<PAGE>
SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BERNARD HALDANE ASSOCIATES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Registrant; Bernard Haldane Acquisition Corp.,
Lilli Weinger; Jerold P. Weinger and Renee Nadel
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Shares, $.00001 par value
(2) Aggregate number of securities to which transaction applies:
217,695
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$3.00 For purposes of calculating fee only. The amount set forth in item
(4) below assumes the purchase of 217,695 shares of the Common Stock, par
value $.00001 per share (the "Common Shares") of Bernard Haldane Associates,
Inc. at $3.00 per share net. Such number of Common Shares represents all
common shares (and options to purchase Common Shares) reported to be issued
and outstanding other than those
<PAGE>
common shares already owned directly or indirectly, by Bernard Haldane
Acquisition corporation. The amount of the filing fee, calculated in
accordance with Rule 0-11 under the Securities Exchange Act of 1934, as
amended, equals one-50th of the percent of the value of the Common Shares to
be purchased.
(4) Proposed maximum aggregate value of transaction:
$653,085
(5) Total fee paid:
$130.62
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by Registration Statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $130.62
(2) Form, Schedule or Registration Statement No.: SC 13E-3
(3) Filing Party: Bernard Haldane Associates, Inc.
(4) Date Filed: February 7, 1998
<PAGE>
[PRELIMINARY COPY]
BERNARD HALDANE ASSOCIATES INC.
192 Lexington Avenue
Now York, Now York 10016
15th Floor
March 8, 1999
To Our Shareholders:
You are invited to attend a Special Meeting of Shareholders of
Bernard Haldane Associates, Inc. (the "Company") to be held on April 9,
1999, as set forth in the attached Notice of Special Meeting of Shareholders,
to vote on the proposed merger of Bernard Haldane Acquisition Corporation
("Newco") a newly formed non-public company organized by the management and
other shareholders of the Company, with and into the Company. If the proposed
merger is consummated, the shareholders of the Company (other than Newco and
those who perfect dissenters' rights as described in the accompanying Proxy
Statement) will be entitled to receive $3.00 in cash for each Common Share of
the Company owned by them. Details of the proposed merger and other important
information appear in the accompanying Proxy Statement.
Your Board of Directors recommends a vote for the proposed merger.
Although certain members of the Board of Directors have an inherent conflict
of interest in the proposed merger, the Board of Directors of the Company
referred the proposed merger to a Special Committee of independent directors
which carefully considered the terms and conditions of the proposed merger and
unanimously recommended the proposal to the full Board of Directors. The Board
of Directors of the Company, after careful consideration of the recommendation
of the Special Committee and the terms and conditions of the proposed merger,
believes the proposed merger to be fair to shareholders of the Company. The
Special Committee has also received the favorable opinion of Laidlaw Global
Securities, Inc., an investment banking firm with broad experience in
evaluating acquisition transactions, regarding the fairness of the proposed
merger to shareholders of the Company from a financial point of view.
<PAGE>
The Board of Directors has been advised that Newco, which owns
approximately 77% of the outstanding Common Shares of the Company, intends to
vote all of such Common Shares in favor of the proposed merger, and,
therefore, the approval of the proposed merger by the shareholders of the
Company is assured. For a discussion of the interests of certain of the
Company's directors, officers and others in this transaction, see "Special
Factors -- Interests of Certain Persons in the Merger" in the accompanying
Proxy Statement.
We urge you to read the enclosed material carefully and request that
you complete and return the enclosed proxy as soon as possible. Your vote is
important regardless of the number of Common Shares you own.
Sincerely yours,
BERNARD HALDANE ASSOCIATES, INC.
Shareholders of the Company who do not wish to accept the per share
payment in the Merger of $3. 00 in cash and who deliver to the Company a
notice of intent to demand payment for their Common Shares before the vote of
shareholders is taken and comply with the further provisions of the Florida
Business Corporation Act regarding the rights of dissenting shareholders, will
be paid the fair value of their Common Shares. For a description of the rights
of dissenting shareholders and the procedures to be followed in order to
obtain the fair value of their Common Shares, see the section captioned
"RIGHTS OF DISSENTING SHAREHOLDERS" in the accompanying Proxy Statement and
Sections 607.1301, 607.1302 and 607.1320 of the Florida Business Corporation
Act, attached to the accompanying Proxy Statement as "Annex V."
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
2
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BERNARD HALDANE ASSOCIATES, INC.
PROXY STATEMENT
------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................ 1
Matters to be Considered at the Meeting............................ 1
Voting at the Meeting.............................................. 2
Proxies............................................................ 3
SUMMARY..................................................................... 4
The Special Meeting................................................ 4
The Merger......................................................... 4
Payment to Shareholders............................................ 5
Required Vote...................................................... 5
Effective Date of the Merger....................................... 5
Interests of Certain Persons in the Merger......................... 5
Recommendation of the Company's Board of Directors................. 7
Opinion of Financial Advisor....................................... 7
Financing of the Merger............................................ 8
Conditions to the Merger........................................... 8
Tax Consequences to the Shareholders............................... 8
Business of the Company............................................ 8
Financial Information Regarding the Company........................ 8
Market Prices and Repurchases of Common Shares..................... 9
Rights of Dissenting Shareholders.................................. 9
SPECIAL FACTORS............................................................. 9
Background of the Merger........................................... 9
Material Presented to the Special Committee........................ 12
Informational Background Relating to the Financial
Advisors Analysis and Opinion...................................... 12
Valuation Process.................................................. 13
Historical Financial Data Analysis and Financial Fore-
casts.............................................................. 13
Comparable Company Analysis........................................ 14
Discounted Future Earnings Analysis................................ 16
Stock Price History................................................ 17
Odd Lot Holdings................................................... 17
Board of Directors Determination................................... 17
Opinion of Financial Advisor....................................... 19
Revenue Growth..................................................... 20
Trading History of the Company's Common Stock...................... 20
Factors Relevent to the Proposed Merger............................ 21
Assumptions........................................................ 22
Qualification of Financial Advisor's Opinion....................... 23
Recommendations of the Special Committee; Reasons for
the Merger......................................................... 23
Evaluation of the Public Market; Viability as a Public
Company............................................................ 24
Limited Trading Market............................................. 25
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
NASDAQ's Proposed Changes to its Maintenance Criteria.............. 25
No Dividends....................................................... 27
No Consideration of Independent or Competing Proposal.............. 27
Fairness of Share Price Offered.................................... 27
Management Group's Reasons for the Merger; Structure of
the Merger......................................................... 28
NASDAQ Advice Regarding Delisting.................................. 31
Interests of Certain Persons in the Merger......................... 32
FINANCING OF THE MERGER..................................................... 35
CAPITALIZATION.............................................................. 36
THE MERGER AGREEMENT........................................................ 37
Effective Date..................................................... 37
Payment for Common Shares.......................................... 37
The Exchange....................................................... 38
Treatment of Options............................................... 39
Conditions, Representations, and Covenants......................... 39
Termination; Amendments............................................ 40
Officers and Directors of the Surviving Corporation................ 40
INFORMATION CONCERNING NEWCO................................................ 40
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER............................... 42
ACCOUNTING TREATMENT OF THE MERGER.......................................... 43
RIGHTS OF DISSENTING SHAREHOLDERS........................................... 43
CONDUCT OF THE SURVIVING CORPORATION'S BUSINESS............................. 47
MARKET PRICES AND REPURCHASES OF COMMON SHARES.............................. 49
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY.................. 50
MANAGEMENT'S DISCUSSION AND ANALYSIS........................................ 53
Results of Operations.............................................. 53
Liquidity and Capital Resources.................................... 54
Fiscal 1997 as Compared to Fiscal 1996............................. 59
BUSINESS AND PROPERTIES OF THE COMPANY...................................... 60
Competition........................................................ 66
Government Restrictions............................................ 67
MANAGEMENT OF THE COMPANY................................................... 69
Executive Compensation............................................. 72
Compliance with Section 16(a) of the Securities Exchange
Act................................................................ 73
OUTSTANDING CAPITAL STOCK OF THE COMPANY.................................... 73
PRINCIPAL SHAREHOLDERS OF THE COMPANY....................................... 74
BIOGRAPHICAL INFORMATION OF PRINCIPAL SHAREHOLDERS.......................... 75
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
CERTAIN TRANSACTIONS AND RELATED PARTIES OF THE COMPANY..................... 76
ADDITIONAL INFORMATION...................................................... 76
Current Information; Deregistration................................ 76
OTHER BUSINESS.............................................................. 77
</TABLE>
Index to Consolidated Financial Statements................................F-1
Annex I - Agreement and Plan of Merger and an
Amendment thereto..............................I-1
Annex II - Certificate of Merger of
Bernard Haldane Acquisition Corporation
into Bernard Haldane Associates, Inc. .........II-1
Annex III - Opinion of Laidlaw Global Securities, Inc. ....III
Annex IV - Organization Agreement of
Bernard Haldane Acquisition Corporation
and an Amendment thereto.......................IV-1
Annex V - Sections 607.1301, 607.1302 and 607.1320
of the Florida Business Corporation Act
Regarding Dissenters' Rights...................V-1
Annex VI - Background Discussion Material
Presented to the Special Committee
on August 11, 1997.............................VI
(iii)
<PAGE>
[PRELIMINARY COPY]
PROXY STATEMENT
------------
BERNARD HALDANE ASSOCIATES, INC.
192 Lexington Avenue
New York, New York 10016
(212) 679-3360
------------
SPECIAL MEETING OF SHAREHOLDERS
To Be Held On April 9, 1999
-------------
INTRODUCTION
This Proxy Statement is being furnished to holders of common shares,
$.00001 par value per share (the "Common Shares"), of Bernard Haldane
Associates, Inc., a Florida corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Special Meeting of Shareholders of the Company (the "Special Meeting") to be
held at the offices of The Company, 192 Lexington Avenue, 15th Floor, New York,
New York 10016 on April 9, 1999 at 10:00 a.m. (New York time) and at any
adjournment or adjournments or postponement or postponements thereof. This Proxy
Statement, the enclosed Notice, and the enclosed form of proxy are first being
mailed to shareholders of the Company on or about March 8, 1999.
Matters to be Considered at the Meeting
At the Special Meeting, the shareholders of the Company are being asked
to consider and vote upon a proposal recommended by the Board of Directors to
approve and authorize an Agreement and Plan of Merger (the "Merger Agreement")
between the Company and Bernard Haldane Acquisition Corporation, a Florida
corporation ("Newco"), which provides for the merger (the "Merger") of Newco
with and into the Company with the Company to be the surviving corporation (the
"Surviving Corporation"). Newco was organized on November 5, 1997 by management
and other shareholders of the Company, including Renee Nadel, Lilli Weinger, and
Jerold P. Weinger, in connection with the transactions contemplated by the
Merger. Newco owns approximately 77% of the outstanding Common Shares and has
advised the Board of Directors that it intends to vote all of such Common Shares
in favor of the proposed Merger. Therefore, the approval of the proposed merger
by the shareholders of the Company is assured. (See "Special Factors --
Interests of Certain Persons in the
1
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Merger" and "Information Concerning Newco."). A copy of the form of Merger
Agreement between the Company and Newco is attached as Annex I to this Proxy
Statement and should be read in its entirety.
Pursuant to the terms of the Merger Agreement, each outstanding Common
Share of the Company (other than treasury shares, shares held by Newco, and
shares as to which dissenters' rights are perfected) will be converted into the
right to receive $3.00 in cash, without interest. All unaffiliated shareholders
will be cashed out at $3.00 per Common Share and will not retain any equity
interest in the Company going forward. For information concerning the ownership
of Newco, see "Special Factors -- Interests of Certain Persons in the Merger,"
and "Information Concerning Newco."
A copy of the Certificate of Merger of Newco into the Company, is
attached as Annex II to this Proxy Statement and should be read in its entirety.
Voting at the Meeting
The Board of Directors has fixed the close of business on March 5,
1999 as the record date (the "Record Date") for determination of shareholders
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were 949,365 Common Shares outstanding and entitled to vote. The holders
of such Common Shares are entitled to one vote per Common Share, exercisable in
person or by properly executed proxy at the Special Meeting.
The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding Common Shares entitled to vote is necessary to
constitute a quorum at the Special Meeting.
The affirmative vote of the holders of a majority of the Common Shares
issued and outstanding as of the Record Date is required for approval and
authorization of the Merger Agreement.
As of the Record Date, Newco beneficially owned a total of 731,670
Common Shares, constituting approximately 77% of the Common Shares issued and
outstanding as of such date. Newco has informed the Board of Directors that it
intends to vote all of such Common Shares for approval and authorization of the
Merger Agreement. Therefore, approval and authorization of the Merger Agreement
by the shareholders of the Company is assured.
The Board of Directors of the Company recommends that shareholders vote
FOR the approval of the Merger Agreement and authorization of the Merger. See
"Special Factors." "Principal Shareholders of the Company," and "Information
Concerning Newco."
2
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Proxies
All Common Shares represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, unless such
proxies have previously been revoked, will be voted at the Special Meeting in
accordance with the instructions on the proxies. If no instructions are
indicated, proxies will be voted FOR the approval and authorization of the
Merger Agreement and the transactions contemplated therein. The Company does not
know of any matters, other than as described in the Notice of Special Meeting,
which are to come before the Special Meeting. If any other matters are properly
presented to the Special Meeting for action, the persons named in the enclosed
form of proxy and acting thereunder will have discretion to vote on such matters
in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
filing with the Secretary of the Company written notice of revocation bearing a
later date than the proxy, by duly executing a proxy bearing a later date
relating to the same Common Shares and delivering it to the Secretary of the
Company, or by attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not in and of itself constitute
revocation of a proxy). Any written notice revoking a proxy should be sent to
Bernard Haldane Associates, Inc., 192 Lexington Avenue, New York, New York
10016, Attention: Secretary.
The Company will bear the cost of preparing and mailing the proxy
material furnished to shareholders of the Company in connection with the Special
Meeting. Proxies will be solicited by use of the mails. Directors, officers, and
employees of the Company may also solicit proxies by telephone, telegram, or
personal contact, and such persons will receive no additional compensation for
such services. Copies of solicitation materials will be furnished to
fiduciaries, custodians, and brokerage houses for forwarding to beneficial
owners of the Common Shares held in their names.
All information herein contained concerning the Company has been
supplied by the Company. All information herein contained concerning Newco and
the plans for the Surviving Corporation after the Merger has been supplied by
the management and other shareholders of the Company.
THE TRANSACTIONS TO BE CONSIDERED AT THE SPECIAL MEETING INVOLVE A
MATTER OF GREAT IMPORTANCE TO THE SHAREHOLDERS BECAUSE, IF APPROVED AND
CONSUMMATED, THE SHAREHOLDERS' EQUITY INVESTMENT IN THE COMPANY WILL CEASE AND A
RIGHT TO RECEIVE A CASH PAYMENT WITHOUT INTEREST OF $3.00 PER COMMON SHARE WILL
REPLACE SUCH SHAREHOLDERS' EQUITY INVESTMENT IN THE COMPANY. ACCORDINGLY,
SHAREHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMA-
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TION SUMMARIZED BELOW AND PRESENTED ELSEWHERE IN THIS PROXY STATEMENT.
SHAREHOLDERS HAVE THE RIGHT TO DISSENT FROM THE MERGER AND
OBTAIN PAYMENT FOR THE FAIR VALUE OF THEIR SHARES BY FOLLOWING THE
PROCEDURES DESCRIBED IN SECTION 607.1320 OF THE FLORIDA BUSINESS
CORPORATION ACT. SEE ANNEX V HERETO AND "RIGHTS OF DISSENTING
SHAREHOLDERS."
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
SUMMARY
The following summary is intended only to highlight certain information
contained in this Proxy Statement. This summary is not intended to be a complete
statement of all material features of the proposed Merger or other matters
presented in this Proxy Statement and is qualified in its entirety by more
detailed information contained elsewhere in this Proxy Statement, the Annexes
hereto, and other documents referred to in this Proxy Statement. Shareholders
are urged to read this Proxy Statement and the Annexes hereto in their entirety.
The Special Meeting
A Special Meeting of Shareholders of the Company will be held on
April 9, 1999, at 10:00 A.M. (New York time) at the offices of the Company,
192 Lexington Avenue, 15th Floor, New York, New York 10016 to consider and vote
upon the proposal recommended by the Board of Directors of the Company to
approve and authorize the Merger Agreement. See "Introduction -- Matters to be
Considered at the Meeting." Only record holders of Common Shares at the close of
business on March 5, 1999, the Record Date, will be entitled to notice of and
to vote at the Special Meeting. On the Record Date, there were 949,365 Common
Shares outstanding and entitled to vote. The presence, either in person or by
properly executed proxy, of the holders of a majority of the outstanding Common
Shares is necessary to constitute a quorum at the Special Meeting. See
"Introduction -- Voting at the Meeting" and "Introduction -- Proxies."
The Merger
Upon the approval and authorization of the Merger Agreement by the
shareholders of the Company, Newco will be merged with and into the Company in
accordance with the Florida Business Corporation Act of 1989 (the "FBCA"), the
Company will be the Surviving Corporation, and the separate existence of Newco
will thereupon cease. See "Special Factors," "The Merger Agreement -- General,"
"Principal Shareholders of the Company," and "Rights of Dissenting
Shareholders."
4
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Payment to Shareholders
If the Merger is consummated, each outstanding Common Share will be
converted into the right to receive, without interest, $3.00 in cash (except for
treasury shares and shares held by Newco, which shares will be cancelled in the
Merger, and shares owned by shareholders who have perfected dissenters' rights,
which shares will be extinguished as provided under the FBCA). See "The Merger
Agreement -- Payment for Common Shares," "The Merger Agreement -- The Exchange,"
and "Rights of Dissenting Shareholders."
Required Vote
Pursuant to the FBCA, approval and authorization of the Merger
Agreement and the transactions contemplated thereby will require the affirmative
vote of the majority of the issued and outstanding Common Shares entitled to
vote thereon as of the Record Date. See "Introduction -- Matters to be
Considered at the Meeting." As of the Record Date, Newco beneficially owned a
total of 731,670 of the outstanding Common Shares, constituting approximately
77% of the Common Shares outstanding as of such date. Newco has informed the
Board of Directors that it intends to vote all of such Common Shares for
approval and authorization of the Merger Agreement. Newco owns a sufficient
number of Common Shares to approve and authorize the Merger Agreement without
the approval or authorization of other holders of Common Shares. Therefore,
approval and authorization of the proposed Merger Agreement by the shareholders
of the Company are assured. See "Introduction -- Voting at the Meeting,"
"Principal Shareholders of the Company," and "Special Factors -- Interests of
Certain Persons in the Merger."
Effective Date of the Merger
The Merger will become effective at the time a Certificate of Merger (a
copy of the form of which is attached to this Proxy Statement as Annex II)
relating to the Merger is accepted for filing by the Department of State of the
State of Florida (the "Effective Date"). Such filing is currently anticipated to
be made immediately following the Special Meeting. Such filing will be made,
however, only upon satisfaction or waiver of certain conditions contained in the
Merger Agreement and provided that no party has exercised any right of
termination under the Merger Agreement.
Interests of Certain Persons in the Merger
One director, Jerold P. Weinger, who is also a shareholder, and three
other shareholders of the Company, Renee Nadel, Lilli Weinger and Seth Weinger
(and IRAs, SEPs and pension plans as to which they are the beneficiaries, Jerold
P. Weinger as custodian for his children) are hereinafter collectively referred
to as the "Management Group." Jerold P. Weinger is also an executive officer
5
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of the Company. Jerold and Lilli Weinger are espoused. Jerold and Lilli Weinger
and Renee Nadel are principal shareholders of the Company. The Management Group
formed Newco on November 5, 1997, in connection with the transactions
contemplated by the Merger Agreement. As of November 15, 1997, the members of
the Management Group entered into an Organization Agreement (the "Organization
Agreement") with Newco pursuant to which the Management Group contributed to
Newco an aggregate of 731,670 Common Shares beneficially owned by them in
exchange for an aggregate of 731,670 shares of common stock, $.01 par value per
share, of Newco ("Newco Shares"). As a result of such exchange, Newco became the
beneficial owner of approximately 77% of the outstanding Common Shares of the
Company. Upon consummation of the Merger, each issued and outstanding Newco
Share, all of which are owned by the Management Group, will be converted into
one common share of the Surviving Corporation and, as a result, the Management
Group will own 100% of the issued and outstanding common shares of the Surviving
Corporation.
The opportunity for the Management Group to obtain a continuing equity
interest in the Surviving Corporation (which opportunity is not available to the
public shareholders of the Company) has presented the Management Group and
members of the Board of Directors with a conflict of interest in connection with
the negotiation of the Merger Agreement with the Company. Furthermore, all
officers and certain directors of the Company will continue to serve, subject to
the By-laws of the Surviving Corporation upon consummation of the Merger, which
fact has also presented the Board of Directors with a conflict of interest in
recommending approval of the Merger Agreement. The Special Committee was aware
of actual and potential conflicts of interest of the officers and directors of
the Company, including those included within the Management Group, when deciding
to recommend approval of the Merger to the Board of Directors of the Company.
See "Special Factors -- Interests of Certain Persons in the Merger."
The Merger Agreement provides that the Surviving Corporation will use
good faith efforts to provide officers' and directors' liability insurance
covering officers and directors of the Company for a period of three years, on
terms no less favorable to such officers and directors than those of such
insurance maintained by the Company prior to the Merger. The Merger Agreement
also provides that the Surviving Corporation will indemnify and hold harmless
officers and directors of the Company against any liability in connection with
any threatened, pending, or completed action, suit, or proceeding arising out of
or related to the transactions contemplated by the Merger Agreement to the full
extent permitted or required by Florida and the Company's Certificate of
Incorporation and By-Laws.
Jerold P. Weinger is an officer of the Company and receives
compensation as such. Jerold P. Weinger is also a director of the
6
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Company. Jerold P. Weinger currently intends to continue such relationships
with the Surviving Corporation. (See "Management of the Company -- Management
Compensation.") As a result, Jerold P. Weinger has a direct conflict of
interest in recommending approval of the Merger to the shareholders of the
Company. See "Special Factors -- Interests of Certain Persons in the Merger."
Gusrae, Kaplan & Bruno is representing the Management Group and Newco
in the proposed Merger. Gusrae, Kaplan & Bruno has represented members of the
Management Group from time to time, and it is anticipated that upon consummation
of the Merger, Gusrae, Kaplan & Bruno will continue to represent both the
Management Group and the Surviving Corporation from time to time.
Schoeman, Marsh & Updike, LLP is representing the Company in the
proposed Merger. Schoeman, Marsh & Updike, LLP has acted as counsel to the
Company with respect to the matters other than the Proposed Merger and has
represented members of the Management Group from time to time, and it is
anticipated that such law firm will continue to represent the members of the
Management Group upon consummation of the Merger.
See "Special Factors -- Interests of Certain Persons in the
Merger."
Recommendation of the Company's Board of Directors
The Board of Directors of the Company, on the basis of the
recommendation of a Special Committee of independent directors (the "Special
Committee") appointed to evaluate the proposal now embodied in the Merger
Agreement, has approved and authorized the Merger Agreement and the transactions
contemplated thereby, believes that the proposed Merger is fair to the Company's
unaffiliated shareholders, and recommends that the Company's shareholders
approve and authorize the Merger Agreement. One of the principal reasons for the
decision of the Special Committee to approve the Merger and recommend
shareholder approval and authorization of the Merger Agreement is that the
Merger will enable the Company's public shareholders to realize a cash return on
investment or a return of capital at a price which they might not otherwise have
been able to receive from their Common Shares in the open market. See "Special
Factors -- Recommendation of the Special Committee; Reasons for the Merger."
Opinion of Financial Advisor
Laidlaw Global Securities, Inc. ("Laidlaw"), a New York Stock
Exchange, Inc. member firm and an investment banking firm with
broad experience in evaluating acquisition transactions, was
retained by the Special Committee to render an opinion as to the
fairness of the proposed Merger to the Company's public sharehold-
ers from a financial point of view. Laidlaw advised the Special
7
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Committee that in its opinion the $3.00 per Common Share to be paid to the
public shareholders of the Company in the proposed Merger is fair to the
Company's public shareholders from a financial point of view. For further
information with regard to the opinion of Laidlaw and the fees paid by the
Company to Laidlaw, see "Special Factors -- Opinion of Financial Advisor" and
the full text of the Laidlaw opinion attached to this Proxy Statement as Annex
III, which should be read in its entirety.
Financing of the Merger
The Company currently has sufficient cash assets to finance the Merger,
the Board of Directors does not intend to finance any part of the Merger from
borrowings. See "Financing of the Merger."
Conditions to the Merger
The obligations of the Company and Newco to consummate the Merger are
subject to approval and adoption of the Merger Agreement by the shareholders of
the Company and compliance with certain other covenants and conditions. Newco
has advised the Board of Directors that it intends to vote all of its Common
Shares in favor of the Merger Agreement, and therefore the approval and
authorization of the Merger Agreement by the shareholders of the Company is
assured. The shareholders of Newco approved and authorized the Merger Agreement
effective as of January 2, 1998. See "The Merger Agreement -- Conditions,
Representations, and Covenants," and "Financing the Merger."
Tax Consequences to the Shareholders
If the Merger is consummated, the Public Shareholders of the Company
will recognize gain or loss to the extent the cash received exceeds the tax
basis in their Common Shares. Such gain or loss will be capital gain or loss if
the Common Shares constitute a capital asset and will be long-term capital gain
or loss depending on the holding period of the Common Shares by the
shareholders. See "Federal Income Tax Consequences of the Merger to Company
Shareholders."
Business of the Company
The Company is principally engaged in providing career consulting and
advisory services. See "Special Factors -- Background of the Merger," and
"Business of the Company."
Financial Information Regarding the Company
For financial information regarding the Company, see "Selected
Consolidated Financial Information of the Company," "Management's Discussion
and Analysis of Financial Condition and Results of
8
<PAGE>
Operations," and the Company's Consolidated Financial Statements beginning at
page F-1 of this Proxy Statement.
Market Prices and Repurchases of Common Shares
For information concerning market prices and repurchases of Common
Shares by the Company, see "Special Factors -- Background of the Merger" and
"Market Prices and Repurchases of Common Shares."
Rights of Dissenting Shareholders
Any shareholder who has not voted for the approval and authorization of
the Merger Agreement can assert dissenters' rights and, if the Merger is
consummated, can have the fair value of his Common Shares judicially determined
and paid to him by complying with the requirements of the FBCA, which include,
among other things, making a written demand for such determination given within
sixty days after the Effective Date of the Merger. Neither the delivery of a
proxy directing a vote against the Merger Agreement not a failure to vote for
the Merger Agreement constitute a written demand for such determination. See
"Rights of Dissenting Shareholders."
SPECIAL FACTORS
Background of the Merger
The Company was incorporated in Florida in July 1986 under the
name of Quantum Ventures Group, Inc. Its Common Shares became
publicly traded in 1986.
Shortly after its incorporation, Joel S. Nadel, Bruce E. Mates and
Jeffrey G. Klein subscribed for 275,000, 275,000 and 7,500 shares of the
Company's Common Stock, respectively, for an aggregate consideration of $22,500
or $.0001 per share. (After giving affect to a 100:1 and 4:1 reverse stock
splits.)
In or about September 1989, Bruce Mates sold his 275,000 shares to
Lilli Weinger pursuant to a private sale of the Company's stock. Subsequent
thereto, Lilli Weinger gifted 5,000 shares of the Company's stock to Donna
Quartiero, an employee of the Company. Lilli Weinger is the wife of Jerold P.
Weinger, the Company's Chief Executive Officer, President and Treasurer. On or
about September 1990, Mr. Nadel gifted his 275,000 shares of stock in the
Company to Renee Nadel, his wife.
Pursuant to a resolution of the Board of Directors, commencing on or
about November 1, 1995 through May 31, 1996, the Company redeemed from its
shareholders, a total of 199,500 shares of the Company's common stock at an
average cost of approximately $2.49 to $2.75 per share.
9
<PAGE>
In January and February 1997, the members of the Management Group had
been discussing the possibility of either making a tender offer for the shares
of the Company's Common Stock or a going private transaction of the nature as
outlined in this Proxy and considered a price, on a per share basis, of the
Company's Common Stock that would be acceptable to the public shareholders. By
the end of February 1997, Members of the Management Group had tentatively
decided that a tender offer would not accomplish one of their objectives, that
of having the Company being no longer required to file periodic reports or other
documents with the Securities and Exchange Commission (the "SEC") and NASDAQ
and in February 1997, certain members of the Management Group (Jerold P. Weinger
and Renee Nadel) made an offer to the Company's Board of Directors the same as
the Management Group would make and as discussed in the next sentence. Based
upon their review of the Company's historical financials, future prospects and
the market price for the Company's Common Stock, the Management Group believed
that $2.75 per share was a fair, reasonable and acceptable price for the
Company's Common Stock. For a discussion of the reasons for the Management
Group's proposal, see "Management Group's Reasons for the Merger; Structure of
the Merger."
The Management Group has decided to undertake the proposed Merger at
this time for the following reasons. The Management Group believes that under
private ownership the Company can be managed in a way that would result in the
effective utilization of the Company's assets without concern for the short-term
effects of certain business decisions on the Company's earnings and the market
value of its stock. Having the Company being privately owned will also permit
the Management Group to operate the business of the Company for their sole
benefit without potential conflicts of interest with other shareholders and will
provide the members of the Management Group with an investment in the equity of
the Surviving Corporation and will permit them to benefit from any increase in
the value of the capital stock of the Surviving Corporation. Consummation of the
Merger will unite management and ownership so that entrepreneurial risks which
may be required to maximize the potential of the Company may be taken more
freely. The Management Group therefore desires to bring the Company under
private ownership while the Company's cash resources are sufficient to pay
shareholders the fair value for their Common Shares and to fund the substantial
costs of consummating a going-private transaction. The Management Group believes
that there is no practical alternative to the Merger because the shareholders of
the Company are so diffuse that the Company is unable to locate many
shareholders for any purpose. There were no other alternative strategies or
plans considered by the Company other than the Merger. Furthermore, due to
market inactivity and lack of public recognition of the Company, the Management
Group believed that the Company's stock would continue to decline from its all
time high. The Management Group feared that promoting the interest of the
Company's stock would create an artificial stock value, causing new
10
<PAGE>
stockholders to pay high prices, followed by a potential drop in value. There
can be no assurance that the Company will have the cash resources or borrowing
capability to pay the Public Shareholders the fair value for their Common Shares
in the future. Consummation of the proposed Merger will result in the Surviving
Corporation either having substantially less cash or having substantially more
debt than the Company now has and having approximately $803,000 less tangible
net worth. See "Capitalization".
At a regularly scheduled meeting of the Company's Board of Directors
held on March 12, 1997, Jerold P. Weinger stated that the Management Group
planned to propose a transaction that, in his view, required the election of
independent directors to review the proposal from the perspective of the
Company's minority shareholders. Messrs. Gregg Weiss and Jeffrey Schachter were
invited to attend the next scheduled meeting of the Company's Board of
Directors.
On April 25, 1997, at the next scheduled meeting of the Company's Board
of Directors, Messrs. Weiss and Schachter met with the Board of Directors and
were elected, as additional members of same.
At the April 25, 1997 Board Meeting, the Management Group, through
Jerold P. Weinger, proposed to the Board of Directors a "going-private" merger
pursuant to which a corporation to be owned by the Management Group, would be
merged into the Company and the public shareholders of the Company would receive
$2.75 per Common Share in cash for their Common Shares. Thereafter, the Board of
Directors of the Company commenced exploring the possibility of such a merger
pursuant to the Management Group's proposal.
In order to evaluate the fairness of the proposed Merger to
shareholders of the Company not a part of the Management Group (the "Public
Shareholders") of the Company and the cash price proposed to be paid to the
Public Shareholders of the Company pursuant to the proposed Merger, the Board of
Directors formed the Special Committee, comprised of directors Jeffrey Schachter
and Gregg Weiss to investigate the fairness of the proposed Merger. Shortly
thereafter, the Board reported to the Special Committee regarding its review of
investment banking firms with a view toward obtaining an opinion as to the
fairness of the proposed Merger to the Public Shareholders of the Company from a
financial point of view. After this Report, the Special Committee selected
Laidlaw to render such fairness opinion at the expense of the Company. There
were no limitations placed on the scope of Laidlaw's investigation of the
Company.
11
<PAGE>
Material Presented to the Special Committee
Based upon reports summarized hereto and attached hereto in full as
Annex VI, Laidlaw advised the Special Committee on August 11, 1997 that a price
of $3.00 per Common Share would be fair to the Public Shareholders from a
financial point of view. Valuation analysis performed by Laidlaw indicated that
the $3.00 price per share was within valuation ranges of comparable companies.
The Special Committee informed the Management Group that it would recommend a
price of $3.00 per Common Share. Laidlaw determined that the consideration of
$3.00 per share to be paid to the Public Shareholders was fair from a financial
point of view based on several factors, including comparing the Company's
relevant multiples to a selected peer group of companies, and performing a
discounted earning analysis, which resulted in a value of approximately $2.95
per share. Laidlaw also rendered a written opinion to the Special Committee on
that date, that, based upon its analysis, it had concluded that $3.00 per Common
Share to be paid to the Public Shareholders of the Company in the proposed
Merger is fair from a financial point of view to the Public Shareholders of the
Company. Based upon the oral presentation of its analysis by Laidlaw and
Laidlaw's opinion and the Special Committee's evaluation of the business
considerations discussed below and under "Special Factors -- Recommendation of
the Special Committee; Reasons for the Merger," the Special Committee
recommended on September 3, 1997 to the Board of Directors that it proceed with
the proposed Merger at a price of $3.00 per Common Share.
All Public Shareholders are urged to read the entire text of Laidlaw's
opinion and reports, copies of which are attached hereto as Annexes III and IV,
respectively.
Informational Background Relating to the Financial Advisor's Analysis and
Opinion
For the purpose of its opinion, Laidlaw defined the consideration to be
paid to the Public Shareholders for all of the Common Shares of the Company at
$3.00 per share.
Of the 1,148,743 shares outstanding, members of the Management Group
held 737,000 shares, or 64%, and the Public Shareholders hold 411,743 shares, or
36%. There are 1,327 shareholders of the Company of which 47% hold less than 50
shares and 82% hold less than 100 shares. Fully diluted shares outstanding total
1,433,743. Based on the $3.00 indicated price per share, the fully diluted
valuation would be $4,301,229.
Laidlaw was not given any instructions to seek alternative transactions
or parties.
12
<PAGE>
Valuation Process
In arriving at its opinion, Laidlaw (1) reviewed certain available
business and financial information relating to the Company, (2) reviewed the
Merger Agreement between the Company and Newco, (3) reviewed certain other
information, including financial forecasts for the Company, provided by the
Company, (4) met with the Management Group to discuss the business and prospects
of the Company and its projected performance, (5) considered certain financial
and stock market data of the Company and compared such data with similar data
for other publicly held companies in businesses similar to those of the Company,
(6) considered the financial terms of certain other merger agreements for
minority interest of public companies, (7) considered the cost of holding an odd
lot number of shares and the historic price performance, liquidity and trade
activity of the Company and (8) considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
which Laidlaw deemed relevant.
With respect to the financial forecasts, Laidlaw assumed that such
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Management Group as to the future
financial performance of the Company. Laidlaw did not make an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company, nor was Laidlaw furnished with any such evaluations or
appraisals. Laidlaw's opinion is necessarily based upon financial, economic,
market and other conditions as they existed and could be evaluated on the date
of its opinion.
Laidlaw reviewed and compared the financial and market performance for
a selected peer group of publicly traded career services companies. Laidlaw
selected such group on the basis of various factors including business
characteristics, size, capitalization, and as most comparable to the Company,
and that were more meaningful for purposes of its analysis.
Laidlaw estimated the value of the Company using the following
methodologies, which are discussed in greater detail in the report, historical
financial data analysis, financial proforma and forecasts analysis, comparable
company analysis, comparable merger agreement analysis, stock price history,
discounted future earnings analysis, and odd lot holdings.
Historical Financial Data Analysis and Financial Forecasts
Laidlaw reviewed and analyzed the income statement of the Company for
the twelve month period ended February 28, 1997 and audited income statement for
the years ended May 31, 1992, 1993, 1994, 1995 and 1996, the balance sheet as of
February 28, 1997 and the audited balance sheet as of year end May 31, 1995.
Laidlaw
13
<PAGE>
reviewed the financial information for the Company including its Annual Reports
on Form 10K and its Quarterly Reports on Form 10Q and analyzed the year to year
and quarter to quarter growth rates.
Laidlaw reviewed royalty revenues, sub-license revenue, total revenue,
EBITDA, pretax income and net income. It also reviewed quarterly revenue of
individual offices for six periods ending August 31, 1996. Laidlaw calculated
certain profitability ratios and financial rates of return based on financial
results for the period ending May 31, 1992 through the period ending February
28, 1997. Laidlaw calculated certain historical growth rates and margins.
Laidlaw reviewed with the Management Group the proforma financial
forecasts for 1997 and 1998. The forecasts take into account the slowdown in
rate of growth of franchise revenues and the negative impact of the
counter-cyclical trend of low unemployment which is consistent with recent
experience of comparable companies. The Management Group indicated to Laidlaw
that franchises had been established in most of the major markets throughout the
United States and that future expansion would be primarily limited to secondary
and tertiary markets. In addition, Laidlaw found that prices had increased at
the franchise level from 8 to 12% during 1992 to 1995 and have been virtually
nominal since 1996. Same unit revenue growth, excluding price increases, are
relatively flat and services are now priced at or above competitive rates,
limiting future price increases. The effects of full employment and slow growth
in several mature markets appeared to Laidlaw to be the principal factors in the
slow down in growth of the Company from its peak period in fiscal 1995.
Total revenue growth, primarily from royalty revenues, was forecasted
by Laidlaw at 6% annually for the next several years reflecting the slowed
growth in franchisee revenues and the uncertainty regarding new franchise
territories. Interest income and sale of licenses were assumed to be relatively
flat year over year. Pre-tax margins were estimated at roughly 23% of royalty
revenue through fiscal 1998 because of higher expenses due to new business
development, increasing to 26% thereafter.
Comparable Company Analysis
Laidlaw reviewed and compared the financial and market performance for
a selected peer group of publicly traded companies in the career consulting,
human resource management and staffing services industries. Laidlaw selected the
group on the basis of various factors including industry relation, business
characteristics, size, capitalization, and as most comparable to the Company,
and thus more meaningful for purposes of its analysis.
Right Management, Inc. ("RMI") was the closest comparable in terms of
its business model. However, several key differences
14
<PAGE>
differentiate the two companies and affect valuation: The Company is a
franchisor deriving all of its income from franchise fees, while RMI is an
operating company deriving income from services rendered; and the Company's
franchises derive their revenue from individuals verses RMI's corporate
sponsored outplacement consulting services. Other companies in the broader group
were involved with human resources management, training seminars, post secondary
schools and temporary and permanent placement. This broader group includes
Headway Corporate Resources, Inc., Franklin Covey Co, General Employ
Enterprises, Inc., Romac International Inc., Concorde Career Colleges, Inc. and
Winston Resources, Inc. (the "Group").
Laidlaw calculated recent trading multiples of revenues, net income,
book value, tangible book value, estimated earnings and return on equity,
tangible book value and assets for companies within the Group. All forecasted
sales, and pretax income were based on information contained in equity research
reports and Institutional Broker's Estimate System ("IBES"). The equity values
of the comparable companies used in Laidlaw's analysis were based on stock
prices as of July 9, 1997. All financial proforma information and estimates were
based on certain operating and financial forecasts provided to Laidlaw by the
Management Group.
Laidlaw reviewed and compared certain actual and forecasted financial
and operating information of the Company with comparable information for the
Group to measure the fairness of the Merger Agreement.
One of the main differences between the Company and the Group is that
unlike the Group, the Company does not own any of its operations, rather it is
solely a franchisor. The differences between the Group and the Company reflect
the higher value put on company owned operations verses franchisor income and
the higher value placed on liquidity. Using comparable multiple analysis on
estimated earnings, the Company valuation measures are within the range of the
comparison companies. Given the difference between franchisors and company owned
operations, the more relevant ratio comparisons are as follows:
<TABLE>
<CAPTION>
THE COMPANY(1) RMI The Group
(at $3.00) (as of 7/9/97) (as of 7/9/97)
<S> <C> <C> <C>
Price to revenue 1.66 0.60 0.24 - 3.18
Price to book value 1.26 1.53 1.44 - 6.66
Price to tangible
book value 1.73 2.67 na
Return on equity 0.16 0.16 0.10 - 0.35
</TABLE>
____________________
(1) Assumes that $560,000 worth of options were exercised.
15
<PAGE>
Laidlaw compared the P/E of forecasted results with those of RMI and the Group.
<TABLE>
<CAPTION>
The Group
THE COMPANY(*) Yr. to yr. net RMI Yr. to yr. net (w/out
(at $3.00) income growth (as of income growth extremes)
7/9/97)
<S> <C> <C> <C> <C> <C>
12/96 5.88x -27.4% 7.76x 24% 7.76x-
20.24x
LTM 6.0x -24.9% 9.4x na 9.38x-
50.00x
12/97 11.6x -32.0% 11.3x -17% 9.51x-
17.0x
12/98 11.0x 5.69% 7.5x 50% 7.5x-
12.5x00
</TABLE>
_______________________
(*) Calendarized, continuing operations
All forecasted information for the Group companies were obtained from equity
research reports and IBES. Laidlaw assumed no responsiblity for generating such
forecasts.
Discounted Future Earnings Analysis
Laidlaw analyzed the ongoing business of the Company using discounted
cash flow analysis to estimate an enterprise value of the Company per comparison
to the value of the proposed transaction. Due to the lack of control at the
franchisee level, a saturation of major markets, limited ability to raise
prices, and investment in the start up and development of its subsidiary, First
Career Corp. ("First Career"), over the next 12 to 24 months, the Management
Group believed that accurate forecasts could not be made beyond the period of
one year.
To determine present value of potential future cash flows for the
Company, without the benefit of long-range management forecasts, Laidlaw used
the most recent operating results and one-year forecasts provided by the
Management Group as a predictor for future operating results to develop a
discounted cash flow scenario.
Laidlaw calculated an equity value for the Company based upon the
present value of the Company's six year stream of forecasted free cash flows and
fiscal year 2002 terminal value. The fiscal year 2002 terminal value was
calculated as a perpetuity of the estimated rate of return on invested capital.
When conducting its analysis, Laidlaw relied on certain assumptions
relating to sales growth, operating margins and capital
16
<PAGE>
expenditures of the Company's businesses provided by the Management Group. For
the six year forecast, Laidlaw applied a discount rate of 15% to future cash
flows. This analysis resulted in a valuation of $4.22 million, or $2.94 per
fully diluted share of the Company's Common Shares, based on Laidlaw operating
assumptions, which may or may not reflect actual future operations.
Stock Price History
There are currently 1,327 total shareholders of record. Of these
shareholders, 82% hold less than 99 shares and 47.4% hold less than 49 shares.
These odd lots are expensive to sell with a minimum processing charge of about
$50 for the transaction. 92.4% of the shares are held by 1.7% of the
shareholders. The historic bid price per common share of the Company since June
1996 ranged from a high of $2.75 (2/27/97) to a low of $2.25 (7/9/97). The bid
price as of the date of announcement of the Merger Agreement was $2.25. The mean
trading price over the (LTM) was approximately $2.60 with minimal trading volume
and frequency. Of the then prior 240 trade days, the Company's shares were only
traded on 52 days. Monthly trading volume ranged between 1,000 and 45,000 shares
with a twelve month average of less than 14,000 shares.
Odd Lot Holdings
Due to the high percentage of Public Shareholders that own an odd lot
amount of shares, Laidlaw reviewed the actual cost of selling those shares and
compared it to the Merger Price. 82% of the Public Shareholders hold less than
99 shares and there is a processing charge associated with trading those shares.
The processing charge for an odd lot number of shares is approximately $50.
Laidlaw divided the shareholders into 5 groups based on the number of shares
held. 629 Shareholders hold less than 49 shares, 461 hold between 50 and 99, 202
hold between 100 and 499, 12 hold between 500 and 999 and 23 holders own over
1000 shares. Laidlaw assumed that each shareholder in the group holds the
maximum number of shares in the range and, after accounting for the $50
processing charge, calculated the realizable price per share available to these
shareholders and compared that to the Merger Price. For the shareholders with
less than 50 shares, the Merger Price represents a 144% premium over their
realizable bid price and for the holders of over 1000 shares it represents a
premium of 33% over the bid price.
Board of Directors Determination
Based in part on the recommendation of the Special Committee and after
discussions with the Management Group as to the Management Group's willingness
to enter into the proposed Merger at the $3.00 price (in which the Management
Group advised the Board of Directors that a price of $3.00 per Common Share
would be acceptable to them), the Board of Directors determined that the
proposed
17
<PAGE>
Merger is fair to the Public Shareholders of the Company and voted unanimously
(except that Jerold P. Weinger, the member of Management Group who is a director
and a stockholder of the Company abstained) on September 3, 1997 to proceed with
the proposed Merger at a price of $3.00 per Common Share. The members of the
Board of Directors who voted on the proposed Merger, consisting of the directors
who were members of the Special Committee, relied on no other information than
that provided by the Board of Directors' and Laidlaw's analysis and opinion. The
Board of Directors has expressly adopted the discussion of the factors
considered by the Special Committee set forth under "Recommendation of the
Special Committee; Reasons for the Merger" (including the analysis set forth
under "Opinion of Financial Advisor" which was expressly adopted by the Special
Committee). In addition, Laidlaw reconfirmed its opinion as of the date of
mailing of this Proxy Statement. A copy of the opinion of Laidlaw dated August
11, 1997 and its reconfirmation are attached as Annex III to this Proxy
Statement which should be read in its entirety. See "Special Factors -- Opinion
of Financial Advisor".
In addition to being attached hereto as Annex III, the opinion of
Laidlaw is available for inspection and copying at the executive offices of the
Company, 192 Lexington Avenue, New York, New York, during regular business hours
of the Company by any interested holder of Common Shares or his representative
who has been so designated in writing.
On November 5, 1997, the Management Group formed Newco for the purpose
of consummating the proposed Merger and the other transactions contemplated by
the Merger Agreement. Shortly thereafter, the members of the Management Group
entered into the Organization Agreement with Newco pursuant to which Jerold and
Lilli Weinger and Renee Nadel (and IRAs, SEPs and pension plans as to which they
are the beneficiaries, Jerold P. Weinger as custodian for his children and
Jerold and Lilli Weinger's son) contributed an aggregate of 731,670 Common
Shares beneficially owned by them in exchange for an aggregate of 731,670 Newco
Shares, representing all of the Newco Shares outstanding. As a result of such
exchange, Newco became the beneficial owner of 731,670 (approximately 77% of the
issued and outstanding) Common Shares of the Company.
Due to the fact that Newco, beneficially owns approximately 77% of the
outstanding Common Shares of the Company, the proposed Merger may be considered
an involuntary transaction since the number of shareholder votes required to
consummate the Merger may be obtained entirely from Newco and/or members of the
Management Group. The Public Shareholders will be required either to accept cash
for their Common Shares or assert their dissenters' rights and possibly obtain a
judicial determination of the fair value of their Common Shares. See "Rights of
Dissenting Shareholders."
18
<PAGE>
Opinion of Financial Advisor
The full text of Laidlow's opinion is attached hereto as Annex III.
Laidlaw reviewed and analyzed the income statements of the Company for
the nine month period ended February 28, 1997 and audited income statements for
the years ended May 31, 1992, 1993, 1994, 1995 and 1996, the balance sheet as of
February 28, 1997 and the audited balance sheet as of year end May 31, 1995.
Laidlaw reviewed the financial information for the Company including the Annual
Reports on Form 10K and the Quarterly Reports on Form 10Q and analyzed the year
to year and quarter to quarter growth rates.
Laidlaw also reviewed royalty revenues, sub-license revenue, total
revenue, EBITDA, pretax income and net income. It also reviewed quarterly
revenue of individual offices for six periods ending August 31, 1996. Laidlaw
had calculated (i) certain profitability ratios and financial rates of return
based on financial results for the period ending May 31, 1992 through the period
ending February 28, 1997; and (ii) certain historical growth rates and margins.
The following is a chart setting forth the historical and proforma
financial information for revenue, earnings and earnings per share of the
Company for the periods reviewed by Laidlaw.
<TABLE>
<CAPTION>
Nine Months
Ended Years Ended May 31,
February 28, -----------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,986,579 $2,344,439 $1,937,387 $1,327,778 $ 991,088 $ 805,936
Net Income (Loss) 428,941 533,440 699,104 206,074 (86,670) (90,515)
Earnings per Share - Historical 0.42 0.44 0.61 0.20 (0.09) (0.10)
Earnings per Share - Proforma 0.54 0.53 0.74 0.26 (0.12) (0.13)
Average O/S Shares 1,014,347 1,227.894 1,161,347 1,014,729 914,622 914,622
Less: Repurchased Shares (217,695) (217,695) (217,695) (217,695) (217,695) (217,695)
- ----------------------------------------------------------------------------------------------------------------------------------
New O/S Shares 796,652 1,010,199 943,652 797,034 696,927 696,927
</TABLE>
19
<PAGE>
Revenue Growth
Laidlaw also reviewed with management of the Company the proforma
financial forecasts for 1997 and 1998. Laidlaw assumed that the forecasts were
reasonably prepared on basis reflecting the best currently available estimates
and judgements of the Company's management. These forecasts take into account
the slowdown in rate of growth of franchise revenues and the negative impact of
the counter-cyclical trend of low unemployment which is consistent with recent
experience of comparable companies. The Company's management indicated to
Laidlaw that franchises have been established in most of the major markets
throughout the Untied States and that future expansion will be primarily limited
to secondary and tertiary markets and price increases at the franchise level
have ranged between 10 to 15% during Fiscal 1992 to Fiscal 1995 and have been
nominal since Fiscal 1996. Laidlaw noted (i) Unit revenue growth, excluding
price increases, are relatively flat and services are now priced at or above
competitive rates, limiting future price increases and (ii) the effects of full
employment and slow growth in several mature markets appear to be the principal
factors in the slow down in growth from the peak period in Fiscal 1995.
Total revenue growth, primarily from royalty revenues, was forecast at
6% annually for the next several years reflecting the slowed growth in
franchisee revenues and the uncertainty regarding new franchise territories.
Interest income and sale of licenses were assumed to be relatively flat year
over year. Pre-tax margins were estimated at roughly 23% of royalty revenue
through 1998 because of higher expenses due to new business development of First
Career program, increasing to 26% thereafter.
Laidlaw noted that Actual (A) or Estimated (E) earnings per share for
Fiscal 1995(A), Fiscal 1996(A), Fiscal 1997(A), the calendar year to end
December 31, 1997(E), Fiscal 1998(E), the calendar year to end December 31,
1998(E) were $0.60(A), $0.42(A), $0.35(A), $0.26(E), $0.25(E), $0.27(E) and
$0.30(E), respectively, all at an assumed 1,400,000 shares of Common Stock
issued and outstanding. Laidlaw noted that at $3.00 per share, the
Price/Earnings Ratios would be $4.76, $7.14, $8.57, $11.6, $12.0, $11.0 and
$10.00 for the respective periods indicated above.
Trading History of the Company's Common Stock
Laidlaw reviewed the trading history of the Company's Common Stock. It
noted there were 1,327 shareholders of record. Of these shareholders,
approximately 82% held less than 99 shares and approximately 47% held less than
49 shares, with approximately 2% of the Company's Shareholders owning
approximately 92% of the Company's issued and outstanding shares. These odd lots
are expensive to sell with a minimum processing charge of about $50 for the
transaction. The historic bid price per common share of the Company since June
1996 ranged from a high of $2.75 (2/27/97)
20
<PAGE>
to a low of $2.25 (7/9/97). The mean trading price was approximately $2.60 with
minimal trading volume and frequency. Of the 240 trade days they reviewed, the
Company's shares were only traded on 52 days. Monthly trading volume ranged
between 1,000 and 45,000 shares with a twelve month average of less than 14,000
shares. Due to the high percentage of Public Shareholders that own an odd lot
amount of shares, Laidlaw reviewed the actual cost of selling those shares. 82%
of the Public Shareholders hold less than 99 shares and there is a processing
charge associated with trading those shares. The processing charge for an odd
lot number of shares is approximately $50. Laidlaw divided the shareholders into
5 groups based on the number of shares held. 629 shareholders hold less than 49
shares, 461 hold between 50 and 99, 202 hold between 100 and 499, 12 hold
between 500 and 999 and 23 holders own over 1,000 shares. Laidlaw assumed that
each shareholder in the group holds the maximum number of shares in the range
and, after accounting for the $50 processing charge, calculated the realizable
price per share available to these shareholders. For the shareholders with less
than 50 shares, $3.00 represents a 144% premium over their realizable bid price
of $2.25 per share on July 9, 1997 and for the holders of over 1,000 shares it
represents a premium of 33% over the bid price.
Factors Relevent to the Proposed Merger
In its written opinion, Laidlaw stated that, it took into account
various factors as fully described above, which it deemed relevant to the
proposed merger, including, among others:
(1) The financial terms and conditions of the Merger Agreement
(See "Special Factors -- Background of the Merger");
(2) Certain historical business information relating to the
Company, including the Annual Reports on Form 10-K of the
Company for the period ended May 31, 1992, 1993, 1994,
1995 and 1996, and the Quarterly Reports on Form 10-Q of
the Company for the period ended August 31, 1996,
November 30, 1996, and February 28, 1997 (See "Special
Factors -- Valuation Process");
(3) Various financial forecasts and other data provided by the
Company (See "Special Factors -- Historical Financial Data
Analysis and Financial Forecasts");
(4) Public information with respect to certain other companies in
lines of business it believed to be comparable in certain
respects to the Company, and the trading markets for such
other companies' securities (See "Special Factors --
Comparable Company Analysis");
(5) The financial terms of certain other merger agreements
involving the acquisition of minority interests of other
public companies (See "Special Factors -- Comparable Company
Analysis"); and
21
<PAGE>
(6) The stock price and trading volume history of the Company's
Common Stock (See "Special Factors -- Stock
Price History").
Laidlaw also met with certain officers and employees of the Company to
discuss the foregoing, including the past and current business operations,
financial condition and prospects of the Company, as well as other matters it
believed relevant to its inquiry. Laidlaw also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that it deemed relevant.
Assumptions
In its review and analysis and in arriving at its opinion, Laidlaw
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it or publicly available and did not attempt
independently to verify nor did it assume responsibility for verifying any of
such information. With respect to the financial projections of the Company,
Laidlaw assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the Company's management as to
the future financial performance of the Company. Laidlaw expressed no opinion
with respect to such forecasts or the assumptions on which they are based.
Laidlaw further relied upon the assurance of management of the Company that they
were unaware of any facts that would make such information incomplete or
misleading. Laidlaw did not make or obtain or assume any responsibility for
making or obtaining any independent evaluations or appraisals of any of the
assets (including properties and facilities) or liabilities of the Company.
Laidlaw took into account its assessment of general economic, market
and financial conditions and its general knowledge of securities valuation.
Laidlaw's opinion necessarily was based upon conditions as they existed on the
date of the issuance of its opinion, and Laidlaw assumed no responsibility to
update or revise its opinion based upon circumstances or events occurring after
that date. Laidlaw's opinion did not imply any conclusion as to the likely value
of the Company following the consummation of the Merger, which may vary
depending upon, among other factors, changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the value of a company. Its opinion did not address the Company's
underlying business decision to effect the Merger. It was directed only to the
fairness, from a financial point of view, of the Merger Agreement and does not
constitute a recommendation to the Public Shareholders of Company's Common Stock
with respect to the Merger Agreement. It also did not address the decision of
the directors and executive officers of the Company to enter into an
indemnification
22
<PAGE>
agreement or give effect to any liabilities they may have incurred thereby.
Qualification of Financial Advisor's Opinion
The foregoing summary of the opinion of Laidlaw and other statements in
this Proxy Statement concerning such opinion are qualified in their entirety by
reference to the full text of such opinion included as Annex III to this Proxy
Statement, which should be read in its entirety. In addition, such opinion is
also available for inspection and copying at the principal executive offices of
the Company located at 192 Lexington Avenue, New York, New York 10016, during
its regular business hours by any interested shareholder or his representative
who has been so designated in writing.
Laidlaw is an independent investment banking firm with broad experience
in evaluating acquisition transactions. As part of its investment banking
business, Laidlaw is continually engaged in the valuation of businesses and
their securities in connection with such matters as mergers and acquisitions,
private placements, underwritings, and distributions of listed and unlisted
securities. The Company paid Laidlaw a fee of $48,000 and agreed to pay certain
expenses in excess of $7,500 (which, to date, have not exceeded such amount) in
connection with its opinion and, in addition, agreed to indemnify Laidlaw and
its affiliates, control persons, directors, officers, employees and agents
against all losses, claims, damages, liabilities, costs and expenses (including
reasonable counsel and other professional fees) resulting from Laidlaw's
services in connection with the proposed Merger, including claims under the
federal securities laws. Laidlaw is not affiliated in any way with the Company,
Newco or the Management Group and, except for the compensation paid to it for
rendering the fairness opinion in connection with the proposed Merger, has not
received any compensation or other payments from the Company, Newco, or the
Management Group during the last ten years.
Recommendations of the Special Committee; Reasons for the Merger
The Special Committee, acting unanimously, determined that the proposed
Merger is fair to the Public Shareholders of the Company.
In making its recommendation to the Board of Directors, the Special
Committee relied primarily upon the opinion of Laidlaw that the $3.00 per Common
Share to be paid to the Public Shareholders of the Company in the proposed
Merger is fair to the Company's Public Shareholders from a financial point of
view, and the Special Committee reviewed and analyzed the factors presented to
it by Laidlaw and adopted the analysis of Laidlaw which enabled Laidlaw to
render such opinion. (See "Special Factors -- Opinion of Financial Advisor.") In
addition, in evaluating the desirability of the proposed Merger from the
standpoint of the Company, the
23
<PAGE>
Special Committee considered the factors discussed below, as reported by the
Board of Directors relating to the business reasons of the Company for entering
into the proposed Merger. See the following discussions: "--Evaluation of the
Public Market; Viability as a Public Company"; --Limited Trading Market;"
"--NASDAQ's Proposed Changes to its Maintenance Criteria"; "--No Dividends"; and
"--Fairness of Share Price offered." In evaluating the overall fairness of the
Merger to the Company's Public Shareholders, the Special Committee took into
account its assessment of the future prospects of the Company based upon
Laidlaw's opinion and the factors discussed below, in addition to Laidlaw's
analysis of the fairness of the Merger from a financial point of view.
Evaluation of the Public Market; Viability as a Public Company
The Board of Directors first reported on its evaluation of the public
market for the Company's Common Shares and concluded that the reasons for which
the Company became a public company in 1986 are no longer viable business
reasons for remaining publicly owned. Since that time (The Board of Director's
first report), due to NASDAQ's changes in maintenance criteria (see
"Recommendations of the Special Committee"; "Reasons for the Merger -- NASDAQ
Proposed Changes to its Maintenance Criteria") the Company no longer meets
NASDAQ's maintenance requirements. The Company has been de-listed from NASDAQ.
Although the Company sought to appeal its de-listing, the time to appeal has now
expired. Therefore, the Company is no longer commercially viable as a public
company. Therefore the Board of Directors believes that the Common Shares should
not be used for the purpose of raising additional capital because the issuance
of shares by the Company at market prices would have a dilutive effect on the
book value per share. Upon ceasing to be a public company, the Company's direct
expenses (which management estimates are a minimum of approximately $100,000 per
year) associated with being a public company, consisting of legal, accounting,
stock transfer, and printing fees, would be substantially eliminated. In
addition to such direct expenses, public company status requires substantial
management time for attention to the preparation and review of required reports,
responses to inquiries from regulatory authorities and shareholders, meetings
and conversations with attorneys, accountants, and shareholders and similar
matters.
In addition, the Board of Directors reported to the Special Committee
the effect of public company status on the Company's competitive position.
Public companies, such as the Company, are required to make available to the
public, pursuant to the disclosure requirements of the Securities Exchange Act
of 1934 (the "Exchange Act"), information concerning their businesses, including
detailed financial information.
In evaluating the detriments to the Company arising from the proposed
Merger, the Special Committee acknowledged that the
24
<PAGE>
purchase of the Common Shares held by the Public Shareholders will require the
Company to expend a substantial amount of its available cash. In addition, the
price at which the Merger is to be consummated is higher than the prices the
Company has paid in purchasing Common Shares during the last thirty months.
Limited Trading Market
The Special Committee discussed the Company's earnings over the past
three fiscal years and considered the future prospects of the Company. After
reviewing the reported trading volume in the Company's securities, the Special
Committee noted that there was only a limited trading market in the Company's
Common Stock even though it was then being traded on the National Association of
Securities Dealers, Inc.'s Automated Quotation System ("NASDAQ") Small Cap
market place. NASDAQ's monthly report for July 1997 stated that the total
reported volume for that month was 18,650 shares of the Company's Common Stock
in a total of eleven trades occurring on only three days. Similarly, NASDAQ's
monthly report for June 1997 stated a reported volume of 26,450 shares in a
total of 10 trades reported on only five days. The Board of Directors also
reported to the Special Committee that there were only three market makers with
a significant spread between bid and asked prices and many of the Company's
shareholders hold only a limited number of shares of the Company's Common Stock.
As a result, if these smaller shareholders wanted to dispose of their shares of
the Company's Common Stock, broker-dealer commissions could take up a
substantial portion of their selling proceeds.
NASDAQ's Proposed Changes to its Maintenance Criteria
The Board of Directors also reported to the Special Committee that
NASDAQ had proposed changes to its maintenance criteria that could increase (i)
the cost of the Company's maintaining its NASDAQ listing, (ii) the
administrative burden of maintaining such listing, requiring the Company's
executive officers to reallocate their time from business operations to
administrative time necessary to maintain the listing, and (iii) the possibility
of the eventual delisting of the Company's Common Stock from the NASDAQ Small
Cap System. Subsequently, the Company's Common Stock was delisted, the only
practical alternative would be trading on NASDAQ's OTC Bulletin Board. The
Special Committee noted that securities traded on the OTC Bulletin Board are
publicly perceived to be not as "reputable" as Small Cap traded securities and a
listing on the OTC Bulletin Board would likely result in a more limited trading
volume, rendering the holdings of the Company's Public Shareholders even less
liquid.
Among NASDAQ's proposed modifications to its Small Cap maintenance
criteria, the Board of Directors reported that the following which would have an
impact upon the Company and/or its continued listing on the Small Cap System:
25
<PAGE>
(i) net income of $500,000 in the most recently
completed fiscal year or in two of the last three fiscal
years;
(ii) at least 300 round lot holders;
(iii) 500,000 shares are to be publicly held (officers,
directors and holders of 10% or more of a security are specifically
excluded from the word "public") with a market value of at least
$1,000,000;
(iv) the distribution of annual reports to shareholders;
(v) the distribution of quarterly reports to share-
holders; and
(vi) the solicitation of proxies for annual meetings.
After reviewing NASDAQ's proposed changes to its maintenance criteria
for continued listing, the Special Committee was of the view that, if enacted,
(A) continued listing was in substantial doubt, and (B) even if listing were to
be maintained by the Company, the Company would have to increase its
administrative expenses. The Special Committee noted that (i) although the
Company had net income in excess of $500,000 for Fiscal 1995 and Fiscal 1996, it
did not meet this threshold for Fiscal 1997 and, due to market saturation of the
Haldane offices, this threshold may not be met in Fiscal 1998; (ii) as of July
31, 1997 the Company had only approximately 200 round lot holders; and (iii) at
July 31, 1997 the Company had 949,365 shares issued and outstanding. With an
aggregate of 736,670 shares held by officers, directors and holders of 10% or
more of the Company's Common Stock, that left approximately 212,695 held
"publicly" with an aggregate market value of approximately $585,000 (based on an
assumed market value of $2.75 per share, representing the average of the low bid
and asked prices of the Company's Common Stock as then reported by NASDAQ).
Therefore, the Special Committee was of the view that continued inclusion of the
Company's securities on the NASDAQ Small Cap System appeared to be unlikely if
the proposed changes to NASDAQ's maintenance criteria were adopted. The Special
Committee was also of the view that even if the Company was able to meet the
foregoing proposed criteria, the Company's administrative expenses could
substantially escalate with increased printing, mailing, and professional fees
and expenses resulting from the dissemination of periodic reports.
Subsequently, the Company's Common Stock was delisted from NASDAQ Small
Cap. However, the Company's Common Stock continues to be traded on the
Over-the-Counter ("OTC") Bulletin Board.
26
<PAGE>
No Dividends
The Special Committee considered the fact that the Company has never
paid a dividend and noted that it has been the general policy of the Company to
retain its earnings to support operations and the expansion of the Company's
businesses. The Special Committee discussed whether the failure to pay dividends
might have had a depressing effect on the prices for the Common Shares in the
over-the-counter market by making the Common Shares a less attractive investment
as compared to investments paying current returns. Although the Special
Committee noted that it had no means of determining what might have been under
different circumstances, it noted that many companies such as the Company, which
are small in terms of revenues and assets, do not pay dividends or pay only
nominal dividends.
No Consideration of Independent or Competing Proposal
The Special Committee did not consider the possibility of seeking, or
hiring an investment banking firm to seek, an independent or competing proposal
for the purchase of the Company's Common Shares because the Special Committee
was aware that the members of the Management Group had not expressed any
interest in selling their 77% ownership interest in the Company to an
independent purchaser. Thus, the Special Committee sought instead to obtain a
fair price for the Common Shares owned by the Public Shareholders of the Company
by negotiating with the Management Group the highest possible cash price for the
Common Shares owned by the Public Shareholders. The Special Committee recognized
that consummation of the Merger will preclude current shareholders of the
Company, other than the Management Group, from participating in any future
growth of the Surviving Corporation. The Special Committee also recognized that
members of the Management Group will have an investment in the equity of the
Surviving Corporation. Nevertheless, the Special Committee concluded that a
transaction at a fair price, in which the Public Shareholders would receive cash
for their Common Shares, was in the best interests of the Public Shareholders
and was preferable to the failure to consummate any transaction, particularly in
light of the historical limited trading market and the lack of market interest
in the Common Shares and the lack of payment of any dividends on the Common
Shares. However, the Special Committee did not know whether the limited trading
volume may have affected the market price of the Common Shares.
Fairness of Share Price Offered
The Special Committee noted that, to its knowledge, the price to be
paid for the Common Shares in the proposed Merger is substantially higher than
the highest price bid for the Common Shares during the prior twelve months,
including prices paid by the Company in negotiated and open market transactions
within the prior
27
<PAGE>
thirty months, and will represent a return on investment or a return of capital
to shareholders of the Company at a time when they might not otherwise be able
to realize such a return. The proposed Merger presents the Public Shareholders
with an opportunity to exchange their Common Shares for cash, which opportunity
is not readily available in the public market due to the limited trading volume
of the Common Shares in recent years.
Although the Special Committee was aware that the proposed Merger was
structured as an involuntary transaction in that the Management Group (through
Newco) has sufficient voting power to approve the Merger without the consent of
any other shareholder and there is no requirement that the transaction be
approved by a majority of the minority shareholders, and although the Special
Committee was aware that it had not retained an unaffiliated representative to
act solely on behalf of the Company's unaffiliated shareholders in negotiating
the terms of the Merger, the Special Committee believes nevertheless that the
proposed Merger is procedurally fair to the Company's unaffiliated shareholders
because the price at which the Merger is to be consummated was determined by the
Special Committee of disinterested directors in reliance upon the analysis and
fairness opinion of Laidlaw, an expert in the valuation of companies which is
completely unaffiliated with the Company and the Management Group, and because
shareholders who do not accept the Merger price may assert their dissenter's
rights under the FBCA and receive the fair value of their Common Shares as
determined by the court. See "Rights of Dissenting Shareholders" and Annex V to
this Proxy Statement.
It is expected that if the proposed Merger is not consummated, current
management, under the general direction of the Board of Directors, will continue
to manage the Company as an ongoing business. The Company has no present plans
to change its Board of Directors or management (other than to dispense with the
services of Messrs. Jeffrey Schachter and Gregg Weiss, directors of the
Company), including, but not limited to, any plan or proposal to change the
number or term of directors, to fill any vacancy on the Board of Directors, to
change any material term of the compensation of any executive officer, or to
change the Company's current policy of not paying dividends.
Management Group's Reasons for the Merger; Structure of the Merger
The Management Group has decided to undertake the proposed Merger at
this time for the following reasons. The Management Group believes that under
private ownership the Company can be managed in a way that would result in the
effective utilization of the Company's assets without concern for the short-term
effects of a certain business decisions on the Company's earnings and the market
value of its stock. Having the Company being privately owned will also permit
the Management Group to operate the business of the Company for their sole
benefit without potential conflicts
28
<PAGE>
of interest with other shareholders and will provide the members of the
Management Group with an investment in the equity of the Surviving Corporation
and will permit them to benefit from any increase in the value of the capital
stock of the Surviving Corporation. Consummation of the Merger will unite
management and ownership so that entrepreneurial risks which may be required to
maximize the potential of the Company may be taken more freely. The Management
Group therefore desires to bring the Company under private ownership while the
Company's cash resources are sufficient to pay shareholders the fair value for
their Common Shares and to fund the substantial costs of consummating a
going-private transaction. There can be no assurance that the Company will have
the cash resources or borrowing capability to pay the Public Shareholders the
fair value for their Common Shares in the future. Consummation of the proposed
Merger will result in the Surviving Corporation either having substantially less
cash or having substantially more debt than the Company now has and having
approximately $803,000 less tangible net worth. See "Capitalization."
The Company's tangible book value was $3,041,427 and $3,191,125 as of
May 31, 1998 and November 30, 1998 respectively. On a pro forma basis, assuming
consummation of the Merger on November 30, 1998 at a price of $3.00 per Common
Share and the consequent redemption by the Company of the approximate 217,695
Common Shares owned by the Public Shareholders of the Company and the payment by
the Company of an estimated $.69 per redeemed Common Share in fees and expenses
(see "Financing of the Merger"), tangible book value per common share of the
Surviving Corporation would be $3.26 which represents a decrease of
approximately 25.2% over the stated tangible book value as of November 30, 1998.
Thus, the Management Group, as the shareholders of the Surviving Corporation,
will experience as of November 30, 1998 an immediate 2.98% decrease in tangible
book value per share as a result of the Merger. Following is a chart outlining
the historical and proforma tangible book value of the Company:
Bernard Haldane Associates, Inc. & Subsidiaries
Tangible Book Value
<TABLE>
<CAPTION>
November Proforma Proforma
May 31, 1998 30, 1998 as of 5/31/98 as of 11/30/98
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Tangible book value $ 3,041,427 $ 3,191,125 $ 2,238,342 $ 2,388,040
============ =========== =========== ============
# of common shares outstanding 949,365 949,365 731,670 731,670
============ =========== =========== ============
Tangible book value per share $3.20 $3.36 $3.06 $3.26
============= =========== =========== ============
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
% Change in Tangible Book Value from May 31, 1998:
<S> <C>
Tangible book value at 5/31/97 3,041,247
============
Change in tangible book value (803,085)
============
% Change -26.40%
============
<CAPTION>
% Change in Tangible Book Value from November 30, 1998:
<S> <C>
Tangible book value at 11/30/98 3,191,125
============
Change in Tangible book value (803,085)
============
% Change -25.17%
============
</TABLE>
% Change in Tangible Book Value per Share of Management Group from November 30,
1998:
<TABLE>
<CAPTION>
Per Share No. of Shares Amount
<S> <C> <C> <C>
Tangible book value
pro-forma as of 11/30/98 $ 3.26 731,670 2,388,040
at 11/30/98 3.36 731,670 2,458,411
-------- ---------
Change $ (0.10) $(70,371)
======== =========
% Change -2.98% -2.86%
======== ==========
</TABLE>
Difference due to rounding
The Company has never paid a dividend, and the Management Group concurs
in the Special Committee's view that the principal reason for the Company's
policy of not paying dividends is the Company's decision to retain its earnings
to support operations and the expansion of the Company's business. Also, the
payment of dividends would reduce the shareholders' equity in the Company. The
Management Group believes that because the Common Shares have had only limited
trading and has traded below the net tangible book value per Common Share for
the past twelve months if the Company needed to replenish shareholders' equity,
it could not be replenished by the sale of Common Shares.
The reasons that the Management Group selected the Merger as the
appropriate structure for cashing out the Public Shareholders of the Company, as
opposed, for example, to a tender offer, is that the Management Group wanted to
be assured of completely eliminating the interests of all of the shareholders of
the Company other than the Management Group, and the Management Group knew that
it controlled sufficient Common Shares to assure the approval of the Merger. A
tender offer would arguably have been less desirable
30
<PAGE>
from the Public Shareholders' point of view as well, because a tender offer, as
a voluntary transaction, would not have given rise to the involuntary
transaction premium discussed above under "Special Factors -- Opinion of
Financial Advisor" and because any non-tendering shareholders would have run the
risk of owning, after the completion of the tender offer, shares in a
non-publicly traded company. The merger structure permitted different
consideration to be paid to the two different types of shareholders of the
Company, that is, cash to the Public Shareholders of the Company and stock in
the Surviving Corporation to the Management Group (through Newco).
The $3.00 cash price to be paid in the Merger was deemed to be fair by
Laidlaw, an expert in the valuation of companies which is completely
unaffiliated with the Management Group; the proposed Merger presents the Public
Shareholders with an opportunity to exchange their Common Shares for cash, which
opportunity is not readily available in the public market, and to receive a
price substantially higher than the highest price offered for the Common Shares
during the last ten years; and unaffiliated shareholders who do not accept the
Merger price may assert their dissenter's rights under the FBCA and receive the
fair value of their Common Shares as determined by the Court. For the foregoing
and other reasons the members of the Management Group believe that the proposed
merger is fair to the Public Shareholders of the Company. See "Special Factors
- -- Opinion of Financial Advisor," "Rights of Dissenting Shareholders," and
Annexes III and V to this Proxy Statement.
NASDAQ Advice Regarding Delisting
Proving out the anticipations of the Company's Board of Directors, by
letter dated December 2, 1997, the staff of NASDAQ's Listing Qualifications
department advised the Company that NASDAQ's new quantitative maintenance
requirements for continued listing would become effective on February 23, 1998
and that "A review of your company's most recently filed financial statements
and market data has determined that [the Company] may not meet the new
requirements for continued listing." Specifically, NASDAQ pointed the Company to
the requirements of (1) a "public float" of 500,000 shares, and (2) having a
market value of $1,000,000. The Company was not capable of meeting these new
standards. The Company estimated its "public float" to be less than 300,000
shares with an arguable value of not greater than $2.75 per share (the highest
bid price for the Company's Common Stock quoted since December 1, 1996) or a
total market value of not greater than $600,000. A potential split of the
Company's securities would not serve to increase the "public float's" market
value. The Company's shares of its Common Stock have been delisted from trading
on NASDAQ's SmallCap Market place. Although the Company sought to appeal its
delisting, the time to appeal has now expired. Therefore, the Company is no
longer commercially viable as a public company.
31
<PAGE>
The Company believes that such delisting will diminish the ability of
the Company's Shareholders to dispose of their shares of the Company's Common
Stock in the public market place and, as a result, may result in a decrease of
the market price for the Company's Common Stock if any such market exists.
Interests of Certain Persons in the Merger
General. On November 5, 1997, members of the Management Group formed
Newco for the purpose of consummating the Merger and the other transactions
contemplated by the Merger Agreement. As of November 15, 1997 the members of the
Management Group entered into the Organization Agreement with Newco pursuant to
which Jerold P. Weinger, Renee Nadel and Lilli Weinger (and IRAs, SEPs and
pension plans as to which they are the beneficiaries, Jerold P. Weinger as
custodian for his children and Jerold and Lilli Weinger's son, Seth Weinger)
contributed an aggregate of 731,670 Common Shares beneficially owned by them in
exchange for an aggregate of 731,670 Newco Shares, representing all of the Newco
Shares issued and outstanding. As a result of such exchange, Newco became the
beneficial owner of approximately 77% of the Common Shares of the Company that
are issued and outstanding.
Upon consummation of the Merger, each issued and outstanding Newco
Share, all of which are owned by the Management Group, will be converted into
one validly issued, fully paid and non-assessable common share of the Surviving
Corporation, and, as a result, the Management Group will own 100% of the issued
and outstanding common shares of the Surviving Corporation. All Common Shares
owned by Newco or held in the Company's treasury will be cancelled. All other
Common Shares (other than shares as to which dissenters' rights are perfected)
will be converted to the right to receive $3.00 per Common Share in cash. See
"The Merger Agreement."
Set forth below are the names and addresses of the members of the
Management Group, the number of Newco Shares received pursuant to the
Organization Agreement, and the percentage of Newco Shares beneficially owned by
such person as of the Record Date:
32
<PAGE>
Number of
Name and Address Newco Shares Approximate
of Beneficial Beneficially Percent
Owner Owned Of Class(1)
Renee Nadel 262,500 35.8%
7885 Ayr Court
Boca Raton, Florida 33496
Lilli Weinger (1)(2) 293,895(3) 40.2%
4 Woodgreen Place
Rockville Center, New York 11570
Jerold P. Weinger (2) 176,420(3) 24.1%
192 Lexington Avenue, 15th Floor
New York, New York 10016
Seth Weinger 5,000 0.7%
4 Woodgreen Place
Rockville Center, New York 11570
- --------
(1) Also represents the approximate percentage of common shares of the Surviving
Corporation that such person will own upon consummation of the Merger.
(2) Jerold P. Weinger and Lilli Weinger are espoused. They each disclaim
beneficial ownership of the shares of Newco's Common Stock held of record in the
other person's name.
(3) Includes 6,145 shares of Newco's common stock owned jointly by Jerold and
Lilli Weinger.
For a description of the record ownership of Newco Shares, see the
Merger Agreement attached as Annex I to this Proxy Statement.
Conflicts of Interest. The opportunity to retain a continuing equity
interest in the Surviving Corporation (which opportunity is not available to
shareholders of the Company, except Newco) has presented the Management Group
and members of the Board of Directors with conflicts of interest in connection
with the negotiation of the Merger Agreement with the Company. Further, after
consummation of the Merger, all officers and directors of the Company (except
for Messrs. Jeffrey Schachter and Gregg Weiss, directors) will continue as
officers and directors of the Surviving Corporation, which fact has presented
the Board of Directors with a conflict of interest in recommending approval of
the Merger Agreement to the shareholders of the Company. The Special Committee
was aware of the actual or potential conflicts of interest of the officers and
certain directors of the Company, including the members of the Management Group,
when deciding to recommend approval of the Merger to the Board of Directors of
the Company including the members of the Management Group, when deciding to
recommend approval of the Merger to the Board of Directors of the Company.
33
<PAGE>
The Merger Agreement provides that the Surviving Corporation will use
good faith efforts to provide officers' and directors' liability insurance
covering officers and directors of the Company prior to the Merger. The Merger
Agreement also provides that the Surviving Corporation will indemnify and hold
harmless officers and directors of the Company against any liability in
connection with any threatened, pending, or completed action, suit, or
proceeding arising out of or related to the transactions contemplated by the
Merger Agreement to the full extent permitted or required by Florida law and the
Company's Certificate of Incorporation and Bylaws.
Jerold P. Weinger is an officer of the Company and receives
compensation as such. Jerold and Lilli Weinger are espoused. See "Management of
the Company -- Management Compensation." Jerold P. Weinger currently intends to
continue his employment relationship with the Surviving Corporation. As a
result, Jerold P. Weinger has a direct conflict of interest in recommending
approval of the Merger to the shareholders of the Company.
Except for Messrs. Jeffrey Schachter and Gregg Weiss, directors, all
officers and directors of the Company will continue to serve as officers and
directors of the Surviving Corporation, and as a result, such persons may be
deemed to have a conflict of interest in recommending shareholder approval of
the proposed Merger. Such directors, specifically Messrs. Jerold P. Weinger and
Jeffrey G. Klein, will continue to receive annual compensation plus expenses
incurred in connection with attendance at meetings of the Board of Directors.
Gusrae Kaplan & Bruno is representing the Management Group and Newco in
the proposed Merger. Gusrae Kaplan & Bruno has represented members of the
Management Group from time to time, and it is anticipated that upon consummation
of the Merger, Gusrae Kaplan & Bruno will continue to represent both the
Management Group and the Surviving Corporation from time to time.
Schoeman, Marsh & Updike, LLP is representing the Company in the
proposed Merger. Schoeman, Marsh & Updike, LLP have acted as counsel to the
Company with respect to matters other than the proposed merger and has
represented members of the Management Group from time to time, and it is
anticipated that such law firm will continue to represent the Company and
members of the Management Group upon consummation of the Merger.
Other Matters. Upon consummation of the Merger, Messrs. Weinger and
Klein will be the officers and the two directors of the
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<PAGE>
Surviving Corporation and will serve in the following capacities, subject to the
By-laws, until their successors are duly elected:
Name Position
Jerold P. Weinger President, Chief Executive
Officer, Treasurer and Director
Jeffrey G. Klein Secretary and Director
All members of the Board of Directors are reimbursed for all reasonable
expenses incurred in connection with attendance at meetings of the Board of
Directors and other Company business.
FINANCING OF THE MERGER
If the Company purchases all of the approximate 217,695 Common Shares
held by the Public Shareholders of the Company, the maximum amount of funds
required by the Company will be $653,085 ($3.00 per Common Share), plus an
estimated $150,000 ($0.69 per Common Share being purchased in the Merger) of
related fees and expenses. The application of the funds to be used to finance
the proposed Merger is estimated to be approximately as follows (assuming $3.00
per Common Share to be paid to each Public Shareholder of the Company pursuant
to the Merger Agreement and $0.69 per purchased Common Share of related fees and
expenses):
<TABLE>
<CAPTION>
Application of Funds:
<S> <C>
Payment of cash for the
Company's Common Shares ........................ $653,085.00 (1)
Estimated fees and expenses:
Legal fees and expenses ................. $ 55,000.00
Accounting fees and expenses ............ 15,000.00
Laidlaw fee ............................. 48,000.00
Printing costs and postage .............. 15,000.00
Miscellaneous ........................... 17,000.00
Total estimated fees and expenses ..... $150,000.00 (2)
-----------
Total Application of Funds ....................... $803,085.00 (3)
-----------
</TABLE>
Assuming the purchase of all of the approximate 217,695 Common Shares
held by the Public Shareholders of the Company, the cost of
35
<PAGE>
the proposed Merger to the Company per Common Share to be purchased will be as
follows:
(1) $3.00 per Common Share
(2) $0.69 per Common Share
(3) $3.69 per Common Share
The Company will fund the purchase from its general working capital.
The foregoing includes the Company's reimbursement to Newco or payment
on its behalf for all of its documented actual out-of-pocket expenses incurred
in connection with the proposed Merger.
CAPITALIZATION
Set forth below is the consolidated capitalization of the Company as of
November 30, 1998, and the pro forma capitalization of the Company assuming the
Merger had been consummated as of that date. This table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Historical Pro-Forma
November 30, 1998 Adjustments Pro-Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-term debt $574,465 $0 $574,465
Stockholders' equity: Common stock
($.00001 par value, 950,000,000
shares authorized. 1,148,865 shares
issued, historical; $.01 par value,
2,000,000 shares authorized,
731,670 shares issued and
outstanding, pro-forma)
12 7,305 (1) 7,317
Additional paid-in capital 2,738,015 (803,085)(2) 1,421,187
(506,438)(3)
Retained earnings 959,536 (7,305)(1) 959,536
0
---------- ----------- ----------
3,697,563 (1,309,523) 2,388,040
Less: Cost of shares in treasury 506,438 (506,438)(3) 0
---------- ----------- ----------
3,191,125 (803,085) 2,388,040
---------- ----------- ----------
Total Capitalization $3,765,590 ($803,085) $2,962,505
---------- ----------- ----------
</TABLE>
- --------
1 Capitalize additional paid-in capital to increase par value of common stock to
$.01 for 731,670 shares outstanding.
2 Cost of acquiring shares held by public shareholders.
3 Retirement of existing treasury shares.
36
<PAGE>
THE MERGER AGREEMENT
Effective Date
The Merger will become effective at the time of filing of the
Certificate of merger, executed by the proper officers of the Company and Newco,
with the office of the Department of State of the State of Florida, which filing
is currently anticipated to be made on the date of the Special Meeting. Such
filing will be made upon satisfaction or waiver of the conditions contained in
the Merger Agreement.
The Merger Agreement provides that at the Effective Date of the Merger,
Newco will be merged with and into the Company in a merger in which the Company
will be the surviving corporation and the separate corporate existence of Newco
will cease. Pursuant to the Merger, each Common Share issued and outstanding
immediately prior to the Effective Date (other than Common Shares held in the
Company's treasury and other than the Common Shares held by shareholders of the
Company who shall have perfected dissenters' rights under the FBCA) will be
automatically converted into the right to receive $3.00 in cash without
interest. At the Effective Date of the Merger, each Common Share then held in
the Company's treasury, by virtue of the merger and without any action on the
part of the holder thereof, shall be cancelled and retired and cease to exist.
Payment for Common Shares
In order to receive the cash to which the Company's Public Shareholders
will be entitled as a result of the Merger, each such holder of Common Shares
will be required to surrender his stock certificates, together with a duly
executed letter of transmittal, to a paying agent designated by the Surviving
Corporation (the "Paying Agent"). Upon receipt of such certificates together
with a duly completed and executed letter of transmittal, the Paying Agent will
mail a check, in an amount equal to $3.00 for each Common Share represented by
such certificates, to the registered owner or his transferee, or will otherwise
pay such owner or transferee pursuant to his instructions.
INSTRUCTIONS WITH REGARD TO THE SURRENDER OF CERTIFICATES, TOGETHER
WITH A LETTER OF TRANSMITTAL TO BE USED FOR THIS PURPOSE, WILL BE FORWARDED TO
SHAREHOLDERS AS PROMPTLY AS PRACTICABLE FOLLOWING THE EFFECTIVE DATE.
SHAREHOLDERS SHOULD SURRENDER CERTIFICATES FOR COMMON SHARES ONLY AFTER
RECEIVING A LETTER OF TRANSMITTAL. SHAREHOLDERS SHOULD NOT SEND ANY CERTIFICATES
WITH THE ENCLOSED PROXY CARD AND SHOULD NOT SEND ANY CERTIFICATES TO THE
COMPANY.
Each certificate which prior to the Effective Date represented
outstanding Common Shares (other than treasury shares, shares held
37
<PAGE>
by Newco, and shares owned by shareholders who perfect their statutory
dissenters' rights pursuant to the FBCA) will, on and after the Effective Date,
evidence only the right to receive the amount of cash, without interest, into
which the Common Shares represented thereby shall have been converted. No
interest will be paid or accrued on the amounts payable upon the surrender of
any such certificate.
If any payment for Common Shares is to be made in a name other than
that in which the certificates for such Common Shares surrendered for payment is
registered on the stock transfer books of the Company as of the Effective Date,
it will be a condition of such payment that the certificates so surrendered
shall be properly endorsed or otherwise in proper form for transfer and that the
person requesting such payment shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the certificates so surrendered.
The Exchange
The Merger Agreement provides that, on and after the Effective Date,
the Surviving Corporation will make available to the Paying Agent, in accordance
with the terms and conditions of a Paying Agent Agreement (to be entered into by
the Company and the Paying Agent), sufficient cash to permit the exchange of
Common Share certificates surrendered to the Paying Agent for $3.00 per Common
Share in cash.
On the Effective Date, the Company will deposit cash with the Paying
Agent in an amount equal to the cash value of all outstanding and contingently
issuable Common Shares (other than treasury shares and shares held by Newco). If
any such funds have not been paid out at the expiration of 90 days from the
Effective Date in exchange for surrendered Common Share certificates, such funds
will be returned immediately to the Surviving Corporation.
In addition, if at any time during such 90-day period any shareholders
perfect their dissenters' rights pursuant to the FBCA, the Paying Agent will
return the funds attributable to such Common Shares to the Surviving
Corporation. See "Rights of Dissenting Shareholders."
If any certificate or certificates representing Common Shares are
surrendered to the Paying Agent (together with a duly completed and executed
letter of transmittal) after such 90-day period, the Paying Agent will promptly
notify the Surviving Corporation and the Surviving Corporation will promptly
deposit with the Paying Agent an amount equal to $3.00 multiplied by the number
of Common Shares represented by such surrendered certificate or certificates,
and the Paying Agent will promptly pay $3.00 per share for each of such Common
Shares to the holder or holders thereof.
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<PAGE>
If any certificates representing Common Shares shall not have been
surrendered (together with a duly completed and executed letter of transmittal),
the Surviving Corporation shall be entitled to dispose of the payment in respect
of such certificates in accordance with applicable laws regarding abandoned
property, escheat or other similar laws.
Treatment of Options
On the Effective Date, all rights with respect to the Common Shares
issuable under any stock options shall be terminated by the mutual agreement of
the Company and the holders of such options. Newco intends to issue options to
the Company's current optionholders in such quantities and with substantially
similar terms and conditions as the options currently held.
Conditions, Representations, and Covenants
The respective obligations of the Company and Newco to consummate the
Merger are subject to the following conditions, among others: (i) the approval
of the Merger by the affirmative vote of the holders of a majority of the
outstanding Common Shares entitled to vote thereon of the Company; (ii) the
correctness in all material respects of the representations and warranties made
by the parties to the Merger Agreement; (iii) the performance in all material
respects to the agreements, obligations, and conditions made by the parties to
the Merger Agreement; and (iv) the receipt of any and all consents from third
parties and government agencies required to consummate the Merger and the
transactions contemplated thereby. The obligation of Newco to consummate the
Merger is subject to the condition, among others, that there shall not have been
instituted or threatened any proceedings in law or equity relating to, or
seeking to prohibit or otherwise challenging, the consummation of the Merger or
seeking to obtain substantial damages with respect thereto.
Aside from the filing of the Certificate of Merger with the Department
of State of the State of Florida, the Company is not aware of any consents to
the Merger required from governmental agencies.
The Company has agreed to conduct its business in the ordinary and
usual course prior to the Effective Date. In that regard, the Company has agreed
that it will not, without the written consent of Newco, engage in certain types
of transactions, including, among others, the issuance of shares and the
amendment of its Certificate of Incorporation or By-laws. The Company has
further agree that it will not, without the written consent of Newco, pay any
dividends, or make any capital expenditures which in the aggregate exceed
$50,000, or incur any increases in indebtedness other than in the ordinary
course of business except in connection with the proposed Merger.
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<PAGE>
The Merger Agreement provides for indemnification of the Company's
officers and directors and for the maintenance of officers' and directors'
liability insurance policies for a period of three years after the Effective
Date. See "Special Factors -- Interests of Certain Persons in the Merger."
With the exception of shareholder approval of the Merger, the Company
and Newco each may waive compliance with any of the agreements or conditions to
its obligation to consummate the Merger.
Termination; Amendments
The Merger Agreement may be terminated at any time prior to the
Effective Date by mutual consent of the Boards of Directors of the Company and
Newco. The Merger Agreement, as amended, may also be terminated by the Company
or Newco if the Merger shall not have been consummated by June 30, 1999 (or
such later date as may be established by the parties to the Merger Agreement) or
if any court or other governmental body shall have issued a final order
enjoining or otherwise prohibiting the proposed Merger. The Merger Agreement may
also be terminated prior to its stated termination date, upon termination of the
Organization Agreement.
The Merger Agreement may be amended at any time, either before or after
approval and authorization by the shareholders of the Company or Newco of the
Merger Agreement, by action taken by the respective Boards of Directors of the
Company and Newco, except that after approval of the Merger by the shareholders
of the Company, no amendment may be made which reduces the amount or changes the
form of consideration to be received by the shareholders of the Company.
Officers and Directors of the Surviving Corporation Following the Merger
Except for Messrs. Schachter and Weiss, the officers and directors of
the Company will be the officers and directors of the Surviving Corporation, to
serve, subject to the By-laws of the Company, until their respective successors
are duly elected. It is anticipated that Messrs. Schachter's and Weiss' services
will be dispensed with upon the consummation of the Merger. See "Management of
the Company -- Information Regarding Directors and Officers of the Company,"
"Conduct of the Surviving Corporation's Business After the Merger and Other
Post-Merger Matters," "Information Concerning Newco," and "Special Factors --
Interests of Certain Persons in the Merger."
INFORMATION CONCERNING NEWCO
On November 5, 1997, the Management Group formed Newco for the purpose
of consummating the Merger and the other transactions
40
<PAGE>
contemplated by the Merger Agreement. As of November 15, 1997, the members of
the Management Group entered into the Organization Agreement with Newco pursuant
to which each of Jerold P. Weinger, Renee Nadel, Lilli Weinger and Seth Weinger
(and IRAs, SEPs and pension plans as to which they are the beneficiaries, Mr.
Weinger as custodian for his children) contributed an aggregate of 731,670
Common Shares beneficially owned by them in exchange for an aggregate of 731,670
Newco Shares, representing all of the Newco Shares outstanding. As a result of
such exchange, Newco became the beneficial owner of approximately 77% of the
Common Shares of the Company.
The Organization Agreement provides that the 731,670 Common Shares
beneficially owned by Newco, and which were previously owned by members of the
Management Group, shall be returned to the members of the Management Group, and
the Newco Shares owned by the Management Group shall be returned to Newco, if
the Merger has not been consummated by not later than June 30, 1999 (which date
may be extended by unanimous agreement of the members of the Management Group).
The Organization Agreement is attached as Annex IV to this Proxy Statement.
Until the Effective Date, it is not anticipated that Newco will have
any significant assets (other than the Common Shares described above) or
liabilities (other than those arising under the Merger Agreement or in
connection with the Merger) or engage in any other activities other than those
incidental to its formation and the Merger.
The principal executive offices of Newco are located at c/o Bernard
Haldane Associates, Inc., 192 Lexington Avenue, New York, New York 10016. The
telephone number for Newco's principal executive office is (212) 679-3360.
Newco is a non-public company. The directors and executive officers of
Newco are Messrs. Weinger and Klein who hold the following positions:
Name Position
Jerold P. Weinger President, Chief Executive Officer
and Director
Jeffrey G. Klein Secretary and Director
At the Effective Date, it is expected that Messrs. Weinger and Klein, and other
key employees of the Company will assume substantially equivalent positions
with the Surviving Corporation. See "Special Factors -- Interests of Certain
Persons in the Merger."
The authorized capital stock of Newco consists of 2,000,000 Newco
Shares, par value $.01 per share. The Newco Shares are
41
<PAGE>
entitled to one vote per share on all matters submitted to a vote of
shareholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THE
COMPANY, THE COMPANY'S PUBLIC SHAREHOLDERS,
THE MANAGEMENT GROUP AND THE SURVIVING CORPORATION
The first part of this transaction deals with the transfer of stock of
the Company to Newco. Section 351 of the Internal Code as amended to date (the
"Code") permits the transfer of property to a corporation if the shareholders,
after the transfer, own 80% or more of the corporation. Property is defined as
any property, tangible or intangible (which would include stock), as long as the
transferee is not an investment company. Since Newco owns more than 50% of the
Company, approximately 77%, it is excluded from the definition of an investment
company. Therefore, the transfer of the Company's stock to Newco is a
non-taxable transaction.
The second part of the transaction deals with the merger of the Company
and Newco. The business of the Company will be continued by the surviving
corporation. Pursuant to Section 368(a)(1)(A) of the Code, a statutory merger is
non-taxable unless boot is received as part of the consideration received. Since
all shareholders of the Company, except Newco, will receive $3.00 for each share
and no stock, they will be considered as if their shares were redeemed. Newco
and its shareholders will receive only stock and, therefore, the transaction
will be considered non-taxable as to them. The other stockholders, the Public
Shareholders, who received only $3.00 will incur a gain or loss on this
transaction. Depending on the type of asset the stock was in the hands of the
Public Shareholders, their holding period and basis, they will report either
ordinary, short term or long term gain or loss on this transaction. Under
Section 368(b) of the Code both the Company and Newco will be considered parties
to the reorganization.
Since both Newco and the Company are parties to a reorganization under
Section 368(a)(1) of the Code, Section 361 provides that no gain or loss will be
recognized by these corporations on the distribution of the Company stock to the
shareholders of Newco.
Pursuant to Code Section 1223, the holding period of the Company's
shares received by the shareholders of Newco, who contributed their Company
shares to Newco and eventually received Company shares in exchange for their
Newco shares as a result of the merger, will include the holding period of the
original Company shares they transferred to Newco plus the holding period of the
Newco shares, provided that the original Company shares and the Newco shares
were a capital asset in the hands of these shareholders at the time of Code
Section 351 exchange and at the time of the merger.
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<PAGE>
Pursuant to Code Section 358, the basis in the stock of Newco received
in the Section 351 transaction by the shareholders of the Company will be the
basis they had in the Company stock they transferred to Newco.
Pursuant to Code Section 358, the basis of the new stock the
shareholders of Newco received in the merger will be the basis of the Newco
stock they exchanged therefor.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a combination of companies under
common control with no adjustment of the carrying value of their respective
assets and liabilities. The amounts paid to acquire Common Shares of the Company
will be accounted for as a reduction of shareholders' equity of the Surviving
Corporation, and the Common Shares acquired will be cancelled.
RIGHTS OF DISSENTING SHAREHOLDERS
Holder of Common Shares are entitled to dissenters' rights under
Sections 607.1301, 607.1302 and 607.1320 of the FBCA which Sections are
reprinted in their entirety in Annex V to this Proxy Statement. All references
in Sections 607.1301, 607.1302 and 607.1320 and in this summary to a
"shareholder" are to the recordholders of the Common Shares as to which
dissenters' rights are asserted. A person having a beneficial interest in Common
Shares that are held of record in the name of another person, such as a broker
or nominee, must act promptly to cause the recordholder to follow the steps
summarized below properly and in a timely manner to perfect whatever dissenters'
rights the beneficial owner may have.
Holders of Common Shares who follow the procedure set forth in Section
607.1320 of the FBCA ("Section 607.1320") will be entitled to receive payment of
the "fair value" of such Common Shares. FBCA defines "fair value" to be the
value of the Common Shares as of the close of business on the date prior to the
date of shareholder approval of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger, unless exclusion would be
inequitable.
Under Section 607.1320, where a merger is to be submitted for approval
at a meeting of shareholders, the corporation, not less than ten nor more than
sixty days prior to the meeting, must notify each of its shareholders of the
proposed shareholders' meeting. The notice shall also state that the purpose, or
one of the purposes, of the meeting is to consider the plan of merger and
contain or be accompanied by a copy or summary of the merger agreement.
Furthermore, the notice shall contain a clear and concise statement that, if the
plan of merger is effected the shareholders dissenting therefrom may be
entitled, if they comply
43
<PAGE>
with the provisions of the FBCA regarding the rights of dissenting shareholders,
to be paid the fair value of their Shares, and shall be accompanied by a copy of
Sections 607.1301, 607.1302 and 607.1320 of the FBCA. This Proxy Statement shall
constitute such notice to the shareholders of the Company and the Agreement and
Plan of Merger and the applicable statutory provisions of the FBCA are attached
to this Proxy Statement as Annex I and Annex V, respectively. The following
discussion is not a complete statement of the law pertaining to dissenters'
rights under the FBCA and is qualified in its entirety by the full text of
Sections 607.1301, 607.1302 and 607.1320 of the FBCA attached to this Proxy
Statement. Any shareholder who wishes to exercise such dissenters' rights or who
wishes to preserve his right to do so, should review the following discussion
and Annex "V" carefully because failure to timely and properly comply with the
procedures specified will result in the loss of dissenters' rights under the
FBCA.
Each shareholder who wishes to assert dissenters' rights must (i)
deliver to the Company, before the taking of the vote on the Merger, a written
notice of his intent to demand payment for his Common Shares if the proposed
Merger is effectuated, and (ii) not vote his Common Shares in favor of the
proposed Merger. Because an executed proxy which does not contain voting
instructions will, unless revoked, be voted for adoption of the Agreement and
Plan of Merger, a shareholder who votes by proxy and who wishes to exercise his
dissenters' rights must (i) vote against adoption of the Agreement and Plan of
Merger, or (ii) abstain from voting on adoption of the Agreement and Plan of
Merger. A vote against adoption of the Agreement and Plan of Merger, in person
or by proxy, will not in and of itself constitute a written notice of intent to
demand payments for the Common Shares satisfying the requirements of Section
607.1320.
Only a holder of record of Common Shares is entitled to assert
dissenters' rights for the Common Shares registered in that holder's name. A
notice of intent to demand payment for Common Shares shall be exercised by or on
behalf of the holder of record, fully and correctly, as his name appears on his
stock certificates. If the Common Shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the notice
should be made in that capacity, and if the Common Shares are owned of record by
more than one person, as in a joint tenancy or tenancy in common, the notice
should be executed by or on behalf of all joint owners. An authorized agent,
including one or two or more joint owners, may execute a notice on behalf of a
holder of record; however, the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the notice, the agent is
acting as agent for such owner or owners. A record holder, such as a broker, who
holds Common Shares as nominee for several beneficial owners may exercise
dissenters' rights with respect to the Common Shares held for one or more
beneficial owners while not exercising such rights with respect to the Common
Shares
44
<PAGE>
held for other beneficial owners. In such case, the notice should set forth the
number of Common Shares as to which dissenters' rights are sought. Where no
number of Common Shares is expressly mentioned, the demand will be presumed to
cover all Common Shares held in the name of the record owner. Shareholders who
hold their Common Shares in brokerage accounts or other nominee forms and who
wish to exercise dissenters' rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a notice of intent to
demand payment for such nominee's Common Shares.
Within ten days after the date of shareholder approval of the Merger,
the Company must give written notice of adoption of the Agreement and Plan of
Merger to each shareholder who filed a notice of intent to demand payment for
his Common Shares. Within twenty days after the giving of such notice to him by
the Company, any shareholder who elects to dissent must file with the Company a
notice of such election, stating his name and address, the number of Common
Shares as to which he dissents, and a demand for payment of the fair value of
his Common Shares. Any shareholder filing an election to dissent shall deposit
his stock certificates with the Company simultaneously with the filing of the
election to dissent.
Within ten days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within ten days
after the Merger is effected, whichever is later (but in no case later than
ninety days from the date of shareholder approval of the Merger Agreement), the
Company shall make a written offer to each dissenting shareholder who has made a
demand as provided in Section 607.1320 to pay an amount the Company estimates to
be the fair value for such Common Shares. The fair value determined will reflect
the value of the Common Shares prior to the Merger. Such notice and offer shall
be accompanied by (i) a balance sheet of the Company as of the latest available
date, and (ii) a profit and loss statement of the Company for the 12-month
period ended on the date of such balance sheet.
Any shareholder who has duly filed a notice of election to dissent in
compliance with Section 607.1320 will thereafter be entitled only to payment of
the fair value of his Common Shares and will not be entitled to vote or to
exercise any other rights of a shareholder. A notice of election may be
withdrawn in writing by the shareholder at any time before an offer is made by
the Company to pay for his Common Shares. After such offer, no such notice of
election may be withdrawn unless the Company consents thereto.
If within thirty days after the making of such offer by the Company,
any shareholder accepts the same, payment for his Common Shares will be made
within ninety days after the making of such offer or the consummation of the
Merger, whichever is later. Upon payment of the agreed value, the dissenting
shareholder will cease to have any interest in such Common Shares.
45
<PAGE>
If the Company fails to make an offer for the fair value of the Common
Shares within the period specified above, or if it makes the offer and any
dissenting shareholder or shareholders fail to accept the same within the period
of thirty days thereafter, then the Company, within thirty days after receipt of
written demand from any dissenting shareholder given within sixty days after the
date on which the Merger was effected, shall, or at its election at any time
within such period of sixty days may, file an action in any court of competent
jurisdiction in Dade County, Florida requesting the fair value of such Common
Shares to be determined. The court shall also determine whether each dissenting
shareholder, as to whom the Company requests the court to make such
determination, is entitled to receive payment for his Common Shares. If the
Company fails to institute such a proceeding, any dissenting shareholder may do
so in the name of the Company. All dissenting shareholders (whether or not
residents of the State of Florida), other than shareholders who have agreed with
the Company as to the value of their Common Shares, shall be made parties to the
proceeding. The Company must pay to each dissenting shareholder the amount found
to be due him within ten days after final determination of the proceedings. Upon
payment of the judgement, the dissenting shareholders will cease to have any
interest in such Common Shares.
Shareholders considering seeking dissenters' rights should be aware
that the fair value of their Common Shares as determined under Section 607.1320
could be more than, the same as, or less than the consideration they would
receive pursuant to the Agreement and Plan of Merger if they did not seek to
demand payment of their Common Shares. Any judicial determination of the "fair
value" of the Common Shares can be based on numerous considerations, including,
but not limited to, the market value of the Common Shares prior to the Merger
and the net asset value and earnings value of the Company. The costs and
expenses of any judicial proceeding will be determined by the court and will be
assessed against the Company, but all or any part of such costs and expenses may
be apportioned and assessed as the court deems equitable against any or all of
the dissenting shareholders who are parties to the proceeding, to whom the
Company has made an offer to pay for the Common Shares, if the court finds that
the action of such shareholders in failing to accept such offer was arbitrary,
vexatious, or not in good faith.
Failure to follow the steps required by Section 607.1320 for perfecting
dissenters' rights may result in the loss of such rights, in which event a
shareholder will be entitled to receive the cash consideration.
46
<PAGE>
CONDUCT OF THE SURVIVING CORPORATION'S BUSINESS
AFTER THE MERGER AND OTHER POST-MERGER MATTERS
It is expected that following the Merger, the business and operations
of the Surviving Corporation will initially be continued substantially as they
are currently being conducted by the Company. However, as discussed above under
"Special Factors -- Recommendation of the Special Committee; Reasons for the
Merger," management of the Surviving Corporation will continue to evaluate such
business and operations after the Effective Date and make such changes as are
deemed appropriate. The Management Group has advised Laidlaw, the Special
Committee and the Board of Directors that it has no intention of breaking up or
liquidating the Company. The Surviving Corporation's corporate headquarters are
expected to remain in New York, New York.
The Management of the Company has no current plans to undertake any
material changes in the Company's business or policies, including any specific
activities entailing substantial business risks, some or all of such activities,
if undertaken by management and if not successful, may have an adverse effect on
the Surviving Corporation.
The Company has no present plan or proposal which relates to or would
result in: the acquisition by any person of additional securities of the
Company, or the disposition, through a public or private sale, of securities of
the Company or a subsidiary; an extraordinary corporate transaction, such as
merger, reorganization, or liquidation involving the Company or any of its
subsidiaries; the sale or transfer of a material amount of the assets of the
Company or any of its subsidiaries; any change in the present Board of Directors
or management of the Company, including, but not limited to, any plan or
proposal to change the number or term of directors, to fill any vacancy on the
Board of Directors, any changes in the Company's present dividend policy or in
the indebtedness or capitalization of the Company; other material changes in the
Company's corporate structure or business; or any material change in the
Certificate of Incorporation (other than the Charter Amendments) or the By-laws
of the Company.
Although the Company has no present plan or proposal relating to or
which would result in any of the transactions listed above, subsequent to the
Merger, the Surviving Corporation will be privately owned by the Management
Group. Accordingly, in connection with the future operation of the business of
the Surviving Corporation or for the benefit, convenience, or advantage of the
shareholders of the Surviving Corporation (the Management Group), for business,
personal, tax, or financial reasons or otherwise, the Surviving Corporation may
engage in any one or more of the types of transactions listed above.
Specifically and only by way of example, depending on the opportunities,
requirements, and financial resources available to the Surviving Corporation,
the
47
<PAGE>
Surviving Corporation may sell some of its assets or assets or securities of any
of its subsidiaries in public or private transactions to obtain funds for future
growth or any other purposes; may sell debt securities or, after a substantial
restructuring of the Surviving Corporation, equity securities of the Surviving
Corporation; may engage in extraordinary corporate transactions such as mergers,
reorganizations, recapitalizations,or partial liquidations involving itself or
any of its subsidiaries for its or their benefit or for the benefit of its
shareholders (the Management Group); may sell or transfer material amounts of
assets of its own or its subsidiaries; may borrow money from banks, other
institutions, shareholders (the Management Group), or others or use its own
funds to invest in new enterprises, new businesses, existing businesses or other
conservative or speculative investments whether or not related to the existing
businesses of the Surviving Corporation; may rearrange operating assets of the
Surviving Corporation or one or more of its subsidiaries; may invest directly or
indirectly in publicly or non-publicly traded securities; may seek directly or
indirectly control of publicly owned corporations; may change its officers,
directors, or employees or any or all terms of their employment or service; may
pay dividends or make other distributions to shareholders (the Management
Group); may enter into non-arm's-length transactions with its officers,
directors, or shareholders (the Management Group) or their affiliates, or with
the officers, directors, or affiliates of subsidiaries of the Surviving
Corporation; may seek to amend its Certificate of Incorporation or By-laws; and
may do any and all other things and enter into any transactions which in the
opinion of the Surviving Corporation or its management or the shareholders of
the Surviving Corporation (the Management Group) may be deemed to be of benefit
or advantage to the Surviving Corporation or its shareholders (the Management
Group) and which may result in substantial financial benefit to the Surviving
Corporation, its subsidiaries, or its shareholders (the Management Group).
Although the Company currently has no definitive plans to open a major
new business location, add material services, or, acquire a new business, as
part of its normal business activities, the Company continually investigates and
considers investments in other companies, or the purchase thereof, which would
enable the Company or any of its subsidiaries to expand its existing businesses
and services or add by way of acquisition an entirely new business activity. In
addition, although the Company has no definitive plan to close any location,
cease the providing of services or terminate competition in any market area, as
part of its normal activities, the Company continually investigates the
advisability of such actions in light of existing business conditions and the
Company may make such decisions at any time in the future.
The Board of Directors and officers of the Surviving Corporation will
consist of the current directors and officers of the
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<PAGE>
Company. Other employees of the Company will assume substantially equivalent
positions with the Surviving Corporation as they hold with the Company. See
"Special Factors -- Interests of Certain Persons in the Merger."
Compensation and employee benefits of employees of the Surviving
Corporation are expected to be substantially the same as are currently provided
by the Company, except for such adjustments as are necessary to fit the needs of
the Surviving Corporation. See "Special Factors -- Interests of Certain Persons
in the Merger."
Upon consummation of the Merger, the Surviving Corporation will have
four record holders of its common shares and therefore will be permitted to
terminate, and will terminate, the registration of the Common Shares under the
Exchange Act and its obligation to file periodic reports under the Exchange Act.
The Common Shares will no longer trade, in the over-the-counter market and price
quotations will no longer be reported.
Termination of registration under the Exchange Act of the Common Shares
will eliminate any obligation of the Surviving Corporation to furnish
information to the public under the Exchange Act and to the SEC and will make
certain of the provisions of the Exchange Act, for example the short-swing
profits recovery provisions of Section 16(b) and the requirement of furnishing a
proxy statement in connection with meetings of shareholders, no longer
applicable to the Surviving Corporation. See "Additional Information -- Current
Information; Deregistration."
MARKET PRICES AND REPURCHASES OF COMMON SHARES
The Company's common stock traded on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the symbol "BHAL"
until August 5, 1997 when it was delisted. The Company's Common Stock now trades
on the OTC Bulletin Board. There is limited trading actively in the Company's
securities and there can be no assurance a regular trading market for the
Company's common stock will be sustained.
The following table sets forth, for the periods indicated, the bid
price range of the Company's common stock:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1997
Quarter Ended August 31, 1996 $2.87 $2.43
Quarter Ended November 30, 1996 $2.44 $2.44
Quarter Ended February 28, 1997 $2.75 $2.25
Quarter Ended May 31, 1997 $2.62 $2.25
</TABLE>
49
<PAGE>
<TABLE>
<S> <C> <C>
Fiscal 1998
Quarter Ended August 31, 1997 $3.25 $2.31
Quarter Ended November 30, 1997 $2.37 $2.37
Quarter Ended February 28, 1998 $3.00 $2.37
Quarter Ended May 31, 1998 $2.87 $2.44
Fiscal 1999
Quarter Ended August 31, 1998 $3.00 $2.4375
Quarter Ended November 30, 1998 $ $
Quarter Ended February 28, 1999 $ $
</TABLE>
(Prices quoted reflect 100:1 and 4:1 reverse stock splits effected prior to the
first of the above stated quotations.)
Such market quotations reflect the high bid and low prices as reflected
by NASDAQ or by prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions. The following companies serve as
market makers for the Company's securities: Tasin Co., Carr Securities and Howe,
Barnes Investments Inc.
As of the Record Date, there were approximately 1350 holders of record
of the Company's common Stock.
The Company has not paid any cash dividends since its inception and the
Board of Directors does not contemplate doing so in the near future. Any
decisions as to future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Board of
Directors deems relevant.
Pursuant to a resolution of the Board of Directors, commencing on or
about October 31, 1995 through May 31, 1997 the Company redeemed from its
shareholders, a total of 199,500 shares of the Company's common stock at an
average cost of between $2.49 and $2.75 per share.
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
The selected consolidated financial information set forth below is
derived from the Company's consolidated financial statements and should be read
in conjunction with the Consolidated Financial Statements and the Notes thereto
beginning at page F-1 of this Proxy Statement.
50
<PAGE>
<TABLE>
<CAPTION>
Summary of Operating Data:
Six Months Ended
November 30 Year Ended May 31,
(Unaudited)
1998 1997 1998 1997 1996(1) 1995(1)(2) 1994(1)(2)
---- ---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Royalty Income $1,339,039 $1,336,446 $2,411,659 $2,480,866 $2,244,818 $1,747,988 $1,214,091
Sublicense
Income 36,039 80,154 179,556 159,697 -- 104,214 99,625
Consulting
Income 485,852 15,059 208,694 640 -- -- --
Other Income -- -- -- -- -- 35,400 --
Interest Income 16,856 53,278 88,825 106,592 99,621 49,785 14,062
Total Revenues 1,878,586 1,484,937 2,888,734 2,747,795 2,344,439 1,937,387 1,327,778
Net Income 149,698 268,354 162,070 461,092 533,440 609,905 161,171
Net Income per
Share of Common
Stock (Basic) $0.16 $0.28 $0.17 $0.48 $0.48 $0.57 $0.16
(Diluted) $0.15 $0.26 $0.16 $0.45 $0.46 $0.53 $0.16
</TABLE>
- --------
(1) Restated for discontinued operations of retail travel agency.
(2) Restated for the equity of minority interests in earnings not previously
recorded. Net income and net income per share were reduced as follows:
1995 1994
--------- ---------
Net Income ($89,200) ($44,903)
Net Income per share - Basic (.08) (.04)
- Diluted (.08) (.04)
51
<PAGE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
November 30,
1998 May 31,
(Unaudited)
1998 1997 1996(1) 1995(1) 1994(1)(2)
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS $2,748,375 $2,528,263 $2,538,234 $2,147,294 $2,007,844 $1,128,480
Other Assets $1,273,553 1,399,935 1,445,854 1,277,536 1,504,467 1,529,655
TOTAL ASSETS $4,021,928 3,928,198 3,984,088 3,424,830 3,512,311 2,658,135
CURRENT LIABILITIES
Account Payable and other $ 186,403 221,762 356,973 149,695 213,660 157,424
Current Liabilities
Current Maturities $ 46,498 42,437 235,240 245,956 315,951 307,065
of Long Term Debt
Other Liabilities $ 597,902 622,572 512,518 555,799 591,437 702,988
Minority Interest -- -- -- -- -- 137,088
Stockholder's Equity $3,191,125 3,041,727 2,879,357 2,473,380 2,391,263 1,353,570
TOTAL LIABILITIES $4,021,928 3,928,198 3,984,088 3,424,830 3,512,311 2,658,135
AND STOCKHOLDERS'
EQUITY
</TABLE>
- --------
(1) Restated for discontinued operations of retail travel agency.
(2) Restated for minority interests not previously recorded. These interests
were purchased in the fiscal year ended May 31, 1995 and as such there was
no net effect on financial statements after that date. Stockholders' equity
at May 31, 1994 was reduced for minority interest as follows:
Investment by minority $250,000
Share of losses 1989 to May 31, 1994 (112,912)
--------
Book value of minority interest $137,088
========
52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
While the Company remains profitable, generating approximately
$275,000 in pre-tax earnings, royalty revenues declined from $2,480,866
in the Company's fiscal year ended May 31, 1997 ("Fiscal 1997") to
$2,411,659 in the Company's fiscal year ended May 31, 1998 ("Fiscal 1998"), an
approximate 3% decline. The Fiscal 1998 decline was the first such decline
since the Company acquired the Bernard Haldane license. During the six month
period ended November 30, 1998 ("Six Months 1999"), the Company generated
approximately $250,000 in pretax earnings, representing an approximate 45%
decline from the six month period ended November 30, 1997 ("Six Months 1997")
with Royalty income remaining flat. During Fiscal 1998 a sublicensee breached
its agreement by failing to pay required royalties. Rather than comply with the
terms and conditions of the sublicense agreement, the sublicense unilaterally
terminated the agreement. The Company has initiated legal proceedings and seeks
compensatory and punitive damages. In addition, the Company intends to reopen
offices in these markets vacated by the former licensee. Further limiting
royalty income was the voluntary termination of a second sublicense agreement
encompassing four offices.
With clients to service and no time to interview and investigate
prospective purchasers, the Company, through wholly owned subsidiaries, was
required to take over the operations of these offices. While operating these
offices, the Company generated consulting revenues of approximately $171,000 and
$454,000 during Fiscal 1998 and Six Months 1999. However, payroll and related
costs associated with the operation of these offices resulted in a significant
operating deficit. During the coming year, management intends to transfer these
offices to existing licensees or other individuals currently within the Haldane
network and to date has transferred three of these offices.
Bernard Haldane offices are opened in almost every major metropolitan
area in the United States and Canada. While additional expansion into smaller
metropolitan areas can be anticipated, the licensing fee and the royalty
revenues which can be generated from any such expansion will likely be
significantly less than the current typical Haldane office as the geographical
and demographical market for the Haldane services and products approach a
saturation level.
In an effort to increase its revenue base, the Company opened two
licensed offices in the United Kingdom. However, logistical constraints,
operational concerns and familarization with local rules and customs will most
likely limit a rapid expansion
53
<PAGE>
in Europe. While management intends to pursue other opportunities overseas,
there can be no assurance that expansion into the overseas market will prove
successful.
In an effort to diversify revenues, management identified a new
targeted market and developed a special program for this market, First Career.
First Career provides career management for recently graduated college students.
Through November 30, 1998 First Career had incurred losses of approximately
$700,000 and there can be no assurance that management will be able to reverse
this trend.
Liquidity and Capital Resources
November 30, 1998 as Compared to May 31, 1998
Total current assets as of November 30, 1998 were $2,748,375 as
compared to $2,528,263 at May 31, 1998; an increase of approximately 8.7%. Cash
and cash equivalents declined from $1,693,220 at May 31, 1998, to $1,497,807 at
November 30, 1998, while short term investments increased marginally from
$108,908 at May 31, 1998 to $111,497 at November 30, 1998 and accounts
receivable increased nearly 120%, from $315,436 at May 31, 1998 to $691,928 at
November 30, 1998.
The Company reported the value of its license, equipment, and other
non-current assets of $1,273,553 at November 30, 1998 as compared to $1,339,935
at May 31, 1998 and total assets of $4,021,928 at November 30, 1998, as
compared to $3,928,198 at May 31, 1998.
Total current liabilities declined from $264,199 at May 31, 1998 to
$232,901 at November 30, 1998 and total liabilities declined from $886,771 at
May 31, 1998 to $830,803 at November 30, 1998, a decrease of approximately 6%.
Total stockholders' equity increased from $3,041,427 at May 31, 1998 to
$3,191,125 at November 30, 1998, an increase of approximately 4.9%.
The Company believes that its current cash position and working capital
are sufficient to meet its operational requirements for the coming year. Royalty
revenues from licensee offices and the sale of territorial rights to the Bernard
Haldane offices are expected to be sufficient to meet the Company's ongoing
operational expenses and a proposed purchase at a cost of $3.00 per share of the
Company's Common Stock owned by non-management and non-affiliated shareholders.
Management does not anticipate the need for any significant capital expenditures
in the coming year which would require any third party financing. Nor does the
Company believe that there is any material risk of any sublicensee seeking
54
<PAGE>
rescission pursuant to any technical violations of state franchising statutes.
At November 30, 1998, the Company increased its allowance for credit
losses from $134,500 at May 31, 1998 to $167,500, an increase of $33,000. A
significant portion of the increase in the allowance for credit losses is the
result of notes receivable from sublicensee offices where owners have
experienced financial and cash flow difficulties. The Company has informally
extended credit terms until such sublicensees are better able to repay their
notes according to their respective terms.
Management does not have concerns regarding the collectability of these
accounts since the loans to the sublicensee offices are secured by the license,
a default under the note payment would result in the loss of the license.
Management does not have concerns regarding the collectability of its other
accounts receivable or notes receivable.
Year 2000 Compliance
The Company's systems are Year 2000 ("Y2K") compliant. The cost of
such compliance by the Company was not material (less than $10,000). Y2K
compliance issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
The Company does not know if its licensees are Y2K compliant but
believes that there will be no material adverse impact upon the Company if an
individual licensee's office is not Y2K compliant.
Results of Operation
Six and Three Month Periods Ended November 30, 1998
Compared to Six and Three Month Periods Ended November 30, 1997.
Royalty revenues from licensee offices for the six and three month
periods ended November 30, 1998 as compared to November 30, 1997 increased from
$1,336,446 and $632,911 to $1,339,039 to $689,618, an increase of approximately
less than 1% and 9%, respectively. The Company recognized $485,852 and $307,447
in consulting revenues for the six and three month periods ended November 30,
1998 as compared to $15,059 and $12,959 during the six and three month periods
ended November 30, 1997. The increases of approximately $470,000 and $294,000
for the respective periods is the direct result of the Company assuming
operations of four Haldane offices where the sublicensee has defaulted. As of
November 30, 1998, all but one of these offices has been transferred to other
current Haldane licensees. The Company generated $36,839 from the sale of
territorial offices for the three and six month periods ended November, 30 1998
as compared to $80,154 and $38,433 for the six and three month periods ended
November 30, 1997. This decline of approximately 54% reflects the fact that the
55
<PAGE>
Haldane system has expanded into most major metropolitan areas throughout the
United States and there are few areas left for expansion and those areas which
are left, have a smaller population base.
Additional revenues (losses) for the six and three month periods
ended November 30, 1998 include $16,856 and ($3,297), respectively, in interest,
dividend and other income as compared to $53,278 and $23,356 for the six and
three month periods ended November 30, 1997, respectively.
Total revenues for the six and three month periods ended November 30,
1998 as compared to the comparable periods in 1997 were $1,878,586 and
$1,030,607, respectively, as compared to $1,484,937 and $707,659, respectively
representing increases of approximately 26% and 45%, respectively. Management
anticipates total royalty income remaining flat or generating only marginal
increases in the future as Haldane offices have already been opened in most
major metropolitan areas throughout the country and overseas expansion has been
considerably slower than anticipated. In addition, total revenues will likely
decline as the Company transfers any remaining Company owned offices.
While total revenues increased for the six and three month periods
ended November 30, 1998, net income for the six month period ended November 30,
1998, as compared to the comparable period in 1997, declined from $268,354 to
$149,698 and for the three months ended November 30, 1998, as compared to the
comparable period in 1997, increased from $112,329 to $131,343. Income per share
for the six month period ended November 30, 1998 declined from $.28 to $.16 as
when compared to the six months ended November 30, 1997, a decline of
approximately 43%, yet increased from $.12 to $.14 per share for the three
months ended November 30, 1998 as compared to the three months ended November
30, 1997. Management attributes these conflicting trends in net income to the
fact that by the end of the period ended November 30, 1998, the Company was
operating only one Company owned office and was not required to incur the
additional costs and operating expenses associated with the operation of a
Company owned office.
Payroll and related costs increased from $324,810 to $536,847 and from
$179,421 to $260,512 for the six and three month periods ended November 30, 1998
as compared to the six and three month periods ended November 30, 1997. Overall,
general and administrative costs increased by nearly 60%, increasing from
$451,886 to $721,471 for the six months ended November 30, 1998 from six months
ended November 30, 1997 and from $219,942 to $346,220 from the three months
ended November 30, 1997 to the six months ended November 30, 1998. These
increases are due primarily to the increased costs associated with operating
company owned Haldane offices. With the sale of three of these offices and hoped
for
56
<PAGE>
sale of the last company owned Haldane office, management anticipates a
significant decline in these expenses.
Bad debt for the six months ended November 30, 1998 as compared to
six months November 30, 1997 increased from $70,000 to $118,000. The Company's
advertising expense nearly tripled from $55,418 to $158,792 during the foregoing
periods. This increase of over $100,000 is almost entirely attributable to costs
associated with the operation of the company owned Haldane offices.
Management remains dissatisfied with the results of operations of its
First Career subsidiary. Since inception, the Company has commiteed over
$700,000 to launch a career consulting program directed at college students and
recent college graduates. While management believes that the program is an
excellent product, the Company had not been able to market the product
successfully to date and has incurred significant losses which have had a
significant adverse impact on the overall operations of the Company. As a
result, the Company is seeking other ways to market the product.
FISCAL 1998 COMPARED TO FISCAL 1997
While the Company remained profitable during Fiscal 1998, generating
approximately $275,000 in pre-tax earnings, royalty revenues from
licensee offices declined from $2,480,866 in Fiscal 1997 to $2,411,659
in Fiscal 1998, the first decline in royalty revenues since the Company
acquired the rights to the Bernard Haldane license. This represents a
decline of approximately 3% in gross royalties. Management does not
believe this decline to represent the start of a trend. During Fiscal
1998 a licensee operating six offices in Texas and California breached
its sublicensee agreement by failing to pay required royalties. Rather
than comply with the terms and conditions of the sublicense agreement,
the sublicensee unilaterally terminated the agreement. The Company has
initiated legal proceedings and seeks compensatory and punitive damages.
In addition, the Company intends to reopen offices in these markets
vacated by the former licensee.
Further limiting royalty income was the voluntary termination of a
second license agreement encompassing four offices. With clients to
service and no time to interview and investigate prospective purchasers,
the Company, through wholly owned subsidiaries, was required to take
over the operations of these offices. While operating these offices, the
Company generated consulting revenues of approximately $171,000.
However, payroll and related costs associated with the operation of
these offices resulted in a significant operating deficit. During the
coming fiscal year to end May 31, 1999 ("Fiscal 1999"), management
intends to transfer these offices to existing licensees or other
individuals currently within the Haldane network and to date has
transferred one of these offices.
57
<PAGE>
The Company intends to reestablish its presence in Texas. However,
further expansion in the United States will be limited. Offices are
already open in almost every major metropolitan area in the United
States and Canada. While there will likely be additional expansion into
smaller metropolitan areas, the licensing fee and the royalty revenues
which can be generated will likely be significantly less than the
typical office as the geographical and demographical market for the
Haldane services and products approach a saturation level.
In an effort to increase its revenue base, the Company has opened
two licensed offices in the United Kingdom. Management remains
optimistic that the Company will be able to expand in the overseas
market. However, logistical constraints, operational concerns and
familiarization with local rules and customs will most likely to prevent
any rapid expansion in Europe.
In an effort to diversify revenues, management identified a new
targeted market and developed a special program for this market, First Career.
To date, First Career has incurred losses in excess of $500,000 and there can
be no assurance that management will be able to reverse this trend and market
the program effectively and profitably.
For Fiscal 1998 the Company reported income from continuing operations
before income taxes of $275,605 on revenues of $2,888,734, and net after tax
income of $162,070. This compares to a net after tax income of $461,092 on
revenues of $2,747,795 for Fiscal 1997. Royalty income decreased from $2,480,866
in Fiscal 1997, to $2,411,659 in Fiscal 1998. This decline of almost 3% in
royalty revenue is primarily attributable to the departure of two licensees from
the organization. The Company took over the operation of four Haldane offices
(one of which has since been sold) and hopes to open new offices in those
territories where the licensee breached the sublicensing agreement and abandoned
the organization. The Company in Fiscal 1998, reported $208,694 in consulting
income after showing only nominal income in Fiscal 1997. Approximately $63,000
of this revenue is attributable to the operations of First Career and the
balance is attributable to revenues earned from the operation of offices in
those markets where licenses were terminated.
Payroll and related costs continue to increase; rising from $453,573 in
Fiscal 1997 to $773,945 in Fiscal 1998. This increase can be primarily
attributable to increased costs and expenses associated with the operations,
management and operational oversight in those cities where the Company assumed
operations as well as costs associated with the operation of First Career.
Advertising expenditures increased from $78,544 in Fiscal 1997 to $144,699
in Fiscal 1998.
58
<PAGE>
This increase in advertising expense is due primarily to costs incurred by both
the Company owned offices and First Career.
Income before taxes was $275,605 in Fiscal 1998 as compared to $752,318 in
1997. Net income after taxes continues to decline, falling from $461,092 in
Fiscal 1997 to $162,070 in Fiscal 1998. Management attributes this significant
decline in net income to the fact that the Company was not able to recognize
royalty revenues from the operation of the Haldane offices in six cities located
throughout the Southwest and the fact that the Company was forced to operate
four offices when the owner defaulted under the sublicensing agreement and left
the organization. Management hopes to open new licensed offices throughout the
Southwest and transfer ownership of the Company owned offices to existing
licensees.
The Company anticipates increases in royalty payments in the coming year as
the existing offices generate marginal increases in revenues. However, it is
unlikely that the Company will be able to maintain its prior growth rate as
fewer new markets become available and competition in existing markets becomes
increasingly intense.
Fiscal 1997 as Compared to Fiscal 1996
For Fiscal 1997 the Company reported income from continuing operations
before income taxes of $441,150 on revenues of $2,747,795, and net after tax
income of $461,092. This compares to a net after tax income of $533,440 on
revenues of $2,344,439 for Fiscal 1996. Royalty income from Haldane offices
increased from $2,244,818 in Fiscal 1996 to $2,480,866 in Fiscal 1997. This 11%
increase from Fiscal 1996 to Fiscal 1997 in royalty revenue is primarily
attributable to an increase in the number of Haldane offices. Income
attributable to the discontinued operations of Quantum Tours was $19,942 in
Fiscal 1997 as compared to $19,996 in Fiscal 1996.
Payroll, general and administrative costs increased from $1,065,565 in
Fiscal 1996 to $1,469,180 in Fiscal 1997. This increase can be attributable to
increased costs and expenses associated with the operations, management and
oversight of the Haldane operations, increased costs and payroll expenses at the
Company's executive offices as well as costs associated with the development of
the First Career program. In addition, during Fiscal 1997 the Company sponsored
its 50th anniversary conference in Las Vegas, Nevada. The conference was
attended by licensed owners and their staff. The Company arranged for speakers
and training seminars in addition to sponsoring an awards banquet during the
four day conference. The decline in the Company's net income from Fiscal 1996 to
Fiscal 1997 is directly attributable to the significant increase in payroll,
general and administrative costs.
59
<PAGE>
Advertising expenditures increased from $73,538 in Fiscal 1996 to
$78,544 in Fiscal 1997. This small increase in advertising expense is due to the
Company's continuing commitment to support the Bernard Haldane sublicensees by
promoting the Bernard Haldane name throughout the country.
Income before taxes was $752,318 in Fiscal 1997 as compared to $841,768
in Fiscal 1996. Net income after taxes continues to decline, falling from
$533,440 in Fiscal 1996 to $461,092 in Fiscal 1997. The Company remains liable
for federal and state income taxes at the prevailing rates on current income as
all carryforward tax losses have been utilized.
The Management Group remains dissatisfied with the results of
operations of First Career. Since inception, the Company has committed over
$600,000 to launch a career consulting program directed at college students and
recent college graduates. These expenditures have had a significant adverse
impact on the overall operations of the Company. While the Management Group
believes that the program is an excellent product, the Company has not been able
to market the product successfully.
BUSINESS AND PROPERTIES OF THE COMPANY
Summary. The Company owns the worldwide licensing rights to the Bernard
Haldane name and system of career consulting. The Bernard Haldane organization
operates through sublicensees in the United States, Canada and the United
Kingdom offering career consulting, outplacement and job search services under
the Bernard Haldane name. At May 31, 1998 there were approximately 75 Bernard
Haldane sublicensees.
The Company does not currently operate any Haldane offices. However,
several licensed offices are owned by entities in which Jerold P. Weinger, the
Company's President and Chief Executive Officer serves as either an officer or
director or is a shareholder. Any office opened in a new territory is subject to
payment of a licensing fee to the Company's wholly owned subsidiary, DRB, Ltd.
("DRB"), at the prevailing licensing rate. Licensees may open additional
licensed offices within an existing territory without payment of any new
licensing fees. Offices purchased from existing licensees were not subject to
payment of any territorial fee to DRB.
During Fiscal 1998, nine new licensee offices were opened, and where
applicable, the Company intends to offer franchise offices.
Management intends to open additional licensee offices, and where
applicable, offer franchise offices. During Fiscal 1998, the Company advised a
sublicensee that was in default under the terms and conditions of the sublicense
agreement and as a result
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the sublicensee agreed to terminate the sublicense agreement. Concurrently
therewith, the Company, through two wholly owned subsidiaries, assumed
operations of the four offices formerly operated by the sublicensee. The Company
has since transferred one of these offices to an existing sublicensee. Until
such time as a new sublicensee is identified, the Company will continue to
operate the remaining three offices, service existing clients and honor client
refund requests.
Also during this past year, a sublicensee owning a total of six offices
in Texas and California left the organization in violation of the sublicensee
agreement. The Company has initiated legal proceedings against this former
sublicensee.
Management does not anticipate opening any other company owned Haldane
offices at this time. During Fiscal 1998, the Company opened its second overseas
licensed office in the United Kingdom and the Company intends to explore
overseas expansion opportunities.
The Company has also developed a specially designed career management
program to be offered to graduating college students through its wholly owned
subsidiary, First Career Corp.
Background. Dr. Bernard Haldane earned a Ph.D. in Humanities.
In 1946, Dr. Haldane developed a program to assist the United
States military officers in acquiring civilian jobs following the
Second World War.
The initial Haldane office was opened in New York in 1947 under the
name "Executive Job Counselors", and by 1948, Dr. Haldane was operating career
consulting offices in Boston and Washington, D.C. In 1958, Dr. Haldane changed
the Company's name from Executive Job Counselors to Bernard Haldane, which it
and its sublicensees have used since that time.
The current system of licensing Bernard Haldane offices began in the
1960s, with licensee offices in New York, Chicago and Philadelphia. In 1986 Dan
Bruce, a licensee, who operated several Haldane offices, and the owner and
principal shareholder of DRB, acquired from Career Productivity Inc., an entity
owned by Dr. Bernard Haldane, the principal rights, names, and methods relating
to "Individual Career Counseling Services" on a worldwide basis, including the
name "Haldane" and variations thereof, although excluded were certain activities
relating to the personal activities of Dr. Haldane. In consideration for the
transfer of these rights, DRB agreed to pay $14,000 per month until July 1998
and $7,000 per month until July 2006 (the latter amount currently being adjusted
by five percent per year to "reflect an inflation factor".) To secure such
payments, DRB granted CPI a security interest in the names, methods, rights,
sublicenses, etc. conveyed therewith. By September 1989, there were
approximately thirty
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seven Haldane offices operating throughout the United States and Canada. In most
instances these licensee offices paid a royalty fee equal to five percent of
gross cash revenues to the license holder (DRB).
In September 1989, the Company formed Career Services
Management Corp. ("CSMC"). CSMC was an 80% owned subsidiary of the
Company. In February 1995 the Company acquired all shares of stock
owned by CSMC's minority shareholders in exchange for the issuance
of a total of 75,000 shares of the Company's common stock.
In September 1989, CSMC acquired all of the issued and outstanding
shares of stock of DRB for $1,250,000 payable, $1,000,000 at closing and
$250,000 pursuant to a promissory note payable to Mr. Bruce which provided for
payment of principal with interest at the rate of eight percent per year. The
principal balance on the note was to be amortized over a period of ten years
with the entire unpaid principal balance due in 1992. Mr. Bruce has subsequently
extended this obligation and, under current terms, provides for payment of
interest only on the remaining outstanding principal balance of $200,000 payable
monthly at a rate of eight percent per annum.
DRB remains obligated to make monthly payments of $7,000 per month
until July 2006 (previous to July, 1996, these payments were $14,000 per month)
to B+E Partnership. B&E Partnership is an unrelated third party which purchased
a note of DRB. Liability on such note was assumed by the Company when DRB was
purchased. At the time of acquisition of DRB these payments were being made to
Career Productivity Inc., whose owner was Bernard Haldane. Subsequent thereto,
Career Productivity Inc. sold this obligation due from DRB to B+E Partnership.
One of the partners of B+E Partnership is Mr. Bruce, the previous owner of DRB.
The obligation of DRB to pay B+E Partnership is secured by the Haldane license.
Should DRB default on its obligation, DRB would forfeit all rights to the use of
the Haldane name and system of career consulting. Mr. Bruce is not involved in
either DRB's or the Company's current operations.
The System. The Bernard Haldane system (the "System") offers its
clients a program intended to prepare and teach them the means to achieve
individual career advancement and personal development. The System instructs
clients on the dynamics of their own human potential and how to cope with
adverse changes in their occupational life through individualized counselling
sessions which normally last from three to twelve weeks.
The System offers its clients a vocational program which can be
utilized for career advancement, job hunting and self satisfaction. Based upon
the Company's experience to date, most system clients utilize the program as a
means to facilitate their job search or career development.
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The services offered include but are not limited to the following:
- -- Appraisal of client's qualifications.
- -- Development of client's career goals.
- -- Training clients to establish immediate and long-range
objectives in relation to career goals.
- -- Developing a marketing program for the client.
- -- Developing a program to assist in establishing appropriate
interview contacts.
- -- Preparation for interviews.
- -- Development of effective interview techniques to induce job
offers.
- -- Counseling on salary negotiations and fringe benefits.
- -- Assistance in reviewing and assessing job offers.
- -- Future career planning.
- -- Consultation, as needed concerning organizational, political
and interpersonal skills related to career advancement.
- -- Continued assistance for up to three years with client's
career development.
- -- Internet training and/or access to assist clients in using
computers in their job search.
The System is designated to aid the client in developing the skills and
tools necessary to find a position, providing professional guidance through the
actual search process and assistance until the client has found a suitable
position. The System is taught on an individualized basis with the client
working with a professional career adviser who guides and supports the client
through this process.
The Bernard Haldane offices assist and support the client in three
ways; tangibly, psychologically and motivationally. "Tangibly" includes several
aspects, such as researching companies via computer data bases, annual reports
and brochures, so the client has an understanding of the potential of the
background of the companies and the person possibly to contact. The client
undergoes a debriefing regarding the interviews he/she has attended in order to
ascertain what the client has or has not learned. The
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client is advised as to the next appropriate action to take. The
"psychological" and "motivational" support is a combination of the whole process
that is intended to re-motivate the client when confronted with the frustrations
and anxieties of the interview process and unemployment. The Bernard Haldane
Offices work and support the client until he/she has accepted the position of
his/her choice within the contractual limitations.
Each office has the flexibility in the manner it may conduct the
System. However, the offices must comply with the overall System guidelines.
Once a client has commenced new employment and/or secured a new
position, he/she enters into the follow-up phase of the program. Clients may
return approximately 90 days after completion of the marketing phase so his/her
career position can be assessed and to determine the client's attitudes and the
way the client has progressed into his/her new position. From this point, the
client can draw upon the System and support services when and if needed for the
remaining duration of the contract.
Client Fees. A typical client pays fees set are by the individual
office and are paid either in cash payment or by a payment plan over a period of
several months. Fees for the System typically range from $3,500 to $9,500 and
are payable upon commencement of the Company's efforts. Sublicensee offices may,
at their discretion, accept installment payments. The Company does not provide
sublicensees with financing.
Sublicensee Fees. Sublicensees (those owners/operators of the
individually licensed Haldane offices) typically pay a royalty fee of either
five or six percent of their gross revenues to DRB. Royalty payments are due
only on actual revenues. New territorial licenses are granted for a term of 20
years. Prospective sublicensees typically pay a sublicensing fee to DRB of
approximately $25,000 for the right to operate a Haldane license in a designated
area. This fee may be paid in full at the time of executing the license or over
a period of time.
Operations. Sublicensee offices are generally located in suburban and
metropolitan area. The size of each office varies considerably from sublicensee
to sublicensee. Average monthly rents vary considerably depending upon the city
and location of each office. A typical Haldane office employs two consultants,
two advisors, one administrative receptionist and one client support staffer.
The consultants and advisors are paid on a commission basis with the
receptionists and client support staff paid a salary. However, some offices may
employ more or less persons according to their individual needs.
Relationship with Sublicensees. The Company believes its relationship
with the independent sublicensees are good and
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sponsors an annual conference to which owners, consultants and advisors are
invited to attend. The Company coordinates a national advertising program for
the benefit of all offices in its organization and through advertisements in
such publications as the National Business Employment Weekly and The Wall Street
Journal. The Company also provides initial and ongoing seminars for career
advisors and consultants as well as two company newsletters. Some of the
licensee offices use television and radio to supplement the present advertising.
Proposed Activities. The continued success of the Company's operations
is largely dependent upon the number and success of the sublicensees. As a
result, the Company's strategy is to continue the growth of its current
activities through selective expansion of sublicensee offices. During Fiscal
1998 nine new sublicensee offices were opened and approximately $180,000 in
territorial licensing fees were generated from opening these offices. As the
value of the Bernard Haldane name increases, Management plans to open additional
offices in new territories, especially in Europe, with an initial licensing fee
to DRB in addition to the monthly royalty.
In conjunction with the planned expansion of sublicensee offices, DRB
has registered as a franchisor in those states which require registration and
offer franchise offices. See "Government Regulations." The Company's franchise
offering circular has been filed and cleared by the New York Attorney General's
office.
Some of the sublicensee owned offices currently provide outplacement
services to clients. Management has found that many large national and regional
companies require the services of a skilled out-placement company to assist
discharged employees to meet their goals and explore the market place for new
job opportunities. To further these objectives, Management has developed an
out-placement service, called OUTFLEX, which is coordinated by the Company
executive offices and operated through the various sublicensee offices which
have been met with limited success in the out-placement field. However,
individual offices have advised the Company that they have been met with varying
degrees of profitability in the out-placement field. There are currently no
plans for DRB to actively pursue an out-placement program.
Following a 1995 pilot program held at a major northeastern university,
the Company through First Career opened three test markets during the first
quarter of 1997 to further refine First Career's job finding and career
management program directed at the college seniors and recent college graduate
market. Eventually, the Company intends to license First Career nationwide.
First Career is intended to appeal to college graduates, and their
parents, who are frustrated in their search for meaningful
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career starts. First Career's program includes emphasis through trained
counselors to help clients:
-- Assess career employment qualifications.
-- Develop career goals.
-- Determine immediate objectives and the types of positions
for which they are most qualified.
-- Establish realistic long range objectives that afford job
satisfaction and income potential.
-- Construct a marketing program and a communications
program to establish appropriate contacts and referrals.
-- Prepare for interviews.
-- Develop interview techniques.
-- Review and assess job offers.
-- Negotiate salary and fringe benefits following the
decision to accept a job offer.
-- A follow-up review designed to assist in internal
advancement and revalidation of career objectives.
After testing the program for over six months, it was determined that
the original fee level of $1,950 was unaffordable for prospects. As a result, a
revised program costing $995 was developed. Financing through Marine Midland
Bank was made available to prospects. Recently, First Career entered into a
joint venture agreement with Kaplan Educational Centers, a national college
entrance test preparation group with 165 centers nationwide. The agreement
provides for First Career and Kaplan to share office/training space and
telemarketing efforts. Joint facilities are currently open in Binghamton and
Syracuse, New York.
First Career has incurred losses through February 28, 1998 of
approximately $560,000. The Company attributes this loss to non-recurring
start-up costs, developing program materials and pilot testing.
Competition
Management believes that System provides a service to its clients which
is unequaled by so-called job placement agencies which attempt to match clients
with prospective employees, as opposed to providing individualized career
consulting services.
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Nationwide there are several large career out-placement agencies
including Drake Beam Moran, Right Associates and Lee Hecht Harrison and
Associates which compete with the Company's sublicensees to provide corporate
out-placement and counseling services. The focus of these competitors is
believed to be out-placement services marketed to corporations and not the
individual client which is the primary focus of the System.
The career consulting and employment service market is highly
fragmented, and the Company believes that there is no single company possesses a
major share of the market. Although there are numerous career consulting, job
placement and employment service companies, most are small and operate in a
single market area.
The large number of employment services and career consulting
organizations is a result of the low barriers to industry entry. However, most
companies remain small as expansion requires a continued increase in working
capital.
The competitive structure within each local marketing area is unique.
In most major markets, many of the large job placement publicly traded companies
are present, and in addition, there are several large local competitors.
Competition is also provided by governmental entities, such as state employment
offices.
The Company's marketing strategy is to promote its services in local
markets primarily through print advertising. Some sublicensee offices have
utilized radio and television advertising reporting varying degrees of success.
DRB has prepared television commercials for use by the individual sublicensee
offices and makes these commercials available at no charge. Advertising in The
Wall Street Journal and National Business Employment Weekly provide the System
with national exposure. Each one of the sublicensee offices, the owner/operators
of the individual licensee offices, contributes to the cost of advertising in
the National Business Employment Weekly.
Career consulting agencies in the United States are not regulated by
any particular federal laws. However, some states require registration and/or
licensing.
Government Restrictions
Career consulting and job placement organizations have become an
increasingly regulated field, particularly by state authorities. Several states
prohibit the payment of an advance fee prior to securing a new job. While the
System does not advertise as a job placement agency, some states could construe
the operations of the Company's sublicensees as falling within their statutory
guidelines and, accordingly, restrict operations in that state or prohibit the
payment of any advance fees. Such regulation may adversely affect the operations
of the sublicensee offices and, as a result, the Company.
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All of the Company's sublicensees' offices are subject to state and the
Federal Trade Commission's ("FTC") guidelines on advertising and unfair and
deceptive trade practices. Prior to CSMC's acquisition of DRB several of such
offices were cited for violations of these provisions. Management believes that
the sublicensee offices are currently in compliance will all applicable
guidelines.
The FTC and some states may view the payment of a royalty fee, the
basis of which is the granting of a right to operate a business using the
payee's name, program or system, as constituting a franchise relationship. The
fee may be a set sum for the right to operate the business, or the royalty
payment may be based upon the payee's revenues, or a combination of both.
The FTC has promulgated rules regarding the sale of franchises. These
rules provide in part that prior to the sale of a franchise, the franchisor must
deliver to the franchisee a disclosure document. Filing of the franchise
documents with the FTC is not required prior to soliciting sales of the
franchise. Certain states may or may not have similar disclosure and/or
registration requirements.
In those states where the granting of a sublicense for the right to
operate an office may constitute a franchise, DRB intends to enter into
franchise agreements with current licensees, and if necessary under the state
statutes, DRB will offer current sublicensees the right of rescission.
Management is of the opinion that the potential liability for violation of any
state or federal statute relating to the sale of a franchise is not material
because (i) the System of DRB licensing offices has been in existence since the
1960s and (ii) a majority of the current sublicensees acquired their license
from DRB prior to the Company's acquisition of its Haldane license. Even
assuming any sublicensee has a private right of rescission, the applicable
statute of limitations may have expired for these private actions.
Employees. The Company employs five full time employees.
Additional staffing needs are met through temporary staffing agencies.
Discontinuance of Travel Services. In October 1992, the Company formed
Quantum Tours International ("QTI") f/k/a/ QV Financial Services, Inc. QTI was a
full service travel agency licensed in the state of Florida as a seller of
travel services. QTI provides commissionable travel services for air, hotel,
car, cruise and other means of travel.
The Company's management has determined that corporate assets and
resources would be better allocated by focusing exclusively on the Haldane and
First Career operations. QTI's operations have been discontinued.
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Facilities. The Company's executive and corporate offices are currently
located at 192 Lexington Avenue, New York, New York 10016. The Company currently
leases approximately 9,800 square feet at that location at a cost of
approximately $13,900 per month. The Company subleases approximately 61% of this
space, at the same cost per square foot, to entities with which Jerold P.
Weinger is associated. Net monthly lease cost to the Company after payment by
the subtenants is approximately $3,700 per month.
Litigation. A former client of a licensee has filed a complaint
against the sublicensee and the Company. The Company has retained counsel and
believes that this matter can be settled without any material adverse impact on
the Company's operations.
MANAGEMENT OF THE COMPANY
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Jerold P. Weinger 53 President, Chief Executive
Officer, Treasurer and Director
Jeffrey G. Klein 43 Secretary and Director
Jeffrey Schachter 48 Director
Gregg Weiss 41 Director
</TABLE>
Set forth below is a brief background of the executive officers and
directors of the Company based upon information supplied by them:
Jerold P. Weinger was elected as a director of the Company in May of
1989 and currently serves as the Company's President, Chief Executive Officer,
Treasurer and Chairman of the Board. In September 1991, 266 Washington
Associates, a New York real estate general partnership in which Mr. Weinger
serves as one of the general partners, filed a voluntary petition in bankruptcy
with the United States Bankruptcy Court for the Eastern District of New York.
This action was subsequently dismissed. Since March 1992, Mr. Weinger served as
the vice president and director of several different privately held companies
which operate Bernard Haldane licensed offices. Since November 1991, Mr. Weinger
has also served as the Chairman of the Board of Lauren Associates, a New York
based entity engaged as a temporary employment agency. Since 1994, Mr. Weinger
served as Chairman of the Board of Prime Staffing, Inc., a New York based
Company engaged in information technology and consulting. Lauren & Associates, a
New York based entity engaged in information technology and consulting.
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Since June 1987, Mr. Weinger served as vice president of STAT Staffing Inc., a
New Jersey corporation which provides temporary nursing care to institutions.
From February 1987 until June 1989, Mr. Weinger has served as the Vice
President, Secretary and Director of Euromed, Inc., a New Jersey based company.
During this time he also served as Vice President of Euromed's wholly-owned
operating subsidiary, C.M.S. Europe Limited, which distributed medical products
in Europe. From 1984 until December 31, 1987, Mr. Weinger was associated with
Brooks, Weinger, Robbins & Leeds Inc. ("Brooks"), formerly a registered
broker-dealer, and from January 1987 until January 1988, served as Chief
Executive Officer of such firm.
On or about January 1987, an action was commenced in United States
District Court for the Southern District of New York by the SEC against, inter
alia, Jerold P. Weinger.
The SEC action alleged that Jerold P. Weinger violated Section 17(a) of
the Securities Act of 1933 (the "Act"), and Sections 10(b) and 15(c) of the
Exchange Act, and Rules 10(b)-5, 10(b)-6 and 15(c)-2 thereunder, in connection
with certain initial public offerings in which Mr. Weinger had participated as
an employee of Brooks, Hamburger, Satnick, Inc., formerly a registered-dealer.
(Brooks, Hamburger, Satnick Inc. was not a predecessor to Brooks, Weinger,
Robbins & Leeds Inc.) On or about January 1987, without admitting or denying any
of the SEC allegations, Mr. Weinger consented to the entry of a Final Judgment
of Injunction enjoining Mr. Weinger from further violations of said Sections
17(a) of the Act and Sections 10(b) and 15(c) of the Exchange Act and Rules
10b-5, 10b-6 and 15c-2.
On February 9, 1987, the SEC issued an Order Instituting Public
Proceedings, Making Findings and Imposing Remedial Sanctions Pursuant to
Sections 15(d) and 19(h) of the Exchange Act against Jerold P. Weinger and
others. The allegations against Mr. Weinger included his willfully violating
Section 17(a) of the Act, Section 10(b) of the Exchange Act and Rules 10b-5 and
10b-6 thereunder, as well as willfully aiding and abetting violations of Section
15(c) of the Exchange Act and Rule 15c-2 thereunder. Without admitting or
denying the SEC's allegations, Mr. Weinger consented to the entry of an Order
suspending him from association with any broker, dealer, investment company,
investment advisor or municipal securities dealer in any capacity for a
consecutive ninety day period (which period has expired).
On January 4, 1989, the District Business Conduct Committee for
District No. 12 of the National Association of Securities Dealers, Inc. ("NASD")
filed a complaint before the NASD against Jerold P. Weinger and others. That
complaint alleged that Mr. Weinger, while associated with Brooks violated
Article III, Section 1 of the NASD's Rules of Fair Practice by his failure to
become registered as a general securities principal (notwithstanding that he was
registered as a financial and operations principal at such
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time), despite his alleged active engagement in the management of that firm's
investment banking and securities business. Without admitting or denying any of
the allegations contained in the NASD's complaint, Mr. Weinger agreed to the
entry of an order requiring him to take and pass the Series 24 General
Securities Principal examination prior to applying for association with any NASD
member and, that Mr. Weinger was suspended in all capacities from association
with any NASD member for a period of ninety days which period has since expired.
Mr. Weinger received a B.B.A. from Pace University and a M.S.
from Brooklyn College.
Jeffrey G. Klein, has served as Secretary and a Director of the Company
since its inception. Mr. Klein is a practicing attorney in Boca Raton, Florida.
From 1986-1989, Mr. Klein served as president and a Director of Unity Publishers
Corp. ("Unity"), a publisher of financial newsletters. During this time, Unity
was giving away shares of stock in publicly held companies as a gift for
subscribing to its newsletter. Some states and the SEC have deemed this to be a
prohibited transaction and, in those states, the newsletter and Mr. Klein are
subject to Cease and Desist Orders in reference to the distribution of the stock
as a gift for subscribing to the newsletter. Unity was named as a Defendant in
an action brought by the SEC and is a signator to a Final Judgment of Permanent
Injunction. From 1986 through 1988, Mr. Klein also served as Secretary and
Director of Capital Investment Development Corp., a company which went public
pursuant to a "blind pool" offering. From January 1985 through 1986, Mr. Klein
served as in-house counsel to First Commonwealth Financial Corp., InfoData, Inc.
and Newsletter Management Corp., all of which were located in Boca Raton,
Florida. From 1983 through 1985, Mr. Klein was affiliated with the law offices
of Gerald Beyer, Esq., Fort Lauderdale, Florida, and during 1983, Mr. Klein was
employed by Arthur Andersen Co., Fort Lauderdale, Florida. Prior thereto, Mr.
Klein was a practicing attorney in Pittsburgh, Pennsylvania. Mr. Klein received
his J.D. and M.B.A. degrees from the University of Pittsburgh and a B.A. from
Boston University.
Jeffrey Schachter, was appointed a Director of the Company in April
1997. Since 1976, Mr. Schachter has served as the president of Silver
Enterprises Refining, Inc., a Cliffwood, New Jersey based company involved in
the commercial extraction of silver from photographic film. Mr. Schachter
holds a Bachelor's degree from Lehman College.
Gregg Weiss, was appointed a Director of the Company in April 1997. Mr.
Weiss is an attorney practicing in New York City concentrating in the areas of
taxation, trusts and estate planning. In 1991 Mr. Weiss founded the firm of
Gardner & Weiss. Prior thereto, Mr. Weiss was associated with several different
law firms and from 1981 - 1984 Mr. Weiss worked for the Internal Revenue
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Service in its Office of Chief Counsel. Mr. Weiss received an L.L.M. in Taxation
from New York University, a J.D. degree from Hofstra University and a B.S. in
Accounting from the State University of New York at Albany.
Directors of the Company hold their offices until the next annual
meeting of the Company's stockholders and until their successors have been duly
elected and qualified or until their earlier resignation, removal from office or
death.
Officers of the Company serve at the pleasure of the Board of Directors
and until the first meeting of the Board of Directors following the next annual
meeting of the Company's stockholders and until their successors have been
chosen and qualified.
Executive Compensation
Jerold P. Weinger, the Company's President, oversees the Bernard
Haldane operations and in consideration thereof, receives annual compensation of
$225,000 and devotes his full time to the operations of the Company.
The Company has established a Simplified Employee Benefit Plan, (the
"Plan"). During the Company's fiscal years ended May 31, 1998 and 1997, Jerold
P. Weinger received $15,000 and $15,000, respectively, pursuant to this Plan.
The terms and conditions of Mr. Weinger's employment are reviewed annually by
the Board of Directors.
Mr. Klein has received compensation from the Company of approximately
$44,000 and $46,000 for legal services rendered to the Company by him during
Fiscal 1997 and Fiscal 1998, respectively.
Each of Messrs. Schachter and Weiss were paid $2,000 per month for a
period of at least five months during the Company's last fiscal year for all
their services to the Company. Directors of the Company may also receive a fee
of $100 for each Board of Directors meeting attended and are reimbursed for all
reasonable expenses incurred in connection with their attendance at such
meetings. Approximately $20,000 in director fees were paid during the Company's
last fiscal year.
The following table set forth the annual compensation of the Company's
executive officers for the last three (3) fiscal years:
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<PAGE>
<TABLE>
<CAPTION>
NAME AND FISCAL ANNUAL LONG TERM
PRINCIPAL POSITION YEAR COMPENSATION COMPENSATION
<S> <C> <C> <C>
Jerold P. Weinger, 1998 $252,916
President, Chief Executive 1997 $215,000(1) (2)
Officer & Treasurer 1996 $222,500(1) (2)
Jeffrey G. Klein, 1998 $ 46,000
Secretary 1997 $ 44,000 (2)
1996 $ 40,000 (2)
</TABLE>
- --------
(1) Includes $22,500, $15,000 and $30,000 pursuant to the Company's Simplified
Employee Benefit Plan in Fiscal 1996, 1997 and 1998, respectively.
(2) During the year ended May 31, 1997, Mr. Weinger and Mr. Klein were granted
options to purchase 25,000 and 5,000 shares of the Company's Common Stock,
respectively, at an exercise price of $2.50 per share. During the year ended May
31, 1996, Mr. Weinger and Mr. Klein were granted options to purchase 25,000 and
5,000 shares of the Company's Common Stock, respectively, at an exercise price
of $2.50 per share. No stock options were granted during the year ended May 31,
1998.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's directors, certain
officers and persons who own more than 10% of the outstanding Common Stock of
the Company to file with the SEC reports of changes in ownership of the Common
Stock of the Company held by such persons. Officers, directors and greater than
10% shareholders are also required to furnish the Company with copies of all
forms they file under this regulation. To the Company's knowledge, based solely
on a review of the copies of such reports furnished to the Company and
representations that no other reports were required, during the fiscal year
ended May 31, 1998, the Company's officers, directors and 10% shareholders
complied with all Section 16(a) filing requirements applicable to them.
OUTSTANDING CAPITAL STOCK OF THE COMPANY
As of the close of business on Record Date, there were issued and
outstanding and entitled to vote at the Special Meeting of Shareholders, 949,365
shares of the Company's $.00001 par value Common Stock, the Company's only
outstanding class of voting securities. Every holder of Common Stock as of that
date is entitled to one vote for each share held.
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PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned or held of record as custodian prior
to the effective date of the exchange of the Company's shares of Common Stock
for shares of the Company's Common Stock by all of the persons listed below as
owning such shares except for Mr. Klein (i) by each person who is known by the
Company to own beneficially more than 5% of the Company's Common Stock, (ii) by
each of the Company's Directors, and (iii) by all executive officers and
Directors as a group.
<TABLE>
<CAPTION>
Approximate
Percentage
Number of Shares of Ownership(5)
<S> <C> <C>
Lilli Weinger(1)(2)(3) 470,315 49.54%
4 Woodgreen Place
Rockville Center, NY 11570
Jerold P. Weinger (1)(2)(3) 470,315 49.54%
192 Lexington, 15th Floor
New York, NY 10016
Renee Nadel(4) 262,500 27.65%
7885 Ayr Court
Boca Raton, FL 33496
</TABLE>
- --------
* Denotes less than one percent.
(1) Does not give effect to shares of stock owned by the children of Jerold and
Lilli Weinger whose beneficial ownership they each disclaim.
(2) Ms. Lilli Weinger is the spouse of Jerold P. Weinger. Their respective
ownership includes the other person's ownership of the shares of the Company's
Common Stock owned by the other. Includes 6,145 shares of the Company's Common
Stock owned jointly by Jerold and Lilli Weinger. Jerold P. Weinger's ownership
includes 61,825 shares owned by IRA's, SEPs and pension plans that he is the
beneficiary of and 43,900 shares held by Jerold P. Weinger as custodian for his
children. Lilli Weinger's ownership includes 11,500 shares of the Company's
Common Stock owned by IRA's that she is the beneficiary of.
(3) Does not give effect to shares of stock issuable to Jerold P. Weinger and
Mr. Klein upon exercise of stock options. Jerold P. Weinger has been granted
options to purchase a total of 120,000 shares of stock. Mr. Klein has been
granted the options to purchase a total of 22,500 shares of the Company's Common
Stock. Assuming exercise of the foregoing options, the respective share of
ownership would be 27.15% for Jerold P. Weinger and would be 2.52% for Mr.
Klein.
74
<PAGE>
(4) Ms. Nadel's shares are held in the name of a revocable trust that she
is the beneficiary of.
(5) Does not include treasury stock which by statute is non-voting.
Gregg Weiss 0 *
Garder & Weiss
100 Park Avenue
New York, NY 10017
Jeffrey Schachter 0 *
77 Cliffwood Avenue
Cliffwood, NJ 07721
Jeffrey G. Klein (3) 5,000 *
23123 State Road 7, Suite 350B
Boca Raton, FL 33428
All executive officers
and Directors as a
Group (4 persons) (1)(2)(3) 181,420 19.11%
BIOGRAPHICAL INFORMATION OF PRINCIPAL SHAREHOLDERS
The following is biographical information concerning Lilli Weinger,
Renee Nadel and Seth Weinger, based upon information provided to the Company by
them.
Lilli Weinger has been a development associate for Hofstra University,
School of Law from July 1997 to present. From December 1989 to June 1997, Ms.
Weinger served in several capacities for the South Shore Y Jewish Community
Center. From 1994 through June 1997, Ms. Weinger served as the Director for
Development for the South Shore Y. Ms. Weinger has a BS in Education and an MS
in Education, both obtained at the City University, Brooklyn campus.
Renee Nadel has provided tutor training workshops at the Palm Beach
County Library Literacy Project, without compensation. Ms. Nadel has been the
President of the South Palm Beach County Women's
75
<PAGE>
Tennis Association since 1986 to present. Ms. Nadel has been a member of the
Board of Directors of Congregation B'nai Israel from 1994 to present. She was
also elected Secretary of that Board. Ms. Nadel also volunteers her time in
other capacities.
Seth Weinger has been employed at Robert Fleming, Inc., an investment
banking firm located in New York City, from August 1997 to present. Prior to
that, Seth Weinger was a full time student at Syracuse University, from
September 1993 to May 1997. Mr. Weinger received a Bachelor's degree in Finance
from that University.
CERTAIN TRANSACTIONS AND RELATED PARTIES OF THE COMPANY
During Fiscal 1996 and Fiscal 1997, pursuant to a resolution of the
Board of Directors, the Company redeemed from the shareholders a total of
199,500 shares of the Company's Common Stock at an average cost of between
approximately $2.49 to $2.75 per share, including 5,000 shares of Common Stock
owned by Jeffrey G. Klein.
On May 31, 1996, a majority of the Company's shareholders, pursuant to
a recommendation of the Company's Board of Directors, granted the Company's two
officers, Mr. Weinger and Mr. Klein, options to purchase 25,000 shares, and
5,000 shares, respectively, of the Company's Common Stock at an exercise price
of $2.50 per share. The Company also granted options for 25,000 shares of the
Company's Common Stock to Windsor Consulting Inc., a consultant, and 5,000
shares of Common Stock to Ms. Quartiero, a Company employee. The options were
granted to the foregoing at an exercise price of $2.50 per share. The exercise
price represented the average between the low and high bid for the Company's
Common Stock on May 31, 1996.
During Fiscal 1997, a majority of the Company's shareholders, pursuant
to a recommendation of the Board of Directors granted Jerold P. Weinger and Mr.
Klein options to purchase 25,000 and 5,000 shares, respectively, of common stock
of the Company at an exercise price of $2.50 per share. Also, options to
purchase 25,000 shares of common stock at an exercise price of $2.50 per share
were granted to Windsor Consulting Inc., a Company consultant, and options to
purchase 5,000 shares of common stock at a price of $2.50 per share were granted
to Donna Quartiero, an employee of the Company.
ADDITIONAL INFORMATION
Current Information; Deregistration
The Company is currently subject to the informational requirements of
the Exchange Act, and in accordance therewith, files, reports, proxy statements,
and other information with the SEC. Such reports, proxy statements, and other
information can be inspected and copied at the public reference facilities
maintained
76
<PAGE>
by the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
public reference facilities located at the regional offices of the Commission
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Branch
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
Upon consummation of the Merger, the Common Shares will no longer trade
on OTC Bulletin Board and price quotations will no longer be reported by OTC
Bulletin Board or other sources.
After the Effective Date, the Management Group intends to cause the
Surviving Corporation to terminate registration of the Common Shares under
Section 12 of the Exchange Act. Upon consummation of the Merger, all outstanding
shares of the Surviving Corporation will be held by members of the Management
Group. Registration of the Common Shares under the Exchange Act may be
terminated upon application of the Company to the Commission. The Management
Group intends to cause the Surviving Corporation to make such application if the
shareholders approve and authorize the Merger Agreement (which approval is
assured due to the fact that Newco, which beneficially owns approximately 77% of
the outstanding Common Shares, has advised the Board of Directors that it
intends to vote such Common Shares in favor of the proposed Merger) and the
Merger is consummated. Termination of registration under the Exchange Act of the
Common Shares will reduce the information required to be furnished by the
Surviving Corporation to the public and to the Commission and will make certain
of the provisions of the Exchange Act, for examples the short-swing profit
recovery provisions of Section 16(b) and the requirement of furnishing a proxy
or information statements in connection with meetings of shareholders, no longer
applicable to the Surviving Corporation.
OTHER BUSINESS
The Board of Directors knows of no other matters to be presented to the
shareholders for action at the Special Meeting, but if any such matters properly
come before the Special Meeting, it is intended that the persons voting the
proxies will vote them in accordance with their best judgement.
Representatives of Miller, Ellin & Co., the Company's independent
public accountants, are expected to be present at the Special Meeting and will
be accorded an opportunity to make a statement should they desire to do so. Such
representatives are also expected to be available to respond to appropriate
questions.
77
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY, NEWCO, OR THE MANAGEMENT GROUP NOT
CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
By Order of the Board of Directors,
Jeffrey G. Klein,
Secretary
New York, New York
March 8, 1999
78
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
INDEX
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report F-2
Consolidated Balance Sheets
as of May 31, 1998 and 1997 and the Six
Months Ended November 30, 1998 (Unaudited) F-3 - F-4
Consolidated Statements of Income for the
Years Ended May 31, 1998, 1997 and 1996
and the Six Months Ended November 30, 1998
and 1997 (Unaudited) F-5 - F-6
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended May 31, 1998, 1997 and 1996 and the
Six Months Ended November 30, 1998 and 1997 (Unaudited) F-7
Consolidated Statements of Cash Flows for the Years
Ended May 31, 1998, 1997 and 1996 and the Six
Months Ended November 30, 1998 and 1997 (Unaudited) F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-26
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Bernard Haldane Associates, Inc.
We have audited the accompanying consolidated balance sheets of Bernard
Haldane Associates, Inc. and Subsidiaries as of May 31, 1998 and 1997 and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years in the period ended May 31, 1998.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bernard
Haldane Associates, Inc. and Subsidiaries as of May 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the three years
in the period ended May 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Miller, Ellin & Company, LLP
MILLER, ELLIN & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
August 13, 1998
New York, New York
F-2
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31,
NOVEMBER 30, -------------------------
1998 1998 1997
--------------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,497,807 $1,693,220 $1,698,099
Short-term investments 111,497 108,908 55,426
Accounts receivable - net of allowance for doubtful accounts of
$265,000, $180,000 and $290,000 at November 30, 1998, May 31,
1998 and 1997, respectively, (includes receivables from related
parties of $429,369, $100,635 and $86,413) 691,928 315,436 419,470
Notes receivable - net of allowance for credit losses of
$29,100, $15,000 and $24,000 at November 30, 1998,
May 31, 1998 and 1997, respectively, current portion 119,095 89,855 149,080
Due from related parties - 8,887 11,001
Prepaid expenses and miscellaneous receivables 155,048 185,957 60,158
Prepaid income taxes - - -
Deferred income taxes 173,000 126,000 145,000
------------- ------------ ----------
Total current assets 2,748,375 2,528,263 2,538,234
------------- ------------ ----------
OTHER ASSETS:
Licenses - net of accumulated amortization of $1,938,022,
$1,870,372 and $1,657,917 at November 30, 1998, May 31,
1998 and 1997, respectively 719,976 787,626 864,611
Equipment, fixtures and leasehold improvements - net of
accumulated depreciation of $53,181, $46,165 and $28,871
at November 30, 1998, May 31, 1998 and 1997, respectively 45,304 48,374 50,831
Security deposits and other 76,347 115,820 79,103
Notes receivable - net of allowance for credit losses of $138,400,
$119,500 and $41,000 at November 30, 1998, May 31, 1998
and 1997, respectively, (includes receivables from related
parties of $56,089, $44,060 and $29,247) 431,926 448,115 451,309
------------- ------------ ----------
Total other assets 1,273,553 1,399,935 1,445,854
------------- ------------ ----------
TOTAL ASSETS $ 4,021,928 $ 3,928,198 $3,984,088
============= ============ ==========
</TABLE>
The accompanying notes are an integral part of these statements
F-3
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAY 31,
NOVEMBER 30, ----------------------------
1998 1998 1997
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 46,498 $ 42,437 $ 235,240
Accounts payable 113,030 127,314 207,316
Accrued expenses and other current liabilities 40,913 32,135 8,147
Income taxes payable 21,849 62,313 141,510
10,611
------------ ------------- -------------
Total current liabilities 232,901 264,199 592,213
------------ ------------- -------------
OTHER LIABILITIES:
Long-term debt 574,465 599,135 498,839
Deferred rent payable 23,437 23,437 13,679
------------ ------------- -------------
597,902 622,572 512,518
------------ ------------- -------------
Total liabilities 830,803 886,771 1,104,731
------------ ------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.00001 par value; 950,000,000 shares
authorized, 1,148,865 shares issued) 12 12 12
Additional paid-in capital 2,738,015 2,738,015 2,738,015
Retained earnings 959,536 809,838 647,768
------------ ------------- -------------
3,697,563 3,547,865 3,385,795
Less: Treasury stock (199,500 shares at cost) 506,438 506,438 506,438
------------ ------------- -------------
Total stockholders' equity 3,191,125 3,041,427 2,879,357
------------ ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,021,928 $ 3,928,198 $ 3,984,088
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
ENDED NOVEMBER 30, YEARS ENDED MAY 31,
----------------------- ----------------------------------------
1998 1997 1998 1997 1996
---------- ----------- -------------- ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Royalty income (includes royalty income
from related parties of $163,112, $140,686,
$265,279, $301,394 and $243,760, respectively) $1,339,039 $1,336,446 $ 2,411,659 $ 2,480,866 $ 2,244,818
Consulting income 485,852 15,059 208,694 640 -
Interest, dividends and other income 16,856 53,278 88,825 106,592 99,621
Sub-license income (includes sub-license income
from related parties of $18,419, $-0-, $37,186,
$41,588 and $-0-, respectively) 36,839 80,154 179,556 159,697 -
--------- ----------- ------------- ------------ -------------
Total revenues 1,878,586 1,484,937 2,888,734 2,747,795 2,344,439
--------- ----------- ------------- ------------ -------------
EXPENSES:
Payroll and related costs 536,847 324,810 773,945 453,573 362,554
Other general and administrative 721,471 451,886 1,137,061 1,015,607 703,011
Amortization 67,650 98,771 212,455 197,541 197,541
Bad debt expense 118,000 70,000 274,677 189,173 97,469
Advertising 158,792 55,418 144,699 78,544 73,538
Interest 25,328 28,898 70,292 61,039 68,558
--------- ----------- ------------- ------------ -------------
Total expenses 1,628,088 1,029,783 2,613,129 1,995,477 1,502,671
--------- ----------- ------------- ------------ -------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 250,498 455,154 275,605 752,318 841,768
INCOME TAXES 100,800 168,800 113,535 311,168 328,324
--------- ----------- ------------- ------------ -------------
INCOME FROM CONTINUING OPERATIONS 149,698 268,354 162,070 441,150 513,444
DISCONTINUED OPERATIONS:
Income from operations of travel agency
disposed of (net of income taxes of $-0-, $-0-,
$-0-, $10,000 and $8,000, respectively) - - - 19,942 19,996
--------- ----------- ------------- ------------ -------------
NET INCOME $149,698 $ 268,354 $ 162,070 $ 461,092 $ 533,440
========= =========== ============= ============ =============
</TABLE>
The accompanying notes are an integral part of these statements
F-5
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
NOVEMBER 30, YEARS ENDED MAY 31,
--------------------------- ----------------------------
1998 1997 1998 1997 1996
----------- ----------- ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
EARNINGS PER SHARE:
Basic:
Continuing operations $ .16 $ .28 $ .17 $ .46 $ .46
Discontinued operations - - - .02 .02
--------- -------- ------ ------ ------
Net income $ .16 $ .28 $ .17 $ .48 $ .48
========= ======== ====== ====== ======
Diluted:
Continuing operations $ .15 $ .26 $ .16 $ .43 $ .44
Discontinued operations - - - .02 .02
--------- -------- ------ ------ ------
Net income $ .15 $ .26 $ .16 $ .45 $ .46
========= ======== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements
F-6
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996
AND THE SIX MONTHS ENDED NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK,
$.00001 PAR
VALUE, AUTHORIZED
950,000,000 SHARES ADDITIONAL RETAINED TREASURY STOCK
-------------------------- PAID-IN EARNINGS ----------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
------------- --------- ------------------ ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - MAY 31, 1995
as previously reported 1,148,865 $ 12 $ 2,761,727 $(370,476) - $ - $ 2,391,263
Prior period adjustment - error in
recording cumulative equity of
minority interest in losses - - (23,712) 23,712 - - -
---------- ---- ----------- --------- ------- ---------- ----------
BALANCE - May 31, 1995 -
as restated 1,148,865 12 2,738,015 (346,764) - - 2,391,263
Repurchase of common stock - - - - 179,500 (451,323) (451,323)
Net income for the year ended
May 31, 1996 - - - 533,440 - - 533,440
---------- ---- ----------- --------- ------- ---------- ----------
BALANCE - MAY 31, 1996 1,148,865 12 2,738,015 186,676 179,500 (451,323) 2,473,380
Repurchase of common stock - - - - 20,000 (55,115) (55,115)
Net income for the year ended
May 31, 1997 - - - 461,092 - - 461,092
---------- ---- ----------- --------- ------- ---------- ----------
BALANCE - MAY 31, 1997 1,148,865 12 2,738,015 647,768 199,500 (506,438) 2,879,357
Net income for the year ended
May 31, 1998 - - - 162,070 - - 162,070
---------- ---- ----------- --------- ------- ---------- ----------
BALANCE - MAY 31, 1998 1,148,865 12 2,738,015 809,838 199,500 (506,438) 3,041,427
Net income for the six months
ended November 30, 1998
(unaudited) - - - 149,698 - - 149,698
---------- ---- ----------- --------- ------- ---------- ----------
BALANCE - NOVEMBER 30, 1998 1,148,865 $ 12 $ 2,738,015 $ 959,536 199,500 $(506,438) $3,191,125
========== ==== =========== ========= ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements
F-7
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, YEARS ENDED MAY 31,
---------------------------- ------------------------------------------
1998 1997 1998 1997 1996
------------ -------------- ----------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 149,698 $ 268,354 $ 162,070 $ 461,092 $ 533,440
Income from discontinued operations - - - (19,942) (19,996)
Adjustments to reconcile net income to net
cash provided by (used in) not rating
activities:
Expenses (income) not requiring the use
of cash:
Provision for losses on accounts and
notes receivable 118,000 70,000 274,677 189,173 97,469
Depreciation 7,016 8,127 17,294 9,322 1,430
Amortization of licenses 67,650 98,771 212,455 197,541 197,541
Gain on sale of office 19,478 - (2,100) - -
Interest expense - imputed 25,328 20,880 52,873 45,043 52,048
Interest income - imputed (3,480) (19,794) (14,886) (13,167) (6,403)
Deferred income taxes (47,000) (29,000) 19,000 (62,000) 89,000
Changes in assets and liabilities:
Accounts receivable (461,492) 16,091 (30,518) (210,324) (141,548)
Prepaid expenses and miscellaneous
receivables 30,909 (32,585) (125,799) (50,424) 18,988
Prepaid income taxes - - - - -
Cash overdraft - - - (18,044) 18,044
Accounts payable and other current
liabilities (5,506) (47,145) (135,211) 225,322 (82,009)
(40,464) 10,123
Deferred rent payable - - 9,758 (1,040) 10,319
Net assets of discontinued operations - - - (1,580) (21,814)
----------- ------------ ----------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (139,863) 363,822 439,613 750,972 746,509
----------- ------------ ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (2,589) (1,200) (108,908) (55,426) (302,138)
Redemption of short-term investments - - 55,426 53,146 699,868
Increase (decrease) in due from related
parties 19,498 5,766 2,114 17,038 231,961
Acquisition of fixed assets (3,946) (9,607) (14,837) (40,122) (21,461)
Acquisition of offices - - (48,955) - -
Additions to notes receivable (86,839) (79,903) (192,556) (690,492) (20,000)
Payments of notes receivable 49,268 97,366 144,074 217,468 63,249
Security deposits 14,995 (3,998) - (18,643) 1,900
Net assets of discontinued operations - - - 2,200 (500)
----------- ------------ ----------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (9,613) 8,424 (163,642) (514,831) 652,879
----------- ------------ ----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements
F-8
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, YEARS ENDED MAY 31,
----------------------------- ---------------------------------------------
1998 1997 1998 1997 1996
------------- -------------- ------------- ------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt $ (45,937) $ (36,750) $ (280,850) $ (98,000) $ (168,000)
Repurchase of common stock - - - (55,115) (451,323)
----------- ----------- ------------ ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (45,937) (36,750) (280,850) (153,115) (619,323)
----------- ----------- ------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (195,413) 335,496 (4,879) 83,026 780,065
CASH AND CASH EQUIVALENTS - beginning 1,693,220 1,698,099 1,698,099 1,615,073 835,008
----------- ----------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS - ending
(includes cash of discontinued operations
of $-0-, $-0-, $-0-, $-0- and $55,957,
respectively) $ 1,497,807 $ 2,033,595 $ 1,693,220 $ 1,698,099 $ 1,615,073
=========== =========== ============ ============ ============
SCHEDULES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Receipt of notes receivable on sale of
investment $ 5,000 $ - $ 14,438 $ - $ -
=========== =========== ============ ============ ============
Additional license costs through issuance
of long-term debt $ - $ - $ 135,470 $ - $ -
=========== =========== ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 25,328 $ 28,898 $ 66,292 $ 61,039 $ 68,558
Income taxes 153,406 205,800 207,302 316,313 238,876
</TABLE>
The accompanying notes are an integral part of these statements
F-9
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Bernard Haldane Associates, Inc. ("Haldane") through its wholly-owned
subsidiary, DRB Ltd. ("DRB") owns the worldwide licensing rights to the
Bernard Haldane name and system of career consulting. Haldane is the
franchiser of 76 career consulting offices operating in the United
States, Canada and the United Kingdom. First Career Corp. ("FCC"), a
wholly-owned subsidiary, has developed a specifically designed career
consulting program for graduating college students. During the year ended
May 31, 1998, two new wholly-owned subsidiaries, DRB Management and
Consulting Services, Inc. ("DRB Mgmt.") and Career Advisory and
Management Services, Inc. ("Career Advisory"), began operating four
offices in the United States, one of which was sold in May 1998. The
operation of these offices was a temporary situation brought on by the
financial difficulties of the franchises. The offices were disposed of as
soon as practicable. On May 31, 1996, another subsidiary, Quantum Tours
International, Inc. ("QT") discontinued its full service travel agency.
All other subsidiaries are inactive.
After giving effect to the restatement for discontinued operations,
Haldane's operations consist of only one business segment, career
consulting and advisory services.
Principles of Consolidation
The consolidated financial statements include the accounts of Haldane and
its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
The Companies consider all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Concentrations of Credit Risk
The Companies maintain their cash balances with various financial
institutions. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. Uninsured balances
aggregate approximately $1,619,000 and $1,615,000 at May 31, 1998 and
1997, respectively.
The Companies' short-term investments include certificates of deposit of
financial institutions with high credit ratings, which mature within one
year. This investment policy limits the Companies' exposure to
concentrations of credit risk.
DRB sells franchises to individuals and corporations for both cash and
notes. In the event of default in payment of the notes or royalties, DRB
can repossess the office. DRB has historically experienced losses and has
provided allowances against its notes and royalty receivables.
F-10
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equipment, Fixtures and Leasehold Improvements
Equipment and fixtures are being depreciated on an accelerated basis over
lives of five to seven years. Leasehold improvements are being amortized
over the lives of the leases.
Deferred Rent Payable
Deferred rent payable represents the excess of recognized rent expense
over scheduled lease payments which will be credited to future
operations.
Revenue Recognition
DRB through its sale of franchise offices recognizes revenues
(sub-license) at the time the contract is completed and when no further
services are required. DRB also recognizes royalty revenue based on a
percentage (5% to 6%) of gross collections of counseling fees by the
franchisee or the minimum royalty fee, whichever is greater. Allowances
for doubtful accounts have been provided for potential losses. FCC, DRB
Mgmt. and Career Advisory recognize consulting revenue based on
collections, rather than when the contract is entered into, due to the
uncertain nature of collectibility of the contract fees.
QT recognized revenue when the tour commenced. Revenue received prior to
the commencement of the tour was deferred and recorded as unearned
revenue.
Intangible Assets
The Bernard Haldane licenses acquired (approximately $1,200,000) are
being amortized over a ten year period using the straight-line method.
The cost of acquisitions in excess of fair value of assets acquired which
has been allocated to licenses (approximately $1,385,000, which has been
adjusted in 1998 for an inflation factor in the acquisition notes) is
being amortized over the greater of a twenty year period (the general
term of the sub-license) or 5% of royalty income and 50% of sub-licensing
income for that particular year.
Advertising Costs
All costs associated with advertising and promotion are expensed in the
year incurred.
F-11
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign Exchange
DRB converts its foreign currency transactions at budgeted rates which
historically approximate the actual exchange rates for balance sheet and
statement of income items. The amount of foreign currency exchange gains
and losses are insignificant to the consolidated financial statements.
Impairment of Long-Lived Assets
Effective June 1, 1996, the Companies adopted Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. The Companies believe that no
material impairment existed as of May 31, 1998.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings Per Share" which is effective for periods ending after December
15, 1997. The Companies have adopted this new standard for the year ended
May 31, 1998. Prior period earnings per share were restated to conform to
this new pronouncement.
Stock Options
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation." The Companies have adopted the
disclosure-only provisions of SFAS No. 123 but apply Accounting
Principles Board Opinion No. 25 (APB Opinion No. 25), "Accounting for
Stock Issued to Employees" and related interpretations in accounting for
granting of stock options.
Realizability of a Deferred Tax Asset
The Companies have recorded a deferred tax asset of $126,000 as of May
31, 1998. Realization is dependent on generating sufficient taxable
income. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized.
The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if future taxable income is not
sufficient.
F-12
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for the years ended May 31, 1997 and 1996 in order to conform
with the current year's presentation.
NOTE 2 - ACQUISITIONS/DISPOSITIONS
In 1989, Haldane acquired 80% of the outstanding shares of Career
Services Management Corp. ("CSM") for $800. CSM acquired 100% of DRB for
$1,250,000 consisting of $1,000,000 in cash and a note payable of
$250,000. The balance of the note was fully paid in March 1998. On
February 2, 1995, Haldane acquired the remaining 20% of the outstanding
shares of CSM for 75,000 shares of its own common stock. CSM is currently
inactive.
In April 1995, Haldane sold approximately 96% of its 80% investment in
Andover Equities Corp. ("Andover"). The sale consisted of cash and notes
(see Note 3). During the year ended May 31, 1998, the notes receivable
were deemed uncollectible and written off as bad debts. Haldane's
investment in Andover which represents approximately a 3% ownership is
carried at cost and is insignificant.
The acquisitions were accounted for using the purchase method of
accounting. The purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values.
F-13
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 3 - NOTES RECEIVABLE
Notes receivable at May 31, consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Various non-interest bearing notes receivable in connection
with the sale of sub-licenses $ 221,400 $ 177,300
LaSalle Consulting - receivable in equal monthly installments
of $2,097 through April 2002, with interest at 24% per annum 64,336 72,909
Note receivable - employee/stockholder in equal monthly
installments of $608 through April 2001, including
interest at 6% per annum 19,444 9,444
Notes receivable in connection with the sale of Andover stock,
originally due April 1997, written off in May 1998 - 30,000
Note receivable - sub-licensee in equal monthly installments of
$1,000 through December 1997, $2,000 from January 1998 through December
1998 and $3,000 from January 1999 through December 2002 with a final
payment of approximately $1,800
in January 2003 including interest at 7% per annum 168,795 176,795
Note receivable in equal monthly installments of $5,000 through
2001 with interest at 7% per annum 195,000 215,000
Note receivable - sub-licensee, in connection with the sale of the
Oklahoma City office, in equal monthly installments of $1,000
commencing January 2000 through April 2001, with a final
payment of $1,500 in May 2001 17,500 -
Note receivable in equal monthly installments of $200 through
March 1998 with the balance due April 1999, with interest at
8% per annum; secured by stock in an affiliated company 33,030 34,130
---------- ----------
719,505 715,578
Less: Unamortized discounted interest imputed at 7% to 8.5%
on the above non-interest bearing notes 47,035 50,189
---------- ----------
672,470 665,389
Less: Allowance for credit losses on the above notes (see below) 134,500 65,000
---------- ----------
537,970 600,389
Less: Current portion 89,855 149,080
---------- ----------
$ 448,115 $ 451,309
========== ==========
</TABLE>
F-14
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 3 - NOTES RECEIVABLE (CONTINUED)
The amounts due over the next five years, net of imputed interest of
$47,035 and allowance for credit losses of $134,500, are as follows:
Year Ending May 31,
-------------------
1999 $ 89,855
2000 83,324
2001 122,423
2002 76,665
2003 45,018
Subsequent 120,685
----------
$ 537,970
The Companies utilize Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan," (SFAS No. 114)
and Statement of Financial Accounting Standards No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(SFAS No. 118) which requires that impaired loans be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or at market price or the fair value of the
collateral if the loan is collateral dependent. Notes receivable at May
31, consist of the following:
1998 1997
---------- ----------
Notes receivable - impaired $ 527,255 $ 406,492
Less: Allowance for credit losses 134,500 65,000
---------- ----------
392,755 341,492
Notes receivable - not impaired
and no allowance for credit losses 145,215 258,897
---------- ----------
$ 537,970 $ 600,389
========== ==========
Changes in the allowance for credit losses for the years ended May 31,
are as follows:
1998 1997 1996
-------- -------- --------
Balance - beginning of year $ 65,000 $ 35,000 $ 19,000
Additions 73,310 30,000 16,000
Direct write-offs (3,810) - -
-------- -------- --------
Balance - end of year $134,500 $ 65,000 $ 35,000
======== ======== ========
The Companies recognize interest income on impaired loans on actual cash
received with interest imputed at 8 1/2%.
The average recorded investment in impaired loans and the interest income
recognized during the years ended May 31, 1998 and 1997 were
approximately $467,000 and $29,000 and $265,000 and $24,000,
respectively.
F-15
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 4 - LONG-TERM DEBT
Long-term debt at May 31, consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
B&E Partnership - payable in monthly installments of $7,000 through
June 2006. Commencing July 1997, monthly payments are adjusted
annually by a rate of 5% to reflect an inflation factor. Secured
by a license agreement. This note is non-interest bearing. $ 891,694 $ 756,000
Dan R. Bruce - principal amount of $200,000 due February
1998 with interest due in monthly payments of $1,333.
The note is secured by a license agreement and
bears interest at an annual rate of eight percent. - 200,000
------------ ------------
Total debt obligations 891,694 956,000
Less: Unamortized discounted interest imputed at eight
percent on the above non-interest bearing loan. 250,122 221,921
------------ ------------
Total present value of debt 641,572 734,079
Less: Current portion 42,437 235,240
------------ ------------
$ 599,135 $ 498,839
============ ============
</TABLE>
Long-term debt as of May 31, 1998 is payable as follows:
Year Ending May 31,
-------------------
1999 $ 42,437
2000 50,743
2001 59,979
2002 70,232
2003 81,599
Subsequent 336,582
----------
$ 641,572
==========
F-16
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Leases
Haldane leases its executive offices in New York City under two separate
leases. Both leases have terms of ten years, one expiring in September
2005, and the other expiring in October 2006. Approximately 61% of the
space is sublet to related entities. FCC leases office space in Syracuse,
New York for a term of one year expiring in April 1999.
The following is a schedule by years of future minimum rental payments
and sublease income under these leases (rounded to thousands):
Minimum
Rental Sublease
Year Ending May 31, Payments Income
------------------- ------------ ----------
1999 $ 174,000 $ 101,000
2000 163,000 101,000
2001 181,000 112,000
2002 186,000 115,000
2003 186,000 115,000
Subsequent 493,000 303,000
------------ ----------
$ 1,383,000 $ 847,000
============ ==========
Rent expense, net of rental income of approximately $103,000, $96,000 and
$30,000, charged to operations for the years ended May 31, 1998, 1997 and
1996 amounted to approximately $117,000, $48,000, and $31,000,
respectively.
Licensing
In those states where the granting of a license for the right to operate
a Haldane office may constitute a franchise arrangement, DRB intends to
register as a franchisor. DRB may also be subject to regulatory sanctions
in these states for failing to register as a franchisor prior to the
granting of a franchise license. DRB intends to enter into franchise
agreements with current licensees, and if necessary under the state
statutes, DRB will offer current licensees the right of rescission.
Management is of the opinion that the potential liability for violation
of any state or federal statute relating to the sale of a franchise and
in the aggregate is not material to the consolidated financial
statements. The Companies to date have incurred approximately $58,000 of
legal costs in connection with this matter. The Companies expect to incur
no additional costs of any significance relating to this matter.
F-17
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Consulting Agreements
On August 1, 1995, Haldane entered into a consulting agreement with a
company whose president was Haldane's former president, for a period of
five years. Compensation under the agreement is as follows: $62,000 the
first year, $69,000 the second year, $74,000 the third year, $83,000 the
fourth year and $90,000 the fifth year. In addition, Haldane agreed to
provide to the consultant a leased automobile and reimburse all approved
expenses. For the years ended May 31, 1998, 1997 and 1996, Haldane
recorded compensation expense of $73,167, $67,832 and $51,667,
respectively.
Tax Contingencies
During fiscal 1997, the Internal Revenue Service commenced audits of the
Companies' consolidated federal tax returns for the years ended May 31,
1995 and 1996 and is questioning the deductibility of amortization taken
on intangible assets. The outcome of the audits cannot be readily
determined, however, it is not expected to have a material impact on the
Companies' consolidated financial statements. In addition, in June 1998,
the Companies were notified by the State of New York that the
consolidated New York State tax returns for the years ended May 31, 1995,
1996 and 1997 have been selected for audit. Management believes that the
outcome of such audits would have no material effect on the Companies'
consolidated financial statements.
Going Private
In February 1998, the Companies filed an application to withdraw its
common shares from the public market. Such application is under review by
the Securities and Exchange Commission.
Certain of the Companies' stockholders offered to purchase the shares of
common stock owned by the public investors at $3 per share, which
represents the valuation made by a financial advisory company in its
fairness opinion. The number of shares to be purchased is 217,695 shares
or $653,085.
F-18
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 6 - COMMON STOCK OPTIONS
The stock option transactions for the three fiscal years ended May 31,
1998 are summarized as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number Exercise Total
of Shares Price Price
---------- --------- ----------
<S> <C> <C> <C>
Outstanding - May 31, 1995 (exercisable at a price of
$.25 to $3.50 per share) 326,000 $ 2.26 $ 737,250
Granted at $2.50 per share 60,000 2.50 150,000
---------- ----------
Outstanding - May 31, 1996 (exercisable at a price of
$.25 to $3.50 per share) 386,000 2.30 887,250
Granted at $2.50 per share 60,000 2.50 150,000
Terminated (161,000) 2.95 (474,750)
---------- ----------
Outstanding - May 31, 1997 and 1998 (exercisable at
a price range of $.25 to $2.50 per share) 285,000 1.97 $ 562,500
========== ==========
Exercisable Options -
May 31, 1996 386,000 $ 2.30 $ 887,250
May 31, 1997 285,000 1.97 562,500
May 31, 1998 285,000 1.97 562,500
</TABLE>
During the years ended May 31, 1998, 1997 and 1996, options to acquire
-0-, 60,000 and 60,000 shares, respectively, were granted to directors
and employees of the Companies at market value.
The Companies apply APB Opinion No. 25 in accounting for its stock
options and, accordingly, no compensation cost has been recognized for
stock options in the consolidated financial statements. Had the Companies
determined compensation expense for stock options granted based on the
method presented by SFAS No. 123, net income and earnings per share would
have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ending May 31,
-------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Net income - as reported $ 162,070 $ 461,092 $ 533,440
Net income - pro forma $ 162,070 $ 416,092 $ 497,440
Earnings per share - basic - as reported $.17 $.48 $.48
Earnings per share - basic - pro forma $.17 $.44 $.45
Earnings per share - diluted - as reported $.16 $.45 $.46
Earnings per share - diluted - pro forma $.16 $.41 $.43
</TABLE>
F-19
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 6 - COMMON STOCK OPTIONS (CONTINUED)
The fair value of the stock options used to compute proforma net income
and earnings per share disclosures is the estimated present value at
grant date using the Black-Scholes option-pricing method with the
following weighted average assumptions for 1997 and 1996: expected
volatility of 11.9% and 3.8%; a risk-free interest rate of 6.7% and 6.8%
and an expected holding period of 10 and 7 years, respectively.
NOTE 7 - TREASURY STOCK
In October 1995, March and June 1996, the Board of Directors authorized
Haldane to repurchase outstanding shares of its common stock at fair
market value from various shareholders. As of May 31, 1998 and 1997,
Haldane repurchased 199,500 shares, (20,000 and 179,500 shares during the
years ended May 31, 1997 and 1996, respectively), at fair market value
with prices ranging from $2.49 to $2.75 per share.
NOTE 8 - INCOME TAXES
Deferred Income Taxes
The Companies utilize Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which requires the use of the
liability method of accounting for income taxes. The liability method
measures deferred income taxes by applying enacted statutory rates in
effect at the balance sheet date to the differences between the tax bases
of assets and liabilities and their reported amounts in the financial
statements. The resulting deferred tax asset or liability is adjusted to
reflect changes in tax laws as they occur.
Deferred income taxes reflect temporary differences in reporting assets
and liabilities for income tax and financial accounting purposes. The
deferred tax assets of $126,000 and $145,000 as of May 31, 1998 and 1997
(consisting solely of allowances for doubtful accounts and credit losses)
are shown as current assets in the consolidated balance sheets. No
valuation allowance has been provided.
F-20
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 8 - INCOME TAXES (CONTINUED)
Income Taxes
Provision for income taxes for the years ended May 31, consists of the
following:
1998 1997 1996
---------- ---------- ----------
Current:
Federal $ 66,803 $ 267,457 $ 163,448
State and local 27,732 105,711 75,876
---------- ---------- ----------
94,535 373,168 239,324
Deferred:
Federal 14,000 (51,000) 93,000
State and local 5,000 (11,000) (4,000)
---------- ---------- ----------
$ 113,535 $ 311,168 $ 328,324
========== ========== ==========
Reconciliation of statutory rate to effective income tax rate on
continuing operations for the years ended May 31, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
At federal statutory rates 34.0% 34.0% 34.0%
Effect of:
State income taxes, net of federal benefit 8.1 8.2 7.9
Permanent differences 1.3 1.2 .7
Tax benefit of operating loss carryforwards - - (2.6)
Overaccrual of prior year taxes (2.2) (2.0) (1.0)
------- -------- -------
Total 41.2% 41.4% 39.0%
======= ======== =======
</TABLE>
The Companies file consolidated tax returns and had available at May 31,
1995 unused operating loss carryforwards of approximately $400,000 for
income tax reporting purposes which were utilized to offset 1996 taxable
income. The only significant differences between income tax and financial
reporting are the allowances for doubtful accounts and credit losses.
F-21
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 9 - RETIREMENT PLANS
The Companies have simplified employee pension (SEP) agreements with all
full-time employees who are at least twenty-one years old and have
performed services for at least three of the preceding five years. Such
agreements provide for discretionary contributions by the employer. For
the years ended May 31, 1998, 1997 and 1996, the Companies contributed
$36,000, $21,000 and $29,750, respectively.
NOTE 10 - GEOGRAPHIC AREAS
The Companies earned royalty income and sub-licensee income from five
Canadian franchisees and one franchisee located in the United Kingdom for
the years ended May 31, as follows:
<TABLE>
<CAPTION>
Royalty Income Sub-Licensee Income
-------------------------------------- ----------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Canada $ 167,594 $ 201,148 $ 158,572 $ - $ 18,559 $ -
=========== =========== =========== ======== ======== =====
United Kingdom $ 36,292 $ 12,123 $ - $ 37,186 $ - $ -
=========== =========== =========== ======== ======== =====
</TABLE>
All other revenues are from United States sources.
Included in accounts receivable and notes receivable at May 31, are
amounts owed by the Canadian and United Kingdom franchisees, as follows:
<TABLE>
<CAPTION>
Accounts Receivable Notes Receivable
---------------------- ----------------------
1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Canada $ 57,191 $ 78,047 $ 4,895 $ 15,963
========= ======== ========= ========
United Kingdom $ 38,481 $ 2,189 $ 37,186 $ -
========= ======== ========= ========
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS
As of May 31, 1998, 1997 and 1996, a principal officer and director of
Haldane owned and operated offices as follows:
1998 1997 1996
--------- --------- ------
Canada 5 5 5
United States 2 2 4
United Kingdom 2 1 -
---- --- ---
Total offices 9 8 9
==== === ===
F-22
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 11 - RELATED PARTY TRANSACTIONS (CONTINUED)
During 1997, three United States offices were transferred to an unrelated
existing owner of other Haldane offices and two new offices were
acquired; one in the United States and one in the United Kingdom.
During 1998, one new office in the United Kingdom was acquired.
From time to time the Companies advance funds to several entities whose
officer and director is also an officer and director of Haldane. The
average monthly balance during fiscal 1998 and 1997 of such advances
amounted to approximately $377,000 and $373,000, respectively. At both
May 31, 1998 and 1997, the balance of such advances was $-0-. In
addition, at May 31, 1998 and 1997, the Companies were owed approximately
$8,900 and $11,000, respectively, for miscellaneous reimbursable expenses
from these entities.
Interest earned on advances for the years ended May 31, 1998 and 1997 at
8% per annum amounted to approximately $30,000 for each year.
NOTE 12 - DISCONTINUED OPERATIONS
On May 31, 1996, Haldane adopted a plan to terminate its travel agency
operations which ceased in February 1997.
The operating results of the travel agency segment for the years ended
May 31, 1998, 1997 and 1996 are shown separately in the accompanying
consolidated income statement. Net revenues of the travel agency segment
for 1998, 1997 and 1996 amounted to $-0-, $67,027 and $95,474,
respectively.
At May 31, 1998 and 1997, there were no net assets remaining from the
travel agency operations.
There was no gain or loss on disposal of this segment.
F-23
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 13 - EARNINGS PER SHARE
Net Earnings Per Common
and Common Equivalent Share
Earnings per share for the years ended May 31, were calculated using the
modified treasury stock method as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Numerator
Income from continuing operations $ 162,070 $ 441,150 $ 513,444
Impact of potential common shares - - -
------------ ------------ ------------
Income available to common stockholders
after assumed conversion of dilutive securities $ 162,070 $ 441,150 $ 513,444
============ ============ ============
Income from discontinued operations $ - $ 19,942 $ 19,996
============ ============ ============
Denominator
Weighted average number of common shares
outstanding used in basic EPS 949,365 950,903 1,105,442
Impact of potential common shares:
Stock options 64,662 69,532 62,503
------------ ------------ ------------
Weighted number of common share and dilutive
potential common shares used in dilutive EPS 1,014,027 1,020,435 1,167,945
============ ============ ============
Basic EPS
Continuing operations $ .17 $ .46 $ .46
Discontinued operations - .02 .02
------- ------- ------
Net income $ .17 $ .48 $ .48
======= ======= ======
Diluted EPS
Continuing operations $ .16 $ .43 $ .44
Discontinued operations - .02 .02
------- ------- ------
Net income $ .16 $ .45 $ .46
======= ======= ======
</TABLE>
Options to purchase 225,000 shares of common stock, at prices ranging
from $2.50 to $3.50 per share, were outstanding during the year ended May
31, 1996, but were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market price
for the common shares.
F-24
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts at which cash, accounts receivable, notes receivable, due
from related parties, accounts payable, current liabilities and long-term
debt are presented in the balance sheets approximate their fair value.
NOTE 15 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998
Revenues $ 798,628 $ 718,300 $ 605,895 $ 765,911
========== ========== ========== ==========
Income (loss) from operations
before income taxes $ 266,025 $ 189,129 $ (94,785) $ (84,764)
Income taxes 110,000 76,800 43,276 29,989
---------- ---------- ---------- ----------
Net income (loss) $ 156,025 $ 112,329 $ (51,509) $ (54,775)
========== ========== ========== ==========
Net earnings (loss) per common share:
Basic:
Continuing operations $ .16 $ .12 $ (.05) $ (.06)
Discontinued operations - - - -
------ ------- ------- ------
Net income (loss) $ .16 $ .12 $ (.05) $ (.06)
====== ======= ======= ======
Diluted:
Continuing operations $ .15 $ .11 $ (.05) $ (.05)
Discontinued operations - - - -
------ ------- ------- ------
Net income (loss) $ .15 $ .11 $ (.05) $ (.05)
====== ======= ======= ======
Market price per share:
High $ 3.25 $ 3.00 $ 3.00 $ 3.00
Low 2.25 2.31 2.19 2.38
</TABLE>
F-25
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
NOTE 15 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997
Revenues $ 649,981 $ 687,556 $ 649,042 $ 761,216
Income from continuing operations
before income taxes 264,999 248,111 146,257 92,951
Income taxes 106,000 99,000 43,368 62,800
Income from continuing operations 158,999 149,111 102,889 30,151
Income (loss) from discontinued
operations (10,241) 28,204 (21) 2,000
Net income 148,758 177,315 102,868 32,151
Net earnings (loss) per share:
Basic:
Continuing operations $ .17 $ .16 $ .11 $ .03
Discontinued operations (.01) .03 - -
------ ------- ------- ------
Net income $ .16 $ .19 $ .11 $ .03
====== ======= ======= ======
Diluted:
Continuing operations $ .16 $ .15 $ .10 $ .03
Discontinued operations (.01) .03 - -
------ ------- ------- ------
Net income $ .15 $ .18 $ .10 $ .03
====== ======= ======= ======
Market price per share:
High $ 2.87 $ 2.44 $ 2.75 $ 2.50
Low 2.43 2.44 2.25 2.25
</TABLE>
There were no dividends for either year.
NOTE 16 - PRIOR PERIOD ADJUSTMENT
Additional paid-in capital and retained earnings at May 31, 1995 have been
adjusted to record the cumulative equity of minority interests in losses
for the period 1989 through February 1995, not previously recorded. On
February 2, 1995 such interests were purchased through the issuance of
75,000 shares of common stock and was recorded at the book value of the
minority interest at the time of $226,288. The difference in the amount
recorded and the current market price of the shares issued on that date
of $187,500, is not material to the consolidated financial statements.
The error had no effect on net income for years subsequent to May 31, 1995.
F-26
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of December 15,
1997, by and between Bernard Haldane Acquisition Corporation, a Florida
corporation ("Newco"), and Bernard Haldane Associates, Inc., a Florida
corporation (the "Company"), (Newco and the Company are hereinafter collectively
referred to as the Constituent Corporations").
WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger (as defined below) is fair to the shareholders of the Company and in
the best interests of such shareholders and (ii) resolved to approve and adopt
this Agreement and the transactions contemplated hereby and to recommend
approval and adoption of this Agreement by the shareholders of the Company; and
WHEREAS, the Boards of Directors of Newco and the Company, deeming it
advisable for the respective benefit of Newco and the Company and their
respective shareholders that Newco merge with the Company on the terms and
conditions hereinafter set forth (the "Merger"), have approved this Agreement in
accordance with the 1989 Business Corporation Act of the State of Florida (the
"FBCA");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants, representations, and warranties herein contained, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. On the Effective Date (as defined in Section
1.2), Newco shall be merged with and into the Company in accordance with the
applicable provisions of the laws of the State of Florida and the separate
existence of Newco shall thereupon cease, and the Company, as the surviving
corporation in the Merger (the "Surviving Corporation") shall continue its
corporate existence under the laws of the State of Florida. Upon the
consummation of the Merger, the Surviving Corporation shall thereupon and
thereafter possess all the rights, privileges, powers, and franchises as well of
a public as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and each and
all of the rights, privileges, powers, and franchises of each of the Constituent
Corporations, and all property, real, personal, and mixed, and
<PAGE>
all debts due to either of the Constituent Corporations on whatever account, as
well as for stock subscriptions as all other things in action or belonging to
each of such Constituent Corporations shall be 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, lease or otherwise, in either
Constituent Corporation, shall not revert or be in any way impaired by reason of
the Merger; 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 each 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, liabilities, and duties had been incurred
or contracted by it.
SECTION 1.2. Certificate of Merger. As promptly as practicable after
the satisfaction or waiver of the conditions hereinafter set forth, the parties
hereto will cause an appropriate certificate of merger ("Certificate of Merger")
(a form of which is attached hereto as Exhibit A) in such form or forms as
required by, and executed in accordance with, the relevant provisions of the
FBCA to be filed with the Department of State of the State of Florida. The
Merger shall become effective upon the filing of the Certificate of Merger and
such date and time is hereinafter referred to as the "Effective Date."
SECTION 1.3. Shareholders' Meeting. The Company shall take all action
necessary, in accordance with the FBCA and the Company's Certificate of
Incorporation and By-laws, to duly call, give notice of, convene and hold a
meeting of its shareholders (the "Shareholders' Meeting") as promptly as
practicable to consider and vote upon the adoption of this Agreement and the
Merger. The Company shall use its best efforts to solicit from holders of common
shares, par value $.00001 per share (the "Common Shares"), of the Company,
entitled to vote thereon proxies in favor of adoption and approval of this
Agreement and the Merger and to take all other action necessary or, in the
reasonable judgment of the Company, helpful to secure the vote of holders of
Common Shares required by law to effect the Merger and the other transactions
contemplated hereby. At any such meeting Newco shall vote, or cause to be voted,
all of the Common Shares then owned by Newco or any subsidiary or affiliate of
Newco and entitled to vote thereon in favor of the Merger.
SECTION 1.4. Approval by Newco. The shareholders of Newco have
approved this Agreement and the Merger in accordance with the FBCA.
2
<PAGE>
ARTICLE II
NAME, CERTIFICATE OF INCORPORATION, AND
BY-LAWS OF THE SURVIVING CORPORATION
SECTION 2.1. Name. The name of the surviving corporation shall
be Bernard Haldane Acquisition Corporation.
SECTION 2.2. Certificate of Incorporation. The Certificate of
Incorporation of the Company as may be amended by the Certificate of Merger
shall be the Certificate of Incorporation of the Surviving Corporation.
SECTION 2.3. By-Laws. The By-laws of the Company as in effect
on the Effective Date shall be the By-laws of the Surviving Corporation.
SECTION 2.4. Directors and Officers. The Directors and Officers of the
Company on the Effective Date shall be the directors and officers of the
Surviving Corporation and shall serve in accordance with the By-laws of the
Surviving Corporation.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1. Conversion of Shares. As of the Effective Date,
by virtue of the Merger and without any action on the part of the
holders thereof:
(a) Each Common Share of the Company held by the Company as treasury
shares or owned by Newco shall be cancelled.
(b) Each other outstanding Common Share of the Company, except those
held by shareholders of the Company who have validly demanded and perfected
rights of dissent under Section 607.1320 of the FBCA and have not effectively
withdrawn or lost such rights, shall be converted into the right to receive
$3.00 in cash, without interest.
(c) Each issued and outstanding share of capital stock of Newco shall
be converted into one validly issued, fully paid, and non-assessable common
share of the Surviving Corporation.
(d) Each outstanding Common Share of the Company, the holder of which
has demanded and perfected his right to payment of "fair value" for his shares
in accordance with Section 607.1320 of the FBCA and has not effectively
withdrawn or lost his right to such payment, shall not be converted into or
represent a right to
3
<PAGE>
receive cash hereunder, but the holder thereof shall be entitled only to such
rights as are granted by the FBCA. The Company shall give Newco prompt notice
upon receipt by the Company of any written objection to the Merger and any such
written demands for rights to payment of fair value, withdrawal of demands for
such rights and any other instruments served pursuant to the FBCA Section
607.1320 (any shareholder duly making such demand being hereinafter called a
"Dissenting Shareholder"). The Company agrees that it will not, except with the
prior written consent of Newco, voluntarily make any payment with respect to, or
settle or offer to settle, any such demands. Each Dissenting Shareholder who
becomes entitled, pursuant to the provisions of the FBCA Section 607.1320, to
payment for his Common Shares shall receive payment therefor from the Surviving
Corporation (but only after the amount thereof shall have been agreed upon or
finally determined pursuant to such law) and such Common Shares shall be
cancelled. If any Dissenting Shareholder shall have failed to perfect or shall
have effectively withdrawn or lost such right to demand payment of fair value,
his Common Shares shall thereupon be deemed to have been converted into the
right to the cash consideration to be issued in the Merger as provided in this
Agreement.
SECTION 3.2. Payment for Common Shares. After the Effective Date, a
bank or trust company having combined capital, surplus, and undivided profits of
at least $10,000,000, to be designated by the Company shall act as paying agent
(the "Paying Agent") in effecting the payment of cash for certificates which,
immediately prior to the Effective Date, represented Common Shares of the
Company entitled to payment pursuant to Section 3.1(b). As soon as practicable
after the Effective Date, the Paying Agent shall mail a transmittal form (the
"Letter of Transmittal") to each holder (other than the Company and Newco) of
certificates theretofore representing Common Shares advising such holder of the
procedure for surrendering to the Paying Agent such Common Share certificates
for payment. Notwithstanding the foregoing, neither the Paying Agent nor any
party hereto shall have any liability to a holder of certificates theretofore
representing Common Shares for the payment of the amount to be paid pursuant to
Section 3.1(b) in respect of such Common Shares if such amount is paid to a
public official pursuant to any applicable abandoned property, escheat, or
similar law. Upon the surrender of a certificate or certificates in accordance
with the requirements of the Letter of Transmittal, the holder shall be paid,
without interest thereon, the amount of cash equal to the product of the number
of Common Shares represented by such certificates and $3.00, less any amount
required to be withheld under applicable federal income tax regulations ("Backup
Withholding"), and such certificate(s) shall forthwith be cancelled. Until so
surrendered, each such certificate shall represent solely the right to receive
$3.00, less any Backup Withholding, without interest, and the Surviving
Corporation shall not be
4
<PAGE>
required to pay the holder thereof the cash to which such holder otherwise would
be entitled under Section 607.1320 of the FBCA. If payment for Common Shares is
to be made in a name other than that in which the certificate or certificates
for such Common Shares is registered on the stock transfer books of the Company
as of the Effective Date, it will be a condition of such payment that the
certificate or certificates so surrendered shall be properly endorsed or
otherwise in proper form for transfer as determined by the Paying Agent and that
person requesting such payment shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the certificates so surrendered. On the Effective Date, the
Company shall make available to the Paying Agent, in accordance with the terms
and conditions of a Paying Agent Agreement to be entered into by the Company and
the Paying Agent, sufficient cash to permit the conversions and exchanges
provided for in Section 3.1 and this Section 3.2 to be made; provided, however,
that in the event the Surviving Corporation deposits cash with the Paying Agent
hereunder and any portion of such cash remains in escrow with the Paying Agent
and has not been delivered upon exchanges in accordance with this Section at the
expiration of 90 days from the Effective Date, the cash and any interest
accumulated thereon shall be returned immediately by the Paying Agent to the
Surviving Corporation; and provided further, that if at any time prior to the
expiration of such 90-day period any Dissenting Shareholder shall have demanded
in writing from the Surviving Corporation payment of the value of his Common
Shares in accordance with Section 607.1320 of the FBCA, and in the event cash
remains in escrow with the Paying Agent, the cash and any interest accumulated
thereon deposited in escrow with the Paying Agent in respect to such Common
Shares shall be returned immediately by the Paying Agent to the Surviving
Corporation upon receipt of notice from the Surviving Corporation of such
demand. If any certificate or certificates representing Common Shares are
thereafter surrendered to the Paying Agent in accordance with the requirements
of the Letter of Transmittal, the Paying Agent shall promptly notify the
Surviving Corporation which shall promptly deposit with the Paying Agent an
amount equal to $3.00 multiplied by the number of Common Shares represented by
such surrendered certificate or certificates, and the Paying Agent shall
promptly pay to the holder thereof such amount, without interest, less any
Backup Withholding. If any of the consideration due to be paid or delivered in
the Merger is not paid or delivered in the Merger within the time period
specified by any applicable laws concerning abandoned property, escheat or
similar laws, and if such failure to pay or deliver such consideration occurs or
arises out of the fact that such property is not claimed by the proper owner
thereof, the Surviving Corporation shall be entitled to dispose of any such
consideration in accordance with applicable laws concerning abandoned property,
escheat or similar laws.
5
<PAGE>
SECTION 3.2.A. Stock Options and Related Matters. As of the Effective
Date of the Merger, all rights with respect to the Common Shares of the Company
issuable pursuant to the exercise of stock options ("Company Options") granted
by the Company under stock option plans of the Company (the "Company Stock
Option Plans") or otherwise issued, and held by each participant thereunder or
holder thereof, which Company Options are listed and described in Disclosure
Schedule 3.2.A. hereof and which are outstanding at the Effective Date of the
Merger, whether or not such Company Options are then exercisable, shall be
terminated and canceled as of the Effective Date of the Merger and shall be
converted into the right of the holders thereof to receive $3.00 in cash for
each Common Share of the Company subject to the Company Options held by such
holder. Such holder of the Company Options so surrendered shall execute a
cancellation agreement pursuant to which the rights held by such holder shall be
surrendered and the Company Options held by such holder shall be canceled and
shall be of no further force or effect upon the payment of the consideration
stated above.
SECTION 3.3. Taking of Necessary Action; Further Action. Newco and the
Company, respectively, shall take all such action as may be necessary or
appropriate in order to effectuate the Merger as promptly as possible, subject
to all of the terms and conditions hereof. If, at any time after the Effective
Date, any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full right, title, and
interest in all assets, property, rights, privileges, powers, and franchises of
either of the Constituent Corporations, the officers and directors of such
corporation are fully authorized in the name of their corporation or otherwise
to take, and shall take, all such action.
SECTION 3.4. Closing of the Company's Transfer Books. On the Effective
Date, the stock transfer books of the Company shall be closed and no transfer of
Common Shares shall thereafter be made. If, after the Effective Date,
certificates representing Common Shares are presented to the Surviving
Corporation, they shall be cancelled and exchanged for cash in accordance with
this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to the Company as follows:
SECTION 4.1. Organization. Newco is a corporation duly
organized, validly existing, and in good standing under the laws of
the State of Florida and has the requisite corporate power and
authority to own, lease, license, and use its properties and assets
6
<PAGE>
and to carry on the business in which it is now engaged and any business in
which it contemplates engaging.
SECTION 4.2. Capitalization. The authorized capital stock of Newco
consists of 2,000,000 shares of common stock, par value $.01 per share ("Newco
Shares"), of which, as of the date hereof, 731,670 Newco Shares are issued and
outstanding. All the issued and outstanding Newco Shares are validly issued,
fully paid, and nonassessable, and are not owned or held in violation of any
preemptive right of shareholders, and are owned of record as follows:
Name of Shareholder Number of Shares
- ------------------- ----------------
Taylor Management Money -- 5,000
Purchase Plan
Taylor Management Profit 7,300
Sharing Plan
Jerold Weinger, 11,900
SEP/Individual Retirement Account
Jerold & Lilli Weinger, as joint 6,145
tenants with the rights of survivorship
Jerold Weinger, as custodian 21,350
under the Uniform Gift to
Minors Act (f/b/o Seth Weinger)
Jerold Weinger, 5,500
Individual Retirement Account
Jerold Weinger 64,550
Jerold Weinger, SEP/Individual Re-
tirement Account 9,000
Jerold Weinger, as custodian
under the Uniform Gift to 22,550
Minors Act (f/b/o Allison Weinger)
Lilli Weinger, 11,500
Individual Retirement Account
Jerold Weinger, 23,125
Individual Retirement Account
Renee M. Nadel, Irrevocable Trust 262,500
dated December 28, 1997
Seth Weinger 5,000
Lilli Weinger 276,250
7
<PAGE>
There are no options, warrants or other rights, agreements, or
commitments obligating Newco to issue shares of its capital stock.
SECTION 4.3. Authority Relative to this Agreement. Newco has the
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by Newco's Board of Directors and shareholders, and no other
corporate proceedings on the part of Newco are necessary to authorize this
Agreement and the transactions contemplated hereby. Newco is not subject to or
obligated under any charter, by-law, or any order or decree, which would be
breached or violated by its executing and carrying out this Agreement. The
execution and delivery of this Agreement by Newco and the consummation of the
transactions contemplated hereby will not violate any applicable law, rule, or
regulation binding on Newco. This Agreement is a legal, valid, and binding
obligation of Newco enforceable against Newco in accordance with its terms,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity.
SECTION 4.4. Operations of Newco. Newco was formed on November 5, 1997,
for the purpose of the Merger and has conducted no activities and incurred no
liabilities other than in connection with the negotiation and execution of this
Agreement and consummation of the transactions contemplated herein.
SECTION 4.5. Proxy Statement and Schedule 13E-3. None of the
information supplied by Newco for inclusion in the proxy statement or similar
materials distributed to the Company's shareholders in connection with the
Merger, including any amendments or supplements thereto (the "Proxy Statement")
or the Rule 13E-3 Transaction Statement (the "Schedule 13E-3") will, at the
respective times that the Proxy Statement and the Schedule 13E-3 or any
amendments or supplements thereto are filed with the Securities and Exchange
Commission (the "SEC") or, at the time the Proxy Statement is mailed to the
Company's shareholders for the Shareholders' Meeting, or at the Effective Date,
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 were made, not
misleading.
SECTION 4.6. Brokers and Finders. Neither Newco nor any of its
officers, directors, or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated herein.
8
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Newco as follows:
SECTION 5.1. Organization. The Company and each of its subsidiaries is
a corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite corporate
power and authority to carry on its business as it is now being conducted. The
Company and each of its subsidiaries is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified will not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
SECTION 5.2. Capitalization. The authorized capital stock of the
Company consists of 950,000,000 Common Shares, $.00001 par value, of which, as
of the close of business on December 1, 1997, 949,365 shares were issued and
outstanding. All the issued and outstanding Common Shares are validly issued,
fully paid, and nonassessable and are not owned or held in violation of any
preemptive right of shareholders. There are no options, warrants, or other
rights, agreements or commitments obligating the Company to issue shares of its
capital stock, except those set forth on Schedule 5.2 hereto.
SECTION 5.3. Authority Relative to this Agreement. The Company has the
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by its Board of Directors and, except for approval by its
shareholders as set forth in Section 6.3, no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement and the
transactions contemplated hereby. Neither the Company nor any of its properties
is subject to or obligated under any charter, by-law, or provision of any
material contract or any license, franchise, or permit, or any order or decree
which would be breached or violated or in respect of which a right of
acceleration would be created by its executing, delivering, and carrying out
this Agreement. Except as referred to herein and except for compliance with the
provisions of applicable securities laws, there is no legal impediment to the
Company's execution and delivery of this Agreement or its consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a legal, valid, binding
9
<PAGE>
obligation of the Company, enforceable against the Company in accordance with
its terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity.
SECTION 5.4. Proxy Statement and Schedule 13E-3. None of the
information supplied by the Company for inclusion in the Proxy Statement or the
Schedule 13E-3 will, at the respective times that the Proxy Statement and the
Schedule 13E-3 or any amendments or supplements thereto are filed with the SEC
or, at the time the Proxy Statement is mailed to the Company's shareholders for
the Shareholders' Meeting, or at the Effective Date, contain any untrue
statements 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 were made, not misleading.
SECTION 5.5. Brokers and Finder. Neither the Company nor any of its
officers, directors, or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the trans-actions contemplated herein.
ARTICLE VI
COVENANTS
SECTION 6.1. Conduct of Business by the Company Pending the Merger.
Except as contemplated by this Agreement, during the period from the date hereof
to the Effective Date, the Company and each of its subsidiaries will conduct its
operations in the ordinary and usual course, consistent with past practice, and
the Company and each of its subsidiaries will use its best efforts to preserve
intact its business organization, to keep available the services of its officers
and employees and to maintain existing relationships with licensors, licensees,
suppliers, contractors, distributors, customers, and others having business
relationships with it. Without limited the generality of the foregoing, and
except as otherwise expressly provided in this Agreement, prior to the Effective
Date, neither the Company nor any of its subsidiaries will, without the prior
written consent of Newco:
(a) amend its certificate of incorporation or by-laws;
(b) split, combine, or reclassify any outstanding shares of its capital
stock or declare, set aside or pay any dividend payable in cash, stock, or
property or make any other distributions with respect to shares of its capital
stock;
10
<PAGE>
(c) issue, sell, pledge, dispose of, or encumber, or authorize, or
propose the issuance, sale, pledge, disposition or encumbrance of (i) additional
shares of, or rights of any kind to acquire any shares of, its capital stock of
any class, or securities convertible into any such shares, or any rights,
warrants or options to acquire any such convertible securities or (ii) any other
securities in respect of or in substitution for any outstanding shares of its
capital stock;
(d) acquire or dispose of any assets, other than in the ordinary
course of business;
(e) incur any amount of indebtedness for borrowed money or enter into
any other transaction other than in the ordinary course of business other than
in connection with the Merger;
(f) redeem, purchase, or acquire or offer to acquire any shares of its
capital stock;
(g) enter into any employment agreement or collective bargaining
agreement or amend or extend any existing agreement of that nature or grant
severance or termination pay or increases in compensation other than severance
or termination pay or compensation increases which are mandated by the terms of
existing agreements or are in the ordinary course of business and consistent
with past practice and are not, individually or in the aggregate, material in
amount;
(h) change any of the accounting principles or practices used by it;
(i) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(j) make any tax election or settle or compromise any material income
tax liability;
(k) adopt, or amend to increase any benefits payable under, any bonus,
profit sharing, pension, stock option, or similar plan, trust or other
arrangement for the benefit of employees, including, but not limited to, any
action to vest any benefits in any such plan in any of the participants
thereunder to the extent not otherwise vested pursuant to said plan as in effect
on the date hereof;
(l) make, or enter into any agreement or understanding to make, any
capital expenditures during the period commencing on the
11
<PAGE>
date hereof and ending on April 1, 1998, which in aggregate amount shall exceed
$50,000 during such period; and
(m) engage in any transaction or take any other action which, if
engaged in or taken on the date of this Agreement, would have caused or resulted
in a breach of any representation or warranty of the Company set forth in
Article V hereof.
SECTION 6.2. Access and Information. (a) The Company shall afford to
Newco, its affiliates and its accountants, counsel, other representatives and
prospective lenders full access during normal business hours throughout the
period prior to the Effective Date to all of its properties, books, contracts,
commitments and records (including but not limited to tax returns and
accountants' work papers) and, during such period, shall furnish promptly to any
of them (i) a copy of each report, schedule, and other document filed or
received by it pursuant to the requirements of federal or sate securities laws,
and (ii) all other information concerning its business, properties and personnel
as they may reasonably request.
(b) In the event of the termination of this Agreement, Newco will, and
will cause its affiliates, its accountants, counsel, and other representatives
to, deliver to the Company all documents, work papers and other material and
information, and all copies thereof, obtained by them as a result of Section
6.2(a) of this Agreement. Such information will be held by Newco in confidence
until such time as such information is otherwise publicly available or required
to be disclosed in connection with the transactions contemplated by this
Agreement or otherwise pursuant to law.
SECTION 6.3. Shareholders' Approval. The Company shall take all action
necessary in accordance with applicable law and its Certificate of Incorporation
and By-laws to obtain approval of this Agreement and the Merger by the requisite
number of outstanding Common Shares of the Company. In connection therewith, the
Company will convene a Shareholders' Meeting as soon as is reasonably
practicable at which the Company will submit this Agreement to, and recommend
approval of this Agreement and the Merger by, its shareholders. In connection
with the Shareholders' Meeting, the Company shall prepare, as promptly as
practicable, a Proxy Statement with respect to the Merger and shall submit the
Proxy Statement to Newco for its review and comments. The Company shall file the
Proxy Statement with the SEC and promptly respond to any comments made by the
SEC with respect to the Proxy Statement and any preliminary version thereof. The
Company shall thereafter mail the Proxy Statement to its shareholders in order
to solicit proxies in favor of the Merger.
SECTION 6.4. Expenses. Whether or not the Merger is consum-
mated, all costs and expenses incurred by the Company or Newco in
12
<PAGE>
connection with this Agreement and the Merger shall be paid by the Company.
SECTION 6.5. Additional Arrangements. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, as promptly as practicable, all things necessary, proper or
advisable under applicable laws and regulations to assure the performance or
satisfaction of each condition to, and to consummate and make effective, the
transactions contemplated by this Agreement, including using its best efforts to
obtain all necessary waivers, consents and approvals and effecting all necessary
registrations and filings (including, but not limited to, the execution and
filing of a Certificate of Merger, the filing and mailing of the Proxy Statement
and Schedule 13E-3 and any amendments or supplements thereto and the execution
of any additional instruments necessary to consummate the transactions
contemplated hereby).
SECTION 6.6. Agreement to Defend and Indemnify. [(a) For three years
after the Effective Date, the Surviving Corporation shall use its good faith
efforts to provide officers' and directors' liability insurance covering each
present and former director and officer of the Company who is presently covered
by the Company's officers' and directors' liability insurance or will be so
covered at the Effective Date (the "Indemnified Parties") with respect to
actions and omissions occurring prior to the Effective Date, on terms no less
favorable to such officers and directors than such insurance maintained in
effect by the Company on the date hereof in terms of coverage and amounts.]
(b) For six years and one hundred and eighty days after the Effective
Date, the Surviving Corporation shall indemnify and hold harmless the
Indemnified Parties against any losses, claims, damages, liabilities, costs,
expenses, judgments, and amounts paid in settlement in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative ("Indemnifiable Claim") arising out
of or pertaining to any action or omission occurring prior to the Effective Date
(including, without limitation, any which arise out of or relate to the Merger
or other transactions contemplated by this Agreement) [to the extent not covered
by the officers' and directors' liability insurance policy referred to above
and] to the full extent required by the Company's By-laws as presently in
effect. Any Indemnifiable Party wishing to claim indemnification under this
Section 6.6, upon learning of any such Indemnifiable Claim, shall notify the
Surviving Corporation thereof and shall deliver to the Surviving Corporation an
undertaking to repay any amounts advanced pursuant hereto when and if a court of
competent jurisdiction shall ultimately determine, after exhaustion of all
13
<PAGE>
avenues of appeal, that he did not act in accordance with the standards set
forth in Section 607.0830 of the FBCA or the Company's Certificate of
Incorporation and By-Laws. The Indemnified Party, or the Indemnified Parties, as
a group, may retain only one law firm to represent them with respect to any
Indemnifiable Claim 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. This Section 6.6 shall survive the Merger, shall
continue for six years and one hundred and eighty days after the Effective Date
of the Merger and is intended to benefit each of the Indemnified Parties, each
of whom shall be entitled to enforce this Section 6.6 against the Surviving
Corporation.
SECTION 6.7. Public Announcements. Newco and the Company will consult
with each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law.
SECTION 6.8. Notification of Certain Matters. The Company shall give
prompt notice to Newco and Newco shall give prompt notice to the Company of (a)
the occurrence, or nonoccurrence, of any event the occurrence or nonoccurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Date and (b) any material failure of the Company, or Newco, as the
case may be, to comply with or satisfy any covenant, condition, or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.8 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
ARTICLE VII
CONDITIONS
SECTION 7.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) This Agreement shall have been approved and adopted by the
requisite vote of the shareholders of the Company in accordance with the FBCA.
14
<PAGE>
(b) No preliminary or permanent injunction or other order by any
Federal of state court in the United States which prevents the consummation of
the Merger shall have been issued and remain in effect (each party agrees to use
its best efforts to have any such injunction lifted).
(c) No action shall have been taken nor any statute, rule, or
regulation have been enacted by the government (or any governmental body or
agency) of the United States or any state thereof that makes the consummation of
the Merger illegal.
SECTION 7.2. Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following additional
conditions (unless waived):
(a) The representations and warranties of Newco contained in this
Agreement shall be true in all material respects on and as of all times prior to
the Effective Date with the same force and effect as though made on and as of
such times, except as affected by the transactions contemplated hereby and
except that any such representation and warranty made as of a specified date
shall have been true on and as of such date.
(b) Newco shall in all material respects have performed each obligation
and agreement and complied with each covenant to be performed or complied with
by it hereunder on or before the Effective Date.
(c) The Company shall have received from an investment banking firm
acceptable to the Company opinions, one dated the date of the Proxy Statement
and suitable for transmission therewith, and another dated the Effective Date,
to the effect that the $3.00 to be paid to the public shareholders of the
Company in the Merger is fair to the public shareholders of the Company from a
financial point of view.
SECTION 7.3. Conditions to Obligation of Newco to Effect the Merger.
The obligation of Newco to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Date of the following additional conditions (unless
waived):
(a) The representations and warranties of the Company contained in this
Agreement shall be true in all material respects on and as of all times prior to
the Effective Date with the same force and effect as though made on and as of
such times, except as affected by the transactions contemplated hereby and
except that any such representation or warranty made as of a specified date
shall have been true on and as of such date.
15
<PAGE>
(b) The Company shall in all material respects have performed each
obligation and agreement and complied with each covenant to be performed or
complied with by it hereunder on or before the Effective Date.
(c) There shall not have been instituted or threatened any proceedings
in law or equity relating to, or seeking to prohibit or otherwise challenging
the consummation of the transactions contemplated by this Agreement or seeking
to obtain substantial damages with respect thereto.
ARTICLE VIII
TERMINATION, AMENDMENTS, AND WAIVER
SECTION 8.1. Termination. This Agreement may be terminated at any time
prior to the Effective Date, whether before or after approval by the
shareholders of the Company:
(a) by mutual consent of the Boards of Directors of Newco and the
Company;
(b) by the Company or Newco if the Merger shall not have been
consummated prior to April 1, 1998 or such later date as may be established by
the parties hereto;
(c) upon termination of the Organization Agreement among Newco and Mme.
Weinger and Nadel and the persons and entities identified in Section 4.2 hereof;
or
(d) by the Company or Newco if any court of competent jurisdiction in
the Untied States or other United States governmental body shall have issued an
order, decree, or ruling or taken any other action restraining, enjoining, or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable.
SECTION 8.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement, this Agreement shall forthwith become void and
have no effect, without any liability on the part of any party hereto or its
directors, officers, or shareholders, other than the provisions of this Section
8.2 and Sections 6.4, 6.6, and 8.3 and Article IX. Nothing contained in this
Section 8.2 shall relieve any party from liability for any breach of this
Agreement.
SECTION 8.3. Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors or duly
authorized committees thereof, at any time before or after approval hereby by
the shareholders of the Company, but,
16
<PAGE>
after any such approval, no amendment shall be made which reduces the price paid
per Common Share or changes the medium of payment therefor or which in any
materially adversely affects the rights of such shareholder without the further
approval of the shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
SECTION 8.4. Waiver. At any time prior to the Effective Date, any term,
provision, or condition of this Agreement may be waived in writing (or the time
for performance of any of the obligations or other acts of the other party
hereto may be extended) by the party which is, or the party the shareholders
which are, entitled to the benefits thereof. Any agreement on the part of a
party hereto to any such extension or wavier shall be valid if set forth in an
instrument in writing signed on behalf of such party by a duly authorized
officer.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall not survive the Effective Date.
SECTION 9.2. Closing. The closing of the transactions contemplated by
this Agreement shall take place at the offices of Gusrae, Kaplan & Bruno, 120
Wall Street, New York, New York 10005 or such other place as the parties may
agree, as promptly as practicable after the satisfaction or wavier of the
conditions set forth in Article VII.
SECTION 9.3. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to Newco:
c/o Bernard Haldane Associates, Inc.
192 Lexington Avenue
New York, New York 10016
Attention: Jerold P. Weinger
17
<PAGE>
With copies to:
Gusrae, Kaplan & Bruno
120 Wall Street
New York, New York 10005
Attention: Robert Perez, Esq.
(b) If to the Company:
Bernard Haldane Associates, Inc.
192 Lexington Avenue
New York, New York 10016
Attention: Jerold P. Weinger
With copies to:
Schoeman, Marsh & Updike
60 East 42nd Street
New York, New York 10165
Attention: Michael Schoeman, Esq.
SECTION 9.4. Notice of Breach. Each party will promptly give written
notice to the other party upon becoming aware of the occurrence, or impending or
threatened occurrence, of any event which would cause or constitute a breach of
any of its representations, warranties, or covenants contained or referred to in
this Agreement and will use its best efforts to prevent or promptly remedy the
same.
SECTION 9.5. Assignment. Newco may not assign any of its
rights and obligations under this Agreement without the consent of
the Company.
SECTION 9.6. Interpretation. When a reference is made in this Agreement
to subsidiary, the word "subsidiary" means any corporation more than 50% of the
outstanding voting securities of which are directly or indirectly owned by the
Company or Newco, as the case may be. When a reference is made in this Agreement
to affiliate, the word "affiliate" means with respect to any person (as
hereinafter defined), any Person that directly or indirectly though one or more
intermediaries controls, or is controlled by, or is under common control with,
such Person. For purposes of this Agreement, "Persons" means an individual, a
corporation, a partnership, an association, a trust, or any other entity or
organization. The 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 context may require, any pronoun used herein shall
include the corresponding masculine, feminine, or neuter forms, and the singular
forms of nouns, pronouns, and verbs shall include the plural and vice versa.
18
<PAGE>
SECTION 9.7. Separability. Any term or provisions of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
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, such
provision shall be interpreted to be only so broad as is enforceable.
SECTION 9.8. Specific Performance. Each of Newco and the Company
acknowledges that (i) neither will have any adequate remedy at law if the other
fails to perform any of its obligations hereunder and (ii) each shall have the
right, in addition to any other rights it may have, to obtain in any court of
competent jurisdiction injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any of the obligations of the other
under this Agreement if the other shall fail to perform any of its obligations
hereunder.
SECTION 9.9. Miscellaneous. This Agreement (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, between the parties,or any of them, with respect to the
subject matter hereof; and (b) except for the provisions set forth in Section
6.6 hereof, is solely for the benefit of the parties hereto and their respective
successors, legal representatives and assigns and does not confer on any other
person any obligations or rights or remedies under or by reason of this
Agreement. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
SECTION 9.10. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Florida, without giving effect to conflict of laws.
19
<PAGE>
IN WITNESS WHEREOF, Newco and Company have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
BERNARD HALDANE ACQUISITION
CORPORATION
Attest: /s/ Jeffrey G. Klein By: /s/ Jerold P. Weinger
-------------------------- -----------------------------
Jeffrey G. Klein Jerold P. Weinger
Secretary President
BERNARD HALDANE ASSOCIATES, INC.
Attest: /s/ Jeffrey G. Klein By: /s/ Jerold P. Weinger
-------------------------- -----------------------------
Jeffrey G. Klein Jerold P. Weinger
Secretary President
20
<PAGE>
AMENDMENT TO AGREEMENT
AND
PLAN OF MERGER
THIS AMENDMENT TO AN AGREEMENT AND PLAN OF MERGER (this "Amendment")
is made effective as of the 1st day of November 1998, by BERNARD HALDANE
ACQUISITION CORPORATION, A FLORIDA CORPORATION ("Newco"), and BERNARD HALDANE
ASSOCIATES, INC., a Florida corporation (the "Company"), amending that certain
Agreement and Plan of Merger between the parties dated as of December 15, 1997
(the "Agreement").
1. Section 8.1(b) of the Agreement is amended to read as follows:
(b) by the Company or Newco if the Merger shall not have
been consummated prior to April 1, 1999 or such later date
as may be established by the parties hereto;
2. Except for this Amendment, the Agreement remains unchanged, and is
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
BERNARD HALDANE ACQUISITION
CORPORATION
Attest: /s/ Jeffrey G. Klein By: /s/ Jerold P. Weinger
---------------------- -----------------------
Jeffrey G. Klein Jerold P. Weinger
Secretary President
BERNARD HALDANE ASSOCIATES, INC.
Attest: /s/ Jeffrey G. Klein By: /s/ Jerold P. Weinger
---------------------- -----------------------
Jeffrey G. Klein Jerold P. Weinger
Secretary President
<PAGE>
SECOND AMENDMENT TO AGREEMENT
AND
PLAN OF MERGER
THIS SECOND AMENDMENT TO AN AGREEMENT AND PLAN OF MERGER (this
"Amendment") is made effective as of the 27th day of January 1999, by BERNARD
HALDANE ACQUISITION CORPORATION, A FLORIDA CORPORATION ("Newco"), and BERNARD
HALDANE ASSOCIATES, INC., a Florida corporation (the "Company"), amending that
certain Agreement and Plan of Merger between the parties dated as of December
15, 1997 (the "Agreement").
1. Section 8.1(b) of the Agreement is amended to read as follows:
(b) by the Company or Newco if the Merger shall not have
been consummated prior to June 30, 1999 or such later date
as may be established by the parties hereto;
2. Except for this Amendment, the Agreement remains unchanged, and is
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
BERNARD HALDANE ACQUISITION
CORPORATION
Attest: /s/ Jeffrey G. Klein By: /s/ Jerold P. Weinger
---------------------- -----------------------
Jeffrey G. Klein Jerold P. Weinger
Secretary President
BERNARD HALDANE ASSOCIATES, INC.
Attest: /s/ Jeffrey G. Klein By: /s/ Jerold P. Weinger
---------------------- -----------------------
Jeffrey G. Klein Jerold P. Weinger
Secretary President
<PAGE>
ANNEX II
STATE OF FLORIDA
ARTICLES OF MERGER
OF
BERNARD HALDANE ACQUISITION CORPORATION
A FLORIDA CORPORATION
INTO
BERNARD HALDANE ASSOCIATES, INC.
A FLORIDA CORPORATION
Pursuant to Section 607.1105 of the Florida Business Corporation Act,
the undersigned corporations adopt the following articles of merger:
FIRST: The plan of merger is as follows:
(A) On the Effective Date of the Merger, Bernard Haldane Acquisition
Corporation shall be merged with and into Bernard Haldane Associates, Inc. in
accordance with the applicable provisions of the laws of the State of Florida
and the separate existence of Bernard Haldane Acquisition Corporation shall
cease, and Bernard Haldane Associates, Inc., as the surviving corporation in the
Merger shall continue its corporate existence under the laws of the State of
Florida;
(B) As of the Effective Date of the Merger and by virtue of the Merger:
(i) Each Common Share of Bernard Haldane Associates, Inc. held by Bernard
Haldane Associates, Inc. as treasury shares or owned by Bernard Haldane
Acquisition Corporation shall be cancelled; (ii) Each other outstanding Common
Share of Bernard Haldane Associates, Inc. shall be converted into the right to
receive $3.00 in cash, without interest; (iii) Each issued and outstanding share
of capital stock of Bernard Haldane Acquisition Corporation shall be converted
into one validly issued, fully paid, and non-assessable Common Share of Bernard
Haldane Associates, Inc.; and (iv) All rights with respect to the Common Shares
of Bernard Haldane Associates, Inc. issuable pursuant to the exercise of stock
options ("Options") granted by Bernard Haldane Associates, Inc. under its
<PAGE>
stock option plans (the "Stock Option Plans") or otherwise issued, and held by
each participant thereunder or holder thereof, and which are outstanding at the
Effective Date of the Merger, whether or not such Options are then exercisable,
shall be terminated and canceled as of the Effective Date of the Merger and
shall be converted into the right of the holders thereof to receive $3.00 in
cash, without interest for each Common Share of Bernard Haldane Associates, Inc.
SECOND: The Effective Date of the Merger is the date on which
these Articles of Merger are filed with the Secretary of State of
the State of Florida.
THIRD: The plan of merger was adopted by the shareholders of Bernard
Haldane Acquisition Corporation, a Florida corporation, on the ___ day of
__________ 1998, and was adopted by the shareholders of Bernard Haldane
Associates, Inc., a Florida corporation, on the ___ day of __________, 1998.
Signed this ________ day of ______________, 1998.
BERNARD HALDANE ASSOCIATES, INC.
(Name of Surviving Corporation)
By: _______________________________
Jerold P. Weinger, President
BERNARD HALDANE ACQUISITION
CORPORATION
(Name of Merged Corporation)
By: _______________________________
Jerold P. Weinger, President
2
<PAGE>
ANNEX III
August 11, 1997
Special Committee of the Board of Directors
Bernard Haldane Associates, Inc.
192 Lexington Avenue
New York, New York 10016
Members of the Board:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the holders ("Public Shareholders")
of Common Stock $0.001 par value ("Company Common Stock") of Bernard Haldane
Associates, Inc. (the "Company" or "Haldane"), other than Jerold P. Weinger,
Renee Nadel or certain of their affiliates (the "Managing Shareholders"), of the
terms of the proposed merger (the "Merger") with a newly organized corporation,
Haldane Acquisition Corp. ("Newco"), which is wholly owned by the Managing
Shareholders. The Merger will be effected pursuant to an agreement and a plan of
merger with between Newco and Haldane (the "Merger Agreement"). For the purpose
of its opinion, Laidlaw defined the price of the Company's Common Stock as the
closing bid price ($2.25) on July 9, 1997. We understand that under the terms of
the Merger Agreement, the Public Shareholders would be entitled to receive the
sum of $3.00 ("Merger Price") for each share of Company Common Stock.
In connection with rendering our opinion, we have considered such
financial and other factors as we deemed appropriate under the circumstances
including, among others, the follows:
(1) The financial terms and conditions of the Merger Agreement;
(2) Certain historical business information relating to Bernard
Haldane Associates, Inc., including the Annual Reports on Form
10-K of the Company for the period ended May 31, 1992, 1993,
1994, 1995 and 1996, and the Quarterly Reports on Form 10-Q
of the Company for the period ended August 31, 1996,
November 30, 1996, and February 28, 1997;
<PAGE>
Special Committee of the Board of Directors
Bernard Haldane Associates, Inc.
August 11, 1997
Page -2-
(3) Various financial forecasts and other data provided by
the Company;
(4) Public information with respect to certain other companies in
lines of business we believe to be comparable in certain
respects to the Company, and the trading markets for such
other companies securities;
(5) The financial terms of certain other merger agreements
involving the acquisition of minority interest of other public
companies.
(6) The stock price and trading volume history of the Company.
We have also met with certain officers and employees of the Company to
discuss the foregoing, including the past and current business operations,
financial condition and prospects of the Company, as well as other matters we
believe relevant to our inquiry. We have also considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have
assumed and relief upon the accuracy and completeness of all of the financial
and other information provided to us or publicly available and have neither
attempted independently to verify nor assumed responsibility for verifying any
of such information. With respect to the financial projections of the Company,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Company's management as
to the future financial performance of the Company, and we express no opinion
with respect to such forecasts or the assumptions on which they are based. We
further relied upon the assurance of management of Haldane that they were
unaware of any facts that would make such information incomplete or misleading.
We have not made or obtained or assumed any responsibility for making or
obtaining any independent evaluations or appraisals of any of the assets
(including properties and facilities) or liabilities of the Company.
We have also taken into account our assessment of general economic,
market and financial conditions and our general knowledge of securities
valuation. Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof, and we assume no responsibility to update
or revise our opinion based upon circumstances or events occurring after the
date hereof. Our opinion as expressed below does not imply any conclusion as to
<PAGE>
Special Committee of the Board of Directors
Bernard Haldane Associates, Inc.
August 11, 1997
Page -3-
the likely value of the Company following the consummation of the Merger, which
may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the value of a company. Our opinion does not address
the Company's underlying business decision to effect the Merger. Our opinion is
directed only to the fairness, from a financial point of view, of the Merger
Agreement and does not constitute a recommendation to the Public Shareholders of
Company's Common Stock with respect to the Merger Agreement. Our opinion also
does not address the decision of the directors and executive officers of the
Company to enter into an indemnification agreement or give effect to any
liabilities they may have incurred thereby.
In rendering our opinion we have assumed that the Merger will be
consummated on the terms described in the agreement without any waiver of any
material terms and conditions by the Company and that no restrictions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to the Public Shareholders. It is understood that this letter may
not be disclosed or otherwise referred to without our prior written consent,
except as may otherwise be required by law or by a court of competent
jurisdiction.
As you are aware, we will receive a fee from the Company for delivery
of this fairness opinion, the full payment of which is contingent upon
consummation of the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the consideration to be paid to the Public Shareholders in the
Merger Agreement is fair from a financial point of view.
Very truly yours,
LAIDLAW GLOBAL SECURITIES, INC.
By: s/ Faith Griffin
--------------------------------
Faith Griffin, Managing Director
<PAGE>
ANNEX IV
ORGANIZATION AGREEMENT
AGREEMENT effective as of November 15, 1997,by and among those persons
and entities identified on the signature page hereof (collectively referred to
as the "Shareholders" or individually as a "Shareholder") and BERNARD HALDANE
ACQUISITION CORPORATION, a Florida corporation (the "Corporation").
W I T N E S S E T H :
WHEREAS, the Corporation was incorporated under the laws of the State
of Florida on November 5, 1997, for the initial purpose of acquiring
approximately 77% of the common shares, $.00001 par value (the "BHA Shares"), of
Bernard Haldane Associates, Inc., a Florida corporation ("Associates"), and
entering into a proposed Agreement and Plan of Merger between the Corporation
and Associates, providing for the merger (the "Merger") of the Corporation into
Associates;
WHEREAS, the total authorized common shares of the Corporation consists
of 2,000,000 shares, $.01 par value (the "Common Shares"), none of which shares
has been issued;
WHEREAS, the Shareholders have agreed to transfer certain property to
the Corporation in exchange for Common Shares of the Corporation;
WHEREAS, the Shareholders and the Corporation desire to enter into
certain agreements with respect to the capitalization of the Corporation and
certain other aspects of its operations;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. Representations and Warranties. Each of the Shareholders represents
and warrants to each of the other parties hereto that he is not a party to or
bound by or subject to any agreement or fiduciary or other obligation
restricting his/her activities with respect to the Merger or otherwise which
will conflict with his/her obligations to the Corporation set forth herein or
arising by reason of his position, if any, as a director or officer of the
Corporation.
2. Stock Purchase Agreement. Subject to the terms and conditions
hereof, and based upon the representations and warranties contained herein, the
Shareholders hereby subscribe for and agree to acquire from the Corporation, and
the Corporation hereby
<PAGE>
agrees to issue and transfer to the Shareholders the following numbers of Common
Shares for the consideration specified:
(a) Each Shareholder shall acquire the number of Common Shares
set forth below his or her name on the signature page of this Agreement. Each of
the Shareholders shall, as promptly as practicable after the date hereof,
deliver to the Corporation certificates representing the appropriate number of
whole BHA Shares together with stock powers duly endorsed in blank. The
Shareholders hereby represent and warrant to the Corporation that the value of
the BHA Shares received by the Corporation as consideration for the issuance of
the Common Shares received by the Shareholders pursuant to this Agreement is in
excess of the par value of such Common Shares. Each of the Shareholders shall
pay any and all transfer taxes in connection with their respective deliveries to
the Corporation of BHA Shares hereunder.
(b) Upon receipt of the consideration therefor, the
Corporation shall forthwith deliver to the Shareholders certificates
representing the Common Shares acquired by them hereunder, registered in their
respective names.
3. Organizational Expenses. The Corporation shall reimburse the
Shareholders for all of their reasonable out-of-pocket expenses in connection
with the organization of the Corporation.
4. Investment Representation. Each of the Shareholders represents that
the Common Shares to be acquired by him pursuant to this Agreement are to be
acquired for his own account for investment and not with a view to the resale or
other distribution thereof and that such shares will not be sold, assigned,
transferred, pledged, hypothecated, or otherwise disposed of without
registration thereof under the Securities Act of 1933, as amended (the "Act") in
the absence of an opinion of counsel for the Corporation to the effect that such
registration is not required.
5. Legends. Each stock certificate representing the Common Shares shall
contain upon its face or upon the reverse side thereof legends to the following
effects:
(i) "THIS STOCK CERTIFICATE REPRESENTS
SHARES WHICH ARE SUBJECT TO THE
TERMS AND CONDITIONS OF AN ORGANIZA-
TION AGREEMENT (A COPY OF WHICH IS
ON FILE AT THE PRINCIPAL OFFICE OF
THE CORPORATION), AND NO SALE, AS-
SIGNMENT, TRANSFER, PLEDGE, HYPOTHE-
CATION OR OTHER DISPOSITION OF SUCH
SHARES OR ANY INTEREST THEREIN SHALL
BE MADE EXCEPT IN COMPLIANCE WITH
2
<PAGE>
THE TERMS AND CONDITIONS OF SAID
AGREEMENT."
-- and --
(ii) "THESE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THESE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, AS-
SIGNED, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSU-
ER OF THESE SHARES TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT AND SUCH STATE SECU-
RITIES LAWS."
6. Termination. This Agreement shall terminate, and the 731,670 BHA
Shares owned by the Corporation, which were previously owned by the
Shareholders, shall be returned to the respective Shareholders from whom they
were received, and the 731,670 Common Shares of the Corporation owned by the
Shareholders shall be returned to the Corporation, if the Merger has not been
consummated by April 1, 1998 (which date may be extended by mutual agreement of
the Shareholders).
7. Notices. Each notice under this Agreement to the Corporation shall
be given to it at its principal office in New York, New York. Each notice to a
Shareholder shall be given to him at his address as set forth in the stock
transfer records of the Corporation. Notice shall be deemed to have been given
or delivered upon receipt thereof.
8. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflict of laws principles thereof or the actual domiciles of the parties
hereto.
(b) The headings in this Agreement are solely for convenience
of reference and shall not affect its interpretation.
3
<PAGE>
(c) This Agreement sets forth the entire understanding of the
parties hereto and no modification or amendment to this Agreement shall be
binding on the parties unless in writing and signed by the parties.
(d) This Agreement may be executed in any number of
counterparts and all of such counterparts shall for all purposes constitute one
agreement, binding on the parties hereto.
IN WITNESS WHEREOF, the undersigned have executed this Organization
Agreement as of the date first above written.
BERNARD HALDANE ACQUISITION CORPORATION
By: s/ Jerold Weinger
------------------------------------
Jerold Weinger, President
SHAREHOLDERS:
Taylor Management Money --
Purchase Plan
By:
------------------------------------
Jerold Weinger, an Authorized Person
(5,000 Shares)
Taylor Management Profit Sharing Plan
By:
------------------------------------
Jerold Weinger, an Authorized Person
(7,300 Shares)
Jerold Weinger, SEP/IRA
(Oppenheimer & Co., Inc.)
By:
------------------------------------
Jerold Weinger, an Authorized Person
(11,900 Shares)
4
<PAGE>
Jerold & Lilli Weinger, joint tenants
with Rights of Survivorship
-----------------------------------------
Jerold Weinger
-----------------------------------------
Lilli Weinger
(6,145 Shares)
Jerold Weinger, as custodian for
Seth Weinger under the Uniform Gift
to Minors Act (NY)
By:
------------------------------------
Jerold Weinger,
Custodian (21,350 Shares)
Jerold Weinger, IRA
(Bear Sterns)
By:
------------------------------------
Jerold Weinger, an Authorized Person
(5,500 Shares)
-----------------------------------------
Jerold Weinger
(64,550 Shares)
Jerold Weinger, SEP/IRA
(Bear Sterns)
By:
------------------------------------
Jerold Weinger, an Authorized Person
(9,000 Shares)
5
<PAGE>
Jerold Weinger, as custodian for
Allison Weinger under the Uniform Gift
to Minors Act (NY)
By:
-------------------------------------
Jerold Weinger,
Custodian (22,500 Shares)
Lilli Weinger, IRA
By:
-------------------------------------
Lilli Weinger, an Authorized Person
(11,500 Shares)
Jerold Weinger, IRA
(Merrill Lynch)
By:
-------------------------------------
Jerold Weinger, an Authorized Person
(23,125 Shares)
Rene M. Nadel, Irrevocable Trust
dated December 28, 1997
By:
------------------------------------
Evan Nadel, Trustee (262,500 Shares)
-----------------------------------------
Seth Weinger (5,000 Shares)
-----------------------------------------
Lilli Weinger (267,500 Shares)
6
<PAGE>
AMENDMENT TO ORGANIZATION AGREEMENT
THIS AMENDMENT TO AN ORGANIZATION AGREEMENT (this "Amendment") is
made effective as of the 1st day of November 1998, by AND AMONG BERNARD
HALDANE ACQUISITION CORPORATION, A FLORIDA CORPORATION (the "Corporation"),
and those persons and entities identified on the signature page hereof
(collectively referred to as the Shareholders" or individually a
"Shareholder"), amending that certain Organization Agreement between the
parties dated as of November 15, 1997 (the "Agreement").
1. Section 6 of the Agreement is amended to read as follows:
6. Termination. This Agreement shall terminate,
and the 731,670 BHA Shares owned by the Corporation,
which were previously owned by the Shareholders,
shall be returned to the respective Shareholders
from whom they were received, and the 731,670 Common
Shares of the Corporation owned by the Shareholders
shall be returned to the Corporation, if the Merger
has not been consummated by April 1, 1999 (which
date may be extended by mutual agreement of the
Shareholders).
2. Except for this Amendment, the Agreement remains unchanged,
and is in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
BERNARD HALDANE ACQUISITION CORPORATION
By: /s/ Jerold Weinger
-----------------------------------------
Jerold Weinger, President
1
<PAGE>
SHAREHOLDERS:
Taylor Management Money --
Purchase Plan
By: /s/ Jerold Weinger
-----------------------------------------
Jerold Weinger, an Authorized Person
(5,000 Shares)
Taylor Management Profit Sharing Plan
By: /s/ Jerold Weinger
-----------------------------------------
Jerold Weinger, an Authorized Person
(7,300 Shares)
Jerold Weinger, SEP/IRA
(Oppenheimer & Co., Inc.)
By: /s/ Jerold Weinger
-----------------------------------------
Jerold Weinger, an Authorized Person
(11,900 Shares)
Jerold & Lilli Weinger, joint tenants
with Rights of Survivorship
/s/ Jerold Weinger
-----------------------------------------
Jerold Weinger
/s/ Lilli Weinger
-----------------------------------------
Lilli Weinger
(6,145 Shares)
Jerold Weinger, as custodian for
Seth Weinger under the Uniform Gift
to Minors Act (NY)
By: /s/ Jerold Weinger
Jerold Weinger,
Custodian (21,350 Shares)
2
<PAGE>
Jerold Weinger, IRA
(Bear Sterns)
By: /s/ Jerold Weinger
-----------------------------------------
Jerold Weinger, an Authorized Person
(5,500 Shares)
/s/ Jerold Weinger
-----------------------------------------
Jerold Weinger
(64,550 Shares)
Jerold Weinger, SEP/IRA
(Bear Sterns)
By: /s/ Jerold Weinger
-----------------------------------------
Jerold Weinger, an Authorized Person
(9,000 Shares)
Jerold Weinger, as custodian for
Allison Weinger under the Uniform Gift
to Minors Act (NY)
By: /s/ Jerold Weinger
-----------------------------------------
Jerold Weinger,
Custodian (22,500 Shares)
Lilli Weinger, IRA
By: /s/ Lilli Weinger
-----------------------------------------
Lilli Weinger, an Authorized Person
(11,500 Shares)
Jerold Weinger, IRA
(Merrill Lynch)
By: /s/ Jerold Weinger
-----------------------------------------
Jerold Weinger, an Authorized Person
(23,125 Shares)
3
<PAGE>
Rene M. Nadel, Irrevocable Trust
dated December 28, 1997
By: /s/ Evan Nadel
-----------------------------------------
Evan Nadel, Trustee (262,500 Shares)
/s/ Seth Weinger
-----------------------------------------
Seth Weinger (5,000 Shares)
/s/ Lilli Weinger
-----------------------------------------
Lilli Weinger (267,500 Shares)
4
<PAGE>
ANNEX V
607.1301 DISSENTER'S RIGHTS; DEFINITIONS. -- The following
definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value
of the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT. -- (1) Any shareholder has
the right to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent
under s. 607.1104, and the shareholders would have been entitled to vote on
action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
<PAGE>
(c) As provided in s. 607.0902(11), the approval of a
control-share acquisition;
(d) Consummation of a plan of share exchange to which the corporation
is a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder
is entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to
any of his shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of new shares
then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any of
his shares, when such exchange, cancellation, or reclassification would alter or
abolish his voting rights or alter his percentage of equity in the corporation,
or effecting a reduction or cancellation of accrued dividends or other
arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking fund for
the redemption or purchase of any of his shares, or making any of his shares
subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of his
preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered
in his name. In that event, his rights shall be determined as if the shares as
to which he has dissented and his
2
<PAGE>
other shares were registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class or
series which, on the record date fixed to determine the shareholders entitled to
vote at the meeting of shareholders at which such action is to be acted upon or
to consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.-- (1)(a) If a
proposed corporate action creating dissenters' rights under s. 607.1320 is
submitted to a vote at a shareholders' meeting, the meeting notice shall state
that shareholders are or may be entitled to assert dissenters' rights and be
accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A shareholder who
wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for his written consent or, if such a request is
not made, within 10 days after the date the corporation received written
consents without a meeting from the requisite number of shareholders necessary
to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder,
3
<PAGE>
excepting any who voted for, or consented in writing to, the proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder
who elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares. Any
shareholder failing to file such election to dissent within the period set forth
shall be bound by the terms of the proposed corporate action. Any shareholder
filing an election to dissent shall deposit his certificates for certificated
shares with the corporation simultaneously with the filing of the election to
dissent. The corporation may restrict the transfer of uncertificated shares from
the date the shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
shares. After such offer, no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such shareholder to be paid
the fair value of his shares shall cease, and he shall be reinstated to have all
his rights as a shareholder as of the filing of his notice of election,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within 10 days
after such corporate action is effected,
4
<PAGE>
whichever is later (but in no case later than 90 days from the shareholders'
authorization date), the corporation shall make a written offer to each
dissenting shareholder who has made demand as provided in this section to pay an
amount the corporation estimates to be the fair value for such shares. If the
corporate action has not been consummated before the expiration of the 90-day
period after the shareholders' authorization date, the offer may be made
conditional upon the consummation of such action. Such notice and offer shall be
accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the country in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other manner as is
permitted by law. The jurisdiction of the court is plenary and
5
<PAGE>
exclusive. All shareholders who are proper parties to the proceeding are
entitled to judgment against the corporation for the amount of the fair value of
their shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as is specified in the
order of their appointment or an amendment thereof. The corporation shall pay
each dissenting shareholder the amount found to be due him within 10 days after
final determination of the proceedings. Upon payment of the judgment, the
dissenting shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair
rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined
by the court and shall be assessed against the corporation, but all or any part
of such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
6
<PAGE>
ANNEX VI
Background
The Special Committee of the Board of Directors of Bernard Haldane Associates,
Inc. ("Haldane," "BHAL," or "the Company") has retained Laidlaw Equities, Inc.
("Laidlaw") as of April 30, 1997 to render an opinion regarding the fairness of
the Merger between Haldane and Newco.
The fairness opinion of Laidlaw addresses only the fairness to the Public
Shareholders from a financial point of view of the consideration (as defined
below) proposed to be paid by the Managing Shareholders pursuant to the Merger
Agreement and does not constitute a recommendation to any Public Shareholder.
The consideration was determined through negotiations between the Managing
Shareholders and the Special Committee of the Board of Directors. The Laidlaw
opinion does not constitute a recommendation to any Public Shareholder with
respect to such shareholder's decision whether to accept the proposed Merger
Agreement.
For purpose of its opinion, Laidlaw defined the consideration to be paid to the
Public Shareholders for all of the Common Stock $0.001 par value of Haldane at
$3.00 per share.
Of the 1,148,743 shares outstanding, the Managing Shareholders hold 737,000
shares, or 64%, and the Public Shareholders hold 411,743 shares, or 36%. There
are 1,327 shareholders of Haldane of which 47% hold less than 50 shares and 82%
hold less than 100 shares. Fully diluted shares outstanding total 1,433,743.
Based on the $3.00 indicated price per share, the fully diluted valuation would
be $4,301,229.
Laidlaw believes that its analyses must be considered as a whole and that
selecting portions of its analyses or portions of the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its opinion. In its analysis, Laidlaw made
numerous assumptions with respect to Haldane, industry performance, general
business, regulatory, economic, market and financial condition and other
matters, many of which are beyond the control of Haldane. The estimates
contained in such analyses are not necessarily indicative of actual values or of
future results or values, which may be significantly more or less favorable than
those suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly,
because such estimates of actual values or future results or values are
inherently subject to substantial uncertainty, Laidlaw assumes no responsibility
for their accuracy.
<PAGE>
Valuation Process
In arriving at its opinion, Laidlaw (1) reviewed certain available business and
financial information relating to Haldane, (2) reviewed the Merger Agreement
between Haldane and Newco, (3) reviewed certain other information, including
financial forecasts for Haldane, provided by the Company, (4) met with
management of the Company to discuss the business and prospects of Haldane and
its projected performance, (5) considered certain financial and stock market
data of Haldane and compared such data with similar data for other publicly held
companies in businesses similar to those of Haldane, (6) considered the
financial terms of certain other merger agreements for minority interest of
public companies, (7) considered the cost of holding an odd lot number of shares
and the historic price performance, liquidity and trade activity of the Company
and (8) considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which Laidlaw deemed
relevant.
In connection with its review, Laidlaw did not assume any responsibility for
independent verification of the foregoing information and relied on its being
complete and accurate in all material respects. With respect to the financial
forecasts, Laidlaw assumed that such forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of management of
Haldane as to the future financial performance of Haldane. In addition, Laidlaw
did not make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Haldane, nor was Laidlaw furnished with any such
evaluations or appraisals. Laidlaw's opinion is necessarily based upon
financial, economic, market and other conditions as they existed and could be
evaluated on the date of its opinion.
Laidlaw reviewed and compared the financial and market performance for a
selected peer group of publicly traded career services companies. Laidlaw
selected such group on the basis of various factors including business
characteristics, size, capitalization, and as most comparable to Haldane, and
that more meaningful for purposes of its analysis. The group included Right
Management Consultants, Inc. ("RMI"), which was the closest comparable, and
others including Headway Corporate Resources, Inc., Franklin Covey Co, General
Employ Enterprises, Inc., Romac International Inc., Concorde Career Colleges,
Inc. and Winston Resources, Inc.
Laidlaw estimated Haldane value using the following methodologies, which are
discussed in greater detail in the report.
o Historical financial data analysis, for Haldane.
o Financial proforma and forecasts analysis, for Haldane.
o Comparable company analysis. Valuation of publicly traded comparable
companies including multiples of operating results were compared to the
valuation of Haldane as a multiple of its operating results.
o Comparable merger agreement analysis. The premium paid in other mergers for
minority interest of public companies.
o Stock price history. The historic liquidity and market price per common
share of Haldane was compared to the price per common share contemplated by
the Merger Agreement.
o Discounted Future Earnings analysis. Estimates of future earnings for
Haldane on a standalone basis were discounted back to present value for
comparison to the consideration contemplated in the Merger Agreement.
o Odd Lot Holdings. Compared the realizable proceeds, after processing
changes, from the sale of Haldane stock at the current bid price to the
Merger Price.
<PAGE>
Historical Financial Data Analysis and Financial Forecasts
Laidlaw reviewed and analyzed the income statement of the Company for the twelve
month period ending February 28, 1997 and audited income statement for the year
ending May 31, 1992, 1993, 1994, 1995 and 1996, the balance sheet as of February
28, 1997 and the audited balance sheet as of year end May 31, 1995. We reviewed
the financial information for Haldane including the Annual Reports on Form 10K
and the Quarterly Reports on Form 10Q and analyzed the year to year and quarter
to quarter growth rates.
Laidlaw reviewed royalty revenues, sub-licence revenue, total revenue, EBITDA,
pretax income and net income. It also reviewed quarterly revenue of individual
offices for six periods ending August 31, 1996. Laidlaw calculated certain
profitability ratios and financial rates of return based on financial results
for the period ending May 31, 1992 through the period ending February 28, 1997.
Laidlaw calculated certain historical growth rates and margins.
<TABLE>
<CAPTION>
Annual Profitability
---------------------------------------------------------------------------------------------------
FYE FYE FYE FYE FYE LTM
5/31/92 5/31/93 5/31/94 5/31/95 5/31/96 2/28/97
<S> <C> <C> <C> <C> <C> <C>
EBITDA 13% 22% 30% 49% 43% 41%
Pre tax income (22%) (9%) 9% 38% 36% 33%
Net income (1) (22%) (9%) 14% 38% 22% 20%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Continuing operations, when available.
<TABLE>
<CAPTION>
Quarterly Profitability
-----------------------------------------------------------------------------------------------------------
Quarter
ending 8/94 11/94 2/95 5/95 8/95 11/95 2/96 5/96 8/96 11/96 2/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA 38% 52% 49% 56% 46% 38% 42% 46% 47% 42% 28%
Pre tax 22% 38% 39% 47% 38% 36% 38% 32% 41% 36% 23%
income
Net 22% 38% 39% 48% 24% 24% 24% 17% 24% 22% 16%
income
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year over year growth rates
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FYE 5/31/93 FYE 5/31/94 FYE 5/31/95 FYE 5/31/96 LTM
2/28/97
Licence Revenue -58.31 418.10 4.61 nm nm
Royalty Revenue 29.66% 26.55% 43.98% 28.42% 12.3%
Total Revenue 22.97% 33.97% 45.91% 21.01% 12.2%
Pre tax income nm nm 490% 15.5% -7.3%
Net income nm nm 279.66% -29.74% -24.9%
</TABLE>
<PAGE>
Laidlaw reviewed with management of Haldane the proforma financial forecasts for
1997 and 1998. Laidlaw did not assume any responsibility for generating such
forecast and assumed that forecast were reasonably prepared in basis reflecting
the best currently available estimates and judgements of Haldane management. The
forecasts take into account the slowdown in rate of growth of franchise revenues
and the negative impact of the counter-cyclical trend of low unemployment which
is consistent with recent experience of comparable companies. Management has
indicated to Laidlaw that franchises have been established in most of the major
markets throughout the United States and that future expansion will be primarily
limited to secondary and tertiary markets. In addition, prices have increased at
the franchise level from 8 to 12% during 1992 to 1995 and have been virtually
nominal since 1996. Same unit revenue growth, excluding price increases, are
relatively flat and services are now priced at or above competitive rates,
limiting future price increases. The effects of full employment and slow growth
in several mature markets appear to be the principal factors in the slow down in
growth from the peak period in fiscal 1995.
Total revenue growth, primarily from royalty revenues, is forecast at 6%
annually for the next several years reflecting the slowed growth in franchisee
revenues and the uncertainty regarding new franchise territories. Interest
income and sale of licenses are assumed to be relatively flat year over year.
Pre-tax margins are estimated at roughly 23% of royalty revenue through fiscal
1998 because of higher expenses due to new business development of First Career
Program, increasing to 26% thereafter.
<TABLE>
<CAPTION>
In $MM except
per share numbers Year 5/95 5/96 5/97 12/97 5/98 12/98 5/99
ended: * *
<S> <C> <C> <C> <C> <C> <C> <C>
Royalty Revenue $1.7 $2.2 $2.4 $2.51 $2.5 $2.66 $2.7
5 4 3 8 3
Pre tax income .729 .842 .811 .590 .593 .651 .711
Net income (continuing operations) .731 .513 .502 .369 .356 .391 .427
EPS (estimates based on 1.4 mil 0.60 0.42 0.35 0.26 0.25 0.27 0.30
shares)
P/E at $3.00 per share 4.76 7.14 8.57 11.6 12.0 11.0 10.0
</TABLE>
* Calanderized
At the proposed Merger Price of $3.00 the P/E is 8.57 for fiscal 1997, 12.0 for
fiscal 1998 and 11.0 for 1998 calanderized earning estimate.
<PAGE>
Comparable Company Analysis
Laidlaw reviewed and compared the financial and market performance for a
selected peer group of publicly traded companies in the career consulting, human
resource management and staffing services industries. Laidlaw selected the group
on the basis of various factors including industry relation, business
characteristics, size, capitalization, and as most comparable to Haldane, and
thus more meaningful for purposes of its analysis.
Right Management, Inc. ("RMI") was the closest comparable in terms of its
business model. However, several key differences differentiate the two companies
and affect valuation: BHAL is a franchisor deriving all of its income from
franchise fees, while RMI is an operating company deriving income from services
rendered; and BHAL's franchises derive their revenue from individuals verses
RMI's corporate sponsored outplacememt consulting services. Other companies in
the broader group were involved with human resources management, training
seminars, post secondary schools and temporary and permanent placement. This
broader group includes Headway Corporate Resources, Inc., Franklin Covey Co,
General Employ Enterprises, Inc., Romac International Inc., Concorde Career
Colleges, Inc. and Winston Resources, Inc. (the "Group").
Laidlaw calculated recent trading multiples of revenues, net income, book value,
tangible book value, estimated earnings and return on equity, tangible book
value and assets for companies within the group. All forecasted sales, and
pretax income were based on information contained in equity research reports and
Institutional Broker's Estimate System ("IBES"). The equity values of the
comparable companies used in the foregoing analysis were based on stock prices
as of July 9, 1997. All financial proforma information and estimates were based
on certain operating and financial forecasts provided by Haldane management.
Laidlaw reviewed and compared certain actual and forecasted financial and
operating information of Haldane with comparable information for the Group to
measure the fairness of the Merger Agreement.
One of the main differences between the Company and the Group is that unlike the
Group, Haldane does not own any of its operations, rather it is solely a
franchisor. Given the difference between franchisors and company owned
operations, the more relevant ratio comparisons are as follows.
<TABLE>
<CAPTION>
BHAL (1) RMI The Group
(at $3.00) (as of 7/9/97) (as of 7/9/97)
<S> <C> <C> <C>
Price to revenue 1.66 0.60 0.24- 3.18
Price to book value 1.26 1.53 1.44- 6.66
Price to tangible book 1.73 2.67 na
value
Return on equity 0.16 0.16 0.10- 0.35
</TABLE>
(1) Assumes that $560,000 worth of options were exercised.
<PAGE>
We compared the P/E of forecasted results with those of RMI and the group.
<TABLE>
<CAPTION>
BHAL* Yr. to yr. net RMI Yr. to yr. net The Group
(at $3,00) income growth (as of income growth (w/out extremes)
7/9/97)
<S> <C> <C> <C> <C> <C>
12/96 5.88x -27.4% 7.76x 24% 7.76x- 20.24x
LTM 6.0x -24.9% 9.4x na 9.38x- 50.00x
12/97 11.6x -32.0% 11.3x -17% 9.51x- 17.0x
12/98 11.0x 5.69% 7.5x 50% 7.5x- 12.5x
</TABLE>
*Calanderized, continuing operations
All forecasted information for the group companies were obtained from equity
research reports and IBES. Laidlaw assumes no responsibility for generating such
forecasts.
The multiple difference between the companies and BHAL reflect the higher value
put on company owned operations verses franchisor income and the higher value
placed on liquidity. Using comparable multiple analysis on estimated earnings,
BHAL's valuation measures are within the range of the Group.
<PAGE>
Using publicly available information, Laidlaw has analyzed the proposed
transaction value of Haldane with multiples paid by RMI for certain
acquisitions. These acquisitions were of franchises or other operating companies
which were generally priced between 60-100% of trailing revenues or 3 to 5 time
EBITDA.
Parameter Range of Multiples Midpoint
--------- ------------------ --------
Sales 0.6 x to 1.0 x 0.8 x
EBITDA 3.0 x to 5.0 x 4.0 x
Using the mean multiple derived by the analysis described above, Laidlaw
compared Haldane's transaction value as a multiple of Haldane's LTM financial
results.
Implied Value Range For Haldane
Parameter Based on the Midpoint
--------- ---------------------
Sales $2.1 million
EBITDA $4.2 million
These compare to the estimated total equity value of $4.30 million which is a
37% premium over the average of the implied value range.
<PAGE>
Discounted Future Earnings Analysis
Laidlaw analyzed the ongoing business of BHAL using discounted cash flow
analysis to estimate an enterprise value of BHAL per comparison to the value of
the proposed transaction. Due to the lack of control at the franchisee level, a
saturation of major markets, limited ability to raise prices, and investment in
the start up and development of First Career over the next 12 to 24 months,
management believes that accurate forecasts cannot be made beyond the period of
one year.
To determine present value of potential future cash flows for BHAL, without the
benefit of long-range management forecasts, Laidlaw used the most recent
operating results and one-year forecasts provided by BHAL's management as a
predictor for future operating results to develop a discounted cash flow
scenario. Therefore, operating assumptions used by Laidlaw in its discounted
cash flow analysis may not accurately reflect the operations of BHAL in the
future. Actual results achieved by the combined company may vary from forecasted
results, and the variations may be material.
Laidlaw calculated an equity value for BHAL based upon the present value of
BHAL's 6-year stream of forecasted free cash flows and fiscal year 2002 terminal
value. The fiscal year 2002 terminal value was calculated as a perpetuity of the
estimated rate of return on invested capital.
When conducting its analysis, Laidlaw relied on certain assumptions relating to
sales growth, operating margins and capital expenditures of BHAL's businesses
provided by BHAL management. For the 6-year forecast, Laidlaw applied a discount
rate of 15% to future cash flows. This analysis resulted in a valuation of $4.22
million, or $2.94 per fully diluted share of BHAL Common Stock, based on Laidlaw
operating assumptions, which may or may not reflect actual future operations.
<PAGE>
Stock Price History
There are currently 1,327 total shareholders on record. Of these Shareholders,
82% hold less than 99 shares and 47.4% hold less than 49 shares. These odd lots
are expensive to sell with a minimum processing charge of about $50 for the
transaction. 92.4% of the shares are held by 1.7% of the Shareholders. The
historic bid price per common share of Haldane since June 1996 ranged from a
high of $2.75 (2/27/97) to a low of $2.25 (7/9/97). The bid price as of date of
announcement of the Merger Agreement was $2.25. The mean trading price over the
LTM was approximately $2.60 with minimal trading volume and frequency. Of the
past 240 trade days, Haldane's shares were only traded on 52 days. Monthly
trading volume ranged between 1,000 and 45,000 shares with a twelve month
average of less than 14,000 shares.
Odd Lot Holdings
Due to the high percentage of Public Shareholders that own an odd lot amount of
shares, Laidlaw reviewed the actual cost of selling those shares and compared it
to the Merger Price. 82% of the Public Shareholders hold less than 99 shares and
there is a processing charge associated with trading those shares. The
processing charge for an odd lot number of shares is approximately $50. Laidlaw
divided the shareholders into 5 groups based on the number of shares held. 629
Shareholders hold less than 49 shares, 461 hold between 50 and 99, 202 hold
between 100 and 499, 12 hold between 500 and 999 and 23 holders own over 1000
shares. Laidlaw assumed that each Shareholder in the group holds the maximum
number of shares in the range and, after accounting for the $50 processing
charge, calculated the realizable price per share available to these
Shareholders and compared that to the Merger Price. For the shareholders with
less than 50 shares, the Merger Price represents a 144% premium over their
realizable bid price and for the holders of over 1000 shares it represents a
premium of 33% over the bid price.
<PAGE>
Bernard Haldane Assoc., Inc.
Valuation Comparison of Career Consulting Companies
Apr-97
<TABLE>
<CAPTION>
Company Franklin Concorde Career Romac
Quest Colleges International
----------- --------------- -------------
<S> <C> <C> <C>
Exchange & Symbol NYSE - FNQ Nasdaq - CCDC(1) Nasdaq - ROMC(2)
Fiscal Year 31-Aug 31-Dec 31-Dec
LTM Income Statement Date 30-Nov-96 30-Sep-96 31-Dec-96
Balance Sheet Date 30-Nov-96 30-Sep-96 31-Dec-96
Size: ($MM) LTM
Revenues $342.50 / 100.00% $40.45 / 100.00% $94.21 / 100.00%
Gross Profit/Margin $184.17 / 53.77% $15.41 / 38.10% $40.37 / 42.85%
Operating Income/Margin na / na $2.06 / 5.09% $8.26 / 8.77%
EBITDA/Margin
Pre-tax Income/Margin $58.33 / 17.03% $1.68 / 4.15% $9.95 / 10.56%
Net Income/Margin $34.26 / 10.00% $1.31 / 3.24% $5.98 / 6.35%
Market Data:($)
Closing Price (4/24/97) $21.75 $1.44 $21.50
Price Range - LTM $28.00 - $17.13 $2.25 - $0.56 $32.00 - $16.06
Current Shares Outstanding (MM) 19.75 6.96 11.77
Weighted Avg. Shares Out.(MM)
Total Market Value (MM) $429.58 $10.01 $253.14
EPS: LTM/Projected FY 1.64 / 1.96 0.07 / na 0.50 / 0.73
PE: LTM/Projected FY 13.26 / 11.12 20.54 / na 43.00 / 29.45
Revenue Per Share 17.34 5.81 8.00
Price/Revenue Per Share 1.25 0.25 2.69
Book Value Per Share 12.12 0.98 6.05
Price/Book Value Per Share 1.80 1.47 3.55
Balance Sheet Data: ($MM)
Current Assets 118.00 22.50 59.25
Current Liabilities 25.60 18.80 5.03
Total Assets 272.50 29.70 77.56
Total Liabilities 33.20 22.90 6.28
Long-Term Debt 7.50 4.10 1.25
Stockholders' Equity 239.30 6.80 71.28
----------- ----------- -----------
Total Capitalization 246.80 10.90 72.53
=========== =========== ===========
LT Debt/Total Capitalization 0.03 0.38 0.02
Debt to Equity 0.14 3.37 0.09
Debt to Assets 0.12 0.77 0.08
Current Ratio 4.61 1.20 11.79
Asset Turnover na 1.36 1.21
Return on Stockholders' Equity 0.14 0.19 0.08
Return on Assets 0.13 0.04 0.08
Historical Growth:
EPS (Fully Diluted) - $
Latest Twelve Months 1.64 0.07 0.50
Latest Fiscal Year 1.71 0.18 0.36
1 Year Prior 1.40 0.00 -0.09
2 Years Prior 1.10 0.06 0.10
3 Years Prior na -1.38 na
Compound Annual Growth Rate na -150.71% na
Revenues/Net Income: ($) MM.
Latest Twelve Months $342.50 / $34.26 $40.45 / $1.31 $94.21 / $5.98
Latest Fiscal Year 277.10 / 38.70 39.30 / 1.60 45.66 / 3.01
1 Year Prior 215.90 / 30.90 35.00 / 0.00 40.79 / -0.60
2 Years Prior 165.50 / 23.40 34.80 / 0.40 40.30 / 0.60
3 Years Prior na / na 42.60 / -9.60 na / na
Compound Annual Growth Rate na / na -2.65%/ -155.03% na / na
Business Description: Offers training seminars Owns/operates post Provides temporary/
& products designed to secondary schools permanent placement
enhance productivity offering career of professional/
through effective training. Schools technical personnel
management throughout the U.S. under the ROMAC name.
<CAPTION>
Company General Winston
Employment Resources
--------------- -----------
<S> <C> <C>
Exchange & Symbol NYSE - JOB AMER - WRS
Fiscal Year 30-Sep 31-Dec
LTM Income Statement Date 31-Dec-96 30-Sep-96
Balance Sheet Date 31-Dec-96 30-Sep-96
Size: ($MM) LTM
Revenues $24.15 / 100.00% $37.30 / 100.00%
Gross Profit/Margin $6.64 / 27.49% $1.40 / 3.75%
Operating Income/Margin na / na na / na
EBITDA/Margin
Pre-tax Income/Margin $2.90 / 12.01% $0.10 / 0.27%
Net Income/Margin $1.75 / 7.25% ($0.14)/ -0.38%
Market Data:($)
Closing Price (4/24/97) $10.38 $3.88
Price Range - LTM $16.20 - $7.61 $6.25 - $1.50
Current Shares Outstanding (MM) 2.65 3.18
Weighted Avg. Shares Out.(MM)
Total Market Value (MM) $27.49 $12.31
EPS: LTM/Projected FY 0.67 / 0.75 0.34 / na
PE: LTM/Projected FY 15.53 / 13.83 11.40 / na
Revenue Per Share 9.11 11.74
Price/Revenue Per Share 1.14 0.33
Book Value Per Share 1.91 1.07
Price/Book Value Per Share 5.42 3.63
Balance Sheet Data: ($MM)
Current Assets 7.50 7.51
Current Liabilities 2.88 3.78
Total Assets 8.34 8.14
Total Liabilities 3.27 4.76
Long-Term Debt 0.00 0.55
Stockholders' Equity 5.07 3.39
----------- -----------
Total Capitalization 5.07 3.94
=========== ===========
LT Debt/Total Capitalization 0.00 0.14
Debt to Equity 0.64 1.40
Debt to Assets 0.39 0.58
Current Ratio 2.60 1.99
Asset Turnover 2.90 4.58
Return on Stockholders' Equity 0.35 -0.04
Return on Assets 0.21 -0.02
Historical Growth:
EPS (Fully Diluted) - $
Latest Twelve Months 0.67 0.34
Latest Fiscal Year 0.42 -0.15
1 Year Prior 0.26 0.20
2 Years Prior 0.03 0.07
3 Years Prior -0.25 -0.16
Compound Annual Growth Rate -218.50% -2.13%
Revenues/Net Income: ($) MM.
Latest Twelve Months $24.15 / $1.75 $37.30 / ($0.14)
Latest Fiscal Year 16.74 / 1.07 30.99 / -0.43
1 Year Prior 14.20 / 0.66 24.30 / 0.64
2 Years Prior 10.85 / 0.06 18.28 / 0.23
3 Years Prior na / na na / na
na / na na / na
Compound Annual Growth Rate
Business Description: Provides employment Recruits and places
services via network permanent personnel.
of offices through-
out U.S. Incl
permanent placement,
contract & temporary
service.
</TABLE>
(1) Delisted from small cap 1-23-93 (bid price below min)
(2) IPO 8/15/95 1.6 mil shares at $12.50
<PAGE>
Bernard Haldane Assoc., Inc.
Valuation Comparison of Career Consulting Companies
May-97
<TABLE>
<CAPTION>
Company Bernard Headway Corporate Right
Haldane Resources Management
----------- ----------------- ----------
<S> <C> <C> <C>
Exchange & Symbol OTC - BHAL Nasdaq - HDWY(3) Nasdaq - RMCI(4)
Fiscal Year 31-May 31-Dec 31-Dec
LTM Income Statement Date 28-Feb-97 31-Mar-97 31-Dec-96
Balance Sheet Date 28-Feb-97 31-Mar-97 31-Mar-97
Size: ($MM) LTM
Revenues $2.59 / 100.00% $74.85 / 100.00% $122.86 / 100.00%
Gross Profit/Margin na / na / na na / na
Operating Income/Margin $0.51 / 19.73% $3.54 / 4.73% $13.33 / 10.85%
EBITDA/Margin $1.05 / 40.58% $4.41 / 5.89% $18.53 / 15.08%
Pre-tax Income/Margin $0.85 / 32.82% $3.35 / 4.47% $13.48 / 10.97%
Net Income/Margin $0.53 / 20.46% $2.14 / 2.85% $7.99 / 6.50%
Income from
continuing operations
Market Data:($)
Closing Price (5/23/97) $3.00 $3.66 $10.00
Price Range - LTM $3.25 - $2.25 $6.25 - $2.63 $27.50 - $8.75
Current Shares Outstanding (MM) 1.01 6.90 6.60
Weighted Avg. Shares Out. (MM)
Total Market Value (MM) $3.04 $25.23 $65.99
EPS: LTM/Projected FY 0.52 / na 0.08 / na 1.20 / 1.00
PE: LTM/Projected FY 5.77 / na 45.70 / na 8.33 / 10.03
Revenue Per Share 2.55 10.85 18.62
Price/Revenue Per Share 1.18 0.34 0.54
Book Value Per Share 2.81 2.17 7.35
Price/Book Value Per Share 1.07 1.69 1.36
Tangible Book Value Per Share 1.90 -0.46 4.22
Price/Tangible Book Value Per Share 1.58 -7.96 2.37
Balance Sheet Data: ($MM)
Current Assets 2.67 15.72 35.85
Current Liabilities 0.59 13.65 13.08
Total Assets 3.96 42.24 69.04
Total Liabilities 1.12 27.29 20.56
Long-Term Debt 0.51 12.38 5.70
Tangible Book Value 1.93 -3.17 27.84
Stockholders' Equity 2.85 14.95 48.48
----- ------ -------
Total Capitalization 3.36 27.33 54.18
===== ====== =======
LT Debt/Total Capitalization 0.15 0.45 0.11
Debt to Equity 0.39 1.83 0.42
Debt to Assets 0.28 0.65 0.30
Current Ratio 4.53 1.15 2.74
Asset Turnover 0.65 1.77 1.78
Return on Stockholders' Equity 0.19 0.14 0.16
Return on Net Tangible Book Value 0.27 -0.67 0.29
Pretax Return on Assets 0.21 0.08 0.20
Total Return on Assets 0.13 0.05 0.12
Historical Growth:
EPS (Fully Diluted) - $
Latest Twelve Months 0.52 0.08 (5) 1.20
Latest Fiscal Year 0.43 0.00 1.45
1 Year Prior 0.61 0.13 1.24
2 Years Prior 0.20 na 0.93
3 Years Prior -0.09 na 0.56
Compound Annual Growth Rate -268.43% na 37.32%
Revenues / Net Income: ($) MM.
Latest Twelve Months $2.59 / $0.53 $74.85 / $2.14 $122.86 / $7.99
Latest Fiscal Year 2.34 / 0.53 57.20 / 1.18 125.27 / 9.68
1 Year Prior 1.94 / 0.70 15.49 / -1.09 114.00 / 7.80
2 Years Prior 1.40 / 0.20 19.59 / 0.94 89.10 / 5.70
3 Years Prior 1.00 / -0.10 na / na 70.70 / 3.30
Compound Annual Growth Rate 32.76% -274.35% na na 21.01% 43.15%
Business Description: Offers career consulting Int'n provider of human Assists employees w/
and job search services in resources management and termination issues & helps
the US and Canada. advisory. them develop skills to find
Has 70 franchise offices. a new job. It's outplacement.
systems.
</TABLE>
(3) Name changed from AFGI Intl' 11/15/96.
(4) Stock split 3 for 2 on 7/29/96.
(5) Primary earnings per share for LTM, last yr and 1 yr prior were .02,
(.08) and .15.
<PAGE>
<TABLE>
<CAPTION>
Net Sales Net Income
Ticker (A) (A) Recent P/E
Symbol Company Name Descrip of Business (Abbv) 0Y 0Y Ratio
- ------ -------------------- ----------------------------------------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
AMPBA American Pacific Bank Co. is engaged in general banking business in 4.26 0.25 9.38
which provides personal and efficient service
to customers living throughout Oregon and
Southwest Washington in the areas of construction
lending, commercial loans, permanent mortgages,
business financing, and consumer loans.
Member of Federal Reserve System and Federal
Deposit Insurance Corporation.
AUTO Autoinfo Inc. Co.'s sole remaining operating business provides 4.80 8.33 1.91
long distance telephone communications services.
BHWK Black Hawk Gaming & Dev Co.'s primary activities are in the casino 1.19 1.77 9.92
gaming industry.
CDIM Capitol Multimedia Inc. The Company provides multimedia services to 4.35 2.98 3.18
commercial, industrial, broadcast and educational
customers. The Company specializes in video and
audio production, post production, film to tape
transfer, electronic graphics creation and the
design and engineering of software for various
multimedia formats, particularly Compact Disc
Interactive (CD-I).
CFS Comforce Corp. Co. is a provider of technical staffing and 2.39 -14.89 8.04
consulting services in the information technology
and telecommunications sectors. Its operations
are currently conducted through its operating
subsidiary, COMFORCE Global.
CSLR Consulier Engineering Inc. Co.'s principal businesses are the distribution 2.70 0.94 8.01
of automobile and truck parts in the automotive
and truck after-market, the development of
advanced engineering products, and investment
activities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Sales Net Income
Ticker (A) (A) Recent P/E
Symbol Company Name Descrip of Business (Abbv) 0Y 0Y Ratio
- ------ -------------------- ----------------------------------------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CRG Craig Corp. Co. is a diversified company whose primary 3.13 3.46 2.11
business activity is the ownership and strategic
management of its significant holdings, which
include a 50% ownership interest in the common
stock of Stater Bros. Holdings Inc. and
approximately 49% of the outstanding stock of
Reading Company. In addition, Co. owns a 39.4%
interest in Citadel Holding Corporation.
DVLN DVL, Inc. Co. is a commercial finance company which manages 3.24 2.12 0.27
numerous properties and partnerships, from many
of which DVL holds commercial mortgage loans.
FIVD Fifth Dimension Inc. Co. designs, manufactures and markets a family 4.15 -0.09 6.00
of mercury switches and relays to various
military and commercial users and two types of
signal processing and data handling devices.
GTSX Golf Training Systems Inc. Co. specializes in the marketing of golf improvement 0.65 -2.82 2.46
and learning products professionally designed to
promote proper training, fitness and swing
mechanics for both the beginning and advanced
golfer. Co. currently markets "The Leadbetter
Collection", a group of mechanically, literary,
video and other products, endorsed by world renowned
golf instructor, David Leadbetter.
HOLA Holco Mortgage Acceptance Co. is engaged in the business of investing in 0.93 0.05 4.61
multifamily GNMA Certificates.
IMH Imperial Cr Mtg Hldgs Inc Co. operates as a real estate investment trust. 4.58 2.06 9.61
JTAX Jackson Hewitt Inc. Co. operates, and franchises others to operate, a 4.34 0.84 6.82
system of offices engaged in the business of
computerized preparation of federal and state
individual income tax returns under the name
Jackson Hewitt Tax Service.
JAHI Jordan American Holdings I Co. provides investment advisory and portfolio 3.39 -1.06 8.33
management services. Co. also is engaged in the
business of selling capital goods, principally
furniture, to the church maket.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Sales Net Income
Ticker (A) (A) Recent P/E
Symbol Company Name Descrip of Business (Abbv) 0Y 0Y Ratio
- ------ -------------------- ----------------------------------------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
KREN Kings Road Entertainment I Co. is engaged primarily in the development, 4.28 -0.40 1.42
financing, production and distribution of motion
pictures for theatrical exhibition (when practical)
and for subsequent distribution to pay, network and
syndicated television, on home video, and in other
ancillary media in the United States (the domestic
market) and all other countries and territories of
the world (the international market).
LNDC Landec Corp. Co. designs, develops, manufactures and sells 1.40 -2.76 9.75
temperature-activated polymer products for a
variety of industrial, medical and agricultural
applications.
PANRA Panhandle Royalty Co. Co. engages in the acquisition, management, and 3.12 0.57 9.25
development of fee mineral acreage and in the
exploration for, production of, and sale of
crude oil and natural gas.
REF Refac Technology Developm Co. establishes, acquires and administers 3.98 2.34 9.95
international manufacturing licenses and joint
ventures.
RMMI Rocky Mountain Minerals In Co. is engaged primarily in the acquisition, 0.03 -0.19 0.06
development, exploration and operation of
mineral properties through the location, lease,
or purchase of patented and unpatented lode
mining and placer mining claims.
SKYL Skyline Multimedia Entertai Co. is engaged in the development and proposed 2.19 -2.23 9.46
operation of state-of-the-art movie-based
simulator attractions at established tourist
sites throughout the world.
TIRTZ Tidelands Royalty Trust "B The Trust's wholly-owned subsidiary, Tidelands 0.98 0.97 7.50
Royalty "B" Corp., holds title to interests in
properties situated offshore of Louisiana.
Ninety-five percent of all oil, gas and other
mineral royalties collected by this subsidiary
are paid to the Trust. The subsidiary, like the
Trust, is prohibited from engaging in a trade or
business and only does those things necessary for
the administration and liquidation of its properties.
The Trust has only a single industry segment or
purpose, that being the administration and
collection of royalties.
UIHI A United Int'l Holdings Co. is engaged in providing multi-channel 1.61 -30.61 4.29
television services outside the U.S.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Sales Net Income
Ticker (A) (A) Recent P/E
Symbol Company Name Descrip of Business (Abbv) 0Y 0Y Ratio
- ------ -------------------- ----------------------------------------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
UTDL United Leisure Corp. Co. subleases, on a long term basis, to 3.20 -0.64 7.03
entertainment and leisure oriented sublessees, and
is pursuing alternative uses for its leasehold and
related improvements and equipment.
VIPIS Vinings Investment Properti Co. is a finite-life real estate investment trust 4.16 0.87 9.11
which invests in participating, shared appreciation,
convertible and fixed-rate mortgages and joint
venture financings secured by office, industrial and
retail and research and development facilities
located throughout the United States.
VIST Vista 2000 Inc. Co., through its wholly owned subsidiary, designs, 1.97 -0.33 1.11
develops, manufactures, and markets a broad range of
personal safety and home security products for
sale to consumers.
WMIC Western Microwave Inc. From 1962 until the sale of substantially all of its 2.15 0.34 4.25
operating assets in 1995, the Co. was engaged in
the design, development, manufacture and sale of a
wide range of microwave devices and components, as
well as vertically integrated subsystems which are
used in both military and commercial microwave
electronic systems.
XPLR Xplor Corp. Co. is primarily engaged in the business of acquiring, 0.56 1.21 4.24
evaluating developing and operating oil and gas
properties, acreage and production in eight states.
Summar 2.73 -1.00 5.85
</TABLE>
<PAGE>
Bernard Haldane Assoc., Inc.
Valuation Comparison of Career Consulting Companies
May-97
<TABLE>
<CAPTION>
Company Bernard Headway Corporate Right
Haldane Resources Management
--------- ----------------- -----------
<S> <C> <C> <C>
Exchange & Symbol OTC - BHAL Nasdaq - HDWY(3) Nasdaq - RMCI(4)
Fiscal Year 31-May 31-Dec 31-Dec
LTM Income Statement Date 28-Feb-97 31-Dec-96 31-Dec-96
Balance Sheet Date 28-Feb-97 31-Dec-96 31-Dec-96
Size: ($MM) LTM
Revenues $2.59 / 100.00% $57.20 / 100.00% $125.27 / 100.00%
Gross Profit/Margin na / na / na na / na
Operating Income/Margin $0.51 / 19.73% $2.94 / 5.14% $16.24 / 12.96%
Pre-tax Income/Margin $0.85 / 32.82% $1.88 / 3.29% $16.28 / 12.99%
Net Income/Margin $0.53 / 20.46% $1.18 / 2.07% $9.68 / 7.72%
Income from
continuing operations
Market Data:($)
Closing Price (5/23/97) $3.00 $3.66 $10.00
Price Range - LTM $3.25 - $2.44 $6.25 - $2.63 $27.50 - $8.75
Current Shares Outstanding (MM) 1.01 6.15 - 6.57
Weighted Avg. Shares Out. (MM)
Total Market Value (MM) $3.04 $22.49 $65.71
EPS: LTM/Projected FY 0.52 / na -0.08 / na 1.44 / 1.00
PE: LTM/Projected FY 5.77 / na neg / na 6.96 / 10.03
Revenue Per Share 2.55 9.30 19.06
Price/Revenue Per Share 1.18 0.39 0.52
Book Value Per Share 2.81 2.18 7.27
Price/Book Value Per Share 1.07 1.68 1.37
Tangible Book Value Per Share 1.90 0.11 4.18
Price/Tangible Book Value Per Share 1.58 33.98 2.39
Balance Sheet Data: ($MM)
Current Assets 2.67 14.36 42.71
Current Liabilities 0.59 12.72 17.37
Total Assets 3.96 34.67 73.94
Total Assets Previous Period 10.93 10.93 10.93
Total Liabilities 1.12 21.25 26.13
Long-Term Debt 0.51 7.25 6.90
Tangible Book Value 1.93 0.66 27.49
Stockholders' Equity 2.85 13.42 47.80
------ ------- --------
Stockholders' Equity Previous Period 6.90 6.90 6.90
Total Capitalization 3.36 20.67 54.70
====== ======= =======
LT Debt/Total Capitalization 0.15 0.35 0.13
Debt to Equity 0.39 1.58 0.55
Debt to Assets 0.28 0.61 0.35
Current Ratio 4.53 1.13 2.46
Asset Turnover 0.65 1.65 1.69
Return on Stockholders' Equity 0.19 0.09 0.20
Return on Net Tangible Book Value 0.27 1.79 0.35
Pretax Return on Assets 0.21 0.05 0.22
Total Return on Assets 0.13 0.03 0.13
Historical Growth:
EPS (Fully Diluted) - $
Latest Twelve Months 0.52 -0.08(5) 1.44
Latest Fiscal Year 0.43 -0.20 1.24
1 Year Prior 0.61 na 0.93
2 Years Prior 0.20 na 0.56
3 Years Prior -0.09 na 0.23
Compound Annual Growth Rate -268.43% na 76.12%
Revenues / Net Income: ($) MM.
Latest Twelve Months $2.59 / $0.53 $57.20 / $1.18 $125.27 / $9.68
Latest Fiscal Year 2.34 / 0.53 15.49 / -1.09 114.00 / 7.80
1 Year Prior 1.94 / 0.70 19.59 / 0.94 89.10 / 5.70
2 Years Prior 1.40 / 0.20 na / na 70.70 / 3.30
3 Years Prior 1.00 / -0.10 na / na 53.60 / 1.30
Compound Annual Growth Rate 32.76% -274.35% na / na 28.60% 81.71%
Business Description: Offers career Intn' provider of Assists employees w/
consulting and human resources termination issues &
job search services management and helps them develop skills
in the US and Canada. advisory. to find a new job. It's
Has 70 franchise outplacement. systems.
offices.
</TABLE>
(3) Name changed from AFGI intl' 11/15/96.
(4) Stock split 3 for 2 on 7/29/96
(5) Neg EPS with pos earnings due to a dividend on preferred shares
<PAGE>
Bernard Haldane Assoc., Inc.
Valuation Comparison of Career Consulting Companies
Apr-97
<TABLE>
<CAPTION>
Company Franklin Concorde Career Romac General Winston
Quest Colleges International Employment Resources
---------- --------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Exchange & Symbol NYSE - FNQ Nasdaq - CCDC(1) Nasdaq - ROMC(2) NYSE - JOB AMER - WRS
Fiscal Year 31-Aug 31-Dec 31-Dec 30-Sep 31-Dec
LTM Income Statement
Date 30-Nov-96 30-Sep-96 31-Dec-96 31-Dec-96 30-Sep-96
Balance Sheet Date 30-Nov-96 30-Sep-96 31-Dec-96 31-Dec-96 30-Sep-96
Size: ($MM) LTM
Revenues $342.50 /100.00% $40.45 / 100.00% $94.21 /100.00% $24.15 / 100.00% $37.30 / 100.00%
Gross Profit/Margin $184.17 / 53.77% $15.41 / 38.10% $40.37 / 42.85% $6.64 / 27.49% $1.40 / 3.75%
Operating Income/Margin na / na $2.06 / 5.09% $8.26 / 8.77% na / na na / na
Pre-tax Income/Margin $58.33 / 17.03% $1.68 / 4.15% $9.95 / 10.56% $2.90 / 12.01% $0.10 / 0.27%
Net Income/Margin $34.26 / 10.00% $1.31 / 3.24% $5.98 / 6.35% $1.75 / 7.25% (0.14)/ -0.38%
Market Data:($)
Closing Price
(4/24/97) $21.75 $1.44 / $21.50 $10.38 $3.88
Price Range - LTM $28.00 -$17.13 $2.25 - $0.56 $32.00 -$16.06 $16.20 - $7.61 $6.25 - $1.50
Current Shares
Outstanding (MM) 19.75 6.96 11.77 2.65 3.18
Total Market Value
(MM) $429.58 $10.01 $253.14 $27.49 $12.31
EPS: LTM/Projected FY 1.64 / 1.96 0.07 / na 0.50 / 0.73 0.67 / 0.75 0.34 / na
PE: LTM/Projected FY 13.26 / 11.12 20.54 / na 43.00 / 29.45 15.53 / 13.83 11.40 / na
Revenue Per Share 17.34 5.81 8.00 9.11 11.74
Price/Revenue Per
Share 1.25 0.25 2.69 1.14 0.33
Book Value Per Share 12.12 0.98 6.05 1.91 1.07
Price/Book Value Per
Share 1.80 1.47 3.55 5.42 3.63
Balance Sheet Data:
($MM)
Current Assets 118.00 22.50 59.25 7.50 7.51
Current Liabilities 25.60 18.80 5.03 2.88 3.78
Total Assets 272.50 29.70 77.56 8.34 8.14
Total Liabilities 33.20 22.90 6.28 3.27 4.76
Long-Term Debt 7.50 4.10 1.25 0.00 0.55
Stockholders' Equity 239.30 6.80 71.28 5.07 3.39
--------- ------- ------- -------- -------
Total Capitalization 246.80 10.90 72.53 5.07 3.94
========= ======= ======= ======== =======
LT Debt/Total
Capitalization 0.30 0.38 0.02 0.00 0.14
Debt to Equity 0.14 3.37 0.09 0.64 1.40
Debt to Assets 0.12 0.77 0.08 0.39 0.58
Current Ratio 4.61 1.20 11.79 2.60 1.99
Asset Turnover na 1.36 1.21 2.90 4.58
Return on
Stockholders' Equity 0.14 0.19 0.08 0.35 -0.04
Return on Assets 0.13 0.04 0.08 0.21 -0.02
Historical Growth:
EPS (Fully Diluted)
- $
Latest Twelve Months 1.64 0.07 0.50 0.67 0.34
Latest Fiscal Year 1.71 0.18 0.36 0.42 -0.15
1 Year Prior 1.40 0.00 -0.09 0.26 0.20
2 Years Prior 1.10 0.06 0.10 0.03 0.07
3 Years Prior na -1.38 na -0.25 -0.16
Compound Annual
Growth Rate na -150.71% na -218.50% -2.13%
Revenues/Net Income:
($) MM.
Latest Twelve Months $342.50 /$34.26 $40.45 / $1.31 $94.21 / $5.98 $24.15 / $1.75 $37.30 / ($0.14)
Latest Fiscal Year $277.10 / 38.70 39.30 / 1.60 45.66 / 3.01 16.74 / 1.07 30.99 / -0.43
1 Year Prior 215.90 / 30.90 35.00 / 0.00 40.79 / -0.60 14.20 / 0.66 24.30 / 0.64
2 Years Prior 165.50 / 23.40 34.80 / 0.40 40.30 / 0.60 10.85 / 0.06 18.28 / 0.23
3 Years Prior na na 42.60 / -9.60 na / na na / na na / na
Compound Annual
Growth Rate na na -2.65% -155.03% na na na na na na
<CAPTION>
<S> <C> <C> <C> <C> <C>
Business Description: Offers training Owns/operates post Provides tempo- Provides employ- Recruits and
seminars & products secondary schools rary/permanent ment services places
designed to enhance offering career placement of via network of permanent
productivity through training. Schools professional/ offices through- personnel.
effective throughout the technical out U.S. Incl.
management U.S. personnel under permanent
the ROMAC name. placement,
contract &
temporary
service.
</TABLE>
(1) Delisted from small cap 1-23-93 (bid price below min)
(2) IPO 8/15/95 1.6 mil shares at $12.50
<PAGE>
Franchises
Valuation Comparison of Franchise Companies
Nov-96
<TABLE>
<CAPTION>
Company Ipi Mail Cadmus
Inc. Boxes(1) Communications
------ -------- --------------
<S> <C> <C> <C>
Exchange & Symbol Nasdaq - INST Nasdaq - MAIL Nasdaq - CDMS
Fiscal Year 30-Nov 30-Apr 30-Jun
LTM Income Statement Date 31-Aug-96 31-Jul-96 30-Jun-96
Balance Sheet Date 31-Aug-96 31-Jul-96 30-Jun-96
Size: ($MM) LTM
Revenues $10.50 / 100.00% $ 61.01 / 100.00% $336.65 / 100.00%
Gross Profit/Margin $ 6.00 / 57.14% $ 35.53 / 58.24% $ 92.13 /
Operating Income/Margin $ 2.62 / 24.95% $ 15.33 / 25.13% $ 30.93 / 9.19%
Pre-tax Income/Margin $ 2.29 / 21.81% $ 15.09 / 24.73% $ 10.41 / 3.09%
Net Income/Margin $ 1.47 / 14.00% $ 9.18 / 15.05% $ 5.71 / 1.70%
Market Data: ($)
Closing Price (07/09/96) $ 3.50 $ 21.75 $ 16.50
Price Range - LTM $ 3.25 - $ 4.38 $ 12.13 - $27.00 $ 12.75 - $29.88
Current Shares Outstanding (MM) 4.73 11.14 7.91
Total Market Value (MM) $16.57 $242.30 $130.52
EPS: LTM/Projected FY 0.31 / na 0.58 / 0.93 0.87 / 1.38
PE: LTM/Projected FY 11.29 / na 37.50 / 23.39 18.97 / 11.96
Revenue Per Share 2.22 5.48 42.56
Price/Revenue Per Share 1.58 3.97 0.39
Book Value Per Share 2.62 5.72 13.60
Price/Book Value Per Share 1.34 3.80 1.21
Balance Sheet Data: ($MM)
Current Assets 6.73 48.59 109.73
Current Liabilities 1.49 12.38 50.17
Total Assets 13.88 77.42 282.76
Total Liabilities 1.49 13.71 175.20
Long-Term Debt 0.00 1.33 106.67
Stockholders' Equity 12.39 63.71 107.57
------ ------ -------
Total Capitalization 12.39 65.04 214.24
====== ====== =======
LT Debt/Total Capitalization 0.00 0.02 0.50
Debt to Equity 0.12 0.22 1.63
Debt to Assets 0.11 0.18 0.62
Current Ratio 4.52 3.92 2.19
Asset Turnover 0.76 0.79 1.19
Return to Stockholders' Equity 0.12 0.14 0.05
Return on Assets 0.11 0.12 0.02
<CAPTION>
Company Consolidated Devon Geographic
Graphics Group Inc.
------------ --------- -----------
<S> <C> <C> <C>
Exchange & Symbol Nasdag - COGI Nasdaq - DEVN Nasdaq - GGIT
Fiscal Year 31-Mar 31-Mar 31-Mar
LTM Income Statement Date 30-Jun-96 30-Jun-96 30-Jun-96
Balance Sheet Date 30-Jun-96 30-Jun-96 30-Jun-96
Size: ($MM) LTM
Revenues $ 93.91 / 100.00% $251.75 / 100.00% $23.85 / 100.00%
Gross Profit/Margin $ 30.69 / 32.68% $ 99.40 / 39.48% $10.08 / 42.26%
Operating Income/Margin $ 13.69 / 14.58% na / $ 3.60 / 15.09%
Pre-tax Income/Margin $ 6.96 / 7.41% $ 38.30 / 15.21% $ 1.77 / 7.42%
Net Income/Margin $ 4.50 / 4.79% $ 23.03 / 9.15% $ 1.17 / 4.91%
Market Data: ($)
Closing Price (07/09/96) $ 48.25 / $ 25.25 $ 4.31
Price Range - LTM $ 16.25 - $49.00 $ 20.25 - $38.50 $ 2.75 - $6.94
Current Shares Outstanding (MM) 6.13 7.38 9.42
Total Market Value (MM) $295.92 $186.42 $40.61
EPS: LTM/Projected FY 0.94 / 1.47 2.96 / 3.00 0.15 / 0.00
PE: LTM/Projected FY 51.33 / 32.82 8.53 / 8.42 28.75 / 2346.62
Revenue Per Share 15.31 34.10 2.53
Price/Revenue Per Share 3.15 0.74 1.70
Book Value Per Share 8.43 15.92 1.77
Price/Book Value Per Share 5.73 1.59 2.44
Balance Sheet Data: ($MM)
Current Assets 30.32 100.50 19.19
Current Liabilities 17.82 29.37 7.22
Total Assets 98.28 159.74 28.51
Total Liabilities 46.60 42.17 11.87
Long-Term Debt 23.51 1.99 4.65
Stockholders' Equity 51.68 117.57 16.64
------ ------- --------
Total Capitalization 75.19 119.56 21.29
====== ======= =======
LT Debt/Total Capitalization 0.31 0.02 0.22
Debt to Equity 0.90 0.36 0.71
Debt to Assets 0.47 0.26 0.42
Current Ratio 1.70 3.42 2.66
Asset Turnover 0.96 1.58 0.84
Return on Stockholders' Equity 0.09 0.20 0.07
Return on Assets 0.05 0.14 0.04
<CAPTION>
Graphic Merrill Tufco
Company Industries Corp. Technologies
---------- ------- ------------
<S> <C> <C> <C>
Exchange & Symbol Nasdaq - GRPH Nasdaq - MRLL Nasdaq - TFCO
Fiscal Year 31-Jan 31-Jan 30-Sep
LTM Income Statement Date 31-Jul-96 31-Jul-96 30-Jun-96
Balance Sheet Date 31-Jul-96 30-Jun-96 30-Jun-96
Size: ($MM) LTM
Revenues $429.48 / 100.00% $283.94 / 100.00% $64.09 / 100.00%
Gross Profit/Margin $120.84 / 28.14% $111.24 / 39.18% $13.37 / 20.86%
Operating Income/Margin $ 44.72 / 10.41% $ 39.52 / 13.92% $ 6.30 / 9.83%
Pre-tax Income/Margin $ 10.24 / 2.38% $ 26.38 / 9.29% $ 2.89 / 4.51%
Net Income/Margin $ 5.71 / 1.33% $ 14.79 / 5.21% $ 1.75 / 2.73%
Market Data: ($)
Closing Price (07/09/96) $ 9.50 $ 23.00 $ 7.00
Price Range - LTM $ 6.25 - $13.38 $ 14.25 - $26.50 $ 5.25 - $8.25
Current Shares Outstanding (MM) 11.73 7.90 3.72
Total Market Value (MM) $111.42 $181.70 $26.07
EPS: LTM/Projected FY 0.57 / 1.08 2.00 / 2.00 0.51 / 0.65
PE: LTM/Projected FY 16.67 / 8.80 11.50 / 11.50 13.73 / 10.77
Revenue Per Share 36.62 35.94 17.21
Price/Revenue Per Share 0.26 0.64 0.41
Book Value Per Share 8.03 11.02 7.47
Price/Book Value Per Share 1.18 2.09 0.94
Balance Sheet Data: ($MM)
Current Assets 139.16 118.14 20.09
Current Liabilities 55.65 95.51 8.65
Total Assets 284.87 196.15 50.21
Total Liabilities 190.71 109.08 22.41
Long-Term Debt 119.85 8.52 12.43
Stockholders' Equity 94.17 87.07 27.80
-------- ------- -------
Total Capitalization 214.02 95.59 40.23
======== ======= =======
LT Debt/Total Capitalization 0.56 0.09 0.31
Debt to Equity 2.03 1.25 0.81
Debt to Assets 0.67 0.56 0.45
Current Ratio 2.50 1.24 2.32
Asset Turnover 1.51 1.45 1.28
Return to Stockholders' Equity 0.06 0.17 0.06
Return on Assets 0.02 0.08 0.03
<PAGE>
Franchises
Valuation Comparison of Franchise Companies
Nov-96
</TABLE>
<TABLE>
<CAPTION>
Company Ipi Mail Cadmus
Inc. Boxes(1) Communications
------ -------- ------------
<S> <C> <C> <C>
Historical Growth:
EPS (Fully Diluted)-$
Latest Twelve Months 0.31 0.58 0.87
Latest Fiscal Year 0.29 0.77 0.76
1 Year Prior 0.28 0.60 1.21
2 Years Prior 0.22 0.49 0.86
3 Years Prior na 0.56 0.76
Compound Annual Growth Rate na 11.20% 0.00%
Revenues/Net Income: ($)MM.
Latest Twelve Months $10.50/ $1.47 $16.01/ $9.18 $336.65/ $5.71
Latest Fiscal Year 10.28/ 1.36 59.10/ 8.70 336.70/ 5.70
1 Year Prior 7.97/ 1.14 50.40/ 6.80 279.60/ 7.50
2 Years Prior 6.77/ 0.78 43.90/ 6.00 247.70/ 5.20
3 Years Prior na/ na 39.90/ 6.90 198.10/ 4.50
Compound Annual Growth Rate na na 14.57% 8.03% 19.34% 8.20%
Business Description: Through "Insty-Print" Franchisor of postal and Holding co., provides
franchises it offers services business communication printing/graphic art commun
incl. graphic design, color services incl. mailbox retail, incl. periodical, promotional
printing, brochures, etc. shipping, envelopes, stamps, etc. & financial printing.
<CAPTION>
Company Consolidated Devon Geographic
Graphics Group Inc.
--------- ------ ----------
<S> <C> <C> <C>
Historical Growth:
EPS (Fully Diluted)-$
Latest Twelve Months 0.94 2.96 0 .15
Latest Fiscal Year 0.72 3.27 0 .16
1 Year Prior 0.91 2.64 -0 .37
2 Years Prior 1.06 1.83 0 .09
3 Years Prior 0.74 1.43 0 .07
Compound Annual Growth Rate -0.91% 31.75% 31.73%
Revenues/Net Income: ($)MM.
Latest Twelve Months $93.91/ $4.50 $251.75/ $23.03 $23.85/ $1.17
Latest Fiscal Year 85.10/ 4.00 249.00/ 24.00 10.20/ 0.70
1 Year Prior 57.20/ 4.50 225.70/ 21.50 9.40/ -1.60
2 Years Prior 48.60/ 3.50 190.80/ 13.20 6.80/ 0.30
3 Years Prior 28.90/ 2.10 172.00/ 10.30 4.10/ 0.20
Compound Annual Growth Rate 43.33% 23.96% 13.12% 32.57% 35.50% 51.83%
Business Description: Provides general commercial Provides graphic art services Manufactures lettering
printing services in the U.S. such as typesetting, magazine signage, paper and graphic
incl. annual reports, catalogs, and financial printing. art products and
brochures, etc. distributes them.
<CAPTION>
Company Graphic Merrill Tufco
Industries Corp. Technologies
---------- ------- ------------
<S> <C> <C> <C>
Historical Growth:
EPS (Fully Diluted)-$
Latest Twelve Months 0.57 2.00 0.51
Latest Fiscal Year 0.98 1.34 0.51
1 Year Prior 0.80 1.50 0.37
2 Years Prior 0.65 1.67 0.37
3 Years Prior 0.41 1.12 0.37
Compound Annual Growth Rate 33.70% 6.16% 11.29%
Revenues/Net Income: ($)MM.
Latest Twelve Months $429.48/ $5.71 $283.94/ $14.79 $64.09/ $1.75
Latest Fiscal Year 417.30/ 10.60 245.30/ 10.70 68.40/ 2.30
1 Year Prior 348.10/ 8.40 236.90/ 12.00 48.00/ 1.20
2 Years Prior 335.50/ 6.50 181.60/ 13.30 36.20/ 1.00
3 Years Prior 316.90/ 4.00 147.70/ 8.60 24.90/ 0.80
Compound Annual Growth Rate 9.61% 38.38% 18.42% 7.55% 40.05% 42.19%
Business Description: Offers financial, corporate & Provides services incl. Provides converting and
commercial printing, direct typesetting, printing, and specialty printing service.
mail & education services. distribution worldwide. Also manufactures disposable
products.
</TABLE>
(1) Name change from Intermedia Comm of Fla. - 6/3/1996
<PAGE>
PROXY CARD FRONT
BERNARD HALDANE ASSOCIATES, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Jeffrey G. Klein,
Jeffrey Schachter and Gregg Weiss and each of them, with full power of
substitution, as proxies to represent the undersigned and vote all the shares of
Common Stock of Bernard Haldane Associates, Inc., which the undersigned is
entitled to vote at the Special Meeting of Shareholders to be held on April 9,
1999, at 10:00 A.M. local time at the offices of the Company, 192 Lexington
Avenue, 15th Floor, New York, New York 10016 and at any adjournments thereof, in
the following manner:
Management recommends that you vote FOR Proposal 1.
1. Proposal to adopt and authorize an Agreement and Plan of Merger
between the Company and Bernard Haldane Acquisition Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. IN ACCORDANCE WITH THEIR BEST JUDGMENT, the Proxy is authorized to
vote upon any other matter which may properly come before the Meeting.
<PAGE>
PROXY CARD BACK
(continued from other side)
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED
HEREIN. UNLESS OTHERWISE DIRECTED, OR IF NO DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
Date:
-------------------------------
- ------------------------------------
Signature
- ------------------------------------
Signature if jointly held
Please date and sign exactly as your
name appears hereon. If shares are
jointly held, all joint owners should
sign. Trustees and others signing in a
representative capacity in which they
sign. If the signatory is a corporation
or partnership, sign the full corporate
or partnership name by a duly authorized
officer or partner.
