee).
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<PAGE> 14
At 5:00 p.m. on February 5, Mr. Bayless, all other directors and counsel to
Sears held a teleconference. The Sears designated directors inquired as to the
proper calling of the meeting and Mr. Bayless informed them that he had not
received timely written notice from the two directors for the calling of the
meeting as required by the Company's Bylaws. The Sears designated directors then
objected to the calling of the meeting and suggested that the meeting be
rescheduled. During the teleconference, Mr. Bayless sent to all directors by
telecopy a draft of the resolutions that he and the Special Committee had
previously decided would be presented at the meeting. Mr. Bayless then left the
teleconference, informed Company counsel that the meeting had not been properly
called, rejoined the meeting and announced that another meeting would be called
and noticed for Friday, February 7, 1997.
On Thursday, February 6, 1997, the Company received from Sears, as the
majority stockholder of the Company, a written consent in lieu of a meeting of
the stockholders. The written consent filled the vacancy on the Board with
Steven M. Cook, an officer of Sears, and amended the Company's Bylaws to provide
that the Bylaws may not be further amended without the consent of all directors.
On February 6, Sears also filed an amendment to its Schedule 14D-1 in which it
stated that these actions were taken in order to prevent the Company's Board
from adopting the resolutions that the Special Committee was planning to
propose. As a result of Sears' action, the Board is now comprised of four
designees of Sears, three independent directors and Mr. Bayless, who is an
officer of the Company.
On February 6, 1997, counsel for the Company, at the request of the Special
Committee, telephoned counsel to Sears to inquire whether the Sears designated
directors would agree to delegating the Company's preparation of the Schedule
14D-9 and the Company's recommendation with respect to the Sears Offer to the
Special Committee. Counsel to Sears later telephoned counsel to the Company and
informed her that Sears would agree to such delegation provided Sears had the
opportunity to review the 14D-9 for one business day prior to the filing of the
Schedule 14D-9 and to give comments to the Special Committee (which the Special
Committee would not be required to accept). Counsel to the Company relayed
Sears' position to the Special Committee and all parties agreed that the meeting
of the Board scheduled for Friday, February 7 should be canceled while the
Special Committee considered Sears' response.
On February 8, 1997, the Special Committee and its legal counsel met
telephonically to discuss, among other things, Sears' position with respect to
the Schedule 14D-9, and to evaluate an apparent overture from a representative
of Sears to the President of MaxServ that the Special Committee should initiate
discussions with Sears regarding a possible increase in the tender offer price.
The Special Committee unanimously authorized its special counsel to contact
Sears' counsel and negotiate the terms of Sears' review of the Schedule 14D-9.
In addition, the Special Committee's legal counsel was authorized to advise
Sears' counsel that it was prepared to discuss endorsing a tender offer at a
price of $8.00 and an unspecified fraction.
Early in the day on February 10, 1997, counsel to the Special Committee
informed counsel to Sears of the Special Committee's willingness to discuss the
endorsement of a tender offer at a price of $8.00 and an unspecified fraction
for the Public Shares. Sears' counsel agreed to pass this information along to
his client. In addition, such counsel agreed, in principle, on the terms of the
expansion of the Special Committee's authority to include preparing a Schedule
14D-9 on behalf of the Company in response to the Sears' Offer, subject to the
right of the Sears' designees on the MaxServ Board to review and consult with
the Special Committee concerning the Schedule 14D-9 prior to its filing with the
Securities and Exchange Commission. Later on the same day, counsel for Sears
advised counsel for the Special Committee that while Sears was prepared to meet
and discuss the tender offer price for the Public Shares with the Special
Committee, Sears was not prepared to consider increasing the tender offer price
to the $8.00 level. Counsel for the Special Committee confirmed that he would
pass this information along to the Chairman of the Special Committee, and he did
so. During conversations on February 11, 1997, counsel for the Special Committee
informed counsel for Sears that a majority of the members of the Special
Committee had been contacted and had concluded that Sears appeared willing only
to negotiate within its own range and that a resumption of face-to-face
negotiations would not be productive.
On February 13, 1997, during a telephonic meeting of the Board of Directors
of the Company, the Board of Directors unanimously delegated the Company's
preparation, execution and filing of the Schedule 14D-9
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<PAGE> 15
with respect to the Sears Offer to the Special Committee and further provided
that the Sears designated directors would be afforded an opportunity to review
the Schedule 14D-9 prior to its filing but that the Special Committee would have
no obligation to accept any comments received from such directors. During such
meeting, the Board also unanimously approved a resolution to advance expenses
incurred by any director in defending litigation relating to Sears' efforts to
take the Company private upon receipt of an undertaking by such director to
repay such amount if it is ultimately determined that such director is not
entitled to indemnification by the Company.
The Special Committee also proposed the following resolutions which were
approved by all directors except the Sears' designees. At the request of the
Sears' designees, the Board unanimously approved the Special Committee's
presentation of the suggestion embodied in the following resolutions directly to
Sears if it desired to do so.
WHEREAS, the Special Committee of the Board of Directors
("Special Committee") of MaxServ, Inc. ("MaxServ" or the "Company")
and Sears, Roebuck and Co. ("Sears"), the Company's majority
stockholder, have failed to reach agreement with respect to the terms
and conditions of the acquisition of the outstanding minority shares
of the Company; and
WHEREAS, Sears has opted in light of the foregoing to initiate a
tender offer for any or all of such outstanding shares not owned by it
at a cash price that has been deemed by the Special Committee to be
inadequate; and
WHEREAS, the Special Committee, in accordance with its charge
from the Board of Directors and its fiduciary duty to the minority
stockholders of the Company, desires to request the Board of Directors
of the Company to take such actions as may be available to it under
the circumstances to promote to the extent possible the entire
fairness of any ensuing acquisition of the outstanding shares of the
Company by Sears;
NOW, THEREFORE, in order to make an appraisal action under
sec. 262 of the Delaware General Corporation Law entirely fair to the
shareholders of MaxServ (other than Sears), the Board of Directors of
the Company, at the request of the Special Committee, does hereby
resolve as follows:
1. If, in connection with a merger of MaxServ and Sears, Roebuck
and Co., or of MaxServ and any Sears affiliate or subsidiary (the
"Merger"), any MaxServ shareholder has or MaxServ shareholders have
perfected appraisal rights pursuant to 8 Del. C. sec. 262 with respect
to the Merger, and an appraisal petition is thereafter filed by or on
behalf of any such shareholder(s) in the Delaware Court of Chancery
(the "Appraisal Action"), then, in such event, MaxServ hereby consents
on behalf of itself and its successors to an award against it of all
reasonable expenses (including reasonable attorneys' and experts' fees
and disbursements) incurred in the prosecution of the Appraisal Action
(the "Expenses"); provided, however, that such Expenses shall not
exceed $500,000.00, and further provided that the Delaware Court of
Chancery shall be the exclusive forum for the resolution of any
dispute relating to the reasonableness of such Expenses.
2. The consent to the award of the Expenses set forth in
paragraph 1 shall not apply if the Appraisal Action (including
appeals) results in a final appraisal valuation of less than $7.01 per
share, excluding interest and costs.
3. The consent to the award of the Expenses set forth in
paragraph 1 shall be null and void and of no further legal effect in
the event that the Special Committee of MaxServ shall have approved
the Merger and recommended it to the shareholders of MaxServ, or shall
otherwise unanimously resolve to revoke such consent prior to the
filing of the Appraisal Action.
4. In voting for the adoption of the foregoing resolutions, the
members of the Board of Directors of the Company who have been
designated as such by Sears (the "Sears Directors") do not take the
position that Sears' current tender offer and proposed second step
merger at $7.00 per share is inadequate or unfair to the minority
shareholders of the Company. The Sears Directors
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<PAGE> 16
believe that the $7.00 price is fair but desire to ensure that the Delaware
statutory appraisal provisions provide a viable and fair remedy to minority
shareholders of the Company who are dissatisfied with that price.
Following the foregoing telephonic Board meeting, Mr. Matthew T. Myren, a
Senior Counsel on Sears' legal staff, sent the following letter to legal counsel
to the Special Committee.
February 13, 1997
Mr. Edgar J. Marston, III
Bracewell & Patterson, L.L.P.
Pennzoil Place -- South Tower
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Dear Edgar:
In light of the adoption this afternoon of the authorizing
resolutions regarding Schedule 14D-9 (the "Schedule") to be prepared
in response to the tender offer (the "Offer") and Schedule 14D-1 of
Sears, Roebuck and Co. ("Sears"), and in an effort to minimize the
need to consult at great length over the holiday weekend, I have been
asked to provide you in advance an outline of the issues the
Sears-designated directors believe will need to be addressed in
Special Committee's filing of the Schedule.
As to substantive matters, we believe that the following matters
should be expressly addressed by the Special Committee in its draft of
the Schedule:
1. The Special Committee's Repeated Unwillingness to Meet with
Sears. In light of Sears expression, through counsel and officers of
Sears, of a desire to meet on the basis that Sears, although it
believes it is paying a fair price, could find value in a transaction
approved by the Special Committee and would increase its offer in such
a context, the unwillingness of the Special Committee to meet appears
to be a breach of the Special Committee's duties of care and loyalty.
In specific, the Special Committee's response, through counsel, that
it is unwilling to meet with Sears unless Sears is prepared to pay a
price in excess of $8.00 per share can only be consistent with the
Special Committee's fiduciary duties if the Special Committee has been
advised by its financial advisor that any price less than $8.00 per
share would not be fair, from a financial point of view, to the
Company's stockholders. If this is the case, the Special Committee is
required by Item 4(b) to set forth such opinion in the Schedule.
2. Alternatives Available to Stockholders. If the Special
Committee recommends that stockholders not sell their shares and
instead exercise appraisal rights, the full reasons therefor should be
set forth. In particular, any efforts to draw analogies between the
instant case and the most recent Technicolor decision (which you
highlighted to Mr. Gerstein as a supposed reason for the Special
Committee's reluctance to recommend the Offer) should carefully
explain the factual distinctions between that case and the present
situation.
3. The Intentions of Mr. Rivelli with Respect to the Offer.
Pursuant to Item 6, the Schedule will need to disclose the intentions
of Mr. Rivelli with respect to the shares of MaxServ, Inc. (the
"Company") owned by the Sunwestern entities. In specific, as Mr.
Rivelli has previously reflected beneficial ownership of 1,029,800
shares in the Company's Proxy Statement for the 1996 annual meeting,
he is required by Item 6(b) of the Schedule to disclose whether he
will tender his shares in the Offer. Under Item 8, in order that such
statement of intentions not be misleading, if Mr. Rivelli expresses an
intention of Sunwestern not to sell its shares at $7.00 in the Offer,
we assume he will include a reconciliation of this intent with
Sunwestern's disposition of approximately 131,000 shares in 1996 at a
weighted average price of approximately $3.67, and with sales
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<PAGE> 17
of 17,500 shares as recently as late September 1996 at an average
price of $5.09. Those most recent sales followed the public
disclosures by the Company of the concept system in its 1996 annual
report and Form 10-KSB.
4. Fairness versus Inadequacy. The Special Committee and its
financial advisor continue to carefully refer to the Sears offer as
"inadequate." While the Special Committee may wrongfully view this as
an appropriate posture for negotiations, it is not an appropriate
basis for the Special Committee recommending against tendering in the
Offer. The concept of inadequacy is appropriate to circumstances in
which the Board believes it has better offers to pursue or may choose
to remain public. Neither alternative is available in the current
circumstances. As a consequence, any recommendation by the Special
Committee must rest on the "fairness" of the Offer, for it would be
materially misleading for the Special Committee to recommend against
the Offer on the basis of the "inadequacy" opinion of its financial
advisor when such an opinion presumes options not available or does
not address the ultimate fairness question with respect to Sears
offer. In this context Broadview Associates, Inc. may be breaching
fiduciary and other duties to the Board if it provides an inadequacy
opinion without giving full context to such a statement by opining on
the fairness of the Offer. See In re Daisy Systems Corporation, 97 F.
3d. 1171 (9th Cir. 1996).
Separately, and as a procedural matter, we would appreciate
contact information over the holiday weekend for counsel to the
Special Committee so that the opportunity to comment and consult may
be fully realized.
We look forward to the Special Committee's draft and your call
regarding arrangements for commenting upon it.
Very truly yours,
/s/ MATTHEW MYREN
-----------------
Matthew Myren
Senior Counsel
The Special Committee does not believe that Mr. Myren's letter requires a
point by point response except to the extent necessary to clarify Mr. Rivelli's
position with respect to the Sears Offer. Mr. Rivelli was not a general partner
in, and did not otherwise have authority over, the Sunwestern fund that sold the
shares of Common Stock referenced in numbered paragraph 3 of Mr. Myren's letter.
He exercises voting control over 1,029,800 shares of Common Stock and is
committed not to tender such shares in the Sears Offer at $7.00 per share.
Finally, the Special Committee is convinced that its behavior conforms to the
standards discussed by Chancellor William T. Allen of the Delaware Court of
Chancery in an address to the American Bar Association in 1990. In these
remarks, Chancellor Allen noted:
The factor that distinguishes those circumstances in which the
decision of a committee of outside directors has been accorded respect
and those in which its decision has not, is not mysterious. The
court's own implicit evaluation of the integrity of the special
committee's process marks that process as deserving respect or
condemns it to be ignored. When a special committee's process is
perceived as reflecting a good faith, informed attempt to approximate
aggressive, arm's-length bargaining, it will be accorded substantial
importance by the court. When, on the other hand, it appears as
artifice, ruse or charade, or when the board unduly limits the
committee or when the committee fails to correctly perceive its
mission -- then one can expect that its decision will be accorded no
respect.
On February 13 and 14, 1997, the Special Committee met to consider the
Sears Offer and the preparation and filing of the Schedule 14D-9. Management
advised the Special Committee that there had been no
16
<PAGE> 18
material changes in the Company's business or prospects since the January 4,
1997 meeting of the Special Committee. Broadview delivered an updated analysis
of the matters included in Broadview's presentation to the Special Committee on
January 4, 1997. Broadview concluded that the Sears Offer was inadequate to the
holders of the Public Shares from a financial point of view and delivered a
draft of its written opinion to such effect to the Special Committee. The
Special Committee was also advised by its legal counsel as to its fiduciary
duties.
The Sears designated directors were provided the opportunity to review the
then current draft of the Schedule 14D-9 on February 14, 1997 and they provided
their comments to the Special Committee on February 17, 1997 by way of the
following letter from Mr. Myren to counsel for the Special Committee:
February 17, 1997
Mr. Edgar J. Marston, III
Bracewell & Patterson, L.L.P.
Pennzoil Place -- South Tower
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Dear Edgar:
On behalf of the Sears designated directors of MaxServ, Inc. (the
"Company"), I offer the following comments on the Schedule 14D-9 (the
"Schedule") prepared by the Special Committee and its advisors:
1. We are concerned stockholders are being misled by the Special
Committee's recommendation not to tender and to consider withdrawing
tendered shares on the basis of the Special Committee's "belief" that
the planned second-step merger cannot be accomplished if no more than
approximately 71,093 shares are tendered. The contractual limitation
upon which the Special Committee relies in support of this belief
provides by its very terms that Sears may acquire shares "without
regard to the foregoing limitation if a tender offer is made" -- such
a tender offer has been made. The Special Committee's interpretation
is erroneous at best and appears to be in bad faith; we are
particularly concerned because no reference is made to a legal opinion
or other formal advice of counsel being the basis of the Special
Committee's "belief".
Moreover, we are concerned it is misleading for the Special
Committee to urge action which the Special Committee professes to
believe will prevent a second-step merger without prominently
disclosing the likely adverse impact upon the market price for the
Company's shares that would result if the Special Committee were
correct and a second-step merger were thus to be prevented.
2. We are concerned stockholders are being misled by the Special
Committee's recommendation that stockholders consider not tendering,
dissenting from a second-step merger, and participating in a Delaware
appraisal proceeding, without prominently disclosing that stockholders
who do so may well receive less than $7.00 per share in that appraisal
proceeding.
3. In its proposed letter and press release, the Special
Committee states that it will "continue to negotiate with Sears . . ."
As the Special Committee has refused to meet with Sears to negotiate
since the Offer commenced, the statement misleads stockholders into
believing the Special Committee is negotiating with Sears when it
refused to do so, even after Sears indicated its was prepared to
increase its offer in a negotiated transaction. The only correct
characterization of the Special Committee's posture is that it will
only accept a price of $8.00 or more per share, and will not otherwise
negotiate with Sears.
4. We are concerned stockholders will be misled if only a brief
summary of the analysis by Broadview Associates is provided in the
Schedule. As the Special Committee has had access to the projections
and plans of MaxServ's management, the Special Committee is legally
required to provide much greater detail to the public stockholders
concerning the valuation methods used and assumptions made in
Broadview's analysis. This omission is in stark contrast to Sears
disclosure of the details of the analysis by Merrill Lynch in the
Offer to Purchase, leaving stockholders unable to
17
<PAGE> 19
compare and evaluate these two differing opinions and determine for
themselves which valuation methodologies and assumptions are more
reasonable. It is precisely these differing assumptions that have led
Sears and the Special Committee to reach differing conclusions as to
value.
5. We are concerned that Broadview has chosen to rely on an
article about Sears Home Services in Time magazine for certain
assumptions it has made about the growth in MaxServ revenues
attributable to business from only one division of Home Services as
opposed to the information we understand was directly supplied by
Sears to Broadview and MaxServ as to such matters. We believe the
Sears-supplied projections to be more accurate than extrapolations
from quotations in a weekly news magazine.
6. We continue to be concerned by the Special Committee's
misleading presentation of the MaxServNet concept. Based on the
information previously made available to MaxServ's Board of Directors,
we believe that the Schedule exaggerates both the current status and
value of the concept. In particular, we note MaxServ's projections and
business plans previously presented to the Board of Directors placed
little emphasis on the MaxServNet concept, either as a strategic
initiative or a source of revenues. We thus remain concerned the value
of MaxServNet is only "speculative" and stockholders are being misled
into believing it will impact share value in an appraisal proceeding.
The Schedule also fails to disclose that much of the data that MaxServ
contemplates will be used in MaxServNet belongs to Sears and use of
and access to this data by third parties is severely restricted in a
manner which would not support the intended broad scope of the
MaxServNet concept. In light of these points and other we have
previously discussed, we urge you to reconsider the content of the
discussion of MaxServNet in the Schedule.
The foregoing outlines only the primary concerns of the
Sears-designated directors with respect to materially misleading statements
in the Schedule; it is not intended to provide an exhaustive list of
objections and concerns of either the Sears-designated directors or Sears,
who reserve their respective rights to assert these or any other objections
in any context or forum. Moreover, we do not feel it is necessary to
reiterate Sears view as to why its Offer is fair and in the best interest
of MaxServ's stockholders, since its position has been clearly stated in
the Offer to Purchase previously distributed to MaxServ's stockholders.
Finally, we note that the individual members of the Special Committee
ultimately bear full responsibility under the federal securities laws for
the content of the Schedule.
We would be glad to discuss any of the above issues with the Special
Committee in more detail at its convenience.
Very truly yours,
/s/ MATTHEW T. MYREN
-------------------------------
Matthew T. Myren
Senior Counsel
The Special Committee believes that this Statement adequately addresses the
matters raised in Mr. Myren's letter to the extent they merit a response. The
Special Committee notes that the detailed discussion of Merrill Lynch's
projections in the Offer to Purchase was required by the provisions of Rule
13e-3.
On February 17, 1997, the Special Committee met telephonically, discussed a
draft of this Schedule and Mr. Myren's letter dated February 17, 1997 and
received the written opinion of Broadview that the proposed consideration of
$7.00 in cash pursuant to the Sears Offer is inadequate, from a financial point
of view, to the MaxServ shareholders other than Sears because it is below the
range of value at which a willing seller would sell the minority shares to a
willing buyer when neither is under any compulsion to buy or sell; the full text
of such opinion, dated February 17, 1997, which sets forth the assumptions made,
matters considered and limitations set forth by Broadview, is included as Annex
C hereto and should be read in its entirety. Based on Broadview's opinion, a
draft of this Statement and the other discussions the members of the Special
18
<PAGE> 20
Committee had had and the advice they had received since the Special Committee's
formation in December 1996, the members of the Special Committee unanimously
determined that the Sears Offer was inadequate and not in the best interests of
the Public Shareholders.
At the foregoing meeting, the Special Committee instructed Mr. Turner to
contact his counterpart at Sears and express the Special Committee's willingness
to participate in another meeting. The Special Committee believes that it has
negotiated in good faith in its efforts to represent the interests of the
holders of the Public Shares. While the Special Committee adjusted its value
expectations on several occasions as negotiations progressed, Sears has
increased the top of its valuation range only one time and only in the amount of
$.25. Notwithstanding the foregoing, the Special Committee is prepared to resume
face-to-face negotiations with Sears since the Special Committee's position on
the Sears Offer is now reflected in this Statement. While agreeing to meet with
Sears, the Special Committee has not changed its perception of the fair value of
the Public Shares.
RECOMMENDATIONS
THE SPECIAL COMMITTEE UNANIMOUSLY RECOMMENDS THAT MAXSERV SHAREHOLDERS
REJECT THE SEARS OFFER AND NOT TENDER THEIR SHARES OF COMMON STOCK PURSUANT TO
THE SEARS OFFER.
BASED UPON THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF FEBRUARY
17, 1997, IF NO MORE THAN 71,093 SHARES ARE PURCHASED PURSUANT TO THE SEARS
OFFER, THE SPECIAL COMMITTEE BELIEVES THAT, WHILE THE MATTER IS NOT FREE FROM
DOUBT UNDER ILLINOIS LAW, SEARS SHOULD NOT BE ABLE TO EFFECT THE SECOND STEP
SQUEEZE-OUT MERGER AT $7.00 PER SHARE CONTEMPLATED BY THE OFFER TO PURCHASE.
This is so because Sears is contractually obligated not to increase its
ownership of MaxServ's outstanding voting securities above 64.93% (Sears
currently owns 64.28%) without the approval of a majority of the MaxServ
directors who are not affiliated with Sears; provided that the foregoing
limitation does not apply if Sears or certain of its affiliates makes a tender
offer for all shares of Common Stock not owned by them. The Special Committee
believes that the tender offer exception is not available in the absence of a
tender offer that is accepted by a sufficient number of MaxServ shareholders to
enable Sears to surpass the 64.93% threshold. ACCORDINGLY, IF ANY SHAREHOLDER
HAS ALREADY DEPOSITED SHARES PURSUANT TO THE SEARS OFFER, THE SPECIAL COMMITTEE
URGES EACH SUCH SHAREHOLDER TO CONSIDER WITHDRAWING ITS SHARES.
THE SPECIAL COMMITTEE ALSO URGES EACH MAXSERV SHAREHOLDER TO CONSULT WITH
ITS INVESTMENT ADVISOR CONCERNING POSSIBLE ALTERNATIVES TO THE SEARS OFFER FOR
THE OPTIMIZATION OF SUCH SHAREHOLDER'S INVESTMENT IN MAXSERV, INCLUDING A SALE
IN THE OPEN MARKET PRIOR TO THE EXPIRATION OF THE SEARS OFFER OR A DISSENT FROM
THE SECOND STAGE SQUEEZE-OUT MERGER AND PARTICIPATION IN AN APPRAISAL PROCEEDING
UNDER DELAWARE LAW IN THE EVENT THAT SUCH MERGER IS EFFECTED. The closing sales
price of the MaxServ Common Stock as reported on the Nasdaq SmallCap Market on
February 14, 1997 was $7 7/16 per share, as compared with a closing sales price
of $4 7/8 per share on December 4, 1996, the last full trading day before Sears
announced its interest in acquiring the Public Shares. THERE CAN BE NO ASSURANCE
THAT THE TRADING PRICE OF THE COMMON STOCK WILL NOT RETURN TO ITS PRE-DECEMBER
5, 1996 LEVEL IF SEARS WITHDRAWS THE SEARS OFFER OR OTHERWISE ABANDONS ITS
INTEREST IN ACQUIRING THE PUBLIC SHARES. SHAREHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK. See Annex B for an outline of
appraisal remedies under Delaware law, and the relevant statutory provisions
relating thereto, that was provided by the Special Committee's Delaware counsel.
Shareholders should note that the perfection of appraisal remedies under
Delaware law requires precise compliance with a number of steps and that the
costs of such a proceeding must be borne by the shareholders seeking appraisal
of their shares unless and until the Delaware Chancery Court determines
otherwise. In an appraisal proceeding, the Delaware Chancery Court will
determine the fair value of the shares of Common Stock with respect to which
appraisal rights have been perfected. SUCH FAIR VALUE AS DETERMINED BY THE
DELAWARE CHANCERY COURT MAY
19
<PAGE> 21
BE MORE OR LESS THAN THE $7.00 PER SHARE OF COMMON STOCK OFFERED IN THE
SEARS OFFER.
In addition to the factors set forth elsewhere in this Statement and
considered by the Special Committee in reaching the conclusions with respect to
the Sears Offer described above, the Special Committee considered a number of
factors, including, but not limited to, the following:
(1) the recognition that a sale of control of MaxServ to Sears
occurred in late 1994 when the Board of Directors of MaxServ approved
Sears' acquisition of more than 50% of the Company's voting stock and that
as a consequence Sears has no obligation to offer its majority stock
position in MaxServ for sale in order to maximize value for the holders of
the Public Shares;
(2) under the Delaware appraisal process, the holders of the Public
Shares are ultimately entitled to receive the fair value of their
proportionate interest in MaxServ as a going concern in a squeeze-out
merger, without a discount for the fact that their aggregate interest is a
minority interest (See Annex B);
(3) the conclusion that the preliminary expressions of interest from
third parties who indicated a willingness to initiate discussions with
Sears that might lead to an acquisition of MaxServ at a price substantially
higher than the Sears Offer are a better indication of the fair value of
MaxServ as a going concern than Sears' "typical minority squeeze-out" price
of $7.00, notwithstanding Sears' statement that its equity interest in
MaxServ is not for sale;
(4) the perceived competitive benefits that will inure to Sears as a
result of the appropriation of the MaxServNet system to itself and the
exclusion of Sears' competitors in the home service industry from access to
such system and its related proprietary databases;
(5) the perception that MaxServNet will play an important role in
Sears achieving the following goals and objectives noted in a December 23,
1996 article in Time relating to Sears:
(a) "Use . . . [Sears'] vast databases to help keep customers
satisfied; for instance, through detailed service records on products
after purchase;" and
(b) "Next year, Sears' 17,000 service vans will begin offering
24-hour on call repair service for any brand of appliance whether or not
Sears sold it. That way, [Sears' CEO Arthur] Martinez hopes to transform
a $3 billion repair and improvement business built on Sears' customer
base into at least a $10 billion one within three years."
(6) the perception that Sears' projection of a 2% compound annual
growth rate for MaxServ's revenue from Sears' business as a public company
over the next three years was substantially lower than the more than 30%
compound annual growth rate for the Sears' home services division as a
whole over the same period implicit in the Time article referred to in
paragraph (5) above;
(7) the relative unimportance of the historical market prices for the
Common Stock because of the illiquid nature of such market and the market
response to the Sears Offer following its commencement;
(8) the Special Committee's belief that the Sears Offer does not
reflect the fair value of the Company based on the Special Committee's
familiarity with the business, financial condition, results of operations,
current business strategy, projects under development and future prospects
of the Company. Specifically, the Special Committee determined that the
Sears Offer failed to reflect:
(a) the Company's leading and innovative position in the home
service industry;
(b) the planned introduction by the Company of MaxServNet into the
Company's existing market as well as new markets; and
(c) the expected revenue and earnings growth based on MaxServNet
and the Company's expected resulting competitive position in such
markets;
20
<PAGE> 22
(9) presentations by the Company's management relating to the
Company's financial performance and future prospects for growth and
expansion, based on its strategic plans, investments that have been made in
an effort to develop MaxServNet, the expanded product lines and services
offered to the Company's existing and new customers, and the conclusion of
the Company's management that the proposed consideration in the Sears Offer
of $7.00 in cash per share of Common Stock is inadequate; and
(10) presentations by Broadview, financial advisor to the Special
Committee, concerning the financial aspects of the Sears Offer, the Company
and the home service industry, and its written opinion that, from a
financial point of view and as of the date of such opinion, the proposed
consideration of $7.00 in cash pursuant to the Sears Offer is inadequate to
the MaxServ shareholders other than Sears because it is below the range of
value at which a willing seller would sell the minority shares to a willing
buyer when neither is under any compulsion to buy or sell; the full text of
such opinion, dated February 17, 1997, which sets forth the assumptions
made, matters considered and limitations set forth by Broadview, is
included as Annex C hereto and should be read in its entirety.
The foregoing discussion of the information and factors considered and
given weight by the Special Committee is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Sears Offer, the Special Committee did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determinations and recommendations. In addition, individual
members of the Special Committee may have given different weight to different
factors. Throughout its deliberations, the Special Committee received the advice
of its legal and financial advisors.
A copy of the letter to the Company's shareholders and the press release
relating to the foregoing recommendations are filed as Exhibits 5 and 4 hereto,
respectively, and are incorporated herein by reference.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
On December 20, 1996, the Special Committee formally retained Broadview as
financial advisor, to assist the Special Committee in its review of the Sears'
proposal as well as any other proposal, tender offer, acquisition, merger,
exchange offer, joint venture, or other business combination involving the
Company that may be received from Sears or from any third party. As compensation
for its services, Broadview is entitled to receive $35,000 from the Company upon
engagement, and is also entitled to the following additional compensation: (i) a
"success" fee, upon consummation, ranging from 1 1/4% to 2 1/2% of any
consideration received by the Company and/or its stockholders, (ii) should a
fairness opinion be necessary, $200,000 will be due by the Company upon delivery
of the fairness opinion (which $200,000 will be credited against the success
fee), and (iii) reimbursement of out-of-pocket expenses, payable monthly.
On February 18, 1997, the Special Committee retained Morrow & Co. to assist
in the distribution of this Statement and any amendments thereto.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any other person to make any
solicitations or recommendations to shareholders on its behalf concerning the
Sears Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Transactions in Securities.
To the Company's knowledge, no transactions in the Common Stock or
securities convertible into Common Stock have been effected during the past 60
days by any executive officer or director of the Company or by any beneficial
owner of 5% or more of the Common Stock.
(b) No Intent to Tender.
To the Company's knowledge and, except as otherwise disclosed in this
Statement, with the exception of Sears, no person referenced in (a) above
presently intends to tender to MAD any shares of Common Stock held of record or
beneficially owned by such person.
21
<PAGE> 23
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
Except as otherwise disclosed in this Statement, no negotiations are
presently being undertaken or are underway by the Company, and no transactions,
agreements or negotiations have been entered into or effected, in response to
the Sears Offer which relate to or would result in (i) an extraordinary
transaction, such as a merger or reorganization, involving the Company, (ii) a
purchase, sale or transfer of a material amount of assets by the Company, (iii)
a tender offer for or other acquisition of securities by or of the Company, or
(iv) any material change in the present capitalization or dividend policy of the
Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
On January 31, 1997, a complaint was filed against Charles F. Bayless,
President and Chief Executive Officer of the Company, Daniel A. Mihalovich, Vice
President/GM, Product Services of Sears, Thomas D. Overton, Vice President,
Strategy and Business Development for Home Services of Sears, Stephanie S.
Springs, Senior Systems Director, Information Systems Shared Securities of Sears
(the last three individuals being Sears' designees on the MaxServ Board) and
Sears itself in the Court of Chancery of the State of Delaware in and for New
Castle County. The action is styled Gordon v. Bayless, et al, Civil Action No.
15503. The complaint purports to be a class action on behalf of the Company's
shareholders and seeks, among other things, to enjoin the proposed transaction
whereby Sears has offered to acquire any and all Public Shares. Plaintiff
alleges that the Sears Offer is unfair and inadequate and that defendants are
violating their fiduciary duties to the Company's shareholders.
The complaint in the foregoing action is filed as Exhibit 7 to this
Statement and is incorporated by reference herein.
22
<PAGE> 24
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1 -- Excerpts from the Company's Proxy Statement dated
September 16, 1996.
2 -- Letter dated December 4, 1996 to the Board of Directors
of the Company from Sears.
3 -- Press Release dated January 29, 1997.
4 -- Press Release dated February 18, 1997.
**5 -- Letter to Shareholders regarding Special Committee's
recommendation.
**6 -- Opinion dated February 17, 1997 of Broadview Associates.
7 -- Complaint in Gordon v. Bayless, et. al., C.A. No. 15503
(Del. Ch. filed January 31, 1997).
*8 -- Registration Rights Agreement dated as of May 20, 1993,
between MaxServ, Inc. and Sears, Roebuck and Co.
*9 -- Stock Purchase Agreement dated as of December 29, 1994,
between MaxServ, Inc. and Sears, Roebuck and Co.
*10 -- First Amendment to the Registration Rights Agreement
dated as of December 29, 1994, between MaxServ, Inc. and
Sears, Roebuck and Co.
*11 -- Employment Agreement between Charles F. Bayless and
Primefax, Inc.
*12 -- Amended Employment Agreement between Charles F. Bayless
and MaxServ, Inc.
*13 -- Employment Agreement between Thomas W. O'Brien and
Primefax, Inc.
*14 -- Amended Employment Agreement between Thomas W. O'Brien
and MaxServ, Inc.
*15 -- Form of Indemnification Agreement between MaxServ, Inc.
and Charles F. Bayless.
*16 -- Form of Indemnification Agreement between MaxServ, Inc.
and Patrick A. Rivelli, Stephen J. Keane and Nathaniel P.
Turner.
*17 -- Parts Service Agreement, dated as of December 29, 1994,
between MaxServ, Inc. and Sears, Roebuck and Co.
Confidential Treatment has been granted for specific
portions of this document.
18 -- Amendment Agreement (amending the Parts Service
Agreement) among MaxServ, Inc. and Sears, Roebuck and
Co., dated January 31, 1996. Confidential treatment has
been granted for specific portions of this document.
19 -- Resolution adopted effective December 5, 1996 by
unanimous consent of the Board of Directors of the
Company, establishing the Special Committee.
20 -- Resolutions adopted at the February 13, 1997 meeting of
the Board of Directors of the Company, expanding the
authority of the Special Committee.
</TABLE>
- ---------------
* Filed in paper format under Form SE.
** Included in copy mailed to shareholders.
23
<PAGE> 25
SIGNATURE
After due inquiry and to the best of each of the undersigned's knowledge
and belief, each of the undersigned certifies that the information set forth in
this Statement is true, complete and correct.
MAXSERV, INC.
By The Special Committee of the
Board of Directors
By: /s/ NATHANIEL P. TURNER
------------------------------------
Name: Nathaniel P. Turner
Title: Director and Chairman of
the Special Committee
By: /s/ PATRICK A. RIVELLI
------------------------------------
Name: Patrick A. Rivelli
Title: Director and Member of
the Special Committee
By: /s/ STEPHEN J. KEANE
------------------------------------
Name: Stephen J. Keane
Title: Director and Member of
the Special Committee
Dated: February 18, 1997
<PAGE> 26
ANNEX A
Sunwestern Investment Fund, Sunwestern Capital Ltd., Sunwestern Investment
Fund II and Sunwestern Cayman 1984 Partners, current or former principal
stockholders of the Company, hold certain demand and piggyback registration
rights. Such rights were granted to Sunwestern in connection with various prior
convertible debt financing transactions. The Company has agreed to indemnify the
holders of securities which are so registered against certain liabilities under
the Securities Act of 1933. Patrick A. Rivelli, a director of the Company, is an
affiliate of Sunwestern Investment Fund II and Sunwestern Cayman 1984 Partners.
Sears, the Company's principal customer and a principal stockholder, holds
certain demand and piggyback registration rights. The Company has agreed to
indemnify Sears against certain liabilities in connection with any shares so
registered.
On December 29, 1994, Sears acquired from the Company, in a private
transaction, 3,333,333 shares of the Company's newly issued common stock. The
stock acquisition was effected pursuant to a stock purchase agreement (the "1994
Agreement"). Consideration for the stock acquisition included: (i) $4.5 million
in cash, (ii) execution of a service agreement providing for a 10-year term,
(iii) the transfer of certain assets including furniture, fixtures, leasehold
improvements and equipment (valued at approximately $1,223,000), and (iv) the
transfer of leasehold interests for two facilities.
The 1994 Agreement provides Sears with the right to acquire additional
shares of capital stock upon the issuance by the Company of additional capital
stock (except in certain limited cases) in order to maintain the same proportion
of voting power of the Company as it owned prior to the issuance. Under the 1994
Agreement, the Company has agreed to take reasonable steps not inconsistent with
applicable law or the fiduciary duties of its directors to cause three nominees
of Sears to be included in its authorized slate of nominees at all meetings of
stockholders for the election of directors. Pursuant to the 1994 Agreement,
three Sears designated directors (Daniel A. Mihalovich, Thomas D. Overton and
Stephanie S. Springs) serve on the Company's Board of Directors. The 1994
Agreement also provides that neither Parent nor its affiliates (other than
certain permitted affiliates) (collectively the "Sears Group") may acquire,
directly or indirectly, without the approval of a majority of the directors of
the Company who are not affiliated with Sears, any Voting Securities (as defined
in the 1994 Agreement to include Common Stock) of the Company, if the effect of
such acquisition would be to increase the aggregate voting power in the election
of directors of all Voting Securities then owned by the Sears Group to greater
than 64.93% of such total aggregate voting power of all Voting Securities then
outstanding; provided that the Sears Group may acquire Voting Securities without
regard to the foregoing limitation if a tender offer is made by Sears or any one
or more members of the Sears Group to acquire all outstanding Voting Securities
not already owned by the Sears Group. Sears is and was, prior to the stock
acquisition, the Company's principal service customer.
Over 90% of the Company's revenues for fiscal 1996 were attributable to
services provided to Sears pursuant to two service agreements. The first service
agreement, entered into in May 1993, is for a seven year term and covers
consumer support, parts support, technical support, database maintenance, home
office center support and administrative services. The second service agreement,
entered into in December 1994, is for a ten year term and covers parts sales
order and repair technician scheduling services. After the lapse of any
applicable cure periods, each of the agreements is terminable by either party in
the event of non-compliance by the other party with certain provisions relating
to performance of services in accordance with specified minimum standards,
maintenance of required insurance and fulfillment of indemnity and
confidentiality obligations. Each agreement (or, in some cases, only a service
provided under such agreement) is also terminable by Sears on 180 days' notice,
in certain events as set forth in the respective agreements. In specified
situations under the ten year agreement, during the first three years of the
term of such agreement, Sears is obligated to assume certain leases and purchase
certain assets from the Company, which obligations abate during such three year
period.
The Company has entered into Indemnification Agreements with Charles F.
Bayless, and each member of the Special Committee, pursuant to which the Company
has agreed to indemnify, and advance expenses to, each such person to the
fullest extent permitted by applicable law. Copies of Mr. Bayless'
Indemnification
<PAGE> 27
Agreement and the form of Indemnification Agreement with each member of the
Special Committee have been filed as Exhibits 15 and 16 respectively to this
Statement and are incorporated by reference herein.
During a telephonic meeting of the Board of Directors of the Company on
February 13, 1997, the Board of Directors unanimously approved a resolution to
advance expenses incurred by any director in defending litigation relating to
Sears' efforts to take the Company private upon receipt of an undertaking by
such director to repay such amount if it is ultimately determined that such
director is not entitled to indemnification by the Company.
A-2
<PAGE> 28
ANNEX B
February 14, 1997
(302) 984-6003
Special Committee Of
The Board of Directors
MaxServ, Inc.
c/o Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Re: Appraisal Proceedings Under
The Delaware General Corporation Law
Gentlemen:
You have requested that I briefly outline for you the remedies afforded by
the appraisal provisions of the Delaware General Corporation Law, 8 Del. C. sec.
262 (copy attached).
In general, the appraisal remedy is available to a shareholder of a
Delaware corporation who is "cashed-out" in a merger and is not content with the
merger consideration. A shareholder who wishes to avail himself of the appraisal
remedy must deliver a timely written demand for appraisal of his shares.
"Timely" means before the taking of the vote on the merger, or, where no vote of
shareholders is required, within 20 days after the mailing of notice by the
corporation that the merger has or will become effective. The shareholder who
desires to avail himself of the appraisal remedy must not vote in favor of the
merger and must not surrender his shares to the corporation or its survivor. The
proxy statement or information statement with respect to the merger which is
disseminated to stockholders must make full disclosure of the appraisal statute
and the steps necessary for a stockholder to avail himself of the statutory
remedy. It is important to note that only stockholders of record may perfect and
use the statutory provisions. It is therefore extremely important that
beneficial owners make certain that their brokers or other record holders follow
the statutory requirements.
Within 120 days after the effective date of the merger, any shareholder who
has perfected appraisal rights may file a petition for appraisal in the Delaware
Court of Chancery. If no such petition is timely filed, the right of appraisal
is terminated and all shares which were the subject of valid demands are
remitted to the consideration provided in the merger. If any shareholder files a
timely appraisal petition, all shares which were the subject of valid demands
are included in the appraisal action. Expenses (including attorneys' and
experts' fees) incurred by a shareholder in prosecuting an appraisal action may
be charged pro rata by the Court against all shares entitled to appraisal (i.e.,
all shares with respect to which appraisal rights were perfected and not
thereafter withdrawn).
If an appraisal petition is filed, the Court of Chancery is charged under
the statute with determining
"the fair value [of the shares] exclusive of any element of value
arising from the accomplishment or expectation of the merger or
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"
8 Del. C. sec. 262(g). Although no question of liability is presented in an
appraisal action, it is otherwise the same as other civil litigation with the
attendant discovery and expense. More frequently than not, an appraisal action
becomes a battle of experts.
The Delaware Supreme Court has held that valuation must include proof by
"any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court."
<PAGE> 29
Thus, discounted cash flow and comparable entity analyses are used regularly in
determining fair value. Moreover, "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the date
of the merger and not the product of speculation, may be considered." Thus,
projections based on a business plan extant on the date of the merger which are
not speculative (i.e., are reasonably foreseeable) may be considered by the
Court of Chancery in its fair value determination. "[E]lements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation may be
considered."
To summarize, in an appraisal action, the shareholder is entitled to
receive the fair value of his proportionate interest in the company as a going
concern as of the date of the merger. There is no discount for the fact that the
shareholder has only a minority interest or because the shares subject to
appraisal were not readily marketable.
I trust the foregoing is useful in your deliberations. This letter does not
purport to be a complete discussion of the appraisal statute or the cases
decided thereunder. Obviously, any shareholder(s) desiring to perfect appraisal
rights and seek appraisal should consult with legal and financial advisors.
We hereby consent to your use of this letter (including reproduction
thereof) in connection with the Company's SEC Schedule 14D-9.
Very truly yours,
POTTER ANDERSON & CORROON
By: /s/ ROBERT K. PAYSON
----------------------------------
Robert K. Payson
B-2
<PAGE> 30
DELAWARE GENERAL CORPORATION LAW, 8 DEC. C. SEC. 262
SEC. 262. 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 sec. 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 work
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the worlds "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 depository
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
effected pursuant to sec.sec. 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 subsections (b) or (g) of sec. 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
sec.sec. 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 any 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 sec. 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
B-3
<PAGE> 31
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 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 sec. 228 or
sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within twenty days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's 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
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(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
B-4
<PAGE> 32
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 an
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 or
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 proceeding and may proceed to trial upon the appraisal prior
to the final determination of the stockholders 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
certificate 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 in 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
B-5
<PAGE> 33
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.
(l) 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.
B-6
<PAGE> 34
ANNEX C
[BROADVIEW ASSOCIATES LLC LETTERHEAD]
February 17, 1997
CONFIDENTIAL
Special Committee of the Board of Directors
MaxServ, Inc.
8317 Cross Park Dr.,
Austin, TX 78754
Dear Members of the Special Committee:
We understand that Max Acquisition Delaware Inc. ("Purchaser"), a wholly
owned subsidiary of Sears, Roebuck and Co. ("Parent"), has commenced an offer
(the "Offer") to acquire all of the outstanding shares of common stock, par
value $0.01 per share, of MaxServ, Inc. ("MaxServ" or the "Company"), not owned
by Parent (the "Minority Shares"), for $7.00 per share (the "Offer Price"), net
to the seller in cash, subject to the terms and conditions set forth in its
Offer to Purchase (as defined below). As disclosed in the Offer to Purchase,
upon consummation of the Offer, Purchaser and Parent intend to cause the
Purchaser to be merged with and into the Company with the Company surviving as a
wholly owned subsidiary of Parent. The terms and conditions of the Offer are
more fully described in the Offer to Purchase.
You have requested our opinion as to whether the Offer Price is adequate,
from a financial point of view, to MaxServ shareholders other than Parent.
Broadview Associates LLC focuses on providing merger and acquisition
advisory services to information technology ("IT") companies. In this capacity,
we are continually engaged in valuing such businesses, and we maintain an
extensive database of IT mergers and acquisitions for comparative purposes. We
are currently acting as financial advisor to the Special Committee of the Board
of Directors of MaxServ (the "Special Committee") and will receive a fee from
MaxServ for our services. Such fee is in large part dependent upon consummation
of a transaction such as the Offer. We will also receive a fee upon delivery of
this opinion.
In rendering our opinion, we have, among other things:
(1) reviewed the terms and conditions of the Offer to Purchase and related
Letter of Transmittal (together, the "Offer to Purchase") attached as
exhibits to the Purchaser's Schedule 14D-1 relating to the Offer filed
with the Securities and Exchange Commission on February 4, 1997;
(2) reviewed the financial statements of MaxServ for its fiscal years ended
December 31, 1994, 1995, and 1996 audited and reported on by Price
Waterhouse LLP and the unaudited financial statements of MaxServ for the
three month periods ended August 31, 1996 and November 30, 1996 included
within MaxServ's Forms 10-Q for such periods;
(3) reviewed internal historical financial and operating data concerning
MaxServ prepared and provided to us by MaxServ management;
(4) discussed with MaxServ management their expectations about the
Company's future financial performance and, using their assumptions and
projections, constructed forecasts of financial performance based on
such assumptions;
(5) considered the fact that Parent owns 64.4% of the outstanding MaxServ
common stock, and accounts for approximately 90% of MaxServ's total
current revenue;
(6) participated in discussions with MaxServ management concerning the
operations, business strategy, financial performance and prospects for
MaxServ including specific discussions regarding the
<PAGE> 35
Company's ongoing development of MaxServNet, a comprehensive
service-cycle management technology;
(7) reviewed the reported closing prices and trading activity for MaxServ
common stock;
(8) compared certain aspects of the financial performance of MaxServ with
public companies we deemed comparable;
(9) analyzed available information, both public and private, concerning
other transactions we believe to be comparable in whole or in part to
the Offer;
(10) discussed potential acquisition of all or part of the Company by third
parties with the Special Committee, the full MaxServ Board of Directors,
Parent and interested third parties;
(11) discussed with Parent management its view of the strategic rationale
for the acquisition of the Minority Shares;
(12) participated in negotiations and discussions prior to commencement of
the Offer among MaxServ, the Special Committee and Parent and their
financial and legal advisors for a possible negotiated transaction
regarding the acquisition by Parent of the Minority Shares; and
(13) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information that
was publicly available or furnished to us by MaxServ, Purchaser or Parent. With
respect to the assumptions of future financial performance which we discussed
with MaxServ management, we have assumed that they reflected the best available
estimates and good faith judgments of the management of MaxServ as to the future
performance of MaxServ. We have also assumed that MaxServ shareholders other
than Parent are not compelled to sell their shares and that the shares of
MaxServ will continue to trade on NASDAQ or in the over-the-counter market. We
have neither made nor obtained an independent appraisal or valuation of any of
MaxServ's assets.
Based upon and subject to the foregoing, we are of the opinion that, from a
financial point of view, the Offer Price is inadequate to MaxServ shareholders
other than Parent because it is below the range of value at which a willing
seller would sell the Minority Shares to a willing buyer when neither is under
any compulsion to buy or sell.
This opinion speaks only as of the date hereof and may be relied upon only
by the Special Committee and no other person. This opinion is not intended to be
and shall not constitute a recommendation to any shareholder of the Company as
to whether to tender shares of Common Stock pursuant to the Offer. This opinion
may not be published or referred to, in whole or part, without our prior written
permission, which shall not be unreasonably withheld.
Sincerely,
Broadview Associates LLC
C-2
<PAGE> 36
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1 -- Excerpts from the Company's Proxy Statement dated
September 16, 1996.
2 -- Letter dated December 4, 1996 to the Board of Directors
of the Company from Sears.
3 -- Press Release dated January 29, 1997.
4 -- Press Release dated February 18, 1997.
**5 -- Letter to Shareholders regarding Special Committee's
recommendation.
**6 -- Opinion dated February 17, 1997 of Broadview Associates.
7 -- Complaint in Gordon v. Bayless, et. al., C.A. No. 15503
(Del. Ch. filed January 31, 1997).
*8 -- Registration Rights Agreement dated as of May 20, 1993,
between MaxServ, Inc. and Sears, Roebuck and Co.
*9 -- Stock Purchase Agreement dated as of December 29, 1994,
between MaxServ, Inc. and Sears, Roebuck and Co.
*10 -- First Amendment to the Registration Rights Agreement
dated as of December 29, 1994, between MaxServ, Inc. and
Sears, Roebuck and Co.
*11 -- Employment Agreement between Charles F. Bayless and
Primefax, Inc.
*12 -- Amended Employment Agreement between Charles F. Bayless
and MaxServ, Inc.
*13 -- Employment Agreement between Thomas W. O'Brien and
Primefax, Inc.
*14 -- Amended Employment Agreement between Thomas W. O'Brien
and MaxServ, Inc.
*15 -- Form of Indemnification Agreement between MaxServ, Inc.
and Charles F. Bayless.
*16 -- Form of Indemnification Agreement between MaxServ, Inc.
and Charles F. Bayless, Patrick A. Rivelli, Stephen J.
Keane and Nathaniel P. Turner.
*17 -- Parts Service Agreement, dated as of December 29, 1994,
between MaxServ, Inc. and Sears, Roebuck and Co.
Confidential Treatment has been granted for specific
portions of this document.
18 -- Amendment Agreement (amending the Parts Service
Agreement) among MaxServ, Inc. and Sears, Roebuck and
Co., dated January 31, 1996. Confidential treatment has
been granted for specific portions of this document.
19 -- Resolution adopted effective December 5, 1996 by
unanimous consent of the Board of Directors of the
Company, establishing the Special Committee.
20 -- Resolutions adopted at the February 13, 1997 meeting of
the Board of Directors of the Company, expanding the
authority of the Special Committee.
</TABLE>
- ---------------
* Filed in paper format under Form SE.
** Included in copy mailed to shareholders.
<PAGE> 1
EXHIBIT 1
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION.
Summary Compensation Table. The following table sets forth certain
information concerning the compensation earned during the Company's last three
fiscal years by the Company's Chief Executive Officer, Executive Vice
President, and Chief Financial Officer, the only executive officers of the
Company earning compensation in excess of $100,000 (collectively the "named
executive officers"):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
-----------------------------------------------------------------------
Awards Payouts
Other ----------------------------------
Annual Restricted All Other
Compen- Stock LTIP Compen-
Name and Principal Fiscal Salary Bonus sation Award(s) Options Payouts sation
Position Year ($) ($) ($)(1) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles F. Bayless 1996 196,875 30,000 - - 90,000 - -
President and Chief 1995 170,700 60,000 - - 50,000 - -
Executive Officer 1994 148,158 50,000 - - 50,000 - -
- -----------------------------------------------------------------------------------------------------------------------
Thomas W. O'Brien 1996 122,163 - - - 35,000 - -
Executive Vice 1995 114,246 20,000 - - 20,000 - -
President 1994 100,913 16,000 - - 3,000 - -
- -----------------------------------------------------------------------------------------------------------------------
Neil A. Johnson 1996 137,500 20,000 - - 70,000 - -
Senior Vice 1995 118,333 40,000 - - 15,000 - -
President, Finance 1994 27,147(2) - - - 40,000 - -
and Chief Financial
Officer
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain of the Company's executive officers receive personal benefits
in addition to salary; however, the Company has concluded that the
aggregate amounts of such personal benefits do not exceed the lesser
of $50,000 or 10% of annual salary and bonus reported for any named
executive officer.
(2) Represents partial year compensation.
<PAGE> 2
Employment Agreements. The Company has written amended employment
agreements with Charles F. Bayless and Thomas W. O'Brien. Such amended
agreements have no stated term. Pursuant to Mr. Bayless' amended agreement, he
receives a base salary of not less than $115,000 per year. Pursuant to such
amended agreement, Mr. Bayless was also granted options to purchase 150,000
shares of common stock under the Company's 1988 stock option plan and options
to purchase 100,000 shares of common stock in accordance with the terms of the
amended employment agreement. Pursuant to Mr. O'Brien's amended agreement, he
receives a base salary of not less than $93,500 per year. Pursuant to such
amended agreement, Mr. O'Brien was also granted options to purchase 60,000
shares of common stock under the Company's 1988 stock option plan and options
to purchase 40,000 shares of common stock in accordance with the terms of the
amended employment agreement. Pursuant to such amended agreements, Messrs.
Bayless and O'Brien will have a reasonable opportunity to earn a minimum of 15%
and 10%, respectively, of their respective base salaries in bonuses pursuant to
annual bonus plans adopted by the Board of Directors.
Stock Option Grant Table. The following table sets forth certain
information concerning options granted to the named executive officers during
the Company's fiscal year ended May 31, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF TOTAL
COMMON STOCK UNDERLYING OPTIONS GRANTED TO EXERCISE OR BASE
OPTIONS GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles F. Bayless 65,000(1) 13.87% $3.41 June 23, 2005
25,000(2) 5.34% $2.76 May 20, 2006
Thomas W. O'Brien 20,000(1) 4.27% $3.41 June 23, 2005
15,000(3) 3.20% $3.25 May 20, 2006
Neil A. Johnson 40,000(1) 8.54% $3.41 June 23, 2005
30,000(2) 6.40% $2.76 May 20, 2006
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All such incentive options were granted on July 23, 1995 for the
number of shares indicated at an exercise price equal to 100% of the
fair market value of the common stock on the date of grant. The
options become exercisable in three equal annual increments commencing
on the date of grant.
(2) All such nonqualified options were granted on May 20, 1996 for the
number of shares indicated at an exercise price equal to 85% of the
fair market value of the common stock on the date of grant of $3.25.
The options became exercisable on the date of grant.
(3) All such incentive options were granted on May 20, 1996 for the number
of shares indicated at an exercise price equal to 100% of the fair
market value of the common stock on the date of grant. The options
become exercisable in three equal annual increments commencing on the
date of grant.
<PAGE> 3
Stock Option Exercises and Holdings Table. The following table
provides information concerning the exercise of options and the value of
unexercised options held by the named executive officers at May 31, 1996:
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------
SHARES
ACQUIRED
ON VALUE NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
EXERCISE REALIZED OPTIONS IN-THE-MONEY OPTIONS
NAME (#) ($) AT FISCAL YEAR END (#) AT FISCAL YEAR END ($)(1)
- ---------------------------------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles F. Bayless - - 380,001 59,999 $1,000,784 $25,567
Thomas W. O'Brien 11,000 $36,025 106,001 29,999 275,424 15,367
Neil A. Johnson - - 93,334 31,666 45,067 15,732
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------
(1) Values stated are based on the average of the high and low bid
quotations of $4.00 per share of the Company's common stock reported
by NASDAQ on May 31, 1996, the last trading day of the fiscal year,
and equal the aggregate amount by which the market value of the option
shares exceeds the exercise price of such options at the end of the
fiscal year.
Director Compensation. Outside directors of the Company, presently
consisting of Messrs. Turner and Keane, are reimbursed for all reasonable
expenses incurred in attending each Board or Board committee meeting.
In March 1993, as incentive to contribute to the Company's success,
and pursuant to the terms of two separate Agreements Regarding Compensation of
Outside Directors entered into with Messrs. Turner and Keane, the Company
granted to each such outside director nonqualified options to purchase up to
36,000 shares of common stock, at a purchase price of $1.00 per share. See
"EXECUTIVE COMPENSATION-Director Option Plans."
Each outside director automatically receives a grant of 5,000
nonqualified stock options each year on the fifth business day following the
first public release of the Company's audited earnings report on results of
operations for the preceding fiscal year. See "EXECUTIVE COMPENSATION-1988 and
1994 Option Plans."
Each outside director receives an annual fee of $7,500, $1,250 for
each board meeting attended (not to exceed $7,500 in a twelve-month period) and
$300 for each committee meeting attended.
Stock Option Plans.
1988 and 1994 Option Plans. Under the Company's 1988 Stock Option
Plan ("1988 Option Plan"), options to purchase up to 450,000 shares of the
Company's common stock may be granted to officers and other key employees of
the Company. Under the Company's 1994 Stock Option Plan (the "1994 Option
Plan"), options to purchase up to 1,500,000 shares of the Company's common
stock may be granted to
<PAGE> 4
employees, outside directors, consultants and advisors of the Company. The 1988
and 1994 Option Plans are sometimes collectively referred to as the "Option
Plans." The Option Plans permit the award of incentive stock options and
nonqualified stock options. The Option Plans are administered by the
Compensation and Stock Option Committee, with sole discretion, subject to the
terms of the Option Plans, to set the specific terms and conditions of options
granted under the Option Plans.
Generally, stock options granted under the Option Plans will be
exercisable at such prices as the Committee establishes but not less than (i)
the market price of the Company's common stock on the date of grant in the case
of an incentive stock option (or 110% of the market price with respect to a
holder of 10% or more of the Company's common stock), and (ii) 85% of the
market price of the Company's common stock on the date of grant in the case of
a nonqualified stock option. In general, options may be exercised following
termination of employment only to the extent exercisable on the date of such
termination and only within three months of termination. A longer period may
apply if employment terminates because of disability or death or if the
optionee dies during the three-month period following termination of
employment. Options generally expire immediately upon termination of
employment for cause. In no event may an option be exercised more than 10
years after the date of grant (or five years with respect to a holder of 10% or
more of the Company's common stock in the case of an incentive option). Under
the Option Plans, stock options may be exercised by payment in cash of the
exercise price with respect to each share to be purchased, by delivering common
stock of the Company already owned by such optionee with a market value equal
to the exercise price, or by a method in which a concurrent sale of the
acquired stock is arranged with the exercise price payable in cash from such
sale proceeds.
Unless sooner terminated by the Board of Directors, the 1988 Option
Plan terminates on October 14, 1998, and the 1994 Option Plan terminates on
March 1, 2004. Stock options outstanding on a termination date, will remain
outstanding according to their terms. Shares covered by an option (or portion
thereof) which expires, terminates or is canceled for any reason other than
exercise of the option will again be available for awards under the Option
Plan.
The 1994 Option Plan provides that each outside director (as defined
therein) will automatically receive a grant of 5,000 nonqualified stock options
each year on the fifth business day following the first public release of the
Company's audited earnings report on results of operations for the preceding
fiscal year. Each such option will become exercisable in whole or in part on
the first anniversary of the award through the balance of its ten-year term.
Subject to availability of shares allocated to the 1994 Option Plan and not
already reserved for other outstanding stock options, outside directors who
join the Board in the future will in addition receive an initial grant of
options for 15,000 shares, which will become exercisable in five equal
increments beginning on the first anniversary of the award and on each of the
next four succeeding anniversary dates. Such options will be exercisable for a
term of ten years. Such options will be awarded upon their appointment or
election to the Board. Options, once granted and to the extent exercisable,
will remain exercisable throughout their term, regardless of whether the holder
continues as a director. The option exercise price of the options is equal to
100% of the fair market value of the covered shares of common stock at the time
of grant.
As of August 27, 1996 options for 1,003,966 shares of common stock had
been granted under the Option Plans and were outstanding, with a weighted
average exercise price of $2.81 per share, and an additional 860,500 shares
were available for issuance upon exercise of options which may be granted in
the future. As of August 27, 1996, options to purchase 78,200 shares and 5,834
shares had been exercised under the 1988 Option Plan and 1994 Option Plan,
respectively.
<PAGE> 5
Director Option Plans. In March 1993, as incentive to contribute to
the Company's success, and pursuant to the terms of two separate Agreements
Regarding Compensation of Outside Directors ("Compensation Contracts") entered
into with Messrs. Turner and Keane, the Company granted to each such outside
director nonqualified options to purchase up to 36,000 shares of common stock,
at a purchase price of $1.00 per share. The purchase price of the shares of
common stock issuable upon exercise of options granted under the Compensation
Contracts is payable in cash, an equivalent fair market value of common stock,
by cashless exercise procedures, or a combination of the foregoing, and must be
paid in full at the time of exercise of such options. The purchase price and
the number of shares issuable upon exercise of the options are subject to
adjustments in the event that certain changes in capitalization should occur.
Each option granted under the Compensation Contracts became
exercisable in three cumulative annual installments of 12,000 shares each,
commencing on the effective date of grant. Each such option, to the extent
exercisable remains exercisable until the tenth anniversary of its effective
date of grant. As of August 27, 1996 options to purchase 36,000 shares had
been exercised under the Compensation Contracts.
In the event an optionee dies, the options granted under the
Compensation Contracts may be exercised by the optionee's legal representative,
heir or legatee (as the case may be) at any time prior to the respective stated
expiration dates of the options, to the extent such options are exercisable
prior to the optionee's death. In the event an optionee ceases to serve as a
director of the Company for any reason other than the optionee's death, the
options granted under the Compensation Contracts may be exercised at any time
prior to the respective stated expiration dates of the options, to the extent
such options were exercisable prior to cessation of the optionee's service as a
director.
Options granted under the Compensation Contracts are not transferable
except by will or by the laws of descent and distribution. An option is
exercisable during the lifetime of an optionee only by the optionee. After the
death of an optionee, the option may be exercised prior to its termination by
the optionee's legal representative, heir or legatee. The terms of each option
granted under the Compensation Contracts may be amended only upon the written
consent of the Company and the optionee.
Officer Option Plans. Up to 140,000 shares of the Company's common
stock are issuable upon exercise of options to two executive officers of the
Company pursuant to two amended employment agreements entered into effective
February 20, 1991. See "EXECUTIVE COMPENSATION-Employment Agreements."
Pursuant to the terms of the options granted, one of the optionees was granted
nonqualified options to purchase up to 100,000 shares of common stock at $1.00
per share and the other optionee was granted nonqualified options to purchase
up to 40,000 shares at $1.00 per share.
Each option became exercisable as to all option shares upon the
effective date of grant, February 20, 1991, and will remain exercisable until
the optionee ceases to be employed by the Company. As of August 27, 1996, no
options had been exercised under these officer option plans. The options are
not transferable and are exercisable during the lifetime of an optionee only by
the optionee. The terms of each option granted may be amended only upon
written consent of the Company and the optionee.
<PAGE> 6
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sunwestern Investment Fund, Sunwestern Capital Ltd., Sunwestern
Investment Fund II and Sunwestern Cayman 1984 Partners (collectively the
"Sunwestern Entities"), current or former principal stockholders of the
Company, hold certain demand and piggyback registration rights. Such rights
were granted to the Sunwestern Entities in connection with various prior
convertible debt financing transactions. The Company has agreed to indemnify
the holders of securities which are so registered against certain liabilities
under the Securities Act of 1933. Two of the Company's eight directors are
affiliates of the Sunwestern Entities.
Sears, Roebuck and Co. ("Sears"), the Company's principal customer and
a principal stockholder, holds certain demand and piggyback registration
rights. The Company has agreed to indemnify Sears against certain liabilities
in connection with any shares so registered.
On December 29, 1994, Sears acquired from the Company, in a private
transaction, 3,333,333 shares of the Company's newly issued common stock. The
stock acquisition was effected pursuant to a stock purchase agreement.
Consideration for the stock acquisition included: (i) $4.5 million in cash,
(ii) execution of a service agreement providing for a 10-year term, (iii) the
transfer of certain assets including furniture, fixtures, leasehold
improvements and equipment (valued at approximately $1,223,000), and (iv) the
transfer of leasehold interests for two facilities.
After consummation of the stock acquisition, Sears held approximately
65% of the Company's outstanding common stock as compared to approximately 49%
prior to consummation of the stock acquisition. The stock purchase agreement
provides Sears with the right to acquire additional shares of capital stock
upon the issuance by the Company of additional capital stock (except in certain
limited cases) in order to maintain the same proportion of voting power of the
Company as it owned prior to the issuance. Under such stock purchase agreement,
the Company has agreed to take reasonable steps not inconsistent with
applicable law or the fiduciary duties of its directors to cause three nominees
of Sears to be included in its authorized slate of nominees at all meetings of
stockholders for the election of directors. Two of the Company's directors,
both of which are nominees for director, are affiliates of Sears. The non-
director nominee for director is also an affiliate of Sears. Sears is and was,
prior to the stock acquisition, the Company's principal service customer.
Over 90% of the Company's revenues for fiscal 1996 were attributable
to services provided to Sears pursuant to two service agreements. The first
service agreement, entered into in May 1993, is for a seven year term and
covers consumer support, parts support, technical support, database
maintenance, home office center support and administrative services. The
second service agreement, entered into in December 1994, is for a ten year term
and covers parts sales order and repair technician scheduling services. After
the lapse of any applicable cure periods, each of the agreements is terminable
by either party in the event of non-compliance by the other party with certain
provisions relating to performance of services in accordance with specified
minimum standards, maintenance of required insurance and fulfillment of
indemnity and confidentiality obligations. Each agreement (or, in some cases,
only a service provided under such agreement) is also terminable by Sears, on
180 days' notice, in certain events as set forth in the respective agreements.
In specified termination situations under the ten-year agreement, during the
first three years of the term of such agreement, Sears is obligated to assume
certain leases and purchase certain assets from the Company, which obligations
abate during such three-year period.
The Company believes that the transactions referred to above are no
less favorable to the Company than transactions which could have been obtained
from unrelated third parties. Any future transactions between the Company and
related parties will be approved by disinterested directors and will be on
terms no less favorable than those which could have been obtained from
unrelated third parties.
<PAGE> 1
EXHIBIT 2
Gentlemen:
Sears, Roebuck & Co. ("Sears"), through a wholly-owned
subsidiary, is interested in pursuing a transaction in which Sears
would acquire all outstanding shares of common stock (the "Shares") of
MaxServ, Inc. ("MaxServ") that Sears does not currently own, as well
as all outstanding warrants to acquire common stock of MaxServ (the
"Warrants").
In light of the presence of designees of Sears on the Board of
Directors of MaxServ, Sears requests that you appoint a committee of
the MaxServ Board of Directors (the "Special Committee") with which
Sears can commence negotiations for such an acquisition. Once the
Special Committee is appointed, Sears anticipates working with the
Special Committee to establish a mutually acceptable price for the
Shares and Warrants, and other essential terms.
Once you have notified us that you have appointed the Special
Committee, we would like to immediately proceed with negotiations. We
look forward to working with the Special Committee to accomplish a
successful transaction for the shareholders of MaxServ.
Sincerely,
SEARS, ROEBUCK AND CO.
by: /s/ JANE J. THOMPSON
---------------------------------
Jane J. Thompson
President, Home Services
<PAGE> 1
EXHIBIT 3
[MAXSERV LOGO] NEWS RELEASE
- --------------------------------------------------------------------------------
Contact For Immediate Release
SPECIAL COMMITTEE January 29, 1997
Board of Directors of MaxServ, Inc.
c/o Paul & Turner, Inc.
15303 Dallas Parkway, Suite 960, LB-63
Dallas, Texas 75248-4650
Attention: Nat P. Turner, Chairman
Tel: 972-702-7520
Fax: 972-702-7521
SPECIAL COMMITTEE OF MAXSERV, INC. REJECTS SEARS' $7.00 OFFER
AS INADEQUATE; REMAINS WILLING TO NEGOTIATE
Dallas, Texas, Jan 29 -- The Special Committee of the Board of
Directors of MaxServ, Inc. (Nasdaq Small Cap: MXSV) believes that a public
response to the recent Schedule 13D amendment by Sears, Roebuck and Co.,
indicating Sears' withdrawal of a proposal to offer $7.00 per share for the
shares of MaxServ it does not currently own, is appropriate.
The Special Committee, established at the request of Sears to
negotiate a transaction with Sears at a mutually acceptable price,
unanimously rejected Sears' proposal to offer $7.00 per share as
"inadequate." This decision was made after deliberations with the Special
Committee's financial advisor, Broadview Associates, and its legal counsel
and was predicated upon the Special Committee's assessment of the long-term
strategic value of MaxServ, the current values represented by comparable
public teleservice companies, comparable transactions involving teleservice
businesses, and a discounted cash flow analysis of MaxServ management's
long-term financial forecasts. The Special Committee noted, among other
unique assets, MaxServ's new generation of proprietary call taking software
which is well along in development.
Prior to the filing of the amended Schedule 13D, Sears was advised
that a proposal in the range of $8.00 to $10.00 per share would be
supported by the Special Committee. Subsequent to Sears' recent filing, the
Special Committee further narrowed its range of acceptable values to
between $8.00 and $9.00 per share.
Based upon preliminary inquiries received by Broadview, the Special
Committee believes that the sale of 100% of MaxServ to a third party in a
transaction voluntarily supported by Sears might command a significantly
higher valuation. Sears has repeatedly indicated, however, that it has no
interest in selling its interest in MaxServ, although it reserved the right
to do so in its amended Schedule 13D.
The Special Committee is committed to working with Sears to maximize
MaxServ's shareholders' value either as an independent public company, in
an acquisition by Sears, or in an acquisition by a third party with Sears'
support.
<PAGE> 1
EXHIBIT 4
NEWS RELEASE
FOR IMMEDIATE RELEASE
February 18, 1997
<TABLE>
<S> <C> <C>
CONTACTS
Nat P. Turner, Chairman, Neil A. Johnson Andy Stern
Special Committee of Directors Senior Vice President, Finance Stern, Nathan & Perryman
of MaxServ, Inc. and Chief Financial Officer 214/373-1601
972-702-7520 MaxServ, Inc.
512/834-8341
</TABLE>
SPECIAL COMMITTEE RECOMMENDS REJECTION OF SEARS' $7.00 TENDER OFFER
AUSTIN, TEXAS -- THE SPECIAL COMMITTEE OF MAXSERV, INC. (MXSV-NASDAQ SMALL CAP)
announced today that on February 13, 1997, the Board of Directors of MaxServ
unanimously authorized the Special Committee of the Board of Directors to
prepare, execute and file a Schedule 14D-9 on behalf of the Company ("Schedule")
in response to an unsolicited tender offer by an affiliate of Sears, Roebuck and
Co. ("Sears Offer"), for all outstanding shares of common stock of MaxServ, Inc.
("MaxServ" or the "Company") not owned by Sears at $7.00 per share, all as more
particularly described in the Offer to Purchase dated February 4, 1997 ("Offer
to Purchase"). The Schedule is being filed today with the Securities and
Exchange Commission and mailed to the Company's shareholders. The Special
Committee urges each shareholder to read the Schedule carefully and in its
entirety so that it will be fully informed with respect to the recommendations
of the Special Committee.
For the reasons set forth in the Schedule, including the receipt of a
written opinion from Broadview Associates LLC, the Special Committee's financial
advisor, that the "proposed consideration of $7.00 in cash is inadequate to the
MaxServ shareholders other than Sears", the Special Committee has concluded that
the Sears Offer is inadequate and not in the best interests of the Company's
shareholders. Accordingly, the Special Committee recommends that each
shareholder reject the Sears Offer and not tender any of its shares pursuant to
the Sears Offer.
The Special Committee is convinced that the consideration of $7.00 per
share proposed in the Sears Offer does not reflect the current value inherent in
the Company and that each shareholder's interests would be best served if it
were to reject the Sears Offer unless Sears were to increase the consideration
to be offered pursuant to the Sears Offer to a level that is acceptable to the
Special Committee. The Special Committee will continue to seek to negotiate with
Sears in an effort to maximize value for the Company's shareholders (other than
Sears).
<PAGE> 1
EXHIBIT 5
THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
15303 DALLAS PARKWAY
SUITE 960, LB-63
DALLAS, TEXAS 75248
February 18, 1997
Dear MaxServ, Inc. Shareholder:
On February 4, 1997, Sears, Roebuck and Co. ("Sears") announced that its
wholly owned subsidiary Max Acquisition Delaware, Inc. had commenced an
unsolicited tender offer (the "Sears Offer") for all outstanding shares of
common stock of MaxServ, Inc. ("MaxServ" or the "Company") not owned by Sears at
$7.00 per share, all as more particularly described in the Offer to Purchase
dated February 4, 1997 ("Offer to Purchase"). This announcement followed the
rejection by a special committee of the Company's Board of Directors formed to
represent the interests of the Company's shareholders other than Sears (the
"Special Committee") of Sears' earlier proposal to acquire the Company for $7.00
per share in a negotiated transaction.
On February 13, 1997, the Board of Directors of MaxServ unanimously
authorized the Special Committee to prepare, execute and file the enclosed
Schedule 14D-9 on behalf of the Company (the "Schedule"). We urge you to read
the enclosure carefully and in its entirety so that you will be fully informed
with respect to the recommendations of the Special Committee that are summarized
in this letter.
The Special Committee believes that the Offer is inadequate and not in the
best interests of the Company's shareholders. ACCORDINGLY, THE SPECIAL COMMITTEE
RECOMMENDS THAT YOU REJECT THE SEARS OFFER AND NOT TENDER ANY OF YOUR SHARES
PURSUANT TO THAT OFFER.
BASED UPON THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF FEBRUARY
17, 1997, IF NO MORE THAN 71,093 SHARES ARE PURCHASED PURSUANT TO THE SEARS
OFFER, THE SPECIAL COMMITTEE BELIEVES THAT, WHILE THE MATTER IS NOT FREE FROM
DOUBT UNDER ILLINOIS LAW, SEARS SHOULD NOT BE ABLE TO EFFECT THE SECOND STEP
SQUEEZE-OUT MERGER AT $7.00 PER SHARE CONTEMPLATED BY THE OFFER TO PURCHASE.
This is so because Sears is contractually obligated not to increase its
ownership of MaxServ's outstanding voting securities above 64.93% (Sears
currently owns 64.28%) without the approval of a majority of the MaxServ
directors who are not affiliated with Sears; provided that the foregoing
limitation does not apply if Sears or certain of its affiliates makes a tender
offer for all shares of Common Stock not owned by them. The Special Committee
believes that the tender offer exception is not available in the absence of a
tender offer that is accepted by a sufficient number of MaxServ shareholders to
enable Sears to surpass the 64.93% threshold. ACCORDINGLY, IF ANY SHAREHOLDER
HAS ALREADY DEPOSITED SHARES PURSUANT TO THE SEARS OFFER, THE SPECIAL COMMITTEE
URGES EACH SUCH SHAREHOLDER TO CONSIDER WITHDRAWING ITS SHARES.
THE SPECIAL COMMITTEE ALSO URGES EACH MAXSERV SHAREHOLDER TO CONSULT WITH
ITS INVESTMENT ADVISOR CONCERNING POSSIBLE ALTERNATIVES TO THE SEARS TENDER FOR
THE OPTIMIZATION OF SUCH SHAREHOLDER'S INVESTMENT IN MAXSERV, INCLUDING A SALE
IN THE OPEN MARKET PRIOR TO THE EXPIRATION OF THE SEARS' OFFER OR A DISSENT FROM
THE SECOND STAGE SQUEEZE-OUT MERGER AND PARTICIPATION IN AN APPRAISAL PROCEEDING
UNDER DELAWARE LAW IN THE EVENT THAT SUCH MERGER IS EFFECTED. The closing sales
price of the MaxServ Common Stock as reported on the NASDAQ SmallCap Market on
February 14, 1997 was $7 7/16 per share, as compared with a closing sales price
of $4 7/8 per share on December 4, 1996, the last full trading day before Sears
announced its interest in acquiring the Public Shares. THERE CAN BE NO ASSURANCE
THAT THE TRADING
<PAGE> 2
February 18, 1997
page 2
PRICE OF THE COMMON STOCK WILL NOT RETURN TO ITS PRE-DECEMBER 5, 1996 LEVEL IF
SEARS WITHDRAWS THE SEARS OFFER OR OTHERWISE ABANDONS ITS INTEREST IN ACQUIRING
THE PUBLIC SHARES. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE COMMON STOCK. See Annex B to the Schedule for an outline of appraisal
remedies under Delaware law, and the relevant statutory provisions relating
thereto, that was provided by the Special Committee's Delaware counsel.
Shareholders should note that the perfection of appraisal remedies under
Delaware law requires precise compliance with a number of steps and that the
costs of such a proceeding must be borne by the shareholders seeking appraisal
of their shares unless and until the Delaware Chancery Count determines that
such costs shall be otherwise assessed. In an appraisal proceeding, the Delaware
Chancery Court will determine the fair value of the shares of Common Stock with
respect to which appraisal rights have been perfected. SUCH FAIR VALUE AS
DETERMINED BY THE DELAWARE CHANCERY COURT MAY BE MORE OR LESS THAN THE $7.00 PER
SHARE OF COMMON STOCK OFFERED IN THE SEARS OFFER.
In reaching its determination that the Offer is inadequate and not in the
best interests of the Company's shareholders, the Special Committee, assisted by
its financial and legal advisors, gave careful consideration of the Sears Offer
and its terms and conditions. After extensive discussions and presentations from
management and its legal and financial advisors, the Special Committee
unanimously concluded that, the Sears Offer was inadequate and not in the best
interests of the Company's shareholders other than Sears.
In reaching the foregoing conclusions, the Special Committee took into
account a variety of factors, including:
- The recognition that a sale of control of MaxServ to Sears occurred in
late 1994 when the Board of Directors of MaxServ approved Sears'
acquisition of more than 50% of the Company's voting stock and that as a
consequence Sears has no obligation to offer its majority stock position
in MaxServ for sale in order to maximize value for the Company's minority
shareholders.
- Under the Delaware appraisal process, the Company's minority shareholders
are ultimately entitled to receive the fair value of their proportionate
interest in MaxServ as a going concern in a squeeze-out merger, without a
discount for the fact that their aggregate interest is a minority one (See
Annex B to the Schedule).
- The conclusion that the preliminary expressions of interest from third
parties who indicated a willingness to initiate discussions with Sears
that might lead to an acquisition of MaxServ at a price substantially
higher than the Sears Offer are a better indication of the fair value of
MaxServ as a going concern than Sears' "typical minority squeeze-out"
price of $7.00, notwithstanding Sears' statement that its equity interest
in MaxServ is not for sale.
- The perceived competitive benefits that will inure to Sears as a result
of the appropriation of the MaxServNet system to itself and the exclusion
of Sears' competitors in the home service industry from access to such
system and its related proprietary databases.
- The perception that MaxServNet will play an important role in Sears
achieving the following goals and objectives noted in a December 23, 1996
article in Time relating to Sears.
(a) "Use . . . [Sears'] vast databases to help keep customers
satisfied; for instance, through detailed service records on products
after purchase"; and
(b) "Next year, Sears' 17,000 service vans will begin offering 24-hour
on call repair service for any brand of appliance whether or not Sears
sold it. That way, [Sears' CEO Arthur] Martinez hopes to transform a $3
billion repair and improvement business built on Sears' customer base into
at least a $10 billion one within three years."
- The perception that Sears' projection of a 2% compound annual growth rate
in MaxServ's revenues from Sears business as a public company over the
next three years was substantially lower than the
2
<PAGE> 3
February 18, 1997
page 3
more than 30% compound annual growth rate for the Sears' home services
division as a whole over the same period implicit in the Time article
referred to above.
- The relative unimportance of the historical market prices for the
Company's common stock because of the illiquid nature of such market and
the market response to the Sears Offer following its commencement.
- The Special Committee's belief that the Sears Offer does not reflect the
fair value of the Company based on the Special Committee's familiarity
with the business, financial condition, results of operations, current
business strategy, projects under development and future prospects of the
Company. Specifically, the Special Committee determined that the Sears
Offer failed to reflect:
(a) The Company's leading and innovative position in the home service
industry;
(b) The planned introduction by the Company of MaxServNet into the
Company's existing market as well as new markets; and
(c) The expected revenue and earnings growth based on MaxServNet and
the Company's expected resulting competitive position in such markets.
- Presentations by the Company's management relating to the Company's
financial performance and future prospects for growth and expansion, based
on its strategic plans, investments that have been made in an effort to
develop MaxServNet, expanded product lines and services offered to the
Company's existing and new customers, and the conclusion of the Company's
management that the proposed consideration in the Sears Offer of $7.00 in
cash per share of Common Stock is inadequate.
- Presentations by Broadview, financial advisor to the Company, concerning
the financial aspects of the Sears Offer, the Company and the home service
industry, and its written opinion that, from a financial point of view and
as of the date of such opinion, the proposed consideration of $7.00 in
cash pursuant to the Sears Offer is inadequate to the MaxServ shareholders
other than Sears because it is below the range of value at which a willing
seller would sell the minority shares to a willing buyer when neither is
under any compulsion to buy or sell; the full text of such opinion, dated
February 17, 1997, which sets forth the assumptions made, matters
considered and limitations set forth by Broadview, is included as Annex C
to the Schedule and should be read in its entirety.
The Special Committee is convinced that the consideration of $7.00 per
share proposed in the Sears Offer does not reflect the current value inherent in
the Company and that your interests would be best served if you were to reject
the Sears Offer unless Sears were to increase the consideration to be offered
pursuant to the Sears Offer to a level that is acceptable to the Special
Committee. The Special Committee will continue to seek to negotiate with Sears,
in an effort to maximize value for the Company's shareholders (other than
Sears).
On behalf of the Special Committee
of the Board of Directors,
/s/ NATHANIEL P. TURNER
------------------------------------
Nathaniel P. Turner
Chairman of the Special Committee of
the Board of Directors of MaxServ,
Inc.
3
<PAGE> 1
EXHIBIT 6
[BROADVIEW ASSOCIATES LLC LETTERHEAD]
February 17, 1997
CONFIDENTIAL
Special Committee of the Board of Directors
MaxServ, Inc.
8317 Cross Park Dr.,
Austin, TX 78754
Dear Members of the Special Committee:
We understand that Max Acquisition Delaware Inc. ("Purchaser"), a wholly
owned subsidiary of Sears, Roebuck and Co. ("Parent"), has commenced an offer
(the "Offer") to acquire all of the outstanding shares of common stock, par
value $0.01 per share, of MaxServ, Inc. ("MaxServ" or the "Company"), not owned
by Parent (the "Minority Shares"), for $7.00 per share (the "Offer Price"), net
to the seller in cash, subject to the terms and conditions set forth in its
Offer to Purchase (as defined below). As disclosed in the Offer to Purchase,
upon consummation of the Offer, Purchaser and Parent intend to cause the
Purchaser to be merged with and into the Company with the Company surviving as a
wholly owned subsidiary of Parent. The terms and conditions of the Offer are
more fully described in the Offer to Purchase.
You have requested our opinion as to whether the Offer Price is adequate,
from a financial point of view, to MaxServ shareholders other than Parent.
Broadview Associates LLC focuses on providing merger and acquisition
advisory services to information technology ("IT") companies. In this capacity,
we are continually engaged in valuing such businesses, and we maintain an
extensive database of IT mergers and acquisitions for comparative purposes. We
are currently acting as financial advisor to the Special Committee of the Board
of Directors of MaxServ (the "Special Committee") and will receive a fee from
MaxServ for our services. Such fee is in large part dependent upon consummation
of a transaction such as the Offer. We will also receive a fee upon delivery of
this opinion.
In rendering our opinion, we have, among other things:
(1) reviewed the terms and conditions of the Offer to Purchase and related
Letter of Transmittal (together, the "Offer to Purchase") attached as
exhibits to the Purchaser's Schedule 14D-1 relating to the Offer filed
with the Securities and Exchange Commission on February 4, 1997;
(2) reviewed the financial statements of MaxServ for its fiscal years ended
December 31, 1994, 1995, and 1996 audited and reported on by Price
Waterhouse LLP and the unaudited financial statements of MaxServ for the
three month periods ended August 31, 1996 and November 30, 1996 included
within MaxServ's Forms 10-Q for such periods;
(3) reviewed internal historical financial and operating data concerning
MaxServ prepared and provided to us by MaxServ management;
(4) discussed with MaxServ management their expectations about the
Company's future financial performance and, using their assumptions and
projections, constructed forecasts of financial performance based on
such assumptions;
(5) considered the fact that Parent owns 64.4% of the outstanding MaxServ
common stock, and accounts for approximately 90% of MaxServ's total
current revenue;
<PAGE> 2
(6) participated in discussions with MaxServ management concerning the
operations, business strategy, financial performance and prospects for
MaxServ including specific discussions regarding the Company's ongoing
development of MaxServNet, a comprehensive service-cycle management
technology;
(7) reviewed the reported closing prices and trading activity for MaxServ
common stock;
(8) compared certain aspects of the financial performance of MaxServ with
public companies we deemed comparable;
(9) analyzed available information, both public and private, concerning
other transactions we believe to be comparable in whole or in part to
the Offer;
(10) discussed potential acquisition of all or part of the Company by third
parties with the Special Committee, the full MaxServ Board of Directors,
Parent and interested third parties;
(11) discussed with Parent management its view of the strategic rationale
for the acquisition of the Minority Shares;
(12) participated in negotiations and discussions prior to commencement of
the Offer among MaxServ, the Special Committee and Parent and their
financial and legal advisors for a possible negotiated transaction
regarding the acquisition by Parent of the Minority Shares; and
(13) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information that
was publicly available or furnished to us by MaxServ, Purchaser or Parent. With
respect to the assumptions of future financial performance which we discussed
with MaxServ management, we have assumed that they reflected the best available
estimates and good faith judgments of the management of MaxServ as to the future
performance of MaxServ. We have also assumed that MaxServ shareholders other
than Parent are not compelled to sell their shares and that the shares of
MaxServ will continue to trade on NASDAQ or in the over-the-counter market. We
have neither made nor obtained an independent appraisal or valuation of any of
MaxServ's assets.
Based upon and subject to the foregoing, we are of the opinion that, from a
financial point of view, the Offer Price is inadequate to MaxServ shareholders
other than Parent because it is below the range of value at which a willing
seller would sell the Minority Shares to a willing buyer when neither is under
any compulsion to buy or sell.
This opinion speaks only as of the date hereof and may be relied upon only
by the Special Committee and no other person. This opinion is not intended to be
and shall not constitute a recommendation to any shareholder of the Company as
to whether to tender shares of Common Stock pursuant to the Offer. This opinion
may not be published or referred to, in whole or part, without our prior written
permission, which shall not be unreasonably withheld.
Sincerely,
Broadview Associates LLC
<PAGE> 1
EXHIBIT 7
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ----------------------------------------X
WILLIAM GORDON, on behalf of himself )
and all others similarly situated, )
)
Plaintiff, )
)
-against- )
) C.A. No. 15503 NC
CHARLES F. BAYLESS, DANIEL A. ) -------
MIHALOVICH, THOMAS D. OVERTON III, )
STEPHANIE S. SPRINGS and SEARS, )
ROEBUCK AND CO., )
)
Defendants. )
- ----------------------------------------X
COMPLAINT
Plaintiff, by his attorneys, for his complaint against defendants,
alleges upon personal knowledge with respect to paragraph 4, and upon
information and belief based, inter alia, upon the investigation of counsel, as
to all other allegations herein, as follows:
NATURE OF THE ACTION
1. This is a stockholders' class action on behalf of the public
stockholders of MaxServ, Inc. ("MaxServ" or the "Company"), against certain
officers and directors and the controlling shareholder of MaxServ to enjoin
certain actions of defendants related to the acquisition of the outstanding
shares of MaxServ common stock by its controlling majority shareholder,
defendant Sears, Roebuck and Co. ("Sears").
<PAGE> 2
2. In this regard, Sears is attempting to take advantage of its
position of control over the MaxServ Board. In light of Sears' collaboration
with MaxServ in its business ventures, Sears and the other defendants are well
aware that MaxServ is poised for explosive growth in the near future.
3. The consideration that Sears stated it would offer to members of
the Class (as defined below) in the proposed stock acquisition is unfair and
grossly inadequate because, among other things, the intrinsic value of
MaxServ's common stock is materially in excess of the amount offered, giving
due consideration to the Company's promising growth and anticipated operating
results, net asset value and profitability. That inadequate offer having been
rejected by the minority special committee members appointed by the MaxServ
Board, Sears now intends to employ its control over the MaxServ Board, and
other coercive tactics to cram-down its inadequate buy-out proposal at the same
or a lower price than that the special committee rejected. Sears' conduct
constitutes an abuse of its control position and a breach of its fiduciary
obligations.
THE PARTIES
4. Plaintiff William Gordon is and at all relevant times has been
the owner of approximately 14,000 shares of MaxServ common stock.
5. (a) MaxServ is a Delaware corporation with its principal
executive offices at 8317 Cross Park Drive, Austin, Texas 78754. MaxServ is a
leading provider of information services for household products, offering
diagnostic assistance and support to consumers and professional technicians
involved in the installation, repair, care and operation of a variety of
household products, including appliances, electronic goods, personal computers
and lawn and garden equipment.
2
<PAGE> 3
(b) As of November 30, 1996, MaxServ had 10,926,006 shares of
common stock outstanding, held by hundreds if not thousands of shareholders of
record. MaxServ common stock is listed and traded on the National Market System
(NMS).
6. (a) Defendant Sears is a New York corporation with its principal
executive offices at 3333 Beverly Road, Hoffman Estates, Illinois, 60179. Sears
is a leading retailer of apparel, home and automotive products and services.
Sears operates approximately 2300 department and specialty stores across the
United States, including "HomeLife" furniture and "Sears Hardware" stores.
Sears also operates a network of about 2500 automotive product and service
outlets which include "Sears Auto Centers" and "Western Auto".
(b) As of January 27, 1997, Sears reportedly owned 7,033,333
MaxServ shares representing 64.4% of MaxServ's outstanding common stock.
Consequently, Sears and its representatives on the MaxServ board effectively
control and dominate MaxServ's affairs. Sears, therefore, is a controlling
shareholder and owes fiduciary obligations of good faith, candor, loyalty and
fair dealing to the public shareholders of MaxServ.
(c) Sears is registered as a foreign corporation to do business
in Delaware. Sears in fact does business in Delaware, operating several
department stores.
7. Defendant Charles F. Bayless ("Bayless") is and has been at all
relevant times the President and Chief Executive Officer of MaxServ. In
addition, Bayless serves as a director of MaxServ. Bayless occupies his
position as a MaxServ
3
<PAGE> 4
director and senior officer entirely at the sufferance of Sears, MaxServ's
controlling shareholder, and is ultimately accountable to Sears for his
continuance in office.
8. Defendant Daniel A. Mihalovich ("Mihalovich") is and has been at
all relevant times a director of MaxServ. In addition, he currently serves as
Vice President/GM, Product Services of Sears. Mihalovich has worked for Sears
since 1966.
9. Defendant Thomas D. Overton III ("Overton") is and has been at
all relevant times a Director of MaxServ. In addition, Overton currently serves
as Vice President, Strategy and Business Development for the Home Services area
of Sears. Overton has worked for Sears since 1993.
10. Defendant Stephanie S. Springs ("Springs") is and has been at all
relevant times a Director of MaxServ. In addition, Springs currently serves as
Senior Systems Director, Information Systems Shared Services for Sears. Springs
has worked for Sears since 1973.
11. The defendants referred to in paragraphs 7-10 are collectively
referred to as the "Individual Defendants". The remaining members of the
MaxServ Board - Nathaniel P. Turner, Stephen J. Keane and Patrick A. Rivelli -
constituted the special committee of MaxServ ("Special Committee") and are not
named as defendants herein.
12. By virtue of their positions as directors and/or officers of
MaxServ and/or their exercise of control and dominant ownership over the
business and corporate affairs of MaxServ, the Individual Defendants (who,
collectively, constitute a majority of the Board) and Sears have, and at all
relevant times had, the power to control and influence, and did control and
influence and cause MaxServ to engage in the practices complained of herein.
Each Individual Defendant and Sears owed and owes MaxServ
4
<PAGE> 5
and its stockholders fiduciary obligations and were and are required to: use
their ability to control and manage MaxServ in a fair, just and equitable
manner; act in furtherance of the best interests of MaxServ and its
stockholders; govern MaxServ in such a manner as to heed the expressed views of
its public shareholders; refrain from abusing their positions of control; and
not to favor their own interests at the expense of MaxServ and its
stockholders.
13. As discussed in detail below, Sears, and the Individual
Defendants have breached their fiduciary duties to MaxServ's public
stockholders by acting in an unfair manner to cause or facilitate Sears'
acquisition of the publicly-held minority shares of MaxServ for unfair and
inadequate consideration.
CLASS ACTION ALLEGATIONS
14. Plaintiff brings this action pursuant to Rule 23 of the Rules of
this Court, on behalf of himself and all other shareholders of the Company
except the defendants herein and any persons, firm, trust, corporation, or
other entity related to or affiliated with them and their successors in
interest, who are or will be threatened with injury arising from defendants'
actions, as more fully described herein (the "Class").
15. This action is properly maintainable as a class action for the
following reasons:
a. The Class is so numerous that joinder of all members is
impracticable. There are 10,926,006 shares of MaxServ common stock which are
outstanding, held by hundreds if not thousands of stockholders who are members
of the Class.
5
<PAGE> 6
b. There are questions of law and fact that are common to the
Class including, inter alia, the following:
i) whether defendants have engaged in and are continuing
to engage in unfair conduct which benefits Sears at the expense of the members
of the Class;
ii) whether the Individual Defendants, as officers and/or
directors of the Company, and Sears, the controlling stockholder of MaxServ are
violating their fiduciary duties to plaintiff and the other members of the
Class;
iii) whether plaintiff and the other members of the Class
would be irreparably damaged were defendants not enjoined from the conduct
described herein;
iv) whether Sears has initiated and timed its buy-out of
MaxServ shares to benefit itself unfairly at the expense of MaxServ's public
shareholders.
c. The claims of plaintiff are typical of the claims of the
other members of the Class in that all members of the Class will be damaged by
defendants' actions.
d. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. Plaintiff
is an adequate representative of the Class.
e. Plaintiff anticipates that there will not be any difficulty
in the management of this litigation as a class action.
6
<PAGE> 7
f. The prosecution of separate actions by individual members of
the Class would create the risk of inconsistent or varying adjudications with
respect to individual members of the Class which would establish incompatible
standards of conduct for defendants, or adjudications with respect to
individual members of the Class which would as a practical matter be
dispositive of the interests of the other members not parties to the
adjudications or substantially impair or impede their ability to protect their
interests.
g. The defendants have acted or refused to act, on grounds
generally applicable to, and causing injury to, the Class and, therefore,
preliminary and final injunctive relief on behalf of the Class as a whole is
appropriate.
SUBSTANTIVE ALLEGATIONS
A. The Company
16. MaxServ is a leading provider of information services for
household products, offering diagnostic assistance and support to consumers and
professional technicians involved in the installation, repair, care and
operation of a variety of household products, including appliances, electronic
goods, personal computers and lawn and garden equipment.
17. MaxServ was incorporated in Texas in 1981 and was reincorporated
in Delaware in 1994. Also, in 1994, MaxServ and its principal customer and
stockholder, Sears, entered into a stock purchase agreement (the "Stock
Purchase Agreement") by which MaxServ issued 3.3 million shares of the
Company's stock to Sears in exchange for a ten-year agreement for telemarketing
services for replacement parts and
7
<PAGE> 8
accessories covering all major brand home products services for Sears' consumer
and commercial customers and for logistic and scheduling needs of Sears' repair
technicians.
18. For much of 1996, MaxServ concentrated on completing the
development and integration of systems and processes necessary to fully
integrate, both technically and culturally, the new services added during the
last half of 1995 that more than doubled the Company's operations, employees
and operational capacity.
19. This effort required new telephone and network equipment,
increased automation and two new call taking systems. Additionally, MaxServ
emphasized education and training of its employees in the use, maintenance and
operation of the new systems. During the second half of 1996, the impact of
these actions began to produce positive operating performance. By year's end
when call volumes of most services were at a seasonal high, operating
performance rose to record levels with higher systems' reliability and
improving employee efficiency.
20. In this regard, on January 10, 1997, MaxServ reported record
second quarter and six month revenue and net income for the period ended
November 30, 1996. Net income in the three month period was $448,000, or four
cents per share, on revenue of $13.7 million, compared to a net loss in the
second quarter of fiscal 1996 of $687,000, or six cents per share, on revenue
of $11.9 million.
21. For the first six months of fiscal 1997, net income of $1.3
million, or 12 cents per share, was earned on revenue of $28.5 million,
compared to a net loss of $654,000, or six cents per share, on revenue of $25.1
million for the first six months of fiscal 1996.
8
<PAGE> 9
22. Defendant Bayless, MaxServ's President and Chief Executive
Officer, stated that the Company was able to achieve its record second quarter
revenue and net income despite the seasonal declines in call volume, yielding
lower profit margins, through aggressive management of operating costs. He also
stated that the Company is currently utilizing substantially all of its
operating capacity to meet customer service requirements and that plans are
underway for expanded operating facilities to meet higher customer service
volumes.
23. Bayless also stated that:
During the second quarter, and following extensive research and
study, we began making significant new investments in our
technology systems to position MaxServ for the blending of call
services and electronic commerce anticipated in the teleservices
marketplace over the next several years . . . [T]his new platform
will also provide a foundation on which new applications can be
developed more quickly, be more flexible and easier to maintain
and integrate with other applications . . . [W]ith these new
systems, MaxServ will reduce the time-to-market required for
implementing new customer services.
MaxServ is thus poised for substantial future growth and profitability.
B. The Offer
24. Toward the end of 1996, it was publicly reported that Sears
was looking to bolster its home improvement products and services, which
include roofing, siding, fencing, replacement windows and doors and kitchen
cabinet refacing. For the quarter ending September 28, 1996, service and other
revenue constituted approximately 1.3% of Sears' total sales, or $722 million.
9
<PAGE> 10
25. On December 5, 1996, MaxServ received an expression of
interest from Sears, to acquire all outstanding shares of MaxServ common stock
previously not owned by Sears (the "Proposed Transaction").
26. In response thereto, on December 20, 1996, the Company
publicly announced it had formed the Special Committee as financial advisor to
negotiate with Sears as to the price and other terms of the Proposed
Transaction, and that the Special Committee had retain Broadview Associates LLC
("Broadview").
27. On January 9, 1997, Sears proposed a range of $6.50 to $6.75
per share of MaxServ stock for the acquisition. Sears stated that, in its view,
such a price range was appropriate in light of: (i) the premium it represented
to historic trading prices of the Company's shares; (ii) Sear's discounted cash
flow analysis of the value of the Company; (iii) the post-announcement trading
prices of the Company's shares reflecting a similar valuation of the Company's
minority shares; and (iv) no "control premium" being attributable to the
acquisition of the majority shares.
28. In response to Sears' offer, Broadview made an evaluation
based on its own discounted cash flow analysis of the Company regarding
projected growth of revenues from Sears (25% compounded annual growth for the
fiscal years 1997 to 2002) and the Company's ability to expand revenues from
third party customers (i.e., customer other than Sears), projected to grow from
$5 million to $110 million, approximately 85% compounded annual growth, in the
fiscal years from 1997 to 2002. Broadview advised the Special Committee that
data supported a price "in the teens" for each of MaxServ's outstanding shares.
10
<PAGE> 11
29. On January 23, 1997, Merrill Lynch & Co., Sear's financial
advisor, informed Broadview Associates that Sears was prepared to increase its
offer to $7.00 per share for MaxServ stock in the Proposed Transaction. Later
that day, Broadview responded to Merrill Lynch & Co. that the Special Committee
had evaluated Sears' revised proposal and would not accept such an offer. Sears
did not offer any alternative price per share and did not propose any means of
resolving the impasse.
30. On January 27, 1997, Sears advised the Special Committee
that it was withdrawing its proposal of $7.00 per share.
C. The Aftermath
31. In light of its inability to reach an agreement with the
Special Committee, Sears has publicly stated that it is now evaluating its
alternatives with respect to its ongoing business relationship with the
Company. Unless its completes the Proposed Transaction, Sears intends, as it
had advised the Special Committee, to develop new projects outside of the
Company. Further, Sears also intends to reevaluate its existing contractual
programs with the Company.
32. Sears is similarly evaluating its alternatives with respect
to its investment in MaxServ Common Stock. According to published reports,
Sears does not intend, for so long as it has a material business relationship
with the Company, to reduce its equity interest in the Company below a
majority. Moreover, Sears has stated that it may commence a tender offer to
acquire any or all of the MaxServ stock it does not own. Under the terms of the
Stock Purchase Agreement, Sears and any of its affiliates (with certain limited
exceptions) may acquire shares of MaxServ stock in connection with any tender
offer by Sears or an affiliate for all of the outstanding MaxServ Stock.
11
<PAGE> 12
33. Sears has also publicly stated that it is permitted under
the Company's bylaws and articles of incorporation to appoint a majority or
more of the directors of the Company (including through removal of existing
directors without cause), and can do so by written consent without a meeting of
the Company's stockholders, at any time.
34. Because Sears is MaxServ's partner in new systems
development, it is well aware of the progress of several of MaxServ's new
services and processes. In making its inadequate offer to acquire the remaining
stock of MaxServ, Sears has tried to take advantage of the fact that the market
price of MaxServ stock does not fully reflect the progress and value of these
new offerings.
35. Sears and the Individual Defendants are presently engaged in
an ongoing plan and scheme to utilize one or more of the foregoing coercive
devices to effect a buy-out of the publicly held shares of MaxServ at a price
no greater than that which Sears was prepared to pay in the Proposed
Transaction or for lesser consideration.
36. Any transaction to acquire the Company in the price range
previously offered does not represent fair value for the Company's publicly
held stock.
37. The stock acquisition price that Sears has offered and which
constitutes the maximum it would agree to pay in a buy-out has been dictated by
Sears to serve its own interests, is not the result of arm's-length
negotiations and is being crammed down by Sears and its representatives on
MaxServ's Board to force MaxServ's minority shareholders to relinquish their
MaxServ shares at an unfair price.
12
<PAGE> 13
38. Sears, by reason of its 64% ownership of MaxServ's
outstanding shares, is in a position to ensure effectuation of the transaction
without regard to its fairness to MaxServ's public shareholders.
39. Because Sears is in possession of proprietary corporate
information concerning MaxServ's future financial prospects, the degree of
knowledge and economic power between Sears and the class members is unequal,
making it grossly and inherently unfair for Sears to obtain the remaining 35%
of MaxServ's shares at the unfair and inadequate price that it has proposed.
40. By offering a grossly inadequate price for MaxServ's shares
and threatening or planning to use its coercive means of control to force the
consummation of the transaction. Sears is violating its duties as majority
shareholders of MaxServ to treat the minority fairly in its dealings with
MaxServ's public shareholders.
41. Any buy-out of MaxServ public shareholders by Sears on the
terms recently offered or on lesser terms, will deny class members their right
to share proportionately and equitably in the true value of MaxServ's valuable
and profitable business, and future growth in profits and earnings, at a time
when the Company is poised to increase its profitability.
42. Defendants' fiduciary obligations require them to:
(a) act independently so that the interests of MaxServ's
public stockholders will be protected;
(b) adequately ensure that no conflicts of interest exist
between defendants' own interests and their fiduciary obligation of entire
fairness or, if such
13
<PAGE> 14
conflicts exist, to ensure that all the conflicts are resolved in the best
interests of MaxServ's public stockholders; and
(c) provide MaxServ's stockholders with independent
representation in the negotiations with Sears.
43. Because Sears controls over 60% of MaxServ and dominates its
Board, no auction or market check can be effected to establish MaxServ's worth
through arm's-length bargaining. Thus, Sears has the power and is exercising
its power to acquire MaxServ's minority shares and dictate terms which are in
Sears' best interest, without competing bids and regardless of the wishes or
best interests of the class members or the intrinsic value of MaxServ's stock.
44. By reason of the foregoing, defendants have breached and
will continue to breach their duties to the minority public shareholders of
MaxServ and are engaging in improper, unfair dealing and wrongful and coercive
conduct.
45. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the other members of the
Class, and are prepared to consummate a buy-out on unfair and inadequate terms
which will exclude the Class from its fair proportionate share of MaxServ's
valuable assets and businesses, all to the irreparable harm of the Class, as
aforesaid.
46. Plaintiff and the other class members are immediately
threatened by the acts and transactions complained of herein and lack an
adequate remedy at law.
WHEREFORE, plaintiff demands judgment and preliminary and
permanent relief, including injunctive relief, in his favor and in favor of the
Class and against defendants as follows:
14
<PAGE> 15
A. Declaring that this action is properly maintainable as a
class action, and certifying plaintiff as a class representative;
B. Declaring that the defendants and each of them have
committed or participated in a gross abuse of trust and have breached their
fiduciary duties to plaintiff and other members of the Class or aided and
abetted such breaches;
C. Enjoining the proposed transaction and, if the transaction
is consummated, rescinding the transaction;
D. Awarding plaintiff and the Class compensatory damages and/or
rescissory damages;
E. Awarding plaintiff the costs and disbursements of this
action, including allowance for plaintiff's attorneys' and experts' fees; and
F. Granting such other, and further relief as this Court may
deem to be just and proper.
DATED: January 31, 1997
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By: /s/ Norman M. Monhait
-------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiff
15
<PAGE> 16
OF COUNSEL:
Steven G. Schulman
Seth Ottensoser
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Lawrence G. Soicher, Esq.
Law Offices of Lawrence G. Soicher
300 Park Avenue
20th Floor
New York, NY 10022
(212) 980-7000
16
<PAGE> 1
EXHIBIT 18
AMENDMENT AGREEMENT
This Amendment Agreement made as of this 31st day of January, 1996 by and
between MAXSERV, INC., a Delaware corporation (hereinafter called "MaxServ") and
SEARS, ROEBUCK AND CO., a New York corporation (hereinafter called "Sears").
Reference is hereby made to the Parts Service Agreement ("Agreement") made as of
December 29, 1994, by and between MaxServ and Sears with respect to the
provision of Teleparts and Technical Assistance Desk Services by MaxServ to
Sears.
Sears and MaxServ desire to amend the Agreement to change the pricing provision
of Addendum #1, Technical Assistance Desk Services, and Addendum #2, Teleparts
Services, for the 1996 calendar year and to add Addendum #3, Technical
Assistance Desk and Teleparts
Support Services;
Now, Therefore, MaxServ and Sears mutually agree as follows:
1. Addendum #1, Technical Assistance Desk Services, is hereby amended
to change the pricing therefor for the 1996 calendar year by adding to
Addendum #1 the pricing provision attached hereto as Exhibit A.
2. Addendum #2, Teleparts Services, is hereby amended to change the
pricing therefor for the 1996 calendar year by adding to Addendum #2
the pricing provision attached hereto as Exhibit B.
3. The Agreement is hereby amended by adding Exhibit C hereto as an
Addendum #3, Technical Assistance Desk and Teleparts Support Services,
to the Agreement providing for the costs of support services to be
provided for the Technical Assistance Desk and Teleparts Services
systems.
Such amendments to be effective January 1, 1996.
The Agreement, as herein amended, is fully ratified and affirmed.
In WITNESS WHEREOF, MaxServ and Sears have caused this Amendment Agreement to be
executed by person duly authorized thereunto as of the date first above stated.
<TABLE>
<CAPTION>
MAXSERV, INC. SEARS, ROEBUCK AND CO.
<S> <C>
By: Neil A. Johnson By: Daniel A. Mihalovich
----------------------------- -----------------------------
Name: Neil A. Johnson Name: Daniel A. Mihalovich
----------------------------- -----------------------------
Title: Sr. Vice President Finance Title: Vice President Product Services
---------------------------- ---------------------------------
</TABLE>
<PAGE> 2
#CONFIDENTIAL PORTION HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION
(EXHIBIT A)
TECHNICAL ASSISTANCE DESK SERVICES
PRICING
The Technical Assistance Desk services will be provided under the following fee
structure:
MONTHLY
INCOMING CALL INCREMENTAL
STEP VOLUME PRICE PER CALL*
---- ------------- ---------------
1 First # $ #
2 # $ #
#CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
3 # $ #
4 # and Over $ #
* Changes in hours and days of operation could result in pricing changes.
Price includes charges for all services as outlined in Description Of
Service to be provided in connection with TAD Services pursuant to this
Agreement.
Calendar 1996
<PAGE> 3
#CONFIDENTIAL PORTION HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION
(EXHIBIT B)
TELEPARTS SERVICES
PRICING
MaxServ will not be liable to Sears for returns and allowance charges upon
termination of this Agreement.
THE TELEPARTS SERVICES PRICING AND REVISED FEE STRUCTURE FOR CALENDAR YEAR 1996
IS AS FOLLOWS:
#CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
A payment of # will be paid to MaxServ in January or February, 1996.
In addition, Teleparts Services will be provided by MaxServ on a fee structure
which when applied to Telepart Revenue (defined below) as projected in the 1996
Product Services Teleparts Plan ("1996 Projected Teleparts Revenue") shall
yield service fees to MaxServe of not less than $ # incremental to what
MaxServ would have received if such fees were determined by the fee structure
used in 1995 applied to the 1996 Projected Teleparts Revenue.
Sears and MaxServ shall # , or more frequently, review the actual 1996
Teleparts Revenue, the 1996 fee structure, the resulting and the projected
service fees to MaxServ for the 1996 calendar year. If the projected $ #
incremental service fees for the 1996 calendar year is not obtainable for
reasons other than failure of MaxServ to perform services in accordance with
the performance standards of the Parts Service Agreement, Sears and MaxServ
shall agree to adjust the 1996 service fee schedule so that such incremental
service fees will be obtained.
#CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
Teleparts Revenue is defined as #
The service fee rates that are applicable to various categories of Teleparts
Revenue are defined in the following schedule.
#CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
RESIDENTIAL COMMERCIAL #
REVENUE REVENUE REVENUE
------- ------- -------
# # #
For 1996, there will be no # pricing for annual Teleparts Revenue over
$ # million as provided in calendar year 1995.
Changes in hours and days of operation could result in pricing changes.
Calendar 1996
<PAGE> 4
#CONFIDENTIAL PORTION HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION
(EXHIBIT C)
ADDENDUM #3 TO PARTS SERVICE AGREEMENT BETWEEN
SEARS, ROEBUCK AND CO.
AND MAXSERV, INC.
DATED AS OF DECEMBER 29, 1994
TECHNICAL ASSISTANCE DESK AND TELEPARTS SUPPORT SERVICES
Sears shall pay MaxServ and MaxServ shall invoice Sears for approved time,
reimbursement materials and other costs incurred by MaxServ in performing
support services for the Teleparts Service and Technical Assistance Desk
systems under this Agreement requested by Sears, or due to Sears system
modifications, enhancements and/or changes in operating policies and procedures
affecting MaxServ's existing systems and call services. MaxServ support
service fee rates for this time is defined as labor and payroll burden costs,
plus # thereof.
Travel expenses to Sears designated locations which are incurred by MaxServ to
perform such support services for Sears system modifications, enhancements or
operating policy and procedure changes as stated above, will be invoiced to
Sears # as permitted by and in accordance with Sears standard policy on travel
expenses for its own employees.
#CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 1
EXHIBIT 19
RESOLVED, that the Board of Directors does hereby designate a committee to
consider and evaluate the fairness of (i) a proposal anticipated to be received
from Sears, pursuant to which Sears would acquire all outstanding shares of
common stock of the Company that Sears does not currently own, and (ii) any
third-party bids; to negotiate any proposal received from Sears or any
third-party bidder with a view towards obtaining the best available transaction
for minority stockholders; to evaluate and negotiate, if appropriate,
arrangements related to the foregoing (including transitional arrangements); to
take any other necessary or appropriate action, including "shop the Company";
and to recommend to this Board of Directors a response to any final proposal or
bid; which committee is designated the "Special Committee," the members of
which are Messrs. Turner, Keane and Rivelli.
<PAGE> 1
EXHIBIT 20
RESOLVED, that the Board of Directors of MaxServ, Inc. (the "Company") does
hereby expand the power and authority of the previously designated Special
Committee, to expressly authorize such Special Committee, on behalf of the
Company, (i) to prepare, approve, execute, file and distribute a Schedule 14D-9
in connection with Sears' Offer to Purchase, and (ii) to authorize and direct
Company counsel to assist the Special Committee in connection with any of the
foregoing matters (set out in (i) above) to the extent the Special Committee so
desires or requests; provided that the Special Committee shall circulate to each
director of the Company (including the designees of Sears) on or before noon
Dallas Time Friday, February 14, 1997, a draft of the Schedule 14D-9 and shall
make a good faith effort to confer and consult with each such director regarding
any comments he or she may present to the Special Committee prior to or before
noon Dallas Time Monday, February 17, 1997; provided, further, that the Special
Committee shall not be obligated to modify the Schedule 14D-9 that is filed with
the Securities and Exchange Commission to accommodate any comment made by a
director that is a designee of Sears or by any other affiliate of Sears.
