Form 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from............to.................
Commission file number 1-4482
ARROW ELECTRONICS, INC.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 11-1806155
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
25 Hub Drive, Melville, New York 11747
- -------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 391-1300
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- ----------------
Common Stock, $1 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of February 26, 1999 was $1,365,898,195.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Common Stock, $1 par value: 95,632,701 shares outstanding at February 26,
1999.
The following documents are incorporated herein by reference:
1. Proxy Statement filed in connection with Annual Meeting of Shareholders to
be held May 12, 1999(incorporated in Part III).
<PAGE>
PART I
Item 1. Business.
--------
Arrow Electronics, Inc. (the "company") is the world's largest distributor of
electronic components and computer products to industrial and commercial
customers. As the global electronics distribution industry's leader in state-
of-the-art operating systems, employee productivity, value-added programs, and
total quality assurance, the company is the distributor of choice for over 600
suppliers.
The company's global distribution network spans the world's three dominant
electronics markets - North America, Europe, and the Asia/Pacific region. The
company is the largest electronics distributor in each of these vital
industrialized regions, serving a diversified base of original equipment
manufacturers (OEMs) and commercial customers worldwide. OEMs include
manufacturers of computer and office products, industrial equipment (including
machine tools, factory automation, and robotic equipment), telecommunications
products, aircraft and aerospace equipment, and scientific and medical devices.
Commercial customers are mainly value-added resellers (VARs) of computer
systems. The company maintains over 200 sales facilities and 26 distribution
centers in 34 countries.
The North American components operations ("NACO") is comprised of eight
segmented marketing groups. As the largest distributor of electronic components
in North America, NACO offers the broadest line card in the industry.
Gates/Arrow Distributing, Inc. ("Gates/Arrow") is a full-line technical
distributor of computer systems, peripherals, and software to value-added
resellers in the U.S. and Canada.
In May 1998, Gates/Arrow acquired a majority interest in Scientific and Business
Minicomputers, Incorporated, a leading technical distributor of mass storage
products in the United States. In November 1998, the company entered into a
joint venture with Marubun Corporation, Japan's largest independent distributor
to serve Japanese customers in the Asia/Pacific region and North America.
In November 1998, the company acquired Unitronics Componentes, S.A., one of the
leading distributors of electronic components in Spain and Portugal.
In January 1999, the company acquired Richey Electronics, Inc. a leading
specialty distributor of interconnect, electromechanical, and passive electronic
components and a provider of related value-added services to customers
throughout North America. In January 1999, the company also acquired Bell
Industries, Inc.'s Electronics Distribution Group, one of the ten largest
distributors of electronic components in North America. In February 1999,
Spoerle Electronic acquired Industrade AG, one of Switzerland's leading
distributors of electronic components.
Through its wholly-owned subsidiary, Arrow Electronics Distribution Group-Europe
B.V., Arrow is the largest pan-European electronics distributor. In its
Northern European region, the company is among the largest distributors in
Britain, Denmark, Finland, Norway, and Sweden. In its Central European region
the company is the largest distributor in Germany, Austria, Switzerland,
Belgium, and the Netherlands, and in its Southern European region it is the
largest distributor in Italy, France, Spain, and Portugal.
Arrow is the largest electronics distributor in the Asia/Pacific region.
Components Agent Limited (C.A.L.), the Lite-On Group, and the Melbourne-based
Veltek and Zatek companies in Australia are the region's leading multi-national
distributors. C.A.L., headquartered in Hong Kong, maintains additional
facilities in key cities in Singapore, Malaysia, the People's Republic of China,
India, and South Korea. Lite-On, Inc., headquartered in Taipei, serves
customers Taiwan, South Korea, Singapore, and Malaysia. Arrow Ally also serves
customers in Taiwan and Arrow Components (NZ) services customers in New Zealand.
The company distributes a broad range of electronic components, computer
products, and related equipment. About 59 percent of the company's consolidated
sales are comprised of semiconductor products; industrial and commercial
computer products, including microcomputer boards and systems, design systems,
desktop computer systems, terminals, printers, disk drives, controllers, and
communication control equipment account for about 33 percent; and the remaining
sales are of passive, electromechanical, and interconnect products, principally
capacitors, resistors, potentiometers, power supplies, relays, switches, and
connectors.
Most manufacturers of electronic components and computer products rely on
independent authorized distributors, such as the company, to augment their
product marketing operations. As a stocking, marketing, and financial
intermediary, the distributor relieves manufacturers of a portion of the costs
and personnel associated with stocking and selling their products (including
otherwise sizable investments in finished goods inventories and accounts
receivable), while providing geographically dispersed selling, order processing,
and delivery capabilities. At the same time, the distributor offers a broad
range of customers the convenience of diverse inventories and rapid or scheduled
deliveries as well as other value-added services such as kitting and memory
programming capabilities. The growth of the electronics distribution industry
has been fostered by the many manufacturers who recognize their authorized
distributors as essential extensions of their marketing organizations.
The company and its affiliates serve over 175,000 industrial and
commercial customers. Industrial customers range from major original equipment
manufacturers to small engineering firms, while commercial customers include
value-added resellers.
Most of the company's customers require delivery of the products they have
ordered on schedules that are generally not available on direct purchases from
manufacturers, and frequently their orders are of insufficient size to be placed
directly with manufacturers. No single customer accounted for more than two
percent of the company's 1998 sales.
The electronic components and other products offered by the company are sold by
field sales representatives, who regularly call on customers in assigned market
areas, and by telephone from the company's selling locations, from which inside
sales personnel with access to pricing and stocking data provided by computer
display terminals accept and process orders. Each of the company's North
American selling locations, warehouses, and primary distribution centers is
electronically linked to the business' central computer, which provides fully
integrated, on-line, real-time data with respect to nationwide inventory levels
and facilitates control of purchasing, shipping, and billing. The company's
foreign operations utilize Arrow's Worldwide Stock Check System, which affords
access to the company's on-line, real-time inventory system.
There are approximately 600 manufacturers whose products are sold by the
company. Intel Corporation accounted for approximately 18 percent and Hewlett-
Packard accounted for approximately 13 percent of the business' purchases.
No other supplier accounted for more than 9 percent of 1998 purchases. The
company does not regard any one supplier of products to be essential to its
operations and believes that many of the products presently sold by the
company are available from other sources at competitive prices. Most of
the company's purchases are pursuant to authorized distributor agreements
which are typically cancelable by either party at any time or on short notice.
Approximately 69 percent of the company's inventory consists of semiconductors.
It is the policy of most manufacturers to protect authorized distributors, such
as the company, against the potential write-down of such inventories due to
technological change or manufacturers' price reductions. Under the terms of the
related distributor agreements, and assuming the distributor complies with
certain conditions, such suppliers are required to credit the distributor for
inventory losses incurred through reductions in manufacturers' list prices of
the items. In addition, under the terms of many such agreements, the
distributor has the right to return to the manufacturer for credit a defined
portion of those inventory items purchased within a designated period of time.
A manufacturer who elects to terminate a distributor agreement is generally
required to purchase, from the distributor, the total amount of its products
carried in inventory. While these industry practices do not wholly protect the
company from inventory losses, management believes that they currently provide
substantial protection from such losses.
The company's business is extremely competitive, particularly with respect to
prices, franchises, and, in certain instances, product availability. The
company competes with several other large multi-national, national, and numerous
regional and local distributors. As the world's largest electronics
distributor, the company's financial resources and sales are greater than those
of its competitors.
The company and its affiliates employ over 9,700 people worldwide.
Executive Officers
The following table sets forth the names and ages of, and the positions and
offices with the company held by, each of the executive officers of the company.
Name Age Position or Office Held
- ---- --- -----------------------
Stephen P. Kaufman 57 Chairman and Chief Executive Officer
Robert E. Klatell 53 Executive Vice President, General
Counsel, and Secretary
Francis M. Scricco 49 Executive Vice President and Chief
Operating Officer
Carlo Giersch 61 Chief Executive Officer of Spoerle
Electronic
Sam R. Leno 53 Senior Vice President and Chief
Financial Officer
Steven W. Menefee 54 Senior Vice President
Betty Jane Scheihing 50 Senior Vice President
Michael J. Long 40 Vice President
Jan M. Salsgiver 42 Vice President
Set forth below is a brief account of the business experience during the past
five years of each executive officer of the company. Stephen P. Kaufman has been
Chairman since May 1994 and President and Chief Executive Officer of the company
for more than five years prior thereto.
Robert E. Klatell has been Executive Vice President since July 1995 and has
served as Senior Vice President, General Counsel, and Secretary of the company
for more than five years. He also served as Chief Financial Officer from
January 1992 to April 1996 and Treasurer from 1990 to April 1996.
Francis M. Scricco has been Executive Vice President and Chief Operating Officer
since September 1997. From March 1994 through August 1997 he was a Group Vice
President at Fischer Scientific International, Inc. Prior thereto he was
President of Whirlpool Canada.
Carlo Giersch has been Chief Executive Officer of Spoerle Electronic for more
than five years.
Sam R. Leno was appointed Senior Vice President and Chief Financial Officer
effective March 1999. From July 1995 through February 1999, he served as
Executive Vice President and Chief Financial Officer of Corporate Express, Inc.
Prior thereto he was Chief Financial Officer of Coram Healthcare.
Steven W. Menefee has been a Senior Vice President of the company since July
1995 and prior thereto a Vice President of the company since November 1990.
Betty Jane Scheihing has been a Senior Vice President since May 1996 and has
served as Vice President of the company for more than five years prior thereto.
Michel J. Long has been a Vice President of the company since September 1991 and
President of Gates/Arrow Distributing since November 1995. Prior thereto, he
was President of Capstone Electronics since 1994.
Jan M. Salsgiver has been a Vice President of the company since September 1993
and President of the Arrow Supplier Services Group since its inception in
January 1998. Prior thereto she was President of the Arrow/Schweber Electronics
Group since November 1995 and President of Zeus Electronics from July 1993 to
November 1995.
Item 2. Properties.
----------
The company's executive office, located in Melville, New York, is owned by the
company. The company occupies additional locations under leases due to expire
on various dates to 2053. Five additional facilities are owned by the company,
and another facility has been sold and leased back in connection with the
financing thereof.
Item 3. Legal Proceedings.
-----------------
Through a wholly-owned subsidiary, the company was previously engaged in the
refining and selling of lead. The subsidiary was sold in 1988, except for a
battery-breaking site used by the subsidiary in Plant City, Florida, which had
been placed on the National Priorities List under the Federal Super Fund
program. The company remains liable for the environmental remediation of the
site, and in 1992 entered into a consent decree setting forth the terms of that
remediation with the U.S. EPA and the State of Florida.
The environmental remediation of the site has been substantially completed. All
contaminated soils on the site have been collected, treated and stabilized, and
the EPA has acknowledged that the soil stabilization aspects of the consent
decree have been met. Groundwater on the site has been treated and is being
monitored, as required by the consent decree, to ensure that it continues to
meet the standards set forth in the decree. Approximately 11 acres of wetlands
have been recreated and are being managed in accordance with the requirements
of the consent decree. Final approval of the wetlands phase of the remediation
is expected shortly.
The company believes that the amount expected to be expended in any year in
connection with the continued monitoring of the site and the completion of
activities thereon will not have a material adverse impact on the company's
liquidity, capital resources or results of operations.
On March 23, 1999, the company, its Gates/Arrow subsidiary and certain officers
and employees, were named as defendants in a civil action in the U.S. District
Court for the Eastern District of New York, filed by Henry N. Camferdam, Jr. and
others who were formerly stockholders or employees of Support Net, Inc.
("Support Net", a corporation in which Gates/Arrow, through a wholly-owned
subsidiary, SN Holding, Inc. ("SN Holding") acquired a 50.1% stock interest on
December 1, 1997 for approximately $28,000,000. Plaintiffs allege that they
were fraudulently induced into selling their shares in Support Net, that the
company and Gates/Arrow have breached the employment agreements and shareholders
agreement also entered into on December 1, 1997 in connection with the
acquisition, and that defendants have denied them certain rights under the
several agreements, including their right to put a portion of their remaining
Support Net shares to Gates/Arrow. Plaintiffs have asked for compensatory
damages of $162,000,000, punitive damages of $300,000,000 and an injunction that
would, among other things, prevent the company from disposing of Support Net or
SN Holding, pending a determination of the fair value of plaintiffs' minority
interest.
The company has not yet filed an answer to the complaint. The company believes
the claims are unfounded and without merit, and it intends to contest them
vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
PART II
Item 5. Market Price of the Registrant's Common Equity and
--------------------------------------------------
Related Stockholder Matters.
---------------------------
Market Information
The company's common stock is listed on the New York Stock Exchange (trading
symbol: "ARW"). The high and low sales prices during each quarter of 1998 and
1997 were as follows (1997 has been restated to reflect the two-for-one stock
split effective October 15, 1997):
Year High Low
- ---- ---- ----
1998:
Fourth Quarter $26 7/8 $11 3/4
Third Quarter 22 5/8 12 1/2
Second Quarter 28 3/8 20 9/16
First Quarter 36 1/4 27
1997:
Fourth Quarter $36 $25 1/8
Third Quarter 32 1/16 26 5/16
Second Quarter 29 7/16 25 3/4
First Quarter 29 7/8 25 7/8
Holders
On February 26, 1999, there were approximately 4,500 shareholders of record of
the company's common stock.
Dividend History and Restrictions
The company has not paid cash dividends on its common stock during the past five
years. While the board of directors considers the payment of dividends on the
common stock from time to time, the declaration of future dividends will be
dependent upon the company's earnings, financial condition, and other relevant
factors.
The terms of the company's global multi-currency credit facility, senior notes,
and senior debentures (see Note 4 of the Notes to Consolidated Financial
Statements) limit, among other things, the payment of cash dividends and the
incurrence of additional borrowings and require that working capital, net worth,
and certain other financial ratios be maintained at designated levels.
Item 6. Selected Financial Data.
-----------------------
The following table sets forth certain selected consolidated financial data and
should be read in conjunction with the company's consolidated financial
statements and related notes appearing elsewhere in this annual report.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(In thousands except per share data)
For the year: 1998 1997(a) 1996 1995 1994(b)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales
Components $6,343,890 $6,465,521 $5,520,202 $5,127,258 $3,914,737
Gates/Arrow 2,000,769 1,298,424 1,014,375 792,162 734,497
---------- ---------- ---------- ---------- ----------
Consolidated 8,344,659 7,763,945 6,534,577 5,919,420 4,649,234
- ------------------------------------------------------------------------------
Operating income
Components 326,695 426,778 401,849 444,029 312,103
Gates/Arrow 54,397 31,229 19,932 3,803 16,415
Corporate (28,588) (83,286) (21,154) (24,623) (72,544)
---------- ---------- ---------- ---------- ---------
Consolidated 352,504 374,721 400,627 423,209 255,974
- ------------------------------------------------------------------------------
Net income $ 145,828 $ 163,656 $ 202,709 $ 202,544 $ 111,889
==============================================================================
Diluted earnings
per share (c) $ 1.50 $ 1.64 $ 1.98 $ 2.03 $ 1.16
==============================================================================
At year-end:
- ------------------------------------------------------------------------------
Accounts receivable and
inventories $2,675,612 $2,475,407 $1,947,719 $1,979,160 $1,422,457
Total assets 3,839,871 3,537,873 2,710,351 2,701,01 2,038,774
Total long-term debt
and subordinated
debentures 1,040,173 823,099 344,562 451,706 349,398
Shareholders'
equity 1,487,319 1,360,758 1,358,482 1,195,881 837,885
- -------------------------------------------------------------------------------
(a) Operating and net income include special charges totaling $59.5 million
($40.4 million after taxes) associated with the realignment of Arrow's North
American components operations and the acquisition and integration of the volume
electronic component distribution businesses of Premier Farnell plc. Excluding
these charges, operating income, net income, and net income per share on a
diluted basis were $434.2 million, $204.1 million, and $2.05, respectively.
(b) Operating and net income include special charges totaling $45.3 million
($28.8 million after taxes) associated with the acquisition and integration of
Gates/FA Distributing, Inc. and Anthem Electronics, Inc. in transactions
accounted for as poolings of interests. Excluding these charges, operating
income, net income, and net income per share on a diluted basis were $301.3
million, $140.7 million, and $1.44, respectively.
(c) All per share amounts have been restated to reflect the two-for-one stock
split effective October 15, 1997.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
-----------------------------------
For an understanding of the significant factors that influenced the company's
performance during the past three years, the following discussion should be read
in conjunction with the consolidated financial statements and other information
appearing elsewhere in this report.
Sales
Consolidated sales of $8.3 billion in 1998 were 7 percent higher than 1997 sales
of $7.8 billion. This sales growth was due to increased sales of commercial
computer products in the company's Gates/Arrow operation from $1.3 billion in
1997 to more than $2 billion in 1998. Excluding the impact of acquisitions,
1998 sales of Gates/Arrow increased by 24 percent when compared to 1997. The
worldwide market for electronic components continued to be characterized by
product availability well in excess of demand and resultant pressure on average
selling prices and gross profit margins resulting in a decline in sales from
$6.5 billion in 1997 to $6.3 billion in 1998.
In 1997, consolidated sales increased to $7.8 billion, an increase of 19 percent
over 1996 sales of $6.5 billion. This sales growth was due to increased
activity levels throughout the world and acquisitions, principally the volume
electronic component distribution businesses of Premier Farnell plc offset, in
part, by the impact of a stronger U.S. dollar. Sales of Gates/Arrow increased
by 21 percent, excluding the impact of acquistions.
Consolidated sales of $6.5 billion in 1996 were 10 percent higher than 1995
sales of $5.9 billion. This sales growth was principally due to increased sales
of commercial computer products and microprocessors. The sales of semiconductor
products were characterized by an oversupply of product, competitive pricing
pressures, and reductions in memory prices.
Operating Income
The company's consolidated operating income decreased to $352.5 million in 1998,
compared with operating income of $374.7 million in 1997, including special
charges of $59.5 million. Excluding the special charges, operating income in
1997 was $434.2 million. The reduction in operating income reflected a decline
in the sales of the North American components operation, a further decline in
gross margins due to proportionately higher sales of lower margin commercial
computer products, and competitive pricing pressures throughout the world
offset,
in part, by the impact of increased sales and the benefits of continuing
economies of scale. Operating expenses as a percent of sales remained
consistent with 1997 at 9.7 percent, the lowest in the company's history.
In 1997, the company's consolidated operating income decreased to $374.7
million, compared with operating income of $400.6 million in 1996, principally
as a result of special charges of $59.5 million associated with the realignment
of the North American components operations and the acquisition and integration
of the volume electronic component distribution businesses of Premier Farnell
plc. The improvement in operating income, excluding the special charges,
reflects the impact of increased sales, acquisitions, and continuing economies
of scale
offset, in part, by lower gross profit margins caused by competitive pricing
pressures and a greater sales mix of commercial computer products. Operating
expenses, excluding the special charges, as a percent of sales declined to 9.7
percent in 1997.
The company's consolidated operating income decreased to $400.6 million in 1996,
compared with operating income of $423.2 million in 1995. The reduction in
operating income reflected a further decline in gross margins due to
proportionately higher sales of lower margin commercial computer products and
microprocessors throughout the world and competitive pricing pressures in Europe
and the Asia/Pacific region offset, in part, by the impact of increased sales
and the benefits of continuing economies of scale. Operating expenses as a
percent of sales declined to 9.8 percent in 1996.
Interest
Interest expense of $81.1 million in 1998 increased by $14 million from the 1997
level, reflecting increases in borrowings associated with acquisitions and
investments in working capital.
In 1997, interest expense increased to $67.1 million from $38 million in 1996,
reflecting increases in borrowings associated with acquisitions, the purchases
of the company's common stock, and investments in working capital.
Interest expense of $38 million in 1996 decreased by $8.4 million from the 1995
level. The decrease reflected the conversion of the company's 5 3/4%
convertible subordinated debentures in October 1995, lower borrowings resulting
from improved working capital usage, and lower borrowing costs offset, in part,
by borrowings to fund purchases of common stock.
Income Taxes
The company recorded a provision for taxes at an effective tax rate of 42.2
percent in 1998 compared with 41 percent, excluding the special charges, in
1997. The higher effective rate in 1998 is due to the non-deductibility of
goodwill amortization.
In 1997, the company recorded a provision for taxes at an effective tax rate of
41 percent, excluding the special charges, compared with 39.9 percent in 1996.
The increased rate for 1997 is due to increased earnings in countries with
higher marginal tax rates and the non-deductibility of goodwill amortization.
The company recorded a provision for taxes at an effective tax rate of 39.9
percent in 1996, compared with 40.4 percent in 1995. The lower effective rate
was the result of decreased earnings in countries with higher marginal tax
rates.
Net Income
Net income in 1998 was $145.8 million, a decrease from $204.1 million, before
the special charges of $59.5 million ($40.4 million after taxes), in 1997. The
decrease in net income is attributable to lower operating income and increases
in interest expense.
In 1997, the company's net income advanced to $204.1 million from $202.7 million
in 1996, before the special charges. The increase in net income was
attributable to higher operating income offset, in part, by an increase in
interest expense.
Net income in 1996 was $202.7 million, an increase from $202.5 million in 1995.
The increase in net income was attributable to decreases in interest expense,
income taxes, and minority interest offset, in part, by lower operating income.
Liquidity and Capital Resources
The company maintains a high level of current assets, primarily accounts
receivable and inventories. Consolidated current assets, as a percentage of
total assets, were approximately 75 percent and 74 percent in 1998 and 1997,
respectively.
In 1998, working capital increased by 18 percent, or $262 million, compared with
1997. This increase was due to higher working capital requirements and
acquisitions.
The net amount of cash provided by operations in 1998 was $43.6 million, the
principal element of which was the cash flow resulting from net earnings offset,
in part, by working capital usage. The net amount of cash used by the company
for investing purposes was $129.6 million, including $70.6 million for various
acquisitions. Cash flows provided by financing activities were $131.4 million,
principally reflecting the $445.7 million of proceeds from the issuance of the
company's 6 7/8% senior debentures and 6.45% senior notes offset, in part, by
the reduction in the company's credit facilities, purchases of common stock, and
distributions to partners.
Working capital increased by $160 million, or 13 percent, in 1997 compared with
1996, primarily as a result of increased sales and acquisitions. This
percentage increase was less than the percentage increase of sales as a result
of improvements in working capital usage.
The net amount of cash used for the company's operating activities in 1997 was
$14.2 million, principally reflecting earnings offset by increased working
capital requirements supporting higher sales. The net amount of cash used for
investing activities was $410.8 million, including $381.5 million for
acquisitions and investments. The net amount of cash provided by financing
activities was $422.1 million, principally reflecting the $392.8 million of
proceeds from the issuance of the company's senior notes and senior debentures
and increases in the company's credit facilities offset, in part, by the
purchase of the company's common stock.
In 1996, working capital increased by 5 percent, or $56 million, compared with
1995. This percentage increase was less than the percentage increase of sales
as a result of improvements in working capital usage.
The net amount of cash provided by operations in 1996 was $306.8 million, the
principal element of which was the cash flow resulting from higher net earnings
and improved working capital usage. The net amount of cash used by the company
for investing purposes was $55.3 million, including $38.9 million for various
acquisitions. Cash flows from financing activities were $202.6 million,
principally reflecting the reduction in the company's borrowings, purchases of
common stock, and distributions to partners.
Market and Other Risks
The company, as a large international organization, faces exposure to adverse
movements in foreign currency exchange rates. These exposures may change over
time as business practices evolve and could have a material impact on the
company's financial results in the future. The company's primary exposure
relates to transactions in which the currency collected from customers is
different from the currency utilized to purchase the product sold in Europe and
the Asia/Pacific region. At the present time, the company hedges only these
currency exposures and does not hedge anticipated foreign currency cash flows
and earnings or its investments in businesses in Europe and the Asia/Pacific
region as in many instances there are natural offsetting positions. The
translation of the financial statements of the non-North American operations is
impacted by fluctuation in foreign currency exchange rates. Had the various
average foreign currency exchange rates remained the same during 1998 as
compared with 1997, 1998 sales and operating income would have been $48 million
and $3 million higher, respectively, than the actual results for 1997.
The company's interest expense, in part, is sensitive to the general level of
short-term interest rates in the United States and Europe. To mitigate the
impact of fluctuations in interest rates, at December 31, 1998, the company has
approximately 74 percent of its debt as fixed rate long-term borrowings and 26
percent of its debt subject to short-term floating rates. Interest expense
would fluctuate by approximately $1 million if average short-term interest rates
had changed by one percentage point in 1998. This amount was determined by
considering the impact of a hypothetical interest rate on the company's
borrowing cost. This analysis does not consider the effect of the level of
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management could likely take actions to
further mitigate any potential negative exposure to the change. However, due to
the uncertainty of the specific actions that would be taken and their possible
effects, the sensitivity analysis assumes no changes in the company's
financial structure.
Year 2000 Update
The company previously initiated a comprehensive, worldwide review to identify,
evaluate and address Year 2000 issues and implemented a plan to resolve those
issues. Included within the scope of this initiative are operational and
information technology computer systems; embedded systems contained in machinery
and equipment including warehousing and telecommunications equipment; and third
party relationships, including trade and non-trade vendors, carriers, and other
principal business partners.
In the information technology arena, the company divided its remediation plan
into the following phases: inventory, assessment, remediation, testing, and
monitoring. The inventory, assessment, and remediation phases have been
substantially completed, and the testing and monitoring phases are progressing
on schedule, with completion anticipated by June 30, 1999. With respect to non-
information technology, or embedded systems, the company has substantially
completed the inventory and assessment phases, and remediation and testing are
progressing according to schedule, with completion anticipated during the third
quarter of 1999. Spending related to Year 2000 modification is not expected to
exceed $10 million in 1999. Amounts incurred to date in addressing Year 2000
issues have not exceeded $10 million.
The company is currently engaged in a review of the Year 2000 compliance efforts
of key suppliers and other principal business partners upon whom it depends for
essential products and services. There can be no guarantee that these parties
will resolve their Year 2000 issues with respect to products, services or
critical systems, and processes in a timely manner. Management believes that
failure or delay by any of these parties could possibly cause a significant
disruption to the company's business. The company is in the process of
developing contingency plans to address these and other issues.
Information Relating to Forward-Looking Statements
This report includes forward-looking statements that are subject to certain
risks and uncertainties which could cause actual results or facts to differ
materially from such statements for a variety of reasons, including, but not
limited to: industry conditions, changes in product supply, pricing, and
customer demand, competition, other vagaries in the computer and electronic
components markets, and changes in relationships with key suppliers.
Shareholders and other readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on which they
are made. The company undertakes no obligation to update publicly or revise any
forward-looking statements.
Item 8. Financial Statements.
--------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Arrow Electronics, Inc.
We have audited the accompanying consolidated balance sheet of Arrow
Electronics, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of income, cash flows, and shareholders' equity for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and the schedule are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements and
the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Arrow
Electronics, Inc. at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 17, 1999
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Arrow Electronics, Inc. have been
prepared by management, which is responsible for their integrity and
objectivity. These statements, prepared in accordance with generally accepted
accounting principles, reflect our best use of judgment and estimates where
appropriate. Management also prepared the other information in the annual report
and is responsible for its accuracy and consistency with the consolidated
financial statements.
The company's system of internal controls is designed to provide reasonable
assurance that company assets are safeguarded from loss or unauthorized use or
disposition and that transactions are executed in accordance with management's
authorization and are properly recorded. In establishing the basis for
reasonable assurance, management balances the costs of the internal controls
with the benefits they provide. The system contains self-monitoring mechanisms,
and compliance is tested through an extensive program of site visits and audits
by the company's operating controls staff.
The Audit Committee of the board of directors, consisting entirely of outside
directors, meets regularly with the company's management, operating controls
staff, and independent auditors and reviews audit plans and results as well as
management's actions taken in discharging its responsibilities for accounting,
financial reporting, and internal controls. Members of management, the
operating controls staff, and the independent auditors have direct and
confidential access to the Audit Committee at all times.
The company's independent auditors, Ernst & Young LLP, were engaged to audit the
consolidated financial statements in accordance with generally accepted auditing
standards. These standards include a study and evaluation of internal controls
for the purpose of establishing a basis for reliance thereon relative to the
scope of their audit of the consolidated financial statements.
Stephen P. Kaufman
Chairman and Chief Executive Officer
Paul J. Reilly
Vice President and
Corporate Controller
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share data)
Years Ended December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales $8,344,659 $7,763,945 $6,534,577
---------- ---------- ----------
Costs and expenses:
Cost of products sold 7,183,413 6,574,415 5,492,556
Selling, general, and
administrative expenses 756,770 712,213 604,412
Depreciation and amortization 51,972 43,096 36,982
Integration charge - 21,600 -
Realignment charge - 37,900 -
---------- ---------- ----------
7,992,155 7,389,224 6,133,950
---------- ---------- ----------
Operating income 352,504 374,721 400,627
Equity in earnings (loss)
of affiliated companies 937 781 (97)
Interest expense, net 81,126 67,117 37,959
---------- ---------- ----------
Earnings before income taxes
and minority interest 272,315 308,385 362,571
Provision for income taxes 115,018 131,617 144,667
---------- ---------- ----------
Earnings before minority
interest 157,297 176,768 217,904
Minority interest 11,469 13,112 15,195
---------- ---------- ----------
Net income $ 145,828 $ 163,656 $ 202,709
========== ========== ==========
Per common share:
Basic $ 1.53 $ 1.67 $ 2.01
========== ========== ==========
Diluted $ 1.50 $ 1.64 $ 1.98
========== ========== ==========
Average number of common
shares outstanding:
Basic 95,397 98,006 100,972
====== ====== =======
Diluted 97,113 99,769 102,380
====== ====== =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 158,924 $ 112,665
Accounts receivable, less allowance for
doubtful accounts ($48,423 in 1998 and
$46,055 in 1997) 1,354,351 1,245,354
Inventories 1,321,261 1,230,053
Prepaid expenses and other assets 26,279 42,268
---------- ----------
Total current assets 2,860,815 2,630,340
---------- ----------
Property, plant and equipment at cost
Land 15,087 9,699
Buildings and improvements 90,851 75,431
Machinery and equipment 183,227 143,030
---------- ----------
289,165 228,160
Less accumulated depreciation
and amortization 134,359 113,923
---------- ----------
154,806 114,237
---------- ----------
Investment in affiliated companies 23,279 54,914
Cost in excess of net assets of companies
acquired, less accumulated amortization
($91,837 in 1998 and $69,899 in 1997) 721,323 645,152
Other assets 79,648 93,230
---------- ----------
$3,839,871 $3,537,873
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 785,596 $ 767,088
Accrued expenses 211,438 285,673
Short-term borrowings, including current
maturities of long-term debt 168,066 143,723
--------- ---------
Total current liabilities 1,165,100 1,196,484
Long-term debt 1,040,173 823,099
Other liabilities 77,587 87,254
Minority interest 69,692 70,278
Shareholders' equity:
Common stock, par value $1:
Authorized--120,000,000 shares in 1998 and 1997
Issued--102,949,640 shares in 1998 and 1997 102,950 102,950
Capital in excess of par value 506,002 506,656
Retained earnings 1,114,826 968,998
Foreign currency translation adjustment (23,648) (35,881)
--------- ---------
1,700,130 1,542,723
Less: Treasury stock (7,321,540 and
6,011,903 shares in 1998 and 1997),
at cost 198,281 164,207
Unamortized employee stock award 14,530 17,758
---------- ----------
Total shareholders' equity 1,487,319 1,360,758
---------- ----------
$3,839,871 $3,537,873
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years Ended December 31,
---------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 145,828 $ 163,656 $ 202,709
Adjustments to reconcile net income
to net cash provided by (used for)
operations:
Minority interest in earnings 11,469 13,112 15,195
Depreciation and amortization 55,101 47,057 39,453
Equity in (earnings) loss of
affiliated companies (937) (781) 97
Deferred income taxes 19,661 (9,814) 10,280
Integration charge - 21,600 -
Realignment charge - 37,900 -
Change in assets and liabilities,
net of effects of acquired
businesses:
Accounts receivable (38,792) (219,488) 45,845
Inventories (33,490) (94,144) (8,426)
Prepaid expenses and other
assets 10,785 (8,048) (2,893)
Accounts payable (17,049) 36,784 26,276
Accrued expenses (88,808) (4,917) (23,870)
Other (20,164) 2,913 2,135
--------- --------- ---------
Net cash provided by (used for)
operating activities 43,604 (14,170) 306,801
--------- --------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (59,006) (29,335) (28,596)
Proceeds from sale of building - - 10,442
Cash consideration paid for acquired
businesses (67,521) (364,499) (38,851)
Investment in affiliates (3,078) (16,973) 1,734
-------- -------- ---------
Net cash used for investing
activities (129,605) (410,807) (55,271)
--------- -------- ---------
Cash flows from financing activities:
Change in short-term borrowings (4,850) 55,018 (53,992)
Change in credit facilities (223,127) 122,830 (96,906)
Proceeds from long-term debt 445,665 392,844 -
Repayment of long-term debt (25,411) (338) (7,097)
Proceeds from exercise of stock
options 7,504 20,209 12,323
Distributions to minority partners (18,227) (17,464) (7,967)
Purchases of common stock (50,129) (151,010) (48,993)
--------- -------- ---------
Net cash provided by (used for)
financing activities 131,425 422,089 (202,632)
--------- -------- ---------
Effect of exchange rate changes on
cash (3,964) (20,847) (6,445)
--------- --------- ---------
Net increase (decrease) in cash and
short-term investments 41,460 (23,735) 42,453
Cash and short-term investments at
beginning of year 112,665 136,400 93,947
Cash and short-term investments of
acquired affiliate 4,799 - -
--------- -------- ---------
Cash and short-term investments at
end of year $ 158,924 $ 112,665 $ 136,400
========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Income taxes $ 88,718 $ 121,251 $ 130,834
Interest 81,500 52,265 38,118
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Common Foreign Unamortized
Stock Capital in Currency Employee
at Par Excess of Retained Translation Treasury Stock Awards
Value Par Value Earnings Adjustment Stock and Other Total
-------- ---------- -------- ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1995 $101,296 $479,676 $602,633 $18,398 $ (24) $(6,098) $1,195,881
Net income - - 202,709 - - - 202,709
Translation
adjustment - - - (9,645) - - (9,645)
Comprehensive
income 193,064
Exercise of
stock options 924 11,774 - - (375) - 12,323
Tax benefits
related to
exercise of
stock options - 3,345 - - - - 3,345
Restricted stock
awards, net 172 3,922 - - 327 (4,421) -
Amortization of
employee stock
awards - - - - - 2,862 2,862
Purchases of
common stock - - - - (48,993) - (48,993)
------- -------- ------- -------- ------- ------ ---------
Balance at December
31, 1996 102,392 498,717 805,342 8,753 (49,065) (7,657) 1,358,482
Net income - - 163,656 - - - 163,656
Translation
adjustments - - - (44,634) - - (44,634)
Comprehensive
income 119,022
Exercise of
stock options 198 (8,626) - - 28,637 - 20,209
Tax benefits
related to
exercise of
stock options - 7,074 - - - - 7,074
Restricted stock
awards, net 360 9,491 - - 7,231 (17,082) -
Amortization
of employee
stock awards - - - - - 6,981 6,981
Purchases of
common stock - - - - (151,010) - (151,010)
-------- -------- -------- -------- -------- -------- ----------
Balance at December
31, 1997 102,950 506,656 968,998 (35,881) (164,207) (17,758) 1,360,758
Net income - - 145,828 - - - 145,828
Translation
adjustments - - - 12,233 - - 12,233
Comprehensive
income 158,061
Exercise of
stock options - (2,777) - - 10,281 - 7,504
Tax benefits
related to
exercise of
stock options - 1,619 - - - - 1,619
Restricted stock
awards, net - 503 - - 5,766 (6,269) -
Amortization of
employee stock
awards - - - - - 9,497 9,497
Purchases of
common stock - - - - (50,129) - (50,129)
Other - 1 - - 8 - 9
-------- -------- ---------- -------- -------- -------- ---------
Balance at December
31, 1998 $102,950 $506,002 $1,114,826 $(23,648) $(198,281) $(14,530) $1,487,319
======== ======== ========== ======== ========= ======== ==========
See accompanying notes.
</TABLE>
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the company and
its majority-owned subsidiaries. The company's investments in affiliated
companies which are not majority-owned are accounted for using the equity
method. All significant intercompany transactions are eliminated.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Short-term Investments
- -------------------------------
Short-term investments which have a maturity of ninety days or less at time of
purchase are considered cash equivalents in the consolidated statement of cash
flows. The carrying amount reported in the consolidated balance sheet for short-
term investments approximates fair value.
Financial Instruments
- ---------------------
The company uses various financial instruments, including derivative financial
instruments, for purposes other than trading. The company does not use
derivative financial instruments for speculative purposes. Derivatives used as
part of the company's risk management strategy are designated at inception as
hedges and measured for effectiveness both at inception and on an ongoing basis.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out (FIFO) method.
Property and Depreciation
- -------------------------
Depreciation is computed on the straight-line method for financial reporting
purposes and on accelerated methods for tax reporting purposes. Leasehold
improvements are amortized over the shorter of the term of the related lease or
the life of the improvement.
Cost in Excess of Net Assets of Companies Acquired
- --------------------------------------------------
The cost in excess of net assets of companies acquired is being amortized on a
straight-line basis, principally over 40 years.
Foreign Currency
- ----------------
The assets and liabilities of foreign operations are translated at the exchange
rates in effect at the balance sheet date, with the related translation gains or
losses reported as a separate component of shareholders' equity. The results of
foreign operations are translated at the monthly weighted average exchange
rates.
Income Taxes
- ------------
Income taxes are accounted for under the liability method. Deferred taxes
reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Split
- -----------
The company's board of directors authorized a two-for-one stock split effected
in the form of a 100 percent stock dividend distributed on October 15, 1997 to
shareholders of record on October 3, 1997. Shareholders' equity has been
restated to give retroactive recognition to the stock split in prior periods by
reclassifying from capital in excess of par value to common stock the par value
of the additional shares arising from the split.
All references in the financial statements and the related notes to the number
of shares and per share amounts for 1997 and 1996 have been restated to reflect
the two-for-one stock split.
Net Income Per Share
- --------------------
Basic EPS is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Comprehensive Income
- --------------------
Effective January 1, 1998, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 130 "Reporting Comprehensive Income" which requires
disclosure of comprehensive income and its components. Comprehensive income is
defined as the aggregate change in shareholders' equity excluding changes in
ownership interests. The foreign currency translation adjustments included in
comprehensive income have not been tax effected as investments in foreign
affiliates are deemed to be permanent.
Segment and Geographic Information
- ----------------------------------
Effective January 1, 1998, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise and
Related Information" which requires that an enterprise disclose the factors that
management considers most significant in determining its reportable segments.
2. Acquisitions
During 1998, the company acquired a majority interest in Scientific and Business
Minicomputers, Inc. and Unitronics Componentes S.A. The company also increased
its holdings in Spoerle Electronic Handelsgesellschaft mbH ("Spoerle") to 90
percent and the Veltek/Zatek companies in Australia and Strong Electronics Co.,
Ltd. in Taiwan to 100 percent. The aggregate cost of these acquisitions was
$62,918,000.
During 1997, the company acquired the volume electronic component distribution
businesses of Premier Farnell plc for approximately $298,000,000 and a majority
interest in Consan Incorporated and Support Net, Inc. During 1997, the company
increased its holdings in Spoerle to 80 percent; Silverstar Ltd., S.p.A.
("Silverstar") to 98 percent; and TH:s Elektronik AB, Exatec A/S, Amitron S.A.,
and ATD Electronica S.A. to 100 percent. The aggregate cost of these
acquisitions
was $364,499,000.
In September 1997, the company recorded a special charge of $21,600,000 before
taxes ($.17 per share on a diluted basis) associated with the integration of the
volume electronic component distribution businesses of Premier Farnell plc and
related transaction fees. Such integration costs include real estate
termination costs, severance and other expenses related to personnel performing
duplicative functions, professional fees, and the disposal of duplicative fixed
assets.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cost of each acquisition has been allocated among the net assets acquired on
the basis of the respective fair values of the assets acquired and liabilities
assumed. For financial reporting purposes, the acquisitions are accounted for
as purchase transactions beginning in the respective month of acquisition. The
aggregate consideration paid for all acquisitions exceeded the net assets
acquired by $46,591,000 and $296,379,000 in 1998 and 1997, respectively.
In connection with certain acquisitions, the company may be required to make
additional payments that are contingent upon the acquired businesses achieving
certain operating goals. During 1998, the company made additional payments of
$2,942,000 which have been capitalized as cost in excess of net assets of
companies acquired.
3. Investment in Affiliated Companies
During 1998, the company acquired a 50 percent interest in Marubun/Arrow, a
joint venture with Marubun Corporation, Japan's largest independent distributor.
This joint venture was formed to specifically serve Japanese customers in the
Asia/Pacific region and North America. The company also has a 50 percent
interest in Altech Industries (Pty) Ltd., a joint venture with Allied
Technologies Limited, a South African electronics distributor. Prior to 1998
when it increased its holdings to 100 percent, the company had a 45 percent
interest in Strong Electronics Co., Ltd., a joint venture with Lite-On, Inc.
4. Debt
Long-term debt consisted of the following at December 31 (in thousands):
1998 1997
---- ----
Global multi-currency credit facility $ 173,633 $377,765
7% senior notes, due 2007 197,976 197,623
7 1/2% senior debentures, due 2027 196,071 196,033
8.29% senior notes 50,000 75,000
6 7/8% senior debentures, due 2018 195,939 -
6.45% senior notes, due 2003 249,855 -
Other obligations with various
interest rates and due dates 1,699 1,678
---------- --------
1,065,173 848,099
---------- --------
Less installments due within one year 25,000 25,000
$1,040,173 $823,099
========== ========
The company's revolving credit agreement (the "global multi-currency credit
facility"), as amended, provides up to $650,000,000 of available credit and has
a maturity date of September 2001. The interest rate for loans under this
facility is at the applicable eurocurrency rate (5.0625 percent for U.S. dollar
denominated loans at December 31, 1998) plus a margin of .225 percent. The
company may also utilize the facility's competitive advance option to obtain
loans, generally at a lower rate. The company pays the banks a facility fee
of.125 percent per annum.
The 7% senior notes and the 7 1/2% senior debentures are not redeemable prior to
their maturity. The 8.29% senior notes are payable in three equal annual
installments. The first installment was paid on December 30, 1998 with the
remaining installments due in 1999 and 2000. The 6 7/8% senior debentures and
the 6.45% senior notes may be prepaid at the option of the company on at least
30 days' prior notice subject to a "make whole" clause.
The global multi-currency credit facility, the senior notes, and the senior
debentures limit, among other things, the payment of cash dividends and the
incurrence of additional borrowings and require that working capital, net worth,
and certain other financial ratios be maintained at designated levels.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The company maintains uncommitted lines of credit with a group of banks under
which up to $65,000,000 could be borrowed at December 31, 1998 on such terms as
the company and the banks may agree. Borrowings under the lines of credit would
be classified as long-term debt as the company has the ability to renew them or
refinance them under the global multi-currency credit facility. There are no
fees or compensating balances associated with these borrowings. There were no
outstanding borrowings under the lines of credit at December 31, 1998.
Short-term borrowings are principally utilized to support the working capital
requirements of certain foreign operations. The weighted average interest rates
of these borrowings at December 31, 1998 and 1997 were 7 percent and 8 percent,
respectively.
At December 31, 1998, the estimated fair market value of the 7% senior notes and
the 7 1/2% senior debentures was 103 percent of par, the 8.29% senior notes was
109 percent of par, and the 6 7/8% senior debentures was 97 percent of par. The
balance of the company's borrowings approximate their fair value.
5. Income Taxes
The provision for income taxes consists of the following (in thousands):
1998 1997 1996
---- ---- ----
Current
Federal $ 46,449 $ 81,278 $ 78,715
State 11,373 19,679 21,482
Foreign 35,796 31,096 29,507
-------- -------- --------
93,618 132,053 129,704
-------- -------- --------
Deferred
Federal 15,667 (9,321) 4,758
State 3,815 (2,130) 1,087
Foreign 1,918 11,015 9,118
-------- -------- --------
21,400 (436) 14,963
-------- -------- --------
$115,018 $131,617 $144,667
======== ======== ========
The principal causes of the difference between the U.S. statutory and effective
income tax rates are as follows (in thousands):
1998 1997 1996
---- ---- ----
Provision at statutory rate $ 95,311 $107,935 $126,900
State taxes, net of federal
benefit 9,872 11,407 14,670
Foreign tax rate differential 858 2,499 6,625
Other 8,977 9,776 (3,528)
-------- -------- --------
$115,018 $131,617 $144,667
======== ======== ========
For financial reporting purposes, income before income taxes attributable to the
United States was $183,048,000 in 1998, $216,993,000 in 1997, and $279,149,000
in 1996, and income before income taxes attributable to foreign operations was
$89,267,000 in 1998, $91,392,000 in 1997, and $83,422,000 in 1996.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant components of the company's deferred tax assets, which are
included in other assets, are as follows (in thousands):
1998 1997
---- ----
Inventory reserves $11,148 $14,407
Allowance for doubtful accounts 9,208 10,803
Accrued expenses 919 7,789
Realignment reserve 1,869 11,002
Integration reserve 19,116 20,897
Other (3,912) (1,076)
------- -------
$38,348 $63,822
======= =======
Included in other liabilities are deferred tax liabilities of $40,909,000 and
$40,327,000 at December 31, 1998 and 1997, respectively. The deferred tax
liabilities are principally the result of the differences in the bases of the
German assets and liabilities for tax and financial reporting purposes.
6. Shareholders' Equity
The company has 2,000,000 authorized shares of serial preferred stock with a par
value of $1.
In 1988, the company paid a dividend of one preferred share purchase right on
each outstanding share of common stock. Each right, as amended, entitles a
shareholder to purchase one one-hundredth of a share of a new series of
preferred stock at an exercise price of $50 (the "exercise price"). The rights
are exercisable only if a person or group acquires 20 percent or more of the
company's common stock or announces a tender or exchange offer that will result
in such person or group acquiring 30 percent or more of the company's common
stock. Rights owned by the person acquiring such stock or transferees thereof
will automatically be void. Each other right will become a right to buy, at the
exercise price, that number of shares of common stock having a market value of
twice the exercise price. The rights, which do not have voting rights, and may
be redeemed by the company at a price of $.01 per right at any time until ten
days after a 20 percent ownership position has been acquired. In the event that
the company merges with, or transfers 50 percent or more of its consolidated
assets or earning power to, any person or group after the rights become
exercisable, holders of the rights may purchase, at the exercise price, a number
of shares of common stock of the acquiring entity having a market value equal to
twice the exercise price. The rights, as amended, expire on March 1, 2008.
7. Realignment Charge
During 1997, the company announced the realignment of its North American
components operations into seven operating groups based upon customer needs.
The company recorded a special charge of $37,900,000 before taxes ($.24 per
share on a diluted basis) for costs associated with the realignment, including
real estate termination costs, severance and other expenses related to personnel
as well as costs of communicating the realignment to customers, suppliers, and
employees.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Earnings Per Share
The following table sets forth the calculation of basic and diluted earnings per
share ("EPS") for the years ended December 31 (in thousands):
1998 1997 1996
---- ---- ----
Net income for EPS $145,828 $163,656(a) $202,709
Weighted average common shares
outstanding for basic EPS 95,397 98,006 100,972
Net effect of dilutive stock
options and restricted stock
awards 1,716 1,763 1,408
------- -------- --------
Weighted average common shares
outstanding for diluted EPS 97,113 99,769 102,380
======= ======== ========
Basic EPS $ 1.53 $ 1.67(a) $ 2.01
======= ======== ========
Diluted EPS $ 1.50 $ 1.64(a) $ 1.98
======= ======== ========
(a) Net income includes special charges totaling $59,500,000 ($40,435,000 after
taxes) associated with the realignment of the North American components
operations and the acquisition and integration of the volume electronic
component distribution businesses of Premier Farnell plc. Excluding these
charges, net income and net income per share on a basic and diluted basis were
$204,091,000, $2.08, and $2.05, respectively.
9. Employee Stock Plans
Restricted Stock Plan
- ---------------------
Under the terms of the Arrow Electronics, Inc. Restricted Stock Plan (the
"Plan"), a maximum of 3,960,000 shares of common stock may be awarded at the
discretion of the board of directors to key employees of the company.
Shares awarded under the Plan may not be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of, except as provided in the Plan. Shares
awarded become free of vesting restrictions generally over a four-year period.
The company awarded 275,000 shares of common stock in early 1999 to 100 key
employees in respect of 1998, 215,400 shares of common stock to 140 key
employees during 1998, 292,304 shares of common stock to 209 key employees
during 1997, and 239,720 shares of common stock to 81 key employees during 1996.
Forfeitures of shares awarded under the Plan were 7,359, 31,250 and 49,274
during 1998, 1997, and 1996, respectively. The aggregate market value of
outstanding awards under the Plan at the respective dates of award is being
amortized over the vesting period, and the unamortized balance is included in
shareholders' equity as unamortized employee stock awards.
Stock Option Plan
- -----------------
Under the terms of the Arrow Electronics, Inc. Stock Option Plan (the "Option
Plan"), both nonqualified and incentive stock options for an aggregate of
21,000,000 shares of common stock were authorized for grant to key employees at
prices determined by the board of directors at its discretion or, in the case of
incentive stock options, prices equal to the fair market value of the shares at
the dates of grant. Options granted under the plan after May 1997 are
exercisable in equal installments over a four-year period. Previously, options
became exercisable over a two- or three-year period. Options currently
outstanding have terms of ten years.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1997, all employees of the North American operations below the level
of vice president were granted a special award of stock options totaling
1,255,320 at the then market price of the company's stock as an incentive
related to the realignment of the North American components operation. In
December 1998, the board of directors approved the repricing of the remaining
unforfeited options, totaling 1,050,760, reducing the exercise price from $27.50
to $22.5625.
The company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for the
Option Plan. Accordingly, no compensation expense has been recognized in the
company's accounts for this plan.
The following information relates to the Option Plan for the years ended
December 31:
Average Average Average
Exercise Exercise Exercise
1998 Price 1997 Price 1996 Price
---- -------- ---- -------- ---- -------
Options outstanding
at beginning
of year 8,231,809 $24.00 7,107,042 $20.25 4,877,150 $16.69
Granted 131,120 (a) 25.87 2,648,340 29.51 3,267,920 23.67
Exercis (375,501) 19.96 (1,316,962) 15.34 (923,970) 13.75
Forfeited (425,279)(a) 26.53 (206,611) 22.16 (114,058) 18.88
--------- ---------- ---------
Options outstanding
at end
of year 7,562,149 $23.41 8,231,809 $24.00 7,107,042 $20.25
========= ========= =========
Prices per share of
options
outstanding $1.81-34.00 $1.81-32.25 $1.81-27.69
Options available for future grant:
Beginning of
year 6,962,805 432,700 3,586,562
End of
year 7,255,214 6,962,805 432,700
(a) Excludes 1,050,760 options granted in October 1997
to all employees of the North American operations below the level of vice
president and repriced on December 14, 1998 from $27.50 to $22.5625.
The following table summarizes information about stock options outstanding at
December 31, 1998:
Options Outstanding Options Exercisable
- ----------------------------------------------- ----------------------
Weighted Weighted Weighted
Maximum Average Average Average
Exercise Number Remaining Exercise Exercise Number Exercise
Price Outstanding Contractual Life Price Exercisable Price
- -------- ----------- ---------------- ------- ----------- --------
$20.00 1,318,899 61 months $15.90 1,291,949 $15.88
25.00 3,236,353 87 months 21.75 2,406,262 21.46
30.00 1,821,447 94 months 26.20 1,574,959 26.07
35.00 1,185,450 107 months 31.99 288,918 31.97
--------- ---------
All 7,562,149 90 months 23.41 5,562,088 22.02
========= =========
Had stock-based compensation costs been determined as prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," net income would have been reduced by $6.7 million ($.04 per
share on a diluted basis) in 1998, $7.6 million ($.06 per share on a diluted
basis) in 1997 and $5.2 million ($.04 per share on a diluted basis) in 1996.
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated weighted average fair value, utilizing the Black-Scholes option-
pricing model, at date of option grant during 1998 and 1997 was $8.35 and $9.41,
per option, respectively. The weighted average fair value was estimated using
the following assumptions:
1998 1997
---- ----
Expected life (months) 48 47
Risk-free interest rate (percent) 5.4 5.8
Expected volatility (percent) 31 29
There is no expected dividend yield.
Stock Ownership Plan
The company maintains a noncontributory employee stock ownership plan which
enables most North American employees to acquire shares of the company's common
stock. Contributions, which are determined by the board of directors, are in
the form of common stock or cash which is used to purchase the company's common
stock for the benefit of participating employees. Contributions to the plan for
1998, 1997, and 1996 amounted to $5,531,000, $5,147,000, and $4,218,000,
respectively.
10. Retirement Plans
The company has a defined contribution plan for eligible employees, which
qualifies under Section 401(k) of the Internal Revenue Code. The company's
contribution to the plan, which is based on a specified percentage of employee
contributions, amounted to $4,387,000, $4,988,000 and $4,608,000, in 1998, 1997,
and 1996, respectively. Certain domestic and foreign subsidiaries maintain
separate defined contribution plans for their employees and made contributions
thereunder, which amounted to $2,035,000, $1,915,000 and $1,162,000, in 1998,
1997, and 1996, respectively.
The company maintains an unfunded supplemental retirement plan for certain
executives. The company's board of directors determines those employees
eligible to participate in the plan and their maximum annual benefit upon
retirement.
11. Lease Commitments
The company leases certain office, warehouse, and other property under
noncancelable operating leases expiring at various dates through 2053. Rental
expenses of noncancelable operating leases amounted to $29,231,000 in 1998,
$29,190,000 in 1997, and $29,390,000 in 1996. Aggregate minimum rental
commitments under all noncancelable operating leases, exclusive of real estate
taxes, insurance, and leases related to facilities closed in connection with the
North American realignment and the integration of the acquired businesses,
approximate $153,039,000. Such commitments on an annual basis are: 1999-
$30,604,000; 2000-$21,876,000; 2001-$15,821,000; 2002-$13,706,000; 2003-
$11,951,000; and $50,111,000 thereafter.
12. Financial Instruments
The company enters into foreign exchange forward contracts (the "contracts") to
mitigate the impact of changes in foreign currency exchange rates, principally
French francs, German deutsche marks, Italian lira, and British pound sterling.
These contracts are executed to facilitate the netting of offsetting foreign
currency exposures resulting from inventory purchases and sales, and generally
have terms of no more than three months. Gains or losses on these contracts are
deferred and recognized when the underlying future purchase or sale is
recognized. The company does not enter into forward contracts for trading
purposes. The risk of loss on a contract is the risk of nonperformance by the
counterparties which the company minimizes by limiting its counterparties to
major financial institutions. The fair value of the contracts is estimated using
market quotes. The notional amount of the contracts at December 31, 1998 and
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, was $79,595,000 and $97,321,000, respectively. The carrying
amounts, which are nominal, approximated fair value at December 31, 1998 and
1997.
13. Segment and Geographic Information
The company is engaged in the distribution of electronic components to original
equipment manufacturers and computer products to value-added resellers (VARS).
Operating income excludes the effects of special charges relating to the
integration of acquired businesses and the realignment of the North American
components operations. Revenue, operating income, and assets by segment are as
follows (in thousands):
Electronic Computer
Components Products Corporate Total
---------- -------- --------- -----
1998
- ----
Revenue from external
customers $6,343,890 $2,000,769 $ - $8,344,659
Operating income
(loss) 343,129 55,889 (46,514) 352,504
Total assets 3,014,100 640,786 184,985 3,839,871
1997
- ----
Revenue from external
customers $6,465,521 $1,298,424 $ - $7,763,945
Operating income
(loss) 440,917 31,672 (97,868)(a) 374,721
Total assets 2,777,625 545,872 214,376 3,537,873
1996
- ----
Revenue from external
customers $5,520,202 $1,014,375 $ - $6,534,577
Operating income
(loss) 411,607 20,226 (31,206) 400,627
Total assets 2,293,495 283,555 133,301 2,710,351
(a) Includes special charges totaling $59,500,000 million associated with the
realignment of the North American components operations and the acquistion and
integration of the volume electronic component distribution businesses of
Premier Farnell plc.
As a result of the company's philosophy of maximizing operating efficiencies
through the centralization of certain functions, selected fixed assets and
related depreciation, borrowings, and goodwill amortization are not directly
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
attributable to the individual operating segments. In its evaluation of its
operating groups performance, the company ignores the impact of unusual items
such as realignment and integration charges.
Revenues, by geographic area, are as follows (in thousands):
1998 1997 1996
---- ---- ----
North America $5,351,061 $4,964,660 $4,309,839
Europe 2,396,452 2,279,951 1,855,821
Asia/Pacific 597,146 519,334 368,917
$8,344,659 $7,763,945 $6,534,577
Total assets, by geographic area, are as follows (in thousands):
1998 1997 1996
---- ---- ----
North America $2,066,785 $1,952,348 $1,525,551
Europe 1,473,857 1,386,976 1,030,343
Asia/Pacific 299,229 198,549 154,457
$3,839,871 $3,537,873 $2,710,351
14. Quarterly Financial Data (Unaudited)
A summary of the company's quarterly results of operations follows (in thousands
except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1998
- ----
Sales $2,025,760 $2,023,966 $2,134,769 $2,160,164
Gross profit 294,879 291,331 285,282 289,754
Net income 41,945 35,990 35,563 32,330
Per common share:
Basic .44 .37 .37 .34
Diluted .43 .37 .37 .34
1997
- ----
Sales $1,855,333 $1,848,742 $1,949,396 $2,110,474
Gross profit 285,561 293,390 291,546 319,033
Net income 50,294 51,779 9,282(a) 52,301
Per common share:
Basic .51 .52 .10(a) .54
Diluted .50 .52 .09(a) .53
(a) Net income includes special charges totaling $59,500,000 ($40,435,000 after
taxes) associated with the realignment of the North American components
operations and the acquisition and integration of the volume electronic
component distribution businesses of Premier Farnell plc. Excluding these
charges, net income and net income per share on a basic and diluted basis were
$49,717,000, $.51, and $.50, respectively.
15. Subsequent Event
In January 1999, the company completed its previously announced acquisitions of
Richey Electronics, Inc. and the Electronics Distribution Group of Bell
Industries, Inc. for an estimated $315,000,000, including the assumption of
approximately $38,000,000 of debt.
Item 9. Changes In and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure.
-----------------------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
See "Executive Officers" in the response to Item 1 above. In addition, the
information set forth under the heading "Election of Directors" in the company's
Proxy Statement filed in connection with the Annual Meeting of Shareholders
scheduled to be held May 12, 1999 hereby is incorporated herein by reference.
Item 11. Executive Compensation.
----------------------
The information set forth under the heading "Executive Compensation and Other
Matters" in the company's Proxy Statement filed in connection with the Annual
Meeting of Shareholders scheduled to be held May 12, 1999 hereby is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management.
----------
The information is included in the company's Proxy Statement filed in connection
with the Annual Meeting of Shareholders scheduled to be held May 12, 1999 hereby
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information set forth under the heading "Executive Compensation and Other
Matters" in the company's Proxy Statement filed in connection with the Annual
Meeting of Shareholders scheduled to be held May 12, 1999 hereby is incorporated
herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
--------------------------------------------------------------
(a)1. Financial Statements.
--------------------
The financial statements listed in the accompanying index to financial
statements and financial statement schedule are filed as part of this annual
report.
2. Financial Statement Schedule.
----------------------------
The financial statement schedule listed in the accompanying index to financial
statements is filed as part of this annual report.
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements, including the notes thereto.
ARROW ELECTRONICS, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
Page
Report of Ernst & Young LLP, independent auditors 13
Management's responsibility for financial reporting 14
Consolidated statement of income for the years ended
December 31, 1998, 1997, and 1996 15
Consolidated balance sheet at December 31, 1998 and 1997 16
For the years ended December 31, 1998, 1997, and 1996:
Consolidated statement of cash flows 17
Consolidated statement of shareholders' equity 18
Notes to consolidated financial statements for
the years ended December 31, 1998, 1997, and 1996 20
Consolidated schedule for the three years
ended December 31, 1998:
II - Valuation and qualifying accounts 39
3. Exhibits.
(2)(a)(i) Share Purchase Agreement, dated as of October 10, 1991,
among EDI Electronics Distribution International B.V., Aquarius Investments
Ltd., Andromeda Investments Ltd., and the other persons named therein
(incorporated by reference to Exhibit 2.2 to the company's Registration
Statement on Form S-3, Registration No. 33-42176).
(ii) Standstill Agreement, dated as of October 10, 1991, among
Arrow Electronics, Inc., Aquarius Investments Ltd., Andromeda Investments Ltd.,
and the other persons named therein (incorporated by reference to Exhibit 4.1 to
the company's Registration Statement on Form S-3, Registration No. 33-42176).
(iii) Shareholder's Agreement, dated as of October 10,
1991, among EDI Electronics Distribution International B.V., Giorgio Ghezzi,
Germano Fanelli, and Renzo Ghezzi (incorporated by reference to Exhibit
2(f)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-4482).
(b) Agreement and Plan of Merger, dated as of June 24, 1994,
by and among Arrow Electronics, Inc., AFG Acquisition Company and Gates/FA
Distributing, Inc. (incorporated by reference to Exhibit 2 to the company's
Registration Statement on Form S-4, Commission File No. 35-54413).
(c) Agreement and Plan of Merger, dated as of September
21, 1994, by and among Arrow Electronics, Inc., MTA Acquisition Company and
Anthem Electronics, Inc. (incorporated by reference to Exhibit 2 to the
company's Registration Statement on Form S-4, Commission File No. 33-55645).
(d) Master Agreement, dated as of December 20, 1996, among
Premier Farnell plc and Arrow Electronics, Inc. relating to the sale and
purchase of the Farnell Volume Business (incorporated by reference to Exhibit
2(d) to the company's Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 1-4482).
(e) Agreement and Plan of Merger, dated as of September 30,
1998, by and among Arrow Electronics, Inc., Lear Acquisition Corp. and Richey
Electronics, Inc.
(i) Amendment to Agreement and Plan of Merger, dated as of
October 21, 1998 by and among Arrow Electronics, Inc., Lear Acquisition Corp.
and Richey Electronics, Inc.
(f) Agreement of Purchase and Sale, dated as of October 1,
1998, by and between Bell Industries, Inc. and Arrow Electronics, Inc.
(3)(a)(i) Restated Certificate of Incorporation of the company,
as amended (incorporated by reference to Exhibit 3(a) to the company's Annual
Report on Form 10-K for the year ended December 31, 1994 Commission File No. 1-
4482).
(ii) Certificate of Amendment of the Certificate of
Incorporation of Arrow Electronics, Inc., dated as of August 30, 1996
(incorporated by reference to Exhibit 3 to the company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, Commission File No. 1-4482).
(b) By-Laws of the company, as amended (incorporated by
reference to Exhibit 3(b) to the company's Annual Report on Form 10-K for the
year ended December 31, 1986, Commission File No. 1-4482).
(4)(a)(i) Rights Agreement dated as of March 2, 1988 between Arrow
Electronics, Inc. and Manufacturers Hanover Trust Company, as Rights Agent,
which includes as Exhibit A a Certificate of Amendment of the Restated
Certificate of Incorporation for Arrow Electronics, Inc. for the Participating
Preferred Stock, as Exhibit B a letter to shareholders describing the Rights and
a summary of the provisions of the Rights Agreement and as Exhibit C the forms
of Rights Certificate and Election to Exercise (incorporated by reference to
Exhibit 1 to the company's Current Report on Form 8-K dated March 3, 1988,
Commission File No. 1-4482).
(ii) First Amendment, dated June 30, 1989, to the Rights
Agreement in (4)(a)(i) above (incorporated by reference to Exhibit 4(b) to the
Company's Current Report on Form 8-K dated June 30, 1989, Commission File No. 1-
4482).
(iii) Second Amendment, dated June 8, 1991, to the Rights
Agreement in (4)(a)(i) above (incorporated by reference to Exhibit 4(i)(iii) to
the company's Annual Report on Form 10-K for the year ended December 31, 1991,
Commission File No. 1-4482).
(iv) Third Amendment, dated July 19, 1991, to the Rights
Agreement in (4)(a)(i) above (incorporated by reference to Exhibit 4(i)(iv) to
the company's Annual Report on Form 10-K for the year ended December 31, 1991,
Commission File No. 1-4482).
(v) Fourth Amendment, dated August 26, 1991, to the Rights
Agreement in (4)(a)(i) above (incorporated by reference to Exhibit 4(i) (v) to
the company's Annual Report on Form 10-K for the year ended December 31, 1991,
Commission File No. 1-4482).
(vi) Fifth Amendment, dated February 25, 1998, to the Rights
Agreement in (4)(i)above (incorporated by reference to Exhibit 7 to the
company's current report on Form 8 A/A dated March 2, 1998, Commission File No.
1-4482).
(b)(i) Indenture, dated as of January 15, 1997, between the
company and the Bank of Montreal Trust Company, as Trustee (incorporated by
reference to Exhibit 4 (b)(i) to the company's Annual Report on Form 10-K for
the year ended December 31, 1996, Commission File No. 1-4482).
(ii) Officers' Certificate, as defined by the Indenture in
4(b)(i) above, dated as of January 22, 1997, with respect to the company's
$200,000,000 7% Senior Notes due 2007 and $200,000,000 7 1/2% Senior Debentures
due 2027 (incorporated by reference to Exhibit 4 (b)(ii) to the company's Annual
Report on Form 10-K for the year ended December 31, 1996, Commission File No. 1-
4482).
(iii) Officers' Certificate, as defined by the indenture in
4(b)(i) above, dated as of January 15, 1997, with respect to the $200,000,000 6
7/8% Senior Debentures due 2018, dated as of May 29, 1998.
(iv) Officers' Certificate, as defined by the indenture in
4(b)(i) above, dated as of January 15, 1997, with respect to the $250,000,000
6.45% Senior Notes due 2003, dated October 21, 1998.
(10)(a)(i) Arrow Electronics Savings Plan, as amended and restated
through December 28, 1994 (incorporated by reference to Exhibit 10(a)(iii) to
the company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, Commission File No. 1-4482).
(ii) Amendment No. 1, dated March 29, 1996, to the Arrow
Electronics Savings Plan in (10)(a)(i) above (incorporated by reference to
Exhibit 10(a)(iv) to the company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, Commission File No. 1-4482).
(iii) Second Amendment No. 1 to the Arrow Electronics Savings
Plan in (10)(a)(i) above.
(iv) Amendment No. 3 to the Arrow Electronics Savings Plan in
(10)(a)(i) above.
(v) Amendment No. 4 dated May 26, 1998 to the Arrow
Electronics Savings Plan in (10)(a)(i) above.
(vi) Arrow Electronics Stock Ownership Plan, as amended and
restated through December 28, 1994 (incorporated by reference to Exhibit
10(a)(i) to the company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, Commission File No. 1-4482).
(vii) Amendment No. 1, dated March 29, 1996, to the Arrow
Electronics Stock Ownership Plan in (10)(a)(iii) above (incorporated by
reference to Exhibit 10(a)(ii) to the company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, Commission File No. 1-4482).
(viii) Second Amendment No. 1 to the Arrow Electronics Stock
Ownership Plan in (10)(b)(i).
(ix) Amendment No. 3 to the Arrow Electronics Stock Ownership
Plan in (10)(b)(i).
(x) Amendment No. 4 dated May 26, 1998, to the Arrow
Electronics Stock Ownership Plan in (10)(b)(i).
(b)(i) Employment Agreement, dated as of February 22, 1995,
between the company and Stephen P. Kaufman (incorporated by reference to Exhibit
10(c)(ii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1995, Commission File No. 1-4482).
(ii) Employment Agreement, dated as of January 1, 1998
between the company and Robert E. Klatell. (incorporated by reference to Exhibit
10(c)(iii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 1-4482).
(iii) Form of agreement between the company and the employees
parties to the Employment Agreements listed in 10(b)(i)-(iii) above providing
extended separation benefits under certain circumstances (incorporated by
reference to Exhibit 10(c)(iv) to the company's Annual Report on Form 10-K for
the year ended December 31, 1988, Commission File No. 1-4482).
(iv) Employment Agreement, dated as of March 1, 1999, between
the company and Sam R. Leno.
(v) Employment Agreement, dated as of January 1, 1998,
between the company and Betty Jane Scheihing (incorporated by reference to
Exhibit 10(c)(v) to the company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 1-4482).
(vi) Employment Agreement, dated as of September 1, 1997,
between the company and Jan M. Salsgiver (incorporated by reference to Exhibit
10(c)(vi) to the company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 1-4482).
(vii) Employment Agreement, dated as of September 1, 1997,
between the company and Francis M. Scricco (incorporated by reference to Exhibit
10(c)(vi) to the company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 1-4482).
(viii) Employment Agreement, dated as of April 15, 1996,
between the company and Gerald Luterman (incorporated by reference to Exhibit
10(c)(vi) to the company's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 1-4482).
(ix) Employment Agreement, dated as of September 21, 1994,
between the company and Robert S. Throop (incorporated by reference to Exhibit
10(c)(x) to the company's Annual Report on Form 10-K for the year ended December
31, 1994, Commission File No. 1-4482).
(x) Employment Agreement, dated as of September 1, 1994
between the company and Steven W. Menefee (incorporated by reference to Exhibit
10(c)(v) to the company's Annual Report on Form 10-K for the year ended December
31, 1994, Commission File No. 1-4482).
(xi) Form of agreement between the company and all corporate
Vice Presidents, including the employees parties to the Employment Agreements
listed in 10(b)(v)-(x) above, providing extended separation benefits under
certain circumstances (incorporated by reference to Exhibit 10(c)(ix) to the
company's Annual Report on Form 10-K for the year ended December 31, 1988,
Commission File No. 1-4482).
(xii) Form of agreement between the company and non-corporate
officers providing extended separation benefits under certain circumstances
(incorporated by reference to Exhibit 10(c)(x) to the company's Annual Report on
Form 10-K for the year ended December 31, 1988, Commission File No. 1-4482).
(xiii) Unfunded Pension Plan for Selected Executives of Arrow
Electronics, Inc., as amended (incorporated by reference to Exhibit 10(c)(xiii)
to the company's Annual Report on Form 10-K for the year ended December 31,
1994, Commission File No. 1-4482).
(xiv) Amendment, dated May 1998, to the Unfunded Pension Plan
for Selected Executives of Arrow Electronics, Inc.
(xv) Grantor Trust Agreement, dated June 25, 1998, by and
between Arrow Electronics, Inc. and Wachovia Bank, N.A.
(xvi) English translation of the Service Agreement, dated
January 19, 1993, between Spoerle Electronic and Carlo Giersch (incorporated by
reference to Exhibit 10(f)(v) to the company's Annual Report on Form 10-K for
the year ended December 31, 1992, Commission File No. 1-4482).
(c)(i) Senior Note Purchase Agreement, dated as of December 29,
1992, with respect to the company's 8.29 percent Senior Secured Notes due 2000
(incorporated by reference to Exhibit 10(d) to the company's Annual Report on
Form 10-K for the year ended December 31, 1992, Commission File No. 1-4482).
(ii) First Amendment, dated as of December 22, 1993, to the
Senior Note Purchase Agreement in 10(c)(i) above (incorporated by reference to
Exhibit 10(d)(ii) in the company's Annual Report on form 10-K for the year ended
December 31, 1993, Commission File No. 1-4482).
(iii) Second Amendment, dated as of April 24, 1995, to the
Senior Note Purchase Agreement in 10(c)(i) above (incorporated by reference to
Exhibit 10(c)(iii) in the company's Annual Report on form 10-K for the year
ended December 31, 1996, Commission File No. 1-4482).
(iv) Third Amendment, dated as of December 23, 1996, to the
Senior Note Purchase Agreement in 10(c)(i) above (incorporated by reference to
Exhibit 10(c)(iv) in the company's Annual Report on form 10-K for the year ended
December 31, 1996, Commission File No. 1-4482).
(v) Fourth Amendment, dated as of October 28, 1998, to the
Senior Note Purchase Agreement in 10(c)(i).
(d)(i) Amended and Restated Credit Agreement, dated as of
August 16, 1995 among Arrow Electronics, Inc., the several Banks from time to
time parties hereto, Bankers Trust Company and Chemical Bank, as agents
(incorporated by reference to Exhibit 10(d) in the company's Annual Report on
form 10-K for the year ended December 31, 1995, Commission File No. 1-4482).
(ii) First Amendment, dated as of September 30, 1996, to the
Arrow Electronics, Inc. Second Amended and Restated Credit Agreement, dated
August 16, 1995 in (10)(d)(i) above (incorporated by reference to Exhibit 10 to
the company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, Commission File No. 1-4482).
(e)(i) Arrow Electronics, Inc. Stock Option Plan, as amended
and restated, effective as of May 15, 1997 (incorporated by reference to 99(a)
to the company's Registration Statement on Form S-8, Registration No. 333-
45631).
(ii) Form of Stock Option Agreement under (e)(i) above
(incorporated by reference to Exhibit 10(e)(ii)in the company's Annual Report on
form 10-K for the year ended December 31, 1997, Commission File No. 1-4482).
(iii) Form of Nonqualified Stock Option Agreement under (e)(i)
above (incorporated by reference to Exhibit 10(k)(iv) to the company's
Registration Statement on Form S-4, Registration No. 33-17942).
(f)(i) Restricted Stock Plan of Arrow Electronics, Inc., as
amended and restated effective May 15, 1997 (incorporated by reference to
Exhibit 99(b) to the company's Registration Statement on Form S-8, Registration
No. 333-45631).
(ii) Form of Restricted Stock Award Agreement under (f)(i)
above (incorporated by reference to Exhibit 10(f)(ii) to the company's Annual
Report on Form 10-K for the year ended December 31, 1997, Commission File No. 1-
4482).
(g)(i) Non-Employee Directors Stock Option Plan as of May 15,
1997 (incorporated by reference to Exhibit 99(c) to the company's Registration
Statement on Form S-8, Registration No.333-45631).
(ii) Form of Nonqualified Stock Option Agreement under
10(g)(i) above (incorporated by reference to Exhibit 10(g)(ii) to the company's
Annual Report on Form 10-K for the year ended December 31, 1997, Commission File
No. 1-4482).
(h) Non-Employee Directors Deferral Plan as of May 15, 1997
(incorporated by reference to Exhibit 99(d) to the Company's Registration
Statement on Form S-8, Registration No. 333-45631).
(i) Form of Indemnification Agreement between the company
and each director (incorporated by reference to Exhibit 10(m) to the company's
Annual Report on Form 10-K for the year ended December 31, 1986, Commission File
No. 1-4482).
(11) Statement Re: Computation of Earnings Per Share.
(21) List of Subsidiaries.
(23) Consent of Ernst & Young LLP.
(28)(i) Record of Decision, issued by the EPA on September 28,
1990, with respect to environmental clean-up in Plant City, Florida
(incorporated by reference to Exhibit 28 to the company's Annual Report on Form
10-K for the year ended December 31, 1990, Commission File No. 1-4482).
(ii) Consent Decree lodged with the U.S. District Court for the
Middle District of Florida, Tampa Division, on December 18, 1991, with respect
to environmental clean-up in Plant City, Florida (incorporated by reference to
Exhibit 28(ii) to the company's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 1-4482).
14(b) Reports on Form 8-K
During the quarter ended December 31, 1998, the following Current
Reports on Form 8-K were filed:
Date of Report
(Date of Earliest Event Reported) Items Reported
-------------------------------- --------------
None
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 333-45631, No. 33-55565, No. 33-66594, No. 33-48252, No. 33-20428
and No. 2-78185) and in the related Prospectuses pertaining to the employee
stock plans of Arrow Electronics, Inc., in the Registration Statement (Form S-3
No. 333-5625) and in Amendment No. 1 to the Registration Statement (Form S-3
No. 333-19431) and in the related Prospectus pertaining to the registration and
issuance of the senior notes and senior debentures of Arrow Electronics, Inc.,
in Amendment No. 1 to the Registration Statement (Form S-3 No. 33-54473) and in
the related Prospectus pertaining to the registration of 1,376,843 shares of
Arrow Electronics, Inc. Common Stock, in Amendment No. 1 to the Registration
Statement (Form S-3 No. 33-67890) and in the related Prospectus pertaining to
the registration of 1,009,086 shares of Arrow Electronics, Inc. Common Stock,
and in Amendment No. 1 to the Registration Statement (Form S-3 No. 33-42176) and
in the related Prospectus pertaining to the registration of up to 944,445 shares
of Arrow Electronics, Inc. Common Stock held by Aquarius Investments Ltd. and
Andromeda Investments Ltd. of our report dated February 17, 1999 with respect to
the consolidated financial statements and schedule of Arrow Electronics,
Inc. included in this Annual Report on Form 10-K for the year ended
December 31, 1998.
ERNST & YOUNG LLP
New York, New York
March 30, 1999
ARROW ELECTRONICS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the three years ended December 31, 1998
Additions
Balance at Balance
beginning Charged Charged at end
of year to income to other (1) Write-offs of year
---------- --------- ----------- ---------- --------
Allowance for
doubtful accounts
1998 $46,055,000 $31,643,000 $ 542,000 $29,817,000 $48,423,000
=========== =========== ========== =========== ===========
1997 $39,753,000 $20,360,000 $1,896,000 $15,954,000 $46,055,000
=========== =========== ========== =========== ===========
1996 $38,670,000 $15,495,000 $ - $14,412,000 $39,753,000
=========== =========== ========== =========== ===========
(1) Represents the allowance for doubtful accounts of the businesses acquired by
the company during each year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
-----------------------
Robert E. Klatell.
Executive Vice President
March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
By: /s/ Stephen P. Kaufman March 30, 1999
-------------------------------------------
Stephen P. Kaufman, Chairman, Principal
Executive Officer, and Director
By: /s/ Robert E. Klatell March 30, 1999
-------------------------------------------
Robert E. Klatell, Executive Vice President,
Secretary, and Director
By: /s/ Sam R. Leno March 30, 1999
--------------------------------------------
Sam R. Leno, Senior Vice President and Chief
Financial Officer
By: /s/ Paul J. Reilly March 30, 1999
--------------------------------------------
Paul J. Reilly, Vice President, Controller
and Principal Accounting Officer
By: /s/ Daniel W. Duval March 30, 1999
--------------------------------------------
Daniel W. Duval, Director
By: /s/ Carlo Giersch March 30, 1999
--------------------------------------------
Carlo Giersch, Director
By: /s/ John N. Hanson March 30, 1999
--------------------------------------------
John N. Hanson, Director
By: /s/ Roger King March 30, 1999
--------------------------------------------
Roger King, Director
By: /s/ Karen Gordon Mills March 30, 1999
--------------------------------------------
Karen Gordon Mills, Director
By: /s/ Barry W. Perry March 30, 1999
--------------------------------------------
Barry W. Perry, Director
By: /s/ Richard S. Rosenbloom March 30, 1999
--------------------------------------------
Richard S. Rosenbloom, Director
By: /s/ Robert S. Throop March 30, 1999
--------------------------------------------
Robert S. Throop, Director
By: /s/ John C. Waddell March 30, 1999
--------------------------------------------
John C. Waddell, Director
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ARROW ELECTRONICS, INC.,
LEAR ACQUISITION CORP.
AND
RICHEY ELECTRONICS, INC.
DATED AS OF SEPTEMBER 30, 1998
TABLE OF CONTENTS
Page
Article 1 THE MERGER 1
1.1 Effective Time of the Merger 1
1.2 Closing 1
1.3 Effects of the Merger 2
1.4 Directors and Officers of the Surviving Corporation 2
1.5 Further Assurances 3
Article 2 CONVERSION OF SECURITIES 3
2.1 Conversion of Capital Stock 3
2.2 Exchange of Certificates 4
Article 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 6
3.1 Corporate Organization and Authority of the Company 6
3.2 Capitalization 7
3.3 No Violation; Consents and Approvals 8
3.4 SEC Reports and Financial Statements of the Company 9
3.5 Absence of Undisclosed Liabilities 10
3.6 Inventory 10
3.7 Accounts Receivable 11
3.8 Title to Property 11
3.9 Intellectual Property 12
3.10 Tax Matters 12
3.11 Employee Matters 14
3.12 Labor Matters 17
3.13 No Material Change 17
3.14 Absence of Change or Event 18
3.15 Litigation 19
3.16 Compliance With Law and Other Instruments 20
3.17 Insurance 23
3.18 Affiliate Interests 24
3.19 Customers and Suppliers 24
3.20 Absence of Questionable Payments 25
3.21 Information Supplied 25
3.22 Opinion of Financial Advisor 25
3.23 Vote Required 26
3.24 Company Not an Interested Shareholder or a 30%
Shareholder 26
3.25 Section 203 of the DGCL Not Applicable 26
3.26 Disclosure 26
3.27 The Company's Knowledge 26
Article 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND Sub. 26
4.1 Organization and Authority 26
4.2 No Violation; Consents and Approvals 27
4.3 SEC Reports and Financial Statements of Parent 28
4.4 Information Supplied 28
4.5 Litigation 29
4.6 Parent's Knowledge 29
Article 5 CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY
AND PARENT 29
5.1 Conduct of the Company's Business Prior to the
Closing Date 29
5.2 Conduct of Business of Sub 31
5.3 Preparation of the Proxy Statement 31
5.4 Legal Conditions to Merger 32
5.5 Stockholder's Meeting 32
5.6 Fees and Expenses 33
5.7 Broker's and Finder's Fees 34
5.8 Takeover Statutes 34
5.9 Access to Information and Confidentiality 34
5.10 Indemnification 35
5.11 Additional Agreements; Best Efforts 36
5.12 No Solicitation 36
5.13 Advice of Changes; Government Filings 37
5.14 Press Releases 37
5.15 Company Option Plans 37
5.16 Notice and Cure 38
5.17 Canadian Subsidiary 38
5.18 Observance of Operations of the Business 38
5.19 Certain Company Employees 39
5.20 Company Bank Debt 39
5.21 Employee Matters 39
Article 6 CONDITIONS PRECEDENT 39
6.1 Conditions to Each Party's Obligation to Effect the
Merger 39
6.2 Conditions to Obligations of Parent and Sub 40
6.3 Conditions to Obligations of the Company 41
Article 7 TERMINATION AND AMENDMENT 42
7.1 Termination 42
7.2 Effect of Termination 43
7.3 Extension; Waiver 43
7.4 Amendment and Modification 43
Article 8 GENERAL PROVISIONS 44
8.1 Nonsurvival of Representations, Warranties and
Agreements 44
8.2 Notices 44
8.3 Governing Law 45
8.4 Interpretation 45
8.5 Counterparts 45
8.6 Entire Agreement; No Third Party Beneficiaries; Rights
of Ownership 45
8.7 No Remedy in Certain Circumstances 46
8.8 Severability 46
8.9 Assignment 46
8.10 Headings 46
8.11 Enforcement of Agreement 46
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 30, 1998, by and
among ARROW ELECTRONICS, INC., a New York corporation ("Parent"), LEAR
ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and RICHEY ELECTRONICS, INC., a Delaware corporation (the
"Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company deem it advisable and in the best interests of their respective
stockholders to consummate, and have approved, the business combination
transaction provided for herein in which Sub would merge with and into the
Company and the Company would become a wholly owned subsidiary of Parent (the
"Merger");
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent and Sub to enter into this Agreement each of the directors
of the Company named on Exhibit A hereto has on the date hereof granted to
Parent an irrevocable proxy to vote the shares of the common stock, par value
$.001 per share, of the Company (the "Company Common Stock") owned by such
person to approve the Merger; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, a certificate of merger (the "Certificate of Merger") shall be duly
prepared, executed and acknowledged by the Surviving Corporation (as defined in
Section 1.3) and thereafter delivered to the office of the Secretary of State of
the State of Delaware, for filing and thereafter recorded, as provided in the
Delaware General Corporation Law (the "DGCL"), as soon as practicable on or
after the Closing Date (as defined in Section 1.2). The Merger shall become
effective upon the filing of the Certificate of Merger with the office of the
Secretary of State of the State of Delaware or at such time thereafter as is
provided in the Certificate of Merger (the "Effective Time").
1.2 Closing. The closing of the Merger (the "Closing") will take place at
the offices of Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New
York, New York, at 10:00 A.M. (local time) on a date to be specified by Parent
and the Company, which shall be no later than the third business day after
satisfaction or waiver of the latest to occur of the conditions set forth in
Article 6 (other than Sections 6.2(a)(i) and 6.3(a)(i) and the delivery of the
officer's certificates referred to in Sections 6.2(a) and 6.3(a)) (the "Closing
Date") or at such other place, time and date as may be agreed upon in writing by
Parent and the Company. At the Closing there shall be delivered to Parent, Sub
and the Company the certificates and other documents and instruments required to
be delivered hereunder.
1.3 Effects of the Merger. (a) At the Effective Time (i) the separate
existence of Sub shall cease and Sub shall be merged with and into the Company
(Sub and the Company are sometimes referred to herein as the "Constituent
Corporations" and the Company is sometimes referred to herein as the "Surviving
Corporation"), (ii) the Certificate of Incorporation of Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, except that the name of the
Surviving Corporation as provided in such Certificate of Incorporation shall be
"Richey Electronics, Inc." and (iii) the By-laws of Sub as in effect immediately
prior to the Effective Time shall be the By-laws of the Surviving Corporation.
(b) The Merger shall have the effects set forth in this Agreement, the
Certificate of Merger and the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, at and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers,
immunities and franchises, of a public as well as of a private nature, and be
subject to all the restrictions, disabilities and duties of each of the
Constituent Corporations; and all and singular rights, privileges, powers,
immunities and franchises of each of the Constituent Corporations, and all
property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, including subscriptions to shares
and all other choses in action, and all and every other interest of or belonging
to or due to each of the Constituent Corporations, shall be taken and deemed to
be transferred to and vested in the Surviving Corporation, and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts and liabilities had been
incurred by it.
1.4 Directors and Officers of the Surviving Corporation. The directors and
officers of Sub immediately prior to the Effective Time shall, from and after
the Effective Time, be the directors and officers, respectively, of the
Surviving Corporation until their successors shall have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and By-
laws.
1.5 Further Assurances. Each party hereto will, either prior to or after
the Effective Time, execute such further documents, instruments, deeds, bills of
sale, assignments and assurances and take such further actions as may be
reasonably requested by one or more of the others to consummate the Merger, to
vest the Surviving Corporation with full title to all assets, properties,
privileges, rights, approvals, immunities and franchises of either of the
Constituent Corporations or to effect the other purposes of this Agreement.
ARTICLE 2
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any further action on the part of the holder of any shares of
Company Common Stock or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $0.01 per share, of the Surviving
Corporation ("Surviving Corporation Common Stock"). Each certificate
representing outstanding shares of Sub Common Stock shall at the Effective Time
represent an equal number of shares of Surviving Corporation Common Stock.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All shares
of the Company Common Stock that are owned by the Company as treasury stock and
any shares of the Company Common Stock owned by Parent, Sub or any wholly owned
Subsidiary of the Company or Parent shall be canceled and retired and shall
cease to exist and no stock of Parent or other consideration shall be delivered
in exchange therefor. All shares of Common Stock, par value $1.00 per share, of
Parent (the "Parent Common Stock" ), if any, owned by the Company shall remain
unaffected by the Merger. As used in this Agreement, the word "Subsidiary"
means, with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting interest in such partnership) or (ii)
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
(c) Merger Consideration for the Company Common Stock. Subject to
Section 2.2 (e), each issued and outstanding share of the Company Common Stock
(other than shares to be canceled in accordance with Section 2.1(b) and other
than Dissenting Shares as defined in Section 2.1(e)) shall be converted into the
right to receive $10.50 in cash (the "Merger Consideration"). All such shares
of the Company Common Stock, when so converted, shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive the Merger
Consideration.
(d) Simmonds Warrant. The Holder (as defined in the Warrant to
Purchase Common Stock of Richey Electronics, Inc., dated June 13, 1997 (the
"Simmonds Warrant")) shall be entitled to receive the aggregate Merger
Consideration with respect to the number of shares of Company Common Stock that
the Holder shall be deemed to have received pursuant to Article VI of the
Simmonds Warrant. Promptly after surrender of the Simmonds Warrant to Parent,
the Holder shall receive in exchange therefor a check in the amount equal to the
Merger Consideration which the Holder has the right to receive pursuant to this
Section 2.1(d). In no event shall the Holder be entitled to receive interest on
any such funds.
(e) Dissenting Shares. (i) Notwithstanding any provision of this
Agreement to the contrary, each outstanding share of Company Common Stock the
holder of which has not voted in favor of the Merger, has perfected such
holder's right to an appraisal of such holder's shares in accordance with the
applicable provisions of the DGCL and has not effectively withdrawn or lost such
right to appraisal (a "Dissenting Share"), shall not be converted into or
represent a right to receive the Merger Consideration pursuant to Section
2.1(c), but the holder thereof shall be entitled only to such rights as are
granted by the applicable provisions of the DGCL; provided, however, that any
Dissenting Share held by a person at the Effective Time who shall, after the
Effective Time, withdraw the demand for appraisal or lose the right of
appraisal, in either case pursuant to the DGCL, shall be deemed to be converted
into, as of the Effective Time, the right to receive the Merger Consideration
pursuant to Section 2.1(c).
(ii) The Company shall give Parent (x) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to the applicable provisions of the DGCL relating to
the appraisal process received by the Company and (y) the opportunity to direct
all negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company will not voluntarily make any payment with respect to
any demands for appraisal and will not, except with the prior written consent of
Parent, settle or offer to settle any such demands.
2.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall make
available to the Surviving Corporation for deposit with a bank or trust company
designated by Parent (and reasonably acceptable to the Company) (the "Exchange
Agent"), for the benefit of the holders of shares of the Company Common Stock,
for exchange in accordance with this Article 2, through the Exchange Agent, an
amount of cash equal to the aggregate Merger Consideration (such cash, together
with earnings thereon, being hereinafter referred to as the "Exchange Fund") in
each case issuable pursuant to Section 2.1 in exchange for outstanding shares of
the Company Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of the Company Common Stock (the "Certificates")
whose shares were converted pursuant to Section 2.1 into the right to receive
the Merger Consideration (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as the Surviving Corporation may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent and Sub, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a check in the amount equal to the Merger
Consideration which such holder has the right to receive pursuant to the
provisions of this Article 2, and the Certificate so surrendered shall forthwith
be canceled. In no event shall the holder of any Certificate be entitled to
receive interest on any funds to be received in the Merger. In the event of a
transfer of ownership of the Company Common Stock which is not registered in the
transfer records of the Company, a check for the appropriate amount of cash may
be issued to a transferee if the Certificate representing the Company Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration.
(c) No Further Ownership Rights in the Company Common Stock. The
Merger Consideration paid upon the surrender for exchange of shares of the
Company Common Stock in accordance with the terms hereof shall be deemed to have
been paid in full satisfaction of all rights pertaining to such shares of the
Company Common Stock, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of the
Company Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article 2.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund
made available to the Exchange Agent which remains undistributed to the
stockholders of the Company for six months after the Effective Time shall be
delivered to Parent, upon demand, and any stockholders of the Company who have
not theretofore complied with this Article 2 shall thereafter look only to
Parent for payment of their claim for the Merger Consideration.
(e) No Liability. Neither Parent nor the Company shall be liable to
any holder of shares of the Company Common Stock for the Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
3.1 Corporate Organization and Authority of the Company.
(a) Each of the Company and its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and, is duly licensed or qualified and in good standing as a foreign
corporation in each jurisdiction in which the nature of the activities conducted
by it or the character of the properties owned, leased or operated by it
requires it to be so licensed or so qualified, except where the failure to be so
licensed or so qualified would not be reasonably likely to result in a Company
Material Adverse Effect (as defined below). The Company's Disclosure Memorandum
furnished to Parent on the date hereof (the "Disclosure Memorandum") with
specific reference to this Section sets forth (A) the name and jurisdiction of
incorporation of each Subsidiary of the Company, (B) its authorized capital
stock, (C) the number of issued and outstanding shares of capital stock and (D)
the record owners of such shares. Except for interests in the Subsidiaries of
the Company and as disclosed in the Disclosure Memorandum with specific
reference to this Section, the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity (other than
(i) non-controlling investments in the ordinary course of business, (ii) any
such interest received in the ordinary course of business as a settlement of
indebtedness, (iii) corporate partnering, development, cooperative marketing and
similar undertakings and arrangements entered into in the ordinary course of
business and (iv) other investments of less than $25,000). The Company has
heretofore delivered to Parent complete and correct copies of the certificate of
incorporation and bylaws of the Company and its Subsidiaries (or other
comparable charter documents), as currently in effect. For the purposes of this
Agreement, "Company Material Adverse Effect" shall mean a material adverse
effect on the financial condition, assets, liabilities (contingent or
otherwise), results of operation, business or business prospects of the Company
and its Subsidiaries, if any, taken as a whole. For purposes of this Agreement,
a Company Material Adverse Effect shall not include a material adverse effect on
the financial condition, assets, liabilities (contingent or otherwise), results
of operation, business or business prospects of the Company as a result of (i)
the transactions contemplated hereby or the public announcement hereof, or (ii)
changes in the conditions or prospects of the Company and its Subsidiaries taken
as a whole which are consistent with general economic conditions or general
changes affecting the electronic component distribution or electronics assembly
industries, or (iii) any matter disclosed in the Company SEC Documents (as
defined in Section 3.4) or in the Disclosure Memorandum.
(b) The Company has full corporate power and authority to enter into
this Agreement and, subject to approval of this Agreement by the stockholders of
the Company in accordance with the applicable provisions of the DGCL (the
"Company Stockholders' Approval"), to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly approved by the Board of Directors of the
Company, the Board of Directors of the Company has recommended adoption of this
Agreement by the stockholders of the Company and directed that this Agreement be
submitted to the stockholders of the Company for their consideration, and no
other corporate proceedings on the part of the Company or its stockholders are
necessary to authorize the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby, other than obtaining the Company Stockholders' Approval.
This Agreement has been duly executed and delivered by the Company, and
(assuming due execution and delivery by Parent and Sub) this Agreement
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally, and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought, and except as indemnification may be limited
by public policy.
3.2 Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of 30,000,000 shares of the Company Common Stock and 10,000
shares of Preferred Stock, par value $0.001 per share ("Company Preferred
Stock"). As of the date hereof, 9,146,113 shares of the Company Common Stock
are issued and outstanding, and 1,300,000 shares of the Company Common Stock are
reserved for issuance in the aggregate pursuant to the Company's Amended and
Restated 1992 Stock Option Plan (the "Company Option Plan"), no more than
3,947,256 shares of the Company Common Stock are reserved for issuance under the
Indenture by and between the Company and First Trust, of California, National
Association, as Trustee dated February 15, 1996 (the "Indenture") and 200,000
shares of the Company Common Stock are reserved for issuance pursuant to the
Simmonds Warrant. As of the date hereof, no shares of Company Preferred Stock
are issued and outstanding. All such issued and outstanding shares of the
Company Common Stock have been, and any shares of the Company Common Stock which
may be issued pursuant to the Company Option Plans, the Indenture and the
Simmonds Warrant will be, validly issued, fully paid and nonassessable and not
subject to preemptive rights. Except as disclosed in the Disclosure Memorandum
with specific reference to this Section, there are no (a) outstanding options
obligating the Company or any of its Subsidiaries to issue or sell any shares of
capital stock of any Subsidiary of the Company or to grant, extend or enter into
any such option or (b) voting trusts, proxies or other commitments,
understandings, restrictions or arrangements in favor of any person other than
the Company or a Subsidiary wholly owned, directly or indirectly, by the Company
with respect to the voting of or the right to participate in dividends or other
earnings on any capital stock of any Subsidiary of the Company. Except as
disclosed in the Disclosure Memorandum with specific reference to this Section,
and except for (i) the rights created pursuant to this Agreement, (ii) the
rights outstanding on the date hereof created pursuant to the Company Option
Plan, the Indenture or the Simmonds Warrant and (iii) the issued and outstanding
shares of the Company Common Stock set forth herein, as of the date hereof,
there are no (x) outstanding shares of capital stock, or any notes, bonds,
debentures or other indebtedness having the right to vote (or convertible into
or exchangeable for securities having the right to vote) ("Voting Debt"), of the
Company, (y) outstanding options, warrants, calls, subscriptions or other rights
of any kind to acquire, or agreements or commitments in effect to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
is bound obligating the Company or any Subsidiary to issue or sell, or cause to
be issued or sold, any additional shares of capital stock or any Voting Debt of
the Company or any Subsidiary, or granting any rights to obtain any benefit
measured by the value of the Company's capital stock (including without
limitation, stock appreciation rights granted under the Company's 1993 Stock
Appreciation Rights Plan (the "Company Stock Appreciation Rights Plan")) or (z)
outstanding securities convertible into or exchangeable for, or which otherwise
confer on the holder thereof any right to acquire, any such additional shares or
Voting Debt. Except pursuant to the preceding sentence, neither the Company nor
any of its Subsidiaries is committed to issue any such option, warrant, call,
subscription, right or security, and after the Effective Time, there will be no
such option, warrant, call, subscription, right, agreement, commitment or
security. There are no contracts, commitments or agreements relating to voting,
purchase or sale of the Company's or any of its Subsidiary's capital stock or
Voting Debt (including, without limitation, any redemption by the Company
thereof) (A) between or among the Company, any Subsidiary of the Company and any
of its stockholders and (B) to the Company's knowledge, between or among any of
the Company's stockholders, except for the proxies set forth on Exhibit A.
3.3 No Violation; Consents and Approvals. Except as disclosed in the
Disclosure Memorandum with specific reference to this Section, neither the
Company nor its Subsidiaries or any of their respective properties or assets are
subject to or bound by any provision of:
(a) to the Company's knowledge, any law, statute, rule, regulation,
ordinance or judicial or administrative decision;
(b) any articles or certificate of incorporation, bylaws, or similar
organizational document;
(c) any (i) credit or loan agreement, mortgage, deed of trust, note,
bond, indenture, license, concession, franchise, permit, trust, custodianship,
other restriction, (ii) instrument, lease, obligation, contract or agreement
(including, without limitation, any plan, fund or arrangement contemplated by
Section 3.11(a)) or (iii) instruments, obligations, contracts or agreements
(including, without limitation, plans, funds or arrangements contemplated by
Section 3.11(a)), other than those which do not involve the payment or receipt
by the Company or its Subsidiaries of an amount in excess of $250,000,
individually or $500,000 in the aggregate; or
(d) any judgment, order, writ, injunction or decree; that would impair,
prohibit or prevent, or would be violated or breached by, or would result in the
creation of any pledges, liens, charges, encumbrances, easements, defects,
security interests, claims, options and restrictions of every kind
("Encumbrance") as a result of, or under which there would be a material default
(with or without notice or lapse of time, or both) or right of termination,
cancellation or acceleration of any material obligation or the loss of a
material benefit as a result of, the execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated
hereby, except where, (i) as of the date hereof such event or occurrence is not
reasonably likely to result in losses, liabilities, costs or expenses (including
but not limited to attorneys fees and expenses), damage or decline in value to
the business, condition or properties of the Company and its Subsidiaries, taken
as a whole, or to Parent (collectively, "Losses") in excess of $250,000
individually or $500,000 in the aggregate, or (ii) between the date hereof and
the Closing Date would not, individually or in the aggregate, reasonably be
likely to have a Company Material Adverse Effect. Except as disclosed in the
Disclosure Memorandum with specific reference to this Section, the merger,
consolidation or amalgamation of the Surviving Corporation or any or all of its
Subsidiaries with or into Parent or its affiliates or, the transfer of any or
all of the assets of the Surviving Corporation or any of its Subsidiaries to
Parent or its affiliates will not, with or without the giving of notice or the
passage of time or both, conflict with, result in a default, right to accelerate
or loss of rights under, or result in the creation of any Encumbrance, under any
provision of any material mortgage, deed of trust, lease, license, or agreement
(including any debt instrument) to which the Company, or any of its Subsidiaries
is a party or by which any of them may be bound or affected. Except as
disclosed in the Disclosure Memorandum with specific reference to this Section
and other than (i) the filing of the Certificate of Merger as provided in
Section 1.1, (ii) the filing with the Securities and Exchange Commission (the
"SEC") and Nasdaq of the Proxy Statement (as defined in Section 3.21), (iii)
such consents, orders, approvals, authorizations, registrations, declarations
and filings as may be required under the Investment Canada Act and the
Competition Act (Canada) and applicable state securities laws and the securities
laws of any foreign country, (iv) such filings as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and (v) such local consents, orders, approvals, authorizations, registrations,
declarations and filings which, if not obtained or made, (x) as of the date
hereof would not reasonably be likely to result in Losses in excess of $250,000
individually or $500,000 in the aggregate, or (y) between the date hereof and
the Closing Date would not, individually or in the aggregate, reasonably be
likely to have a Company Material Adverse Effect, and that would not impair,
prohibit or prevent the consummation of the transactions contemplated hereby, no
consent, order, approval or authorization of, or declaration, notice,
registration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality (each a "Governmental Entity" ),
individual, corporation, partnership, trust or unincorporated organization
(together with Governmental Entities, each a "Person") is required by or with
respect to the Company in connection with the execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby.
3.4 SEC Reports and Financial Statements of the Company. The Company and
its Subsidiaries have filed with the SEC, and have made available to Parent true
and complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by the Company and its Subsidiaries since January
1, 1993 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or the Securities Act of 1933, as amended (the "Securities Act") (as such
documents have been amended since the time of their filing, collectively, the
"Company SEC Documents"). The Company has heretofore provided to Parent true
and complete copies of the interim financial statements for the eight (8) months
ending August 28, 1998 (the "Management Accounts"). Except as disclosed in the
Disclosure Memorandum with specific reference to this Section, the Company SEC
Documents, including without limitation any financial statements and schedules
included therein, at the time filed or, if subsequently amended, as so amended,
(i) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. Except as disclosed
in the Disclosure Memorandum with specific reference to this Section, the
audited consolidated financial statements and unaudited interim consolidated
financial statements (including, in each case, the notes, if any, thereto) of
the Company included in the Company SEC Documents comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of the unaudited
statements, to customary year-end audit adjustments) the consolidated financial
position of the Company and its consolidated Subsidiaries as at the respective
dates thereof and the consolidated results of their operations and cash flows
for the respective periods then ended. Except as set forth in the Disclosure
Memorandum with specific reference to this Section, the Management Accounts are
the only Management Accounts of the Company prepared by the Company with respect
to the periods covered thereby and have been prepared in the ordinary course of
business from the books and records of the Company and its Subsidiaries in
accordance with GAAP, consistently applied and maintained throughout the period
indicated. Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, each Subsidiary of the Company is treated as a
consolidated subsidiary of the Company in the financial statements of the
Company for all relevant periods covered thereby.
3.5 Absence of Undisclosed Liabilities. Except as and to the extent set
forth in the Company's Annual Report on Form 10-K for the year ended December
31, 1997, or as disclosed in the Form 10-Q for the quarterly period ended July
3, 1998, or as disclosed in the Disclosure Memorandum with specific reference to
this Section, as of July 3, 1998, neither the Company nor its Subsidiaries had
any liabilities or obligations of any nature, whether or not accrued, contingent
or otherwise, that would be required by GAAP to be reflected on the consolidated
balance sheet of the Company and its consolidated subsidiaries (including the
notes thereto) as of such date. Since July 3, 1998, neither the Company nor any
of its Subsidiaries have incurred any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, not in the ordinary course of
business or which, individually or in the aggregate, would be reasonably likely
to result in a Company Material Adverse Effect.
3.6 Inventory. Except as disclosed in the Disclosure Memorandum with
specific reference to this Section, the inventories of the Company disclosed in
the Company SEC Documents as of July 3, 1998 and in any subsequently filed
Company SEC Documents are stated consistently with the audited consolidated
financial statements of the Company and its consolidated subsidiaries, such
presentation appropriately reflects current Company practice which is supported
historically by cost reductions received from vendors and is appropriate based
upon the relationship with the Company's vendors, and due provision was made to
provide for all slow-moving, obsolete, or unusable inventories to their
estimated useful or scrap values and such inventory reserves are adequate to
provide for such slow-moving, obsolete or unusable inventory and inventory
shrinkage. Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, since July 3, 1998, due provision was made on the
books of the Company and its Subsidiaries in the ordinary course of business
consistent with past Company practices to provide for all slow-moving, obsolete,
or unusable inventories to their estimated useful or scrap values and such
inventory reserves are adequate to provide for such slow-moving, obsolete or
unusable inventory and inventory shrinkage. Except as set forth in the
Disclosure Memorandum with specific reference to this Section, to the extent
that any items of inventory intended to be sold to the military are, in order to
meet military or similar specifications, required to be accompanied by (or the
seller thereof is required to maintain) traceability, testing or other
documentation, all such documentation has been so maintained and is in the
possession of the Company or its Subsidiaries at one of their respective
offices.
3.7 Accounts Receivable. The accounts receivable disclosed in the Company
SEC Documents as of July 3, 1998, and, with respect to accounts receivable
created since such date, disclosed in any subsequently filed Company SEC
Documents, or as accrued on the books of the Company in the ordinary course of
business consistent with past practices in accordance with GAAP since the last
filed Company SEC Documents, represent and will represent bona fide claims
against debtors for sales and other charges, are not subject to discount except
for normal cash and immaterial trade discounts, and the amount carried for
doubtful accounts and allowances disclosed in each of such Company SEC Documents
or accrued on such books is sufficient to provide for any losses which may be
sustained on realization of the receivables.
3.8 Title to Property.
(a) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, the Company and its Subsidiaries have good and valid
title to all of their respective properties, assets and other rights that do
not constitute real property, free and clear of all Encumbrances, except for
such Encumbrances securing indebtedness that is not, in the aggregate, greater
than $250,000. Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, the Company and its Subsidiaries own, have leasehold
interests in or contractual rights to use, all of the assets, tangible and
intangible, used by, or necessary for the conduct of the business of, the
Company and its Subsidiaries taken as a whole.
(b) The machinery, tools, equipment and other tangible physical assets
of the Company and its Subsidiaries (other than items of inventory) are in good
working order, except for normal wear and tear, and are in an operating
condition sufficient to conduct the business of the Company and its Subsidiaries
taken as a whole as now being conducted.
(c) Neither the Company nor any of its Subsidiaries owns any real
estate. The Disclosure Memorandum sets forth with specific reference to this
Section each and every parcel of real property or interest in real estate, held
under a lease or used by, or necessary for the conduct of the business of, the
Company and its Subsidiaries taken as a whole (the "Real Property").
(d) Except as disclosed in the Disclosure Memorandum with specific
reference to Section 3.8(d), the Company or a Subsidiary:
(i) is in peaceful and undisturbed possession of the Real Property under
each lease under which it is a tenant, and there are no material defaults by it
as tenant thereunder; and
(ii) has good and valid rights of ingress and egress to and from all the
Real Property from and to the public street systems for all usual street, road
and utility purposes.
(e) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, all of the buildings, structures, improvements and
fixtures used by or useful in the business of the Company, owned or leased by
the Company, are in a good state of repair, maintenance and operating condition
and, except as so disclosed and, except for normal wear and tear, there are no
defects with respect thereto which would materially impair the day-to-day use of
any such buildings, structures, improvements or fixtures or which would subject
the Company to material liability under applicable law.
3.9 Intellectual Property. Except as disclosed in the Disclosure Memorandum
with specific reference to this Section, to the Company's knowledge the Company
or a Subsidiary owns or has valid rights to use all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, copyrights,
service marks, trade secrets, applications for trademarks and for service marks,
know-how and other proprietary rights and information used or held for use in
connection with the business of the Company and its Subsidiaries taken as a
whole as currently conducted or as contemplated to be conducted and to the
Company's knowledge there is no assertion or claim challenging the validity of
any of the foregoing which, individually or in the aggregate, would be
reasonably likely to have a Company Material Adverse Effect. Except as
disclosed in the Disclosure Memorandum with specific reference to this Section,
to the Company's knowledge, the conduct of the business of the Company and its
Subsidiaries as currently conducted does not conflict in any way with any
patent, patent right, license, trademark, trademark right, trade name, trade
name right, service mark or copyright of any third party that, individually or
in the aggregate, would be reasonably likely to result in a Company Material
Adverse Effect. Except as disclosed in the Disclosure Memorandum with specific
reference to this Section and to the Company's knowledge, there are no
infringements of any proprietary rights owned by the Company or a Subsidiary
which, individually or in the aggregate, would be reasonably likely to have a
Company Material Adverse Effect.
3.10 Tax Matters. Except as set forth in the Disclosure Memorandum with
specific reference to this Section or as would not be reasonably likely to have
a Company Material Adverse Effect:
(a) The Company (or any predecessor) and any consolidated, combined,
unitary, affiliated or aggregate group for Tax purposes of which the Company (or
any predecessor) is or has been a member (a "Consolidated Group") has timely
filed all Tax Returns required to be filed by it, has paid all Taxes shown to be
due on any Tax Return and has provided adequate reserves in its financial
statements for any Taxes that are due and have not been paid, whether or not
shown as being due on any Tax Returns. All Taxes owed by any of the Company and
its Subsidiaries (whether or not shown on any Tax Return) have been paid or
accrued. None of the Company and its Subsidiaries currently is the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where any of the Company and its
Subsidiaries does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no security interests on any of the assets of
any of the Company and its Subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Tax. Except as disclosed to Parent in
the event of changes in circumstances between the date hereof and the Closing
Date which have occurred in the ordinary course of business and, individually or
in the aggregate, would not be reasonably likely to result in a Company Material
Adverse Effect (i) no material claim for unpaid Taxes that are due and payable
has become a lien against the property of the Company or is being asserted
against the Company, (ii) no audit of any Tax Return of the Company is being
conducted by a Tax authority, and (iii) no extension of the statute of
limitations on the assessment of any Taxes has been granted by the Company and
is currently in effect. As used herein, "Taxes" shall mean all taxes of any
kind, including, without limitation, those on or measured by or referred to as
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar
fees, similar assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any governmental authority, domestic or foreign. As used herein, "Tax Return"
shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
(b) To the Company's knowledge, each of the Company and its
Subsidiaries has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(c) There is no dispute or claim concerning any Taxes of any of the
Company and its Subsidiaries either (i) claimed or raised by any authority in
writing or (ii) as to which any of the Company directors and officers (and
employees responsible for Tax matters) of the Company and its Subsidiaries has
knowledge based upon personal contact with any agent of the taxing authority.
The Disclosure Memorandum with specific reference to this Section lists, or
other information provided to Parent within twenty (20) days after the date
hereof will list, all federal, state, local, and foreign income Tax Returns
filed with respect to any of the Company and its Subsidiaries for taxable
periods ended on or after December 31, 1990, indicates, or will indicate, those
Tax Returns that have been audited, and indicates, or will indicate, those Tax
Returns that currently are the subject of audit. The Company has made available
to Parent complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by any of
the Company and its Subsidiaries since January 1, 1991.
(d) None of the Company and its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(e) None of the Company and its Subsidiaries has filed a consent under
Section 341(f) of the Internal Revenue Code of 1986, as amended ("Code")
concerning collapsible corporations. None of the Company and its Subsidiaries
has made any payments, is obligated to make any payments, or is a party to any
agreement that by reason of the transactions contemplated hereby obligate it to
make any payments that will not be deductible under Code 280G. None of the
Company and its Subsidiaries has been a United States real property holding
corporation within the meaning of Code 897(c)(2) during the applicable period
specified in Code 897(c)(1)(A)(ii). Each of the Company and its Subsidiaries
has disclosed on its federal income tax returns all positions taken therein that
could give rise to a substantial under statement of federal income tax within
the meaning of Code 6662. None of the Company and its Subsidiaries is a party
to any Tax allocation or sharing agreement. None of the Company and its
Subsidiaries (i) has been a member of an Affiliated Group (as defined in Code
1504) filing a consolidated federal income Tax Return (other than a group the
common parent of which was the Company) or (ii) has any Losses for the Taxes of
any Person (other than any of the Company and its Subsidiaries) under Treasury
Regulation 1.1502-6 (or any similar provision of state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
(f) The information with respect to the Company and each of its
Subsidiaries that has been, or prior to Closing will be, provided to Parent
setting forth (i) the tax basis for the United States and Canadian income tax
purposes of the Company or any Subsidiary in its assets; (ii) the basis of the
stockholder(s) of the Subsidiary in its stock; (iii) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company or
Subsidiary; and (iv) the amount of any deferred gain or loss allocable to the
Company or any Subsidiary arising out of any intercompany transaction is
materially correct.
(g) The unpaid Taxes of the Company and its Subsidiaries (i) did not,
as of July 3, 1998, exceed the reserve for Taxes (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth in the July 3, 1998 balance sheet (rather than in any notes
thereto) and (ii) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company and its Subsidiaries in filing their Tax Returns.
3.11 Employee Matters. (a) With respect to each Benefit Plan, the Company
has made available to Parent a true and correct copy of (i) the most recent
annual report (Form 5500 and Schedules thereto) filed with the Internal Revenue
Service, (ii) such Benefit Plan, (iii) each trust agreement and group annuity
contract, if any, relating to such Benefit Plan and any predecessor plans
referred to therein, service provider agreements, insurance contracts, and
agreements with investment managers, including all amendments thereto (iv)
current summary plan descriptions of each Benefit Plan subject to ERISA and any
similar descriptions of all other Benefit Plans, (v) the most recent
determination of the IRS with respect to the qualified status of each Benefit
Plan that is intended to qualify under Section 401(a) of the Code (a "Qualified
Plan"), and (vi) the most recent accountings with respect to any Benefit Plan
funded through a trust.
(b) Neither the Company nor any of its Subsidiaries maintains or is
obligated to provide benefits under any life, medical or health plan which
provides benefits to retirees or other terminated employees other than benefit
continuation rights under the Consolidated Omnibus Budget Reconciliation of
1985, as amended ("COBRA").
(c) Neither the Company, its Subsidiaries nor any ERISA Affiliate has
at any time contributed to any "multiemployer plan", as that term is defined in
Section 4001 of ERISA.
(d) Neither the Company nor any of its Subsidiaries or any ERISA
Affiliate or any predecessor thereof maintains, has maintained at any time
during the five-year period preceding the date of this Agreement, or is
obligated to provide benefits under any pension plan subject to Part 3 of Title
I of ERISA, Section 412 of the Code, or Title IV of ERISA.
(e) No rights have been granted to any person under the Company Stock
Appreciation Rights Plan.
(f) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, each Benefit Plan covers only employees and directors
who are employed by, or a director of, the Company or a Subsidiary (or former
employees, directors or beneficiaries with respect to service with the Company
or a Subsidiary), so that the transactions contemplated by this Agreement will
require no spin-off of assets and liabilities or other division or transfer of
rights with respect to any such plan.
(g) Each of the Benefit Plans is, and its administration is and has
been since inception, in all material respects in compliance with, and neither
the Company nor any Subsidiary has received any claim or notice that any such
Benefit Plan is not in compliance with, all applicable laws, regulations,
orders, and prohibited transactions exemptions, including the requirements of
ERISA, the Code, the Age Discrimination in Employment Act, the Equal Pay Act and
Title VII of the Civil Rights Act of 1964. Each Qualified Plan is qualified
under Section 401(a) of the Code, and, if applicable, complies with the
requirements of Section 401(k) of the Code. Each Benefit Plan which is intended
to provide for the deferral of income, the reduction of salary or other
compensation or to afford other tax benefits complies with the requirements of
the applicable provisions of the Code or other laws required in order to provide
such tax benefits.
(h) No event has occurred, and, to the knowledge of the Company, there
exists no condition or set of circumstances in connection with any Benefit Plan,
under which the Company or any Subsidiary, directly or indirectly (through any
indemnification agreement or otherwise), could reasonably be expected to be
subject to any risk of material liability under Section 409 of ERISA, Section
502(l) of ERISA, Title IV of ERISA or Section 4975 of the Code.
(i) No employer securities, employer real property or other employer
property is included in the assets of any Benefit Plan.
(j) With respect to the Benefit Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of the Company, there
exists no condition or set of circumstances, other than as disclosed in the
Disclosure Memorandum with specific reference to this Section, in connection
with which the Company or any of its Subsidiaries could be subject to any
liability that, (i) as of the date hereof is reasonably likely to result in
Losses in excess of $250,000 individually or $750,000 in the aggregate, or (ii)
between the date hereof and the Closing Date would, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect
(except liability for benefits claims and funding obligations payable in the
ordinary course), under ERISA, the Code or any other applicable law. Neither
the Company nor any of its Subsidiaries has scheduled or agreed upon future
increases of benefit levels (or creations of new benefits) with respect to any
Benefit Plan, and no such increases or creation of benefits have been proposed,
made the subject of representations to employees or requested or demanded by
employees under circumstances which make it reasonable to expect that such
increases will be granted.
(k) Except as set forth in the Disclosure Memorandum with specific
reference to this Section, with respect to the Benefit Plans, individually and
in the aggregate, there are no funded benefit obligations for which
contributions have not been made or properly accrued in accordance with GAAP and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with GAAP, on the
consolidated financial statements of the Company and its consolidated
subsidiaries, which obligations, (i) as of the date hereof could result in
Losses in excess of $250,000 individually or $750,000 in the aggregate, or (ii)
between the date hereof and the Closing Date would, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect.
(l) Except as set forth in the Disclosure Memorandum with specific
reference to this Section, and except as described in Sections 5.15 hereof,
neither the Company nor any Subsidiary is a party to any oral or written
(i) consulting agreement not terminable on 60 days or less notice, (ii)
agreement with any director, executive officer or key employee of the
Company or any Subsidiary the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving the
Company of the nature contemplated by this Agreement, or agreement with respect
to any executive officer of the Company or any Subsidiary providing any term of
employment or compensation guarantee extending for a period longer than one
year, or (iii) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(m) The following terms shall be defined as follows: "Benefit Plan"
means any of the following established by the Company or any of its
Subsidiaries, or any ERISA Affiliate of any of the foregoing, existing at the
Closing Date or prior thereto, to which the Company or any of its Subsidiaries
contributes or has contributed, or under which any employee, former employee or
director of the Company or any Subsidiary or any beneficiary thereof is covered,
is eligible for coverage or has benefit rights: any employment, bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock ownership,
stock appreciation rights, stock purchase, stock option, phantom stock,
retirement, vacation, severance, layoff, change of control, disability, sick
leave, death benefit, hospitalization, day or dependent care, cafeteria, worker
compensation or other employee-related insurance or other plan, arrangement or
understanding, whether or not legally binding, whether written or oral,
including, but not limited to any "employee benefit plan" within the meaning of
Section 3(3) of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means any person who is in the same controlled
group of corporations or who is under common control with the Company or, before
the Closing, the Company or any of its Subsidiaries within the meaning of
Section 414 of the Code.
3.12 Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement with any labor union, confederation
or association and there are no discussions, negotiations, demands or proposals
that are pending or have been conducted or made with or by any labor union,
confederation or association. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement or in the Disclosure Memorandum with
specific reference to this Section, there are no material controversies pending
or, to the knowledge of the Company, threatened between the Company or any of
its Subsidiaries and any representatives of its employees and, to the knowledge
of the Company, there are no material organizational efforts presently being
made involving Subsidiaries. Since January 1, 1991, there has been no work
stoppage, strike or other concerted action by employees of the Company or any of
its Subsidiaries. During that period, the Company and its Subsidiaries have
complied in all material respects with all applicable laws relating to the
employment of labor, including, without limitation those relating to wages,
hours and collective bargaining. Except as set forth in the Disclosure
Memorandum with specific reference to this Section, there is no present or
former employee, manager or director of the Company or any of its Subsidiaries
who has made any claim since January 1, 1998 against the Company or any of its
Subsidiaries (whether under law, any employment agreement or otherwise) on
account of or for: (i) overtime pay, other than overtime pay for the current
payroll period; (ii) wages or salaries, other than wages or salaries for the
current payroll period; (iii) vacations, sick leave, time off or pay in lieu of
vacation, sick leave or time off, other than vacation, sick leave or time off
(or pay in lieu thereof) earned in the twelve-month period immediately preceding
the date of this Agreement; or (iv) termination of employment, and to the
Company's knowledge, there is no basis for any such claim.
3.13 No Material Change. Except as set forth in the Disclosure Memorandum
with specific reference to this Section, since July 3, 1998, there have been no
events, changes or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect.
3.14 Absence of Change or Event. Except as contemplated by this Agreement
or as disclosed in the Disclosure Memorandum with specific reference to this
Section, since July 3, 1998, the Company and its Subsidiaries have conducted
their respective businesses only in the ordinary course and consistent with
prior practice and have not:
(a) amended or proposed to amend their respective certificates or
articles of incorporation or bylaws (or other comparable corporate charter
documents);
(b) incurred any obligation or liability, absolute, accrued, contingent
or otherwise, whether due or to become due, except liabilities or obligations
incurred in the ordinary course of business and consistent with prior practice;
(c) mortgaged, pledged or subjected to lien, restriction or any other
Encumbrance any of their respective properties, businesses or assets, tangible
or intangible, of the Company or its Subsidiaries, except for liens arising in
the ordinary course of business and consistent with prior practice to secure
debt incurred for the purpose of financing all or part of the purchase price or
the cost of construction or improvement of the equipment or other property
subject to such liens, provided that (i) the principal amount of any debt
secured by such lien does not exceed 100% of such purchase price or cost, (ii)
such lien does not extend to or cover any other property other than such item of
property and any improvements on such item and (iii) the incurrence of such debt
was in the ordinary course of business and consistent with prior practice;
(d) except in the ordinary course of business and consistent with prior
practice, sold, transferred, leased or loaned to others or otherwise disposed of
any of their respective assets (or committed to do any of the foregoing),
including the payment of any loans owed to any affiliate, except for inventory
sold to customers or returned to vendors in the ordinary course of business and
consistent with prior practice, or canceled, waived, released or otherwise
compromised any debt or claim, or any right of significant value;
(e) suffered any damage, destruction or loss (whether or not covered by
insurance) which, (i) as of the date hereof, is reasonably likely to result in
Losses in excess of $500,000 in the aggregate, or, (ii) from the date hereof
until the Closing Date, would, individually or in the aggregate, be reasonably
likely to result in a Company Material Adverse Effect;
(f) made or committed to make any capital expenditures or capital
additions or betterments in excess of $1,000,000 in the aggregate;
(g) encountered any labor union organizing activity, had any actual or
threatened employee strikes, or any work stoppages, slow-downs or lock-outs
related to any labor union organizing activity or any actual or threatened
employee strikes;
(h) instituted any litigation, action or proceeding before any court,
governmental body or arbitration tribunal relating to it or its property, except
for litigation, actions or proceedings instituted in the ordinary course of
business and consistent with prior practice;
(i) split, combined or reclassified any of their respective capital
stock, or declared or paid any dividend or made any other payment or
distribution in respect of their respective capital stock, or directly or
indirectly redeemed, purchased or otherwise acquired any of their respective
capital stock;
(j) acquired, or agreed to acquire, by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquired, or agreed to acquire, any assets which are material,
individually or in the aggregate, to the Company and its Subsidiaries taken as a
whole, except for purchases of inventory in the ordinary course of business and
consistent with prior practice;
(k) increased, or agreed or promised to increase, the compensation of
any officer, employee or agent of the Company or any Subsidiary, directly or
indirectly, including by means of any bonus, pension plan, profit sharing,
deferred compensation, savings, insurance, retirement, or any other employee
benefit plan, except in the ordinary course of business and consistent with
prior practice;
(l) except in the ordinary course of business and consistent with prior
practice, increased promotional or advertising expenditures or otherwise changed
their respective policies or practices with respect thereto;
(m) except to the extent required by applicable law, permitted any
material change in (A) any pricing, marketing, purchasing, investment,
accounting, financial reporting, inventory, credit, allowance or tax practice or
policy or (B) any method of calculating any bad debt contingency or other
reserve for accounting, financial reporting or tax purposes;
(n) made or changed any material election concerning Taxes or Tax
Returns, changed an annual accounting period or adopted or changed any
accounting method;
(o) except in the ordinary course of business and consistent with prior
practice, filed any amended Tax Return or extended the applicable statute of
limitations for any taxable period, entered into any closing agreement with
respect to Taxes, settled or compromised any material Tax claim or assessment or
surrendered any right to claim a refund of Taxes or obtained or entered into any
Tax ruling, agreement, or contract, or, except to the extent promptly disclosed
to Parent upon the receipt thereof, received notification of an examination,
audit or pending assessment with respect to Taxes; or
(p) entered into a contract to do or engage in any of the foregoing
after the date hereof.
3.15 Litigation. Except as disclosed in the Disclosure Memorandum with
specific reference to this Section or in the Company SEC Documents filed prior
to the date hereof, there is no (i) outstanding consent, order, judgment, writ,
injunction, award or decree of any Governmental Entity or arbitration tribunal
against or involving the Company or any of its Subsidiaries or any of their
respective properties or assets, (ii) action, suit, claim, counterclaim,
litigation, arbitration, dispute or proceeding pending or, to the Company's
knowledge, threatened against or involving the Company or any of its
Subsidiaries or any of their respective properties or assets or (iii) to the
Company's knowledge, investigation or audit pending or threatened against or
relating to the Company or any of its Subsidiaries or any of their respective
properties or assets or any of its officers or directors (in their capacities as
such) (collectively, "Proceedings") which, (x) as of the date hereof is
reasonably likely to result in Losses in excess of $500,000 in the aggregate, or
(y) between the date hereof and the Closing Date would, individually or in the
aggregate, reasonably be likely to have a Company Material Adverse Effect, or
would impair, prohibit or prevent the consummation of the transactions
contemplated hereby. To the Company's knowledge, there are no existing facts or
circumstances which could form a basis for any Proceeding which, if commenced,
would be reasonably likely to result in a Company Material Adverse Effect, or
would impair, prohibit or prevent the consummation of the transactions
contemplated hereby.
3.16 Compliance With Law and Other Instruments. (a) Except as disclosed in
the Disclosure Memorandum with specific reference to this Section, the Company
and its Subsidiaries and their respective properties, assets, operations and
activities, have complied and are in compliance in all respects with all
applicable federal, state and local laws, rules, regulations, ordinances,
orders, judgments and decrees including, without limitation, health and safety
statutes and regulations and all Environmental Laws (as defined herein),
including, without limitation, all restrictions, conditions, standards,
limitations, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws or contained in any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except, with respect to laws, rules,
regulations, ordinances, orders, judgments and decrees other than those relating
to Environmental Laws, the Foreign Corrupt Practices Act and applicable criminal
statutes, where the failure to have complied or be in compliance is not,
individually or in the aggregate, reasonably likely to result in a Company
Material Adverse Effect, or that would impair, prohibit or prevent the
consummation of the transactions contemplated hereby. Neither the Company nor
any Subsidiary is in violation of or in default under any terms or provisions of
(i) their respective articles or certificates of incorporation, bylaws or
similar organizational documents, (ii) any credit or loan agreement, mortgage or
security agreement, deed of trust, note, bond or indenture, or (iii) any other
instrument, obligation, contract or agreement to which it is subject or by which
it is bound, except, in the case of clauses (ii) and (iii), for violations or
defaults which are not, individually or in the aggregate, reasonably likely to
result in a Company Material Adverse Effect.
(b) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, (i) the Company and its Subsidiaries have obtained
all Permits that are (A) required under all federal, state and local laws,
rules, regulations, ordinances, orders, judgments and decrees, including,
without limitation, the Environmental Laws, for the ownership, construction, use
and operation of each property, facility or location owned, operated or leased
by the Company or any Subsidiary (the "Property") or (B) otherwise necessary in
the conduct of the business of the Company, except for failures to obtain
Permits (other than those that would result in the imposition of criminal
sanctions) which are not, individually or in the aggregate, reasonably likely to
result in a Company Material Adverse Effect and (ii) all such Permits are in
effect, no appeal nor any other action is pending to revoke any such Permit, and
the Company and its Subsidiaries are in full compliance with all terms and
conditions of all such Permits, except for failures to be in compliance which
are not, individually or in the aggregate, reasonably likely to result in a
Company Material Adverse Effect.
(c) The Company has heretofore delivered to Parent true and complete
copies of all environmental studies in the Company's possession relating to the
Property or any other property or facility previously owned, operated or leased
by the Company or any Subsidiary.
(d) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter pending relating to the Company, any Subsidiary or the
Property (or any other property or facility formerly owned, operated or leased
by the Company or any Subsidiary) or, to the Company's knowledge, threatened
relating to the Company, any Subsidiary or the Property (or any other such
property of facility) and relating in any way to the Environmental Laws or any
regulation, code, plan, Permits, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except for
such actions, suits, demands, claims, hearings, notices of violation,
proceedings, notices or demand letters which are not, individually or in the
aggregate, reasonably likely to result in a Company Material Adverse Effect.
(e) Neither the Company nor any Subsidiary or any other Person has,
Released (as defined herein), placed, stored, buried or dumped any Hazardous
Substances, Oils, Pollutants or Contaminants or any other wastes produced by, or
resulting from, any business, commercial, or industrial activities, operations,
or processes, on, beneath, or adjacent to the Property (or any other property or
facility formerly owned, operated or leased by the Company or any Subsidiary)
except for inventories of such substances to be used, and wastes generated
therefrom, in the ordinary course of business of the Company and its
Subsidiaries (which inventories and wastes, if any, were and are stored or
disposed of in accordance with applicable laws and regulations and in a manner
such that there has been no Release of any such substances into the
environment), except where such Releases, placement, storage, burial or dumping
of Hazardous Substances, Oils, Pollutants or Contaminants are not, individually
or in the aggregate, reasonably likely to result in a Company Material Adverse
Effect.
(f) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, no Release or Cleanup occurred at the Property (or
any other property or facility formerly owned, operated or leased by the Company
or any Subsidiary) which could result in the assertion or creation of a lien on
the Property by any Governmental Entity with respect thereto, nor has any such
assertion of a lien been made by any Governmental Entity with respect thereto,
except for such Releases, Cleanups or assertions of liens which are not,
individually or in the aggregate, reasonably likely to result in a Company
Material Adverse Effect.
(g) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, no employee of the Company or any Subsidiary in the
course of his or her employment with the Company or any Subsidiary has been
exposed to any Hazardous Substances, Oils, Pollutants or Contaminants or any
other substance, generated, produced or used by the Company or any Subsidiary
which could give rise to any claim against the Company or any Subsidiary, except
for such claims which are not, individually or in the aggregate, reasonably
likely to result in a Company Material Adverse Effect.
(h) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, neither the Company nor any Subsidiary has received
any notice or order from any Governmental Entity or private or public entity
advising it that the Company or any Subsidiary is responsible for or potentially
responsible for Cleanup or paying for the cost of Cleanup of any Hazardous
Substances, Oils, Pollutants or Contaminants or any other waste or substance,
and neither the Company nor any Subsidiary has entered into any agreements
concerning such Cleanup, nor is the Company or any Subsidiary aware of any facts
which might reasonably give rise to such notice, order or agreement, except for
such notices, orders or agreements which are not, individually or in the
aggregate, reasonably likely to result in a Company Material Adverse Effect.
(i) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, and except for such items which are not reasonably
likely to result in a Company Material Adverse Effect, the Property does not
contain any: (i) underground storage tanks; (ii) asbestos; (iii) equipment using
PCBs; (iv) underground injection wells; or (v) septic tanks in which process
wastewater or any Hazardous Substances, Oils, Pollutants or Contaminants have
been disposed.
(j) Except as disclosed in the Disclosure Memorandum with specific
reference to this Section, with regard to the Company, its Subsidiaries and the
Property (or any other property or facility formerly owned, operated or leased
by the Company or any Subsidiary), and except where the following are not
reasonably likely to result in a Company Material Adverse Effect, there are no
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or prevent
compliance or continued compliance with the Environmental Laws as in effect on
the date hereof or with any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, or which may give rise to any common law or legal liability under
the Environmental Laws, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, notice of violation, study or investigation,
based on or related to the manufacture, generation, processing, distribution,
use, treatment, storage, place of disposal, transport or handling, or the
Release or threatened Release into the indoor or outdoor environment by the
Company, any Subsidiary or a present or former facility of the Company or any
Subsidiary taken as a whole, of any Hazardous Substances, Oils, Pollutants or
Contaminants.
(k) Except as disclosed in the Disclosure Memorandum with specific
reference to this section, neither the Company nor any Subsidiary has entered
into any agreement that may require it to pay to, reimburse, guaranty, pledge,
defend, indemnify or hold harmless any person for or against Environmental
Liabilities and Costs.
(l) The following terms shall be defined as follows:
"Cleanup" means all actions required to: (1) cleanup, remove, treat or
remediate Hazardous Substances, Oils, Pollutants or Contaminants in the indoor
or outdoor environment; (2) prevent the Release of Hazardous Substances, Oils,
Pollutants or Contaminants so that they do not migrate, endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; (3)
perform pre-remedial studies and investigations and post-remedial monitoring and
care; or (4) respond to any government requests for information or documents in
any way relating to cleanup, removal, treatment or remediation or potential
cleanup, removal, treatment or remediation of Hazardous Substances, Oils,
Pollutants or Contaminants in the indoor or outdoor environment.
"Environmental Laws" means all foreign, federal, state and local laws,
regulations, rules and ordinances relating to pollution or protection of the
environment, including, without limitation, laws relating to Releases or
threatened Releases of Hazardous Substances, Oils, Pollutants or Contaminants
into the indoor or outdoor environment (including, without limitation, ambient
air, surface water, groundwater, land, surface and subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, Release, transport or handling of Hazardous Substances, Oils,
Pollutants or Contaminants, and all laws and regulations with regard to
recordkeeping, notification, disclosure and reporting requirements respecting
Hazardous Substances, Oils, Pollutants or Contaminants.
"Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, obligations to conduct Cleanup, losses, damages,
deficiencies, punitive damages, consequential damages, treble damages, costs and
expenses (including, without limitation, all fees, disbursements and expenses of
counsel, expert and consulting fees and costs of investigations and feasibility
studies and responding to government requests for information or documents),
fines, penalties, restitution and monetary sanctions, interest, direct or
indirect, known or unknown, absolute or contingent, past, present or future,
resulting from any claim or demand, by any Person, whether based in contract,
tort, implied or express warranty, strict liability, joint and several
liability, criminal or civil statute, including any Environmental Law, or
arising from environmental, health or safety conditions, involving the Release
or threatened Release of Hazardous Substances, Oils, Pollutants or Contaminants
into the environment, as a result of past or present ownership, leasing or
operation of any properties, owned, leased or operated by the Company or any
Subsidiary, including, without limitation, any of the foregoing incurred in
connection with the conduct of any Cleanup.
"Hazardous Substances, Oils, Pollutants or Contaminants" means all
substances defined as such in the National Oil and Hazardous Substances
Pollution Contingency Plan, 40 C.F.R. sec. 300.5, or defined as such by, or
regulated as such under, any Environmental Law.
"Release" means, when used as a noun, any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater, and surface or subsurface
strata) or into or out of any property, including the movement of Hazardous
Substances, Oils, Pollutants or Contaminants through or in the air, soil,
surface water, groundwater or property, and when used as a verb, the occurrence
of any Release.
3.17 Insurance. Except as disclosed in the Disclosure Memorandum with
specific reference to this Section, the insurance policies in force with respect
to the business and properties of the Company and its Subsidiaries are in full
force and effect, all premiums with respect thereto covering all periods up to
and including the Closing Date have been paid, and no notice of cancellation or
termination has been received with respect to any such policy. Such policies are
sufficient for material compliance with all requirements of law and all
agreements to which the Company or any Subsidiary is a party; are valid,
outstanding and enforceable policies; and provide adequate insurance coverage
for the assets and operations of the Company and its Subsidiaries. Such
insurance policies are placed with financially sound and reputable insurers and,
in light of the respective business, operations and assets and properties of the
Company and its Subsidiaries, are in amounts and have coverages that are
reasonable and customary for persons engaged in such businesses and operations
and having such assets and properties. Neither the Company nor any Subsidiary
or the Person to whom such policy has been issued has received notice that any
insurer under any policy referred to in this Section is denying liability with
respect to a claim thereunder or defending under a reservation of rights clause.
3.18 Affiliate Interests. (a) Except as disclosed by the Company SEC
Documents and except for services provided by the directors and executive
officers of the Company and its Subsidiaries in their capacities as such and the
compensation paid therefor, the Disclosure Memorandum with specific reference to
this Section, sets forth all amounts paid (or deemed for accounting purposes to
have been paid) and services provided by the Company and its Subsidiaries to, or
received by the Company and its Subsidiaries from, any affiliate of the Company
or any Subsidiary since December 31, 1993 and all such amounts currently owed by
the Company or any Subsidiary to, or to the Company or any Subsidiary by, any
affiliate of the Company or any Subsidiary. For purposes of this Agreement, the
term "affiliate" shall have the meaning ascribed thereto in Rule 405 of the
Securities Act.
(b) Each contract, agreement, plan or arrangement between the Company
or any Subsidiary on the one hand, and any affiliate of the Company or any
Subsidiary or affiliate thereof, on the other hand ("Affiliate Arrangements") is
disclosed in the Disclosure Memorandum with specific reference to this Section
or Section 3.18(a). Except as disclosed in the Disclosure Memorandum with
specific reference to this Section or Section 3.18(a), each of the transactions
described in Section 3.18(a) and each of the Affiliate Arrangement was entered
into in the ordinary course of business and on commercially reasonable terms and
conditions.
3.19 Customers and Suppliers. Except as set forth in the Disclosure
Memorandum with specific reference to this Section, as of the date hereof, no
customer which individually accounted for more than 1% of the gross revenues of
the Company and all its Subsidiaries during the 12 month period preceding the
date hereof, and no supplier of the Company and all its Subsidiaries, has
canceled or otherwise terminated, or made any written threat to the Company or
any Subsidiary to cancel or otherwise terminate, its relationship with the
Company or any Subsidiary, or has at any time on or after July 3, 1998 decreased
materially its services or supplies to the Company and all its Subsidiaries in
the case of any such supplier, or its usage of the services or products of the
Company and all its Subsidiaries in the case of any such customer, and to the
knowledge of the Company no such supplier or customer intends to cancel or
otherwise terminate its relationship with the Company or any Subsidiary or to
decrease materially its services or supplies to the Company and all its
Subsidiaries or its usage of the services or products of the Company and all its
Subsidiaries, as the case may be. From and after the date hereof, no customer
which individually accounted for more than 5% of the gross revenues of the
Company and all its Subsidiaries during the 12 month period preceding the
Closing Date, has canceled or otherwise terminated, or made any written threat
to the Company to cancel or otherwise terminate, for any reason, including
without limitation the consummation of the transactions contemplated hereby, its
relationship with the Company and all Subsidiaries, and no such customer intends
to cancel or otherwise terminate its relationship with the Company and all its
Subsidiaries or to decrease materially its usage of the services or products of
the Company and all its Subsidiaries. Neither the Company nor any Subsidiary
has breached, so as to provide a benefit to the Company or any Subsidiary that
was not intended by the parties, any agreement with, or engaged in any
fraudulent conduct with respect to, any customer or supplier of the Company or
any Subsidiary. The Disclosure Memorandum with specific reference to this
Section, sets forth the dates of each audit conducted since January 1, 1995 by
each material supplier of the Company and its Subsidiaries and summaries of the
results of such audits.
3.20 Absence of Questionable Payments. To the Company's knowledge, neither
the Company nor any Subsidiary or any director, officer, agent, employee or
other Person acting on behalf of the Company or any Subsidiary has used, or
authorized the use of, any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating to
political activity to government officials or others or established or
maintained any unlawful or unrecorded funds in violation of Section 30A of the
Exchange Act. To the Company's knowledge, the directors, employees and
independent commission agents of the Company and its Subsidiaries are in
compliance with ethical standards and other trading practices mandated by
applicable laws and contractual arrangements and have not made payments to any
third parties other than in the ordinary course of business pursuant to
contracts.
3.21 Information Supplied. None of the information supplied or to be
supplied by or on behalf of the Company or any Subsidiary for inclusion or
incorporation by reference in (i) the proxy statement in definitive form
relating to the meeting of the Company's stockholders to be held in connection
with the Merger (the "Proxy Statement") will, at the date first mailed to
stockholders, contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of
circumstances under which they are made, not misleading and (ii) the Proxy
Statement or any amendment thereof or supplement thereto will, at the time of
the meeting of the Company's stockholders to be held in connection with the
Merger, contain any untrue statement of a material fact, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for such meetings of stockholders.
The Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
3.22 Opinion of Financial Advisor. The Company has received the opinion of
Jefferies & Company, Inc., dated as of September 29, 1998, to the effect that,
as of such date, from a financial point of view, the Merger Consideration to be
offered to the stockholders of the Company in the Merger is fair to such
stockholders, a copy of which opinion has been delivered to Parent.
3.23 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of the Company Common Stock is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
3.24 Company Not an Interested Shareholder or a 30% Shareholder. As of the
date hereof, neither the Company nor any Subsidiary or any of their respective
affiliates is an "interested shareholder" of Parent as such term is defined in
Section 912 of the New York Business Corporation Law or a "30% Shareholder" of
Parent as such term is defined in Article TENTH of Parents' Restated Certificate
of Incorporation.
3.25 Section 203 of the DGCL Not Applicable. The provisions of Section 203
of the DGCL will not, prior to the termination of this Agreement, apply to this
Agreement, the Merger or the other transactions contemplated hereby.
3.26 Disclosure. No representation or warranty by the Company in this
Agreement, including the Disclosure Memorandum, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in light of the circumstances under which it was made, to make
the statements herein or therein not misleading. There is no fact known to the
Company and its Subsidiaries taken as a whole which could have a material
adverse effect on the financial condition, results of operations, prospects or
business of the Company and its Subsidiaries taken as a whole, which has not
been set forth in the Company SEC Documents or in this Agreement,
including the Disclosure Memorandum.
3.27 The Company's Knowledge. The term "the Company's knowledge" or words
of similar import shall mean the actual knowledge after due inquiry of any of
the Company's directors and officers.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
4.1 Organization and Authority. Each of Parent and Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and, is duly licensed or qualified and in good standing as a foreign
corporation in each jurisdiction in which the nature of the activities conducted
by it or the character of the properties owned, leased or operated by it
requires it to be so licensed or so qualified, except where the failure to be so
licensed or so qualified would not have a material adverse effect on Parent and
its Subsidiaries taken as a whole (a "Parent Material Adverse Effect"). Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated hereby.
(b) Each of Parent and Sub has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Parent and
Sub and the consummation by Parent and Sub of the transactions contemplated
hereby have been duly and validly approved by its Board of Directors and by
Parent in its capacity as the sole stockholder of Sub; and no other corporate
proceedings on the part of the either Parent or Sub or their stockholders are
necessary to authorize the execution, delivery and performance of this Agreement
by Parent and Sub and the consummation by Parent and Sub of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
each of Parent and Sub, and (assuming due execution and delivery by the Company)
this Agreement constitutes a valid and binding obligation of each of Parent and
Sub, enforceable in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought, and except as
indemnification may be limited by public policy.
4.2 No Violation; Consents and Approvals. Neither Parent, Sub nor any of
their respective properties or assets, is subject to or bound by any provision
of:
(a) to Parent's knowledge, any law, statute, rule, regulation,
ordinance or judicial or administrative decision;
(b) any articles or certificate of incorporation or by-laws;
(c) any (i) credit or loan agreement, mortgage, deed of trust, note,
bond, indenture, license, concession, franchise, permit, trust, custodianship,
other restriction, or (ii) instrument, lease, obligation, contract or agreement;
or
(d) any judgment, order, writ, injunction or decree; that would impair,
prohibit or prevent, or would be violated or breached by, or under which there
would be a material default (with or without notice or lapse of time, or both)
as a result of, the execution, delivery and performance by each of Parent and
Sub of this Agreement and the consummation of the transactions contemplated
hereby, except where such event or occurrence is not, individually or in the
aggregate, reasonably likely to have a Parent Material Adverse Effect. Other
than (i) the filing of the Certificate of Merger as provided in Section 1.1,
(ii) the filing with the SEC and Nasdaq of the Proxy Statement, (iii) such
consents, orders, approvals, authorizations, registrations, declarations and
filings as may be required under the Investment Canada Act, the Competition Act
(Canada), applicable state securities laws and the securities laws of any
foreign country, (iv) such filings as may be required under the HSR Act and (v)
such local consents, orders, approvals, authorizations, registrations,
declarations and filings which, if not obtained or made, would not, individually
or in the aggregate, reasonably be likely to have a Parent Material Adverse
Effect on and that would not impair, prohibit or prevent the consummation of the
transactions contemplated hereby, no consent, order, approval or authorization
of, or declaration, notice, registration or filing with, any Person is required
by or with respect to the execution, delivery and performance by Parent and Sub
of this Agreement and the consummation of the transactions contemplated hereby.
4.3 SEC Reports and Financial Statements of Parent. Parent has filed with
the SEC, and has heretofore provided to the Company true and complete copies of,
all forms, reports, schedules, statements and other documents required to be
filed by it since December 31, 1993 under the Exchange Act or the Securities Act
(as such documents have been amended since the time of their filing,
collectively, the "Parent SEC Documents"). The Parent SEC Documents, including
without limitation any financial statements and schedules included therein, at
the time filed or, if subsequently amended, as so amended, (i) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. The financial
statements of Parent included in the Parent SEC Documents comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present (subject, in the case of the unaudited statements, to customary
year-end audit adjustments) the consolidated financial position of the Company
and its consolidated Subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows.
4.4 Information Supplied. None of the information supplied or to be
supplied by or on behalf of Parent or Sub for inclusion or incorporation by
reference from documents filed by Parent or any of its Subsidiaries with the SEC
in (i) the Proxy Statement will, at the date first mailed to stockholders,
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of circumstances under
which they are made, not misleading and (ii) the Proxy Statement or any
amendment thereof or supplement thereto will, at the time of the meeting of the
Company's stockholders to be held in connection with the Merger, contain any
untrue statement of a material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for such meetings of stockholders. All such
documents filed by Parent or Sub with the SEC under the Exchange Act will comply
as to form in all material respect with the requirements of the Exchange Act.
4.5 Litigation. There is no (i) outstanding consent, order, judgment, writ,
injunction, award or decree of any Governmental Entity or arbitration tribunal
against or involving Parent or Sub or any of their respective properties or
assets, (ii) action, suit, claim, counterclaim, litigation, arbitration, dispute
or proceeding pending or, to Parent's knowledge, threatened against or involving
Parent or Sub or any of their respective properties or assets or (iii) to
Parent's knowledge, investigation or audit pending or threatened against or
relating to Parent or Sub or any of their respective properties or assets or any
of their respective officers or directors (in their capacities as such)
(collectively, "Parent Proceedings") which is, individually or in the aggregate,
reasonably likely to impair, prohibit or prevent the consummation of the
transactions contemplated hereby. To Parent's knowledge, there are no existing
facts or circumstances which could form a basis for any Parent Proceeding which,
if commenced, would be reasonably likely to impair, prohibit or prevent the
consummation of the transactions contemplated hereby.
4.6 Parent's Knowledge. The term "Parent's knowledge" or words of similar
import shall mean the actual knowledge after due inquiry of any of Parent's
directors and executive officers.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
OF THE COMPANY AND PARENT
5.1 Conduct of the Company's Business Prior to the Closing Date. The
Company agrees as to itself and its Subsidiaries that, between the date hereof
and the Closing Date:
(a) Except as contemplated by this Agreement, as disclosed in the
Disclosure Memorandum with specific reference to this Section or Section 3.14 or
as permitted by the prior written consent of Parent, the Company and its
Subsidiaries shall operate their respective businesses only in the usual,
regular and ordinary course consistent with prior practice, and the Company and
its Subsidiaries shall not:
(i) take any action of the nature referred to in Section 3.14, except as
expressly permitted therein;
(ii) issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of their respective capital stock (except pursuant to,
and in accordance with the terms of, the options outstanding on the date hereof
created pursuant to the Company Option Plan, the Indenture and the Simmonds
Warrant) or any Voting Debt, or any securities convertible into or exchangeable
for, or any rights, warrants, calls, subscriptions or options to acquire, any
shares of their respective capital stock or any Voting Debt;
(iii) increase, decrease or modify, or authorize or propose the increase,
decrease or modification of, the authorized capital of the Company or the number
of issued and outstanding shares of Company Common Stock except such increases,
decreases or modifications as may occur upon the issuance of capital stock of
the Company pursuant to the exercise of options or warrants, or the conversion
of securities or instruments convertible into the capital stock of the Company,
which options, warrants and convertible securities or instruments are
outstanding as of the date hereof;
(iv) modify or amend, or authorize or propose to modify or amend, the
Company's or any Subsidiary's certificate or articles of incorporation, bylaws
or similar organizational documents;
(v) except as required by law, create or enter into an agreement or benefit
plan which, if existing as of the date hereof would constitute a Benefit Plan,
or modify an existing Benefit Plan;
(vi) maintain or provide, or agree to maintain or provide, benefits under
any life, medical or health plan for retirees or other terminated employees of
the Company other than benefit continuation rights under COBRA;
(vii) take or permit any affiliate thereof to take any action that would or
is reasonably likely to result in any of the Company's representations and
warranties set forth in this Agreement not to be true as of the date made (to
the extent so limited) or in any of the conditions to the Merger set forth in
Article 6 not being satisfied;
(viii) modify, change, increase or decrease the Company's equity interest or
investment in any of the Company's Subsidiaries other than intercompany
transfers in the ordinary course as part of the Company's cash management
arrangements;
(ix) except as required by law, negotiate or enter into any collective
bargaining agreement; or
(x) enter into any agreement or contract with any Affiliate of the Company
or any of its Subsidiaries or modify or amend, or authorize or propose to modify
or amend, any existing agreement or contract with any Affiliate of the Company
of its Subsidiaries.
(b) The Company shall preserve the business organization of the Company
and its Subsidiaries intact and shall use its best efforts to keep available to
Parent the services of the present officers and employees of the Company and its
Subsidiaries and to preserve for Parent the good will of the Company's
suppliers, customers, and others having business relations with the Company;
provided, that the Company shall not be required to incur any additional
expenses with regard to such officers and employees, except for such expenses
that are mutually agreed upon by the parties. Except with the prior written
consent of Parent (not to be unreasonably withheld), the Company shall not
terminate or cause to be terminated any distribution agreement to which it is a
party.
(c) The Company and its Subsidiaries shall maintain in force the
insurance policies referred to in Section 3.17 or insurance policies providing
the same or substantially similar coverage; provided, however, that the Company
will notify Parent prior to the expiration of any of such insurance policies.
(d) The Company shall use its best efforts to pursue its rights with
respect to the matters listed in the Disclosure Memorandum with respect to
Section 3.14(h) and the Proceedings contemplated by Section 3.15.
(e) Except as contemplated by this Agreement or permitted by the prior
written consent of Parent, no plan, fund, or arrangement referred to in Section
3.11, or any option or award agreement thereunder, has been or will be:
(i) terminated by the Company or any Subsidiary;
(ii) amended (except as expressly required by law) in any manner
which would directly or indirectly increase the benefits accrued, or which may
be accrued, by any participant thereunder; or
(iii) amended in any manner which would materially increase the cost
to Parent of maintaining such plan, fund, or arrangement.
5.2 Conduct of Business of Sub. Prior to the Effective Time, except as may
be required by applicable law and subject to the other provisions of this
Agreement, Parent shall cause Sub to (a) perform its obligations under this
Agreement in accordance with its terms, (b) not incur directly or indirectly any
liabilities or obligations other than those incurred in connection with the
Merger, (c) not engage directly or indirectly in any business or activities of
any type or kind and not enter into any agreements or arrangements with any
person, or be subject to or bound by any obligation or undertaking, which
is not contemplated by this Agreement and (d) not create, grant or suffer to
exist any lien upon its properties or assets which would attach to any
properties or assets of the Surviving Corporation after the Effective Time.
5.3 Preparation of the Proxy Statement. The Company shall promptly prepare
and file with the SEC the Proxy Statement and shall use its best efforts to (i)
have the Proxy Statement cleared by the SEC and (ii) cause the Proxy Statement
to be mailed to the stockholders of the Company at the earliest practicable
date. Parent, Sub and the Company shall cooperate with each other in the
preparation of the Proxy Statement, and the Company shall notify Parent of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information, and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC with respect to the Proxy Statement. The Company shall give Parent and its
counsel the opportunity to review the Proxy Statement and all responses to
requests for additional information by and replies to comments of the SEC before
their being filed with, or sent to, the SEC. Each of the Company, Parent and
Sub agrees to use its best efforts, after consultation with the other parties
hereto, to respond promptly to all such comments of and requests by the SEC and
to cause the Proxy Statement to be mailed to the holders of Company Common Stock
entitled to vote at the Company Stockholders' Meeting at the earliest
practicable time.
5.4 Legal Conditions to Merger. Each of the Company, Parent and Sub will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information required
in connection with approvals of or filing with any Governmental Entity) and will
promptly cooperate with each other and furnish information to each other in
connection with any such requirements imposed upon any of them or any of their
Subsidiaries in connection with the Merger. Each of the Company, Parent and Sub
will, and will cause its Subsidiaries to, take all reasonable actions necessary
to (a) obtain (and will cooperate with each other in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity or other public or private third party, required to be obtained or made
by Parent, the Company or any of their respective Subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement and (b) provide such other information and communications to such
Governmental Entities or other public or private third parties as the other
party or such Governmental or Regulatory Authorities or other public or private
third parties may reasonably request in connection therewith. In addition to
and not in limitation of the foregoing, each of the parties will (x) take
promptly all actions necessary to make the filings required of Parent and the
Company or their affiliates under the HSR Act, (y) comply at the earliest
practicable date with any request for additional information received by such
party or its affiliates from the Federal Trade Commission (the "FTC") or the
Antitrust Division of the Department of Justice (the "Antitrust Division")
pursuant to the HSR Act, and (z) cooperate with the other party in connection
with such party's filings under the HSR Act and in connection with resolving any
investigation or other inquiry concerning the Merger or the other matters
contemplated by this Agreement commenced by either the FTC or the Antitrust
Division or state attorneys general.
5.5 Stockholder's Meeting. The Company shall call a meeting of its stockholders
to be held as promptly as practicable for the purpose of voting upon the
adoption of this Agreement. The Company will, through its Board of Directors,
unanimously recommend to its stockholders adoption of this Agreement and will
solicit proxies in favor of the adoption of this Agreement, and shall take all
other action reasonably necessary or advisable to secure the vote or consent of
stockholders required to effect the Merger; provided, however, that the Board of
Directors of the Company shall not be obligated to recommend approval of this
Agreement to its stockholders if such Board of Directors, acting with the advice
of its counsel and financial advisors, determines that such recommendation would
not be consistent with its fiduciary obligations imposed by applicable law. In
the event that the Company Stockholders' Approval is not obtained on the date on
which the Company Stockholders' Meeting is initially convened, the Board of
Directors of the Company agrees to adjourn such Company Stockholders' Meeting at
least twice for the purpose of obtaining the Company Stockholders' Approval and
to use its best efforts during any such adjournments to obtain the Company
Stockholders' Approval.
5.6 Fees and Expenses. (a) Except as set forth in Section 5.6(b), whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense, except that expenses incurred in connection
with printing the Proxy Statement, registration and filing fees incurred in
connection with the Proxy Statement, and fees, costs and expenses associated
with compliance with applicable state securities laws in connection with the
Merger shall be shared equally by Parent and the Company.
(b) In the event that (i) either Parent or the Company shall terminate
this Agreement pursuant to Section 7.1(e), (ii) either Parent or the Company
shall terminate this Agreement pursuant to Section 7.1(f)(ii) and, prior to the
time of the meeting of the Company's stockholders, there shall have been (A) a
Trigger Event with respect to the Company or (B) a Takeover Proposal (as defined
in Section 5.12) with respect to the Company which at the time of the meeting of
the Company's stockholders shall not have been (x) rejected by the Company and
(y) withdrawn by the third party, or (iii) Parent shall terminate this Agreement
pursuant to Section 7.1(c), due in whole or in part to any failure by the
Company to use its best efforts to perform and comply with all agreements and
conditions required by this Agreement to be performed or complied with by the
Company prior to or on the Closing Date or any failure by the Company's
affiliates to take any actions required to be taken hereby, and prior thereto
there shall have been (A) a Trigger Event with respect to the Company or (B) a
Takeover Proposal with respect to the Company which shall not have been (x)
rejected by the Company and (y) withdrawn by the third party, then in each case,
the Company shall reimburse Parent for costs and expenses incurred by Parent in
the amount of $1,500,000, without any requirement that Parent account for actual
costs or expenses, and, in addition, the Company shall promptly pay to Parent
the sum of $5,500,000. In the event that Parent or the Company shall terminate
this Agreement pursuant to Section 7.1(c) or (d), as applicable, due to a
willful breach of this Agreement by the non-terminating party, the non-
terminating party shall reimburse the terminating party for actual expenses
incurred within a reasonable time after presentment by the terminating party to
the non-terminating party of documentary evidence that such expenses were
incurred and paid; provided, however, that notwithstanding such reimbursement,
the terminating party may seek such additional remedies for damages against the
non-terminating party with respect to such willful breach as are available at
law or in equity. As used herein, a "Trigger Event" shall occur if any Person
(A) acquires securities representing 10% or more of the voting power of the
Company (provided that if any Person beneficially owns 10% or more of the voting
power of the Company on the date hereof, a Trigger Event shall occur if such
Person acquires additional securities representing 1% or more of all voting
power of the Company), or (B) commences a tender or exchange offer following the
successful consummation of which the offeror and its affiliates would
beneficially own securities representing 25% or more of the voting power of the
Company; provided, however, that a Trigger Event shall not be deemed to include
the acquisition by any Person of securities representing 10% or more (or 10%
owner acquiring 1% or more) of the Company if such Person has acquired such
securities not with the purpose nor with the effect of changing or influencing
the control of the Company, nor in connection with or as a participant in any
transaction having such purpose or effect, including without limitation not in
connection with such Person (i) making any public announcement with respect to
the voting of such shares at any meeting to consider any merger, consolidation,
sale of substantial assets or other business combination or extraordinary
transaction involving the Company, (ii) making, or in any way participating in,
any "solicitation" of "proxies" (as such terms are defined or used in Regulation
14A under the Exchange Act) to vote any voting securities of the Company
(including, without limitation, any such solicitation subject to Rule 14a-11
under the Exchange Act) or seeking to advise or influence any Person with
respect to the voting of any voting securities of the Company, (iii) forming,
joining or in any way participating in any "group" within the meaning of Section
13(d)(3) of the Exchange Act with respect to any voting securities of the
Company or (iv) otherwise acting, alone or in concert with others, to seek
control of the Company or to seek to control or influence the management or
policies of the Company.
5.7 Broker's and Finder's Fees. Each of Parent, Sub and the Company
represents, as to itself, its Subsidiaries, and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement,
except Jefferies & Co., Inc., whose fees and expenses will be paid by the
Company in accordance with the Company's agreement with such firm (copies of
which have been delivered by the Company to Parent on or prior to the date
of this Agreement).
5.8 Takeover Statutes. If any "fair price", "moratorium", "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and the members
of the Board of Directors of the Company shall grant such approvals and take
such actions as are reasonably necessary so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
hereby and thereby and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated hereby and thereby.
5.9 Access to Information and Confidentiality. The Company agrees that
Parent and Sub may conduct such reasonable investigation with respect to the
business, business prospects, assets, liabilities (contingent or otherwise),
results of operations, employees and financial condition of the Company as will
permit Parent and Sub to evaluate their interest in the transactions
contemplated by this Agreement. Each parties' obligations under that certain
confidentiality agreement, dated as of April 29, 1998 (the "Confidentiality
Agreement"), which are hereby adopted, and incorporated by reference herein,
shall apply to all confidential information furnished to it by the other party
pursuant to this Agreement. No later than the Closing, the Company will cause
all books and records of the Company (including those relating to Taxes) to be
physically located at one of the offices of the Company.
5.10 Indemnification. (a) Each of the Constituent Corporations shall, and
from and after the Effective Time Parent and the Surviving Corporation shall,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of such Constituent Corporation (the "Indemnified Parties")
against (i) all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party of or in connection with any claim, action, suit, proceeding
or investigation based on or arising out of the fact that such person is or was
a director or officer of such Constituent Corporation, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
reasserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities") and (ii) all Indemnified Liabilities based on, or arising out of,
or pertaining to this Agreement or the transactions contemplated hereby, in each
case to the full extent such corporation is permitted under the DGCL or the
Business Corporation Law of the State of New York, its Certificate of
Incorporation or Bylaws, in each case as in effect on the date hereof, to
indemnify its own directors and officers, as the case may be (and each of the
Constituent Corporations, Parent and the Surviving Corporation, as the case may
be, will pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law;
provided that the person to whom expenses are advanced provides any undertaking
required by applicable law to repay such advance if it is ultimately determined
that such person is not entitled to indemnification). Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them and such Constituent Corporation (or them, Parent and the
Surviving Corporation after the Effective Time); (ii) such Constituent
Corporation (or after the Effective Time, Parent and the Surviving Corporation)
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; and (iii) such Constituent
Corporation (or after the Effective Time, Parent and the Surviving Corporation)
will use all reasonable efforts to assist in the vigorous defense of any such
matter, provided that neither such Constituent Corporation nor Parent or the
Surviving Corporation shall be liable for any settlement of any claim effected
without its written consent, which consent, however, shall not be unreasonably
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 5.10, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Constituent Corporation (or after the Effective
Time, Parent or the Surviving Corporation) (but the failure so to notify a party
shall not relieve such party from any liability which it may have under this
Section 5.10 except to the extent such failure prejudices such party). The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each such matter unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties, in which case they may retain such
number of law firms as is necessary to address such conflict.
(b) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (provided that Parent
may substitute therefor policies of substantially the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect to
claims arising from facts or events that occurred before the Effective Time.
(c) The provisions of this Section 5.10 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
5.11 Additional Agreements; Best Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use best
efforts to take, or cause to be taken, all action and, to do or cause to be done
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement, subject to the appropriate vote of the stockholders of the Company
described in Section 5.5, and to satisfy the conditions to Closing set forth in
Article VI including cooperation fully with the other party, including by
provision of information and making all necessary filings in connection with,
among other things, any approvals required from Governmental Entities. In case
at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
5.12 No Solicitation. The Company shall not, and shall not authorize or
permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
to, (a) solicit, initiate or encourage (including by way of furnishing
information), or take any other action to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, any Takeover Proposal (as hereinafter defined), or (b) agree to or endorse
any Takeover Proposal. Notwithstanding the immediately preceding sentence, if
the Company shall not have breached the covenant provided by clause (a) of the
immediately preceding sentence and a Takeover Proposal, or a written expression
of interest that can reasonably be expected to lead to a Takeover Proposal,
shall occur, then, upon the good faith determination of the Board of Directors
of the Company, acting upon the advice of its legal and financial advisors, that
the Takeover Proposal is a better offer than the transactions contemplated by
this Agreement and consistent with the fiduciary obligations under applicable
law of the Company's Board of Directors, the Company and its officers,
directors, employees, investment bankers, financial advisors, attorneys,
accountants and other representatives retained by it may furnish in connection
therewith information (including non-public information, but only pursuant to a
confidentiality agreement in customary form, including customary standstill
provisions) and take such other actions as are consistent with the fiduciary
obligations of the Company's Board of Directors, and such actions shall not be
considered a breach of this Section 5.12 or any other provision of this
Agreement; provided, however, that the Company shall not, and shall not permit
any of its officers, directors, employees or other representatives to, agree to
or endorse any Takeover Proposal unless the Company shall have terminated this
Agreement pursuant to Section 7.1(e) and paid to Parent all amounts payable to
Parent pursuant to Section 5.6(b). The Company shall promptly advise Parent
orally and in writing of any inquiries or Takeover Proposals and keep Parent
informed of the status and material information with respect to such inquiries
or Takeover Proposals. As used in this Agreement, "Takeover Proposal" shall
mean any tender or exchange offer, proposal for a merger, consolidation or other
business combination involving the Company or the Company Common Stock and made
by a Person other than Parent or any proposal or offer to acquire in any manner
a substantial equity interest in, or a substantial portion of the assets of, the
Company other than the transactions contemplated by this Agreement.
5.13 Advice of Changes; Government Filings. The Company shall confer on a
regular and frequent basis with Parent, report on operational matters and
promptly advise Parent of any change or event having, or which, insofar as can
reasonably be foreseen, could result in a Company Material Adverse Effect. Each
party shall promptly provide the other (or its counsel) copies of all filings
made by such party with any state or Federal Governmental Entity in connection
with this Agreement and the transactions contemplated hereby and thereby.
5.14 Press Releases. Prior to the Effective Time, the Company and Parent shall
consult with each other as to the form and substance of any press release or
other public disclosure related to this Agreement or any of the transactions
contemplated hereby; provided, however, that nothing in this Section 5.14 or any
other provision of this Agreement shall be deemed to prohibit any party from
making any disclosure which its legal counsel deems necessary or advisable in
order to satisfy such disclosure obligations under applicable laws or
regulations.
5.15 Company Option Plans. (a) At the Effective Time, each unexpired and
unexercised option to purchase shares of Company Common Stock (each a "Company
Option") under the Company Option Plan shall be deemed to be automatically
converted into an option to purchase the number of shares of Parent Common Stock
(a "Parent Option") equal to the number of shares of Company Common Stock that
could have been purchased under such Company Option multiplied by a fraction,
the numerator of which is $10.50 and the denominator of which is the average of
the closing prices per share on the New York Stock Exchange of Parent Common
Stock for the ten trading days immediately preceding the Closing Date (with the
resulting number of shares rounded down to the nearest whole share) (the "Option
Conversion Ratio"), at a price per share of Parent Common Stock equal to the
exercise price of such Company Option divided by the Option Conversion Ratio and
the result thereof rounded up to the nearest whole cent; provided, however,
that, in case any Company Option intended to qualify as an incentive stock
option under Section 422 of the Code (or a predecessor thereto) is deemed
converted into a Parent Option as provided above, the option price, the number
of shares of Parent common stock that may be purchased pursuant to such Parent
Option and the terms and conditions of such Parent Option shall be determined in
order to comply with Section 424(a) of the Code. Such Parent Option shall
otherwise be subject to the same terms and conditions as the Company Option.
The date of grant of the substituted Parent Option shall be the date on which
the corresponding Company Option was granted. The Board of Directors of the
Company shall take such actions as are necessary or advisable to effect the
transactions contemplated by this Section 5.15.
(b) At the Effective Time, Parent shall (i) assume all of the
Company's obligations with respect to Company Options as contemplated by Section
5.15(a) above, (ii) reserve for issuance the number of shares of Parent Common
Stock that will become subject to Parent Options pursuant to this Section 5.15,
(iii) from and after the Effective Time, upon exercise of the Parent Options in
accordance with the terms thereof, make available for issuance all shares of
Parent Common Stock covered thereby, and (iv) as soon as practicable after the
Effective Time, issue to each holder of an outstanding Company Option a document
evidencing the foregoing assumption by Parent.
(c) The Company Stock Appreciation Rights Plan shall be terminated
effective as of the Effective Time and the Company shall not grant any rights
under said plan prior to its termination.
(d) As promptly as practicable after the Effective Time, Parent shall
file a registration statement covering the shares of Parent Common Stock that
may be issued upon the exercise of Company Options (converted to Parent Options
pursuant to this Section 5.15) and shall use its best efforts to cause the offer
and sale of such shares to be registered under the Securities Act, and to
maintain such registration in effect until the exercise or termination of the
Company Options. Parent shall also use its best efforts to cause such shares of
Parent Common Stock to be authorized for listing on the NYSE and shall make all
necessary blue sky law filings in connection therewith.
5.16 Notice and Cure. Each of Parent and the Company will notify the other
of, and will use all commercially reasonable efforts to cure before the Closing,
any event, transaction or circumstance, as soon as practicable after it becomes
known to such party, that causes or will cause any covenant or agreement of
Parent or the Company under this Agreement to be breached or that renders or
will render untrue any representation or warranty of Parent or the Company
contained in this Agreement. Each of Parent and the Company also will notify
the other in writing of, and will use all commercially reasonable efforts to
cure, before the Closing, any violation or breach, as soon as practicable after
it becomes known to such party, of any representation, warranty, covenant or
agreement made by Parent or the Company. No notice given pursuant to this
Section shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein.
5.17 Canadian Subsidiary. Immediately prior to and conditioned upon the
Closing, the Company shall sell all of the issued and outstanding shares of
Richey Electronics Limited, the Company's Canadian subsidiary, to Parent or a
Subsidiary of Parent designated by Parent for a purchase price of US$730,001.
5.18 Observance of Operations of the Business. From the date hereof until
the Closing Date, Parent may, at its election, without unduly interfering with
the management or operations of the Company, have a reasonable number of
representatives at the facilities of the Company and its Subsidiaries to observe
and consult with representatives of the Company and its Subsidiaries with
respect to the management of the operations of the Company. Notwithstanding
anything in this Agreement to the contrary, all rights of Parent or its
representatives to access to or inspection of such business operations of the
Company or to obtain information with respect to the Company pursuant to
Sections 5.1, 5.9 and 5.18 shall be effected solely through the representatives
of the Company set forth on the Disclosure Memorandum with specific reference to
this Section and shall be subject to the right of a representative of the
Company to accompany Parent or its representative in connection therewith.
5.19 Certain Company Employees. The Company shall provide notice of the
non-renewal of the employment agreements listed on the Disclosure Memorandum
with specific reference to this Section in accordance with the terms of such
agreements, in each case prior to the date after which such agreement will be
extended or renewed in accordance with its terms.
5.20 Company Bank Debt. Parent agrees to cause the repayment at the
Closing of the outstanding indebtedness under the Loan Agreement, dated as of
December 20, 1995 among the Company, the banks named therein and First
Interstate Bank of California, as Agent, as amended.
5.21 Employee Matters. Each employee benefit plan, program, policy or
arrangement provided as of the Closing by Parent to employees of the Company who
are employed by the Surviving Corporation (the "Continuing Employees") shall
give full credit, to the extent credited under a comparable Benefit Plan, for
each Continuing Employee's period of service (as recognized by the Company as of
the Closing) prior to the Closing Date for purposes of determining eligibility
and vesting of benefits (but not for benefit accrual purposes). Each employee
welfare benefit plan provided by Parent to the Continuing Employees from and
after the Closing Date shall (i) give full credit for deductibles and out-of-
pocket expenses under the Benefit Plans with respect to the current plan year
toward any deductibles for the remainder of the plan year during which the
Closing occurs, and (ii) shall waive any pre-existing condition limitation for
any such Continuing Employee to the extent that such limitation would not apply
to such Continuing Employee under the applicable Benefit Plan; provided,
however, that if a Continuing Employee's pre-existing condition is a condition
which is not currently covered under Parent's group health plan, such
exclusion of condition shall not be waived and Parent shall have no obligation
or liability therefor except as required by law.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement shall have been adopted by
the affirmative vote of the holders of a majority of the outstanding shares of
the Company Common Stock entitled to vote on the Merger.
(b) Other Approvals. All authorizations, consents, orders or approvals
of, or declarations or filings with, or expirations or terminations of waiting
periods imposed by, any Governmental Entity the failure to obtain which would
have a material adverse effect on the Surviving Corporation, including, without
limitation, such approvals, waivers and consents as may be required under the
Securities Act and the HSR Act, shall have been filed, occurred or been
obtained.
(c) No Injunctions or Legal Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction"), and no law, statute, rule, regulation, ordinance or judicial or
administrative decision, preventing the consummation of the Merger shall be in
effect.
(d) No Governmental Actions. No investigation by any Governmental
Entity shall have been commenced, and no action, suit or proceeding by any
Governmental Entity shall have been threatened, against Parent, Sub, the Company
or any Subsidiary thereof or any of the principals, officers or directors of any
of them, seeking to restrain, prevent or change the transactions contemplated
hereby or questioning the legality or validity of any such transactions or
seeking damages in connection with any such transactions.
(e) Indenture. The Surviving Corporation and Parent shall have entered
into such supplemental indentures as are required under the Indenture as a
result of the Merger.
6.2 Conditions to Obligations of Parent and Sub. The obligations of Parent
and Sub to effect the Merger are subject to the satisfaction of the following
conditions, unless waived by Parent and Sub:
(a) Representations and Warranties; Performance of Obligations. Except
as otherwise contemplated or permitted by this Agreement, (i) the
representations and warranties of the Company contained in this Agreement or in
any certificate or document delivered to Parent pursuant hereto shall as of the
Closing Date, (x) to the extent qualified by Company Material Adverse Effect, be
true in all respects and (y) to the extent not qualified by Company Material
Adverse Effect, be true in all respects; provided, however, that for purposes of
clause (y) of this paragraph, such representations and warranties, with respect
to the period of time between the date of this Agreement and the Closing Date,
shall be deemed to be true in all respects for such period unless failure or
failures of such representations and warranties to be true in all respects,
either individually or in the aggregate, and without giving effect to any
qualification as to materiality set forth in such representations or warranties,
would have a Company Material Adverse Effect, except for those representations
and warranties contained in (1) Section 3.1(b) and (2) the third sentence of
Section 3.4 up to, but not including, clause (ii) of such sentence, which
representations and warranties shall be true in all respects, and (ii) the
Company shall have performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or complied
with by the Company prior to or on the Closing Date, and Parent shall have been
furnished with a certificate of an appropriate officer of the Company, dated the
Closing Date, certifying to the effect of clauses (i) and (ii) hereof.
(b) No Actions. No action, suit or proceeding before any court or
governmental or regulatory authority shall be pending (other than those referred
to in Section 6.1(d)), against Parent, Sub, the Company, any Subsidiary thereof
or any of the principals, officers or directors of any of them, seeking to
restrain, prevent or change the transactions contemplated hereby or questioning
the legality or validity of any such transactions or seeking damages in
connection with any such transactions.
(c) Consents Under Agreements. The Company shall have obtained the
consent
or approval of each Person (other than the Governmental Entities referred to in
Section 6.1(b) and of the Company's suppliers under franchise agreements) whose
consent or approval shall be required in order to permit the succession by the
Surviving Corporation pursuant to the Merger to any obligation, right or
interest of the Company or the Company's Subsidiary under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or instrument,
except those disclosed in the Disclosure Memorandum with specific reference to
this Section and those for which failure to obtain such consents and approvals
would not, individually or in the aggregate, have a Company Material Adverse
Effect or impair, prohibit or prevent the consummation of the transactions
contemplated hereby.
(d) Lending Moratorium. There shall be no moratorium or other
limitation on commercial bank lending declared by any Federal or New York State
regulatory authority or other circumstances or state of facts constituting a
disruption in the financial markets causing banks and other financial
institutions generally not to extend credit.
(e) Material Adverse Change. Since the date hereof, there shall not
have been any events, changes or occurrences which have had, or are reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect.
(f) No Amendments to Resolutions. Neither the Board of Directors of
the Company nor any committee thereof shall have amended, modified, rescinded or
repealed the resolutions adopted by the Board of Directors on September 29, 1998
(accurate and complete copies of which have been provided to Parent) and shall
not have adopted any other resolutions in connection with this Agreement and the
transactions contemplated hereby inconsistent with such resolutions.
(g) Dissenting Shares. The aggregate number of Dissenting Shares shall
not exceed 10 % of the total number of shares of Company Common Stock
outstanding on the Closing Date.
6.3 Conditions to Obligations of the Company. The obligation of the Company
to effect the Merger is subject to satisfaction of the following conditions,
unless waived by the Company:
(a) Representations and Warranties; Performance of Obligations. Except
as otherwise contemplated or permitted by this Agreement, (i) the
representations and warranties of Parent and Sub contained in this Agreement or
in any certificate or document delivered to the Company pursuant hereto shall as
of the Closing Date, (x) to the extent qualified by Parent Material Adverse
Effect, be true in all respects and (y) to the extent not qualified by Parent
Material Adverse Effect, be true in all respects; provided, however, that for
purposes of clause (y) of this paragraph, such representations and warranties,
with respect to the period of time between the date of this Agreement and the
Closing Date, shall be deemed to be true in all respects for such period unless
failure or failures of such representations and warranties to be true in all
respects, either individually or in the aggregate, and without giving effect to
any qualification as to materiality set forth in such representations or
warranties, would have a Parent Material Adverse Effect, and (ii) Parent and Sub
shall have performed and complied in all material respects with all agreements
and conditions required by this Agreement to be performed or complied with by
them prior to or on the Closing Date, and the Company shall have been
furnished a certificate of an appropriate officer of Parent, dated the Closing
Date, certifying to the effect of clauses (i) and (ii) hereof.
(b) Consents Under Agreements. Parent shall have obtained the consent
or approval of each Person (other than the Governmental Entities referred to in
Section 6.1(c)) whose consent or approval shall be required in connection with
the transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument, except those for
which failure to obtain such consents and approvals would not, prohibit or
prevent the consummation of the transactions contemplated hereby.
(c) No Amendments to Resolutions. Neither the Board of Directors of
Parent nor any committee thereof shall have amended, modified, rescinded or
repealed the resolutions adopted by the Board of Directors on September 27, 1998
(accurate and complete copies of which have been provided to the Company) and
shall not have adopted any other resolutions in connection with this Agreement
and the transactions contemplated hereby inconsistent with such resolutions.
ARTICLE 7
TERMINATION AND AMENDMENT
7.1 Termination. At any time prior to the Effective Time, whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of the Company or Sub, this Agreement may be terminated:
(a) by mutual consent of Parent and the Company;
(b) by either Parent or the Company, if, without fault of the
terminating party, the Closing shall not have occurred on or before February 15,
1999 (or such later date as may be agreed upon in writing by the parties
hereto);
(c) by Parent, if the Company shall breach any of its representations,
warranties or obligations hereunder and such breach shall not have been cured or
waived and the Company shall not have provided reasonable assurance that such
breach will be cured on or before the Closing Date; provided, however, that
Parent shall not have the right to so terminate this Agreement if such breach,
if it existed as of the Closing Date, would not result in the Company's failure
to satisfy the conditions set forth in Section 6.2(a);
(d) by the Company, if Parent or Sub shall breach any of their
respective representations, warranties or obligations hereunder and such breach
shall not have been cured or waived and Parent shall not have provided
reasonable assurance that such breach will be cured on or before the Closing
Date;
(e) by either Parent or the Company if a Takeover Proposal shall have
occurred and the Board of Directors of the Company in connection therewith,
after consultation with its legal counsel, withdraws or modifies its approval
and recommendation of this Agreement and the transactions contemplated hereby
after determining that to cause the Company to proceed with the transactions
contemplated hereby would not be consistent with the Board of Directors'
fiduciary duty to the stockholders of the Company; or
(f) by either Parent or the Company (i) if any permanent Injunction or
other order of a court or other competent authority preventing the consummation
of the Merger shall have become final and nonappealable or (ii) if any required
approval of the stockholders of the Company shall not have been obtained by
reason of the failure to obtain the required vote upon a vote held at a duly
held meeting of stockholders or at any adjournment thereof.
7.2 Effect of Termination. In the event of termination of this Agreement by
either Parent or the Company as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of Parent, Sub or the Company or their respective officers or directors except
(i) with respect to Section 5.6, 5.7, and 5.9, (ii) to the extent that such
termination results from the willful breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this Agreement
except as provided in Section 8.7 and (iii) this Section 7.2 shall survive such
termination.
7.3 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action duly taken, may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party.
7.4 Amendment and Modification. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after adoption of the Agreement by the
stockholders of Parent or the Company, but after any such adoption, no amendment
shall be made which by law requires further approval by such stockholders
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
ARTICLE 8
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Section 2.1, 2.2, 5.10, 5.15 and
the last sentence of Section 7.4 and Article 8.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given upon receipt of: hand
delivery, overnight courier, certified or registered mail, return receipt
requested, or facsimile transmission with confirmation of receipt:
(i) If to the Company, to:
Richey Electronics, Inc.
7441 Lincoln Way, Suite 100
Garden Grove, California 92642
Facsimile: (714) 897-7887
Telephone: (714) 898-8288
Attention: Richard N. Berger
(with a copy to)
Dewey Ballantine LLP
333 South Hope Street
Los Angeles, California 90071-1406
Facsimile: (213) 625-0562
Telephone: (213) 626-3399
Attention: Alan M. Albright, Esq.
(ii) If to Parent, to:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
Facsimile: (516) 391-1683
Telephone: (516) 391-1830
Attention: Robert E. Klatell
(with a copy to)
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Facsimile: (212) 530-5219
Telephone: (212) 530-5000
Attention: Howard S. Kelberg, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
8.3 Governing Law. Except to the extent that the DGCL is mandatorily
applicable to the Merger and the rights of the stockholders of the Constituent
Corporations, this Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to a contract executed and
performed in such State, without giving effect to the conflicts of law
principles thereof.
8.4 Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership.
(a) This Agreement (including the documents and the instruments referred to
herein) (a) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof other than the Confidentiality Agreement, which shall
survive the execution and delivery of this Agreement in accordance with its
terms, and (b) except as otherwise contemplated by Sections 2.1, 2.2 and 5.10
(which covenants shall be enforceable by the persons affected thereby following
the Effective Time), is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder. The parties hereby acknowledge
that, except as hereafter agreed to in writing, no party shall have the right to
acquire or shall be deemed to have acquired shares of common stock of the other
party pursuant to the Merger until consummation thereof.
(b) The Company Disclosure Letter, the Parent Disclosure Letter and any
Exhibit attached to this Agreement and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
8.7 No Remedy in Certain Circumstances. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take any action required herein, the other party
shall not be entitled to specific performance of such provision or part hereof
or thereof or to any other remedy, including but not limited to money damages,
for breach hereof or thereof or of any other provision of this Agreement or part
hereof as a result of such holding or order.
8.8 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so be broad as is enforceable.
8.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, except that Sub may assign, in its sole discretion, any or all of its
rights, interests and obligations hereunder to Parent or to any direct or
indirect wholly owned Subsidiary of Parent. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
8.10 Headings. The Headings used in this Agreement have been inserted for
convenience of reference only and do not define, modify or limit the provisions
hereof.
8.11 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specified terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
---------------------
Name: Robert E. Klatell
Title: Executive Vice President
LEAR ACQUISITION CORP.
By: /s/ Robert E. Klatell
---------------------
Name: Robert E. Klatell
Title: President
RICHEY ELECTRONICS, INC.
By: /s/ Richard N. Berger
---------------------
Name: Richard N. Berger
Title: Vice President
EXHIBIT A
PROXIES
Thomas W. Blumenthal
William C. Cacciatore
Edward L. Gelbach
Greg A. Rosenbaum
Norbert W. St. John
Donald I. Zimmerman
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of October
21, 1998 ("Amendment"), by and among Arrow Electronics, Inc., a New York
corporation ("Parent"), Lear Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Sub") and Richey Electronics, Inc., a
Delaware corporation (the "Company").
WHEREAS, Parent, Sub and the Company have entered into an
Agreement and Plan of Merger dated as of September 30, 1998 (the "Merger
Agreement"); and
WHEREAS, Parent, Sub and the Company desire to amend certain
provisions of the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree that:
1. The first sentence of Section 5.15(a) shall be amended by deleting
the word "ten" and adding the word "five" in lieu thereof.
2. Section 8.1 shall be amended by adding the section number ",5.21"
after the section number "5.15" and before the word "and".
Except as specifically amended hereby, the Merger Agreement shall
remain in full force and effect in accordance with its terms.
This Amendment shall be governed and construed in accordance with
the laws of the State of New York applicable to a contract executed and
performed in such State, without giving effect to the conflicts of law
principles thereof.
This Amendment may be executed in two or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when two or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed as of the day and year first above written.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
---------------------
Name: Robert E. Klatell
Title: Executive Vice President
LEAR ACQUISITION CORP.
By: /s/ Robert E. Klatell
---------------------
Name: Robert E. Klatell
Title: President
RICHEY ELECTRONICS, INC.
By: /s/ Richard N. Berger
---------------------
Name: Richard N. Berger
Title: Vice President
AGREEMENT OF PURCHASE
AND SALE
DATED AS OF OCTOBER 1, 1998
BY AND BETWEEN
BELL INDUSTRIES, INC.
AND
ARROW ELECTRONICS, INC.
TABLE OF CONTENTS
Page
1. Purchase and Sale of the Business 1
(a) Assets Transferred 1
(b) Excluded Assets 4
(c) Assumed Liabilities 5
(d) Retained Liabilities 7
2. Purchase Price 9
(a) Calculation of Purchase Price 9
(b) Closing Payments 9
(c) Allocation 9
(d) Distribution of Payments 10
3. Audited Balance Sheet; Adjustment to the Estimated Purchase
Price 11
4. Closing 12
5. Obligations of Seller and Purchaser at Closing; Further
Assurances 12
6. Representations and Warranties of Seller 13
(a) Organization, Standing and Qualification 13
(b) The Electronics Components Distribution Business 14
(c) Execution, Delivery and Performance of Agreement;
Authority 14
(d) Ownership and Capitalization 15
(e) Financial Statements 15
(f) Absence of Undisclosed Liabilities 16
(g) Absence of Changes or Events 17
(h) Litigation 18
(i) Compliance with Laws and Other Instruments 18
(j) Title to Properties 19
(k) Contracts 20
(l) Patents, etc. 21
(m) Employee Benefit Plans 21
(n) Taxes 22
(o) Proxy Statement 23
(p) Affiliate Transactions 24
(q) Inventory; Accounts Receivable 24
(r) Rights of Return 25
(s) Insurance 25
(t) Environmental Matters 25
(u) Determination of Taxability 27
(v) Vote Required 27
(w) Article SEVEN of Seller's Articles of Incorporation Not
Applicable 27
(x) Subsidiary Ownership of Real Property 28
(y) Proxies 28
(z) Labor Matters 28
(aa) Supplier Audits 28
(bb) Trading Practices; Ethical Standards 28
(cc) Value-Added Business 28
7. Purchaser's Representations and Warranties 29
(a) Organization and Standing 29
(b) Execution, Delivery and Performance of Agreement 29
(c) Information to be Included in the Definitive Proxy
Statement 29
(d) Litigation 29
(e) Ownership of Seller Common Stock 30
8. Certain Agreements 30
(a) Observance of Operations of the Business 30
(b) Maintain Business 30
(c) Approval of Shareholders; Proxy Statement 31
(d) Insurance 32
(e) Hiring of Employees 33
(f) Tax Matters 33
(g) Option Agreement 34
(h) Transition Services 34
9. Certain Covenants of Seller 35
(a) Obtain Consents 35
(b) Accomplish Sale 35
(c) Cooperate with Purchaser 35
(d) No Solicitation 35
(e) Access to Information 36
(f) Employee Benefits Plan 36
(g) Hart-Scott Compliance 36
(h) Elimination of Intercompany Indebtedness 37
(i) Delivery of Documents 37
(j) Resignations of Directors 37
(k) Real Property 37
(l) Canadian Antitrust Compliance 38
(m) Security Deposits 38
(n) Delivery of Books and Records, etc.; Removal of
Property 38
(o) Noncompetition 38
(p) Takeover Statutes 39
(q) Declaration of Distribution 39
(r) Use of Name 40
10. Certain Covenants of Purchaser 40
(a) Obtain Consents 40
(b) Accomplish Sale 40
(c) Cooperate with Seller 40
(d) Hart-Scott Compliance 40
(e) Employee Benefits and Employee Benefit Plans 40
(f) Required Documents 41
(g) Canadian Antitrust Compliance 41
(h) License of Bell Name 41
11. Conditions Precedent to Purchaser's Obligations 41
12. Conditions Precedent to Seller's Obligations 43
13. Indemnification 43
(a) Indemnification and Reimbursement of Purchaser 43
(b) Indemnification and Reimbursement of Seller 44
(c) Defense of Claims by Third Parties 44
(d) Notice of Other Claims; Non-Waiver 45
(e) Threshold 45
(f) Exclusive Remedy 45
14. Commission and Finder's Fees 45
15. Survival of Representations and Warranties 45
16. Expenses 46
17. Termination 46
18. Notices 47
19. Entire Agreement, Amendments and Certain Other Matters 47
20. Assignment 48
21. Counterparts 48
22. Effectiveness 48
23. Consent to Jurisdiction and Governing Law 48
24. Severability 48
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Valuation Principles
Exhibit B General Assignment and Bill of Sale
Exhibit C Assumption Agreement
Exhibit D Trademark License Agreement
Exhibit E Certificate of Non-Foreign Status
Exhibit F Opinion of Counsel to Seller
Exhibit G Opinion of Counsel to Purchaser
Exhibit H Stock Option Agreement
Schedule 1(a)(i) Real Property
Schedule 1(a)(ii)(A) Real Property Leases (Seller as Lessor or Sublessor)
Schedule 1(a)(ii)(B) Real Property Leases (Seller as Lessee or Sublessee)
Schedule 1(a)(v) Tangible Personal Property
Schedule 1(a)(vi)(A) Personal Property Leases (Seller as Lessor or Sublessor)
Schedule 1(a)(vi)(B) Personal Property Leases (Seller as Lessee or Sublessee)
Schedule 1(a)(viii) Prepaid Expenses
Schedule 1(a)(ix) Intangible Personal Property
Schedule 1(a)(x) Business Licenses
Schedule 1(a)(xi) Vehicles
Schedule 1(a)(xiv) Business Litigation
Schedule 1(a)(xv) Acquired Subsidiaries
Schedule 1(b)(vii) Excluded Contracts and Inventory
Schedule 1(b)(viii) Excluded Real Estate
Schedule 1(b)(ix) Remaining Businesses
Schedule 1(c)(ii) Accounts Payable
Schedule 1(c)(v) Accrued Expenses
Schedule 1(c)(x) Ontario Warehouse Agreements
Schedule 1(c)(xii) Employment Agreements
Schedule 1(d)(i) Certain Indebtedness
Schedule 1(d)(vi) Retained Litigation Liabilities
Schedule 3(d) Terminated Lines
Schedule 6(b) Shared Facilities or Services
Schedule 6(c)(i) Conflicting Contracts - Seller
Schedule 6(c)(ii) Merger/Consolidation Conflicts
Schedule 6(d)(ii) Capitalization of Subsidiaries
Schedule 6(e)(ii) Exceptions to Financial Statements
Schedule 6(f) Certain Liabilities
Schedule 6(g) Material Changes Since June Balance Sheet
Schedule 6(g)(vi) Contractual Commitments to Employees
Schedule 6(h) Litigation
Schedule 6(j)(i) Exceptions to Good Title (Tangible Personal Property)
Schedule 6(j)(ii)(B) Exceptions to Good Title (Real Property)
Schedule 6(j)(ii)(C) Defaults under Real Property Lease
Schedule 6(j)(ii)(E) Tenant's Purchase Rights
Schedule 6(j)(ii)(F) Exceptions to Condition of Improvements
Schedule 6(k) Contracts and Material Defaults
Schedule 6(l) Exceptions to Patents
Schedule 6(n) Tax Filing Exceptions
Schedule 6(p) Affiliate Agreements
Schedule 6(q)(i) Inventory Exceptions
Schedule 6(q)(ii) Accounts Receivable Exceptions
Schedule 6(r) Inventory - Subject to a Right of Return
Schedule 6(s) Seller's Insurance Policies
Schedule 6(t) Environmental Matters
Schedule 6(y) Proxies
Schedule 6(z) Labor Matters
Schedule 6(aa) Supplier Audits
Schedule 7(b) Conflicting Contracts - Purchaser
Schedule 10(e)(i) Exceptions to Employees
Schedule 11(i) Ontario Warehouse Consents
AGREEMENT OF PURCHASE AND SALE
AGREEMENT dated as of October 1, 1998 (the "Agreement") by and between BELL
INDUSTRIES, INC., a California corporation having its principal office at 2201
East El Segundo Boulevard, El Segundo, California 90245 ("Seller") and ARROW
ELECTRONICS, INC., a New York corporation having its principal office at 25 Hub
Drive, Melville, New York 11747 ("Purchaser").
RECITALS
Seller is engaged, among other things, in the distribution of
electronic components, including primarily semiconductors, passive components,
connectors and power supplies and board-level products, and the provision of
value-added services, including primarily kitting, turnkey, SMART (automated
replenishment system), assembly of custom cables, harnesses and connectors,
contract purchasing and direct programming of chips (collectively, the
"Business"). Purchaser wishes to purchase and acquire from Seller the Business
(but specifically excluding the other businesses conducted by Seller). Seller
will sell, transfer and assign to Purchaser, and Purchaser will purchase and
acquire from Seller, the assets, and assume the liabilities of the Business for
the consideration and on the terms and conditions hereinafter set forth.
Simultaneously with the execution and delivery of this Agreement, Seller and
Purchaser have entered into a stock option agreement in the form of Exhibit H
(the "Option Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereby agree as follows:
1. Purchase and Sale of the Business.
(a) Assets Transferred. On the terms and subject to the conditions set forth in
this Agreement, Seller will, or will cause its subsidiaries to, sell, transfer,
convey, assign and deliver to Purchaser, and Purchaser will purchase and pay
for, at the Closing, all of Seller's, or its applicable subsidiary's, right,
title and interest in, to and under the following Assets and Properties of
Seller (or its subsidiaries) used or held for use in connection with the
Business (except as otherwise provided in Section 1(a)(xvi)), as the same shall
exist on the Closing Date (the "Assets"):
(i) Real Property. The real property set forth on Schedule
1(a)(i), and all of the rights arising out of the ownership thereof or
appurtenant thereto (the "Real Property"), together with all buildings,
structures, facilities, fixtures and other improvements thereto (the
"Improvements");
(ii) Real Property Leases. Subject to Section 5(c), (A) the leases
and subleases of real property set forth on Schedule 1(a)(ii)(A) as to which
Seller (and its applicable subsidiaries) is the lessor or sublessor and (B) the
leases and subleases of real property set forth on Schedule 1(a)(ii)(B) as to
which Seller (and its applicable subsidiaries) is the lessee or sublessee, other
than such leases and subleases involving annual rental payments of less than
$75,000 individually or $500,000 in the aggregate (which shall be included in
the updated Schedule 1(a)(ii)(B) to be redelivered to Purchaser within thirty
(30) days after the date hereof), together with any options to purchase the
underlying property and leasehold improvements thereon, and in each case all
other rights, subleases, licenses, permits, deposits and profits appurtenant to
or related to such leases and subleases (the leases and subleases described in
subclauses (A) and (B), the "Real Property Leases");
(iii) Inventory. All inventories of raw materials, work-in-process,
finished goods, products under research and development, demonstration
equipment, office and other supplies, parts, packaging materials and other
accessories related thereto which are held at, or are in transit from or to, the
locations at which the Business is conducted, or located at customers' premises
on consignment or at the premises of third party processors, in each case, which
are used or held for use by Seller (or its applicable subsidiaries) in the
conduct of the Business, including any of the foregoing purchased subject to any
conditional sales or title retention agreement in favor of any other Person,
together with all rights of Seller (or its applicable subsidiaries) against
suppliers of such inventories (the "Inventory");
(iv) Accounts Receivable. All trade accounts receivable and all
notes, bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales occurring in the conduct of the Business, and any
security arrangements and collateral securing the repayment or other
satisfaction thereof or related thereto, including any rights of Seller (or its
applicable subsidiaries) with respect to any third party collection procedures
or any other actions, suits, proceedings, arbitrations, or Governmental Entity
investigation or audit which have been commenced in connection therewith (the
"Accounts Receivable");
(v) Tangible Personal Property. All furniture, fixtures,
equipment, machinery and other tangible personal property (other than Inventory
and Vehicles) used or held for use in the conduct of the Business at the
locations at which the Business is conducted or at customers' premises on
consignment, or otherwise used or held for use by Seller (or its applicable
subsidiaries) in the conduct of the Business (including but not limited to the
items set forth on Schedule 1(a)(v), including any of the foregoing purchased
subject to any conditional sales or title retention agreement in favor of any
other Person (the "Tangible Personal Property"));
(vi) Personal Property Leases. Subject to Section 5(c), (A) the
leases or subleases of Tangible Personal Property including but not limited to
the items set forth on Schedule 1(a)(vi)(A) as to which Seller (or any of its
applicable subsidiaries) is the lessor or sublessor (which Schedule shall be
updated and redelivered to Purchaser within five (5) days prior to the Closing
Date) and (B) the leases of Tangible Personal Property including but not limited
to the items set forth on Schedule 1(a)(vi)(B) as to which Seller (or its
applicable subsidiaries) is the lessee or sublessee (which Schedule shall be
updated and redelivered to Purchaser within five (5) days prior to the Closing
Date), together with any options to purchase the underlying property (the leases
and subleases described in subclauses (A) and (B), the "Personal Property
Leases");
(vii) Business Contracts. Subject to Section 5(c), all contracts
(other than the Real Property Leases, the Personal Property Leases and the
Accounts Receivable) to which Seller (or any of its applicable subsidiaries) is
a party and which are utilized in the conduct of the Business, including without
limitation, contracts relating to suppliers, sales representatives,
distributors, purchase orders, marketing arrangements and manufacturing
arrangements (the "Business Contracts");
(viii) Prepaid Expenses. All prepaid expenses to the extent relating
to the Business, including but not limited to the items set forth on Schedule
1(a)(viii) (the "Prepaid Expenses"); provided, however, that the extent to which
any such Asset relates to the Remaining Businesses (as defined in Section
1(b)(ix)) shall be expressly noted on such Schedule and if not so noted shall be
an Asset;
(ix) Intangible Personal Property. All Intellectual Property to
the extent used or held for use in the conduct of the Business (including
Seller's or its applicable subsidiaries, goodwill therein) and all rights,
privileges, claims, causes of action and options relating or pertaining to the
Business or the Assets, including but not limited to the items set forth on
Schedule 1(a)(ix) (the "Intangible Personal Property"); provided, however, that
the extent to which any such Asset relates to the Remaining
Businesses shall be expressly noted on such Schedule and if not so noted shall
be an Asset;
(x) Licenses. To the extent their transfer is permitted under
applicable laws, rules and regulations and subject to Section 5(c), all licenses
(including applications therefor) to the extent utilized in the conduct of the
Business, including but not limited to the licenses set forth on Schedule
1(a)(x) (the "Business Licenses") (which Schedule shall be updated and
redelivered to Purchaser within thirty (30) days after the date hereof);
provided, however, that the extent to which any such Asset relates to the
Remaining Businesses shall be expressly noted on such Schedule and if not so
noted shall be an Asset;
(xi) Vehicles. All motor vehicles owned or leased by Seller (or
its applicable subsidiaries) and used or held for use in the conduct of the
Business, including but not limited to the vehicles set forth on Schedule
1(a)(xi) (the "Vehicles");
(xii) Security Deposits. All security deposits deposited by or on
behalf of Seller (or its applicable subsidiaries) as lessee or sublessee under
the Real Property Leases (the "Tenant Security Deposits");
(xiii) Books and Records. All Books and Records used or held for use
in the conduct of the Business or otherwise relating to the Assets, other than
the Excluded Books and Records (the "Business Books and Records");
(xiv) Litigation Claims. Any rights (including indemnification) and
claims and recoveries under litigation of Seller (or its applicable
subsidiaries) against third parties arising out of or relating to the Business
set forth on Schedule 1(a)(xiv) (the "Business Litigation");
(xv) Subsidiary Stock. All of the right, title and interest of
Seller in, to and under the issued and outstanding shares of capital stock (the
"Acquired Shares") of the subsidiaries of Seller set forth on Schedule 1(a)(xv)
(the "Subsidiaries");
(xvi) Tradenames and Logos. All of Seller's right, title and
interest in, to and under the names "Bell Industries", "Bell", "BI" and "Milgray
Electronics" and all derivatives thereof and all logos and typestyles used or
registered by Seller, and all goodwill associated therewith, whether or not used
or held for use in connection with the Business (the "Acquired Names"); and
(xvii) Other Assets and Properties. All other Assets and Properties
of Seller (or its applicable subsidiaries) used or held for use in connection
with the Business except as otherwise provided in Section 1(b) (the "Other
Assets").
To the extent any of the Business Books and Records are items
susceptible to duplication and are either (x) used in connection with any of
Seller's businesses other than the Business or (y) are required by any law, rule
or regulation to be retained by Seller, Seller may deliver photostatic copies or
other reproductions from which, in the case of Business Books and Records
referred to in clause (x), information solely concerning Seller's businesses
other than the Business has been deleted. To the extent any of the Business
Books and Records relates to the Remaining Businesses, Purchaser will afford the
other party, its counsel and its accountants, during normal business hours,
reasonable access to such Business Books and Records and the right to make
copies and extracts therefrom. Further, Purchaser agrees for a period extending
six (6) years after the Closing Date not to destroy or otherwise dispose of any
such Business Books and Records unless Purchaser shall first offer in writing to
surrender such Business Books and Records to Seller and Seller shall not agree
in writing to take possession thereof during the ten (10) day period after such
offer is made.
(b) Excluded Assets. Notwithstanding anything in this Agreement to
the contrary, the following Assets and Properties of Seller and its applicable
subsidiaries used or held for use in connection with the Business shall be
excluded from and shall not constitute Assets (the "Excluded Assets"):
(i) Cash. Cash (including checks received prior to the close of
business on the Closing Date, whether or not deposited or cleared prior to the
close of business on the Closing Date), commercial paper, certificates of
deposit and other bank deposits, treasury bills and other cash equivalents;
(ii) Insurance. Life insurance policies of officers and other
employees of Seller and all other insurance policies relating to the operation
of the Business;
(iii) Employee Benefit Plans. All assets owned or held by any
Employee Benefit Plans (as defined in Section 6(m));
(iv) Tax Refunds. All refunds or credits, if any, of Taxes due to
or from Seller;
(v) Excluded Books and Records. The minute books, stock transfer
books and corporate seal of Seller and its subsidiaries other than the
Subsidiaries and any other Books and Records relating primarily to the Excluded
Assets or the Retained Liabilities (the "Excluded Books and Records");
(vi) Litigation Claims. Any rights (including indemnification) and
claims and recoveries under litigation of Seller against third parties arising
out of or relating to the Business, except the Business Litigation set forth on
Schedule 1(a)(xiv);
(vii) Excluded Contracts and Inventory. The rights of Seller in, to
and under all of the contracts and inventory set forth on Schedule 1(b)(vii);
(viii) Excluded Real Estate. The real property set forth on Schedule
1(b)(viii), together with all buildings, structures, facilities, fixtures and
the improvements thereto;
(ix) Other Business. All of Seller's Assets and Properties that are
not used or held for use in connection with the Business, including, without
limitation, those businesses set forth on Schedule 1(b)(ix) (the "Remaining
Businesses") and the shares of any direct or indirect subsidiaries of Seller
other than the Subsidiaries;
(x) Claims Against Third Parties. Claims against third parties for
damages suffered in connection with Excluded Assets and Retained Liabilities;
and
(xi) Agreements. Seller's rights under this Agreement, the Option
Agreement and any other agreements, instruments or documents executed by Seller
pursuant to or in connection with this Agreement and the transactions
contemplated hereby.
To the extent any Excluded Books and Records relate to the Business,
Seller will afford the other party, its counsel and its accountants, during
normal business hours, reasonable access to such Excluded Books and Records and
the right to make copies and extracts therefrom. Further, Seller agrees for a
period extending six (6) years after the Closing Date not to destroy or
otherwise dispose of any such Excluded Books and Records unless Seller shall
first offer in writing to surrender such Excluded Books and Records to Purchaser
and Purchaser shall not agree in writing to take possession thereof during the
ten (10) day period after such offer is made.
(c) Assumed Liabilities. In connection with the sale, transfer,
conveyance, assignment and delivery of the Assets pursuant to this Agreement, on
the terms and subject to the conditions set forth in this Agreement, at the
Closing, Purchaser will assume and agree to pay, perform and discharge when due
all of the obligations of Seller (or its applicable subsidiaries) relating
exclusively to the Business and arising in connection with the ordinary course
of operation of the Business other than the Retained Liabilities (the "Assumed
Liabilities"), including but not limited to the following:
(i) Real Property Lease Obligations. All obligations of Seller (or
its applicable subsidiaries) under the Real Property Leases;
(ii) Accounts Payable. All obligations of Seller (or its applicable
subsidiaries) with respect to accounts payable reflected or reserved against in
the June Balance Sheet (as defined in Section 6(e)(i)) or those arising in the
ordinary course of business since June 30, 1998, including but not limited to
the items set forth on Schedule 1(c)(ii) (the "Accounts Payable");
(iii) Personal Property Lease Obligations. All obligations of Seller
(or its applicable subsidiaries) under the Personal Property Leases;
(iv) Obligations under Contracts and Licenses. All obligations of
Seller (or its applicable subsidiaries) under the Business Contracts and
Business Licenses;
(v) Accrued Expenses. All obligations of Seller (or its applicable
subsidiaries) with respect to accrued expenses reflected or reserved against in
the June Balance Sheet or those incurred in the ordinary course of business
since June 30, 1998, including without limitation the items set forth on
Schedule 1(c)(v) (the "Accrued Expenses");
(vi) Returned Goods. All obligations with respect to the Business of
Seller (or its applicable subsidiaries) for replacement of, or refund for,
damaged, defective or returned goods, except Retained Returned Goods (as defined
in Section 1(d)(x));
(vii) Product Liabilities. All liabilities with respect to the
Business arising out of claims of third parties for damage or injury suffered as
the result of defective products sold by Seller (or its applicable subsidiaries)
prior to the Closing Date, except the Retained Product Liabilities (as defined
in Section 1(d)(xi));
(viii) Security Deposits. All obligations of Seller (or its applicable
subsidiaries) with respect to any security deposit held as lessor or sublessor
under the Real Property Leases (the "Landlord Security Deposits");
(ix) Sales Tax Liabilities. All sales and use Taxes collected from
customers with respect to the Business and held by Seller on the Closing Date,
except the Retained Sales Tax Liabilities (as defined in Section 1(d)(viii))
(the "Assumed Sales Tax Liabilities");
(x) Ontario Warehouse Agreements. All obligations of Seller (or its
applicable subsidiaries) under the agreements set forth on Schedule 1(c)(x);
(xi) Litigation Claims. All obligations and liabilities of Seller and
its applicable subsidiaries arising from litigation of third parties against
Seller or its applicable subsidiaries arising out of the activities of the
Business, except the Retained Litigation (as defined in Section 1(d)(vi));
(xii) Employment Agreements. All obligations of Seller under the
employment agreements and severance agreements set forth on Schedule 1(c)(xii)
(the "Assumed Employment Agreements"); and
(xiii) Other Liabilities. All other liabilities reserved or reflected
on the Audited Balance Sheet.
(d) Retained Liabilities. Notwithstanding anything in this Agreement to
the contrary, Purchaser shall not assume by virtue of this Agreement or the
transactions contemplated hereby, and shall have no liability for, any of the
following liabilities of Seller or any of its subsidiaries (the "Retained
Liabilities"):
(i) Certain Indebtedness. All obligations of Seller and its
subsidiaries for indebtedness set forth on Schedule 1(d)(i);
(ii) Tax Liabilities. All obligations of Seller and its subsidiaries
for Taxes other than the Assumed Sales Tax Liabilities;
(iii) Liabilities under this Agreement. Seller's liabilities under
this Agreement, the Option Agreement and any other agreements, instruments or
documents executed by Seller pursuant to or in connection with this Agreement
and the transactions contemplated hereby;
(iv) Employee Benefit Plan Liabilities. All liabilities and
obligations under each of the Employee Benefit Plans (as defined in Section
6(m)(i)) or any employee benefit plan, agreement or other arrangement, program
or policy maintained or sponsored by Seller or any of its subsidiaries;
(v) Post-Retirement Medical Plan Liabilities. All obligations of
Seller and its subsidiaries under any post-retirement medical benefits plan;
(vi) Litigation Claims. All liabilities of Seller and its
subsidiaries arising from claims and recoveries under litigation of third
parties against Seller or its subsidiaries set forth on Schedule 1(d)(vi) (the
"Retained Litigation");
(vii) Excluded Assets. All obligations of Seller and its subsidiaries
arising in connection with the Excluded Assets;
(viii) Retained Sales Tax Liabilities. All sales, use or other Taxes
collected from customers by Seller for delivery to a taxing authority, except
those Taxes reflected as liabilities on the Audited Balance Sheet (the "Retained
Sales Tax Liabilities");
(ix) Other Businesses. All obligations of Seller related to the
Remaining Businesses;
(x) Retained Returned Goods. All obligations of Seller (or its
applicable subsidiaries) for replacement of, or refund for, damaged, defective
or returned goods to the extent that (A) such goods are not subject to full
return privileges from the supplier thereof or (B) such goods are not non-
franchised products sold in the ordinary course of Seller's value-added business
(the "Retained Returned Goods");
(xi) Retained Product Liabilities. All liabilities arising out of
claims of third parties for damages or injury suffered as the result of
defective products sold by Seller (or its applicable subsidiaries) that (A) were
not sold under customary authorized distributor agreements, (B) were not sold in
the ordinary course under Seller's value-added business or (C) arise out of the
negligent acts or willful misconduct of Seller, its subsidiaries or its
employees or agents (the "Retained Product Liabilities"); and
(xii) Retained Employment Agreements. All obligations of Seller under
employment agreements and severance agreements, except the Assumed Employment
Agreements. Seller shall discharge, or shall cause the discharge, in a timely
manner or shall make adequate provision for all of the Retained Liabilities,
provided that Seller shall have the ability to contest, in good faith, any such
claim of liability asserted in respect thereof by any Person other than
Purchaser and its affiliates.
For purposes of this Agreement:
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including without limitation
cash, cash equivalents, investment assets, accounts and notes receivable,
chattel paper, documents, instruments, general intangibles, real estate,
equipment, inventory, goods and Intellectual Property.
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records relating to the business, operations,
condition of (financial or other), results of operations and Assets and
Properties of such Person, including without limitation financial statements,
Returns and related work papers and letters from accountants, budgets, pricing
guidelines, ledgers, journals, deeds, title policies, minute books, stock
certificates and books, stock transfer ledgers, contracts, licenses, customer
lists, computer files and programs, retrieval programs, operating data and plans
and environmental studies and plans.
"Governmental Entity" means any nation or government, any state or
other political subdivision thereof, including any municipality, town, village,
and subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of, or pertaining to,
governance.
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
"Person" means any individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a Governmental Entity.
2. Purchase Price.
(a) Calculation of Purchase Price. The purchase price (the "Purchase
Price") to be paid by Purchaser hereunder shall be $187,600,000, as adjusted
pursuant to Section 3.
(b) Closing Payments. Subject to the terms and conditions hereof,
Purchaser shall, subject to the adjustments, if any, contemplated under Section
3, pay to Seller an amount (the "Closing Cash Payment") equal to (A)
$187,600,000 less the Estimated Balance Sheet Adjustment (as defined below), if
any (the "Estimated Purchase Price") less (B) $20,000,000. Seller shall prepare
and deliver to Purchaser an estimated consolidated balance sheet (the "Estimated
Balance Sheet") of the Business as of the last day of the month immediately
prior to the Closing Date (the "Preceding Month"), or in the event the Closing
Date shall be within the first ten (10) days of any calendar month, as of the
last day of the month immediately prior to the Preceding Month. Such Estimated
Balance Sheet shall be prepared on the same terms and basis as specified in the
second sentence of Section 3(a) with respect to the Preliminary Audited Balance
Sheet (as defined in Section 3). If the net investment shown on the Estimated
Balance Sheet is at least $155 million, then there shall be no Estimated Balance
Sheet Adjustment. If the net investment shown on the Estimated Balance Sheet is
less than $135 million, Purchaser may at its option (1) terminate this Agreement
or (2) proceed with the transactions contemplated herein, including the
determination of the Closing Cash Payment as reduced by the Estimated Balance
Sheet Adjustment described in the following sentence. If the net investment
shown on the Estimated Balance Sheet is less than $155 million (the difference
between the net investment and $155 million is hereinafter referred to as the
"Estimated Shortfall"), then the Closing Cash Payment shall be reduced on a
dollar-for-dollar basis by the amount of the Estimated Shortfall (such reduction
being referred to as the "Estimated Balance Sheet Adjustment").
(c) Allocation. (i) As promptly as practicable after the Audited
Balance Sheet Date (as defined in Sections 3(b)), Purchaser and Seller shall use
their best efforts to agree on the allocation of the Purchase Price among the
Assets. As promptly as practicable and in any event not later than fifteen (15)
days following the Audited Balance Sheet Date, Purchaser shall deliver to Seller
an initial schedule allocating the Purchase Price among the Assets (the "Initial
Allocation"). The Initial Allocation shall be final and binding upon Seller and
Purchaser unless within ten (10) days of receipt thereof Seller gives written
notice to Purchaser that it does not agree with the Initial Allocation. If
Seller so notifies Purchaser within the ten-day period, Purchaser and Seller
will use good faith efforts to resolve any disagreements within seven (7) days
after Purchaser's receipt of Seller's written notice. If Seller and Purchaser
cannot reach agreement during such seven-day period, their disagreements shall
be promptly submitted to an independent public accounting firm jointly selected
by Purchaser and Seller (the "Independent Accountant"), which will conduct such
review as it deems necessary to resolve their disagreements regarding the
Initial Allocation. The allocation of the Purchase Price among the Assets
determined under this Section 2(c)(i) is referred to the "Final Allocation".
(ii) The review of the Independent Accountant will be restricted as to
scope to address only those matters as to which Seller and Purchaser have not
reached agreement pursuant to Section 2(c)(i). The Independent Accountant's
decision resolving any disagreements will be binding on Seller and Purchaser and
will be provided in writing to the parties as promptly as practicable and in any
event not later than thirty (30) days after the disagreements are submitted to
the Independent Accountant pursuant to Section 2(c)(i). The fees and expenses
incurred by the Independent Accountant in connection with resolving any
disagreements pursuant to Sections 2(c)(i) will be shared equally by Seller and
Purchaser.
(iii) Each of Seller and Purchaser agrees: (A) that the Final
Allocation will be consistent with the requirements of Code Section 1060, (B) to
complete jointly and to file separately Form 8594 with its federal income Tax
Return consistent with the Final Allocation for the tax year in which the
Closing Date occurs and (C) that no party will take a position on any federal,
state or local Tax Return, before any Governmental Entity charged with the
collection of any tax or in any action or proceeding that is in any manner
inconsistent with the terms of the Final Allocation without the consent of the
other party.
(d) Distribution of Payments. Following the receipt by Seller of the
Closing Cash Payment due under Section 2(b), Seller shall, subject to applicable
fraudulent conveyance laws and to the provisions of Section 500 et seq. of the
California Corporations Code (the "CCC"): (i) first apply the Closing Cash
Payment to the repayment of the outstanding principal under the Credit Agreement
dated as of January 7, 1997, as amended from time to time, by and among Seller,
Bell Ontario Holding, Inc., the lenders thereunder and Union Bank of California
N.A., as agent (as amended, the "Credit Agreement") as may be necessary to
obtain the release of any mortgage, pledge, lien, charge, security interest,
encumbrance, lease, license or claim ("Encumbrance") on the Assets securing
indebtedness under the Credit Agreement except as otherwise provided in this
Agreement; and (ii) except as otherwise provided in Section 9(q) of this
Agreement, prior to the Audited Balance Sheet Date, make no payments, dividends
or distributions to its shareholders (including the adoption by its Board of
Directors of a resolution declaring a dividend or distribution or declaring a
record date with respect thereto).
3. Audited Balance Sheet; Adjustment to the Estimated Purchase Price.
(a) After the Closing, Purchaser shall prepare or cause to be prepared,
and shall cause Ernst & Young LLP, independent accountants (the "Accountants"),
to prepare a certification of an audited consolidated balance sheet as of the
Closing Date for the Business (the "Preliminary Audited Balance Sheet"). The
Preliminary Audited Balance Sheet shall (i) be prepared from the books and
records of the Business in accordance with generally accepted accounting
principles, applied on a basis consistent with the Financial Statements, (ii) be
prepared in accordance with Seller's valuation principles attached as Exhibit A,
and (iii) reflect no write-up of any individual asset of the Business which was
included in the Financial Statements and is included in the Preliminary Audited
Balance Sheet to a book value greater than its book value in the Financial
Statements. As a part of the preparation of the Preliminary Audited Balance
Sheet, Purchaser and its employees shall conduct a complete physical inventory
of the Business as of the Closing Date, and the results of such inventory shall
be reflected in the Preliminary Audited Balance Sheet. Purchaser shall deliver
the Preliminary Audited Balance Sheet, and shall use its reasonable efforts to
cause the Accountants to deliver the form of the Accountants' report thereon, to
Seller as promptly as practicable and, in any event, not later than
ninety (90) days after the Closing Date.
(b) Employees of Seller and PricewaterhouseCoopers LLP ("PWC
Representatives") shall have the right, at Seller's expense, to observe and
reasonably review and comment to the Accountants upon the preparation of the
Preliminary Audited Balance Sheet. In addition, Seller and PWC Representatives
shall have the right to observe the taking of the physical inventory and to
comment to the Accountants with respect thereto. In the event that Seller shall
object to any matter relating to the Preliminary Audited Balance Sheet (which
objections shall be solely on the basis that such balance sheet has not been
prepared in accordance with the second sentence of Section 3(a) above or is
derived from obvious mathematical errors), Seller shall, as promptly as
practicable but in any event within thirty (30) days after receipt of the
Preliminary Audited Balance Sheet, notify Purchaser of such objections in
writing. The parties shall use their best efforts to resolve any such
objections as promptly as practicable. If the parties are unable to resolve any
such objections within twenty (20) days after the date that Seller receives the
certified Preliminary Audited Balance Sheet, then a nationally recognized
independent public accounting firm as shall be mutually agreed by the parties
shall be appointed as arbitrator to resolve the dispute in accordance with
Section 3(a) above as soon as practicable and its determination with respect to
such dispute shall be final and binding upon both parties hereto. The costs of
such accounting firm in connection with its acting as such arbitrator shall be
borne 50% by Seller and 50% by Purchaser. The final audited balance sheet,
reflecting the results of any resolution of objections or arbitrated settlement,
accompanied by the Accountants' report thereon, shall be the "Audited Balance
Sheet" and the date of delivery thereof to Purchaser and Seller shall be the
"Audited Balance Sheet Date".
(c) If the net investment shown on the Audited Balance Sheet is
greater than $155 million, then the Purchase Price shall be increased on a
dollar-for-dollar basis by the amount equal to the lesser of (i) the difference
between such net investment and $155 million and (ii) $10 million. If the net
investment shown on the Audited Balance Sheet is $155 million or less (the
difference between such net investment and $155 million is hereinafter referred
to as the "Audited Shortfall"), then the Purchase Price shall be reduced on a
dollar-for-dollar basis by the amount of the Audited Shortfall.
(d) The Purchase Price shall also be reduced by the amount, if any, of
the Terminated Lines Reduction. The "Terminated Lines Reduction" shall be the
sum of (i) the inventory related to terminated lines described on Schedule 3(d)
which has not been returned for full credit to the applicable manufacturer prior
to the Closing Date and for which value has been given on the Audited Balance
Sheet and (ii) to the extent reflected as an asset on the Audited Balance Sheet,
the pending debits related to terminated lines described on Schedule 3(d) which
have not been honored by the applicable manufacturer prior to the Closing Date.
(e) Within five (5) business days after the Audited Balance Sheet Date:
(i) in the event that the Purchase Price is greater than the Closing Cash
Payment, Purchaser shall promptly pay to Seller such difference with interest
thereon (accruing from the Closing Date until such payment is made) at the
Interest Rate (as defined below); and (ii) in the event that the Purchase Price
is less than the Closing Cash Payment, Seller shall promptly pay to Purchaser
such difference with interest thereon (accruing from the Closing Date until such
payment is made) at the Interest Rate. For purposes of this Agreement,
"Interest Rate" means 6% per annum (based on a year of 360 days). The payments
required pursuant to this Section 3(e) shall not be subject to any right of
setoff, counterclaim or recoupment.
4. Closing.
The Closing (the "Closing") shall take place at 10:00 A.M., local
time, on the earliest practicable date after all of the conditions set forth in
Sections 11 and 12 shall have been satisfied or waived but in any event not
later than three (3) business days after such date (the "Closing Date"), at the
offices of Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New York,
New York, or such other time and place as the parties may agree.
5. Obligations of Seller and Purchaser at Closing; Further Assurances.
(a) At the Closing:
(i) Seller will assign and transfer to Purchaser all of its right,
title and interest in and to the Assets (free and clear of all Encumbrances) by
delivery of (A) a General Assignment and Bill of Sale substantially in the form
of Exhibit B, duly executed by Seller, (B) an assignment of the Intellectual
Property in form and substance reasonably satisfactory to Purchaser, (C) general
warranty deeds in proper statutory form for recording and otherwise in form and
substance reasonably satisfactory to Purchaser conveying title to the Real
Property, (D) such other good and sufficient instruments of conveyance,
assignment and transfer, in form and substance reasonably acceptable to
Purchaser's counsel, as shall be effective to vest in Purchaser good title to
the Assets;
(ii) Seller will deliver the other documents, certificates and
opinions specified in Section 9;
(iii) Purchaser will pay to Seller, by wire transfer of immediately
available funds to the account previously designated by Seller to Purchaser, an
amount equal to the Closing Cash Payment;
(iv) Purchaser will assume from Seller the due payment, performance
and discharge of the Assumed Liabilities by delivery of (A) an Assumption
Agreement substantially in the form of Exhibit C duly executed by Purchaser, (B)
such other good and sufficient instruments of assumption, in form and substance
reasonably acceptable to Seller's counsel, as shall be effective to cause
Purchaser to assume the Assumed Liabilities as and to the extent provided in
Section 1(c); and
(v) Purchaser will deliver the other documents, certificates and
opinions specified in Section 10.
(b) At any time and from time to time after the Closing, at Purchaser's
request and without further consideration, Seller will take all action necessary
to execute and deliver such other instruments of sale, transfer, conveyance,
assignment and confirmation and take such action as Purchaser may reasonably
deem necessary or desirable in order to more effectively transfer, convey and
assign to Purchaser the Business.
(c) To the extent that any Real Property Lease, Personal Property Lease,
Business Contract or Business License is not assignable without the consent of
another party, this Agreement shall not constitute an assignment or an attempted
assignment thereof if such assignment or attempted assignment would constitute a
breach thereof or a default thereunder. Seller and Purchaser shall use
commercially reasonable efforts to obtain the consent of such other party to the
assignment of any such Real Property Lease, Personal Property Lease, Business
Contract or Business License to Purchaser in all cases in which such consent is
or may be required for such assignment. If any such consent shall not be
obtained, Seller shall cooperate with Purchaser in any reasonable arrangement
designed to provide for Purchaser the benefits intended to be assigned to
Purchaser under the relevant Real Property Lease, Personal Property Lease,
Business Contract or Business License, including enforcement at the cost and for
the account of Purchaser of any and all rights of Seller against the other party
thereto arising out of the breach or cancellation thereof by such other party or
otherwise. If and to the extent that such arrangement cannot be made, Purchaser
shall have no obligation pursuant to Section 1(c) or otherwise with respect to
any such Real Property Lease, Personal Property Lease, Business Contract or
Business License. The provisions of this Section 5(c) shall not affect the
right of Purchaser not to consummate the transactions contemplated by this
Agreement if the condition to its obligations hereunder contained in Section
11(i) has not been fulfilled.
6. Representations and Warranties of Seller
Seller represents and warrants to Purchaser, as of the date of this
Agreement as follows:
(a) Organization, Standing and Qualification. Each of Seller and the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation, and has
the corporate power and authority to carry on its business as now being
conducted and to own, lease or operate its properties; and each of Seller and
the Subsidiaries is duly qualified or licensed and in good standing as a foreign
corporation authorized to do business in all of the jurisdictions where the
nature of the activities conducted by it or the character of the properties
owned, leased or operated by it requires such qualification or licensing, except
where the failure to be so qualified or licensed would not result in loss,
liability, cost, expense (including but not limited to attorneys fees and
expenses), damage or decline in value to the business, condition or properties
of the Business, taken as a whole, or to Purchaser (collectively, "Losses") in
excess of $25,000 individually or $100,000 in the aggregate. Seller has
delivered to Purchaser true and complete copies (initialed by the Secretary of
Seller) of the certificates of incorporation (and all amendments thereto) and
the by-laws as presently in effect of Seller and each of the Subsidiaries.
(b) The Electronics Components Distribution Business. The Business is
conducted solely through Seller's Electronic Distribution Group (excluding any
Remaining Businesses) and the Subsidiaries. The sale of the Assets by Seller to
Purchaser pursuant to this Agreement will convey to Purchaser the entire
Business and all of the tangible and intangible property used by Seller (whether
owned, leased or held under license by Seller, by any of Seller's affiliates or
by others) in connection with the conduct of the Business as heretofore
conducted by Seller (except for the Excluded Assets) including, without
limitation, all Assets and Properties of Seller and its subsidiaries reflected
in the June Balance Sheet (as defined in Section 6(e)) included in the Financial
Statements and Assets and Properties acquired since June 30, 1998 used or held
for use in connection with the Business, other than the Excluded Assets and
Assets and Properties disposed of since such date, consistent with Section
6(g)(iii). Except as set forth on Schedule 6(b),with respect to the Assets or
the Business, there are no shared facilities or services which are used in
connection with any business or other operations of Seller or any of Seller's
affiliates other than the Business.
(c) Execution, Delivery and Performance of Agreement; Authority. The
execution, delivery and performance of the Agreement in accordance with its
terms by Seller will not, with or without the giving of notice or the passage of
time, or both, conflict with, result in a violation of, result in a default,
right to accelerate or loss of rights under, or result in the creation of any
Encumbrance pursuant to, any provision of the articles of incorporation (or
certificate of incorporation, as the case may be) or by-laws (and all amendments
thereto), of Seller or any of the Subsidiaries, or any mortgage, deed of trust,
lease, license, agreement (including any debt instrument), law, rule,
regulation, order or judgment or decree to which Seller, or any of the
Subsidiaries, is a party or by which any of them may be bound or affected,
except (i) as set forth on Schedule 6(c)(i) or as specifically noted on Schedule
1(a)(ii)(B), (ii) those which would not result in Losses in excess of $25,000
individually or $100,000 in the aggregate and (iii) any agreements pursuant to
which Seller or any of the Subsidiaries purchases inventory from the
manufacturers thereof ("Franchise Agreements"). Except as set forth on Schedule
6(c)(ii), the merger, consolidation, combination or amalgamation of any or all
of the Subsidiaries with or into Purchaser or its affiliates or, the transfer of
any or all of the Assets or any of the Subsidiaries to Purchaser or its
affiliates will not, with or without the giving of notice or the passage of time
or both, conflict with, result in a default, right to accelerate or loss of
rights under, or result in the creation of any Encumbrance, under any provision
of any mortgage, deed of trust, lease, license, material agreement (including
any debt instrument) to which Seller, any of its subsidiaries is a party or by
which any of them may be bound or affected that would have a materially adverse
effect on the business, financial condition, results of operations or properties
of Purchaser or of the Business taken as a whole. Seller has the full power and
authority to enter into this Agreement and the full power and authority to carry
out the transactions contemplated hereby. The Board of Directors of Seller has,
subject to approval by Seller's shareholders, approved the entering into by
Seller of this Agreement, and there are no other corporate proceedings required
to be taken by Seller, except for such shareholders' approval, to authorize the
execution, delivery and performance by Seller of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement
constitutes a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the enforcement
of creditors' rights generally and subject to usual equity principles.
(d) Ownership and Capitalization. (i) Seller is the lawful record
and beneficial owner of all of the issued and outstanding shares of capital
stock of the Subsidiaries, free and clear of all Encumbrances, except those
created pursuant to the Credit Agreement. Upon completion of the transactions
contemplated by this Agreement, Purchaser will acquire as of the Closing Date
good and valid title to the Acquired Shares, free and clear of all Encumbrances.
(ii) The capitalization of the Subsidiaries consists of the number
of authorized shares of capital stock at the stated par values, the number of
issued and outstanding shares and the number of treasury shares, if any, set
forth on Schedule 6(d)(ii). All of the Acquired Shares have been validly issued
and are fully paid and non-assessable. Except for the rights created pursuant
to this Agreement and the Option Agreement, there are no outstanding options,
warrants or other rights of any kind to acquire any additional shares of capital
stock of the Subsidiaries or securities convertible or exchangeable for, or
which otherwise confer on the holder thereof any right to acquire, any such
additional shares, nor is Seller or any of the Subsidiaries committed to issue
any such option, warrant, right or security.
(e) Financial Statements. (i) Seller has delivered to Purchaser
copies (initialed by the chief financial officer of Seller and identified with a
reference to this section of this Agreement) of the following financial
statements (the financial statements set forth in clauses (A), (B) and (C) are
hereinafter collectively called the "Financial Statements"): (A) audited
consolidated balance sheets of Seller as of December 31, 1997, December 31, 1996
and December 31, 1995 and the related statements of income, shareholders' equity
and cash flows for the years then ended, and the unaudited consolidated balance
sheet of Seller as of June 30, 1998 and the related statement of income,
shareholders' equity and cash flows for the period then ended; (B) unaudited
combined balance sheets of the Business as of December 31, 1997, December 31,
1996 and December 31, 1995 and the related statements of income for the years
then ended, including Milgray Electronics, Inc. ("Milgray") from the date of
Seller's acquisition thereof, and the unaudited combined balance sheet of the
Business as of June 30, 1998 ("June Balance Sheet") and the related statement of
income for the period then ended; and (C) the management accounts for the period
ending August 31, 1998 for the Business (the "Management Accounts").
(ii) The Financial Statements set forth in clause (A) of Section
6(e)(i) and, except as set forth on Schedule 6(e)(ii), the Financial Statements
set forth in clauses (B) and (C) of Section 6(e)(i) have been prepared from the
Books and Records of Seller and its subsidiaries in accordance with generally
accepted accounting principles, consistently applied and maintained throughout
the periods indicated (except as disclosed therein), and present fairly the
consolidated financial condition of Seller (with respect to the Financial
Statements set forth in clause (A) of Section 6(e)(i)) and the Business (with
respect to the Financial Statements set forth in clauses (B) and (C) of Section
6(e)(i) as at their respective dates and the results of their operations for the
periods covered thereby in accordance with generally accepted accounting
principles. With respect to the statements of income contained in the Financial
Statements set forth in clauses (B) and (C) of Section 6(e)(i), such statements
of earnings do not contain any items of extraordinary or non-recurring income or
any other income not earned in the ordinary course of business which in the
aggregate for any period presented do not exceed $100,000, except as set forth
therein.
(iii) The Management Accounts are the only management accounts relating
to the Business prepared by Seller with respect to the period covered thereby
and have been prepared in the ordinary course of business.
(iv) Seller has delivered to Purchaser copies (initialed by the chief
financial officer of Seller and identified with a reference to this section of
this Agreement) of the following financial statements of Milgray (collectively,
the "Milgray Financial Statements"): audited consolidated balance sheets of
Milgray as of September 30, 1996 and September 30, 1995, and the related
statements of income, shareholders' equity and cash flows for the years then
ended. The Milgray Financial Statements have been prepared from the Books and
Records of Milgray and its subsidiaries in accordance with generally accepted
accounting principles, consistently applied and maintained throughout the
periods indicated (except as disclosed therein), and present fairly the
consolidated financial condition of Milgray as at their respective dates and the
results of their operations for the periods covered thereby in accordance
with generally accepted accounting principles.
(f) Absence of Undisclosed Liabilities. (i) All of the liabilities
reflected or reserved against on the June Balance Sheet were incurred in bona
fide transactions incurred in the ordinary course of business, except for any
such liabilities that were incurred outside the ordinary course of business and
would not result in Losses in excess of $25,000 individually or $100,000 in the
aggregate. There are no liabilities, contingent or otherwise, of Seller or any
of the Subsidiaries which are, in accordance with generally accepted accounting
principles, required to be reserved against or disclosed on the June Balance
Sheet which are not so reserved or disclosed.
(ii) Except as set forth on Schedule 6(f), neither Seller nor any of
the Subsidiaries has any liabilities (contingent or otherwise) with respect to
the Business under any guarantee, indemnity, bond, reimbursement agreement or
pledge agreement with respect to any obligation of third parties or under any
joint or joint and several contractual obligation of Seller or any of the
Subsidiaries with any other person that are not reflected in or reserved against
on the June Balance Sheet or the notes thereto.
(g) Absence of Changes or Events. Except as set forth on Schedule 6(g) or
otherwise contemplated under this Agreement, since the date of the June Balance
Sheet, each of Seller and its subsidiaries has conducted the Business only in
the ordinary course and consistent with its prior practice and, with respect to
the Business each of Seller and its subsidiaries has not:
(i) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except liabilities or
obligations incurred in the ordinary course of business and consistent with its
prior practice;
(ii) mortgaged, pledged or subjected to any other Encumbrance, or
restriction any of its property, business or assets, tangible or intangible
except pursuant to the Credit Agreement or in the ordinary course of business,
consistent with past practice;
(iii) sold, transferred, leased to others or otherwise disposed of any
of its assets, except for inventory sold to customers or returned to vendors in
the ordinary course of business and consistent with its prior practice; or
canceled or compromised any debt or claim, or waived or released any right of
substantial value, except (y) in the ordinary course of business and consistent
with its prior practice and (z) outside the ordinary course of business debts,
claims or rights having a value less than $25,000 individually or $100,000 in
the aggregate;
(iv) suffered any damage, destruction or casualty or theft loss of
assets that is not covered by insurance, except for damage, destruction or loss
that is less than $25,000 individually or $100,000 in the aggregate;
(v) encountered any labor union organizing activity or had any actual
or threatened employee strikes, work stoppages, slow-downs or lock-outs;
(vi) made any change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or paid or agreed or orally
promised to pay, conditionally or otherwise, any bonus, extra compensation,
pension or severance or vacation pay, to any employee, except (A) in the
ordinary course of business and consistent with its practice prior to the date
hereof, (B) with respect to any payments of pension, severance or vacation after
the date hereof, in accordance with the existing policies of Seller or the
relevant subsidiary, as the case may be, (C) promises and commitments made
jointly with, or with the consent of Purchaser to secure the services of
Seller's employees pending and following the Closing or (D) as to which there is
a contractual commitment entered into before the signing of this Agreement;
provided, however that any such prior contractual commitment to any employee
having total compensation in excess of $100,000 or to a category of employees
having more than five persons shall be set forth on Schedule 6(g)(vi);
(vii) made any capital expenditures or capital additions or betterments
in excess of $250,000;
(viii) suffered any change, event or condition which has materially and
adversely affected the business, financial condition, results of operations or
properties of the Business taken as a whole, except for such as may result from
the announcement or disclosure of the transactions contemplated hereby or
actions by Purchaser;
(ix) issued or sold any shares of capital stock, or issued or sold any
options, warrants to purchase or rights to subscribe for, or issued any debt
instrument or security convertible into, or entered into any arrangement or
contract with respect to, any shares of capital stock or any of the Subsidiaries
or made any other changes in its capital structure;
(x) made any material change in (A) any pricing, investment,
accounting, financial reporting, inventory, credit, allowance or tax practice or
policy of the Business or (B) any method of calculating any bad debt,
contingency or other reserve of the Business for accounting, financial reporting
or tax purposes;
(xi) entered into any amendment, modification, termination (partial or
complete) or granted a waiver under or given any consent with respect to (A) any
contract which is required (or had it been in effect on the date hereof would
have been required) to be set forth on Schedule 6(k) pursuant to Section 6(k) or
(B) any Business License;
(xii) entered into any transaction with any officer, director or
affiliate or Seller or any of its subsidiaries; or
(xiii) entered into a contract to do or engage in any of the foregoing
after the date hereof.
(h) Litigation. Except as set forth on Schedule 6(h), no action, suit,
litigation, arbitration, dispute, proceeding, governmental investigation or
governmental audit is pending against, or to the knowledge (as defined at the
end of this Section 6) of Seller threatened against, the Business or the Assets.
None of such action, suit, litigation, arbitration, dispute, proceeding,
governmental investigation or governmental audit is reasonably likely to have a
material adverse effect on Seller's ability to consummate the transactions
contemplated by this Agreement. To Seller's knowledge, there is no set of facts
or circumstances which could result in any action, suit, litigation,
arbitration, dispute, proceeding, governmental investigation or governmental
audit which could reasonably be expected to result in Losses in excess of
$25,000 individually or $100,000 in the aggregate. Except as set forth on
Schedule 6(h), there are no orders, judgments or decrees of any court or
governmental agency in which Seller or any of its subsidiaries is named and
which apply specifically to the Business or the Assets and which involve Losses
in excess of $25,000 individually or $100,000 in the aggregate.
(i) Compliance with Laws and Other Instruments. Except with respect to
environmental matters (which are covered by Section 6(t)), Seller and each of
its subsidiaries has complied in all material respects with all laws, rules,
regulations, ordinances, orders, judgments and decrees applicable to the
Business or the Assets. Except with respect to environmental matters (which are
covered by Section 6(t)), neither the ownership by Seller or any of its
subsidiaries, nor the use by Seller or any of its subsidiaries, of the Assets
nor the conduct of the Business by Seller or any of its subsidiaries conflicts
with the rights of any other Person or violates, in any material respect, any
law, ordinance, rule or regulation, or any order, judgment or decree to which
Seller or any of its subsidiaries is a party or by which it may be bound or
affected. Except with respect to environmental matters (which are covered by
Section 6(t)), neither Seller nor any of its subsidiaries has violated or
defaulted under any terms or provisions of its articles of incorporation or by-
laws, as presently in effect, or any lien, mortgage, lease, agreement or
instrument relating to the Business, except for (i) defaults under leases set
forth on Schedule 6(c)(i) as requiring consent to this transaction by the
landlord thereunder where such consent is not obtained; or (ii) violations or
defaults which will not hereafter result in Losses in excess of $25,000
individually or $100,000 in the aggregate. Except with respect to environmental
matters (which are covered by Section 6(t)), Seller and each of its subsidiaries
has all approvals, authorizations, consents, licenses, orders, and other permits
from all governmental agencies, whether federal or local ("Approvals"), required
to permit the operation of the Business as presently conducted other than any
Approvals the absence of which will not result in Losses in excess of $25,000
individually or $100,000 in the aggregate.
(j) Title to Properties. (i) Except as set forth on Schedule 6(j)(i),
(A) Seller and its subsidiaries have good title to all of the Tangible Personal
Property and (B) none of the Tangible Personal Property is subject to any
Encumbrance of any nature whatsoever, direct or indirect, whether accrued,
absolute, contingent or otherwise, except such as are created pursuant to the
Credit Agreement.
(ii) (A) Other than the Real Property set forth on Schedule
1(b)(viii), Schedule 1(a)(i) contains a true and correct list of each parcel of
real property owned by Seller or its subsidiaries and used or held for use in
connection with the Business, and Schedules 1(a)(ii)(A) and 1(a)(ii)(B) contain
true and correct lists of each parcel of real property leased by Seller or its
subsidiaries (as lessor and lessee, respectively) and used or held for use in
connection with the Business.
(B) Seller or its subsidiaries has good and marketable fee simple
title to the Real Property, free and clear of all Encumbrances other than: (1)
the exceptions to title, if any, set forth on Schedule 6(j)(ii)(B) or as set
forth in any applicable title policies or reports attached to such Schedule, (2)
Encumbrances for real estate taxes and assessments not yet delinquent, and (3)
zoning ordinances and governmental regulations (which have not been violated by
the existing improvements or the use thereof), covenants, conditions,
limitations, declarations, easements, restrictions, matters of record (other
than mortgages and other Encumbrances) and minor irregularities of title, which
do not individually or in the aggregate materially detract from the value or
materially interfere with the use of any of the Real Property or Real Property
Leases (the items set forth in clauses (1), (2) and (3) above are collectively
called the "Real Estate Encumbrances"). Either Seller or one of its
subsidiaries is in possession of the Real Property. Either Seller or one of its
subsidiaries has adequate rights of ingress and egress with respect to the Real
Property and the Improvements. None of the Real Property or the Improvements,
or the use thereof, contravenes or violates any building, zoning,
administrative, occupational safety and health or other applicable law in any
material respect (whether or not permitted on the basis of prior nonconforming
use, waiver or variance).
(C) Either Seller or one of its subsidiaries has a valid and
subsisting leasehold estate in and the right to quiet enjoyment of the real
properties subject to the Real Property Leases set forth on Schedule 1(a)(ii)(B)
for the full term thereof. Each Real Property Lease is a legal, valid and
binding agreement, enforceable in accordance with its terms, of Seller or its
subsidiaries and of each other Person that is a party thereto, and except as set
forth on Schedule 6(j)(ii)(C), there is no, nor has Seller or its subsidiaries
received any notice of any, default (or any condition or event which, after
notice or lapse of time or both, would constitute a default) thereunder.
Neither Seller nor any of its subsidiaries owes any brokerage commissions with
respect to any such leased space.
(D) Seller has delivered to Purchaser prior to the execution of
this Agreement true and complete copies of (i) all deeds, leases, mortgages,
deeds of trust, certificates of occupancy, title insurance policies, title
reports, surveys and similar documents, and all amendments thereof, with respect
to the Real Property, and (ii) all Real Property Leases (including any
amendments and renewal letters) and, to the extent reasonably available, all
other documents referred to in clause (i) of this paragraph (D) with respect to
the real property subject to the Real Property Leases set forth on Schedule
1(a)(ii)(B).
(E) Except as set forth on Schedule 6(j)(ii)(E), no tenant or
other party in possession of any of the real properties subject to the Real
Property Leases set forth on Schedule 1(a)(ii)(A) has any right to purchase, or
holds any right of first refusal to purchase, such properties.
(F) Except as set forth on Schedule 6(j)(ii)(F), the Improvements
are in good operating condition and in a state of good maintenance and repair,
ordinary wear and tear excepted, are adequate and suitable for the purposes for
which they are presently being used and, to the knowledge of Seller, there are
no condemnation or appropriation proceedings pending or threatened against any
of the Real Property or the Improvements.
(k) Contracts. All of the contracts, leases and other agreements of
Seller and its subsidiaries and relating to the Business were entered into in
bona fide transactions in the ordinary course of business. Schedule 6(k) sets
forth a complete and correct list of all contracts and other agreements to which
Seller or any of its subsidiaries is a party and relating to the Business.
Notwithstanding the foregoing, Schedule 6(k) need not disclose (i) contracts
involving obligations not exceeding $250,000 individually or $1,000,000 for any
one kind of related contract in the aggregate, (ii) the leases set forth on
Schedules 1(a)(ii)(A) and 1(a)(ii)(B), (iii) purchase orders with Seller's
customers or suppliers in the ordinary course of business consistent with past
practice, (iv) value-added contracts in the ordinary course of business
consistent with past practice and (v) contracts that are no longer in effect.
Except as set forth on Schedule 6(k), to the knowledge of Seller, there is not
under any such contract any existing default by Seller or any of its
subsidiaries, or any event or circumstance which, after notice or lapse of time
or both, would constitute a default by Seller or any of its subsidiaries, or to
the knowledge of Seller, by the other party, or result in a right to accelerate
or loss of rights as against Seller or any of its subsidiaries which would in
each such case result in Losses in excess of $25,000 individually or $100,000 in
the aggregate for all kinds of contracts. There are no contracts, leases or
agreements which are required under generally accepted accounting principles to
be disclosed in the Financial Statements which have not been so disclosed.
(l) Patents, etc. Except as set forth on Schedule 6(l), each of Seller
and each of the Subsidiaries owns, or has the right to use or possess, all
Intellectual Property used in the Business as it is presently operated,
including, without limitation, the names Bell, Bell Industries, Bell
Electronics, Milgray and Milgray Electronics and variants thereof. Except to
the extent that no Losses in excess of $25,000 individually or $100,000 in the
aggregate would result, neither Seller nor any of the Subsidiaries is infringing
upon or otherwise acting adversely to any copyrights, trademarks, trademark
rights, service marks, service names, trade names, patents, patent rights,
licenses or trade secrets owned by any person or persons, and there is no claim
or action pending, or to the knowledge of Seller threatened, with respect
thereto.
(m) Employee Benefit Plans. There are no Encumbrances against the
Assets under Section 412(n) of the Internal Revenue Code of 1986, as amended
(the "Code"), or Sections 302(f) or 4068 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Neither Seller nor any corporation,
trade, business or other entity under common control with Seller, within the
meaning of Sections 414(b), (c), (m) or (o) of the Code, or under Section 4001
of ERISA (an "ERISA Affiliate") is or was obligated to contribute to any
multiemployer plan within the meaning of Section 3(37) of ERISA or any plan
subject to Title IV of ERISA. As of and after the Closing Date, Purchaser will
have no obligation to contribute to, or any liability in respect of, (i) any
employee benefit plan within the meaning of Section 3(3) of ERISA, or (ii) any
employment, severance or other agreement, arrangement, policy or plan (whether
written or oral) providing for insurance coverage (including without limitation
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits or retirement benefits, or
for profit sharing, deferred compensation, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, or any other forms of compensation or benefits (an "Employee Benefit
Plan"), sponsored or maintained by Seller or any ERISA Affiliate, or to which
Seller or any ERISA Affiliate is or was obligated to contribute, except for the
agreements set forth on Schedule 1(c)(xii). Each Employee Benefit Plan of
Seller which has been required to comply with the provisions of Section 4980B of
the Code and Sections 601 through 608 of ERISA has complied in all material
respects. Seller does not maintain any plans, arrangements, contracts or other
programs outside the United States for the purpose of providing or otherwise
making available retirement or other benefits to employees of the Business. The
Bell Industries Savings and Profit Sharing Plan has received a favorable
determination letter regarding its qualification under Section 401(a) of the
Code, and nothing has occurred, to the knowledge of Seller, since the date of
such determination which would cause the loss of such qualification. Neither
Seller nor any ERISA Affiliate maintains or participates in any voluntary
employees' beneficiary association governed by Section 501(c)(9) of the Code.
There are no actions, suits or claims (other than routine claims for benefits in
the ordinary course) rising in connection with the Employee Benefit Plans of
Seller pending or, to the knowledge of Seller, threatened, and to the knowledge
of Seller, there are no facts which could give rise to any such actions, suits
or claims (other than routine claims for benefits in the ordinary course) for
which Purchaser could be liable. Neither Seller nor any ERISA Affiliate nor any
other "disqualified person" or "party-in-interest" (as defined in Section 3 of
ERISA and Section 4975 of the Code, respectively) has, with respect to any such
plan, engaged in a prohibited transaction, as such term is defined in Section
4975 of the Code or Section 406 of ERISA, which would subject Purchaser to any
Taxes, penalties or other liabilities resulting from prohibited transactions
under Section 4975 of the Code or under Sections 409 or 502(i) or ERISA.
(n) Taxes. (i) For purposes of this Agreement, (A) "Tax" or "Taxes"
shall mean any federal, state, local, foreign or other taxes (including, without
limitation, income (net or gross), gross receipts, profits, alternative or add-
on minimum, franchise, license, capital, capital stock, intangible, services,
premium, mining, transfer, gains, sales, use, ad valorem, payroll, wage,
severance, employment, occupation, property (real or personal), windfall
profits, import, excise, custom, stamp, withholding or estimated taxes), fees,
duties, assessments, withholdings or governmental charges of any kind whatsoever
(including interest, penalties, additions to tax or additional amounts with
respect to such items) and (B) "Returns" shall mean all returns, declarations,
reports, estimates, information returns and statements of any nature regarding
Taxes required to be filed by Seller, any of its subsidiaries, or any affiliate
of Seller or any of its subsidiaries.
(ii) Except as set forth on Schedule 6(n), (A) all Returns have been
or will be timely filed when due in accordance with all applicable laws; (B) all
Taxes shown on such Returns have been or will be timely paid when due; (C) such
Returns completely, accurately and correctly in all material respects reflected
or will reflect the facts regarding the income, properties, operations and
status of any entity required to be shown thereon; (D) the charges, accruals,
and reserves for Taxes due, or accrued but not yet due, relating to the income,
properties or operations of Seller or any of its subsidiaries as reflected on
their books are and will be adequate to cover such Taxes; (E) there are no
agreements or consents currently in effect for the extension or waiver of the
time (1) to file any Return or (2) for assessment or collection of any Taxes
relating to the income, properties or operations of Seller or any of its
subsidiaries, and none of Seller, its subsidiaries, or any affiliate of Seller
or any of its subsidiaries, has been requested in writing to enter into any such
agreement or consent; (F) all federal income tax Returns with respect to taxable
years ended on or prior to June 30, 1994 have been examined and closed, or are
Returns with respect to which the applicable statute of limitations, after
giving effect to any extensions and waivers, has expired; (G) all Taxes which
Seller or any of its subsidiaries is required by law to withhold or collect have
been duly withheld or collected, and have been timely paid over to the
appropriate governmental authorities to the extent due and payable; (H) there is
no action, suit, proceeding, investigation, audit or claim currently pending, or
to the knowledge of Seller, threatened, regarding any Taxes relating to the
income, properties or operations of Seller or any of its subsidiaries or any
group of which any of the Subsidiaries is now or was formerly a member; (I) all
Tax deficiencies which have been claimed, proposed or asserted in writing
against Seller or any of its subsidiaries or any group of which any of the
Subsidiaries is now or was formerly a member, have been fully paid, finally
settled or are being contested in good faith by appropriate proceedings; (J)
none of Seller, its subsidiaries, or any affiliate of Seller or its subsidiaries
has executed or entered into a closing agreement pursuant to Code Section 7121
(or any comparable provision of state, local or foreign law) that is currently
in force and determines the Tax liabilities of any of the Subsidiaries; (K)
there is no, and will not be any, agreement or consent made under Code Section
341(f) (or any comparable provision of state, local or foreign law) affecting
either of the Subsidiaries; (L) none of the Subsidiaries (1) is required to
treat any asset as owned by another person pursuant to the "safe harbor" leasing
provisions of the Code or as "tax-exempt use property" within the meaning of
Code Section 168(h) or (2) is required to apply any of the foregoing rules under
any comparable foreign, state or local Tax provision; (M) none of the
Subsidiaries is a party to any agreement, contract, arrangement or plan that
would result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Code Section 280G (or any comparable
provision of state, local or foreign law); (N) none of the Subsidiaries has
agreed, or is required, to make any adjustment under Code Section 481(a) (or any
comparable provision of state, local or foreign law) by reason of a change in
accounting method or otherwise; (O) none of the Subsidiaries has been or is
included in any consolidated, affiliated, combined, unitary or other similar
Returns that include Seller or any affiliate of Seller; (P) no power of attorney
is currently in effect, and no Tax ruling has been requested of any governmental
authority, with respect to any Tax matter relating to the income, properties or
operations of any of the Subsidiaries; (Q) there are no liens for Taxes upon any
of the Assets and, to the knowledge of Seller, no event has occurred which with
the passage of time or the giving of notice, or both, could reasonably be
expected to result in a lien for Taxes on any of the Assets; and (R) Seller is
not a United States real property holding corporation (as defined in Code
897(c)(2)) and has not been a United States real property holding corporation
during any period specified in Code 897(c)(1)(A)(ii).
(o) Proxy Statement. The proxy statement relating to the Seller's
Shareholders Meeting (as defined in Section 8(c)), as amended or supplemented
from time to time (as so amended and supplemented, the "Proxy Statement"), and
any other documents to be filed by Seller with the Securities and Exchange
Commission (the "SEC") or any other Governmental Entity in connection with the
transactions contemplated hereby will not, on the date of its filing or, in the
case of the Proxy Statement, at the date it is mailed to shareholders of Seller
and at the date of Seller's Shareholders Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by Seller with respect to information supplied in writing
by or on behalf of Purchaser expressly for inclusion therein. The Proxy
Statement and any such other documents filed by Seller with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will comply as
to form in all material respects with the requirements of the Exchange Act.
(p) Affiliate Transactions. Each contract, agreement or arrangement
between any of Seller or any affiliate of Seller, existing as of the date of
this Agreement and relating to the Business ("Affiliate Agreements") is
described as set forth on Schedule 6(p) annexed hereto, and all such Affiliate
Agreements will be terminated effective as of the close of business on the
Closing Date except as set forth on Schedule 6(p).
(q) Inventory; Accounts Receivable. (i) Except (A) as set forth on
Schedule 6(q)(i), (B) for inventory having an aggregate book value not greater
than $500,000 and (C) for inventory purchased for use in kitting, none of the
items of the Business' inventory was purchased from a source other than the
manufacturer thereof or a distributor duly licensed or franchised to distribute
such items by such manufacturer and, except for inventory purchased for customer
specific requirements (so long as subject to a contract for the purchase thereof
by such customer), all such items of inventory meet the requirements for return
to the manufacturer under the applicable Franchise Agreement other than as a
result of quantity limitations with respect to such return rights. Except as
set forth on Schedule 6(q)(i), to the extent that any items of inventory
intended to be sold to the military are, in order to meet military or similar
specifications, required to be accompanied by (or the seller thereof is required
to maintain) traceability, testing or other documentation, all such
documentation has been so maintained and is in the possession of Seller or its
subsidiaries at one of their respective offices.
(ii) Except as set forth on Schedule 6(q)(ii), the Accounts Receivable
(A) arose from bona fide sales transactions in the ordinary course of business
of the Business and are payable consistent with past practice, (B) are legal,
valid and binding obligations of the respective debtors enforceable in
accordance with their terms, (C) are not subject to any valid set-off or
counterclaim except as may be required by law, (D) do not represent obligations
for goods sold on consignment, on approval or on a sale-or-return basis or
subject to any other repurchase or return arrangement, (E) are collectible in
the ordinary course of business consistent with past practice of the Business in
the aggregate recorded amounts thereof, net of any applicable reserve reflected
in the balance sheet included in the Financial Statements, and (F) are not the
subject of any action, suit or proceeding brought by or on behalf of Seller.
Schedule (6)(q)(ii) sets forth a description of any security arrangements and
collateral securing the repayment or other satisfaction of the Accounts
Receivable. All steps necessary to render all such security arrangements set
forth on Schedule 6(q)(ii) legal, valid, binding and enforceable, and to give
and maintain for Seller a perfected security interest in the related collateral,
have been taken.
(r) Rights of Return. Except as set forth on Schedule 6(r), none of
Seller and its subsidiaries has sold any inventory of the Business which the
purchaser thereof has the right to return to Seller or any subsidiary or cause
the seller thereof to repurchase for any reason except (i) pursuant to the
customary express warranties of Seller or the relevant subsidiary, as the case
may be, for product quality or mistake in shipment or implied warranties at law
for title and against infringement, (ii) to the extent the same will be
reflected in reserves on the Audited Balance Sheet or (iii) for inventory having
a value not exceeding $50,000 individually or $250,000 in the aggregate.
(s) Insurance. Schedule 6(s) sets forth a complete and accurate list
of all of Seller's Insurance Policies (as defined in Section 8(d)). Each of
Seller's Insurance Policies is in full force and effect, and, to the knowledge
of Seller, there is not under any of Seller's Insurance Policies, any existing
default by Seller or any of the Subsidiaries, or any event which, after notice
or lapse of time or both, would constitute a default by Seller or any of the
Subsidiaries.
(t) Environmental Matters. Except as set forth on Schedule 6(t)
hereto:
(i) The operations of the Business and, to the knowledge of
Seller, the respective tenants of Seller and its subsidiaries are in compliance
with all Environmental Laws, except for noncompliance which may result in
Environmental Liabilities and Costs which individually or in the aggregate could
not have a material adverse effect on the Business;
(ii) With respect to any currently or previously owned or leased
property of Seller and its subsidiaries utilized in the current or previous
operation of the Business, none of Seller, its subsidiaries, and (to the
knowledge of Seller) their respective tenants is or are subject to any
outstanding or threatened order or notice from or agreement with any
Governmental Entity or other Person or is subject to any judicial or docketed
administrative proceeding with respect to (A) failure to comply with
Environmental Laws, (B) Remedial Action under Environmental Laws, (C) any
Environmental Liabilities and Costs, or (D) any Release or threatened Release of
Contaminants, except (I) as set forth on Schedule 6(h) or (II) for orders,
notices, agreements, or proceedings which may result in Environmental
Liabilities and Costs which individually or in the aggregate could not have a
material adverse effect on the Business;
(iii) There are no conditions or events associated with the
currently or previously owned or leased properties of Seller or any of its
subsidiaries or current or previous operations of the Seller and its
subsidiaries or, to the knowledge of Seller, their respective tenants, that may
result in any Environmental Liabilities and Costs which individually or in the
aggregate could have a material adverse effect on the Business;
(iv) Neither the facilities utilized in the current or previous
operations of the Business of Seller or any of its subsidiaries nor, to the
knowledge of Seller, such facilities of their respective tenants, is a
treatment, storage or disposal facility requiring a permit under the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ("RCRA"), the
regulations promulgated thereunder, or any analogous provision of state law;
(v) None of Seller, its subsidiaries and to the knowledge of
Seller, their respective tenants, has caused or allowed any Release of
Contaminants, relating to any property owned or leased or previously owned or
leased by the Seller or any of its subsidiaries that may result in Environmental
Liabilities and Costs which individually or in the aggregate could have a
material adverse effect on the Business;
(vi) With respect to any currently or previously owned or leased
property of Seller and its subsidiaries utilized in the current or previous
operation of the Business, none of Seller and any of its subsidiaries has
entered into any agreement that may require any of them to pay to, reimburse,
guarantee, pledge to, defend, indemnify, or hold harmless any Person for or
against Environmental Liabilities and Costs;
(vii) With respect to any currently or previously owned or leased
property of Seller and its subsidiaries utilized in the current or previous
operation of the Business, none of Seller and its subsidiaries has ever directly
or indirectly disposed of any Hazardous Material (as defined below) at any site
or location that is listed on any estate or federal list of sites requiring
Remedial Action.
For the purposes of this Agreement:
"Contaminant" means any substance regulated or forming the basis of
liability under any Environmental Law, including, without limitation, any waste,
pollutant, hazardous substance, toxic substance, hazardous waste, special waste,
petroleum or petroleum-derived substance or waste, or any material of which such
substance or waste is a constituent.
"Environmental Laws" means all federal, state, and local laws,
statutes, ordinances and regulations in effect as of the date hereof, and any
judicial or administrative interpretation thereof, including, without
limitation, any judicial or administrative order, consent decree or judgment
relating to the regulation and protection of human health, safety, the
environment and natural resources (including, without limitation, ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation). Environmental Laws include but are
not limited to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. 9601 et seq.) ("CERCLA"); the
Hazardous Material Transportation Act, as amended (49 U.S.C. 5101 et seq.);
the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C.
136 et. seq.); RCRA; the Toxic Substances Control Act, as amended (15 U.S.C.
2601 et seq.); the Clean Air Act, as amended (42 U.S.C. 7401 et seq.); the
Federal Water Pollution Control Act, as amended (33 U.S.C. 1251 et seq.); and
the Safe Drinking Water Act, as amended (42 U.S.C. 300f and their foreign,
state and local counterparts or equivalents, and any transfer or ownership
notification or approval statutes such as the New Jersey Industrial Site
Recovery Act (N.J. Stat. Ann. 13:1K-6 et seq.).
"Environmental Liabilities and Costs" means as to any Person, all
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
treble damages, costs and expenses (including, without limitation, all fees,
disbursements and expenses of counsel, experts and consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions and interest
incurred as a result of any claim or demand by any other Person, whether based
on contract, tort, implied or express warranty, strict liability, criminal or
civil statute, including, without limitation, any thereof arising under any
Environmental Law, license, permit, order or agreement with any Governmental
Entity or other Person, and which relate to any environmental, health or safety
condition, or a Release or threatened Release.
"Release" means, as to any Person, any release, spill, emission,
leading, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration of Contaminants into the indoor or outdoor environment or into,
onto or from any property owned or leased by such Person, including, without
limitation, the movement of Contaminants through or in the air, soil, surface
water, groundwater or property.
"Remedial Action" means all actions required to (i) clean up, remove,
treat or in any other way address Contaminants in the indoor or outdoor
environment, (ii) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment, or
(iii) perform preremedial studies and investigations and post-remedial
monitoring and care.
(u) Determination of Taxability. No event or circumstance exists
which could reasonably be expected to have an adverse effect on the exemption of
interest on the Ontario Industrial Development Authority, Adjustable Tender
Industrial Development Revenue Bonds (L.D. Brinkman & Co. - West Coast Project)
Series 1985 from federal income taxation.
(v) Vote Required. Assuming the accuracy of the representation and
warranty contained in Section 7(e), the approval by the affirmative vote of a
majority of the outstanding shares of the common stock of Seller ("Seller Common
Stock") entitled to vote is the only vote of the holders of any class or series
of the capital stock of Seller required to approve the transactions contemplated
by this Agreement and the Option Agreement.
(w) Article SEVEN of Seller's Articles of Incorporation Not
Applicable. Seller has taken all necessary actions so that the provisions of
Article SEVEN of Seller's Articles of Incorporation will not, before the
termination of this Agreement, apply to this Agreement or the transactions
contemplated by this Agreement and the Option Agreement.
(x) Subsidiary Ownership of Real Property. None of the Subsidiaries
has now, or has had at any time, any rights arising out of or appurtenant to the
ownership or leasing of real property.
(y) Proxies. Each of the directors and officers of Seller named on
Schedule 6(y) has on the date hereof granted to Purchaser an irrevocable proxy
to vote the shares of Seller Common Stock beneficially owned by such person to
approve this Agreement and the transactions contemplated by this Agreement.
(z) Labor Matters. Except as set forth on Schedule 6(z), neither
Seller nor any of its subsidiaries is a party to any collective bargaining
agreement with any labor union, confederation or association and there are no
discussions, negotiations, demands or proposals that are pending or have been
conducted or made with or by any labor union, confederation or association. To
Seller's knowledge, there are not pending or threatened against Seller or any of
its subsidiaries any general labor disputes, strikes or work stoppages. There
is no present or former employee, manager or director of Seller or any of its
subsidiary who has made any claim since January 1, 1998 against Seller or any of
its subsidiaries (whether under law, any employment agreement or otherwise) on
account of or for: (i) overtime pay, other than overtime pay for the current
payroll period; (ii) wages or salaries, other than wages or salaries for the
current payroll period; (iii) vacations, sick leave, time off or pay in lieu of
vacation, sick leave or time off, other than vacation, sick leave or time off
(or pay in lieu thereof) earned in the twelve-month period immediately preceding
the date of this Agreement; or (iv) termination of employment, and to Seller's
knowledge, there is no basis for any such claim.
(aa) Supplier Audits. Schedule 6(aa) sets forth the dates of each
audit conducted since January 1, 1995 by each material supplier to the Business
and its subsidiaries.
(bb) Trading Practices; Ethical Standards. The directors, employees
and independent commission agents of Seller and its subsidiaries are in
compliance with ethical standards and other trading practices mandated by
applicable laws and contractual arrangements and have not made payments to any
third parties other than in the ordinary course of business or pursuant to
contracts.
(cc) Value-Added Business. The products assembled and sold by or on
behalf of Seller under Seller's value-added business (i) are first quality
merchandise, useable and saleable in the ordinary course of business within a
period of not more than twelve (12) months, (ii) were assembled in conformity in
all material respects with applicable specifications and quality control
standards and in conformity with all applicable laws, rules and regulations and
(iii) are not obsolete, damaged, defective or shopworn.
For purposes of this Agreement, "knowledge" of Seller shall mean and
be limited to the actual knowledge of any director of Seller or Tracy Edwards,
Russell Doll, Steven Weeks, D.J. Hough or Peter Resnick, in each case, at the
date hereof.
7. Purchaser's Representations and Warranties.
Purchaser represents and warrants to Seller, as of the date of this
Agreement, as follows:
(a) Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York.
(b) Execution, Delivery and Performance of Agreement. The execution,
delivery and performance of this Agreement by Purchaser will not, with or
without the giving of notice or the passage of time, or both, conflict with,
result in violation of, result in a default, right to accelerate or loss of
rights under, or result in the creation of any Encumbrance pursuant to, any
provision of Purchaser's certificate of incorporation or bylaws or any mortgage,
deed of trust, lease, license, material agreement (including any debt
instrument), law, rule, regulation, order or judgment or decree to which
Purchaser is a party or by which it may be bound or affected, except as set
forth on Schedule 7(b) or as could not be reasonably expected to have a material
adverse effect on Purchaser's ability to consummate the transactions
contemplated by this Agreement. Purchaser has the full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of Purchaser has approved the
entering into by Purchaser of this Agreement. There are no other corporate
proceedings required to be taken by Purchaser to authorize the execution,
delivery and performance by Purchaser of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes a valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
creditor's rights generally and subject to usual equity principles.
(c) Information to be Included in the Definitive Proxy Statement.
Neither the information supplied or to be supplied in writing by or on behalf of
Purchaser for inclusion in the Proxy Statement in connection with the
transactions contemplated hereby will, at the date it is mailed to shareholders
of Seller and at the date of the Seller's Shareholders Meeting, contain any
untrue statement of a material fact or omit to state any, material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
(d) Litigation. No action, suit, litigation, arbitration, dispute,
proceeding or governmental investigation or governmental audit is pending
against, or to the knowledge (as defined at the end of this Section 7) of
Purchaser, threatened against, Purchaser or any of its properties, assets or
businesses, or any direct or indirect shareholder of Purchaser in its or his
capacity as such, which individually or in the aggregate is reasonably likely to
have a material adverse effect on Purchaser's ability to consummate the
transactions contemplated by this Agreement. There are no orders, judgments or
decrees of any court or governmental agency in which the Purchaser is named and
which apply specifically to the Purchaser or any of its properties, assets or
businesses and which individually or in the aggregate is reasonably likely to
have a material adverse effect on Purchaser's ability to consummate the
transactions contemplated by this Agreement.
(e) Ownership of Seller Common Stock. Neither Purchaser nor any of
its subsidiaries beneficially owns more than 100 shares of Seller Common Stock.
8. Certain Agreements.
(a) Observance of Operations of the Business. From the date hereof
until the Closing Date, Purchaser may, at its election, have a reasonable number
of representatives (which shall be employees of Purchaser or existing
consultants of Purchaser who are acting as such in connection with this
Agreement) at the facilities of Seller and its subsidiaries to observe and
consult with representatives of Seller and its subsidiaries with respect to the
management of the operations of the Business, except as otherwise provided in
Section 8(b). Notwithstanding anything in this Agreement to the contrary, all
rights of Purchaser or its representatives to access to or inspection of the
Business or to obtain information with respect to the Business pursuant to
Sections 8(a), 8(b), 9(c) and 9(e) shall be effected solely through Gordon
Graham, Tracy Edwards or such other persons as may be mutually agreed by the
parties hereto and shall be subject to the right of a representative of Seller
to accompany Purchaser or its representative in connection therewith.
(b) Maintain Business. From the date hereof to the Closing, except as
otherwise provided in this Section 8(b), Seller shall, and shall cause each of
its subsidiaries to, conduct the Business only in the ordinary course and
consistent with its prior practice (including with respect to the collections of
Accounts Receivable and replenishment of Inventory), maintain, keep and preserve
the Assets and the assets and properties of the Subsidiaries in good condition
and repair and shall use its best efforts to maintain insurance thereon in
accordance with present practices, and Seller shall, except as provided in this
Section 8(b), use its best efforts to act in such manner to preserve the
business and organization of the Business intact, to use its best efforts, at
current compensation levels, to keep available to Purchaser the services of
present employees of the Business and to use its best efforts to preserve for
the benefit of Purchaser the goodwill of suppliers and customers and others
having business relations with the Business. Without limiting the generality of
the foregoing, unless Purchaser shall have otherwise consented in writing,
Seller shall:
(i) permit Purchaser's representatives to communicate, orally, in
writing or by other media, with the employees of Seller and of the Subsidiaries
in connection with matters other than integration planning, due diligence and
purchase price determination, as long as such communications are made jointly
with designated representatives of Seller and are reviewed and approved in
advance by Seller;
(ii) not, and cause each of the Subsidiaries not to, conduct the
Business in a manner such that the provisions of Section 6(g) will not remain
true and correct in all material respects without the consent of Purchaser;
(iii) not cause any of the Subsidiaries to change its charter or
by-laws in any manner or merge or consolidate or obligate themselves to do so
with or into any other entity;
(iv) cause those employees of Seller as shall be designated by
Gordon Graham and Tracy Edwards and as may be mutually agreed by the parties
hereto to assist Purchaser in the human resource planning and the planning of
the integration of the Business with and into the businesses of Purchaser (it
being agreed that such plans shall not be implemented prior to the Closing
without the consent of Seller);
(v) not modify or change any existing Franchise Agreement or
contract required to be set forth on Schedule 6(k) or renew or extend any
existing Real Property Lease (unless such renewal or extension is for no more
than six (6) months and is otherwise on terms substantially similar to such
renewed or extended lease);
(vi) not open any new facility in respect of the Business;
(vii) not fail to pay all Taxes as they become due and payable,
except in cases where the payment of such Taxes is being disputed in good faith
by Seller with appropriate reserves reflected or to be reflected in the Audited
Balance Sheet;
(viii) with respect to any employee of the Business having total
compensation in excess of $100,000 annually, not hire, promote or fire any such
employee other than for cause;
(ix) not make any capital expenditures or capital additions or
betterment in excess of $250,000 in the aggregate in respect of the Business;
(x) not make any payment, loan, or other transfer of any assets
to, or assume any obligations or liabilities of, Seller or any affiliates of
Seller except in the ordinary course of business consistent with past practice
of the Business; and
(xi) consult with and advise Purchaser with respect to (A) any
inventory purchases out of the ordinary course of business or inconsistent with
past practice and (B) inventory management.
(c) Approval of Shareholders; Proxy Statement. (i) Seller shall cause
a meeting of its shareholders (the "Seller's Shareholders Meeting") to be duly
called and held as soon as reasonably practicable for the purpose of voting to
approve the transactions contemplated by this Agreement (the "Seller
Shareholders' Approval"). The Board of Directors of Seller shall recommend to
its shareholders the approval of all such matters and shall use all reasonable
efforts to obtain the approval of such shareholders; provided, however, that
nothing herein shall require the Board of Directors of Seller to act, or refrain
from acting, in any manner that it may determine, after consultation with its
outside counsel, to be necessary to the proper discharge of the directors'
fiduciary duties to its shareholders. In the event that the Seller
Shareholders' Approval is not obtained on the date on which the Seller's
Shareholders Meeting is initially convened, the Board of Directors of Seller
agrees to adjourn such Seller's Shareholders Meeting at least twice for the
purpose of obtaining the Seller Shareholders' Approval and to use its best
efforts during any such adjournments to obtain the Seller Shareholders'
Approval, unless failure to obtain the Shareholders' Approval is caused by the
holders of a majority of outstanding shares of Seller Common Stock voting
against the approval of the transactions contemplated by this Agreement.
(ii) In connection with Seller's Shareholders Meeting, Seller shall
prepare and file a preliminary proxy statement relating to the transactions
contemplated hereby (the "Preliminary Proxy Statement") with the SEC, and Seller
shall use its best efforts to respond to the comments of the SEC and to cause a
definitive proxy statement (the "Definitive Proxy Statement") to be mailed to
its shareholders, all as soon as reasonably practicable. Seller shall notify
Purchaser as soon as reasonably practicable of the receipt of any comments from
the SEC and of any requests by the SEC for amendments or supplements to the
Preliminary Proxy Statement or the Definitive Proxy Statement or for additional
information, and shall as soon as reasonably practicable supply to Purchaser
copies of all correspondence between it or its representatives and the SEC or
members of its staff with respect to the Preliminary Proxy Statement or the
Definitive Proxy Statement. If at any time prior to Seller's Shareholders
Meeting, any event should occur relating to Seller, any of the Subsidiaries,
Purchaser, their respective officers or directors or otherwise, which should be
set forth in an amendment of, or a supplement to, the Definitive Proxy
Statement, the first party learning of such event shall promptly notify the
other, and Seller, with Purchaser's reasonable cooperation, shall thereupon
promptly prepare and mail such amendment or supplement. Anything to the
contrary contained herein notwithstanding, Seller shall not (except to the
extent required by law) include in its Preliminary Proxy Statement or Definitive
Proxy Statement any information with respect to Purchaser, or any of its
officers, directors, affiliates or associates, or Purchaser's plans or
intentions, the form and content of which shall not have been approved by
Purchaser prior to such inclusion, such approval not to be unreasonably
withheld.
(d) Insurance. (i) To the extent that (A) there are third-party
insurance policies maintained by Seller and its affiliates covering any loss,
liability, damage or expense relating to the Assets, operations, conduct,
products and employees (including former employees) of the Business ("Seller's
Insurance Policies") (all such losses, liabilities, claims, damages or expenses
regardless of the availability of insurance coverage, are herein referred to
collectively as the "Business Liabilities") and relating to or arising out of
occurrences prior to the Closing, and (B) Seller's Insurance Policies continue
after the Closing to permit claims ("Claims") to be made with respect to such
Business Liabilities relating to or arising out of occurrences prior to the
Closing, Seller agrees to cooperate and cause its affiliates to cooperate with
Purchaser in submitting Claims on behalf of Purchaser or the Subsidiaries under
Seller's Insurance Policies with respect to such Business Liabilities relating
to occurrences prior to the Closing, except for Claims relating to Retained
Liabilities.
(ii) Seller shall maintain each of Seller's Insurance Policies in full
force and effect until the Closing.
(e) Hiring of Employees. Seller and Purchaser agree that pending the
Closing, and in the event of termination of this Agreement, until six months
after such termination, (i) Purchaser will not hire, employ, solicit, or offer
employment to any present employee of Seller or any of its subsidiaries, whether
or not such employee remains in the employ of Seller or any of its subsidiaries,
after the date hereof, without Seller's written consent, except for discussions
prior to the termination of this Agreement in accordance with Section 8(b)(i)
with employees relating to their employment by Purchaser after the consummation
of the transactions contemplated herein, and (ii) Seller will not, and will
cause each of its subsidiaries not to, hire, employ, solicit or offer employment
to any present employee of Purchaser, whether or not such employee remains in
the employ of Purchaser after the date hereof, without Purchaser's written
consent. The foregoing mutual covenants shall survive any breach or alleged
breach of this Agreement or the termination of this Agreement for any reason.
(f) Tax Matters. (i) Any and all existing Tax sharing, allocation,
compensation or like agreements or arrangements, whether or not written, that
include any of the Subsidiaries, including without limitation any arrangement by
which any of the Subsidiaries makes compensating payments to each other or any
other member of any affiliated, consolidated, combined, unitary or other similar
Tax group for the use of certain tax attributes, shall be terminated as to the
Subsidiaries on or prior to the Closing Date (pursuant to a writing executed on
or before the Closing Date by all parties concerned) and shall have no further
force or effect as to the Subsidiaries. Any and all powers of attorney relating
to Tax matters concerning any of the Subsidiaries shall be terminated as to that
Subsidiary on or prior to the Closing Date and shall have no further force or
effect.
(ii) After the Closing Date, Purchaser and Seller shall provide each
other, and Purchaser shall cause the Subsidiaries to provide Seller, with such
cooperation and information relating to the Subsidiaries as either party
reasonably may request in (A) filing any Tax return, amended return or claim for
refund, (B) determining any Tax liability or a right to refund of Taxes, (C)
conducting or defending any audit or other proceeding in respect of Taxes or (D)
effectuating the terms of this Agreement. The parties shall retain, and
Purchaser shall cause the Subsidiaries to retain, all returns, schedules and
work papers, and all material records (including accounting records) and
other documents relating thereto, until the expiration of the statute of
limitation (and, to the extent notified by any party, any extensions thereof) of
the taxable years to which such returns and other documents relate and, unless
such returns and other documents are offered and delivered to Seller or
Purchaser, as applicable, until the final determination of any Tax in respect of
such years. Any information obtained under this Section 8(f)(ii) shall be kept
confidential, except as may be otherwise necessary in connection with filing any
Tax return, amended return, or claim for refund, determining any Tax liability
or right to refund of Taxes, or in conducting or defending any audit or other
proceeding in respect of Taxes. Notwithstanding the foregoing, neither Seller
nor Purchaser, nor any of their affiliates, shall be required unreasonably to
prepare any document, or determine any information not then in its possession,
in response to a request under this Section 8(f)(ii).
(iii) Purchaser shall have received, on or before the Closing Date, an
affidavit in the form of Exhibit E that Bell Ontario Holding, Inc. is not a
"foreign person" within the meaning of Code Section 1445. If, on or before the
Closing Date, Purchaser shall not have received such affidavit, Purchaser may
withhold from the Purchase Price payable at Closing to the Seller pursuant
hereto such sums as are required to be withheld therefrom under Code Section
1445.
(iv) Seller shall pay when due, any transfer, gains, documentary,
sales, use, registration, stamp, value added or other similar Taxes payable by
reason of the transactions contemplated by this Agreement or attributable to the
sale, transfer or delivery of the Acquired Shares hereunder, and Purchaser shall
reimburse Seller one-half of any such payment, provided that the amount of
reimbursement by Purchaser shall not exceed $500,000. Seller shall, at its own
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes.
(g) Option Agreement. Seller and Purchaser will perform fully their
respective obligations under the Option Agreement.
(h) Transition Services. At Purchaser's request, Seller agrees to provide
to Purchaser and the Business data processing and other computer services, data-
induced communications, accounting services, human resources and other
administrative support to the extent used by the Business prior to the Closing
Date, and the facilities and services set forth on Schedule 6(b) and the
facility set forth on Schedule 1(b)(viii) (collectively, the "Transition
Services") for up to twelve (12) months from the Closing Date. Purchaser shall
reimburse Seller for all out-of-pocket costs incurred in providing the
Transition Services, including any reasonable payments deemed necessary by
Seller (and consented to in advance by Purchaser, which consent shall not be
unreasonably withheld) to ensure continuing services of the personnel performing
such services during such period.
9. Certain Covenants of Seller.
(a) Obtain Consents. Seller will, and will cause each of its subsidiaries
to, upon the request of Purchaser, use its reasonable efforts to obtain the
consents necessary in connection with the transactions contemplated hereby with
respect to each (i) of the items set forth on Schedule 6(c)(i), (ii) lease set
forth on Schedules 1(a)(ii)(A) and 1(a)(ii)(B) and (iii) Franchise Agreement,
and deliver to Purchaser evidence thereof, it being understood however that (A)
neither Seller nor any of its subsidiaries shall be required to pay any
consideration or relinquish valuable rights to obtain such consents and (B)
Purchaser shall cooperate with Seller in obtaining such consents.
(b) Accomplish Sale. Seller will, and will cause each of its subsidiaries
to, enter into no transaction and make no agreement or commitment which would
prevent or unreasonably delay the Closing, and will, and will cause each of its
subsidiaries to, act in such manner to consummate the transactions contemplated
by this Agreement and will, and will cause each of its subsidiaries to, use its
reasonable efforts not to permit any event to occur which would result in any of
its representations, warranties or covenants contained in this Agreement or
delivered in connection herewith not being true and correct at and as of the
time immediately after the occurrence of such transaction or event except to the
extent Purchaser has (y) consented thereto or (z) requested Seller to take or
omit to take an action (and Seller has complied with such request), in each case
where such consent or request has resulted in such representation and warranty
not being true and correct, it being agreed that Purchaser shall notify Seller
of any breach of this provision of which it has actual knowledge and provide
Seller with a reasonable opportunity to cure such breach.
(c) Cooperate with Purchaser. Subject to Section 8(b), Seller shall, and
shall cause each of its subsidiaries and shall direct each of their respective
officers and employees to, reasonably cooperate and assist Purchaser and
Purchaser's accountants, attorneys, employees, lenders and other representatives
in consummating the transactions contemplated under this Agreement.
(d) No Solicitation. Seller shall not, and shall direct each of its
subsidiaries and their respective officers, employees, representatives and
agents not to, directly or indirectly, induce, solicit or initiate discussions
or negotiations with, or provide any non-public information to, any corporation,
partnership, person or other entity or group concerning any merger, sales of
substantial assets, sales of shares of capital stock or similar transactions
involving Seller or any subsidiary or division of Seller if such transaction
involves the Business or any of the Assets ("Alternative Proposal") or enter
into any agreement with respect thereto; provided that, prior to the receipt of
the Seller Shareholders' Approval and upon receipt of advice of Seller's legal
counsel that such provision, discussion or negotiation is required pursuant to
fiduciary obligations under applicable law, Seller may provide information
(including non-public information, but only pursuant to a confidentiality
agreement in customary form, including customary standstill provisions), and
enter into (or induce) discussions or negotiations with, any person who has made
a bona fide unsolicited Alternative Proposal in respect of such a transaction
which the Board of Directors of Seller in good faith determines is a better
offer than the transactions contemplated by this Agreement. Seller will
promptly communicate to Purchaser the terms of any Alternative Proposal
(including the maker thereof) which it may receive in respect of all such
transactions prohibited by the foregoing and keep Purchaser informed of the
status and material information with respect to such discussions or
negotiations. Nothing in this Section 9(d) shall (x) permit Seller to terminate
this Agreement (except as specifically provided in Section 17, (y) permit Seller
to enter into any agreement with respect to an Alternative Proposal for so long
as this Agreement remains in effect (it being agreed that for so long as this
Agreement remains in effect, Seller shall not enter into any agreement with any
person or group that provides for, or in any way facilitates, an Alternative
Proposal (other than a confidentiality agreement under the circumstances
described above)), or (z) affect any other obligation of Seller under this
Agreement.
(e) Access to Information. Prior to the Closing or termination of this
Agreement in accordance with its terms, Seller will, and will cause each of its
subsidiaries to, (i) give Purchaser and its authorized representatives
reasonable access during normal business hours to all offices and other
facilities relating to the Business and to all its books and records relating to
the Business and will request that its independent accountants allow Purchaser's
independent accountants access to all of their work papers, including, but not
limited to, all plan documents, audit programs, lists of proposed adjustments
and conclusion memoranda, (ii) permit Purchaser to make such inspections as it
may reasonably require, and (iii) subject to Section 8(b), cause its officers to
furnish Purchaser with such financial and operating data and other information
with respect to the Business and their properties as Purchaser may from time to
time reasonably request, in each case to the extent that the same does not
unreasonably interfere with the operations of the Business (it being understood
that Seller shall, and shall cause its subsidiaries to, develop (with the
cooperation of Purchaser) such information as may be reasonably required in
connection with Purchaser's integration planning, provided that such development
does not unreasonably interfere with the operations of the Business or conflict
with applicable law or the provisions of any existing confidentiality agreement
and there exists sufficient underlying data to develop such information).
Purchaser will, and will direct each of its representatives to, hold all such
information and documents confidential in accordance with and subject to the
terms of the Confidentiality Agreement dated April 8, 1998 executed by Purchaser
and Seller (the "Confidentiality Agreement"); provided, however, that the terms
of the Confidentiality Agreement relating to the Assets and the Business shall
not apply to Purchaser after the Closing Date. Seller shall hold all
information relating to the Assets or the Business confidential in accordance
with and subject to the terms of the Confidentiality Agreement as if Seller were
the recipient of such information.
(f) Employee Benefits Plan. As of the Closing Date, each employee of the
Business shall become 100% vested in his or her interest in or his or her
accrued benefits under all Employee Benefit Plans.
(g) Hart-Scott Compliance. Seller shall promptly prepare and file all
reports and provide all additional information required under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended ("Hart-Scott"), and use
its best efforts to obtain all approvals required thereunder.
(h) Elimination of Intercompany Indebtedness. Other than intercompany
indebtedness and receivables between the Subsidiaries, prior to the Closing
Date, Seller shall cause all intercompany indebtedness involving the Business to
be canceled or eliminated or contributed to the Subsidiaries and all
intercompany receivables involving the Business to be canceled or eliminated or
distributed to Seller.
(i) Delivery of Documents. Seller shall cause to be delivered to Purchaser
all documents required to be delivered to Purchaser at or prior to the Closing.
(j) Resignations of Directors. Seller shall cause to be delivered to
Purchaser at or prior to the Closing the resignations of the boards of directors
of each of the Subsidiaries as Purchaser shall have requested.
(k) Real Property. At or prior to the Closing, the following shall occur:
(i) Subject to Section 8(f)(iv), all real estate transfer and gains
Taxes payable by reason of the transaction contemplated hereunder shall be paid
and borne by Seller. Seller and Purchaser shall cooperate to prepare and file
all required documents and filings with applicable authorities.
(ii) Seller shall deliver to Purchaser and its title insurer such
evidence as may be reasonably required by Purchaser or its title insurer of the
due authorization, execution and delivery of this Agreement.
(iii) In connection with Purchaser's efforts to obtain an owner's title
insurance policy or policies (the "Policies") for any of the Real Property,
Seller shall provide for the delivery of such executed and acknowledged
affidavits and/or agreements as Purchaser's title insurer shall reasonably
require in order to omit from each of the Policies all exceptions (other than
Real Estate Encumbrances) for (A) judgments, bankruptcies or other returns
against persons or entities whose names are the same as or similar to name of
Seller or any of the Subsidiaries, (B) rights of tenants, (C) mechanics' and
materialmen's Encumbrances not reflected on the June Balance Sheet and (D)
unrecorded documents to which any of the Subsidiaries or Seller is a party or of
which any of the Subsidiaries or Seller has knowledge.
(iv) Seller shall cause its subsidiary Bell Ontario Holding, Inc. to
deliver to Purchaser the general warranty deed for the Real Property located in
the City of Ontario, County of San Bernardino, State of California, sometimes
commonly referred to as 1251 South Rockefeller Avenue, Ontario, California.
(l) Canadian Antitrust Compliance. Seller shall promptly file any notice
and provide any information required under Investment Canada and the Competition
Act of Canada.
(m) Security Deposits. Seller will take all actions necessary to transfer
to Purchaser on the Closing Date all of Seller's or its applicable subsidiaries'
right, title and interest in and to the Tenant Security Deposits and the
Landlord Security Deposits.
(n) Delivery of Books and Records, etc.; Removal of Property. (i) On the
Closing Date, Seller will deliver or make available to Purchaser at the
locations at which the Business is conducted all of the Business Books and
Records and such other Assets as are in Seller's or its applicable subsidiaries'
possession at other locations, and if at any time after the Closing Seller
discovers in its possession or under its control any other Business Books and
Records or other Assets, it will forthwith deliver such Business Books and
Records or other Assets to Purchaser.
(ii) Within sixty (60) days after the Closing Date, Seller shall
remove all Assets and Properties not being sold to Purchaser hereunder from the
Real Property and Improvements. Such removal shall be at the sole cost and risk
of Seller, including risk of loss and damage to such Assets and Properties.
Purchaser shall have no liability
to Seller with respect to such removal and transportation. Seller shall be
responsible for all repairs to the Real Property and Improvements due to damage
caused by Seller and its employees and agents in connection with the removal of
Seller's Assets and Properties.
(o) Noncompetition. (i) Seller will, for a period of five (5) years from
the Closing Date, refrain from, either alone or in conjunction with any other
Person, or directly or indirectly through its present or future affiliates;
(A) causing or attempting to cause (A) any client, customer or
supplier of the Business to terminate or materially reduce its business with
Purchaser or any of its affiliates or (B) any officer, employee or consultant of
Purchaser or any of its affiliates engaged in the Business to resign or sever a
relationship with Purchaser or any of its affiliates;
(B) disclosing (unless compelled by judicial or administrative
process) or using any confidential or secret information relating to the
Business or any client, customer or supplier of the Business; or
(C) participating or engaging in, or otherwise lending assistance
(financial or otherwise) to any Person participating or engaged in, any of the
lines of business which comprised the Business on the Closing Date; provided,
however, that nothing in this clause (C) will be deemed to prohibit Seller from
continuing the business conducted by its Computer Division (as set forth on
Schedule (1)(b)(ix)), namely selling computer systems and related items and
value-added services to businesses, governmental agencies and academic
institutions.
(ii) The parties hereto recognize that the laws, rules, regulations and
public policies of the various states of the United States may differ as to the
validity and enforceability of covenants similar to those set forth in this
Section 9(o). It is the intention of the parties that the provisions of this
Section 9(o) be enforced to the fullest extent permissible under the laws and
policies of each jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such laws, rules,
regulations or policies) of any provisions of this Section 9(o) shall not render
unenforceable, or impair, the remainder of the provisions of this Section 9(o).
Accordingly, if any provision of this Section 9(o) shall be determined to be
invalid or unenforceable, such invalidity or unenforceability shall be deemed to
apply only with respect to the operation of such provision in the particular
jurisdiction in which such determination is made and not with respect to any
other provision or jurisdiction.
(iii) The parties hereto acknowledge and agree that any remedy at law for
any breach of the provisions of this Section 9(o) would be inadequate, and
Seller hereby consents to the granting by any court of an injunction or other
equitable relief, without the necessity of actual monetary loss being proved, in
order that the breach or threatened breach of such provisions may be effectively
restrained.
(p) Takeover Statutes. If any "fair price", "moratorium", "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated hereby, Seller and the members of
the Board of Directors of Seller shall grant such approvals and take such
actions as are reasonably necessary so that the transactions contemplated hereby
may be consummated as promptly as practicable on the terms contemplated hereby
and thereby and otherwise act to eliminate or minimize the effects of such
statute or regulation on the transactions contemplated hereby and thereby.
(q) Declaration of Distribution. Seller shall not take any action to
declare a dividend or to make any distribution of the Purchase Price to the
holders of Seller Common Stock (including the adoption by its Board of Directors
of a resolution declaring such distribution and establishing a record date and
such distribution date), unless (i) such action occurs after the Audited Balance
Sheet Date, (ii) such distribution would not constitute a fraudulent conveyance
under applicable bankruptcy laws and (iii) such distribution would not violate
Section 500 et seq. of the CCC.
(r) Use of Name. Following the Closing and continuing thereafter
indefinitely, Seller shall not, and shall cause its subsidiaries not to,
directly or indirectly, use or otherwise exploit the name "Milgray Electronics"
or any derivatives thereof or any other trade name, domain name, trademark or
service mark similar or confusingly similar thereto or used or held for use in
the Business. Within one (1) week after the Closing Date, Seller shall cause
each of its subsidiaries to change its name to no longer contain the name
"Milgray" or any derivatives thereof.
10. Certain Covenants of Purchaser.
(a) Obtain Consents. Purchaser will use its best efforts to obtain and
deliver to Seller all consents necessary to the transactions contemplated
hereunder.
(b) Accomplish Sale. Purchaser will enter into no transaction and make no
agreement or commitment which would prevent or unreasonably delay the Closing
and will act in such manner, and cause its officers to act in such manner, to
consummate the transactions contemplated by this Agreement and will use its
reasonable efforts not to permit any event to occur which would result in any of
its representations, warranties or covenants contained in this Agreement or
delivered in connection herewith not being true and correct at and as of the
time immediately after the occurrence of such transaction event.
(c) Cooperate with Seller. Purchaser shall, and shall direct each of its
officers and employees to, cooperate fully and assist Seller and Seller's
accountants, attorneys, employees and other representatives in completing the
transactions contemplated under this Agreement.
(d) Hart-Scott Compliance. Purchaser shall promptly prepare and file all
reports and provide all additional information required under Hart-Scott, and
use its best efforts to obtain all approvals required thereunder.
(e) Employee Benefits and Employee Benefit Plans. (i) Purchaser shall
offer employment to all persons who were employed by Seller or its subsidiaries
primarily in connection with the Business on the date immediately preceding the
Closing Date, including those on disability and vacation ("Employees"), except
those Employees set forth on Schedule 10(e)(i). Each such Employee shall be
eligible to participate in all Employee Benefit Plans maintained or sponsored by
Purchaser, or to which Purchaser contributes, and in which comparable employees
of Purchaser are entitled to participate. Each such Employee's period of
service with Seller or its subsidiaries shall be counted in determining
eligibility for participation under each Employee Benefit Plan of Purchaser,
including, without limitation, Purchaser's ESOP and Capital Accumulation Plan,
and such service shall be counted in determining vesting of benefits under each
Employee Benefit Plan of Purchaser other than Purchaser's ESOP; provided,
however, that such service shall not be counted for benefit contribution or
accrual purposes under any Employee Benefit Plans of Purchaser. Each such
Employee shall be eligible to be covered as of his date of hire under any
Employee Benefit Plan of Purchaser providing health care benefits (whether or
not through insurance) without regard to any waiting period or any condition or
exclusion based on any pre-existing conditions, and shall receive full credit
for any copayments or deductible payments made before the Closing Date.
Purchaser shall use its reasonable best efforts to cause its Capital
Accumulation Plan to accept direct rollovers of eligible rollover distributions
(within the meaning of Section 402(f)(2)(A) of the Code) received by Employees
under the Bell Industries Savings and Profit Sharing Plan.
(ii) Purchaser shall be responsible for any legally mandated
continuation of health care coverage with respect to any "group health plan" (as
such term is defined in Section 607(l) of ERISA and Section 5000(b)(1) of the
Code) as may be required under Section 4980B of the Code ("COBRA Liability"),
for Employees and/or their dependents who have a loss of health care coverage
under Section 4980B of the Code due to a qualifying event (within the meaning of
Section 4980B(f)(iii) of the Code) which occurs after the Closing Date ("Post-
Closing COBRA Liability").
(iii) Purchaser agrees that it shall not, at any time prior to sixty
days after the Closing Date, effectuate a "plant closing" or "mass layoff'" as
those terms are defined in the Worker Adjustment and Retraining Notification Act
of 1988 ("WARN") affecting in whole or in part any facility, site of employment,
operating unit or Employee of Seller or any of the Subsidiaries to the extent
that the requirements of WARN are applicable under the circumstances without
complying fully with the applicable requirements of WARN.
(f) Required Documents. Purchaser shall cause to be delivered to Seller
all documents required to be delivered to Seller at or prior to the Closing.
(g) Canadian Antitrust Compliance Purchaser shall promptly file any notice
and provide any information required under Investment Canada and the Competition
Act of Canada.
(h) License of Bell Name. At the Closing, Purchaser shall grant to Seller
a royalty-free, paid up, transferable, non-exclusive license, in the form
attached hereto as Exhibit D, to use the name "Bell Industries", "Bell" or any
derivatives thereof.
11. Conditions Precedent to Purchaser's Obligations
All obligations of Purchaser hereunder are subject to the fulfillment
or waiver of each of the following conditions at or prior to the Closing:
(a) All representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects when made and shall
be deemed to have been made again at and as of the date of the Closing, and
shall then be true and correct in all material respects.
(b) There shall not have been any breach in any material respect by Seller
of any of its covenants, agreements and obligations required by the terms of
this Agreement to be performed by Seller at or before the Closing.
(c) Since the date of this Agreement, none of the following shall have
occurred: (i) improper conduct by Seller or any of its subsidiaries
constituting fraud in connection with transactions with a significant supplier
of inventory to Seller or any of its subsidiaries and (ii) violations of
government contract laws, rules and practices committed by Seller or any of its
subsidiaries that both (A) result in a termination or suspension of performance
under a government prime or subcontract or debarment and (B) significantly
impair the ability of Seller or any of its subsidiaries to conduct business as a
government prime contractor or subcontractor.
(d) There shall have been no material adverse change since June 30, 1998 in
the Assets or the financial condition, results of operations, prospects or
business of the Business taken as a whole; provided that the foregoing shall not
include the termination of any Franchise Agreements due to the public
announcement of this Agreement or the transactions contemplated hereby.
(e) There shall be delivered to Purchaser a certificate executed by the
chief executive officer and chief financial officer of Seller, dated the Closing
Date, certifying, in their capacities as such officers, that the conditions set
forth in paragraphs (a), (b), (c) and (d) of this Section 11 have been
fulfilled.
(f) Seller shall have obtained evidence in form reasonably satisfactory to
Purchaser that any Encumbrances on the Assets pursuant to the Credit Agreement
have been or will, immediately following the Closing, be released by the lenders
thereunder.
(g) The consummation of the transactions contemplated hereby shall not have
been enjoined by any court or federal, state or foreign governmental agency,
including, without limitation, the Department of Justice, the Federal Trade
Commission or the SEC.
(h) Seller shall have filed all reports and satisfied all requests for
additional information pursuant to Hart-Scott, and all applicable waiting
periods shall have expired.
(i) The consents set forth on Schedule 11(i) shall have been obtained and
shall be in full force and effect and not subject to any condition that has not
been satisfied or waived.
(j) Purchaser shall have received the opinion of Irell & Manella LLP,
counsel to Seller, substantially in the form of Exhibit F.
(k) There shall not be a moratorium on commercial bank lending declared by
a federal or New York State regulatory authority or other circumstances or state
of facts constituting a disruption in the financial markets causing banks and
other financial institutions not to extend credit.
12. Conditions Precedent to Seller's Obligations.
All obligations of Seller hereunder are subject to the fulfillment or
waiver of each of the following conditions at or prior to the Closing:
(a) All representations and warranties of Purchaser contained in this
Agreement shall be true and correct in all material respects when made and shall
be deemed to have been made again at and as of the Closing, and shall then be
true and correct in all material respects.
(b) There shall not have been any breach in any material respect by
Purchaser of any of its covenants, agreements and obligations required by the
terms of this Agreement to be performed by Purchaser at or before the Closing.
(c) There shall be delivered to Seller a certificate executed by the chief
executive officer and chief financial officer of Purchaser, dated the Closing
Date, certifying that the conditions set forth in paragraphs (a) and (b) of this
Section 12 have been fulfilled.
(d) The consummation of the transactions contemplated hereby shall not have
been enjoined by any court or federal, state or governmental agency, including,
without limitation, the Department of Justice, the Federal Trade Commission or
the SEC.
(e) Purchaser shall have filed all reports and satisfied all requests for
additional information pursuant to Hart-Scott and all applicable waiting periods
shall have expired.
(f) The shareholders of Seller shall have approved the transactions
contemplated hereby in accordance with applicable law and with the articles of
incorporation and by-laws of Seller.
(g) The banks under the Credit Agreement shall have consented to the
transactions contemplated hereby.
(h) Seller shall have received the opinion of Milbank, Tweed, Hadley &
McCloy, special counsel to Purchaser, substantially in the form of Exhibit G.
13. Indemnification.
(a) Indemnification and Reimbursement of Purchaser. Seller agrees to
defend, indemnify and hold harmless Purchaser and its successors and assigns,
against and in respect of any and all loss, liability, cost, expense, damage, or
decline in value, including all costs and expenses incurred in enforcing rights
under this Section 13, but after deducting the benefits actually or reasonably
expected to be received (offset by any costs related to such benefits) with
respect to Taxes or insurance (collectively, "Indemnification Losses"),
resulting from, arising out of or relating to (A) (i) any misrepresentation or
breach of warranty by Seller made as a part of or contained in this Agreement or
in any certificate or document executed and delivered in connection with this
Agreement or the transactions contemplated herein and (ii) any failure of the
representations and warranties of Seller contained in Section 6 of this
Agreement to be true and correct as if made again at and as of the Closing Date,
(B) any failure by Seller to perform or otherwise fulfill any covenant or
agreement made herein or contemplated hereby and (C) Retained Liabilities.
(b) Indemnification and Reimbursement of Seller. Purchaser agrees to
defend, indemnify and hold harmless Seller, and its successors and assigns,
against and in respect of any and all Indemnification Losses resulting from,
arising out of or relating to (A) (i) any misrepresentation or breach of
warranty by Purchaser made as a part of or contained in this Agreement or in any
certificate or document executed and delivered in connection with this Agreement
or the transactions contemplated herein and (ii) any failure of the
representations and warranties of Purchaser contained in Section 7 of this
Agreement to be true and correct as if made again at and as of the Closing Date,
(B) any failure by Purchaser to perform or otherwise fulfill any covenant or
agreement made herein or contemplated hereby, (C) the conduct of the Business by
Purchaser after the Closing Date and (D) any Assumed Liabilities.
(c) Defense of Claims by Third Parties. Whenever a claim shall arise for
indemnification under this Section 13 (except in respect of Taxes which shall be
governed by the provisions of Section 8(g)), the party entitled to
indemnification (the "Indemnified Party") shall promptly notify the party from
whom indemnification is sought (the "Indemnifying Party") of such claim and,
when known, the facts constituting the basis for such claim; provided, however,
that in the event of any claim for indemnification hereunder resulting from or
in connection with any claim or legal proceedings by a third party, the
Indemnified Party shall give such notice thereof to the Indemnifying Party no
later than ten (10) days prior to the time any response to the asserted claim is
required, if possible. In the event of any such claim for indemnification
resulting from or in connection with a claim or legal proceeding by a third
party, the Indemnifying Party may, at its sole cost and expense, assume the
defense thereof. If an Indemnifying Party assumes the defense of any such claim
or legal proceeding, the Indemnifying Party shall be entitled to select counsel
and take all steps necessary in the defense thereof; provided, however, that, no
settlement shall be made without the prior written consent of the Indemnified
Party (except that if the Indemnified Party shall withhold its consent to any
settlement proposed by the Indemnifying Party, the Indemnifying Party shall in
no event be deemed for purposes of this Section 13 to have suffered losses,
liabilities or damages in connection with such claim or proceeding in excess of
the proposed amount of such settlement); and provided further, however, that the
Indemnified Party may, at its own expense, participate in any such proceeding
with the counsel of its choice. So long as the Indemnifying Party is in good
faith defending such claim or proceeding, the Indemnified Party shall not
compromise or settle such claim without the prior written consent of the
Indemnifying Party. If the Indemnifying Party does not assume the defense of
any such claim or litigation in accordance with the terms hereof, the
Indemnified Party may defend against such claim or litigation in such manner as
it may deem appropriate, including , but not limited to, settling such claim or
litigation (after giving notice of the same to the Indemnifying Party) on such
terms as the Indemnified Party may deem appropriate, and the Indemnifying Party
will promptly indemnify the Indemnified Party in accordance with the provisions
of this Section 13.
(d) Notice of Other Claims; Non-Waiver. Any party claiming indemnification
hereunder shall give reasonably prompt written notice to the other as soon as
practicable after it becomes aware of any condition or event that gives rise to
Indemnification Losses for which indemnification is sought under this Section
13, except as otherwise provided in Section 13(c). Failure of an Indemnified
Party to give reasonably prompt notice of any claim or claims shall not release,
waive or otherwise affect an Indemnifying Party's obligations with respect
thereto except to the extent of actual loss or prejudice as a result of such
failure.
(e) Threshold. No Indemnified Party shall be entitled to indemnification
pursuant to this Section 13 for any Indemnification Losses incurred unless the
aggregate amount for which indemnification is sought with respect to the
aggregate of all Indemnification Losses is in excess of $1,000,000 (the
"Threshold"). If the amount of claims for Indemnification Losses exceeds the
Threshold, then the Indemnified Party entitled to indemnification pursuant to
this Section 13 shall be entitled to indemnification for all Indemnification
Losses, including the first $1,000,000 of such losses incurred.
(f) Exclusive Remedy. The provisions of this Section 13 shall constitute
the sole and exclusive remedy of and means by which any Indemnified Party after
the Closing may obtain recompense for any damages, including Indemnification
Losses, arising out of, resulting from or incurred in connection with this
Agreement, including, without limitation, any inaccuracy and/or breach of any
representation or warranty contained in this Agreement or any other agreement
under this Agreement or any other agreement or instrument, or any other act or
omission by any party hereto.
14. Commission and Finder's Fees.
Each of the parties hereto represents and warrants to the other that no
individual, firm or corporation, as a result of any action of such party, has
any right, interest or valid claim against or upon the other party for any
commission, fee or other compensation as broker or finder or for acting in any
similar capacity. The parties acknowledge that Seller is obligated to pay a fee
to Lincoln Partners LLC for rendering a fairness opinion in connection with the
transactions contemplated by this Agreement.
15. Survival of Representations and Warranties.
The representations and warranties made by the parties hereto under
this Agreement or in connection with the transactions contemplated hereby or in
any certificate, list or other instrument delivered pursuant hereto shall
survive the Closing until after the Audited Balance Sheet Date and thereafter
until the earlier of (a) the second anniversary of the Closing Date and (b)(i)
the liquidation of Seller or (ii) the merger of Seller with, or the sale of all
of Seller's equity to, an acquiring Person and thereafter no claim for
indemnification under Section 13 may be made based upon a breach of any
representation or warranty.
16. Expenses.
Whether or not the transactions contemplated herein shall be
consummated, each of the parties hereto shall bear and pay all costs and
expenses incurred by it under or in connection with such transactions, and shall
not be liable to any other party for any damages suffered due to the failure to
consummate such transactions; provided, however, that (a) if this Agreement
shall be terminated by Seller pursuant to Section 17(a)(ii) or by Purchaser
pursuant to Section 17(a)(iii), Seller shall promptly thereafter pay to
Purchaser an expenses reimbursement of $5,000,000; (b) if this Agreement shall
be terminated pursuant to Section 17(a)(i)(C), Seller shall promptly thereafter
pay to Purchaser an expenses reimbursement of $750,000, provided, however, that
if the Proxy Statement (or any amendment, supplement or supplemental mailing by
Seller to such shareholders with respect thereto) shall disclose any Alternative
Proposal and the Seller's shareholders shall fail to approve the transactions
hereunder, Seller shall pay $5,000,000 to Purchaser under this clause (b); and
(c) if the Closing shall not occur in accordance with the terms of this
Agreement and the failure to occur is based solely upon the non-satisfaction of
a condition of Closing under Section 11(b) due to a willful breach by Seller or
the non-satisfaction of a condition of Closing under Section 12(b) due to a
willful breach by Purchaser, then the party in willful breach shall promptly pay
to the other party, as an expenses reimbursement and not as a penalty, an amount
equal to $5,000,000. The parties hereto acknowledge and agree that the amount
of liquidated damages provided hereby is reasonable in the light of the
anticipated harm caused by the breach, the difficulties of proof of loss, and
the inconvenience and infeasibility of otherwise obtaining an adequate remedy.
Neither Seller nor Purchaser shall be obligated to pay more than $5,000,000
pursuant to this Section 16.
17. Termination.
(a) Anything herein to the contrary notwithstanding, at any time
before the Closing this Agreement
(i) may be terminated by either party;
(A) if the Closing has not occurred on or before March 31, 1999;
(B) if Hart-Scott clearance is not obtained; or
(C) if approval of Seller's shareholders is not obtained;
(ii) may be terminated by Seller if it receives an Alternative Proposal
providing for terms better, in the good faith determination of Seller's Board of
Directors, than those provided by the transactions contemplated hereunder
provided that Seller shall have complied with the provisions of Section 8(d) and
shall notify Purchaser promptly of its intention to terminate this Agreement or
enter into a definitive agreement with respect to such Alternative Proposal, but
in no event shall such notice be given less than forty-eight (48) hours prior to
the public announcement of Seller's termination of this Agreement; provided that
Seller's ability to terminate this Agreement pursuant is conditioned upon the
prior payment by Seller to Purchaser of any amounts owed by it pursuant to
Section 16;
(iii) may be terminated by Purchaser if the Board of Directors of Seller
(or any committee thereof) shall have withdrawn or modified in a manner
materially adverse to Purchaser its approval or recommendation of this Agreement
or shall have recommended an Alternative Proposal to the shareholders of Seller;
(iv) may be terminated by Purchaser if the net investment shown on the
Estimated Balance Sheet is less than $135 million; or
(v) may be terminated by the mutual consent of Seller and Purchaser. (b)
In the event of the termination of this Agreement pursuant to this Section 17,
all further obligations of the parties under this Agreement shall terminate
without further liability of any party to any other party or to the
shareholders, directors or officers of any party (except as set forth in Section
17(a)(ii)), provided that the obligations of the parties contained in Section
8(e) and in the Confidentiality Agreement shall survive any such termination.
18. Notices.
Any notice, request, instruction or other document to be given
hereunder shall be in writing and delivered personally or sent by certified or
registered mail, postage prepaid, as follows: If to Seller, addressed to it at
2201 E. El Segundo Blvd., El Segundo, California 90245, Attention: Gordon
Graham, with concurrent copies to Irell & Manella LLP, 333 South Hope Street,
Suite 3300, Los Angeles, California 90071, Attention: John Cost, Esq. and Ben
Orlanski, Esq., and if to Purchaser addressed to it at 25 Hub Drive, Melville,
New York 11747, Attention: President, with concurrent copies to Purchaser's
General Counsel at the same address and Milbank, Tweed, Hadley & McCloy, 1 Chase
Manhattan Plaza, New York, New York 10005, Attention: Howard S. Kelberg, Esq.
Any party may change the address to which notices are to be sent by giving
written notice of such change of address to the other party.
19. Entire Agreement, Amendments and Certain Other Matters.
This Agreement, including the lists, exhibits, schedules, the
Confidentiality Agreement, the Option Agreement and other agreements and
attachments referred to herein, which are a part hereof, or agreements signed
and delivered contemporaneously herewith, contains the entire understanding of
the parties hereto, and supersedes all prior agreements of the parties, with
respect to the acquisition of all or any part of the Business, the Assets or the
Subsidiaries and may be amended only by a written instrument executed by the
parties hereto or their respective successors or assigns, although any condition
to a party's obligation hereunder may be waived in writing by such party. The
section and paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. A failure or delay of either party to this Agreement to enforce
at any time any of the provisions of this Agreement, or to exercise any option
which is herein provided, or to require at any time performance of any of the
provisions hereof, shall in no way be construed to be a waiver of such
provisions of this Agreement. Nothing in this Agreement, expressed or implied,
is intended to confer upon any person other than the parties any rights or
remedies under or by reason of this Agreement.
20. Assignment.
This Agreement is not assignable by Seller. Purchaser may assign all or
a portion of its rights in this Agreement to a wholly-owned subsidiary of
Purchaser provided that Purchaser and assignee jointly and severally remain
fully liable for payment of all monies and performance of all obligations of
Purchaser described in this Agreement.
21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
22. Effectiveness.
This Agreement will not become effective until executed by each of the
parties hereto.
23. Consent to Jurisdiction and Governing Law.
This Agreement shall be governed by and construed in accordance with
the internal substantive laws and not the choice of law rules of the State of
New York. Any judicial proceeding brought with respect to this Agreement must
be brought in any federal or state court of competent jurisdiction in any state
of the United States, and, by the execution and delivery of this Agreement, each
party (i) accepts, generally and unconditionally, the non-exclusive jurisdiction
of any courts and any related appellate court in the State of New York, and
irrevocably agrees to be bound by any judgment rendered by such courts in
connection with this Agreement and (ii) irrevocably waives any objection it may
now or hereafter have as to the venue of any such suit, action or proceeding
brought in such a court or that such court is an inconvenient forum. In
furtherance of the preceding clause, so long as this Agreement is in effect,
Purchaser and Seller (if it is not a New York corporation and is not qualified
to do business in New York as a foreign corporation) will at all times have an
authorized agent in the City of New York, upon whom process may be served in any
legal action or proceeding in any court of competent jurisdiction in the State
of New York arising out of or in connection with this Agreement. Seller hereby
irrevocably appoints CT Corporation System, as its agent for service of process
in New York with respect to all disputes arising out of or in connection with
this Agreement.
24. Severability.
In case any one or more of the provisions contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
[Next Page Is Signature Page]
IN WITNESS WHEREOF, the parties hereto have duly executed and agreed
to all the terms of this Agreement including the exhibits hereto, as of the date
first above written.
BELL INDUSTRIES, INC.
By: /s/ Gordon Graham
----------------------
Name: Gordon Graham
Title: President & CEO
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
-------------------------------
Name: Robert E. Klatell
Title: Executive Vice President
ARROW ELECTRONICS, INC.
OFFICERS' CERTIFICATE
Reference is made to the Indenture dated as of January 15, 1997 (the
"Indenture") from Arrow Electronics, Inc. (the "Company") to Bank of Montreal
Trust Company (the "Trustee"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Indenture.
Pursuant to (i) authority granted under those certain resolutions of
the Board of Directors of the Company adopted on May 14, 1998, and (ii) Section
2.3 of the Indenture, Gerald Luterman, Senior Vice President and Chief Financial
Officer, and Paul Reilly, Vice President and Controller, of the Company,
respectively, do hereby certify as follows:
1. The Securities of the third series to be issued under the Indenture
shall be designated "6 7/8% Senior Debentures due 2018" (the "Offered
Securities");
2. Except as provided in Section 2.8 of the Indenture, the Offered
Securities shall be limited in aggregate principal amount to $200,000,000 at any
time Outstanding;
3. The Offered Securities shall mature and the principal shall be due
and payable together with all accrued and unpaid interest thereon on June 1,
2018;
4. The Offered Securities shall bear interest from June 3, 1998, at
the rate of 6 7/8% per annum payable semiannually on June 1 and December 1 of
each year (each, an "Interest Payment Date") commencing December 1, 1998.
Interest on the Offered Securities will accrue from June 3, 1998 to the first
Interest Payment Date, and thereafter will accrue from the last Interest Payment
Date to which interest has been paid or duly provided for. No interest will
accrue on the Offered Securities with respect to the day on which the Offered
Securities mature. In the event that any Interest Payment Date is not a
Business Day, then payment of interest payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or other
payment in respect of such delay) with the same force and effect as if made on
the Interest Payment Date. Interest on any overdue principal will accrue at the
same rate as the interest rate on the Offered Securities set forth above, and
interest will not accrue on overdue installments of interest on the Offered
Securities;
5. Each installment of interest on the Offered Securities shall be
payable to the Person in whose name such Offered Securities are registered at
the close of business on the May 15 or November 15 next preceding the
corresponding Interest Payment Date for the Offered Securities;
6. The Offered Securities will be redeemable, in whole or from time to
time in part, at the option of the Company on any date (a "Redemption Date"), at
a redemption price equal to the greater of (i) 100 percent of the principle
amount of the Offered Securities to be redeemed and (ii) the sum of the present
values of the remaining scheduled payments of principal and interest thereon
(exclusive of the interest accrued to such Redemption Date) discounted to such
Redemption Date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 25 basis points, plus, in either
case, accrued and unpaid interest on the principal amount being redeemed to such
Redemption Date; provided that installments of interest on the Offered
Securities which are due and payable on an Interest Payment Date falling on or
prior to the relevant Redemption Date shall be payable to the holders of such
Offered Securities, registered as such at the close of business on the relevant
record date according to their terms and the provisions of the Indenture;
7. The Offered Securities will be originally issued in global
registered form payable to Cede & Co., as the nominee of the Depositary, and
will, unless and until the Offered Securities are exchanged in whole or in part
for certificated Offered Securities registered in the names of the various
beneficial holders thereof (in accordance with the conditions set forth in the
legend appearing in the form of the Offered Securities attached hereto as
Exhibit A), contain restrictions on transfer, substantially described in such
form. For so long as the Offered Securities are registered in the name of Cede
& Co., the principal and each installment of interest due on the Offered
Securities will be payable by the Paying Agent to the Depositary for payment to
its participants for subsequent disbursement to the beneficial holders thereof;
8. The Offered Securities will have such other terms and provisions as
are provided in the form set forth in Exhibit A attached hereto and shall be
issued in substantially such form;
9. The form and terms of the Offered Securities have been established
in compliance with the Indenture;
10. The undersigned have read all of the covenants or conditions
contained in the Indenture relating to the authentication and delivery of the
Offered Securities and the definitions in the Indenture relating thereto;
11. The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein;
12. In the opinion of the undersigned, they have made such examination
or investigation as is necessary to express an informed opinion as to whether or
not such covenants or conditions have been complied with; and
13. In the opinion of the undersigned, such covenants or conditions
have been complied with.
IN WITNESS WHEREOF, the undersigned have executed this Officers'
Certificate this 3rd day of June, 1998.
By: /s/ Sam R. Leno
--------------------------
Name: Sam R. Leno
Title:Senior Vice President and
Chief Financial Officer
By: /s/ Paul J. Reilly
-------------------------
Name: Paul J. Reilly
Title: Vice President and Controller
ARROW ELECTRONICS, INC.
OFFICERS' CERTIFICATE
Reference is made to the Indenture dated as of January 15, 1997, (the
"Indenture") from Arrow Electronics, Inc. (the "Company") to Bank of Montreal
Trust Company (the "Trustee"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Indenture.
Pursuant to (i) authority granted under those certain resolutions of
the Board of Directors of the Company adopted on October 21, 1998 and (ii)
Section 2.3 of the Indenture, Robert E. Klatell, Executive Vice President, and
Ira Birns, Assistant Treasurer, of the Company, respectively, do hereby certify
as follows:
1. The Securities of the fourth series to be issued under the
Indenture shall be designated "6.45% Senior Notes due 2003" (the "Notes");
2. Except as provided in Section 2.8 of the Indenture, the Notes shall
be limited in aggregate principal amount to $250,000,000 at any time
Outstanding;
3. The Notes shall mature and the principal shall be due and payable
together with all accrued and unpaid interest thereon on November 1, 2003;
4. The Notes shall bear interest from October 28, 1998, at the rate of
6.45% per annum payable semiannually on May 1, and November 1 of each year
(each, an "Interest Payment Date") commencing May 1, 1999. Interest on the
Notes will accrue from October 28, 1998 to the first Interest Payment Date, and
thereafter will accrue from the last Interest Payment Date to which interest has
been paid or duly provided for. No interest will accrue on the Notes with
respect to the day on which the Notes mature. In the event that any Interest
Payment Date is not a Business Day, then payment of interest payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of such delay) with the same
force and effect as if made on the Interest Payment Date. Interest on any
overdue principal will accrue at the same rate as the interest rate on the Notes
set forth above, and interest will not accrue on overdue installments of
interest on the Notes;
5. Each installment of interest on the Notes shall be payable to the
Person in whose name such Notes are registered at the close of business on April
15 or October 15 next preceding the corresponding Interest Payment Date for the
Notes;
6. The Notes shall be redeemable, in whole or in part, at the option
of the Company at such time and under such conditions as set forth in the form
set forth in Exhibit A;
7. The Notes will be originally issued in global registered form
payable to Cede & Co., as the nominee of the Depositary, and will, unless and
until the Notes are exchanged in whole or in part for certificated Notes
registered in the names of the various beneficial holders thereof (in accordance
with the conditions set forth in the legend appearing in the form of the Notes
attached hereto as Exhibit A), contain restrictions on transfer, substantially
described in such form. For so long as the Notes are registered in the name of
Cede & Co., the principal and each installment of interest due on the Notes will
be payable by the Paying Agent to the Depositary for payment to its participants
for subsequent disbursement to the beneficial holders thereof.
8. (a) The Notes will not be registered under the Securities Act.
The Notes may not be offered or sold within the United States or to, or for the
account or benefit of U.S. persons except (i) in compliance with the
registration requirements of the Securities Act and all other applicable
securities laws, or (ii) pursuant to an exemption from, or in a transaction not
subject to the registration requirements of the Securities Act and any other
applicable securities laws. Accordingly, the Notes are being offered and sold
only inside the United States to "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act) ("QIBs") in compliance with Rule 144A.
Except as otherwise provided in this Paragraph 8, the Notes shall bear the
following legend:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE SECOND SENTENCE HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (2) AGREES
THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE
COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (D) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENT OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY)
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "U.S. PERSONS" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM
BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.".
(b) The Notes authenticated and issued hereunder shall not be required
to bear the legend set forth in Paragraph 8(a) above, if such Note shall be
issued upon:
(1) the transfer or exchange of a Note and contemporaneously therewith
the Company shall have received an opinion of counsel of the Holder, at its
expense, in form and substance reasonably satisfactory to the Company, to the
effect that such Note to be issued upon such transfer or exchange may be so
issued without such legend because (A) such Note shall have been registered
under the Securities Act, the registration statement in connection therewith
shall have been declared effective and such Note shall have been disposed of
pursuant to such effective registration statement, or (B) such Note shall have
been sold in compliance with Rule 144 (or any similar provision then in force)
under the Securities Act in such a manner that resale of such Note will not
require registration under the Securities Act, and the Company shall have
delivered to the Trustee a copy of such opinion of counsel of the Holder
together with an Officers' Certificate directing the Trustee to issue an
unlegended Note in connection with such transfer or exchange; such Officers'
Certificate and opinion of counsel shall be delivered by the Company as soon as
practicable after its receipt of a written request by a Holder for such a
transfer or exchange; or
(2) the transfer or exchange of a Note not bearing such legend.
(c) Prior to any transfer or exchange of a legended Note for another
legended Note, the Company shall have received an opinion of counsel of the
Holder (which may include in-house counsel of such Holder experienced in matters
of federal securities law), at its expense, in form and substance reasonably
satisfactory to the Company to the effect that such transfer does not require
registration under the Securities Act and the Company shall have delivered to
the Trustee a copy of such opinion of counsel of the Holder together with an
Officers' Certificate directing the Trustee to transfer or exchange the legended
Note for another legended Note.
9. The Company shall not permit Consolidated Total Debt at any time to
exceed an amount equal to, prior to December 1, 2000, 60%, and thereafter 55%,
of Consolidated Total Capitalization.
10. The acceleration of Indebtedness of the Company or any Restricted
Subsidiaries in a principal amount in excess of $25 million, provided that such
acceleration has not been rescinded and such Indebtedness has not been
discharged within 10 days, shall be deemed an Event of Default for the holders
of the Notes only.
11. The Notes will have such other terms and provisions as are provided
in the form set forth in Exhibit A attached hereto and shall be issued in
substantially such form;
12. The form and terms of the Notes have been established in compliance
with the Indenture;
13. The undersigned have read all of the covenants or conditions
contained in the Indenture relating to the authentication and delivery of the
Notes and the definitions in the Indenture relating thereto;
14. The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents accompanying
this certificate and upon discussions by the undersigned with officers and
employees of the Company familiar with the matters set forth herein;
15. In the opinion of the undersigned, they have made such examination
or investigation as is necessary to express an informed opinion as to whether or
not such covenants or conditions have been complied with; and
16. In the opinion of the undersigned, such covenants or conditions
have been complied with.
For purposes of this Officer's Certificate, the following terms have the
following meanings:
The term "Consolidated Net Worth" means, at a particular date, all
amounts which would be included under shareholders' equity on a consolidated
balance sheet of the Company and its Subsidiaries determined on a consolidated
basis in accordance with GAAP.
The term "Consolidated Total Capitalization" means, at a particular
date, the sum of (a) Consolidated Net Worth plus (b) Consolidated Total Debt as
at such date.
The term "Consolidated Total Debt" means all Indebtedness of the
Company and its Subsidiaries (excluding Indebtedness of the Company owing to any
of its Subsidiaries or Indebtedness of any Subsidiary of the Company owing to
the Company or any other Subsidiary of the Company), as determined on a
consolidated basis in accordance with GAAP.
The term "Financing Lease" means any lease of property, real or
personal, the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the lessee.
The term "Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
The term "Guarantee Obligation" means as to any Person (the
"guaranteeing person"), any obligation of (a) the guaranteeing person or (b)
another Person (including without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has issued a
reimbursement, counter indemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or
other obligations (the "primary obligations") of any other third Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect thereof;
however, the term Guarantee Obligation does not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Guarantee of any guaranteeing person is deemed to be the lower of
(a) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee Obligation is made and (b) the
maximum amount for which such guaranteeing person may be liable pursuant to the
terms of the instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the amount of such
Guarantee Obligation will be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Company in good
faith.
The term "Hedging Agreements" means (a) Interest Rate Agreements and
(b) any swap, futures, forward or option agreements or other agreements or
arrangements designed to limit or eliminate the risk and/or exposure of a Person
to fluctuations in currency exchange rates.
The term "Indebtedness" means the indebtedness of any Person at any
date, including without duplication (a) the principal amount of all indebtedness
of such Person for borrowed money or for the deferred purchase price of property
or service (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices), (b) the
principal amount of any other indebtedness of such Person which is evidenced by
a note, bond, debenture or similar instrument, (c) the portion of all
obligations of such Person under Financing Leases which must be capitalized in
accordance with GAAP, (d) the principal or stated amount of all obligations of
such Person in respect of letters of credit, banker's acceptances or similar
obligations issued or created for the account of such Person, (e) all
liabilities arising under Hedging Agreements of such Person, (f) the principal
or stated amount of all Guarantee Obligations of such Person (other than
guarantees by the Company or any Subsidiary in respect of current trade
liabilities of the Company or any Subsidiary incurred in the ordinary course of
business and payable in accordance with customary terms), and (g) the principal
amount of all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable for
the payment thereof.
The term "Interest Rate Agreement" means any interest rate protection
agreement, interest rate future, interest rate option, interest rate swap,
interest rate cap or other interest rate hedge or arrangement under which the
Company is a party or beneficiary.
The term "Person" means an individual, partnership, corporation,
business, trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
IN WITNESS WHEREOF, the undersigned have executed this Officers'
Certificate this 28th day of October, 1998.
/s/ Robert E. Klatell
----------------------
Name: Robert E. Klatell
Title: Executive Vice President
/s/ Ira Birns
-----------------------
Name: Ira Birns
Title: Assistant Treasurer
AMENDMENT NO. 1
TO THE
ARROW ELECTRONICS SAVINGS PLAN
The Arrow Electronics Savings Plan as restated to reflect amendments
adopted through December 28, 1994 is hereby amended in the following respects:
1. Effective September 1, 1995, Section 1.21 is restated in its
entirety to read as follows:
1.21 Entry Date. The first day of each January, April, July and
October.
2. Effective September 1, 1995, Section 2.1 is restated in its
entirety to read as follows:
2.1 In General. An Eligible Employee who has not previously
become a member shall become a Member on the Entry Date coincident with or next
following the later of his twenty-first (21st) birthday or the ninetieth (90th)
day following his Date of Hire.
3. Effective September 1, 1995, the following sentence is added
immediately before the final sentence of Section 7.3:
No more than two loans may be outstanding at any time.
4. Effective as though included in the Plan as restated to reflect
amendments adopted through December 28, 1994, Supplements 4 and 5 are restated
in their entirety to read as follows:
SUPPLEMENT NO. 4
In connection with the acquisition by Arrow Electronics, Inc. of all of the
issued and outstanding shares of common stock of Gates/FA Distributing, Inc.
(the "Gates Acquisition"), the Plan is amended as follows:
S4.1 In the case of an individual who becomes an employee of an
Employer or Affiliate on or about September 23, 1994 in connection with the
Gates Acquisition, service with Gates/FA Distributing, Inc. shall be treated,
for purposes of Section 2.1 and for purposes of determining such individual's
Years of Service under the Plan, as though it were service with an Employer or
Affiliate. For this purpose, any service measured in terms of elapsed time
shall be converted to Hours of Service on the basis that one month equals 190
Hours of Service, one week equals 45 Hours of Service and one day equals 10
Hours of Service. An individual described in this Section S4.1 shall become a
Member on the first Entry Date on or after January 1, 1995 on which he has
satisfied the requirements of Section 2.1.
S4.2 On or about March 1, 1996, participant accounts in the
Gates/FA Distributing, Inc. 401(k) Plan (the "Gates Plan") shall, to the extent
attributable to employee salary deferrals, be transferred to Elective Accounts
under the Plan. Other amounts in participant accounts under the Gates Plan
shall, to the extent not distributed to participants, be transferred to Rollover
Accounts under the Plan.
SUPPLEMENT NO. 5
In connection with the acquisition by Arrow Electronics, Inc. of all
of the issued and outstanding shares of common stock of Anthem Electronics, Inc.
(the "Anthem Acquisition"), the Plan is amended as follows:
S5.1 In the case of an individual who becomes an employee of an
Employer or Affiliate on or about November 20, 1994 in connection with the
Anthem Acquisition, service with Anthem Electronics, Inc. shall be treated, for
purposes of Section 2.1 and for purposes of determining such individual's Years
of Service under the Plan, as though it were service with an Employer or
Affiliate. For this purpose, any service measured in terms of elapsed time
shall be converted to Hours of Service on the basis that one month equals 190
Hours of Service, one week equals 45 Hours of Service and one day equals 10
Hours of Service. An individual described in this Section S5.1 shall become a
Member on September 1, 1995 if he has then satisfied the requirements of Section
2.1, and otherwise on the first Entry Date thereafter on which he has satisfied
such requirements.
S5.2 On or about October 1, 1995, participant accounts in the Anthem
Electronics, Inc. Salary Savings Plan (the "Anthem Plan") shall, to the extent
attributable to employee salary deferrals, be transferred to Elective Accounts
under the Plan. Other amounts in participant accounts in the Anthem Plan shall,
to the extent not distributed to participants, be transferred to Rollover
Accounts under the Plan. Amounts required to be distributed in order to satisfy
nondiscrimination testing of the Anthem Plan for 1995 may be paid from the Plan.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
----------------------
ATTEST: Executive Vice President
By: /s/ Wayne Brody
---------------
AMENDMENT NO. 3
TO THE
ARROW ELECTRONICS SAVINGS PLAN
(as restated December 28, 1994)
The Arrow Electronics Savings Plan as restated December 28, 1994 and
as subsequently amended, is hereby further amended effective December 31, 1996
by the addition of the attached Supplement No. 6.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
------------------------
Executive Vice President
ATTEST:
By: /s/ Wayne Brody
---------------
CAPSTONE ELECTRONICS CORP.
By: /s/ Robert E. Klatell
------------------------
Executive Vice President
ATTEST:
By: /s/ Wayne Brody
---------------
SUPPLEMENT NO. 6
TO THE
ARROW ELECTRONICS SAVINGS PLAN
Special Provisions Applicable
to Former Members of the Capstone Electronics Profit-Sharing Plan
Effective as of December 31, 1996, the Capstone Electronics Profit-
Sharing Plan (the "Capstone Plan") merged into this Plan, and the terms of this
Plan superseded in all respects the terms of the Capstone Plan. This Supplement
No. 6 provides for such merger (the "Merger") and sets forth special provisions
of the Plan that apply to former members of the Capstone Plan.
S6.1 Special Definitions. For purposes of this Supplement 6:
S6.1.1 "Capstone" means Capstone Electronics Corp., a Delaware
corporation.
S6.1.2 "Capstone Account" means the account maintained under the
Capstone Plan for each Capstone Member immediately prior to the Merger.
S6.1.3 "Capstone Member" means a member of the Capstone Plan who had
an undistributed Capstone Account immediately prior to the Merger or who was
eligible under section 4.2 of the Capstone Plan to share in the Capstone Plan
contribution (if any) made with respect to the 1996 Year.
S6.1.4 "Capstone Plan" means the Capstone Electronics Profit- Sharing
Plan, as in effect prior to the Merger.
S6.1.5 "Capstone Trust Fund" means the trust fund maintained under
the Capstone Plan immediately prior to the Merger.
S6.2 Membership in Plan Effective December 31, 1996. Capstone
Members will become Members of the Plan effective on December 31, 1996.
S6.3 Merger. Effective as of December 31, 1996, the Capstone Plan
and Capstone Trust Fund are merged into this Plan and the trust thereunder,
respectively, and the terms of this Plan supersede in all respects the terms of
the Capstone Plan with respect to the Capstone Accounts. All persons (including
current and former employees and their beneficiaries) having an interest under
the Capstone Plan prior to December 31, 1996 shall, on and after December 31,
1996, be entitled to benefits provided solely from this Plan (including this
Supplement No. 6), in lieu of any and all interest which they had or may have
had under the Capstone Plan.
S6.4 Transfer of Capstone Trust Fund. The assets held by the
trustees of the Capstone Trust Fund shall be transferred to the Trustee on
December 31, 1996 or as soon as practicable thereafter. If and to the extent
that such transfer is not completed on December 31, 1996, such trustees shall
hold such assets, as adjusted for investment gain or loss thereon and expenses
attributable thereto, as an additional trustee under this Plan, until such
transfer is completed.
S6.5 Allocation to Accounts. Funds transferred to the Trustee in
respect of a Member's Capstone Account shall be allocated under the Plan to such
Member's existing Matching Account (if any) and otherwise to a Matching Account
of such Member established to receive the transferred funds.
S6.6 Investment of Transferred Accounts. Funds transferred to the
Trustee in respect of a Member's Capstone Account pursuant to Section S6.4 shall
be invested in the same Investment Funds in the same proportions as the Member's
Capstone Account was invested immediately prior to such transfer. Thereafter,
the Member may change the percent-age of his Matching Account that is invested
in each Investment Fund in accordance with Article V of the Plan.
S6.7 Credit Under the Plan for Years of Service with Capstone. A
Capstone Member's Years of Service under the Plan shall be the service credited
to such Member for vesting purposes under the Capstone Plan as of December 31,
1996 plus any additional service credited under the rules of this Plan for
periods before or after January 1, 1997 but without duplication.
S6.8 Pre-Merger Elections and Designations. Notwithstanding any
other provision of this Plan, (a) elections as to timing or form of benefit
made, (b) designations of beneficiaries made, and (c) provisions that became
applicable based on a failure to make an available election or designation,
under the Capstone Plan on or before December 31, 1996, shall be given effect
with respect to Capstone Members who retired or terminated employment under the
terms of the Capstone Plan, or died, on or before December 31, 1996, and
distribution shall be made in respect of such Members in accordance with the
applicable provisions of the Capstone Plan as in effect at the relevant time or
times prior to such date.
S6.9 Beneficiary Designation. Beneficiary designations made under
the Capstone Plan on or before December 31, 1996 by Capstone Members shall be
given effect as if made under the Plan, unless and until superseded by a
different actual or deemed designation (such as may occur on marriage of a
single Member) under this Plan.
S6.10 Contributions. Prior to the filing deadline for its 1996
federal income tax return, Capstone may, in its sole discretion, make a
contribution to the Capstone Plan with respect to each Capstone Member who was
eligible to share in such a contribution under section 4.2 of the Capstone Plan,
by paying such contribution into the Plan as the continuation of the Capstone
Plan by reason of the Merger. Such contribution shall be allocated among such
Capstone Members in accordance with the provisions of the Capstone Plan
governing contributions for the 1996 Year and accounted for under the Plan in
the Member's Matching Account.
S6.11 Capstone Plan Amended. The provisions of this Supplement 6
shall be treated as an amendment to and part of the Capstone Plan, effective
December 31, 1996, to the extent necessary to give full effect to this
Supplement.
AMENDMENT NO. 4
TO THE
ARROW ELECTRONICS SAVINGS PLAN
(as restated December 28, 1994)
The Arrow Electronics Savings Plan as restated December 28, 1994 and
as subsequently amended, is hereby further amended in the following respects:
1. Section 1.4 is amended to read as follows:
1.4 Appropriate Form. The form or other method of communication
prescribed by the Administrator for a particular purpose specified in the Plan,
when filed or otherwise effected at the time and in the manner prescribed by the
Administrator.
2. Section 1.26.2 is amended to read as follows:
1.26.2 Paid Or Other Approved Absence. Each regularly scheduled
working hour during a period for which an employee is paid, or entitled to
payment, by an Employer on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including disability
or pregnancy), layoff, jury duty, military duty or leave of absence, or during
any other period of authorized leave if employee returns to employment with the
Employer on the expiration of such leave.
3. Section 1.38 is amended to read as follows:
1.38 Rollover Account. A separate Account maintained for an
individual attributable to his Rollover Contributions and balances formerly
credited to his Prior Plan Accounts, together with applicable Investment
Adjustments.
4. Section 1.39 is amended to read as follows:
1.39 Rollover Contribution. An Eligible Employee's rollover
contribution made pursuant to Section 3.6, including the amount of any transfer
to this Plan pursuant to the in-service withdrawal provision of the Arrow
Electronics Stock Ownership Plan.
5. Section 2.1 is amended to read as follows:
2.1 In General. An Eligible Employee who has not previously
become a Member shall become a Member on the Entry Date coincident with or next
following the later of his twenty-first (21st) birthday or the ninetieth (90th)
day following his Date of Hire, if he customarily works for an Employer for
twenty (20) or more hours per week throughout each year (except for holidays and
vacations). In any other case, an Eligible Employee shall become a Member on
the Entry Date coincident with or next following the later of (a) his completion
of a 12-consecutive month period starting on his Date of Hire, or on any January
1 thereafter, in which he has 1,000 Hours of Service, or (b) his twenty-first
(21st) birthday.
6. Section 3.1.3 is amended by revising the first sentence thereof to
read as follows:
3.1.3 Voluntary Suspension. A Member may voluntarily suspend his
Contribution Agreement effective as soon as practicable by giving notice to the
Administrator on the Appropriate Form.
7. Section 3.6 is amended to read as follows:
3.6 Rollovers. Effective February 21, 1992, notwithstanding any
other provision of the Plan, the Administrator may, in his sole discretion,
authorize an Eligible Employee to make a contribution under the Plan ("Rollover
Contribution") which qualifies as an "eligible rollover distribution" under
section 402(c)(4), a "rollover amount" under section 403(a)(4) or a "rollover
contribution" under section 408(d)(3) of the Code. The Administrator shall
exercise such discretion in a manner that does not discriminate in favor of
Highly Compensated Employees. All Rollover Contributions shall be received and
held in the Fund, and shall be credited to the Eligible Employee's Rollover
Account as of such date as the Administrator shall specify. At the time a
Rollover Contribution is made, the Eligible Employee shall designate (in a
manner consistent with Section 5.3) how that Rollover Contribution is to be
allocated among the Investment Funds, without regard to the manner in which his
other Accounts (if any) are invested; thereafter, reallocation of Account
balances (including the Rollover Account) may be made only in accordance with
the provisions of Section 5.3. An Eligible Employee who makes a Rollover
Contribution shall be deemed a Member solely with respect to his Rollover
Account until he otherwise becomes a Member in accordance with Section 2.1.
8. Section 3.12 is amended so that the first sentence now reads:
Other than as provided in Section 3.6, Members shall not be
eligible to make contributions under the Plan.
9. A new Section 7.2.6 is added to read as follows:
7.2.6 Home Purchases with Mortgage. A Participant shall be
entitled to a hardship withdrawal under this Section 7.2 if (a) he meets all
requirements therefor other than the receipt of all amounts available to him as
a loan, (b) the need is for funds to purchase a principal residence of the
Participant, (c) the obtaining of loans other than the mortgage loan in
connection with such purchase would disqualify the Participant from obtaining
the necessary amount of mortgage loan, and (d) the Participant demonstrates to
the satisfaction of the Committee that the amount to be withdrawn for the
purpose of such purchase cannot be obtained from other resources that are
reasonably available to the Participant (including assets of the Participant's
spouse that are reasonably available to the Participant).
10. Section 7.11 is amended to read as follows:
7.11 Withdrawals from Plan While Loan is Outstanding. The amount
otherwise available for withdrawal from the Plan under Section 7.2 shall be
reduced by the amount of any loan outstanding at the time a withdrawal request
is made.
11. Section 8.1.1 is amended to read as follows:
8.1.1 In General. All amounts distributable pursuant to Section
7.1 with respect to a Member whose employment terminates for any reason shall be
paid in cash in a single sum. If (a) such a Member's Normal Retirement Date
precedes his Termination of Employment, or (b) the amount distributable does not
exceed $5,000 at his Termination of Employment (and the vested amount of his
Accounts did not exceed $5,000 at the time of any prior distribution),
distribution shall be made as soon as administratively practicable after the
date on which the Member's Termination of Employment is reported to the
Administrator. Otherwise, except as provided in Section 8.2, distribution shall
be made in cash in a single sum as soon as administratively practicable after
the Member's Normal Retirement Date; provided, however, that such a Member may
elect on the Appropriate Form at the time of his Termination of Employment to
receive distribution as soon as practicable thereafter. Distribution shall in
all events commence no later than 60 days after the close of the Year in which
the Member attains age 65, except to the extent a contribution pursuant to
Article III of the Plan which the Member is entitled to share in has not yet
been acquired by the Fund. Each Member's Accounts shall be credited or charged
with applicable Investment Adjustments through the date the distribution is
processed.
12. Section 8.15.3 is amended to read as follows:
8.15.3 Default Procedure. If, upon Termination of Employment, the
value of a Member's Accounts does not exceed $5,000 (and did not exceed $5,000
at the time of any prior distribution under the Plan), and such Member does not
make a timely election under this Section 8.15 to make a Direct Rollover, the
Member's Accounts shall be distributed directly to the Member in accordance with
Section 8.1.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
------------------------
Date: May 26, 1998
------------
ATTEST:
By: /s/ Wayne Brody
---------------
Date: May 26, 1998
------------
AMENDMENT NO. 1
TO THE
ARROW ELECTRONICS STOCK OWNERSHIP PLAN
The Arrow Electronics Stock Ownership Plan as restated to reflect
amendments adopted through December 28, 1994 is hereby amended to restate
Supplements 4 and 5 to read as follows, effective as though included in the Plan
as thus previously restated:
SUPPLEMENT NO. 4
In connection with the acquisition by Arrow Electronics, Inc. of all
of the issued and outstanding shares of common stock of Gates/FA Distributing,
Inc. (the "Gates Acquisition"), the Plan is amended as follows:
S4.1 In the case of an individual who becomes an employee of an
Employer or Affiliate on or about September 23, 1994 in connection with the
Gates Acquisition, service with Gates/FA Distributing, Inc. shall be treated,
for purposes of Section 2.1 and for purposes of determining such individual's
Years of Service under the Plan, as though it were service with an Employer or
Affiliate. For this purpose, any service measured in terms of elapsed time
shall be converted to Hours of Service on the basis that one month equals 190
Hours of Service, one week equals 45 Hours of Service and one day equals 10
Hours of Service. An individual described in this Section S4.1 shall become a
Member on the first Entry Date on or after January 1, 1995 on which he has
satisfied the requirements of Section 2.1.
SUPPLEMENT NO. 5
In connection with the acquisition by Arrow Electronics, Inc. of all
of the issued and outstanding shares of common stock of Anthem Electronics, Inc.
(the "Anthem Acquisition"), the Plan is amended as follows:
S5.1 In the case of an individual who becomes an employee of an
Employer or Affiliate on or about November 20, 1994 in connection with the
Anthem Acquisition, service with Anthem Electronics, Inc. shall be treated, for
purposes of Section 2.1 and for purposes of determining such individual's Years
of Service under the Plan, as though it were service with an Employer or
Affiliate. For this purpose, any service measured in terms of elapsed time
shall be converted to Hours of Service on the basis that one month equals 190
Hours of Service, one week equals 45 Hours of Service and one day equals 10
Hours of Service. An individual described in this Section S5.1 shall become a
Member on the first Entry Date on or after January 1, 1995 on which he has
satisfied the requirements of Section 2.1.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
-----------------------
Executive Vice President
ATTEST:
By: /s/ Wayne Brody
----------------
AMENDMENT NO. 3
TO THE
ARROW ELECTRONICS STOCK OWNERSHIP PLAN
(as amended December 28, 1994)
The Arrow Electronics Stock Ownership Plan as restated December 28,
1994 and as subsequently amended, is hereby further amended effective January 1,
1997 by the addition of the attached Supplement No. 6.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
------------------------
Executive Vice President
ATTEST:
By: /s/ Wayne Brody
---------------
SUPPLEMENT NO. 6
TO THE
ARROW ELECTRONICS STOCK OWNERSHIP PLAN
Special Provisions Applicable
to Employees of Capstone Electronics Corp.
Effective as of January 1, 1997 Capstone Electronics Corp. adopted
this Plan with the approval of the Company. This Supplement No. 6 provides for
such adoption and sets forth special provisions of the Plan that apply to
certain individuals who were employed by Capstone prior to January 1, 1997.
S6.1 Special Definitions. For purposes of this Supplement 6:
S6.1.1 "Capstone" means Capstone Electronics Corp., a Delaware
corporation.
S6.1.2 "Capstone Account" means the account maintained under the
Capstone Plan for each Capstone Member immediately prior to December 31, 1996.
S6.1.3 "Capstone Member" means a member of the Capstone Plan who had
an undistributed Capstone Account immediately prior to December 31, 1996 or who
was eligible under section 4.2 of the Capstone Plan to share in the Capstone
Plan contribution (if any) made with respect to the 1996 Year.
S6.1.4 "Capstone Plan" means the Capstone Electronics Profit- Sharing
Plan, as in effect prior to December 31, 1996.
S6.2 Membership in Plan Effective January 1, 1997. Capstone shall be
an Employer under the Plan effective on and after January 1, 1997, which shall
be the first Entry Date under the Plan applicable to Employees of Capstone.
Employees then employed by Capstone shall become Members on such Entry Date if
they were members of the Capstone Plan on December 31, 1996, or if they
otherwise satisfy the requirements of Article II to become a Member of the Plan
on January 1, 1997.
S6.3 Credit Under the Plan for Years of Service with Capstone. A
Capstone Member's Years of Service under the Plan shall be the service credited
to such Member for vesting purposes under the Capstone Plan as of December 31,
1996 plus any additional service credited under the rules of this Plan for
periods before or after January 1, 1997 but without duplication.
AMENDMENT NO. 4
TO THE
ARROW ELECTRONICS STOCK OWNERSHIP PLAN
(as amended December 28, 1994)
The Arrow Electronics Stock Ownership Plan as restated December 28,
1994 and as subsequently amended, is hereby further amended in the following
respects:
1. Section 1.20.2 is amended to read as follows:
1.20.2 Paid Or Other Approved Absence. Each regularly scheduled
working hour during a period for which an employee is paid, or entitled to
payment, by an Employer on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including disability
or pregnancy), layoff, jury duty, military duty or leave of absence, or during
any other period of authorized leave if employee returns to employment with the
Employer on the expiration of such leave.
2. Section 6.2.1 is amended so that the first sentence now reads:
Subject to the provisions of Section 9.5, the benefits
distributable to a Member pursuant to this Article VI on Termination of
Employment on or after January 1, 1986 but prior to the Member's Normal
Retirement Date shall be distributed in a single distribution no later than
December 31 of the Year following the Year in which he terminates employment;
provided, that if the total amount distributable from the Member's Accounts
exceeds $5,000 (or exceeded $5,000 at the time of any prior distribution), (a)
such Member's benefits shall not be so distributed prior to his Normal
Retirement Date without the Member's written consent, and (b) if such consent is
not given within such time as the Administrator shall prescribe, such benefits
shall instead be distri-buted after the Member's Normal Retirement Date.
3. Section 7.1 is amended to read as follows:
7.1 Withdrawal Rights. If a Member's General Account has a Vested
Percentage of 100%, he may withdraw, at such time and in such manner as the
Administrator shall prescribe, not more than one-half of the balance of such
Account. No more than one such withdrawal may be made in any l2-month period,
and no more than two such withdrawals may be made in any 60-month period.
Notwithstanding the foregoing, shares of Common Stock acquired with the proceeds
of an Exempt Loan may not be withdrawn prior to the close of the Year in which
the Exempt Loan is repaid in full. The restriction imposed by the immediately
preceding sentence and the restriction to no more than two withdrawals in any
60-month period do not apply to "Qualified Members" during their "Qualified
Election Periods" (as such terms are defined in Section 4.11.1).
4. Section 7.2 is amended to read as follows:
7.2 Distribution. Distribution upon a withdrawal pursuant to
Section 7.1 made directly to the Member shall be made solely in shares of Common
Stock, and there shall be no distribution of any fractional share or cash in
lieu thereof.
5. Section 9.4.1 is amended to read as follows:
9.4.1 Distribution at Normal Retirement Date. Subject to Sections
9.4.2 and 9.4.3, payment to a Member under this Article IX shall be made or
commenced not later than the 60th day after the close of the Year in which
occurs the later of his most recent Termination of Employment or his Normal
Retirement Date, except to the extent that the common stock to be so distributed
has not yet been acquired by the Fund.
6. Section 9.4.3 is amended to read as follows:
9.4.3 Subsequent Distributions. If a Member receives a single
sumdistribution pursuant to Section 9.4.1 or 9.4.2, any shares of Common Stock
subsequently allocated to the Member's Accounts shall be distributed to the
Member as soon as practicable after the end of the Year for which such
allocation is made.
7. Section 9.7.3 is amended to read as follows:
9.7.3 Default Procedure. If, upon Termination of Employment, the
value of a Member's Accounts does not exceed $5,000 (and did not exceed $5,000
at the time of any prior distribution under the Plan), and such Member does not
make a timely election under this Section 9.7 to make a Direct Rollover, the
Member's Accounts shall be distributed to the Member in accordance with Section
6.2.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
---------------------
Title: Executive Vice President
Date: May 26, 1998
ATTEST:
By: /s/ Wayne Brody
---------------
Date: May 26, 1998
EMPLOYMENT AGREEMENT made as of the 1st day of March, 1999 by and between
ARROW ELECTRONICS, INC., a New York corporation with its principal office at 25
Hub Drive, Melville, New York 11747 (the "Company"), and SAM R. LENO, residing
at 1774 Foothills Drive South, Golden, Colorado 80401 (the "Executive").
WHEREAS, the Company wishes to employ the Executive as Senior Vice
President and Chief Financial Officer, with the responsibilities and duties of a
principal executive officer of the Company; and
WHEREAS, the Executive wishes to accept such employment and to render
services to the Company on the terms set forth in, and in accordance with the
provisions of, this Employment Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. Employment and Duties.
a) Employment. The Company hereby employs the Executive for the
Employment Period defined in Paragraph 3, to perform such duties for the
Company, its subsidiaries and affiliates and to hold such offices as may be
specified from time to time by the Company's Board of Directors, subject to the
following provisions of this Agreement. The Executive hereby accepts such
employment.
b) Duties and Responsibilities. It is contemplated that the Executive
will be Senior Vice President and Chief Financial Officer of the Company but the
Board of Directors shall have the right to adjust the duties, responsibilities
and title of the Executive as the Board of Directors may from time to time deem
to be in the interests of the Company (provided, however, that during the
Employment Period, without the consent of the Executive, he shall not be
assigned any titles, duties or responsibilities which, in the aggregate,
represent a material diminution in, or are materially inconsistent with, his
title, duties, and responsibilities as Senior Vice President and Chief Financial
Officer). If the Board of Directors does not either continue the Executive in
the office of Senior Vice President and Chief Financial Officer or elect him to
some other principal executive office satisfactory to the Executive, the
Executive shall have the right to decline to give further service to the Company
and shall have the rights and obligations which would accrue to him under
Paragraph 6 if he were discharged without cause. If the Executive decides to
exercise such right to decline to give further service, he shall within forty-
five days after such action or omission by the Board of Directors give written
notice to the Company stating his objection and the action he thinks necessary
to correct it, and he shall permit the Company to have a forty-five day period
in which to correct its action or omission. If the Company makes a correction
satisfactory to the Executive, the Executive shall be obligated to continue to
serve the Company. If the Company does not make such a correction, the
Executive's rights and obligations under Paragraph 6 shall accrue at the
expiration of such forty-five day period.
c) Time Devoted to Duties. The Executive shall devote substantially
all of his normal business time and efforts to the business of the Company, its
subsidiaries and its affiliates, the amount of such time to be sufficient, in
the reasonable judgment of the Board of Directors, to permit him diligently and
faithfully to serve and endeavor to further their interests to the best of his
ability.
2. Compensation.
a) Monetary Remuneration and Benefits. During the Employment Period,
the Company shall pay to the Executive for all services rendered by him in any
capacity:
i. a minimum base salary at the rate of $400,000 per year (payable
in accordance with the Company's then prevailing practices, but in no event less
frequently than in equal monthly installments), subject to increase from time to
time in the sole discretion of the Board of Directors of the Company; provided
that, should the Company institute a company-wide pay cut/furlough program, such
salary may be decreased by up to 15%, but only for as long as said company-wide
program is in effect;
ii. such additional compensation by way of salary or bonus or
fringe benefits as the Board of Directors of the Company in its sole discretion
shall authorize or agree to pay, payable on such terms and conditions as it
shall determine; and
iii. such employee benefits that are made available by the Company
to its other principal executives.
b) Annual Incentive Payment. The Executive shall participate in the
Company's Management Incentive Plan (or such alternative, successor, or
replacement plan or program in which the Company's principal operating
executives, other than the Chief Executive Officer, generally participate) and
shall have a targeted incentive thereunder of not less than $175,000 per annum;
provided, however, that the Executive's actual incentive payment in any year
shall be measured by the Company's performance against goals established for
that year and that such performance may produce an incentive payment ranging
from none to twice the targeted amount. The Executive's incentive payment for
any year will be appropriately pro-rated to reflect a partial year of
employment. The foregoing notwithstanding, it is specifically agreed that the
Executive's incentive for the portion of the Employment Period ending December
31, 1999 shall be not less than $60,000.
c) Supplemental Executive Retirement Plan. The Executive shall
participate in the Company's Unfunded Pension Plan for Selected Executives (the
"SERP"), which shall provide him with an annual minimum benefit of $90,000 per
year upon retirement at age 63 and $75,000 per year upon retirement at age 60.
d) Automobile. During the Employment Period, the Company will pay the
Executive a monthly automobile allowance of $850.
e) Expenses. During the Employment Period, the Company agrees to
reimburse the Executive, upon the submission of appropriate vouchers, for out-
of-pocket expenses (including, without limitation, expenses for travel, lodging
and entertainment) incurred by the Executive in the course of his duties
hereunder.
f) Office and Staff. The Company will provide the Executive with an
office, secretary and such other facilities as may be reasonably required for
the proper discharge of his duties hereunder.
g) Indemnification. The Company agrees to indemnify the Executive for
any and all liabilities to which he may be subject as a result of his employment
hereunder (and as a result of his service as an officer or director of the
Company, or as an officer or director of any of its subsidiaries or affiliates),
as well as the costs of any legal action brought or threatened against him as a
result of such employment, to the fullest extent permitted by law.
h) Participation in Plans. Notwithstanding any other provision of
this Agreement, the Executive shall have the right to participate in any and all
of the plans or programs made available by the Company (or its subsidiaries,
divisions or affiliates) to, or for the benefit of, executives (including the
annual stock option and restricted stock grant programs) or employees in
general, on a basis consistent with other senior executives.
3. The Employment Period.
The "Employment Period", as used in the Agreement, shall mean the
period beginning as of the date hereof and terminating on the last day of the
calendar month in which the first of the following occurs:
a) the death of the Executive;
b) the disability of the Executive as determined in accordance with
Paragraph 4 hereof and subject to the provisions thereof;
c) the termination of the Executive's employment by the Company for
cause in accordance with Paragraph 5 hereof; or
d) December 31, 2000; provided, however, that, unless sooner
terminated as otherwise provided herein, the Employment Period shall
automatically be extended for one or more twelve (12) month periods beyond the
then scheduled expiration date thereof unless between the 6th and 12th month
preceding such scheduled expiration date either the Company or the Executive
gives the other written notice of its or his election not to have the Employment
Period so extended. If the Company does not give the Executive at least twelve
months notice of its intention to permit this Agreement to expire on the then
scheduled expiration date thereof (unless sooner terminated as otherwise
provided herein), the Employment Period shall automatically be extended for one
or more months beyond the scheduled expiration date thereof to give the
Executive the benefit of twelve months notice of termination (provided, however,
that, if so extended, the Employment Period shall terminate upon the Executive's
acceptance of employment with another entity).
4. Disability.
For purposes of this Agreement, the Executive will be deemed "disabled"
upon the earlier to occur of (i) his becoming disabled as defined under the
terms of the disability benefit program applicable to the Executive, if any, and
(ii) his absence from his duties hereunder on a full-time basis for one hundred
eighty (180) consecutive days as a result of his incapacity due to accident or
physical or mental illness. If the Executive becomes disabled (as defined in
the preceding sentence), the Employment Period shall terminate on the last day
of the month in which such disability is determined. Until such termination of
the Employment Period, the Company shall continue to pay to the Executive his
base salary, any additional compensation authorized by the Company's Board of
Directors, and any other remuneration and benefits provided in accordance with
Paragraph 2, all without delay, diminution or proration of any kind whatsoever
(except that his remuneration hereunder shall be reduced by the amount of any
payments he may otherwise receive as a result of his disability pursuant to a
disability program provided by or through the Company), and his medical benefits
and life insurance shall remain in full force. After termination of the
Employment Period as a result of the disability of the Executive, the medical
benefits covering the Executive and his family shall remain in place (subject to
the eligibility requirements and other conditions contained in the underlying
plan, as described in the Company's employee benefits manual, and subject to the
requirement that the Executive continue to pay the "employee portion" of the
cost thereof), and the Executive's life insurance policy under the Management
Insurance Program shall be transferred to him, as provided in the related
agreement, subject to the obligation of the Executive to pay the premiums
therefor.
In the event that, notwithstanding such a determination of disability,
the Executive is determined not to be totally and permanently disabled prior to
the then scheduled expiration of the Employment Period, the Executive shall be
entitled to resume employment with the Company under the terms of this Agreement
for the then remaining balance of the Employment Period.
5. Termination for Cause.
In the event of any malfeasance, willful misconduct, active fraud or
gross negligence by the Executive in connection with his employment hereunder,
the Company shall have the right to terminate the Employment Period by giving
the Executive notice in writing of the reason for such proposed termination. If
the Executive shall not have corrected such conduct to the satisfaction of the
Company within thirty days after such notice, the Employment Period shall
terminate and the Company shall have no further obligation to the Executive
hereunder but the restriction on the Executive's activities contained in
Paragraph 7 and the obligations of the Executive contained in Paragraph 8(b) and
8(c) shall continue in effect as provided therein.
6. Termination Without Cause.
In the event that the Company discharges the Executive without cause,
the Executive shall be entitled to the salary provided in Paragraph 2(a), two
thirds of the targeted incentive provided in Paragraph 2(b), the vesting of any
restricted stock awards and the immediate exercisability of any stock options,
as well as his rights under Paragraph 4, which would have vested or become
exercisable during the full Employment Period (which, in that event, shall
continue until the then scheduled expiration of the Employment Period unless
sooner terminated by the Executive's disability or death). Any amounts payable
to the Executive under this Paragraph 6 shall be reduced by the amount of the
Executive's earnings from other employment (which the Executive shall have an
affirmative duty to seek; provided, however, that the Executive shall not be
obligated to accept a new position which is not reasonably comparable to his
employment with the Company).
7. Non-Competition; Trade Secrets.
During the Employment Period and for a period of two years after the
termination of the Employment Period, the Executive will not, directly or
indirectly:
a) Disclosure of Information. Use, attempt to use, disclose or
otherwise make known to any person or entity (other than to the Board of
Directors of the Company or otherwise in the course of the business of the
Company, its subsidiaries or affiliates and except as may be required by
applicable law):
i. any knowledge or information, including, without limitation,
lists of customers or suppliers, trade secrets, know-how, inventions,
discoveries, processes and formulae, as well as all data and records pertaining
thereto, which he may acquire in the course of his employment, in any manner
which may be detrimental to or cause injury or loss to the Company, its
subsidiaries or affiliates; or
ii. any knowledge or information of a confidential nature
(including all unpublished matters) relating to, without limitation, the
business, properties, accounting, books and records, trade secrets or memoranda
of the Company, its subsidiaries or affiliates, which he now knows or may come
to know in any manner which may be detrimental to or cause injury or loss to the
Company its subsidiaries or affiliates.
b) Non-Competition. Engage or become interested in the United States,
Canada or Mexico (whether as an owner, shareholder, partner, lender or other
investor, director, officer, employee, consultant or otherwise) in the business
of distributing electronic parts, components, supplies or systems, or any other
business that is competitive with the principal business or businesses then
conducted by the Company, its subsidiaries or affiliates (provided, however,
that nothing contained herein shall prevent the Executive from acquiring or
owning less than 1% of the issued and outstanding capital stock or debentures of
a corporation whose securities are listed on the New York Stock Exchange,
American Stock Exchange, or the National Association of Securities Dealers
Automated Quotation System, if such investment is otherwise permitted by the
Company's Human Resource and Conflict of Interest policies);
c) Solicitation. Solicit or participate in the solicitation of any
business of any type conducted by the Company, its subsidiaries or affiliates,
during said term or thereafter, from any person, firm or other entity which was
or at the time is a supplier or customer, or prospective supplier or customer,
of the Company, its subsidiaries or affiliates; or
d) Employment. Employ or retain, or arrange to have any other person,
firm or other entity employ or retain, or otherwise participate in the
employment or retention of, any person who was an employee or consultant of the
Company, its subsidiaries or affiliates, at any time during the period of twelve
consecutive months immediately preceding such employment or retention.
The Executive will promptly furnish in writing to the Company, its
subsidiaries or affiliates, any information reasonably requested by the Company
(including any third party confirmations) with respect to any activity or
interest the Executive may have in any business.
Except as expressly herein provided, nothing contained herein is
intended to prevent the Executive, at any time after the termination of the
Employment Period, from either (i) being gainfully employed or (ii) exercising
his skills and abilities outside of such geographic areas, provided in either
case the provisions of this Agreement are complied with.
8. Preservation of Business.
a) General. During the Employment Period, the Executive will use his
best efforts to advance the business and organization of the Company, its
subsidiaries and affiliates, to keep available to the Company, its subsidiaries
and affiliates, the services of present and future employees and to advance the
business relations with its suppliers, distributors, customers and others.
b) Patents and Copyrights, etc. The Executive agrees, without
additional compensation, to make available to the Company all knowledge
possessed by him relating to any methods, developments, inventions, processes,
discoveries and/or improvements (whether patented, patentable or unpatentable)
which concern in any way the business of the Company, it subsidiaries or
affiliates, whether acquired by the Executive before or during his employment or
retention hereunder.
Any methods, developments, inventions, processes, discoveries and/or
improvements (whether patented, patentable or unpatentable) which the Executive
may conceive of or make, related directly or indirectly to the business or
affairs of the Company, its subsidiaries or affiliates, or any part thereof,
during the Employment Period, shall be and remain the property of the Company.
The Executive agrees promptly to communicate and disclose all such methods,
developments, inventions, processes, discoveries and/or improvements to the
Company and to execute and deliver to it any instruments deemed necessary by the
Company to effect the disclosure and assignment thereof to it. The Executive
also agrees, on request and at the expense of the Company, to execute patent
applications and any other instruments deemed necessary by the Company for the
prosecution of such patent applications or the acquisition of Letters Patent in
the United States or any other country and for the assignment to the Company of
any patents which may be issued. The Company shall indemnify and hold the
Executive harmless from any and all costs, expenses, liabilities or damages
sustained by the Executive by reason of having made such patent application or
being granted such patents.
Any writings or other materials written or produced by the Executive or
under his supervision (whether alone or with others and whether or not during
regular business hours), during the Employment Period which are related,
directly or indirectly, to the business or affairs of the Company, its
subsidiaries or affiliates, or are capable of being used therein, and the
copyright thereof, common law or statutory, including all renewals and
extensions, shall be and remain the property of the Company. The Executive
agrees promptly to communicate and disclose all such writings or materials to
the Company and to execute and deliver to it any instruments deemed necessary by
the Company to effect the disclosure and assignment thereof to it. The Executive
further agrees, on request and at the expense of the Company, to take any and
all action deemed necessary by the Company to obtain copyrights or other
protections for such writings or other materials or to protect the Company's
right, title and interest therein. The Company shall indemnify and hold the
Executive harmless from any and all costs, expenses, liabilities or damages
sustained by the Executive by reason of the Executive's compliance with the
Company's request.
c) Return of Documents. Upon the termination of the Employment
Period, including any termination of employment described in Paragraph 6, the
Executive will promptly return to the Company all copies of information
protected by Paragraph 7(a) hereof or pertaining to matters covered by
subparagraph (b) of this Paragraph 8 which are in his possession, custody or
control, whether prepared by him or others.
9. Separability.
The Executive agrees that the provisions of Paragraphs 7 and 8 hereof
constitute independent and separable covenants which shall survive the
termination of the Employment Period and which shall be enforceable by the
Company notwithstanding any rights or remedies the Executive may have under any
other provisions hereof. The Company agrees that the provisions of Paragraph 6
hereof constitute independent and separable covenants which shall survive the
termination of the Employment Period and which shall be enforceable by the
Executive notwithstanding any rights or remedies the Company may have under any
other provisions hereof.
10. Specific Performance.
The Executive acknowledges that (i) the services to be rendered under
the provisions of this Agreement and the obligations of the Executive assumed
herein are of a special, unique and extraordinary character; (ii) it would be
difficult or impossible to replace such services and obligations; (iii) the
Company, it subsidiaries and affiliates will be irreparably damaged if the
provision hereof are not specifically enforced; and (iv) the award of monetary
damages will not adequately protect the Company, its subsidiaries and affiliates
in the event of a breach hereof by the Executive. The Company acknowledges that
(i) the Executive will be irreparably damaged if the provisions of Paragraph 6
hereof are not specifically enforced; and (ii) the award of monetary damages
will not adequately protect the Executive in the event of a breach thereof by
the Company. By virtue thereof, the Executive agrees and consents that if he
violates any of the provisions of this Agreement, and the Company agrees and
consents that if it violates any of the provisions of Paragraph 6 hereof, the
other party, in addition to any other rights and remedies available under this
Agreement or otherwise, shall (without any bond or other security being required
and without the necessity of proving monetary damages) be entitled to a
temporary and/or permanent injunction to be issued by a court of competent
jurisdiction restraining the breaching party from committing or continuing any
violation of this Agreement, or any other appropriate decree of specific
performance. Such remedies shall not be exclusive and shall be in addition to
any other remedy which any of them may have.
11. Miscellaneous.
a) Entire Agreement; Amendment. This Agreement constitutes the whole
employment agreement between the parties and may not be modified, amended or
terminated except by a written instrument executed by the parties hereto. All
other agreements between the parties pertaining to the employment or
remuneration of the Executive not specifically contemplated hereby or
incorporated or merged herein are terminated and shall be of no further force or
effect.
b) Assignment. Except as stated below, this Agreement is not
assignable by the Company without the written consent of the Executive, or by
the Executive without the written consent of the Company, and any purported
assignment by either party of such party's rights and/or obligations under this
Agreement shall be null and void; provided, however, that, notwithstanding the
foregoing, the Company may merge or consolidate with or into another
corporation, or sell all or substantially all of its assets to another
corporation or business entity or otherwise reorganize itself, provided the
surviving corporation or entity, if not the Company, shall assume this Agreement
and become obligated to perform all of the terms and conditions hereof, in which
event the Executive's obligations shall continue in favor of such other
corporation or entity.
c) Waivers, etc. No waiver of any breach or default hereunder shall
be considered valid unless in writing, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature. The
failure of any party to insist upon strict adherence to any term of this
Agreement on any occasion shall not operate or be construed as a waiver of the
right to insist upon strict adherence to that term of any other term of this
Agreement on that or any other occasion.
d) Provisions Overly Broad. In the event that any term or provision
of this Agreement shall be deemed by a court of competent jurisdiction to be
overly broad in scope, duration or area of applicability, the court considering
the same shall have the power and hereby is authorized and directed to modify
such term or provision to limit such scope, duration or area, or all of them, so
that such term or provision is no longer overly broad and to enforce the same as
so limited. Subject to the foregoing sentence, in the event any provision of
this Agreement shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall attach only to such provision and shall not
affect or render invalid or unenforceable any other provision of this Agreement.
e) Notices. Any notice permitted or required hereunder shall be in
writing and shall be deemed to have been given on the date of delivery or, if
mailed by registered or certified mail, postage prepaid, on the date of mailing:
i. if to the Executive to:
Sam R. Leno
1774 Foothills Drive South
Golden, Colorado 80401
ii. if to the Company to:
Arrow Electronics, Inc.
25 Hub Drive
Melville, New York 11747
Attention: Robert E. Klatell
Executive Vice President
Either party may, by notice to the other, change his or its address for notice
hereunder.
f) New York Law. This Agreement shall be construed and governed in
all respects by the internal laws of the State of New York, without giving
effect to principles of conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Attest: ARROW ELECTRONICS, INC.
/s/ Wayne Brody By: /s/ Robert E. Klatell
- ------------------- -----------------------
Assistant Secretary Executive Vice President
THE EXECUTIVE
/s/ Sam R. Leno
----------------
Arrow Electronics, Inc.
Supplemental Executive Retirement Plan
General Information
May 1998
This document provides general information about the Arrow Supplemental
Executive Retirement Plan ("SERP"). It is intended only for employees who have
been designated as SERP participants by Arrow's Board of Directors. The SERP is
an unfunded retirement plan under the direction and control of Arrow's Board of
Directors and the Committee the Board may appoint to administer it. The Board
determines which employees will participate in the SERP and the terms of each
employee's participation. The letter advising you of your participation will
set forth the dates on which you are eligible to retire and the benefits
available on those dates if you continue as a SERP participant.
Retirement Benefits
When the Board admits you to participation in the SERP, it will determine the
date on which you may qualify for the maximum pension available, the amount of
that pension, the earliest date on which you are eligible to retire with
benefits under the Plan (your "earliest retirement date"), and the amount of
pension you may receive on retirement at your earliest retirement date. You
will also receive a schedule showing the amount of early retirement pension you
may receive if you retire at any time between your earliest retirement date and
the date you qualify for the maximum pension available.
Retirement
You may begin your retirement on or after your earliest retirement date. You
retire from Arrow by advising Arrow in writing, with as much notice as possible
(and not less than four months), that you wish to terminate your employment to
begin retirement on a particular date. Your retirement date will then be the
first day of the month following your termination, and your monthly SERP pension
payment will begin on that date.
Effect of Disability
You are considered to be "disabled" if you meet the total disability
requirements of the long term disability insurance offered to you by Arrow.
If you become disabled while you are participating in the SERP, but before you
receive any SERP pension payments, the following provisions apply:
1. While you are disabled, you continue to accrue pension benefits to the same
extent as if you were active.
2. If your employment terminates because of disability and the disability
continues to your normal retirement date, your termination date for SERP
purposes will be the day before your normal retirement date ("normal retirement
date" means the normal retirement date under the Arrow Savings Plan and ESOP).
3. If you are eligible for a retirement pension while you are receiving
disability benefits, no retirement pension will begin without your written
consent.
4. Any SERP pension payments will be reduced by the full amount of any
disability benefits you receive for the same period.
Effect of a Change in Control Termination
If you have an employment or other agreement which gives you additional benefits
in the event of the termination of your employment for certain reasons following
a change in the ownership or control of Arrow, and within 24 months after such
change your employment ends either (a) involuntarily other than for Cause or
Disability or (b) voluntarily by you for Good Reason (as each of those
capitalized terms is defined in such agreement), then your termination is
considered to be a "Change in Control Termination".
If you incur a "Change in Control Termination" after attaining age 50 and
completing 15 years of SERP participation, you will receive SERP pension
payments beginning on the first day of the month following the termination, in
an amount equal to your normal retirement pension.
Without your written consent, no action by Arrow during the period of time
during which such employment agreement is in effect may adversely affect your
rights under this section.
Normal Form of Pension
Under the normal form of pension, SERP pension payments are payable for your
life only. However, if you die after your pension payments begin but before you
have received 60 monthly payments, then monthly payments will continue to your
beneficiary in the same amount you received prior to your death, until a total
of 60 payments have been made. No benefits are payable under the SERP if you
die before your pension payments begin.
Optional Surviving Spouse Pension
Under this optional form of pension, your monthly pension will still be payable
for your lifetime, but in a reduced amount, and without the guarantee of 60
monthly payments. The reduction will be in the amount that the Committee
determines, based on the advice of its actuarial consultant, is necessary to
provide a monthly survivorship pension to your spouse for his or her lifetime,
in an amount equal to two-thirds of the reduced monthly benefit you were
receiving.
Your election to take a surviving spouse pension must be made before your
pension begins and cannot be changed after the pension begins. If you elect this
benefit form, no benefits will be payable after the death of both you and your
spouse. If you start to receive a reduced monthly pension under this form and
your spouse then dies before you, the reduced benefit will continue to be paid
for the remainder of your life. If you start to receive a reduced monthly
pension under this form and you then die before your spouse, two-thirds of the
reduced benefit will continue to be paid for the remainder of his or her life.
Participation Conditions
Your participation in the SERP begins on the date designated by the Board. The
Board may act at any time to end your participation or to suspend your accrual
of additional benefits. However, the Board may not adversely change any benefit
after you retire or any accrued benefit before you retire, except with your
consent. For this purpose, if you have reached your earliest retirement date,
your accrued benefit is the amount you would be eligible to receive upon
retirement as of the first day of the month next following the effective date of
such change. If you are not then eligible to retire, your accrued benefit will
be equal to the amount you would be entitled to receive on your earliest
retirement date under the pre-change terms of the SERP, multiplied by the ratio
of your completed months of participation in the SERP at the effective date of
the change to your projected completed months of participation at such earliest
retirement date under the pre-change terms of the SERP. The only way you will
benefit from the SERP is to fulfill all of its requirements and retire from
Arrow employment on or after your earliest retirement date. Except as noted for
disability or change in control, if your employment ends for any reason before
you retire under the SERP, the SERP provides no benefit to you or your
beneficiary.
Accrued SERP benefits are binding obligations of Arrow Electronics, Inc. They
are not protected by ERISA or other government regulations.
Termination of SERP Benefits
When you become eligible for SERP payments, your annual SERP pension will be
paid to you in monthly installments. Payments will end with the payment for the
month in which you die, except for any benefits payable to your beneficiary on
your death before receiving at least 60 monthly payments, if your pension was
payable in the normal form described above (or for any surviving pension to your
spouse, if your pension was paid as a surviving spouse pension as described
above), or earlier if you compete with Arrow, as defined below. You compete with
Arrow if, directly or indirectly, alone, as an employee, agent, independent
contractor, lender, consultant, owner, partner or joint venturer, or as an
officer, director, or stockholder of any corporation, or otherwise, are employed
by, participate in, are engaged in, or are connected with any person or entity
which is engaged in a business of the type and character engaged in, and
competitive with that conducted by Arrow. Ownership of 3% or less of the stock
or other securities of a corporation, the stock of which is listed on a national
securities exchange or is quoted on the NASDAQ National Market, will not
constitute a violation of this provision, so long as you do not in fact have the
power to control, or direct the management of, or are not otherwise associated
with, such corporation.
Medical Benefits
Arrow offers a group health care plan (the "SERP Health Plan") to participants
who have retired under the SERP, which provides benefits that are identical to
those provided under the group health plan offered by Arrow to its active
employees (the "Active Health Plan"). The SERP Health Plan does not offer HMO
options, dental coverage options, or any medical care spending account.
Dependent eligibility rules for the SERP Health Plan are the same as for the
Active Health Plan. If you retire with a benefit under the SERP and were
covered under the Active Health Plan at the time of your retirement, you may
elect for yourself and your eligible dependents, within 30 days after your
retirement, to participate in the SERP Health Plan. SERP Health Plan coverage
for each covered person will end when that person first becomes eligible for
Medicare (whether or not they actually enroll at that time).
For you and each eligible dependent who was covered by the Active Health Plan on
your termination date and begins coverage under the SERP Health Plan immediately
upon your retirement under the SERP, the exclusion for pre-existing conditions
under the SERP Health Plan will not apply, and annual deductible and out-of-
pocket balances and/or other plan maximums will be transferred to the SERP
Health Plan.
Your election and continued coverage is conditioned on your timely payment of
the full cost of the coverage elected, which shall be the same amount that would
be payable from time to time for that coverage if it were provided under Part 6
(Section 601 and following) of Subtitle B of Title I of ERISA (commonly known as
"COBRA"). Payment of these amounts will be made by deduction from any monthly
SERP pension payments. If your right to this coverage ends because you become
eligible for Medicare or die, your covered spouse may elect, within 30 days of
such event, to continue such coverage for himself or herself and any of your
other covered dependents until your spouse dies or becomes eligible for
Medicare, conditioned on timely payment of the full COBRA cost of such coverage
as set forth above. If your spouse is receiving a survivorship pension under
the SERP, the required cost will be deducted monthly from those pension
payments.
If payment of the full COBRA cost of the coverage elected is not made by
deduction from the monthly SERP pension benefit, an arrangement for timely
payment of those amounts that is satisfactory to Arrow must be made. If timely
payments of those amounts are not received by Arrow, the coverage will be
canceled and may not thereafter be reinstated.
The period for which coverage is available to your covered spouse and/or
dependent children as set forth above may in part be concurrent with a period
for which COBRA continuation coverage is available, and to that extent shall
offset the period for which coverage under COBRA is required to be provided.
The right to coverage under the SERP Health Plan may not be changed after you
retire or are eligible to retire, except pursuant to amendments that apply on a
substantially equivalent basis to the rights of similarly situated active
employees of Arrow (including, if applicable, amendments that terminate coverage
for similarly situated active employees of Arrow).
Additional Terms & Conditions
The following terms and conditions govern the SERP. If there is any conflict
between the preceding description of the SERP and its benefits and the following
terms and conditions, the following terms and conditions will prevail.
1. Definitions:
"Arrow": Arrow Electronics, Inc., or any successor thereof by merger,
consolidation, purchase of substantially all of its business and assets, or
otherwise.
"The Board": The Board of Directors of Arrow or any duly constituted committee
thereof.
2. Committee: The Board may appoint a Committee with power and discretion to
make all determinations required of it by the terms of the SERP, and its
constructions and interpretations of the SERP, as well as its determinations as
to rights and obligations under the SERP. The Committee's determinations shall
be final and binding on all persons; provided that no member of the Committee
shall be entitled to act on or decide any matter relating specifically to such
member. If the Board fails to appoint a Committee, references herein to the
"Committee" shall mean the Board.
3. Powers of Committee: The Committee shall have all powers necessary or
helpful for purposes of administration of the SERP.
4. Determinations by Committee: In addition to the specific responsibilities
stated elsewhere in the SERP, the Committee, acting directly or through its
agent, shall be responsible for determination of the benefits to which any
participant, beneficiary, or spouse is or may become entitled to under the SERP.
5. Direction to pay benefits: All benefit payments under the SERP shall be upon
and in accordance with the written directions of the Committee or its agent.
6. Beneficiary: A participant's "beneficiary" is the person (including a trust,
estate, foundation, or other entity) designated by the participant (at such time
and in such manner as the Committee shall authorize) to receive the death
benefit (if any) payable upon death after commencing to receive benefits, and
before receiving at least 60 payments. If an individual is designated as
beneficiary and dies prior to becoming entitled to benefits hereunder (or if no
valid designation of beneficiary is in effect for any other reason), the
beneficiary shall be the participant's estate unless otherwise provided in the
beneficiary designation.
7. Liability limited; indemnification: The members of the Committee and each of
them shall be free from all liability, joint and several, for their acts and
conduct, and for the acts and conduct of any duly constituted agents. Arrow
shall indemnify and save them harmless from the effects and consequences of
their acts and conduct in such official capacity except to the extent that such
effects and consequences flow from their own willful misconduct. Under no
circumstances will members of the Committee be personally liable for the payment
of SERP benefits.
8. Payment to incompetent: If any participant, beneficiary, or spouse entitled
to benefits under the SERP shall be legally incompetent (or shall be a minor),
such benefits may be paid in one or more of the following ways, as the Committee
in its sole discretion shall determine
a. To the legal representatives of the participant, beneficiary, or spouse;
b. Directly to such participant, beneficiary, or spouse;
c. To the spouse or guardian of such participant, beneficiary, or spouse or to
the person with whom such participant, beneficiary, or spouse resides. Payment
to any person in accordance with these provisions will, to the extent of the
payment, discharge Arrow, and none of the foregoing or the Committee will be
required to see to the proper application of any such payment. Without in any
manner limiting these provisions, in the event that any amount is payable
hereunder to any legally incompetent participant, beneficiary, or spouse, the
Committee may in its discretion utilize the procedures described in the
following section.
9. Doubt as to right to payment: If any doubt exists as to the right of any
person to any benefits hereunder or the amount of time of payment of such
benefits (including, without limitation, any case of doubt as to identity, or
any case in which notice has been received from any person claiming any interest
in amounts payable hereunder, or any case in which a claim from other persons
may exist by reason of community property or similar laws), the Committee will
be entitled, in its discretion, to direct that payment of such benefits be
deferred until order of a court of competent jurisdiction, or to pay such sum
into court in accordance with appropriate rules of law in such case then
provided, or to make payment only upon receipt of a bond or similar
indemnification (in such amount and in such form as is satisfactory to the
Committee).
10. Withholding. All payments under the SERP shall be subject to any applicable
withholding requirements imposed by any tax or other law.
11. Source of payment: All benefits under the SERP shall be paid by Arrow out
of general assets, and any rights of a participant, beneficiary, or spouse under
the SERP shall be mere unsecured contractual rights. Arrow and the participants
intend that any arrangements made to assist Arrow to meet obligations under the
SERP shall be unfunded for tax purposes and for purposes of Title I of ERISA,
and no trust, security, escrow, or similar account shall be established in
connection with the SERP. Arrow may, however, in its discretion, establish a
"rabbi trust" to assist in meeting its obligation to pay benefits under the
SERP, and amounts paid from any such rabbi trust shall discharge the obligations
of Arrow hereunder to the extent of the payments. No participant, beneficiary,
or spouse shall have a preferred claim on or beneficial ownership interest in
the assets of such rabbi trust.
12. Spendthrift clause: Except as otherwise provided by law, no benefit,
distribution, or payment under the SERP may be anticipated, assigned (either at
law or in equity), alienated, or subject to attachment, garnishment, levy,
execution, or other legal or equitable process.
13. Reimbursement of legal expenses: In the event that any dispute shall arise
between a participant and Arrow relating to rights under the SERP, and it is
determined by agreement between the parties, or by a final judgment of a court
of competent jurisdiction that is no longer subject to appeal, that the
participant has been substantially successful in such dispute, reasonable legal
fees and disbursements of the participant in connection with such dispute shall
be paid by Arrow.
14. Usage: Whenever applicable, the singular, when used in the SERP, will
include the plural.
15. Data: Any participant, beneficiary, or spouse entitled to benefits under
the SERP must furnish to the Committee such documents, evidence, or information
as the Committee considers necessary or desirable for the purpose of
administering the SERP, or to protect the Committee; and it is a condition of
the SERP that each such participant, beneficiary, or spouse must furnish
promptly true and complete data, evidence, or information and sign such
documents as the Committee may require before any benefits become payable under
the SERP.
16. Separability: If any provision of the SERP is held invalid or
unenforceable, its invalidity or unenforceability will not affect other
provisions of the SERP, and the SERP will be construed and enforced as if such
provision had not been included therein.
17. Captions: The captions contained herein are inserted only as a matter of
convenience and for reference and in no way define, limit, enlarge, or describe
the scope or intent of the SERP; nor shall they, in any way, affect the SERP or
the construction of any provision thereof.
18. Name: The SERP may be known as the Unfunded Pension Plan for Selected
Executives of Arrow Electronics, Inc.
19. Governing law: The SERP shall be construed and governed in all respects
according to the laws of the State of New York, where it is adopted, without
regard to principles of conflict of laws, except to the extent preempted by
federal law.
20. Right of discharge reserved: The establishment of the SERP shall not be
construed to confer upon an employee or participant any legal right to be
retained in the employ of Arrow or give any employee or any other person any
right to benefits, except to the extent expressly provided hereunder. All
employees will remain subject to discharge to the same extent as if the SERP had
never been adopted, and may be treated without regard to the effect such
treatment might have upon them under the SERP.
21. Amendment and termination: Arrow, by action of the Board, may at any time
amend the SERP in any respect or terminate the SERP, provided that no retirement
pension of a participant who has already retired as of the date of amendment or
SERP termination shall be reduced thereby. However, without the express written
consent of the participant (or the participant's beneficiary or spouse, if
applicable), no action taken by the Board shall (a) reduce a participant's
benefits below the amount of his or her accrued benefit (as described above
under "Participation Conditions") prior to such action nor (b) adversely affect
the right of the participant (and the participant's beneficiary or surviving
spouse, if applicable) to receive payment in respect of such amount upon
completion by the participant of the conditions precedent to entitlement to a
retirement pension as they exist under the terms of the SERP in effect
immediately prior to such action, and at the time and on the terms then in
effect.
22. Grantor trust agreement/change of control: The powers, rights and duties of
the Trustee under any rabbi trust created for the purpose of assisting Arrow in
meeting its obligations under the SERP shall, following a "Change of Control" as
defined in the trust agreement for such Trust, govern and prevail to the extent
inconsistent with any of the provisions of the SERP, including without
limitation provisions making the Committee's determinations final and binding,
and provisions giving the Committee the right to invoke the procedures described
in Sections 8 and 9 hereof, to determine the data to be required to be furnished
prior to the commencement of benefits as provided in Section 15 hereof, and to
make the determinations and give directions with respect to the payment of
benefits as provided in Sections 4 and 5 hereof.
TFH 5/19/98 SERP General Information Page 1
ARROW ELECTRONICS, INC.
GRANTOR TRUST AGREEMENT
This Grantor Trust Agreement (the "Trust Agreement") is made this 25th day of
June, 1998 by and between ARROW ELECTRONICS, INC. ("the Company") and WACHOVIA
BANK, N.A. ("the Trustee").
Recitals
(a) WHEREAS, the Company has adopted the nonqualified deferred compensation
Plans and Agreements (the "Arrangements") as listed in Attachment I;
(b) WHEREAS, the Company has incurred or expects to incur liability under the
terms of such Arrangements with respect to the individuals participating in such
Arrangements (the "Participants and Beneficiaries");
(c) WHEREAS, the Company hereby establishes a Trust (the "Trust") and shall
contribute to the Trust assets that shall be held therein, subject to the claims
of the Company's creditors in the event of the Company's Insolvency, as herein
defined, until paid to Participants and their Beneficiaries in such manner and
at such times as specified in the Arrangements and in this Trust Agreement;
(d) WHEREAS, it is the intention of the parties that this Trust shall constitute
an unfunded arrangement and shall not affect the status of the Arrangements as
an unfunded plan maintained for the purpose of providing deferred compensation
for a select group of management or highly compensated employees for purposes of
Title I of the Employee Retirement Income Security Act of 1974; and
(e) WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds (the "Fund") to assist it in
satisfying its liabilities under the Arrangements.
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of The Trust
(a) The Trust is intended to be a grantor trust, of which the Company is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(b) The Company shall be considered a grantor for the purposes of the Trust.
(c) The Trust hereby established is revocable by the Company; it shall become
irrevocable upon a Change of Control, as defined herein.
(d) The Company hereby deposits with the Trustee in the Trust one-thousand
dollars and zero cents ($1,000.00), which shall become the initial principal of
the Trust to be held, administered and disposed of by the Trustee as provided in
this Trust Agreement.
(e) The principal of the Trust and any earnings thereon shall be held separate
and apart from other funds of the Company and shall be used exclusively for the
uses and purposes of Participants and general creditors as herein set forth.
Participants and their Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Arrangements and this Trust Agreement shall be unsecured contractual
rights of Participants and their Beneficiaries against the Company. Any assets
held by the Trust will be subject to the claims of the general creditors of the
Company under federal and state law in the event the Company is Insolvent, as
defined in Section 3(a) herein.
(f) The Company, in its sole discretion, may at any time, or from time to time,
make additional deposits of cash or other property acceptable to the Trustee in
the Trust to augment the principal to be held, administered and disposed of by
the Trustee as provided in this Trust Agreement. Prior to a Change of Control,
neither the Trustee nor any Participant or Beneficiary shall have any right to
compel additional deposits.
(g) Upon a Potential Change of Control, as defined herein, the Company shall, as
soon as possible, but in no event longer than thirty (30) days following the
occurrence of a Potential Change of Control nor later than the date of an actual
Change of Control, make a contribution to the Trust in an amount that is
sufficient to fund the Trust in an amount equal to no less than 100% but no more
than 120% of the actuarial present value of the benefits to which Participants
or their Beneficiaries would be entitled pursuant to the terms of the
Arrangements as of the date on which the Potential Change of Control occurred,
determined based on the actuarial assumptions set forth in Attachment II.
(h) In the event a Change of Control does not occur within one year of a
Potential Change of Control, the Company shall have the right to recover any
amounts contributed to and remaining on hand in the Trust pursuant to Section
1(g).
(i) Upon a Change of Control, the Company shall, as soon as possible, but in no
event longer than thirty (30) days following the occurrence of a Change of
Control, as defined herein, make an irrevocable contribution to the Trust in an
amount that is sufficient to fund the Trust in an amount equal to no less than
100% but no more than 120% of the actuarial present value of the benefits to
which Participants or their Beneficiaries would be entitled pursuant to the
terms of the Arrangements as of the date on which the Change of Control
occurred. The Company shall also fund an expense reserve for the Trustee in an
amount equal to $125,000.00, multiplied by the sum of 100% plus the aggregate
percentage increase, if any, in the Consumer Price Index for All Urban
Consumers, [NY, NY - Northeastern, NJ] (or any comparable successor index),
published by the Bureau of Labor Statistics of the United States Department of
Labor for the period. from January 1, 1998 through the December 31 immediately
preceding the Change of Control.
(j) In the event that, subsequent to a Change of Control, a Participant shall
suffer a "Change in Control Termination" as defined in the Arrangements
applicable to such Participant (after taking into account his or her employment
agreement with the Company), the Company shall, as soon as possible, but in no
event longer than thirty (30) days following the occurrence of such Change in
Control Termination, make an irrevocable contribution to the Trust in an amount
that is sufficient to fund the Trust in an amount equal to no less than 100% but
no more than 120% of the actuarial present value of the excess, if any, of the
value of the benefits to which such Participant is entitled by reason of such
Change in Control Termination over the value of the benefits of such Participant
previously taken into account pursuant to Section 1(i).
(k) For purposes of determining the amount required to be contributed to the
Trust under Section 1(g), (i) or (j), the benefit to which a Participant is
entitled on any date (the "Determination Date") shall be determined by reference
to: (a) if such benefit is then in pay status under the Arrangements, the
benefit then in pay status; (b) if such benefit is not then in pay status under
the Arrangements, but would be immediately payable in the event of the
Participant's termination of employment with the Company on the Determination
Date, the benefit that would be immediately payable on such termination; and (c)
if the Participant would not be entitled to immediate payment under the
Arrangements in the event of his or her termination of employment with the
Company on the Determination Date, the benefit to which the Participant would
become entitled on termination of employment at the earliest date on which
benefits could become payable to him or her under the Arrangements ("Earliest
Retirement Date") multiplied by a fraction, the numerator of which is the number
of completed months of his or her participation in the Arrangements as of the
Determination Date, and the denominator of which is the total completed months
of such participation the Participant would have if he or she retired at his or
her Earliest Retirement Date. In each case, the benefit so taken into account
shall include any amounts currently or potentially payable to the affected
Participant's spouse or other Beneficiary pursuant to the Arrangements.
Section 2. Payments to Participants and Their Beneficiaries
(a) Prior to a Change of Control, distributions from the Trust shall be made by
the Trustee to Participants and Beneficiaries at the direction of the Company.
The entitlement of a Participant or his or her Beneficiaries to benefits under
the Arrangements shall be determined by the Company or such party or
professional administrator as it shall designate under the Arrangements as the
Company's agent, and any claim for such benefits shall be considered and
reviewed under the procedures set out in the Arrangements.
(b) The Company may make payment of benefits directly to Participants or their
Beneficiaries as they become due under the terms of the Arrangements. The
Company shall notify the Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to Participants or their
Beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Arrangements, the Company shall make the balance of each such
payment as it falls due in accordance with the Arrangements. The Trustee shall
notify the Company where principal and earnings are not sufficient. Nothing in
this Agreement shall relieve the Company of its liabilities to pay benefits due
under the Arrangements except to the extent such liabilities are met by
application of assets of the Trust.
(c) After a Potential Change of Control and before a Change of Control, the
Company shall deliver to the Trustee a schedule of benefits due under the
Arrangements. Subsequent to a Change of Control, the Trustee shall pay benefits
due in accordance with such schedule. After a Change of Control, the Company
shall continue to make the determination of benefits due to Participants or
their Beneficiaries and shall provide the Trustee with an updated schedule of
benefits due as of the commencement of each calendar year, and as of each date
on which benefits first become payable to a Participant or Beneficiary under the
Arrangements; provided however, a Participant or their Beneficiaries may make
application to the Trustee for an independent decision by the Trustee as to the
amount or form of their benefits due under the Arrangements. In making any
determination required or permitted to be made by the Trustee under this
Section, the Trustee shall, in each such case, reach its own independent
determination, in its absolute and sole discretion, as to the Participant's or
Beneficiary's entitlement to a payment hereunder. In making its determination,
the Trustee may consult with and make such inquiries of such persons, including
the Participant or Beneficiary, the Company, legal counsel, actuaries or other
persons, as the Trustee may reasonably deem necessary. In making such
determination, the Trustee shall be governed solely by the terms of the
applicable Arrangements and such facts as may be pertinent to the application of
such terms and conditions as shall be found to exist by the Trustee, on the
basis that such terms have been validly adopted by the Company (and, without
limiting the generality of the foregoing, that all things necessary to render
the arrangements valid and binding obligations of the Company in accordance with
their terms have been properly done in full compliance with the Company's
certificate of incorporation, by laws, and applicable law). Any reasonable
costs incurred by the Trustee in arriving at its determination shall be
reimbursed by the Company. To the extent not paid by the Company within a
reasonable time, such costs shall be advanced to the Trustee by the Trust, and
the Company shall promptly reimburse the Trustee for such advance with interest
from the date of advance to the date of reimbursement at such rate as the
Trustee reasonably determines reflects money market rates for the period
involved. The Company waives any right to contest any amount paid over by the
Trustee hereunder pursuant to a good faith determination made by the Trustee
notwithstanding any claim by or on behalf of the Company (absent a manifest
abuse of discretion by the Trustee) that such payments should not be made.
(d) The Trustee agrees that it will not itself institute any action at law or at
equity, whether in the nature of an accounting, interpleading action, request
for a declaratory judgment or otherwise, or any arbitration proceeding or other
alternative dispute resolution procedure, requesting a court, an administrative
or quasi-judicial body, or arbitrator or person acting in a similar capacity to
make the determination required to be made by the Trustee under this Section 2
in the place and stead of the Trustee. The Trustee may institute an action
against the Company to collect a contribution due the Trust following a Change
of Control, or in the event that the Trust should ever experience a short-fall
in the amount of assets necessary to make payments pursuant to the terms of the
Arrangements, or for payment or reimbursement of fees, expenses and any amounts
payable by the Company pursuant to Section 10(b).
(e) The Trustee shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Arrangements and shall
pay amounts withheld to the appropriate taxing authorities or determine that
such amounts have been reported, withheld and paid by the Company.
(f) In the event any Participant or his or her Beneficiary is determined to be
subject to federal income tax on any amount to the credit of his or her account
or due to him or her under any Arrangement prior to the time of payment
hereunder, whether or not attributable to the establishment of or contributions
to this Trust, a portion of such taxable amount equal to the federal, state and
local taxes (excluding any interest or penalties) owed on such taxable amount as
increased by payments under this Section 2(f), shall be distributed by the
Trustee as soon thereafter as practicable to such Participant or Beneficiary.
The Company shall promptly reimburse the Trust for any such distribution in an
amount certified by the Trustee to be needed for the Participant's benefits.
For these purposes, a Participant or Beneficiary shall be deemed to pay state
and local taxes at the highest marginal rate of taxation in the state in which
the Participant resides or is employed (or both) where a tax is imposed and
federal income taxes at the highest marginal rate of taxation, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. Such distributions shall be at the direction
of the Company or the Trustee, or upon proper application of the Participant or
Beneficiary; provided that the actual amount of the distribution shall be
determined by the Company prior to a Change of Control and the Trustee following
a Change of Control. An amount to the credit of a Participant's account or
otherwise due to the Participant shall be determined to be subject to federal
income tax upon the earliest of: (a) a final determination by the United States
Internal Revenue Service addressed to the Participant or his Beneficiary which
is not appealed to the courts; (b) a final determination by the United States
Tax Court or any other federal court affirming any such determination by the
Internal Revenue Service, which is no longer subject to appeal; or (c) an
opinion by the Company's tax counsel, addressed to the Company and the
Trustee, to the effect that by reason of Treasury Regulations, amendments to the
Internal Revenue Code, published Internal Revenue Service rulings, court
decisions or other substantial precedent, such amount is subject to federal
income tax prior to payment. The Company shall undertake at its sole expense to
defend any tax claims described herein which are asserted by the Internal
Revenue Service against any Participant or Beneficiary, including attorney fees
and cost of appeal, and shall have the sole authority to determine whether or
not to appeal any determination made by the Service or by a lower court. The
Company also agrees to reimburse any Participant or Beneficiary for any interest
or penalties in respect of tax claims hereunder upon receipt of documentation of
same. Any distributions from the Fund to a Participant or Beneficiary under
this Section 2(e) shall be applied in a manner consistent with the provisions of
the Arrangement to reduce the Company liabilities to such Participant and/or
Beneficiary under the Arrangement with such reductions to be made on a pro-rata
basis over the term of benefit payments under the Arrangement; provided,
however, that in no event shall any Participant, Beneficiary or estate of any
Participant or Beneficiary have any obligation to return all or any part of
such distribution to the Company if such distribution exceeds benefits payable
under an Arrangement. Any reduction in accordance with the foregoing sentence
and the Arrangements shall be determined by the Company prior to a Change of
Control . Following a Change of Control, the Company shall continue to make such
determination subject to the right of a Participant to petition the Trustee
under Section 2(c).
(g) Notwithstanding any other provision of this Trust Agreement, no benefits
shall be payable from the Trust following a Change of Control, other than
benefits accrued or otherwise taken into account in determining the contribution
required upon a Change of Control pursuant to Section 1(i) and benefits that
become due as a result of a Change in Control Termination for which additional
funding is required by Section 1(j).
Section 3. Trustee Responsibility Regarding Payments To The Trust Beneficiary
When The Company Is Insolvent
(a) The Trustee shall cease payment of benefits to Participants and their
Beneficiaries if the Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, the principal and income
of the Trust shall be subject to claims of general creditors of the Company
under federal and state law as set forth below.
(1) The Board of Directors and the Chief Executive Officer of the Company shall
have the duty to inform the Trustee in writing that the Company is Insolvent.
If a person claiming to be a creditor of the Company alleges in writing to the
Trustee that the Company has become Insolvent, the Trustee shall determine
whether the Company is Insolvent and, pending such determination, the Trustee
shall discontinue payment of benefits to
Participants or their Beneficiaries.
(2) Unless the Trustee has actual knowledge that the Company is Insolvent, or
has received notice from the Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee shall have no duty to
inquire whether the Company is Insolvent. The Trustee may in all events rely on
such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the Company is Insolvent, the
Trustee shall discontinue payments to Participants or their Beneficiaries and
shall hold the assets of the Trust for the benefit of the Company's general
creditors. Nothing in this Trust Agreement shall in any way diminish any rights
of Participants or their Beneficiaries to pursue their rights as general
creditors of the Company with respect to benefits due under the Arrangements or
otherwise.
(4) The Trustee shall resume the payment of benefits to Participants or their
Beneficiaries in accordance with Section 2 of this Trust Agreement only after
the Trustee has determined that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues the
payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Participants or their Beneficiaries under the terms of the Arrangements for the
period of such discontinuance, less the aggregate amount of any payments made to
Participants or their Beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 4. Payments When a Short-Fall of The Trust Assets Occurs
(a) If there are not sufficient assets for the payment of benefits pursuant to
Section 2 or Section 3(c) hereof and the Company does not otherwise make such
payments within a reasonable time after demand from the Trustee, the Trustee
shall make partial pro rata payment of the benefits then due from the Trust to
the Participants or their Beneficiaries.
(b) Upon receipt of a contribution from the Company necessary to make up for a
short-fall in the payments due, the Trustee shall resume payments to all the
Participants and Beneficiaries under the Arrangements. Following a Change of
Control, the Trustee shall have the right to compel a contribution to the Trust
from the Company to make-up for any short-fall.
Section 5. Payments to the Company
Except as provided in Section 3 hereof, after the Trust has become irrevocable,
the Company shall have no right or power to direct the Trustee to return to the
Company or to divert to others any of the Trust assets before all payments of
benefits have been made to Participants and their Beneficiaries pursuant to the
terms of the Arrangements.
Section 6. Investment Authority
(a) The Trustee shall not be liable in discharging its duties hereunder,
including without limitation its duty to invest and reinvest the Fund, if it
acts for the exclusive benefit of the Participants and their Beneficiaries, in
good faith and as a prudent person familiar with such matters would act in
accomplishing a similar task and in accordance with the terms of this Trust
Agreement (including without limitation Section 10 hereof) and any applicable
federal or state laws, rules or regulations.
(b) The Trustee shall invest and reinvest the Trust Fund in its discretion
solely in high quality fixed income instruments, which may include, in the
discretion of the Trustee, annuity contracts. Subject to this basic investment
policy and subject to any additional investment guidelines agreed to in writing
from time to time by the Company and the Trustee, prior to a Change of Control
the Trustee shall have the power in investing and reinvesting the Fund in its
sole discretion:
(1) To invest and reinvest in bonds, notes, debentures, and similar fixed income
obligations (but not including any security of the Company or any of its
subsidiaries other than a de minimis amount held in a collective or mutual
fund), certificates of deposit or demand or time deposits (including any such
deposits with the Trustee) and shares of investment companies, mutual funds,
insurance company general or separate accounts, and other pooled investment
vehicles whose underlying investments are consistent with the investment
objective above-described, without being limited to the classes or property in
which the Trustees are authorized to invest by any law or any rule of court of
any state and without regard to the proportion any such property may bear to the
entire amount of the Fund;
(2) To commingle for investment purposes all or any portion of the Fund with
assets of any other similar trust or trusts established by the Company with the
Trustee for the purpose of safeguarding deferred compensation or retirement
income benefits of its employees and/or directors;
(3) To retain any property at any time received by the Trustee;
(4) To sell or exchange any property held by it at public or private sale, for
cash or on credit, to grant and exercise options for the purchase or exchange
thereof, to exercise all conversion or subscription rights pertaining to any
such property and to enter into any covenant or agreement to purchase any
property in the future;
(5) To participate in any plan of reorganization, consolidation, merger,
combination, liquidation or other similar plan relating to property held by it
and to consent to or oppose any such plan or any action thereunder or any
contract, lease, mortgage, purchase, sale or other action by any person;
(6) To deposit any property held by it with any protective, reorganization or
similar committee, to delegate discretionary power thereto, and to pay part of
the expenses and compensation thereof any assessments levied with respect to any
such property to deposited;
(7) To extend the time of payment of any obligation held by it;
(8) To hold uninvested any moneys received by it, without liability for interest
thereon, but only in anticipation of payments due for investments,
reinvestments, expenses or disbursements;
(9) To exercise all voting or other rights with respect to any property held by
it and to grant proxies, discretionary or otherwise;
(10) For the purposes of the Trust, to borrow money from others, to issue its
promissory note or notes therefor, and to secure the repayment thereof by
pledging any property held by it;
(11) To employ suitable contractors and counsel, who may be counsel to the
Company prior to a Change of Control but not thereafter, or to the Trustee, and
to pay their reasonable expenses and compensation from the Fund to the extent
not paid by the Company;
(12) To register investments in its own name or in the name of a nominee; to
hold any investment in bearer form; and to combine certificates representing
securities with certificates of the same issue held by it in other fiduciary
capacities or to deposit or to arrange for the deposit of such securities with
any depository, even though, when so deposited, such securities may be held in
the name of the nominee of such depository with other securities deposited
therewith by other persons, or to deposit or to arrange for the deposit of any
securities issued or guaranteed by the United States government, or any agency
or instrumentality thereof, including securities evidenced by book entries
rather than by certificates, with the United States Department of the Treasury
or a Federal Reserve Bank, even though, when so deposited, such securities may
not be held separate from securities deposited therein by other persons;
provided, however, that no securities held in the Fund shall be deposited with
the United States Department of the Treasury or a Federal Reserve Bank or other
depository in the same account as any individual property of the Trustee, and
provided, further, that the books and records of the Trustee shall at all times
show that all such securities are part of the Trust Fund;
(13) Subject to Section 2(d), to settle, compromise or submit to arbitration any
claims, debts or damages due or owing to or from the Trust (other than amounts
owed to Participants or Beneficiaries, provided that a dispute regarding any
such amounts may be submitted to arbitration with the written consent of the
Participant or Beneficiary involved), respectively, to commence or defend suits
or legal proceedings to protect any interest of the Trust, and to represent the
Trust in all suits or legal proceedings in any court or before any other body or
tribunal; provided, however, that the Trustee shall not be required to take any
such action unless it shall have been indemnified by the Company to its
reasonable satisfaction against liability or expenses it might incur therefrom;
(14) To acquire, hold and retain annuity contracts;
(15) To hold any other class of assets which may be contributed by the Company
and that is deemed reasonable by the Trustee, unless expressly prohibited
herein;
(16) To loan any securities at any time held by it to brokers or dealers upon
such security as may be deemed advisable, and during the terms of any such loan
to permit the loaned securities to be transferred into the name of and voted by
the borrower or others; and
(17) Generally, to do all acts, whether or not expressly authorized, that the
Trustee may deem necessary or desirable for the protection of the Fund.
In the event that any investment shall cease to meet the "high quality" standard
set forth above, the Trustee shall be entitled nevertheless to retain such
investment if such retention is deemed prudent and more consistent with the
purposes of this Trust Agreement than a disposition of such investment.
(c) Prior to a Change of Control, the Company shall have the right, subject to
this Section (including the restrictions on permissible investments set forth in
Section 6(b)) to direct the Trustee with respect to investments, including
investments in annuity contracts.
(1) The Company may at any time direct the Trustee to segregate all or a
portion of the Fund in a separate investment account or accounts and may appoint
one or more investment managers and/or an investment committee established by
the Company to direct the investment and reinvestment of each such investment
account or accounts. In such event, the Company shall notify the Trustee of the
appointment of each such investment manager and/or investment committee. No
such investment manager shall be related, directly or indirectly, to the
Company, but members of the investment committee may be employees of the
Company.
(2) Thereafter, the Trustee shall make every sale or investment with
respect to such investment account as directed in writing by the investment
manager or investment committee. It shall be the duty of the Trustee to act
strictly in accordance with each direction. The Trustee shall be under no duty
to question any such direction of the investment manager or investment
committee, to review any securities or other property held in such investment
account or accounts acquired by it pursuant to such directions or to make any
recommendations to the investment managers or investment committee with respect
to such securities or other property.
(3) Notwithstanding the foregoing, the Trustee, without obtaining prior approval
or direction from an investment manager or investment committee, shall invest
cash balances held by it from time to time in short term cash equivalents
including, but not limited to, through the medium of any short term common,
collective or commingled trust fund established and maintained by the Trustee
subject to the instrument establishing such trust fund, U.S. Treasury Bills,
commercial paper (including such forms of commercial paper as may be available
through the Trustee's Trust Department), certificates of deposit (including
certificates issued by the Trustee in its separate corporate capacity), and
similar type securities, with a maturity not to exceed one year; and,
furthermore, sell such short term investments as may be necessary to carry out
the instructions of an investment manager or investment committee regarding more
permanent type investment and directed distributions.
(4) The Trustee shall neither be liable nor responsible for any loss resulting
to the Fund by reason of any sale or purchase of an investment directed by an
investment manager or investment committee nor by reason of the failure to take
any action with respect to any investment which was acquired pursuant to any
such direction in the absence of further directions of such investment manager
or investment committee.
(5) Notwithstanding anything in this Agreement to the contrary, the Trustee
shall be indemnified and saved harmless by the Company from and against any and
all personal liability to which the Trustee may be subjected by carrying out any
directions of an investment manager or investment committee issued pursuant
hereto or for failure to act in the absence of directions of the investment
manager or investment committee including all expenses reasonably incurred in
its defense in the event the Company fails to provide such defense; provided,
however, the Trustee shall not be so indemnified if it participates knowingly
in, or knowingly undertakes to conceal, an act or omission of an investment
manager or investment committee, having actual knowledge that such act or
omission is a breach of a fiduciary duty; provided further, however, that the
Trustee shall not be deemed to have knowingly participated in or knowingly
undertaken to conceal an act or omission of an investment manager or investment
committee with knowledge that such act or omission was a breach of fiduciary
duty by merely complying with directions of an investment manager or investment
committee or for failure to act in the absence of directions of an investment
manager or investment committee. The Trustee may rely upon any order,
certificate, notice, direction or other documentary confirmation purporting to
have been issued by the investment manager or investment committee which the
Trustee reasonably believes to be genuine and to have been issued by the
investment manager or investment committee. The Trustee shall not be charged
with knowledge of the termination of the appointment of any investment manager
or investment committee until it receives written notice thereof from the
Company.
(d) Following a Change of Control, the Trustee shall have the sole and
absolute discretion in the management of the Trust assets and shall have all the
powers set forth under Section 6(b). In investing the Trust assets, the Trustee
shall consider:
(1) the needs of the Arrangements;
(2) the need for matching of the Trust assets with the liabilities of
the Arrangements; and
(3) the duty of the Trustee to act solely in the best interests of the
Participants and their Beneficiaries.
(e) The Trustee shall have the right, in its sole discretion, to delegate
its investment responsibility to an investment manager who may be an affiliate
of the Trustee. In the event the Trustee shall exercise this right, the Trustee
shall remain, at all times responsible for the acts of an investment manager.
The Trustee shall have the right to purchase an insurance policy or an annuity
to fund the benefits of the Arrangements.
(f) In no event may the Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Company, other than a de
minimis amount held in common investment vehicles in which Trustee invests. All
rights associated with assets of the Trust shall be exercised by Trustee or the
person designated by Trustee, and shall in no event be exercisable by or rest
with Plan participants.
Section 7. Annuity Contracts
(a) To the extent that the Trustee is directed by the Company prior to a
Change of Control to invest part or all of the Trust Fund in annuity contracts,
the terms thereof shall be specified by the Company. The Trustee shall be under
no duty to make inquiry as to the propriety of the terms so specified.
(b) Each annuity contract issued shall provide that the Trustee shall be
the owner thereof with the power to exercise all rights, privileges, options and
elections granted by or permitted under such contract or under the rules of the
issuer. The exercise by the Trustee of any incidents of ownership under any
contract shall, prior to a Change of Control, be subject to the direction of the
Company. After a Change of Control, the Trustee shall have all such
rights.
(c) The Trustee shall have no power to name a beneficiary of the contract
other than the Trust, to assign the contract (as distinct from conversion of the
contract to a different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against a contract held in the Trust
Fund.
(d) No issuer of such a contract shall be deemed to be a party to the Trust
and such issuer's obligations shall be measured and determined solely by the
terms of contracts and other agreements executed by the issuer.
(e) The Trustee shall in no event invest in insurance policies or endowment
contracts, or any other contract providing death benefits other than benefits
payable under the terms of the Arrangements.
Section 8. Disposition of Income
(a) Prior to a Change of Control, all income received by the Trust, net of
expenses and taxes, may be returned to the Company or accumulated and reinvested
within the Trust at the direction of the Company.
(b) Following a Change of Control, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested within the Trust.
Section 9. Accounting by The Trustee
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within forty-five (45) days following the close of
each calendar year and within forty-five (45) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Company a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
The Company may approve such account by an instrument in writing delivered to
the Trustee. The foregoing, however, shall not preclude the Trustee from having
its accounting settled by a court of competent jurisdiction. The Trustee shall
be entitled to hold and to commingle the assets of the Trust in one Fund for
investment purposes but at the direction of the Company prior to a Change of
Control, the Trustee shall create one or more sub-accounts.
Section 10. Responsibility of The Trustee
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that prior
to a Change in Control the Trustee shall incur no liability to any person for
any action taken pursuant to a direction, request or approval given by the
Company which is contemplated by, and in conformity with, the terms of the
Arrangements or this Trust and is given in writing by the Company. In the event
of a dispute between the Company and a party, the Trustee may apply to a court
of competent jurisdiction to resolve the dispute, subject, however to Section
2(d) hereof.
(b) The Company hereby indemnifies the Trustee against losses, liabilities,
claims, costs and expenses in connection with the administration of the Trust,
unless resulting from the negligence or misconduct of Trustee, including a
failure to act in accord with the standard set forth in Section 10(a). To the
extent the Company fails to make any payment on account of an indemnity provided
in this Section 10(b), in a reasonably timely manner, the Trustee may obtain
payment from the Trust. If the Trustee undertakes or defends any litigation
arising in connection with this Trust or to protect a Participant's or
Beneficiary's rights under the Arrangements, the Company agrees to indemnify the
Trustee against the Trustee's costs, reasonable expenses and liabilities
(including, without limitation, attorneys' fees and expenses) relating thereto
and to be primarily liable for such payments. If the Company does not pay such
costs, expenses and liabilities in a reasonably timely manner, the Trustee may
obtain payment from the Trust.
(c) Prior to a Change of Control, the Trustee may consult with legal
counsel (who may also be counsel for the Company generally) with respect to any
of its duties or obligations hereunder. Following a Change of Control the
Trustee shall select independent legal counsel and may consult with counsel or
other persons with respect to its duties and with respect to the rights of
Participants or their Beneficiaries under the Arrangements.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder and may rely on any
determinations made by such agents and, except in cases where a Participant or
Beneficiary has applied for an independent determination by the Trustee after a
Change of Control pursuant to Section 2(c), information provided to it by the
Company.
(e) The Trustee shall have, without exclusion, all powers conferred on the
Trustee by applicable law, unless expressly provided otherwise herein.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have or assume any
power that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
Section 11. Compensation and Expenses of The Trustee
(a) The Trustee's compensation shall be as agreed in writing from time to
time by the Company and the Trustee. The Company shall pay all administrative
expenses and the Trustee's fees and shall promptly reimburse the Trustee for any
fees and expenses of its agents. If not so paid, the fees and expenses shall be
paid from the Trust. Without limiting the generality of the foregoing, the
administrative expenses payable by the Company shall include the expense of
making any determination in a dispute between a Participant or Beneficiary and
the Company (including expenses of attorneys and consultants retained by the
Trustee for such purposes); and, if the Company shall challenge a Trustee
decision in favor of a Participant or Beneficiary, prompt reimbursement to the
Trustee of the reasonable retainer of any law firm, consultant or expert used by
the Trustee to defend such action and prompt reimbursement of the monthly bills
of such law firm, consultant or expert.
(b) In the event that the Trustee shall obtain payment from the Trust of
amounts payable by the Company under this Agreement because the Company has not
paid such amounts within the time required by this Agreement, the Company shall
promptly reimburse the Trust for such payment with interest from the date of
payment to the date of reimbursement at such rate as the Trustee reasonably
determines reflects money market rates for the period involved.
Section 12. Resignation and Removal of The Trustee
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective one hundred and eighty (180) days after receipt of such
notice unless the Company and the Trustee agree otherwise, but in no event prior
to the appointment of a successor Trustee. If the Company fails to make such
appointment within a reasonable period of time following receipt of such notice,
the Trustee shall apply to a court of competent jurisdiction for the appointment
of a successor Trustee or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
(b) The Trustee may be removed by the Company on sixty days (60) days
notice or upon shorter notice accepted by the Trustee prior to a Change of
Control, but in no event prior to the appointment by the Company of a successor
Trustee. Subsequent to a Change of Control, the Trustee may only be removed by
the Company with the consent of (i) a majority of Participants (or their
Beneficiaries) receiving or currently entitled to receive benefits under the
Arrangements and (ii) a majority of all Participants (or their Beneficiaries),
including both those employed by the Company and those described in clause (i).
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within one hundred and eighty (180)
days after receipt of notice of resignation pursuant to Section 12(a), or sixty
(60) days after receipt of notice of removal pursuant to Section 12(b),
whichever is applicable, unless the Company extends the time limit, or the
successor Trustee has not yet been approved.
(d) Notwithstanding the foregoing, during the period following a Potential
Change of Control which continues to exist, or after a Change in Control, the
Trustee may resign only under one of the following circumstances:
(i) The Trustee is no longer in the business, or is actively in the
process
of removing itself from the business, of acting as trustee for employee benefit
plans.
(ii) The Trustee determines that a conflict of interest exists which
would prohibit it from fulfilling its duties under this Agreement in an
ethically proper manner. The Trustee shall use its best efforts to avoid the
creation of such a conflict.
(iii) The assets of the Trust have been exhausted or are insufficient to
pay accrued and reasonably anticipated fees and expenses of the Trustee, the
Company has refused voluntarily to pay the Trustee's accrued fees and expenses
as required pursuant to Section 11, and the Trustee has been unsuccessful in
obtaining a court order requiring the Company to make such payments or has been
unable to collect on a judgment for such fees and expenses.
(iv) Both (A) a majority of Participants (or their Beneficiaries)
receiving or currently entitled to receive benefits under the Arrangements and
(B) a majority of all Participants (or their Beneficiaries), including both
those employed by the Company and those described in clause (A), consent in
writing to such resignation.
Section 13. Appointment of Successor
(a) If the Trustee resigns or is removed in accordance with Section 12
hereof, the Company shall, subject to Section 12, appoint any third party
national banking association with a market capitalization exceeding $100,000,000
to replace the Trustee upon resignation or removal. The successor Trustee shall
have all of the rights and powers of the former Trustee, including ownership
rights in the Trust. The former Trustee shall execute any instrument necessary
or reasonably requested by the Company or the successor Trustee to evidence the
transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Section 8 and 9 hereof. The successor Trustee shall not be responsible for and
the Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
Section 14. Amendment or Termination
(a) This Trust Agreement may be amended by a written instrument executed by
the Trustee and the Company. Notwithstanding the foregoing, no such amendment
shall conflict with the terms of the Arrangements or shall make the Trust
revocable after it has become irrevocable in accordance with Section 1 hereof.
(b) The Trust shall not terminate until the date on which Participants and
their Beneficiaries have received all of the benefits due to them under the
terms and conditions of the Arrangements.
(c) Upon written approval of all Participants or Beneficiaries entitled to
payment of benefits pursuant to the terms of the Arrangements, the Company may
terminate this Trust prior to the time all benefit payments under the
Arrangements have been made.
(d) All assets in the Trust at termination shall be returned to the
Company.
(e) This Trust Agreement may not be amended or terminated by the Company
for thirty months following a Change of Control without the written consent of a
(i) majority of Participants (or their Beneficiaries) receiving or currently
entitled to receive benefits under the Arrangements and (ii) a majority of all
Participants (or their Beneficiaries), including both those employed by the
Company and those described in clause (i).
Section 15. Change of Control
(a) For purposes of this Trust, the following terms shall be defined as set
forth below:
(1) Potential Change of Control shall mean:
(i) the issuance of a proxy statement by the Company with respect to
an election of directors for which there is proposed one or more directors who
are not recommended by the Board of Directors of the Company or its nominating
committee, where the election of such proposed director or directors would
result in a Change of Control as defined in Section 15(a)(2)(ii); or
(ii) the announcement by any person of an intention to take actions
which might reasonably result in a Change of Control as defined in Section
15(a)(2);
(2) Change of Control shall mean:
(i) A change in control of a nature that would be required to be
reported (assuming such event has not been "previously reported") in response to
Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred at such time as any individual, corporation,
partnership, group, association or other "person", as such term is used in
Section 14(d) of the Exchange Act, other than the Company, a wholly owned
subsidiary of the Company or any employee benefit plan(s) sponsored by the
Company ("Person") is or becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act), directly or indirectly, of 30% or more of the
combined voting power of the Company's outstanding securities ordinarily having
the right to vote at elections of directors ("Voting Securities"); or
(ii) individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least three
quarters of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such nomination) shall
be, for purposes of this clause (ii), considered as though such person were a
member of the Incumbent Board.
For purposes of this Section 15(a), the Incumbent Board, by a majority vote,
shall have the power to determine on the basis of information known to them (a)
the number of shares beneficially owned by any person, entity or group; (b)
whether there exists an agreement, arrangement or understanding with another as
to matters referred to in this Section 15(a); and (c) such other matters with
respect to which a determination is necessary under this Section 15(a).
(b) (1) Except as provided in paragraph (2) of this Section 15(b),
notwithstanding anything in the foregoing to the contrary, no Change of Control
shall be deemed to have occurred for purposes of this Trust Agreement by virtue
of any transaction which results in one or more executive officers of the
Company (as defined in Rule 3b-7 under the Exchange Act), or a group of Persons
which includes one or more executive officers of the Company, acquiring,
directly or indirectly, 30% or more of the combined voting power of the
Company's Voting Securities.
(2) In the event that an executive officer of the Company (a
"Nonparticipating Officer") is a Participant but not a member of the group of
Persons making an acquisition described in paragraph (1) of this Section 15(b)
(an "Executive Officer Acquisition"), such Executive Officer Acquisition shall
be treated as a Change of Control solely with respect to such Nonparticipating
Officer (or Nonparticipating Officers, if more than one executive officer is not
a member of such group of Persons). In the event that an Executive Officer
Acquisition is treated as a Change of Control pursuant to the preceding sentence
for one or more Nonparticipating Officers, a separate subtrust shall be created
under this Trust Agreement solely for the benefit of such Nonparticipating
Officers and their Beneficiaries. The benefits of such Nonparticipating
Officers and their Beneficiaries pursuant to the terms of the Arrangements shall
be separately funded in such subtrust in accordance with the provisions of
Section 1 of this Trust Agreement as applied separately to such Nonparticipating
Officers and their Beneficiaries, and the principal of such subtrust, and any
earnings thereon, shall be held and administered by the Trustee exclusively for
the uses and purposes of such Nonparticipating Officers and their Beneficiaries
(and general creditors of the Company) as set forth herein, as if such
Nonparticipating Officers and their Beneficiaries were the sole Participants and
Beneficiaries of the Trust.
(c) The General Counsel of the Company shall have the specific authority to
determine whether a Potential Change of Control or Change of Control has
transpired under the guidance of Section 15(a) and shall be required to give the
Trustee notice of a Change of Control or a Potential Change of Control. The
Trustee shall be entitled to rely upon such notice, but if the Trustee receives
notice of a Change of Control from another source, the Trustee shall make its
own independent determination.
Section 16. Miscellaneous
(a) Any provision of this Trust Agreement prohibited by law shall be ineffective
to the extent of any such prohibition, without invalidating the remaining
provisions hereof.
(b) The Company hereby represents and warrants that all of the Arrangements have
been established, maintained and administered in accordance with all applicable
laws, including without limitation, ERISA. The Company hereby indemnifies and
agrees to hold the Trustee harmless from all liabilities, including attorney's
fees, relating to or arising out of the establishment, maintenance and
administration of the Arrangements. To the extent the Company does not pay any
of such liabilities in a reasonably timely manner, the Trustee may obtain
payment from the Trust.
(c) Benefits payable to Participants and their Beneficiaries under this Trust
Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
(d) This Trust Agreement shall be governed by and construed in accordance with
the laws of North Carolina.
(e) This Agreement shall bind and inure to the benefit of the successors and
assigns of the Company and the Trustee, respectively. Without limiting the
generality of the foregoing, the term "successor" when used in this Section
16(e) with reference to the Company shall include the surviving corporation in
any merger or consolidation to which the Company (or any successor thereof) is a
party, any corporation, person or entity (or any group of corporations, group of
persons or entities acting in concert) which receives a distribution of assets
of the Company in redemption of a substantial portion of the stock of the
Company, or in connection with the liquidation or dissolution of the Company,
any direct or indirect stockholder of the Company to the extent of the amount or
value of extraordinary dividends (but not dividends paid in the ordinary course
of business) or other distributions received by it directly or indirectly from
the Company, any recipient of assets of the Company that are transferred without
adequate consideration, and except as otherwise provided by law, any transferee
of assets of the Company in connection with any transaction in which such
transferee knows or has reason to know that any consideration paid by the
transferee in connection with such transfer will be distributed by such Company
to its stockholders.
IN WITNESS WHEREOF, this Grantor Trust Agreement has been executed on behalf of
the parties hereto on the day and year first above written.
ARROW ELECTRONICS, INC. WACHOVIA BANK, N.A.
By: /s/ Robert E. Klatell By: /s/Beverley H. Wood
------------------------- ------------------------
Its: Executive Vice President Its: Senior Vice President
ATTEST: ATTEST:
By: /s/Paul J. Reilly By: /s/Donna Stern
----------------- -------------------
Its: Vice President Its: Assistant Secretary
ATTACHMENT I
Arrow Electronics, Inc. Supplemental Executive Retirement Plan, as amended
May 1998, consisting of a document bearing the heading "General Information"
applicable to all Participants and, with respect to each individual Participant,
(1) a letter advising of his or her Participant status and the date it
commenced, the date the Participant is first eligible to retire, his or her
annual pension available at such retirement, the maximum pension to which the
Participant may become entitled, and the date when he or she is first eligible
for that maximum pension, and (2) a "Retirement Pension Schedule" showing the
amount of pension available at
any intervening date.
ATTACHMENT II
The actuarial assumptions to be used to determine any amount required to be
contributed in accordance with Section 1 of the Arrow Electronics, Inc. Grantor
Trust Agreement shall be:
1. The interest rate assumption provided in Section 417(e) of the Internal
Revenue Code of 1986, as amended, or corresponding provisions of subsequent law
("Section 417(e)"). The determination of such rate under current law shall be
based on the annual rate of interest on thirty-year (30-year) Treasury
securities for the most recent month prior to the date of contribution for which
such rate has been published by the Secretary of the Treasury or his delegate.
2. The mortality table shall be the mortality table prescribed by the
Secretary of the Treasury or his delegate for purposes of Section 417(e) as of
the date of contribution.
3. The annuity commencement date shall be the earliest date on which the
Participant or Beneficiary could receive benefits under the Arrangements.
Notwithstanding the foregoing, the amount to be so contributed shall not be
less than the premium necessary to purchase annuity contracts for the benefits
required to be funded as of the date of contribution. Such premium shall be in
the amount that would be charged by a legal reserve life insurance company whose
selection would be consistent with the provisions of Part 4 of Subtitle B of
Title I of ERISA, setting forth the fiduciary requirements for the selection of
issuers of annuity contracts, if those provisions applied to such purchase. In
the event that the amount of such premium has not been determined at the date
that funding is otherwise required, the contribution shall initially be made in
accordance with paragraphs 1 through 3 above, and any additional contributions
required by reason of this paragraph shall be paid to the Trustee as soon
as the relevant premium has been determined.
FOURTH AMENDMENT
TO SENIOR NOTE PURCHASE AGREEMENT
Arrow Electronics, Inc.
$75,000,000 8.29% Senior Secured Notes Due 2000
THIS FOURTH AMENDMENT (the "Amendment") to those several Senior
Note Purchase Agreements each dated as of December 29, 1992, as amended by the
First Amendment to the Senior Note Purchase Agreements dated as of December 22,
1993, the Second Amendment to Senior Note Purchase Agreements dated as of April
24, 1995 and the Third Amendment to Senior Note Purchase Agreements dated as of
December 23, 1996 (collectively referred to herein as the "Purchase Agreements"
and individually as a "Purchase Agreement"), is made as of October 28, 1998, by
and among ARROW ELECTRONICS, INC., a New York corporation (the "Company"), and
the several Holders of the Senior Notes (hereinafter, together with their
respective successors and assigns, collectively called the "Holders" and
individually a "Holder"). Capitalized terms used herein without definition
shall have the respective meanings ascribed to such terms in the Purchase
Agreements, as hereby amended.
WHEREAS, the Holders and the Company are parties to the Purchase
Agreements, pursuant to which the Purchasers were issued, in the respective
amounts set forth opposite their names on Annex A thereto, $75,000,000 aggregate
principal amount of the Company's 8.29% Senior Secured Notes Due 2000 (the
"Senior Notes"); and
WHEREAS, the Company and the undersigned Holders, constituting
the Required Holders, desire to amend the Purchase Agreements as provided
herein, upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the terms and conditions
contained herein and of other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendments to the Purchase Agreements. Subject to the
satisfaction of the conditions set forth in Section 2 hereof, for all periods on
and after October 28, 1998, Section 8.12 of the Purchase Agreements is hereby
amended by deleting such Section in its entirety and by substituting therefor
the following:
Section 8.12 Consolidated Total Debt. As of the last day of any
quarterly or annual fiscal period, the Company will not permit Consolidated
Total Debt to exceed 60% of Total Consolidated Capitalization.
2. Conditions Precedent. As provided in Section 1 above, the
amendment set forth in Section 1 shall become and be effective upon the
satisfaction of the following conditions:
(a) All corporate and other proceedings taken or to be taken in
connection with this Amendment and all documents incident hereto shall be
satisfactory in form and substance to the Required Holders, and the Required
Holders shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
(b) The Company and the Required Holders shall have duly
executed counterparts of this Amendment and delivered the same to the other
parties hereto or their representatives.
3. Effect of Amendment.
(a) It is hereby agreed that, except as specifically provided
herein, this Amendment does not in any way affect or impair the terms,
conditions and other provisions of the Purchase Agreements or the obligations of
the Company thereunder, and all terms, conditions and other provisions of the
Purchase Agreements shall remain in full force and effect except to the extent
specifically amended or modified pursuant to the provisions of this Amendment.
(b) Reference in the Purchase Agreements to "this Agreement"
(and indirect references such as "hereunder", "hereby", "herein" and "hereof")
shall be deemed to be references to the Purchase Agreements as amended hereby.
4. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, and all of which
taken together shall be deemed to constitute one and same instrument.
5. Costs and Expenses. As provided in Section 10.02 of the
Purchase Agreements, the Company agrees to pay on demand all fees, costs and
expenses incurred by the Holders in connection with the negotiation,
preparation, execution and delivery of this Amendment and all other documents
executed pursuant to or in connection herewith.
6. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE).
7. Headings. Section headings are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purposes.
8. Representation and Warranty. Immediately prior to and
immediately subsequent to the effective date of this Amendment, the Company
hereby represents and warrants that there has not been any Default or Event of
Default under the Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed and delivered by their respective duly authorized officers on the
date first above written.
ARROW ELECTRONICS, INC.
By /s/ Robert E. Klatell
-----------------------------
Name: Robert E. Klatell
Title:Executive Vice President
CONNECTICUT GENERAL LIFE
INSURANCE CO.
By Cigna Investments, Inc.
By /s/ Edward Lewis
-------------------------
Name: Edward Lewis
Title: Managing Director
LIFE INSURANCE COMPANY OF
NORTH AMERICA
By Cigna Investments, Inc.
By /s/ Edward Lewis
-------------------------
Name: Edward Lewis
Title: Managing Director
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By /s/ Clint Wood
-------------------------
Name: Clint Wood
Title: Counsel
By /s/ Christopher J. Henderson
----------------------------
Name: Christopher J. Henderson
Title: Counsel
TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
By /s/ Estell Shold
Name: Estell Shold
Title: Director
LIFE INSURANCE COMPANY OF GEORGIA
SOUTHLAND LIFE INSURANCE COMPANY
LION II CUSTOM INVESTMENTS LLC
By: ING Investment Management LLC,
its Agent
By /s/ Fred C. Smith
-------------------------
Name: Fred C. Smith
Title: Senior Vice President &
Managing Director
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: Lincoln Investment Management,
Inc., its Attorney-In-Fact
By /s/ Timothy L. Powel
-------------------------
Name: Timothy L. Powel
Title: Vice President
PATH\FILE\:L:\REPORTS\ANNUAL\98_YE\SUPPORT\98EX11.W
ARROW ELECTRONICS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
Year Ended December 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Net income for basic EPS $145,828 $163,656 $202,709 $202,544 $111,889
Add: interest on 5 3/4%
convertible subordinated
debentures, net of income
taxes - - - 3,471 4,313
------- -------- -------- -------- --------
Net income for diluted
EPS $145,828 $163,656 $202,709 $206,015 $116,202
======== ======== ======== ======== ========
Weighted average common
shares outstanding for
basic 95,397 98,006 100,972 94,174 91,653
Net effect of dilutive stock
options and restricted stock
awards 1,716 1,763 1,408 1,504 1,203
Assumed conversion of 5 3/4%
convertible subordinated
debentures - - - 6,058 7,547
------- ------- ------- ------- -------
Weighted average common
shares outstanding for
diluted EPS (A) 97,113 99,769 102,380 101,736 100,404
======= ======= ======== ======== ========
Basic EPS (A) 1.53 1.67 2.01 2.15 1.22
======= ======= ======= ======= =======
Diluted EPS (A) 1.50 1.64 1.98 2.03 1.16
======= ======= ======= ======= =======
(A) All share and per amounts have been restated to reflect the two-
for-one stock split effective October 15, 1997.
ARROW ELECTRONICS, INC.
SUBSIDIARY LISTING
As of 12/31/98
1. Arrow Electronics, Inc. a New York corporation
2. Arrow Electronics Canada Ltd., a Canadian corporation
3. Schuylkill Metals of Plant City, Inc., a Delaware corporation
4. Arrow Altech Holdings (Pty) Ltd., a South African company and
subsidiary:
A.Arrow Altech Distribution (Pty) Ltd., a South African company
5. Gates/Arrow Distributing, Inc., a Delaware corporation
6. Consan Incorporated., a Minnesota corporation (75% owned)
7. SN Holding, Inc. a Delaware corporation (50.12% owned) and subsidiary:
A .Support Net, Inc., an Indiana corporation
8. SBM Holding, Inc., a Delaware Corporation (80% owned) and
subsidiary:
A. Scientific & Business Minicomputers, Inc., a Georgia corporation
9. Arrow Electronics Distribution Group - Europe B.V., a Dutch company,
and subsidiaries which include:
A. Arrow Electronics (UK) Holding Ltd., a British company and
subsidiaries:
i. Electronic Services Distribution Ltd., a British company
ii Arrow Electronics (UK) Ltd. a British company
iii. Multichip Information Technology Ltd., a British company
B. Arrow Electronics (Espana) SL and subsidiaries which include
i. ATD Electronica S.A., a Spanish company
ii. Arrow Iberia S.A., a Spanish company
C. EDI Electronics Distribution International (France) S.A., a French
company and subsidiaries:
1. Arrow Electronique S.A., a French company, and subsidiaries:
a. CCI Electronique S.A., a French company
b. Arrow Computer Products S.N.C. a French company and
subsidiary:
i.Multichip GmbH, a German company.
D. Arrow Electronics GmbH, a German company, which owns a 90% interest
in Spoerle Electronic Handelsgesellschaft mbH, a German company
E. Silverstar Ltd. S.p.A. (98% owned) and subsidiaries:
1. Claitron S.p.A., an Italian company
2. Peter Caritato S.A. (60%), a Greek company
F. Arrow Components Sweden AB, a Swedish Company and subsidiaries
which include:
1. Arrow Nordic Components AB, a Swedish company
2 . Arrow Norway A/S, a Norwegian company
3. Microtronica A/S, a Norwegian company
4. Microtronica AB, a Swedish company
G. Arrow Denmark A/S, a Danish company
H. Arrow Finland Oy, a Finnish company and subsidiaries:
1. Microtronica Oy, a Finnish company
2.Arrow-Field EESTI AS, an Estonian company
10. Arrow Electronics Australia Pty Ltd., an Australian company and
subsidiaries:
A. Veltek Australia Pty Ltd., an Australian company
B. Zatek Australia Pty Ltd., an Australian company
C. Gates/Arrow Distributing Pty. Ltd., an Australian company
11. Components Agent Limited, a British Virgin Islands company (90%
owned) and subsidiaries which include:
A. Components Agent Limited, a Hong Kong company
B. Arrow Korea (HK) Limited, a Hong Kong company and subsidiary
1. Arrow Electronics Korea Limited, a South Korean company
C. Components Agent(s) Pte Ltd., a Singaporean company and subsidiary:
1. Components Agent. (M) Sdn. Berhad, a Malaysian company
D. Microtronica (HK) Limited, a Hong Kong company
E. Microtronica (S) Pte. Limited, a Singaporean company
F. Microtronica (M) Sdn. Bhd., a Malayasian company
G. Arrow Asia Pac Ltd., a Hong Kong company
12. Texny (Holdings) Limited, a British Virgin Islands company and
subsidiary:
A. Texny (H.K.) Limited, a Hong Kong company
13. Strong Electronics Co., Ltd., a Taiwanese company
14. Arrow/Ally, Inc. a Taiwanese company (75% owned) and subsidiary:
A. Creative Model Limited, a Hong Kong company
15. Arrow Components (NZ) Limited, a New Zealand company (75% owned)
Revised as of 3/25/99
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE 1998 10-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 12-MOS
<EXCHANGE-RATE> 1
<CASH> 158,924
<SECURITIES> 0
<RECEIVABLES> 1,402,774
<ALLOWANCES> 48,423
<INVENTORY> 1,321,261
<CURRENT-ASSETS> 2,860,815
<PP&E> 289,165
<DEPRECIATION> 134,359
<TOTAL-ASSETS> 3,839,871
<CURRENT-LIABILITIES> 1,165,100
<BONDS> 1,040,173
0
0
<COMMON> 102,950
<OTHER-SE> 1,384,369
<TOTAL-LIABILITY-AND-EQUITY> 3,839,871
<SALES> 8,344,659
<TOTAL-REVENUES> 8,344,659
<CGS> 7,183,413
<TOTAL-COSTS> 7,992,155
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32,185
<INTEREST-EXPENSE> 81,126
<INCOME-PRETAX> 272,315
<INCOME-TAX> 115,018
<INCOME-CONTINUING> 145,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,828
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.50
</TABLE>
