TRANSACTION STATEMENT PURSUANT TO SECTION 13(E)
OF THE 1934 ACT AND RULE 13E-3 THEREUNDER
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
RULE 13e-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities exchange act of 1934)
[Amendment No. ____]
THE STROBER ORGANIZATION, INC.
(Name of the Issuer)
THE STROBER ORGANIZATION, INC., HAMILTON ACQUISITION LLC,
HAMILTON NY ACQUISITION CORP., ROBERT J. GAITES AND JOHN YANUKLIS
(Name of Person(s) Filing Statement)
COMMON STOCK $.01 PAR VALUE
(Title of Class of Securities)
863318 10 1
(CUSIP Number of Class of Securities)
STANLEY U. NORTH, III, ESQ.
SILLS CUMMIS ZUCKERMAN RADIN TISCHMAN LAURA C. HODGES TAYLOR, P.C.
EPSTEIN & GROSS, P.A. GOODWIN, PROCTER & HOAR LLP
ONE RIVERFRONT PLAZA EXCHANGE PLACE
NEWARK, NEW JERSEY 07102-5400 BOSTON, MASSACHUSETTS 02109-2881
(201) 643-7000 (617) 570-1000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. <check box>The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c)
under the Securities exchange Act of 1934.
b. <box>The filing of a registration statement under the Securities act
of 1933.
c. <box>A tender offer.
d. <box>None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: <checkbox>
CALCULATION OF FILING FEE
Transaction Amount of filing fee (2)
Valuation (1)
$32,363,510 $6472.70
(1)Based upon the acquisition of 5,194,198 shares of Common Stock of Issuer,
and cancellation of 675,687 options, for a purchase price of $6.00 per share
(less the exercise price for option shares).
(2)The amount of the filing fee, calculated in accordance with Regulation
240.0-11 of the Securities Exchange Act of 1934 equals 1/50th of one percent
of the transaction value.
<checkbox>Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $6,419.37
Form or Registration No.: PRELIMINARY SCHEDULE 14A
Filing Party: THE STROBER ORGANIZATION, INC.
Date File: DECEMBER 6, 1996
<PAGE>
INTRODUCTORY STATEMENT
This statement on Schedule 13E-3 (this "STATEMENT") is being filed by The
Strober Organization, Inc., a Delaware corporation (the "COMPANY"), Hamilton
Acquisition LLC, a Delaware limited liability company (the "PURCHASER"),
Hamilton NY Acquisition Corp., a Delaware corporation ("ACQUISITION SUB"),
Robert J. Gaites, an individual, and John Yanuklis, an individual, in
connection with a Restated Agreement and Plan of Merger dated as of November
11, 1996 by and among the Purchaser, Acquisition Sub and the Company.
The following is a cross-reference sheet pursuant to General Instruction F
to Schedule 13E-3 showing the location of the information required by Schedule
13E-3 in the Schedule 14A Proxy Statement (the "PROXY STATEMENT") of the
Company as filed with the Securities and Exchange Commission concurrently
herewith. The cross-reference sheet indicates the caption in the Proxy
Statement in which the response to each item of this Statement may be found.
The information in the Proxy Statement is hereby expressly incorporated by
reference, each cross reference below being deemed to be an incorporation by
reference of the portion of the Proxy Statement referred to and the response to
each Item being qualified in its entirety by the provisions of the Proxy
Statement.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM NUMBER PROXY STATEMENT SECTION AND/OR ANNEX TO PROXY
STATEMENT
<S> <C>
1(a) Not Applicable
1(b) Introduction -- General; Introduction-- Record Date;
Quorum; Required Vote
1(c) Market Prices and Dividends
1(d) Market Prices and Dividends
1(e) Not Applicable
1(f) Transactions by Certain Persons in Common Shares
2(a)-(d) and (g) Cover Page; Introduction -- The Special Meeting; The
Parties; Ownership of Common Shares -- Security
Ownership of Purchaser and Acquisition Sub; Management
of Purchaser, Acquisition Sub and the Company; Annex F
2(e) and (f) Not Applicable
3(a)(1) Not Applicable
3(a)(2) Special Factors -- Background of the Merger
3(b) Special Factors -- Background of the Merger
4(a) Introduction; The Merger
4(b) Introduction -- Record Date; Quorum; Required Vote;
Special Factors -- Sources and Amount of Funds;
Payment for Common Shares; Special Factors -- Interest
of Certain Persons in the Merger; Special Factors --
Proxy Agreement; The Merger -- Sources and Amount of
Funds; Payment for Common Shares; Management of
Purchaser, Acquisition Sub and the Company
5(a)-(g) Special Factors -- Plans for the Company After the
Merger; Special Factors -- Interest of Certain Persons
in the Merger -- Directors and Officers; Special
Factors -- Certain Effects of the Merger; The Merger -
- Directors; Market Prices and Dividends
6(a) and (c) Special Factors -- Sources and Amount of Funds;
Payment for Common Shares; The Merger -- Sources and
Amount of Funds; Payment for Common Shares
6(b) Special Factors -- Fees and Expenses
6(d) Not Applicable
7(a)-(d) Special Factors -- Background of the Merger; Special
Factors -- Purpose and Structure of the Merger;
Special Factors -- Certain Effects of the Merger;
Special Factors -- Certain Federal Income Tax
Consequences; The Merger -- Accounting Treatment
8(a)-(e) Special Factors -- Recommendation of the Special
Committee and Board of Directors; Fairness of the
Merger; Special Factors -- Interest of Certain Persons
in the Merger
8(f) Special Factors -- Background of the Merger
9(a)-(c) Special Factors -- Background of the Merger; Special
Factors -- Recommendation of the Special Committee and
Board of Directors of the Company; Special Factors --
Opinion of Financial Advisor -- Hill Thompson Capital
Markets, Inc.; Annex B
10(a) Special Factors -- Interest of Certain Persons in the
Merger; Special Factors -- Proxy Agreement; Ownership
of Common Shares
10(b) Special Factors -- Exercise of Company Stock Options
Expiring on December 31, 1996; Transactions by Certain
Persons in Common Shares
11 Special Factors -- Exercise of Company Stock Options
Expiring on December 31, 1996; Special Factors --
Interest of Certain Persons in the Merger -- Severance
Arrangements; Special Factors -- Proxy Agreement;
Transactions by Certain Persons in Common Shares;
Annex D
12(a) and (b) Special Factors -- Recommendation of the Special
Committee and Board of Directors; Fairness of the
Merger; Special Factors -- Interest of Certain Persons
in the Merger; Special Factors -- Proxy Agreement
13(a) Appraisal; Annex C
13(b) and (c) Not Applicable
14(a) Selected Consolidated Financial Data of the Company;
Incorporation of Certain Documents by Reference
14(b) Unaudited Pro Forma Selected Consolidated Financial
Data of the Company
15(a) and (b) Introduction -- Solicitation of Proxies; Special
Factors -- Fees and Expenses
16 Not Applicable
17(a)(1) Not Applicable
17(a)(2) Not Applicable
17(b)(1) Annex B
17(c)(1) Not Applicable
17(c)(2) Annex D
17(d)(1) Not Applicable
17(e)(1) Annex C
17(f)(1) Not Applicable
</TABLE>
The filing of this statement does not constitute an admission that the
transaction described in Item 4 hereof is a Rule 13e-3 transaction or that the
filing hereof is required pursuant to Section 13(e) of Securities Exchange Act
of 1934, as amended.
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) The name of the issuer of the class of equity security which is the
subject of the Rule 13e-3 transaction is The Strober Organization, Inc. and the
address of its principal executive offices is Pier 3 - Furman Street, Brooklyn,
New York 11201.
(b) The information set forth in the Proxy Statement under the captions
"Introduction -- General," and "-- Record Date; Quorum; Required Vote" is
incorporated herein by reference.
(c) The information set forth in the Proxy Statement under the caption
"Market Prices and Dividends" is incorporated herein by reference.
(d) The information set forth in the Proxy Statement under the caption
"Market Prices and Dividends" is incorporated herein by reference.
(e) Not Applicable.
(f) The information set forth in the Proxy Statement under the caption
"Transactions by Certain Persons in Common Shares" is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND
(a) - (d) and (g) This Statement is being filed by Purchaser, Acquisition
Sub, Robert J. Gaites, John Yanuklis, and the Company (the last being the
issuer of the subject security). The information set forth on the Cover Page
of the Proxy Statement and under the captions "Introduction -- The Special
Meeting," "The Parties," "Ownership of Common Shares -- Security Ownership of
Management of Purchaser and Acquisition Sub," and "Management of Purchaser,
Acquisition Sub and the Company," and Annex F to the Proxy Statement is
incorporated herein by reference.
(e) and (f) During the last five (5) years, none of Purchaser, Acquisition
Sub, Robert J. Gaites, John Yanuklis, and the Company or, (a) to the
Purchaser's or Acquisition Sub's knowledge, any of the persons listed in
"Management of Purchaser, Acquisition Sub and the Company -- Directors and
Executive Officers of Purchaser and Acquisition Sub" and Annex F to the Proxy
Statement, or (b) to the Company's knowledge, any of the persons listed in
"Management of Purchaser, Acquisition Sub and the Company -- Directors and
Executive Officers of the Company" (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violations of such laws.
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS
(a)(1) None.
(a)(2) The information set forth in the Proxy Statement under the caption
"Special Factors -- Background of the Merger" is incorporated herein by
reference.
(b) The information set forth in the Proxy Statement under the caption
"Special Factors -- Background of the Merger" is incorporated herein by
reference.
ITEM 4. TERMS OF THE TRANSACTION
(a) The information set forth in the Proxy Statement under the captions
"Introduction," and "The Merger" is incorporated herein by reference.
(b) The information set forth in the Proxy Statement under the captions
"Introduction -- Record Date; Quorum; Required Vote," "Special Factors --
Sources and Amount of Funds; Payment for Common Shares," "-- Interest of
Certain Persons in the Merger," "-- Proxy Agreement," "The Merger -- Sources
and Amount of Funds; Payment for Common Shares," and "Management of Purchaser,
Acquisition Sub and the Company" is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a) - (g) The information set forth in the Proxy Statement under the
captions "Special Factors -- Plans for the Company After the Merger," "--
Interest of Certain Persons in the Merger -- Directors and Officers," "--
Certain Effects of the Merger," "The Merger -- Directors," and "Market Prices
and Dividends" is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
(a) and (c) The information set forth in the Proxy Statement under the
captions "Special Factors -- Sources and Amount of Funds; Payment for Common
Shares," and "The Merger -- Sources and Amount of Funds; Payment for Common
Shares" and in Exhibits (a)(1) and (a)(2) to this Statement is incorporated
herein by reference.
(b) The information set forth in the Proxy Statement under the caption
"Special Factors -- Fees and Expenses" is incorporated herein by reference.
(d) Not Applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a) - (d) The information set forth in the Proxy Statement under the
captions "Special Factors -- Background of the Merger," "-- Purpose and
Structure of the Merger," "-- Certain Effects of the Merger," "-- Certain
Federal Income Tax Consequences," and "The Merger -- Accounting Treatment" is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION
(a) - (e) The information set forth in the Proxy Statement under the
captions "Special Factors -- Recommendation of the Special Committee and Board
of Directors; Fairness of the Merger," and "-- Interest of Certain Persons in
the Merger" is incorporated herein by reference.
(f) The information set forth in the Proxy Statement under the caption
"Special Factors -- Background of the Merger" is incorporated herein by
reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a) - (c) The information set forth in the Proxy Statement under the
captions "Special Factors -- Background of the Merger," "-- Recommendation of
the Special Committee and Board of Directors of the Company," "-- Opinion of
Financial Advisor -- Hill Thompson Capital Markets, Inc.," and in Exhibit
(b)(1) to this Statement is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a) The information set forth in the Proxy Statement under the captions
"Special Factors -- Interest of Certain Persons in the Merger," "-- Proxy
Agreement," and "Ownership of Common Shares" is incorporated herein by
reference.
(b) The information set forth in the Proxy Statement under the captions
"Special Factors -- Exercise of Company Stock Options Expiring on December 31,
1996," and "Transactions by Certain Persons in Common Shares" is incorporated
herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES
The information set forth in the Proxy Statement under the captions "Special
Factors -- Exercise of Company Stock Options Expiring on December 31, 1996," "-
- - Interest of Certain Persons in the Merger -- Severance Arrangements," "--
Proxy Agreement," and "Transactions by Certain Persons in Common Shares," and
in Exhibits (c)(1) and (c)(2) to this Statement is incorporated herein by
reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD
TO THE TRANSACTION
(a) and (b) The information set forth in the Proxy Statement under the
captions "Special Factors -- Recommendation of the Special Committee and Board
of Directors; Fairness of the Merger," "-- Interest of Certain Persons in the
Merger," and "-- Proxy Agreement" is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
(a) The information set forth in the Proxy Statement under the caption
"Appraisal," and in Exhibit (e)(1) to this Statement is incorporated herein by
reference.
(b) and (c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION
(a) The information set forth in the Proxy Statement under the captions
"Selected Consolidated Financial Data of the Company," and "Incorporation of
Certain Documents by Reference" is incorporated herein by reference.
(b) The information set forth in the Proxy Statement under the caption
"Unaudited Pro Forma Selected Consolidated Financial Data of the Company" is
incorporated herein by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) and (b) The information set forth in the Proxy Statement under the
captions "Introduction -- Solicitation of Proxies," and "Special Factors --
Fees and Expenses" is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION
None.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
(a)(1) Letter dated November 8, 1996 from Congress Financial Corporation
(New England) pertaining to $25,000,000 credit line.
(a)(2) Letter dated November 7, 1996 (as accepted November 8, 1996) from
CoreStates Financial Corp. pertaining to $4,000,000 of subordinated
note financing.
(b)(1) Opinion of Hill Thompson Capital Markets, Inc. dated November 7,
1996 is incorporated by reference from Annex B to the Proxy
Statement filed as Exhibit (d)(1) hereto.
(c)(1) Form of Loan and Stock Pledge Agreement
(c)(2) Proxy Agreement dated as of November 11, 1996 is incorporated by
reference from Annex D to the Proxy Statement filed as Exhibit
(d)(1) hereto.
(d)(1) Proxy Statement of the Company for the Special Meeting of
Stockholders of the Company to be held February , 1997.
(e)(1) Statement of appraisal rights is incorporated by reference from
Annex C to the Proxy Statement filed as Exhibit (d)(1) hereto.
(f)(1) None.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
THE STROBER ORGANIZATION, INC.
By: /S/ DAVID J. POLISHOOK
---------------------------------
Name: David J. Polishook
Title: Chief Financial Officer
DATED: January 22, 1997
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
HAMILTON ACQUISITION LLC
By: /S/ JOHN J. REMONDI
------------------------
Name: John J. Remondi
Title: Manager
DATED: January 22, 1997
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
HAMILTON NY ACQUISITION CORP.
By: /S/ JOHN J. REMONDI
------------------------
Name: John J. Remondi
Title: President
DATED: January 22, 1997
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
By: /S/ ROBERT J. GAITES
-------------------------
Robert J. Gaites
DATED: January 22, 1997
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
By: /s/ JOHN YANUKLIS
-----------------------
John Yanuklis
DATED: January 14, 1997
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
(a)(1) Letter dated November 8, 1996 from Congress Financial Corporation (New England)
pertaining to $25,000,000 credit line.
(a)(2) Letter dated November 7, 1996 (as accepted November 8, 1996) from CoreStates
Financial Corp. pertaining to $4,000,000 of subordinated note financing.
(b)(1) Opinion of Hill Thompson Capital Markets, Inc. dated November 7, 1996 is
incorporated by reference from Annex B to the Proxy Statement filed as Exhibit
(d)(1) hereto.
(c)(1) Form of Loan and Stock Pledge Agreement
(c)(2) Proxy Agreement dated as of November 11, 1996 is incorporated by reference from
Annex D to the Proxy Statement filed as Exhibit (d)(1) hereto.
(d)(1) Proxy Statement of the Company for the Special Meeting of Stockholders of the
Company to be held February __, 1997.
(e)(1) Statement of appraisal rights is incorporated by reference from Annex C to the
Proxy Statement filed as Exhibit (d)(1) hereto.
</TABLE>
<PAGE>
Exhibit (a)(1)
[Congress Financial Corporation Letterhead]
November 8, 1996
Fidelity Ventures Limited Partnership
100 Summer Street
Boston, MA 02110
Attention: Warren Morrison
Gentlemen:
Based upon our discussions and the information that you have supplied to us,
we are pleased, subject to the terms and conditions set forth below, to offer
our commitment to provide a secured line of credit of up to $25,000,000 (the
"Credit Line") to The Strober Organization, Inc. or a company with which The
Strober Organization, Inc. is merged and the subsidiaries thereof
(collectively, the "Company) upon the merger, as provided herein, of the
Company with a company owned or controlled by you created for such purpose.
We contemplate that the loans provided by us to the Company will be
structured as follows:
1. REVOLVING LINE OF CREDIT
(a)AMOUNT. Up to $25,000,000, based upon lending formulas, sublimits and
other terms described below.
(b)LENDING FORMULAS:
(i) ACCOUNTS: Loans of up to seventy-five percent (75%) of the net
amount of eligible accounts receivable of the Company. Eligible
accounts receivable and the net amounts thereof shall be determined
by us pursuant to general criteria which will be set forth in the
loan documentation. Generally, eligible accounts receivable will
exclude accounts which are unpaid more than ninety (90) days past
original invoice date, accounts which are owned by an account
debtor which has more than fifty (50) percent (50%) of the
aggregate amount thereof unpaid more than ninety (90) days past the
original invoice date thereof, contra accounts, poor credits,
foreign accounts, accounts as to which potential offsets exist and
such other accounts which do not constitute collateral acceptable
for lending purposes, pursuant to criteria established by us in
good faith.
Subject to our determination, foreign accounts receivable payable
in the United States in U.S. dollars may be eligible accounts
receivable if a letter of credit has been issued with respect to
such foreign accounts receivable or credit insurance satisfactory
to us covers them or we are otherwise satisfied with the
creditworthiness of the account debtor and our ability to collect
the foreign accounts receivable. Any advance rate with respect to
foreign accounts receivable will be determined on an account by
account basis.
(ii) INVENTORY: Loans of up to sixty-five (65%) percent of the value of
eligible finished goods inventory of the Company, not to exceed 90%
of the appraised orderly liquidation value (less projected
liquidation expenses) as performed by an appraiser acceptable to
us, valued at the lower of cost or market, as determined by us,
with cost determined under the average cost basis. Eligible
inventory will be determined by us pursuant to general criteria
which will be set forth in the loan documentation. Generally,
eligible inventory will exclude work-in-process and packaging and
those other items which do not constitute collateral acceptable for
lending purposes pursuant to criteria established by us in good
faith.
(c)INVENTORY LOAN LIMIT: The maximum amount of loans available in respect
of eligible inventory shall not exceed $9,000,000 at any time,
notwithstanding the total value of eligible inventory.
(d)Seasonal Overadvance Facility. So long as no default has occurred and is
continuing, during the months of January and February, 1997, we will make
up to $1,000,000 in additional loans to you in excess of the lending
formulae set forth in (b)(i) and (ii) above, with such seasonal
overadvance facility to be subject to reapproval by us in subsequent
years.
(e)CO-BORROWERS. The Company and its wholly owned operating subsidiaries
will be co-borrowers under the Credit Line and will be jointly and
severally liable for all loans, indebtedness and obligations under the
Credit Line.
2. COLLATERAL
(a)SECURITY: First security interests in and liens upon all of the
Company's and its subsidiaries' existing and future assets, including,
without limitation, accounts, contract rights, notes receivable, general
intangibles (including, without limitation, all trademarks, service
marks, patents, applications therefor, and other intellectual property,
tax refunds, deposit accounts, choses in action and other claims arising
out of or relating to accounts, customer lists, leases, service
agreements, licenses and other rights and agreements), securities
(excluding capital stock of subsidiaries) chattel paper, documents,
instruments, inventory, fixtures, machinery and equipment, real estate
and all products and proceeds thereof. The loan documentation will
permit certain existing liens (for equipment and capital leases) to
remain in effect as well as subordinated liens in favor of the holders of
the subordinated debt.
(b)CROSS-COLLATERALIZATION: All collateral granted to us by the Company and
its subsidiaries shall be security for all indebtedness of the Company to
us.
(c)RESERVES: We shall have a continuing right to reserve against loan
availability under the above-lending formula for matters in our good
faith judgment adversely affecting the Company's obligations to us or our
collateral.
(d)CROSS-GUARANTIES. All obligations to us shall be cross-guarantied by the
Company and all of its subsidiaries.
3. USE OF PROCEEDS
All of our loans shall be used exclusively for the working capital of the
Company and its subsidiary co-borrowers . The proceeds of our initial loans
under the Credit Line shall be used as follows:
(a)for the payment of amounts due to the stockholders of the Company upon
completion of the contemplated merger transaction,
(b)for the satisfaction in full of all then outstanding obligations of the
Company to its existing secured working capital lender and to other
existing lienholders (other than with respect to permitted liens), as of
the closing date,
(c)for costs, expenses and fees incurred in connection with this facility,
and
(d)the balance, if any, for other working capital of the Company;
PROVIDED, THAT all loans to the Company and any of its affiliates shall be in
full compliance with the Federal Reserve's margin requirements.
4. INTEREST RATE
The interest rate on loans shall be one percent (1%) per annum above the
rate announced from time to time by the CoreStates Bank, N.A., as its "prime
rate" or, at the Company's option, a rate of three and one-quarter (3.25%)
percent per annum above the adjusted Eurodollar rate used by us. The adjusted
Eurodollar rate will be calculated based on the average of rate of interest per
annum at which CoreStates Bank, N.A. is offered deposits of U.S. dollars in the
Lender interbank market adjusted by the reserve percentage prescribed by
governmental authorities as determined by us. Collections will be credited to
the loan account of the Company on a daily basis, allowing two (2) business
days after our receipt of a wire transfer of federal funds into our payment
account designated for such purpose.
5. FEES
All fees as listed below are in addition to interest and other charges
provided for herein and may, at our option, be charged directly to any loan
account of the Company maintained with us.
(a)COMMITMENT FEE: We shall receive a non-refundable commitment fee of one
hundred twenty-five thousand ($125,000) dollars for providing this
commitment, payable in full upon execution and return of this letter by
the Company to us (the "Commitment Fee"). The Commitment Fee shall be
applied in partial payment of the Closing Fee set forth below at the
funding of this transaction.
(b)CLOSING FEE: We shall receive a closing fee of three hundred thousand
($300,000) dollars for providing the Credit Line outlined herein, earned
and payable at closing with one-half payable through the application of
the Commitment Fee.
(c)SERVICING FEE. We shall receive a servicing fee of $3,500 for each month
or part thereof during the term of the financing arrangements, payable
monthly in advance.
(d)UNUSED LINE FEE: We shall receive an unused line fee of one half of one
percent (1/2%) per annum on the difference between the average monthly
balance of loans under the Credit Line and $25,000,000.
(e)EARLY TERMINATION FEE: If the Credit Line is terminated for any reason
prior to three (3) years from the date of closing, we shall receive an
early termination fee as follows:
(i) three percent (3%) of the Credit Line if terminated within one (1)
year from the date of closing; and
(ii) one percent (1%) of the Credit Line if terminated after the first
anniversary and on or prior to the third anniversary of the date of
closing.
There will be no termination fee if the Credit Line is terminated on or
after the third anniversary of the closing date.
6. CONTRACT TERM
Our Credit Line shall be for a minimum term of three (3) years from the date
of closing.
7. EXPENSES
(a)You agree to pay all reasonable legal and closing costs and expenses,
including attorneys' fees, filing and search charges, appraisal fees and
field examination charges and per diem filed examination charges, whether or
not this transaction closes. We charge $600 per person per day for our
field examiners in the field and in the office, plus travel, hotel and all
other out-of-pocket expenses. All expenses shall be paid to us upon demand,
together with such advance funds on account of such expenses as we may from
time to time request. This paragraph shall survive the expiration or
termination of this letter.
(b)If this transaction closes, you further agree to pay all of our out-of-
pocket expenses and customary administrative charges incurred from time
to time during the course of our financing arrangements, including,
without limitation, expenses and per diem charges for up to four
recurring field examinations per year, prior to an event of default, and
as we may require thereafter.
<PAGE>
8. OTHER INFORMATION AND CONDITIONS
All covenants, terms and requirements of this commitment are conditions
precedent to the making of loans to the Company and its subsidiaries by us. In
addition, the making of loans to the Company and its subsidiaries by us as
described herein is subject to the fulfillment, in a manner satisfactory to us,
of the following additional terms and conditions:
(a)You or the Company shall furnish us with all financial information,
financial statements, projections, budgets, business plans and cash flows
and such other information as we shall reasonably request from time to
time.
(b)Execution of loan documents, delivery of opinions of the Company's or
your counsel and such other agreements, documents, certificates and
instruments as may be necessary or desirable to effectuate the financing
arrangements described herein as may be determined by us and our counsel.
(i) Such loan documents will include, among other documents, a loan and
security agreement, UCC financing statements, guaranties by and
security agreements with subsidiaries, if any, mortgages and other
documentation necessary to perfect our security interests in all
assets of the Company and its subsidiaries.
(ii) Such loan documents will contain such provisions, representations,
warranties, covenants and events of default as are satisfactory to
us and our counsel, including among other things: financial
covenants, limitations on the payment of management fees,
limitations on the payment of dividends and redemptions,
limitations on indebtedness, liens and acquisitions, limitations on
payments on subordinated debt and cross-defaults with all
obligations of the Company to others, including with respect to all
subordinated debt holders and any subordinated debt or other
investment made by the CoreStates Enterprise Fund.
(iii) The structure of your acquisition of the Company and the structure
of our lending arrangements with the Company and its subsidiaries
shall be satisfactory to us and our counsel and the Company shall
have delivered letters from the Company's chief financial officer
in form and substance satisfactory to us, attesting to the solvency
of the Company immediately before and immediately after giving
effect to the acquisition.
(c)At or prior to closing, the Company shall have received, in form and
substance satisfactory to us, not less than an additional $9,000,000 in
cash as an equity capital contribution (including equity contributions
from management), and $4,000,000 in proceeds of subordinated debt with
the subordinated debt subject to subordination terms and conditions in
form and substance satisfactory to us.
(d)At or prior to closing, we shall have received and approved definitive
acquisition agreements and we shall have received satisfactory evidence
of the merger of the Company with a company owned and controlled by you
created for such purpose. We also shall have received satisfactory
evidence that all necessary governmental and other consents have been
obtained and evidence of compliance with applicable laws in connection
with the acquisition and merger including that the restrictions in
Section 203 of the Delaware General Corporation Law, any other
application state takeover law and any super-majority charter provisions
are not applicable to such transactions or that any conditions for
avoiding such restrictions have been satisfied.
(e) The excess availability under the lending formulas provided for
above, subject to sublimits and reserves, shall be not less than
$1,000,000 at the closing, after the payment of fees and expenses
of the transaction and the application of the proceeds of the
initial loans, and provided that accounts payable of the Company
are then at a level and in a condition reasonably acceptable to us.
(f)All consents, waivers, acknowledgments and other agreements from third
parties necessary or desirable to permit, protect and perfect our
security interests in collateral, in form and substance acceptable to us,
shall have been received by us, including, without limitation, consents
to our access to and use of the Company's leased real and personal
property, no offset agreements and intercreditor agreements.
(g)Delivery to us of evidence of insurance coverage, including lender' loss
payee and mortgage endorsements in our favor as to the Company's casualty
insurance and liability insurance.
(h)No material adverse change in the business, operations, profits or
prospects of the Company or in the condition of the assets of the Company
shall have occurred since the date of our latest field examination
provided that no material adverse change will be deemed to have occurred
in respect of the Company's financial condition so long as the financial
results and condition of the Company for the first fiscal quarter of its
1997 fiscal year are equal to or in excess of the results and condition
for the first quarter of its 1996 fiscal year. Without limiting the
generality of the foregoing, (i) no act, condition or event which would
constitute an event of default under the loan agreements to be executed
between us shall exist as of the closing, (ii) no material investigation,
litigation, bankruptcy or other proceedings shall be pending or
threatened against the Company as of the closing (except for the
litigation set forth on Schedule A hereto and the certain union matters
set forth on Schedule B hereto), and (iii) the collateral shall not have
materially declined in value from the values set forth in any of the
appraisals or field examinations previously done. We may conduct
additional or update field examinations at the Company's expense, prior
to commencing financing, the results of which must be satisfactory to us.
(i)All Uniform Commercial Code financing statements relating to the
collateral shall have been duly filed and recorded prior to the closing
date.
(j)The Company shall establish a lockbox or blocked account for its
collections and disbursement thereof to us which shall be acceptable to
us.
(k)Participation in the funding of the Credit Line in amounts and on terms
acceptable to us by other financial institutions acceptable to us. We
will use our best efforts to participate out up to $10,000,000 of Credit
Line to a participant acceptable to us. This participant will sign our
standard Participation Agreement and we will not receive an override on
such participant's rate and, accordingly, the differential in interest
rate, if any, will be passed on to the Company. However, all fees and
other income will be retained by us.
(l)This transaction and the events contemplated herein must close by
February 28, 1997, after which time the transaction may require
reapproval by our Credit Committee even if we continue to work on the
transaction. Said reapproval, if obtained, may result in different terms
and conditions, or a determination not to consummate the transaction. We
will use our best efforts to close this transaction and the events
contemplated herein by February 28, 1997, however our ability to close by
such date will depend upon, among other things, whether the conditions
set forth herein are completed. Paragraphs 5(a), 7 and 9 shall survive
the expiration or termination of this commitment.
9. DEPOSITS; COMMITMENT FEE; INDEMNITY
As evidence of our mutual good faith, and in consideration of our having
incurred and continuing to insure certain expenses in the expectation of
establishing a lender/borrower arrangement, the Company has deposited with us
$25,000 against our expenses. This amount, together with any other deposits at
any time received by us from the Company, but exclusive of the Commitment Fee
to be received by us as provided in Paragraph 5(a) which is not refundable,
will be:
(a)RETAINED BY US, and will be credited to the loan account, less expenses,
if the Credit Line, or any portion thereof, is closed;
(b)RETAINED BY US, if either the Company elects not to do business with us
or the Company cannot fulfill the conditions of this commitment;
(c)RETAINED BY US, if during our continuing loan and credit review, we learn
of any material adverse information concerning the Company or its assets,
business or financial condition or the acquisition not disclosed by the Company
to us prior to our Credit Committee's approval, the knowledge of which would
have adversely affected such approval; and
(d)RETURNED TO YOU, less expenses, if none of the preceding paragraphs 9(a),
9(b) or 9(c) applies.
You agree to indemnify and hold Congress Financial Corporation and its
directors, officers, employees, agents, subsidiaries and affiliates (each an
"indemnified person") from and against all losses, claims, damages, liabilities
and expenses that may arise out of or result from this letter or the Credit
Line and to reimburse each indemnified person, upon demand, for all expenses
and costs, including reasonable legal fees and expenses, that may be incurred
in connection therewith or in the enforcement of this letter, other than any of
the foregoing that is determined by a final order or judgment of a court of
competent jurisdiction, not subject to further appeal, to have resulted from
the gross negligence or willful misconduct of the indemnified person. This
paragraph shall survive the termination of this letter.
This letter contains our entire commitment for this transaction and upon
acceptance by the Company supersedes all prior proposals negotiations,
discussions and correspondence, including our proposal letter to the Company
dated July 10, 1996. This commitment may not be contradicted by evidence of
any alleged oral agreement. All prior oral discussions are merged in the
governing terms of this commitment, which may be amended only in writing
executed by the parties hereto. No condition of this commitment may be waived
except in writing signed by us. This letter shall be governed by the laws of
the Commonwealth of Massachusetts.
This letter is of no force and effect unless accepted by you and returned to
us with the Commitment Fee on or before 5:00 p.m., November 11, 1996.
This commitment is not intended for the benefit of, and may not be relied
upon by, any third party.
We look forward to continuing to work with you and your associates in this
transaction.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(NEW ENGLAND)
/S/ GEORGE PSOMAS
------------------------------
George Psomas
Vice President
ACCEPTED ON THIS
8th DAY OF November, 1996:
FIDELITY VENTURES LIMITED PARTNERSHIP
By: /S/ WARREN T MORRISON
--------------------------------------
Title: VICE PRESIDENT
cc: William R. Davis, President
Barry A. Kastner, Executive Vice President
Edward I. Shifman, Jr., Senior Vice President
Joan Ryan, Executive Secretary
<PAGE>
Exhibit (a)(2)
[Core States Financial Corp. Letterhead]
November 7, 1996
Mr. Warren T. Morrison
82 Devonshire Street, Mail Zone R25C
Fidelity Capital
Boston, Massachusetts 02109
VIA FAX: 617-476-5015 & OVERNIGHT DELIVERY
Dear Warren:
You have requested that CoreStates Bank, N.A. or one of its affiliates
("CoreStates") purchase an aggregate amount of $4,000,000.00 of subordinated
amortizing notes (the "Notes"). These Notes are to issued by an entity (herein
the "Company" or "Borrower"), which shall be majority owned by Fidelity
Capital, which will be the successor by merger to The Strober Organization,
Inc. ("Strober). The proceeds of these Notes will be used to purchase existing
common equity stock of The Strober Organization, Inc.
Based upon the information you have provided to CoreStates with respect to
Strober and the proposed transaction, CoreStates is pleased to confirm its
commitment (the "Commitment") to purchase $4,000,000.00 of the Notes, together
with Warrants to purchase the Common Stock of the Company, on the Summary Terms
And Conditions dated November 7, 1996 and attached hereto (the "Term Sheet").
This letter is subject to (a) the prior negotiation and execution of a Note
Purchase Agreement and other related documentation (the "Documentation") and
satisfaction of such other conditions set forth herein and in the Term Sheet;
and (b) the absence of any material adverse change in the liabilities (actual
or contingent), condition (financial or otherwise), projections, prospects or
operations of Strober. The closing of the Note Purchase will occur
simultaneous with the closing of the merger of Strober and the Borrower. Any
terms and/or conditions of the Note Purchase which are not covered or made
clear by this letter or the Term Sheet are subject to the mutual agreement of
the Company and CoreStates.
<PAGE>
By executing this letter, you agree to indemnify and hold harmless
CoreStates, its affiliates, and its officers, directors, employees, agents, and
controlling persons (each an "Indemnified Party"), from and against any and all
losses, claims, damages, liabilities, costs and expenses (including, without
limitation, the reasonable fees and disbursements of counsel) which may be
incurred by or awarded against any Indemnified Party arising out of or in
connection with the actual or threatened claim, litigation, investigation or
proceeding relating to this letter, the Term Sheet, the Note Purchase, or any
transaction related to any of the foregoing, whether or not the transactions
contemplated hereby and by the Term Sheet are even consummated, and to
reimburse each Indemnified Party, upon demand, for all reasonable out-of-pocket
costs and expenses, incurred in connection with the foregoing; provided,
however, that the foregoing indemnity will not, as to any Indemnified Party,
apply to any losses, claims, damages, liabilities, costs or expenses to the
extent determined in a final judgement, after all allowable appeals, to have
arisen from the willful misconduct or gross negligence of such Indemnified
Party. The provisions of this paragraph shall survive the expiration or other
termination of this letter and shall be effective regardless of whether the
Note Purchase Agreement or any of the Documentation is executed.
In addition, you agree that you shall pay all out-of-pocket costs and
expenses (including, without limitation, the reasonable fees and disbursements
of counsel) incurred by CoreStates in connection with (a) incurred costs and
expenses, as of the date of this letter, related to the verification of the
information previously provided by you, (b) any remaining legal due diligence
with respect to the Company or the acquisition, and (c) the negotiation and
preparation of this letter and the Term Sheet and the preparation and
negotiation of the Documentation and closing of the transactions contemplated
hereby and thereby, all whether the Documentation and closing of the Note
Purchase is ever finalized (collectively, the "Expenses"). The provisions of
this paragraph shall survive the termination or other expiration of this letter
and the execution (or non-execution) of the Documentation.
<PAGE>
You agree that this letter and the Term Sheet are for your confidential use
only and you will not disclose the existence or terms of this letter or the
Term Sheet without our prior written consent, to any person other than your
accountants, attorneys, and other advisors and to the management and Board of
Directors of the Strober Organization, Inc. and then only in connection with
the transaction contemplated hereby and thereby and on a confidential basis,
except that, following your acceptance hereof, you may make such public
disclosures of the terms and conditions hereof and of the Term Sheet as you are
required to make by law.
This letter is not assignable by you. No provision of this letter or the
Term Sheet may be amended, waived or modified except by a document in writing
signed by an authorized signer of both Fidelity Capital and CoreStates.
This letter shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts.
You hereby knowingly, voluntarily, and intentionally waive any right you
may have to a trial by jury in respect to any claim, litigation, or proceeding
arising out of, under or in connection with, this letter, the Term Sheet, the
Note Purchase or the transactions contemplated hereby and thereby.
You hereby irrevocably submit to the exclusive jurisdiction of any
Commonwealth of Massachusetts or Federal Court sitting in The City of Boston
over any claim, litigation, or proceeding arising out of, under, or in
connection with this letter, the Term Sheet, the Note Purchase, or the
transactions contemplated hereby and thereby.
This letter shall automatically expire if not accepted by you (by signing
and returning a counterpart of this letter to us) on or before 5:00 PM,
Philadelphia, PA time, on November 15, 1996. In addition, the agreements and
obligations of CoreStates hereunder shall be null and void if the Documentation
is not executed and delivered and the first funding made thereunder on or
before 5:00 PM, Philadelphia, PA time, on February 28, 1997. If you accept
this Commitment by signing the enclosed counterpart of this letter, you shall
be obligated to pay a non-refundable Break-Up Fee in the amount of (1) $100,000
if you subsequently accept a commitment and/or loan or other financing from
another lender or financing source and CoreStates are prepared to make the Note
Purchase on substantially the terms set forth in the Term Sheet; or (2) the
lesser of (a) $100,000.00, or (b) 10% of any fee (exclusive of the
reimbursement of expenses) received by you from either Strober or any entity
which acquires or enters into a merger with Strober.
<PAGE>
Please indicate you acceptance of this letter and your agreement to the
terms and conditions set forth herein and in the Term Sheet, by signing the
enclosed copy hereof and delivering it to CoreStates Bank, N.A., along with a
check for $35,000.00 which will be credited toward the Commitment Fee outlined
in the Term Sheet.
This letter may be executed in any number of counterparts, each of which
shall be an original and all of which, when taken together, shall constitute
one letter agreement.
CORESTATES BANK, N.A.
By: /S/ MICHAEL BIENVILLE GRIMES
-----------------------------
Name: Michael Bienville Grimes
Title: Vice President
Accepted and agreed the 8th day of November, 1996
FIDELITY CAPITAL
By: /S/ WARREN T. MORRISON
-----------------------
Name: Warren T. Morrison
Title: Vice President
<PAGE>
NOVEMBER 7, 1996
STROBER ORGANIZATION, INC. ACQUISITION ENTITY, INC.
SUMMARY TERMS AND CONDITIONS
CONFIDENTIAL
This Summary Terms and Conditions are intended for the use of Strober
Organization Inc. Acquisition Entity, its partners, directors, and
counsel only. Disclosure to other parties shall not be made without the
express written consent of CoreStates.
BORROWER: A legal entity acquiring the stock of the Strober
Organization, Inc., herein referred to as the Strober
Organization, Inc. Acquisition Entity, Inc.
GUARANTORS: All direct and indirect subsidiaries of Borrower.
GUARANTY
SECURITY: Second liens on accounts receivable and inventory of each
guarantor (subordinated on terms acceptable to Congress
Financial Corp. and CoreStates Bank, N.A. and the Borrower
and Guarantors);
PROPOSED
COMMITMENT: $4,000,000
FACILITY
STRUCTURE: Six Year Subordinated Amortizing Term Loan
LENDER: CoreStates Enterprise Capital, Inc. or an Affiliate
("CoreStates")
PURPOSE: Either the acquisition of stock of Strober Organization, Inc.
if a formal tender offer is conducted or a purchase of shares
subsequent to a merger between Strober and a newly formed
corporation wholly-owned by Fidelity Capital.
SCHEDULED
AMORTIZATION: Commencing on the last day of the thirteenth month after
closing, Sixty consecutive monthly payments, with annual
totals as follows:
Year 1 0.0%
Year 2 5.0%
Year 3 10.0%
Year 4 25.0%
Year 5 30.0%
Year 6 30.0%
INTEREST RATE: 6.50% in excess of the yield on the five year treasury note
(if priced today this would equate to approximately 12.50%).
Borrower may elect to fix this rate at any time after
acceptance of these Summary Terms and Conditions until
closing. Rates may be held for up to ninety days. If
Borrower locks in a fixed rate, and does close within the
ninety day period, Borrower will be responsible for any
funding losses CoreStates incurs.
MONITORING
FEE: 1/2 of 1% of the highest amount outstanding during any
calendar year, payable annually on December 31.
INTEREST DAY
BASIS: Actual/360
MANDATORY
PREPAYMENT: Change of control of Borrower, upon the occurrence of an
initial public offering of equity securities of Borrower
generating in excess of$10,000,000 to the Borrower, or from
the net proceeds from a sale of substantially all of the
assets of any Guarantor or the sale by the Borrower of
substantially all of the stock of any one or more of the
Guarantors (Loan Documentation to provide for the Borrower's
ability to redeploy a mutually agreed amount of such proceeds
within a mutually agreeable amount of time after such a sale);
COMMITMENT
FEE: $35,000, due upon delivery by CoreStates to Borrower of a
definitive commitment letter.
CLOSING FEE: $35,000 earned upon the acceptance of these Summary Terms and
Conditions by Borrower, and payable as follows: $17,500 is
payable upon acceptance of Borrower of these Summary Terms
and Conditions and $17,500 at Closing.
<PAGE>
BREAK-UP FEE: If CoreStates issues a written commitment letter for a
financing as outlined in these Summary Terms and Conditions,
and the proposed facility is not utilized and Fidelity
Capital acquires Strober with alternate financing (either
from another third party or using its own capital), a fee of
$100,000 will be earned and immediately payable to CoreStates
(in addition to, not instead of, the Facility Fee detailed
above);
or
If CoreStates issues a written commitment letter for a
financing as outlined in these Summary Terms and
Conditions, and the proposed facility is not utilized
and Fidelity Capital does not acquire the stock of
Strober and Fidelity receives a fee, CoreStates will
receive a fee equal to the lesser of: (a) $100,000.00
or (b) 10% of any fee (excluding reimbursement of
expenses) received by Fidelity from Strober or any
entity which acquires Strober (again in addition to,
not instead of, the Facility Fee), i.e. if Fidelity
does not acquire Strober, this fee is earned by
CoreStates to the extent that Fidelity receives a
break-up fee.
COMMON STOCK
PURCHASE
WARRANTS: Borrower will grant to CoreStates warrants representing
the right to purchase from the Borrower common stock
representing 10.0% of the fully diluted outstanding
shares of the Borrower (including the shares to be
issued pursuant to these warrants). Warrants shall be
exercisable for a period of ten years from closing and
have an exercise price equal to the book value of the
Borrower's stock at closing. The warrant agreement
shall permit the payment of the exercise price by
CoreStates to Borrower to be "in kind", i.e. the
surrender of warrants by CoreStates to Borrower of
warrants having sufficient inherent value to equal the
exercise price of the remaining warrants and/or the use
of principal outstanding under the facility as payment
of the exercise price ("cashless exercise provisions").
Warrant agreement will contain standard anti-dilution
provisions with provisions for a carve-out for
performance-based management incentive program
acceptable to CoreStates.
<PAGE>
MANDATORY
WARRANT
REDEMPTION: On the date of the last scheduled principal payment or
any date thereafter prior to the end of the Warrant
Exercise Period, CoreStates may "put" and Borrower must
purchase within thirty days, in cash or notes
acceptable to CoreStates, all or part of the Common
Stock Purchase Warrants to the Borrower. The exercise
price per share for this "put" shall be determined by:
1) Obtaining an independent appraisal of the value of
the equity of Strober (the process to be fully defined
in an actual Note Purchase/Loan Agreement acceptable to
Fidelity Capital, Strober, and CoreStates); and 2)
dividing this aggregate equity value by the fully
diluted number of shares of the company's stock (giving
effect to any options or warrants determined to be "in-
the-money" based upon this valuation and giving affect
to the exercise prices to be paid to convert such
options and/or warrants into shares of the company's
stock).
SUBORDINATION
PROVISIONS: Inter-creditor agreement to be negotiated with senior
lender(s), usual and customary for transactions of this
nature.
CONDITIONS
PRECEDENT TO
FUNDING: Usual and customary for transactions of this nature,
including a $9,000,000.00 equity capitalization,
signing of a definitive stock purchase or merger
agreement, proforma compliance with financial
covenants.
FINANCIAL
COVENANTS: Fixed Charge Coverage Ratio:
Ratio of (a) EBITDA plus equity contributed (excluding
the initial equity capitalization of the Borrower),
both for the previous twelve months; to (b) the sum of
Projected Interest Expense, Current Maturities of Long
Term Debt, cash income taxes, and capital expenditures
(net of leases incurred or specific equipment financing
incurred with regards to these capital expenditures);
must be at least 1.10X. This ratio shall be tested
quarterly. Note: capital expenditures shall not
include the acquisition of existing businesses
accomplished through either an asset or stock purchase
and shall exclude the 1996 capital expenditures for the
relocation of the Brooklyn branch and the company's
headquarters.
Minimum Current Ratio:
The ratio of (a) current assets to (b) the result of
current liabilities less current maturities of long
term debt plus revolving credit secured by current
assets classified as long term debt; shall be at least
1.0X. This ratio shall be tested quarterly.
NEGATIVE
COVENANTS: Restrictions on Restricted Payments
Restrictions on Additional Debt/Liens - Basket for
Acquisition Seller Paper and Capital Leases (amount to
be determined); this shall include the maximum amount
of the Senior Secured Revolving Credit, the Borrowing
Base Advance Rates under this facility, and the
permitted seasonal overadvance. Maximum amount of the
Senior Revolving Credit shall be $33,000,000; advance
rates may be modified to permit borrowings which would
be 10% greater than the Borrowings permitted pursuant
to the initial Borrowing Base Advance Rates and the
permitted seasonal overadvance.
This shall also include a negative pledge by Strober
Organization, Inc. that Borrower will not grant a
security interest in the stock of any of the Borrower's
subsidiaries.
FINANCIAL
REPORTING: Monthly Financial Statements & Borrowing Base
Certificates
Annual Audited Financial Statements & Management Letter
LENDER'S
COSTS: Out-of-pocket expenses for due diligence, annual field
examinations, legal and documentation expenses of
CoreStates shall be reimbursed by Borrower
ANTICIPATED
CLOSING DATE: Upon approval of merger agreement between a newly
formed corporation and Borrower, but in no event later
than February 28, 1997;
PROPOSAL
EXPIRATION: These Summary Terms and Conditions shall be deemed null
and void if not accepted by authorized representatives
of Fidelity Capital by Friday, November 15, 1996, at 5
P.M. Eastern Time.
AGREED AND ACCEPTED:
FIDELITY CAPITAL:
/S/ WARREN T. MORRISON
- ------------------------
By: Warren T. Morrison
Title: Vice President
<PAGE>
Exhibit (c)(1)
LOAN AND STOCK PLEDGE AGREEMENT
THIS AGREEMENT, made as of the ___ day of December, 1996 by and between
THE STROBER ORGANIZATION, INC., a Delaware corporation (the "COMPANY") and
_________________________ ("EMPLOYEE").
WHEREAS, pursuant to its 1986 Stock Option Plan, as amended, the Company
has, prior to the date hereof, granted to Employee options to purchase shares
of the Company's Common Stock (the "STOCK OPTIONS"); and
WHEREAS, the Stock Options are scheduled to expire on December 31, 1996;
and
WHEREAS, the Company has agreed to lend to Employee the funds necessary
to exercise all of Employee's outstanding Stock Options, both on the condition
that (a) Employee agrees to exercise all of Employee's outstanding Stock
Options prior to the earlier of (i) December 31, 1996 or (ii) the filing of the
Definitive Proxy Statement (which describes the merger pursuant to which
Hamilton NY Acquisition Corp. would be merged with and into the Company) with
the Securities and Exchange Commission; and (b) such loan shall be secured by a
pledge of the shares of the Company's Common Stock to be issued upon the
exercise of Employee's outstanding Stock Options; and
WHEREAS, Employee has, pursuant to written notice, requested that the
Company lend to Employee the funds necessary to exercise all of Employee's
outstanding Stock Options; pay Employee's necessary tax withholding obligations
on behalf of Employee and has agreed to exercise such Stock Options as of
December __, 1996; and
WHEREAS, the Company wishes to lend and Employee wishes to borrow, on the
terms and conditions provided herein, the funds necessary to enable Employee to
exercise all of Employee's Stock Options.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, Employee and the Company agree as follows:
1. EXERCISE OF STOCK OPTIONS.
Employee hereby elects to exercise Stock Options to purchase _____
shares of the Company's Common Stock at an aggregate purchase price of
$_____________.
2. PAYMENT OF PURCHASE PRICE.
The Company hereby agrees to lend to Employee, at a variable rate
of interest comparable to the interest rate under which the Company borrows
money from its primary institutional lender, $____________, representing (i)
the full purchase price of the shares of the Company's Common Stock being
purchased pursuant to the exercise of the Stock Options; and (ii) the
Employee's tax withholding obligations and such loan shall be evidenced by a
promissory note in the form of Annex A (the "PROMISSORY NOTE") attached hereto.
3. PAYMENT OF PROMISSORY NOTE.
3.1 PAYMENT DATE. The principal amount of the Promissory Note
and accrued interest thereon is due and payable upon the earlier to occur of
(a) the payment to Employee of the Merger Consideration (as defined in the
Agreement and Plan of Merger dated as of November 11, 1996 pursuant to which
Hamilton NY Acquisition Corp. would be merged with and into the Company) or (b)
December __, 1997.
4. PLEDGE OF STOCK.
4.1 PLEDGE. As security for the payment of the amount due and
payable to the Company from Employee under the Promissory Note, Employee hereby
grants a security interest to the Company in the shares of the Company's Common
Stock being purchased pursuant to the exercise of the Stock Options (the
"PLEDGED SHARES").
4.2 DELIVERY. Employee hereby agrees to deliver to the Company,
following the execution of this Agreement and upon issuance of the Pledged
Shares, the certificates representing all of the Pledged Shares, which
certificates shall be endorsed in blank or with executed stock powers attached.
5. RIGHTS AND BENEFITS OF PLEDGED SHARES.
5.1 GENERAL. The Company shall receive and hold (by the Company
or by an agent of the Company) the Pledged Shares and any property (including
without limitation monies or securities) distributed or issued with respect to
the Pledged Shares, whether as a dividend, in partial or complete liquidation,
pursuant to a merger or reorganization plan or otherwise. Employee shall cause
any securities distributed or issued with respect to the Pledged Shares to be
assigned and transferred to the Company and delivered to the Company in the
manner provided in Section 4.2, and such securities shall be subject to the
terms and conditions of this Agreement.
5.2 VOTING. Employee shall be entitled to vote the Pledged
Shares.
5.3 ASSIGNMENT, ETC. Except as provided or specifically
permitted herein, Employee shall not pledge, sell, assign, transfer or
otherwise dispose of the Pledged Shares without the prior written approval of
the Company.
6. LEGEND.
The certificates representing the Pledged Shares shall bear an
endorsement in substantially the following form:
"The shares of stock represented by this certificate are pledged
under, and are subject to the terms and conditions contained in, a
Loan and Stock Pledge Agreement dated as of December __, 1996,
between The Strober Organization, Inc. and the registered owner of
this certificate as security for the performance of the registered
owner's obligations under a promissory note payable to The Strober
Organization, Inc. Such shares cannot be sold, assigned,
transferred, pledged or disposed of except as provided in such
Loan and Stock Pledge Agreement."
7. APPOINTMENT OF THE COMPANY AS ATTORNEY-IN-FACT.
Employee hereby appoints and constitutes the Company as Employee's
true and lawful attorney-in-fact, with full power of substitution, to execute
such assignments or endorsements of the Pledged Shares as may be necessary to
effect the rights of the Company under this Agreement.
8. RELEASE OF COLLATERAL.
At such time as the Promissory Note has been paid in full, the
Company shall deliver the Pledged Shares and any property distributed with
respect to the Pledged Shares to Employee in accordance with Employee's written
directions, and Employee shall thereafter be discharged in full from any and
all obligations under this Agreement.
9. DELAY; WAIVER.
All rights of the Company under this Agreement are cumulative and
are in addition to, but not in limitation of, any rights or remedies which it
may have under applicable law. No delay on the part of the Company in the
exercise of any right under this Agreement shall operate as a waiver thereof,
and no single or partial exercise by the Company of any right under this
Agreement shall preclude other or further exercise thereof or the exercise of
any other right or remedy. No waiver by the Company of any right under this
Agreement shall be deemed to be or construed as a further or continuing waiver
of such right or as a waiver of any other right or remedy.
10. COOPERATION.
Upon the execution of this Agreement and at any time or from time
to time thereafter, Employee and the Company agree to cooperate in carrying out
the terms of this Agreement, including the execution and delivery of such
further instruments and documents as may be reasonably requested in order to
more effectively carry out the terms and conditions of this Agreement.
<PAGE>
11. MISCELLANEOUS.
This Agreement shall be binding upon, and inure to the benefit of
and be enforceable by Employee and the Company and their respective heirs,
successors and assigns, but this Agreement shall not be assignable without
written permission of the other party. The section headings are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, Employee and the Company have duly executed this
Agreement as of the date first above written.
THE STROBER ORGANIZATION, INC.
By____________________________
______________________________
Employee
<PAGE>
EXHIBIT (d)(1)
SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant <checkbox>
Filed by a Party other than the Registrant <box>
Check the appropriate box:
<checkbox>Preliminary Proxy Statement
<box>Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
<square>Definitive Proxy Statement
<square>Definitive Additional Materials
<square>Soliciting Material Pursuant to <section> 240.14a-11(c) or <section>
24-/14a-12
THE STROBER ORGANIZATION, INC.
(Name of Registrant as Specified In Its Charter)
______________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
<square>No fee required.
<checked-box>Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
COMMON STOCK, $.01 PAR VALUE (THE "COMMON SHARES")
2) Aggregate number of securities to which transaction applies:
5,194,198 COMMON SHARES AND OPTIONS FOR 675,687 ADDITIONAL COMMON
SHARES
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):
$6.00 PER SHARE
4) Proposed maximum aggregate value of transaction:
$32,363,510
5) Total fee paid:
$6472.70
<square>Fee paid previously with preliminary materials.
<PAGE>
<checked-box>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:
$6,419.37
2) Form, Schedule or Registration Statement No.:
PRELIMINARY SCHEDULE 14A
3) Filing Party:
THE STROBER ORGANIZATION, INC.
4) Date Filed:
DECEMBER 6, 1996
<PAGE>
THE STROBER ORGANIZATION, INC.
PIER 3 - FURMAN STREET
BROOKLYN, NEW YORK 11201
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY __, 1997
To the Stockholders of The Strober Organization, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of The
Strober Organization, Inc. (the "COMPANY") will be held at the offices of Sills
Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., The Legal Center, One
Riverfront Plaza, 10th Floor, Newark, New Jersey 07102 on February __, 1997 at
10:00 a.m., New York City time (the "SPECIAL MEETING"), for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt an
Amended and Restated Agreement and Plan of Merger, dated as of November 11,
1996 (the "MERGER AGREEMENT"), pursuant to which Hamilton NY Acquisition Corp.
("ACQUISITION SUB"), a Delaware corporation and a wholly-owned subsidiary of
Hamilton Acquisition LLC, a Delaware limited liability company ("PURCHASER"),
would be merged with and into the Company (the "MERGER"). The Company would be
the surviving corporation in the Merger and the entire equity interest in the
Company would be owned by Purchaser. As a result of the Merger, each
outstanding share of common stock, par value $.01 per share, of the Company
(the "COMMON SHARES"), other than those held by stockholders of the Company who
perfect their dissenters' rights in accordance with the Delaware General
Corporation Law (the "DGCL"), will be converted into the right to receive $6.00
in cash, without interest, all as more fully described in the accompanying
Proxy Statement.
2. To transact such other business as may properly be brought before
the Special Meeting or any adjournments or postponements thereof.
Only holders of the Common Shares (the "COMPANY STOCKHOLDERS") of record
at the close of business on January 10, 1997 are entitled to notice of and to
vote at the Special Meeting. Each Common Share outstanding on such date is
entitled to one vote at the Special Meeting.
If the Merger is consummated, the Company Stockholders who dissent from
the proposed Merger and comply with the requirements of Section 262 of the DGCL
will have the right to receive payment in cash of the fair value of their
Common Shares as determined in accordance with the provisions of the DGCL. See
"Appraisal -- Rights of Dissenting Stockholders; Waiver of Notice" in the
accompanying Proxy Statement and Annex C thereto for a statement of the rights
of dissenting Company Stockholders and a description of the procedures required
to be followed to obtain the fair value of the Common Shares and "The Merger --
Conditions to the Merger" for a description of a condition to the Merger that
no more than five percent (5%) of the Common Shares shall be subject to an
appraisal demand.
Pursuant to the DGCL, assuming a quorum is present, the affirmative vote
of holders of a majority of all of the outstanding Common Shares entitled to
vote is required to approve the Merger. Pursuant to a certain Proxy Agreement
dated as of November 11, 1996 (the "PROXY AGREEMENT"), eight (8) Company
Stockholders holding the right to vote 3,160,941 Common Shares, or
approximately 61% of all the issued and outstanding Common Shares, have granted
Purchaser an irrevocable proxy to vote their Common Shares in favor of the
Merger and other matters. Accordingly, it is expected that the Merger will be
approved. See "Special Factors -- Proxy Agreement."
The Board of Directors of the Company, based on the unanimous
recommendation of the Special Committee of the Board of Directors (the"SPECIAL
COMMITTEE"), which consists of directors who are not employees of the Company,
has unanimously determined that the Merger is fair to and in the best interests
of the Company Stockholders and has unanimously approved the Merger Agreement.
The Board of Directors unanimously recommends that you vote "FOR" approval of
the Merger Agreement. The Board of Directors has received a written opinion on
November 8, 1996 from Hill Thompson Capital Markets, Inc. to the effect that
the merger consideration of $6.00 per share to be paid to the Company
Stockholders is fair to such stockholders from a financial point of view. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY STOCKHOLDERS VOTE
FOR APPROVAL OF THE MERGER.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF COMMON SHARES YOU OWN.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED PREPAID ENVELOPE
WITHOUT DELAY. ANY COMPANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING MAY VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL MEETING AND ANY PROXY
GIVEN BY A COMPANY STOCKHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS
EXERCISED.
By Order of the Board of Directors,
Robert J. Gaites
Chairman, President and Chief Executive Officer
Brooklyn, New York
January , 1997
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
PROXY STATEMENT
THE STROBER ORGANIZATION, INC.
PIER 3 - FURMAN STREET
BROOKLYN, NEW YORK 11201
-----------------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY __, 1997
-----------------------------------
This Proxy Statement is being furnished to the stockholders of The
Strober Organization, Inc., a Delaware corporation (the "COMPANY"), in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "BOARD OF DIRECTORS") from holders of outstanding shares of common
stock, par value $0.01 per share, of the Company (the "COMMON SHARES"), for use
at a Special Meeting of Stockholders of the Company to be held on February __,
1997 at 10:00 a.m., New York time, at the offices of Sills Cummis Zuckerman
Radin Tischman Epstein & Gross, P.A., The Legal Center, One Riverfront Plaza,
10th Floor, Newark, New Jersey 07102, and at any adjournments or postponements
thereof (the "SPECIAL MEETING"). This Proxy Statement and the related proxy
card are first being mailed to shareholders on or about January , 1997.
At the Special Meeting, holders of the Common Shares on the applicable
record date will consider and vote upon a proposal to approve and adopt an
Amended and Restated Agreement and Plan of Merger, dated as of November 11,
1996 (the "MERGER AGREEMENT"), pursuant to which: (a) Hamilton NY Acquisition
Corp. ("ACQUISITION SUB"), a Delaware corporation and a wholly owned subsidiary
of Hamilton Acquisition LLC, a Delaware limited liability company
("PURCHASER"), will be merged with and into the Company (the "MERGER"), and the
entire equity interest in the Company, as the surviving corporation in the
Merger (the "SURVIVING CORPORATION"), will be owned by Purchaser; and (b) each
Common Share that is outstanding at the effective time of the Merger, other
than Common Shares held by Purchaser or the Company or Common Shares in respect
of which dissenters' rights have been perfected, will be converted into the
right to receive $6.00 per share in cash, without interest (the "MERGER
CONSIDERATION"). Common Shares held by Purchaser or the Company, if any, will
be cancelled without consideration.
Pursuant to the Delaware General Corporation Law ("DGCL"), assuming a
quorum is present, the affirmative vote of holders of a majority of all of the
outstanding Common Shares entitled to vote is required to approve the Merger.
Pursuant to a certain Proxy Agreement, dated as of November 11, 1996 (the
"PROXY AGREEMENT") eight (8) Company Stockholders holding the right to vote
3,160,941 Common Shares, or approximately 61% of all the issued and outstanding
Common Shares, have granted Purchaser an irrevocable proxy to vote their Common
Shares in favor of the Merger and other matters. There can be no assurance
that the conditions to the Merger will be satisfied, or where permissible,
waived or that the Merger will be consummated. For further information
concerning the terms and conditions of the Merger, see "The Merger -- General"
and "-- Conditions to the Merger."
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
All information contained in this Proxy Statement relating to Purchaser,
Acquisition Sub and their affiliates has been supplied by Purchaser for
inclusion herein and has not been independently verified by the Company.
The Board of Directors knows of no additional matters that will be
presented for consideration at the Special Meeting. Execution of the
accompanying proxy, however, confers on the designated proxy holders
discretionary authority to vote the Common Shares covered thereby in accordance
with their best judgment on such other business, if any, that may properly come
before, and all matters incident to the conduct of, the Special Meeting or any
adjournments or postponements thereof.
The date of this Proxy Statement is January , 1997.
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.
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY
INTRODUCTION
General
The Special Meeting
Record Date; Quorum; Required Vote
Proxies
Solicitation of Proxies
THE PARTIES
The Company
Purchaser
Acquisition Sub
SPECIAL FACTORS
Background of the Merger
Purpose and Structure of the Merger
Recommendation of the Special Committee and Board of Directors of the
Company; Fairness of the Merger
Opinion of Financial Advisor - Hill Thompson Capital Markets, Inc.
Sources and Amount of Funds; Payment for Common Shares
Plans for the Company After the Merger
Subsequent Events; Stockholder Litigation
Interest of Certain Persons in the Merger
Exercise of Company Stock Options Expiring on December 31, 1996
Proxy Agreement
Certain Effects of the Merger
Certain Federal Income Tax Consequences
Accounting Treatment
Fees and Expenses
THE MERGER
Amended and Restated Agreement and Plan of Merger
General
Effective Time
Certificate of Incorporation; By-laws
Directors
Stock Transfer Books
Conversion of Common Shares
Company Stock Options
Sources and Amount of Funds; Payment for Common Shares
Surrender of Common Share Certificates
Representations and Warranties
Conditions to the Merger
Termination and Amendment
Conduct of Business Pending the Merger
Additional Agreements
Officers' and Directors' Insurance; Indemnification
Accounting Treatment
Regulatory Approvals
SUBSEQUENT EVENTS; STOCKHOLDER LITIGATION
APPRAISAL
Rights of Dissenting Stockholders; Waiver of Notice
MARKET PRICES AND DIVIDENDS
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
UNAUDITED PROJECTED SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
OWNERSHIP OF COMMON SHARES
Security Ownership of Certain Beneficial Owners
Security Ownership of Management of the Company
Security Ownership of Purchaser and Acquisition Sub
TRANSACTIONS BY CERTAIN PERSONS IN COMMON SHARES
MANAGEMENT OF PURCHASER, ACQUISITION SUB AND THE COMPANY
Directors and Executive Officers (or Equivalent) of Purchaser and
Acquisition Sub
Directors and Executive Officers of the Company
INDEPENDENT PUBLIC ACCOUNTANTS
STOCKHOLDER PROPOSALS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
AVAILABLE INFORMATION
MISCELLANEOUS
ANNEX A -- Amended and Restated Agreement and Plan of Merger
ANNEX B -- Opinion of Hill Thompson Capital Markets, Inc.
ANNEX C -- Section 262 of the Delaware General Business Corporation Law
ANNEX D -- Proxy Agreement
ANNEX E -- Financial Advisor Supporting Documentation
ANNEX F -- Information Concerning Executive Officers and Directors of Certain
Entities Related to Purchaser
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement (the "PROXY STATEMENT"). This summary is not
intended to be a complete description of the matters covered in this Proxy
Statement and is subject to and qualified in its entirety by reference to the
more detailed information contained elsewhere in this Proxy Statement,
including the Annexes hereto and the documents incorporated by reference
herein. Capitalized terms used but not defined in this Summary shall have the
meanings ascribed to them elsewhere in this Proxy Statement. Company
Stockholders are urged to read carefully the entire Proxy Statement, including
the Annexes.
THE PARTIES
THE COMPANY. The Company is a supplier of building materials serving
professional building contractors out of its eleven (11) building supply
centers in New York, New Jersey, Connecticut and Pennsylvania. The Company was
incorporated in 1986 in Delaware as the parent of the various affiliated
companies which had previously conducted the Strober business for more than 80
years. The Company's principal executive offices have recently been relocated
to Pier 3, Furman Street, Brooklyn, New York 11201, and its telephone number is
(718) 875-9700.
PURCHASER. Purchaser was organized as a Delaware limited liability
company in November 1996 to acquire the Company. Purchaser was formed to
acquire the Company and has conducted no activities to date except for those
related to the organization of Acquisition Sub and incident to the Merger.
Purchaser's principal executive offices are located at 82 Devonshire Street,
Boston, Massachusetts 02109 and its telephone number at such location is (617)
563-1301.
ACQUISITION SUB. Acquisition Sub was incorporated in Delaware in
November 1996 to serve as the vehicle through which Purchaser is to acquire the
Company. Acquisition Sub has conducted no activities to date except for those
incident to the Merger. Acquisition Sub's principal executive offices are
located at 82 Devonshire Street, Boston, Massachusetts 02109 and its telephone
number at such location is (617) 563-1301.
THE SPECIAL MEETING
TIME, DATE AND PLACE. A Special Meeting of Company Stockholders will be
held on February __, 1997 at 10:00 a.m., New York time, at the offices of Sills
Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., The Legal Center, One
Riverfront Plaza, 10th Floor, Newark, New Jersey 07102 (the "SPECIAL MEETING").
PURPOSE OF THE SPECIAL MEETING. The purpose of the Special Meeting is to
consider and vote upon a proposal to approve and adopt the Merger Agreement, a
copy of which is attached to this Proxy Statement as Annex A. See
"Introduction -- The Special Meeting".
RECORD DATE; QUORUM. The close of business on January 10, 1997 (the
"RECORD DATE") has been fixed as the record date for determining holders of
Common Shares entitled to vote at the Special Meeting. Each Common Share
outstanding on such date is entitled to one vote at the Special Meeting. As of
the Record Date, 5,194,198 Common Shares were outstanding and held of record by
471 holders. The presence, in person or by proxy, of the holders of a majority
of the Common Shares entitled to vote at the Special Meeting is necessary to
constitute a quorum for the transaction of business at the Special Meeting.
See "Introduction -- Record Date; Quorum; Required Vote".
REQUIRED VOTE. Pursuant to the DGCL, assuming a quorum is present, the
affirmative vote of holders of a majority of all of the outstanding Common
Shares entitled to vote is required to approve the Merger. See "Introduction -
- - Record Date; Quorum; Required Vote" and "The Merger -- General," and
"Conditions to the Merger." Pursuant to a certain Proxy Agreement, eight (8)
Company Stockholders holding the right to vote 3,160,941 Common Shares, or
approximately 61% of all of the issued and outstanding Common Shares, have
granted Purchaser an irrevocable proxy to vote their Common Shares in favor of
the Merger and other matters. See "Special Factors -- Proxy Agreement."
PROXIES. A proxy card is enclosed for use at the Special Meeting. A
proxy may be revoked at any time prior to its exercise at the Special Meeting.
Common Shares represented by properly executed proxies received at or prior to
the Special Meeting and which have not been revoked will be voted in accordance
with the instructions indicated therein. If no instructions are indicated on a
properly executed proxy, such proxy will be voted "FOR" approval and adoption
of the Merger Agreement. See "Introduction -- Proxies".
SPECIAL FACTORS
BACKGROUND OF THE MERGER. For a description of the events leading to the
approval and adoption of the Merger Agreement by the Company's Board of
Directors, see "Special Factors -- Background of the Merger".
PURPOSE AND STRUCTURE OF THE MERGER. Purchaser's purpose for
consummating the Merger is to acquire all of the equity interest in the Company
for the reasons described in "Special Factors -- Purpose and Structure of the
Merger". As of the date of this Proxy Statement, the Purchaser and its
affiliates did not own any Common Shares. The acquisition of the equity
interest represented by the Common Shares outstanding as of the Effective Time
(as hereinafter defined) from the holders of such shares (the "COMPANY
STOCKHOLDERS") is structured as a cash merger in order to transfer ownership of
that equity interest to Purchaser in a single transaction. See "Special
Factors -- Purpose and Structure of the Merger".
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS
OF THE MERGER. A special committee (the "SPECIAL COMMITTEE") of four (4)
directors of the Company who are not officers or employees of the Company
concluded, and based on such conclusion the Board of Directors of the Company
(the "BOARD OF DIRECTORS") concluded, that the terms of the Merger are fair to,
and in the best interests of, the Company Stockholders. Accordingly, the Board
of Directors, based upon the unanimous recommendation of the Special Committee,
has unanimously approved and adopted the Merger Agreement. The Special
Committee and the Board of Directors recommend a vote "FOR" approval and
adoption of the Merger Agreement. For a discussion of the factors considered
by the Special Committee and the Board of Directors in making their
recommendations, see "Special Factors -- Recommendation of the Special
Committee and Board of Directors of the Company; Fairness of the Merger."
OPINION OF FINANCIAL ADVISOR. On November 8, 1996, Hill Thompson Capital
Markets, Inc. ("HILL THOMPSON") delivered its written opinion dated November 7,
1996 to the Board of Directors of the Company that as of such date the $6.00
per Common Share to be received by the Company Stockholders in the Merger is
fair to the Company Stockholders from a financial point of view. THE FULL TEXT
OF THE WRITTEN OPINION OF HILL THOMPSON, WHICH SETS FORTH ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH
THE OPINION, IS ATTACHED HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY
REFERENCE. COMPANY STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION IN
ITS ENTIRETY. See "Special Factors -- Opinion of Financial Advisor - Hill
Thompson Capital Markets, Inc."
PLANS FOR THE COMPANY AFTER THE MERGER. Except as indicated in this
Proxy Statement, Purchaser does not have any present plans or proposals which
relate to or would result in an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving the sale of the Company or any
of its subsidiaries, a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries or any material change in the Company's
capitalization. However, the directors of Acquisition Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation
and such directors will elect the officers of the Surviving Corporation.
Purchaser or certain related entities may also pursue various transactions,
including acquisitions of complimentary businesses and/or additional capital
raising activities, to grow the business and/or customer base although there
can be no assurance that any such transactions will be effected on terms
acceptable to Purchaser or such related entities, if at all. See "Special
Factors -- Plans for the Company after the Merger."
PROXY AGREEMENT. In connection with the Merger Agreement, the Purchaser
entered into a Proxy Agreement with eight (8) Company Stockholders holding the
right to vote 3,160,941 Common Shares, or approximately 61% of all the issued
and outstanding Common Shares of the Company. Pursuant to the Proxy Agreement,
such Company Stockholders have granted the Purchaser an irrevocable proxy by
those persons during the term of the Merger Agreement to vote their Common
Shares in favor of the Merger and other matters. In addition, the eight
Company Stockholders agreed that if the Merger Agreement were to be terminated
because the Company had entered into a binding definitive agreement to effect a
superior proposal and those Company Stockholders within six months of the
termination of the Merger Agreement subsequently were to sell their Common
Shares, then each such Company Stockholder will be obligated to pay to
Purchaser an amount in cash of 50% of the difference between the superior
proposal and the Merger Consideration provided under this Merger. See "Special
Factors -- Proxy Agreement" and "Ownership of Common Shares -- Security
Ownership of Management of the Company."
INTEREST OF CERTAIN PERSONS IN THE MERGER. In considering the
recommendations of the Special Committee and of the Board of Directors with
respect to the Merger, the Company Stockholders should be aware that certain
officers and directors have certain interests summarized below that may present
actual or potential conflicts of interest in connection with the Merger. For a
more detailed discussion of such interests, see "Special Factors --
Interest of Certain Persons in the Merger." The Special Committee and the
Board of Directors were aware of potential or actual conflicts of interest and
considered them along with other matters described under "Special Factors --
Recommendation of the Special Committee and Board of Directors of the Company;
Fairness of the Merger."
It is currently contemplated that Purchaser may afford certain officers
of the Company the opportunity to invest up to an aggregate of $750,000 of the
anticipated $9 million of Purchaser capital for which such members of Company
management will receive approximately 8.1% of Purchaser's equity on a fully
diluted basis as a means to align the interests of management of the Surviving
Corporation with the interests of its stockholders. It is not a condition of
the Merger that such Company management members make such contribution. In the
event such Company management members are afforded the opportunity to invest
and elect not to so invest, the remaining equity investments will be made in
Purchaser by individuals or entities who are not employed by or on the Board of
Directors of the Company. In the event that such Company management members
are afforded the opportunity to invest and make such equity investments, the
investments will be made subsequent to the Effective Date and will be effected
by purchasing such equity interests from the Purchaser. The proposed equity
investments by members of the Company's management will be made at the same
price per share or other equity unit as that made by the other investors in
Purchaser. See "Special Factors -- Interests of Certain Persons in the
Merger," "Security Ownership of Purchaser and Acquisition Sub -- Company
Management Participation," and "Management of Purchaser, Acquisition Sub and
the Company -- Directors and Executive Officers (or Equivalent) of Purchaser
and Acquisition Sub -- Company Management Participation."
In accordance with the Company's existing policies, members of the
Special Committee were paid the standard fees of $1,000 per meeting attended in
person and $250 per meeting held by teleconference in order to compensate the
members thereof for the significant additional time commitment required of them
in connection with fulfilling their duties and responsibilities as members of
the Special Committee and such fee is payable without regard to whether the
Special Committee approved the Merger or whether the Merger is consummated.
For a discussion of the Proxy Agreement with respect to the Purchaser's
ability to vote approximately 61% of the outstanding Common Shares in favor of
the Merger, see "Special Factors -- Proxy Agreement."
For a discussion of certain agreements by the Purchaser with respect to
indemnification of, and insurance for, directors and officers of the Company
after the Effective Time, see "The Merger -- Officers' and Directors'
Insurance; Indemnification."
For a description of current relationships and certain transactions
between the Purchaser and the Company, see "Special Factors -- Interest of
Certain Persons in the Merger".
EXERCISE OF COMPANY STOCK OPTIONS EXPIRING ON DECEMBER 31, 1996. At the
November 7, 1996 meeting of the Special Committee, the members discussed the
circumstances under which Company stock options to purchase an aggregate of
166,751 Common Shares were issued as of December 31, 1991 at an exercise price
of $1.125 and as of March 4, 1993 at an exercise price of $1.75 (which in each
case as provided in the applicable stock option plan, was the then current
market price of the Common Shares) and would expire on December 31, 1996 in
accordance with their respective terms. The Special Committee was advised by
the Company's counsel that (i) if the Merger were successfully consummated, the
trading price of the Common Shares prior to the consummation of the Merger
would typically not be expected to reach the level of the Merger Consideration;
(ii) the exercise of such options was a taxable event to the eight individuals
holding such options and that a significant tax withholding payment would by
required to be made by such option holders; (iii) closing of any possible
transaction resulting from the Company's search and evaluation process would
most likely extend beyond December 31, 1996; and (iv) several of the option
holders were insiders, who under Company policies could not then buy or sell
Common Shares on the market to fund the applicable tax withholding payment.
Accordingly, the Special Committee determined to recommend to the Board that
the Company offer to loan to these option holders the exercise price of the
options held by them together with the applicable tax withholding amount to
facilitate their exercise of the options, such loan to bear interest at the
Company's rate of borrowing and to be payable upon the sooner of the closing of
any sale transaction or one year from the date of loan. The loan would be
secured by a pledge of the purchased Common Shares pending repayment of the
loan. Upon exercise of such options, the holders of the purchased Common
Shares would be entitled to vote such shares. As of the date of this Proxy
Statement all of such holders have borrowed an aggregate of approximately
$495,071 from the Company and exercised the options for all such options to
purchase an aggregate of 166,751 Common Shares, which Common Shares are held by
the Company as collateral for the loan. As three holders of options for 57,393
Common Shares are also signatories of the Proxy Agreement, the exercise of
these options had the effect of increasing the number of shares subject to the
Proxy Agreement from 3,103,548 Common Shares at the date of execution to
3,160,941 Common Shares as of the date of this Proxy Statement. See "Special
Factors -- Exercise of Company Stock Options Expiring on December 31, 1996."
CERTAIN EFFECTS OF THE MERGER. Upon consummation of the Merger, each
Common Share, other than Common Shares held by Purchaser and the Company and
Common Shares as to which dissenters' rights have been perfected pursuant to
and in accordance with the DGCL ("DISSENTING SHARES"), will be converted into
the right to receive $6.00 in cash, without interest. Following the Merger,
Purchaser will own 100% of the Surviving Corporation's outstanding capital
stock and the Company Stockholders will cease to have any ownership interest in
the Company or rights as stockholders. The Company Stockholders will no longer
benefit from any increases in the value of the Company and will no longer bear
the risk of any decreases in value of the Company.
As a result of the Merger, the Company will be privately held and there
will be no public market for the Common Shares. Upon consummation of the
Merger, the Common Shares will cease to be quoted on the NASDAQ National Market
and the registration of the Common Shares under the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), will be terminated. See "Special
Factors -- Certain Effects of the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash for Common
Shares pursuant to the Merger (and the receipt of cash by a Company Stockholder
who exercises dissenter's rights) will be a taxable transaction for U.S.
federal income tax purposes and may be a taxable transaction for foreign, state
and local income tax purposes as well. Company Stockholders will generally
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between the amount of cash received and their adjusted tax basis
in the Common Shares. Such gain or loss will be a capital gain or loss if the
Common Shares are held as a capital asset, and shall be long-term capital gain
or loss if, on the date of the Merger, such Common Shares were held for more
than one year. Company Stockholders should consult their own tax advisors
regarding the U.S. federal income tax consequences of the Merger, as well as
any tax consequences under the law of any state or other jurisdiction. See
"Special Factors -- Certain Federal Income Tax Consequences."
TERMINATION FEES AND EXPENSES. In general, each of the Company and the
Purchaser will bear its own expenses in connection with the Merger and related
transactions. Under certain limited circumstances, if the Merger is not
consummated, each of the Company and the Purchaser may be liable to the other
party for reimbursement of such other party's expenses related to the Merger.
For information regarding termination fees and expenses that could be incurred
or paid to the Company. See "Special Factors -- Fees and Expenses" and "The
Merger -- Termination and Amendment."
THE MERGER
GENERAL. Upon consummation of the Merger, Acquisition Sub will be merged
with and into the Company and the Company will be the surviving corporation
(the "SURVIVING CORPORATION"). The Surviving Corporation will succeed to all
the rights and obligations of the Company and Acquisition Sub. See "The Merger
- -- General."
EFFECTIVE TIME. Pursuant to the Merger Agreement, the Effective Time
will occur upon the filing of a certificate of merger by the Company with the
Delaware Secretary of State. See "The Merger -- Effective Time."
CERTIFICATE OF INCORPORATION; BY-LAWS. At the Effective Time, the
Certificate of Incorporation and By-Laws of Acquisition Sub will be the
Certificate of Incorporation and By-Laws of the Surviving Corporation.
DIRECTORS. The Directors of Acquisition Sub immediately prior to the
Effective Time will be the initial directors of the Surviving Corporation.
CONVERSION OF SECURITIES. At the Effective Time: (a) each issued and
outstanding Common Share immediately prior to the Effective Time other than (i)
shares of common stock held by the Company ("TREASURY SHARES"), (ii) Common
Shares then owned by Purchaser, Acquisition Sub or any other subsidiary of
Purchaser, and (iii) Dissenting Shares, will by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and
converted into the right to receive the Merger Consideration, upon surrender of
the certificate which prior to the Effective Time evidenced such Common Share;
and (b) each Treasury Share and each Common Share outstanding immediately prior
to the Effective Time which is then owned by Purchaser, Acquisition Sub or any
other subsidiary of Purchaser will, by virtue of the Merger and without any
action on the part of the holder thereof, be canceled and retired and cease to
exist, without any conversion thereof and no payment or distribution shall be
made with respect thereto.
Holders of Common Shares who do not vote in favor of the Merger at the
Special Meeting and who shall have properly elected to dissent in the manner
provided in Section 262 of the DGCL will be entitled to payment of the fair
value of their Common Shares in accordance with, and subject to, the provisions
of Section 262. See "The Merger -- Conditions to the Merger," for a discussion
of a closing condition relating to appraisal rights of dissenting Company
Stockholders and "Appraisal -- Conversion of Common Shares."
The shares of common stock, $.01 par value per share, of Acquisition Sub
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for in the aggregate, one thousand (1,000)
validly issued, fully paid and non-assessable shares of common stock, par value
$.01 of the Surviving Corporation, which shall constitute all of the issued and
outstanding shares of the Surviving Corporation. See "The Merger -- Conversion
of Common Shares."
COMPANY STOCK OPTIONS. There are currently outstanding options to
purchase 675,687 Common Shares with exercise prices ranging from $3.625 to
$4.75. These outstanding options were issued in the ordinary course of the
Company's incentive compensation programs from March 1994 to March 1996. Each
option holder shall be entitled to exercise such option through the Effective
Time and if such options are not so exercised prior to the Effective Time, each
such holder shall be entitled to receive from the Company in consideration for
cancellation of each such option, a cash payment in an amount equal to the
product of (x) the number of Common Shares provided for in such option and (y)
the excess, if any, of the Merger Consideration over the exercise price per
Common Share provided for in such option. No payment will be made for Company
options that have expired prior to the Effective Time.
Additional options to purchase 166,751 Common Shares were outstanding at
the time the Merger Agreement was executed which by their terms would have
expired on December 31, 1996. These options to purchase an aggregate of
166,751 Common Shares have subsequently been exercised utilizing loan proceeds
from the Company. See "Special Factors -- Exercise of Company Stock Options
Expiring on December 31, 1996".
SOURCES AND AMOUNT OF FUNDS; PAYMENT FOR COMMON SHARES; EXCHANGE OF
CERTIFICATES. The Purchaser has delivered to the Company copies of commitment
letters (the "FINANCING LETTERS") expiring February 28, 1997 from Congress
Financial Corporation (the "CONGRESS LETTER") and CoreStates Financial Corp.
(the "CORESTATES LETTER"). Under the terms of the Congress Letter, the
Surviving Corporation will be provided with a $25 million revolving line of
credit secured by a first security interest in and lien upon all of the
existing and future assets of the Surviving Corporation and any of its
subsidiaries. Under the terms of the CoreStates Letter, an aggregate of $4
million of financing will be provided through the issuance of subordinated
amortizing six (6) year notes secured by second liens on the accounts
receivable and inventory of the Surviving Corporation and any of its
subsidiaries. The Financing Letters currently expire on February 28, 1997.
Although the Purchaser has agreed to use its best efforts to obtain financing
to consummate the Merger and the obtaining of such financing is not a condition
to Purchaser's obligations to consummate the Merger, there can be no assurance
that such extension, or alternative financing in lieu of such extension, will
be forthcoming. See "The Merger -- Sources and Amount of Funds; Payment for
Common Shares," "The Merger -- Termination and Amendment," and "Special Factors
- -- Fees and Expenses." Equity investments in the aggregate of $9 million are
also being made in the Purchaser. Purchaser has represented that, assuming
satisfaction or waiver of all applicable conditions set forth in the Financing
Letters, the debt financing and the equity investments in the Purchaser will
provide sufficient funds to (i) pay the Merger Consideration with respect to
all of the Common Shares; and (ii) prepay, redeem, refinance or renegotiate the
Company's existing indebtedness, if required to consummate the Merger, and pay
any and all fees, expenses, costs and penalties in connection with any such
prepayment, redemption, refinancing or renegotiation. Purchaser has agreed not
to amend the Financing Letters (except for possible extensions) without the
prior written consent of the Company, which consent shall not be unreasonably
withheld. It is currently contemplated that Purchaser may afford certain
officers of the Company the opportunity to invest up to an aggregate of
$750,000 of the anticipated $9 million of Purchaser capital for which such
members of Company management will receive approximately 8.1% of Purchaser's
equity on a fully diluted basis. It is not a condition of the Merger that such
Company management members make such contribution. In the event that such
Company management members are afforded the opportunity to invest and make such
equity investments, the investments will be made subsequent to the Effective
Date and will be effected by purchasing such equity interests from the
Purchaser. In the event such Company management members are afforded the
opportunity to invest and elect not to so invest, the remaining equity
investments will be made in Purchaser by individuals or entities who are not
employed by or on the Board of Directors of the Company. The proposed equity
investments by members of the Company's management will be made at the same
price per share or other equity unit as that made by the other investors in
Purchaser. See "Security Ownership of Purchaser and Acquisition Sub-Company
Management Participation". It is currently expected that approximately $32
million will be required to pay the Merger Consideration to the Company
Stockholders (assuming no such holder exercises dissenters' rights) and
approximately $2.3 million will be required to pay the expenses of Purchaser
and Acquisition Sub in connection with the Merger. It is currently expected
that approximately $753,000 million will be required to pay the balance of the
remaining unpaid expenses of the Company attributable to the transaction and
that such funds will be furnished from available general funds of the Company.
See "The Merger -- Sources and Amount of Funds; Payment for Common Shares."
Promptly after the Effective Time, the Surviving Corporation shall cause the
Paying Agent to mail to each person who was a record holder of an outstanding
certificate or certificates which immediately prior to the Effective Time
represented Common Shares (the "CERTIFICATES"), a form letter of transmittal
and instructions for its use in effecting the surrender of such Certificates
for payment in accordance with the Merger Agreement. Upon the surrender to the
Paying Agent of a Certificate, together with a properly completed and duly
executed letter of transmittal, the holder thereof shall be entitled to receive
cash in an amount equal to the product of the number of Common Shares
represented by such Certificate and the Merger Consideration, less any
applicable withholding tax, and such Certificate shall then be cancelled.
Until surrendered pursuant to the procedures described above, except with
respect to Dissenting Shares, each Certificate shall represent solely the right
to receive the Merger Consideration, without interest, into which the number of
Common Shares represented by such Certificate shall have been converted. See
"The Merger -- Surrender of Common Share Certificates". STOCKHOLDERS OF THE
COMPANY SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON SHARES WITH THEIR
PROXY CARDS.
CONDITIONS TO THE MERGER; TERMINATION AND AMENDMENT. Pursuant to the
Merger Agreement, the obligations of each of Purchaser, Acquisition Sub and the
Company to effect the Merger are subject to certain conditions set forth in the
Merger Agreement. In certain circumstances, the Merger Agreement may be
terminated at any time prior to the closing of the Merger. The Merger
Agreement may be amended by the parties in writing at any time before or after
approval by the stockholders except that after stockholder approval, no
amendment may be made which reduces the amount or changes the form of the
Merger Consideration or in any way materially adversely affects the rights of
stockholders of the Company. See "The Merger -- Conditions to the Mergers" and
"-- Termination and Amendment."
ACCOUNTING TREATMENT. The Merger will be accounted for as a "purchase"
as such term is used under generally accepted accounting principles for
accounting and financial reporting purposes. Accordingly, a determination of
the fair value of the Company's assets and liabilities will be made in order to
allocate the purchase price to the assets acquired and liabilities assumed.
See "The Merger -- Accounting Treatment".
REGULATORY APPROVALS. No federal or state regulatory approvals are
required to be obtained, nor any regulatory requirements complied with, in
connection with consummation of the Merger by any party to the Merger
Agreement, except for the requirements of the DGCL regarding Company
Stockholder approvals and consummation of the Merger, and the requirements of
federal securities laws. See "The Merger -- Conditions to the Merger".
DISSENTERS' RIGHTS. Under the DGCL, all Company Stockholders who file
the required written demand for appraisal for their Common Shares prior to the
date of the Special Meeting, and who do not consent to the Merger, will have
the right to be paid the "fair value" of their Common Shares, together with a
fair rate of interest, if any, as determined by the Delaware Court of Chancery,
in lieu of the Merger Consideration, all pursuant to the applicable provisions
of the DGCL. SUCH APPRAISAL RIGHT WILL BE LOST, HOWEVER, IF THE PROCEDURAL
REQUIREMENTS OF THE DGCL ARE NOT FULLY AND PRECISELY SATISFIED. Company
Stockholders should consult their own legal advisors regarding such appraisal.
See "The Merger -- Conditions to the Merger," for a discussion of a closing
condition relating to appraisal rights of dissenting stockholders; "Appraisal -
- - Rights of Dissenting Stockholders; Waiver of Notice" and Section 262 of the
Delaware General Corporation Law attached hereto as Annex C.
INDEMNIFICATION AND INSURANCE. Under the Merger Agreement, the Purchaser
and Acquisition Sub have agreed that all rights to indemnification or
exculpation existing in favor of, and all limitations on the personal liability
of the directors, officers, employees and agents of the Company and its
subsidiaries as provided in their respective charters or by-laws or otherwise
in effect as of the date of the Merger Agreement with respect to matters
occurring prior to the Effective Time shall survive the Merger and continue in
full force and effect. The Merger Agreement also provides that to the maximum
extent permitted by the DGCL, such indemnification shall be mandatory rather
than permissive. Pursuant to the Merger Agreement, the Purchaser had agreed to
cause the Surviving Corporation to maintain in effect for not less than six
years from the Effective Time the policies of the directors' and officers'
liability and fiduciary insurance maintained by the Company at the date of
execution of the Merger Agreement with respect to matters occurring prior to
the Effective Time. Accordingly, the Company has obtained a rider to its
existing directors' and officers' insurance policy which, for a one-time
premium payment of $178,000, would provide for such coverage. The Company
expects to pay such premium immediately prior to the Effective Time from
available general funds of the Company.
MARKET PRICES AND DIVIDENDS
The Common Shares are traded on the NASDAQ National Market under the
symbol "STRB". Since going public in November 1986, the Company has not paid
any dividends. See "Market Prices and Dividends."
The following table sets forth, for the calendar periods indicated, the
high and low sales prices per Common Share, as quoted on the NASDAQ National
Market:
SALES PRICES PER COMMON SHARE
CALENDAR PERIODS
HIGH LOW
1992
First Quarter $2 1/8 1 1/4
Second Quarter 2 1 5/8
Third Quarter 1 3/4 1 1/4
Fourth Quarter 2 1/8 1 5/8
1993
First Quarter $2 1/8 1 9/16
Second Quarter 2 3/8 1 5/8
Third Quarter 3 1/4 2
Fourth Quarter 6 3
1994
First Quarter $5 5/16 3 3/4
Second Quarter 4 7/8 3 1/2
Third Quarter 4 5/8 2 1/2
Fourth Quarter 3 7/8 3 1/8
1995
First Quarter $4 1/8 3
Second Quarter 4 1/2 3 1/4
Third Quarter 5 7/8 4
Fourth Quarter 4 3/4 3 1/2
1996
First Quarter $4 5/8 3 3/8
Second Quarter 4 3/4 3 7/8
Third Quarter 5 3 1/2
Fourth Quarter (10/01/96 through 11/08/96) 5 3/84 5/8
Fourth Quarter (11/11/96 through 12/31/96) 6 1/84 5/8
1997
First Quarter (1/01/97 through 1/20/97) 6 5 3/4
On November 8, 1996, the last business day before the execution of the
Merger Agreement was publicly announced, the closing price and high and low
share prices of the Common Shares on the NASDAQ National Market were $5.25,
$5.25 and $5.25, respectively per share. On January 20, 1997, the closing
price of the Common Shares on the NASDAQ National Market was $6.00 per share.
Holders of Common Shares are urged to obtain a current market quotation for
their Common Shares.
If and when the Merger is approved, it is currently anticipated that the
Merger will be completed in February or March, 1997.
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following summarizes certain selected consolidated historical
financial data of the Company and is qualified in its entirety by the more
detailed information contained elsewhere in this Proxy Statement including
"Selected Consolidated Financial Data of the Company." Additionally, the
selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements of the Company, related notes and other
financial information incorporated by reference into this Proxy Statement. The
selected consolidated financial data as of December 31 and for each of the
years in the five (5) year period ended December 31, 1995, have been derived
from the Company's consolidated financial statements, which have been audited.
Results of interim periods are not necessarily indicative of results to be
expected for the year.
THE STROBER ORGANIZATION, INC.
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
(Unaudited) (Unaudited)
Sept. 30, Sept. 30, 1995 1994 1993 1992 1991
1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $100,898 96,066 125,813 125,378 118,975 104,812 90,150
Gross profit 26,676 25,242 33,186 32,670 31,703 27,787 24,897
Net income (loss) 2,611 2,360 3,082 2,576 1,650 (763) (2,072)
Net income (loss) per share $ 0.51 0.45 0.59 0.50 0.33 (0.15) (0.41)
Weighted average number of 5,159 5,264 5,247 5,165 5,031 5,021 5,044
shares outstanding
OTHER DATA:
Ratio of earnings to fixed 6.1X 5.5X 3.2X
charges
BALANCE SHEET DATA:
Working capital 23,691 21,844 20,158 22,032 24,769
$25,985 23,593
Total assets 53,731 46,725 44,544 42,649 44,328 43,145 47,814
Long-term debt less current 2,669 1,088 1,224 1,171 2,407 8,584 11,551
installments
Stockholders' equity(1) 36,169 33,065 33,524 30,687 28,569 26,511 27,265
Book value per share(2) 7.19 6.53 6.72 6.07 5.54 5.28 5.43
Tangible book value(3) 29,600 26,287 26,798 23,751 21,424 19,098 18,942
Tangible book value per $ 5.89 5.19 5.37 4.70 4.15 3.80 3.77
share(2)
</TABLE>
(1) Does not give effect to the exercise of outstanding options.
(2) Based on Common Shares outstanding (excluding treasury shares) at the
Balance Sheet date.
(3) Stockholders equity less intangible assets.
<PAGE>
SUMMARY UNAUDITED PROJECTED SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following summarizes certain unaudited selected projected
consolidated financial data of the Company if the Merger was not to take place
and is qualified in its entirety by the more detailed information contained in
this Proxy Statement including "Unaudited Projected Selected Consolidated
Financial Data of the Company." Additionally, the projected selected
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements of the Company, related notes and other financial
information incorporated by reference into this Proxy Statement. The Company's
independent public accountants have not examined the projected selected
consolidated financial data presented and do not express an opinion or any
other form of assurance thereon.
The projections appearing on this page are forward looking statements.
Although the projections represent the best estimate of the Company, for which
the Company believes it had a reasonable basis as of the time of the
preparation thereof, of the results of operations and financial position of the
Company, they are only an estimate, and actual results may vary considerably.
Consequently, the inclusion of the projection information herein should not be
regarded as a representation by the Company or any other entity or person that
the projection results will be achieved. Readers are cautioned not to place
undue reliance on this data.
THE STROBER ORGANIZATION, INC.
(In thousands of dollars, except percentage and
per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
(Unaudited) December 31,
(Unaudited)
Dec. 31, Dec. 31, 1997
1996 1995
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $37,200 29,747 143,540
Gross profit 9,900 7,943 37,607
Net income 777 721 3,796
Net income per share $ 0.14 0.14 0.70
Weighted average number of 5,394 5,195 5,394
shares outstanding
BALANCE SHEET DATA:
Working capital $25,992 23,691 30,369
Total assets 52,571 44,544 56,708
Long-term debt less current 2,498 1,224 4,338
installments
Stockholders' equity(1) 37,213 33,524 40,010
Book value per share 7.16 6.72 7.70
Tangible book value(2) 30,697 26,798 33,704
Tangible book value per share $ 5.91 5.37 6.49
</TABLE>
____________________________________
(1) Assumes the exercise on October 1, 1996 of all options that expire on
December 31, 1996 for an aggregate of 166,751 Common Shares with an
aggregate exercise price of $266,658 resulting in total outstanding
Common Shares of 5,194,198.
(2) Stockholders equity less intangible assets.
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
The following unaudited pro forma consolidated financial statements have
been prepared by presenting the consolidated financial statements of the
Company on the assumptions that the Merger was effective as of September 30,
1996 for the pro forma consolidated balance sheet and as of the beginning of
the respective year of each income statement presented below. This summary
below should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto, incorporated by
reference into this Proxy Statement. The summary unaudited pro forma
consolidated financial statements should be read in conjunction with the pro
forma consolidated financial statements and the notes thereto beginning on page
48 of this Proxy Statement. Results of the interim period are not necessarily
indicative of results to be expected for the year. The unaudited pro forma
financial statements are for illustrative purposes only and do not purport to
represent what the Company's financial position or results of operations would
actually have been had the transaction in fact occurred on the dates indicated,
or to project the Company's financial position or results of operations for any
future date or period. The adjustments for the pro forma consolidated
financial statements are based on available information and upon certain
assumptions which management believes are reasonable.
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(in thousands)
Combined
Pro Forma
Current assets 36,325
Property and equipment, net 5,513
Goodwill, net 5,865
Other assets 1,628
Total assets 49,331
Current liabilities 15,066
Long-term debt, less current installments 25,265
Stockholders' equity 9,000
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands)
Combined
Pro Forma
Net sales 100,898
Gross profit 26,676
Income from operations 4,141
Interest income (expense), net (1,756)
Other income (expense) 476
Net income before tax 2,861
Net income after tax 1,660
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(in thousands)
Combined
Pro Forma
Net sales 125,813
Gross profit 33,186
Income from operations 5,049
Interest income (expense), net (2,308)
Other income (expense) (22)
Net income before tax 2,719
Net income after tax 1,567
<PAGE>
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to holders of the outstanding common
shares, par value $.01 per share (the "COMMON SHARES"), of The Strober
Organization, Inc. (the "COMPANY") in connection with the solicitation of
proxies by the Board of Directors of the Company (the "BOARD OF DIRECTORS") for
use at a Special Meeting of Stockholders of the Company to be held on February
__, 1997, at 10:00 a.m., New York Time, at the offices of Sills Cummis
Zuckerman Radin Tischman Epstein & Gross, P.A., The Legal Center, One
Riverfront Plaza, 10th Floor, Newark, New Jersey 07102, including any
adjournments or postponements thereof (the "SPECIAL MEETING").
THE SPECIAL MEETING
At the Special Meeting, holders of the Common Shares will consider and vote
upon a proposal to approve and adopt an Amended and Restated Agreement and Plan
of Merger, dated as of November 11, 1996 (the "MERGER AGREEMENT"), pursuant to
which: (a) Hamilton NY Acquisition Corp. ("ACQUISITION SUB"), a Delaware
corporation and a wholly owned subsidiary of Hamilton Acquisition LLC, a
Delaware limited liability company, ("PURCHASER"), will be merged with and into
the Company (the "MERGER") and the entire equity interest in the Company, as
the surviving corporation in the Merger (the "SURVIVING CORPORATION"), will be
owned by Purchaser; and (b) each Common Share that is outstanding at the
effective time of the Merger (the "EFFECTIVE TIME"), other than Common Shares
held by the Purchaser and Common Shares in respect of which dissenters' rights
have been perfected, will be converted into the right to receive $6.00 per
share in cash, without interest (the "MERGER CONSIDERATION"). Common Shares
held by Purchaser or the Company, if any, will be cancelled without
consideration. Acting on the unanimous recommendation of a special committee
of the Board of Directors comprised of four (4) directors, none of whom are
executive officers or employees of the Company (the "SPECIAL COMMITTEE"), the
Board of Directors of the Company has unanimously approved and adopted the
Merger Agreement. The Special Committee and the Board of Directors of the
Company unanimously recommend that stockholders vote "FOR" approval and
adoption of the Merger Agreement. See "Special Factors -- Recommendation of the
Special Committee and Board of Directors of the Company; Fairness of the
Merger."
RECORD DATE; QUORUM; REQUIRED VOTE
The close of business on January 10, 1997 (the "RECORD DATE") has been fixed
as the record date for determining holders of Common Shares entitled to vote at
the Special Meeting. Each Common Share outstanding on such date is entitled to
one vote at the Special Meeting. As of the Record Date 5,194,198 Common Shares
were outstanding and held by approximately 471 holders of record. The
presence, in person or by proxy, of the holders of a majority of the
outstanding Common Shares entitled to vote at the Special Meeting is necessary
to constitute a quorum for the transaction of business at the Special Meeting.
Pursuant to the Delaware General Corporation Law (the "DGCL") and the
Company's Restated Certificate of Incorporation, assuming a quorum is present,
the affirmative vote of holders of a majority of all of the outstanding Common
Shares entitled to vote is required to approve the Merger. Pursuant to a
certain Proxy Agreement, dated as of November 11, 1996 (the "PROXY AGREEMENT")
eight (8) Company Stockholders holding the right to vote 3,160,941 Common
Shares, or approximately 61% of all of the issued and outstanding Common
Shares, have granted Purchaser an irrevocable proxy to vote their Common Shares
in favor of the Merger, and other matters. For additional information
regarding the irrevocable proxy held by Purchaser, see "Special Factors --
Proxy Agreement," "-- Interest of Certain Persons in the Merger" and "Ownership
of Common Shares."
PROXIES
Common Shares represented by properly executed proxies received at or prior
to the Special Meeting and which have not been revoked will be voted in
accordance with the instructions indicated thereon. If no instructions are
indicated on a properly executed proxy, such proxy will be voted "FOR" approval
and adoption of the Merger Agreement.
A Company Stockholder who has given a proxy may revoke such proxy at any
time prior to its exercise at the Special Meeting by (i) giving written notice
of revocation to the Secretary of the Company, (ii) properly submitting to the
Company a duly executed proxy bearing a later date, or (iii) attending the
Special Meeting and voting in person. Attendance at the Special Meeting will
not in and of itself revoke a proxy. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
as follows: The Strober Organization, Inc., Pier 3, Furman Street, Brooklyn,
New York 11201, Attention: Secretary.
If the Special Meeting is adjourned or postponed for any purpose, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the meeting (except for any proxies which have theretofore effectively been
revoked or withdrawn), notwithstanding that they may have been effectively
voted on the same or any other matter at a previous meeting.
STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON SHARES
WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, THE PROCEDURE FOR THE
EXCHANGE OF CERTIFICATES REPRESENTING COMMON SHARES WILL BE AS SET FORTH IN
THIS PROXY STATEMENT. SEE "THE MERGER -- CONVERSION OF COMMON SHARES AND "--
SURRENDER OF COMMON SHARE CERTIFICATES."
SOLICITATION OF PROXIES
The cost of solicitation of the proxies from the Company Stockholders
contemplated by the Proxy Statement will be paid by the Company. Such cost
will include the reimbursement of banks, brokerage firms, nominees, fiduciaries
and custodians for the expenses of forwarding solicitation materials to
beneficial owners of Common Shares. In addition to the solicitation of proxies
by use of mail, the directors, officers and employees of the Company, may
solicit proxies personally or by telephone, telegraph or facsimile
transmission. Such directors, officers and employees will not be additionally
compensated for such solicitation but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. In addition, the Company has
retained Morrow & Company, New York, New York to assist in soliciting proxies
and to provide materials to banks, brokerage firms, nominees, fiduciaries and
other custodians. For such services, the Company will pay to Morrow & Company
a fee of approximately $7,500, plus expenses.
THE PARTIES
THE COMPANY
The Company is a supplier of building materials serving professional
building contractors out of its eleven (11) building Supply Centers in New
York, New Jersey, Connecticut and Pennsylvania. The Company was incorporated
in 1986 in Delaware as the parent of the various affiliated companies which had
previously conducted the Strober business for more than 80 years. The
Company's principal executive offices have recently been relocated to Pier 3,
Furman Street, Brooklyn, New York 11201, and its telephone number is (718) 875-
9700.
PURCHASER
Purchaser was organized as a Delaware limited liability company in November
1996 to acquire the Company. Purchaser was formed to acquire the Company and
has conducted no activities to date except for those related to the
organization of Acquisition Sub and incident to the Merger. Purchaser's
principal executive offices are located at 82 Devonshire Street, Boston,
Massachusetts 02109, and its telephone number at such location is (617) 563-
1301.
ACQUISITION SUB
Acquisition Sub was incorporated in Delaware in November 1996 to serve as
the vehicle through which Purchaser is to acquire the Company. Acquisition Sub
has conducted no activities to date except for those incident to the Merger.
Acquisition Sub's principal executive offices are located at 82 Devonshire
Street, Boston, Massachusetts 02109, and its telephone number at such location
is (617) 563-1301.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Board was aware that, although the Company had survived the severe
recession in the building materials industry in the beginning of the 1990's,
the recovery of the real estate market experienced in recent years may not
necessarily continue. The Company projected only limited growth in revenues
for the next several years and expected continued consolidation of the market
in the region in which the Company operates with resulting pressure on the
Company's gross operating margins. These factors, together with the
seasonality of the building materials industry in the Northeast, and the
Company's reliance upon the professional contractor segment of the building
materials industry (which often requires the Company to provide trade
financing), were all factors which may be the basis for the Company's
relatively low price to earnings ratio and public stock price. The underlying
basis for the Company undertaking the search and evaluation process described
in this section was the Board's belief that there might be strategic
alternatives to the Company's present operations that might provide better
value for the benefit of all of the Company Stockholders.
In the third quarter of 1994, Company management prepared detailed financial
projections of Company operations through December 31, 1996, summaries of which
were circulated to different financial advisors on a confidential basis for
their informal assessment as to whether there might exist strategic
alternatives that the Company should explore in seeking to enhance value for
all of the Company Stockholders. Additional financial and operating
information was provided to those financial advisors in order to give them
insight as to the Company and to enable them to determine their ability to meet
the Company's requirements. At its November 1994 meeting, the Board of
Directors was provided with the respective backgrounds of those financial
advisors, management's analysis of their relative strengths and their initial
fee and expense requirements. Based on this review, the Board authorized
management to continue such discussions with those and other prospective
financial advisors as to retaining a financial advisor on the Company's behalf
in order to assist in evaluating strategic alternatives to the Company's
current course of independent operations and whether the Board could be able to
better enhance value for all of the Company Stockholders through alternative
means. Discussions with and presentations to such advisors continued but were
interrupted by an inquiry from a prospective strategic purchaser in March 1995.
Discussions with this strategic purchaser extended to facility tours but
finally resulted in such prospective purchaser advising the Company that the
Company's operations would prove to be too great an extension from the
prospective purchaser's existing business. Following termination of the
Company's discussions with the prospective purchaser, at its August 1995
meeting, the Board of Directors reviewed all of the prospective financial
advisors and their respective engagement letters and authorized management to
negotiate and engage a financial advisor to the Company. Accordingly, on
August 16, 1995, the Company retained Hill Thompson to assist the Board of
Directors in evaluating alternatives to enhance value for the benefit of all of
the Company Stockholders specifically by pursuing the possible sale of the
Company in its entirety to a strategic or financial purchaser. The only
limitation imposed by the Company on the scope of Hill Thompson's search and
evaluation was that although the building materials distributors operating in
the Company's market region which were competitors of the Company were aware of
the search and evaluation process, upon their inquiry, the information provided
them was limited so as to not provide such competitors with key inside
confidential information concerning the Company's methods of operations,
manpower loading and product mix. Such limitations were not imposed upon
building materials distributors operating outside the Company's market region.
Subsequently, the Company provided Hill Thompson with various requested
background materials describing the Company's operations and the Company
commenced the preparation of an information memorandum for future distribution
to potential prospective purchasers describing the Company's operations,
management, product mix, and competitive advantages. Prior to disseminating
this memorandum, Hill Thompson prepared an introductory letter describing the
industry and the scope of the Company's operations without specifically
identifying the Company. This letter was intended to be sent to potentially
interested parties.
In October 1995, before any introductory letters were distributed to
prospective purchasers, Frederick Marino made an unsolicited call to Robert J.
Gaites, President of the Company, and asked if the Company would be interested
in considering a proposal from Mr. Marino for the acquisition of the entire
Company. Mr. Marino was familiar with the Company's operations as his former
company, Marino Industries, was a supplier of steel products to the Company for
resale to professional contractors. After signing a confidentiality agreement
with the Company, Mr. Marino was sent a preliminary form of the informational
memorandum and Mr. Marino began evaluating the Company and soliciting
prospective third party financing participants. The Company advised Mr. Marino
that it would not enter into either a letter of intent or an exclusivity
agreement with him but would only enter into an adequately financed definitive
agreement with a strategic or financial purchaser if the Company determined
that a sale would enhance value for the benefit of all of the Company
Stockholders.
In December 1995, the Company and Hill Thompson finalized the informational
memorandum and commenced circulating the introductory letter to prospective
strategic and financial purchasers. Over the next nine months, this letter was
sent to over 245 prospective strategic and financial purchasers. Of these
prospective strategic and financial purchasers, 90 entered into a
confidentiality agreement, under customary terms, in which they agreed not to
use confidential information provided them in the course of their evaluation of
the Company. Each entity signing the confidentiality agreement was provided
with copies of the informational memorandum, which set forth, among other
things, the Company's projections through 1997. After reviewing the
memorandum, Hill Thompson asked the initially interested parties whether they
desired to continue discussions with the Company including undertaking further
due diligence, meeting with Company management and/or viewing Company
facilities in the field. Of the interested entities receiving the
informational memorandum, twelve (12) such entities sought additional
information, review of due diligence data rooms and/or tours of the Company
facilities.
One of these interested entities raised the possibility of acquiring only a
portion of the outstanding Common Shares at $6.00 per Common Share together
with a Company buyback of additional Common Shares. This approach was viewed
by the Special Committee as not being in the best interest of all of the
Company Stockholders.
As Hill Thompson continued to seek prospective strategic and financing
purchasers, the Board determined to publicly announce that it had retained Hill
Thompson to conduct a search and evaluation process with the intent of
soliciting interest from additional prospective purchasers despite its concerns
as to the effect a public announcement would have on the morale of the
Company's employees. This announcement was made on February 20, 1996 and
elicited additional prospective purchaser contacts to Hill Thompson.
These additional contacts included the prospective strategic purchaser which
had contacted the Company in March 1995. The prospective strategic purchaser
again contacted the Company in February 1996, entered into a confidentiality
agreement in early March 1996 and was sent the Company's informational
memorandum for review. This prospective strategic purchaser sent a due
diligence team to review Company facilities and documentation in late April
1996. Drafts of transactional documents were exchanged with this party which
would have provided for a 100% tender offer for all of the Company's
outstanding Common Shares and the continued employment of Company management in
Company operations, all at a still to be negotiated price. This price was
understood to range up to as high as $6.30 per Common Share but was
subsequently reduced downwards to $6.00 per Common Share to reflect the
prospective strategic purchaser's assessment of Company operations. However,
before these matters could be presented to the Board for its consideration, the
prospective strategic purchaser informed the Company that the Company's
operations presented an inherent conflict with its approach to its existing
customer base and terminated its discussions with the Company on May 20, 1996.
Subsequently on May 22, 1996, the Company received a confidential letter
from an affiliate of the Purchaser setting forth the affiliate's possible
interest in the acquisition of the Company in a tender offer structure at a
mutually acceptable price in which Mr. Marino would be the Chief Executive
Officer of Company or any successor to the Company after the proposed
acquisition. Extensive discussions were had with the affiliates of the
Purchaser over the next several months as to the structure of any possible
transaction and the pre-conditions which the affiliates would seek to have in
place prior to the negotiation and execution of definitive agreements including
the Purchaser affiliates' desire to obtain an exclusivity agreement and
recovery of transaction costs in the event the Company was subject to material
environmental remediation costs or in certain other situations. Although the
Company refused to enter into an exclusivity agreement, the Purchaser's
affiliates and the Company subsequently agreed to jointly pay the costs of
undertaking phase I and II environmental investigations of the Company's
facilities. There were then extended discussions as to the most effective
structure of the transaction, each of which had different implications as to
the effect of several possible pre-conditions to the negotiation and execution
of definitive agreements. During this period, the Company agreed that if it
were to enter into an exclusivity agreement or a definitive agreement with
another party that it would reimburse the Purchaser affiliates for a portion of
their transaction costs.
In parallel with these extended discussions, the Company continued to have
discussions and undertake due diligence with third parties, one of which
discussed the possibility of acquiring all of the Company at a price greater
than $4.50 per Common Share but no more than $5.00 per Common Share.
The foregoing discussions and background were available to the Special
Committee during its series of meetings and conference calls held in October
and November 1996 prior to making its recommendation to the Board of Directors
at its November 8, 1996 meeting.
This recommendation was accepted by the Board and the definitive transaction
agreements, including the Merger Agreement, were executed as of November 11,
1996. See "Special Factors - Recommendation of the Special Committee and Board
of Directors of the Company; Fairness of the Merger."
On November 20, 1996, the Company announced that it had received an
unsolicited third party offer to purchase the Company at $6.50 per Common Share
and pay for all termination fees and expenses that would have been incurred by
the Company in terminating the Merger Agreement with the Purchaser. In
furtherance of the Board's fiduciary duties to the Company Stockholders, and as
expressly permitted by the Merger Agreement, the Company entered into
discussions with, provided information to, and commenced negotiations with this
third party. On November 22, 1996, the third party requested that the Company
consent to participation by the third party's principal lender in the
contemplated third party offer. The Company's consent, waiver and release was
sent to the third party that same day in the same form as it was subsequently
adopted by the Special Committee. On November 27, 1996, the Company announced
that it had been informed by the third party that its unsolicited $6.50 per
share offer was withdrawn because the required financing had not been
forthcoming.
On November 27, 1996, the Company announced that a purported Company
Stockholder had commenced a lawsuit against the Company and its directors
seeking certification as a class action in connection with the Merger
Agreement. See "Subsequent Events; Stockholders Litigation."
On December 5, 1996 the Company announced that it had received an
unsolicited third party offer to purchase the Company at $6.50 per Common
Share. In furtherance of the Board's fiduciary duties to the Company
Stockholders, and as expressly permitted by the Merger Agreement, Company
management and members of the Special Committee met with this third party to
discuss the implementation of this offer, and the third party and its lender
were provided access to all of the Company's due diligence materials. On
December 17, 1996, the Company announced that it had been informed by the third
party that its unsolicited $6.50 per share offer was withdrawn. Through the
date of this Proxy Statement, the Company has not received any other bona fide
acquisition proposals for the purchase of all, or a portion of, the Company.
PURPOSE AND STRUCTURE OF THE MERGER
Purchaser's purpose for the Merger for the reasons described below is to
acquire all of the equity interest in the Company represented by the
outstanding Common Shares. The Board of Directors will, pursuant to the Merger
Agreement, call the Special Meeting to vote to approve and adopt the Merger
Agreement. In the Merger, each Common Share will be converted into the right
to receive an amount in cash equal to $6.00, without interest.
In determining to acquire the Common Shares at this time, Purchaser focused
on a number of factors including the Company's historic financial results, its
financial condition, operation and prospects and the potential for success
and/or growth in the Company's geographic market.
The acquisition of the Common Shares has been structured as a cash merger in
order to provide a prompt and orderly transfer of ownership of the equity
interest represented by Common Shares to Purchaser.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS OF THE COMPANY;
FAIRNESS OF THE MERGER
At a meeting held on November 8, 1996, the Special Committee unanimously
determined that the terms of the Merger are fair to, and in the best interests
of, all of the Company Stockholders, including all unaffiliated Company
Stockholders, and recommended that the Board of Directors approve and adopt the
Merger Agreement and that the Board of Directors recommend to the Company
Stockholders that such stockholders vote to approve and adopt the Merger
Agreement. At a meeting held immediately thereafter, at which all of the
directors of the Company were present, based on the unanimous recommendation of
the Special Committee, the Board of Directors unanimously approved and adopted
the Merger Agreement, unanimously determined to recommend to the Company
Stockholders that they vote to approve and adopt the Merger Agreement and
unanimously determined that the terms of the Merger are fair to, and in the
best interests of all of the Company Stockholders. See "Special Factors --
Background of the Merger."
THE SPECIAL COMMITTEE. In determining to recommend to the Board of
Directors that it approve and adopt the Merger Agreement, and in determining,
the fairness of the terms of the Merger, the Special Committee considered the
following factors, each of which, in the Special Committee's view, supported
the Special Committee's determination to recommend the Merger:
(i)the financial condition, assets, results of operations, business and
prospects of the Company, and the risks inherent in achieving those prospects,
including the belief of management of the Company, as expressed to the Special
Committee and which the Special Committee found to be reasonable, that the
Company's prospects were dependent in significant part upon the actions of its
suppliers in pricing products to the Company; the ability of the Company to
either expand by opening additional yards or making acquisitions of smaller
participants in the industry; the possibility of national building material
distributors serving professional contractors entering the Company's market
area; and the possibility of national building material distributions already
in the Company's market area but which essentially only service the retail
market (such as Home Depot) expanding their market by seeking to service
professional contractors;
(ii)the terms and conditions of the Merger Agreement, including the amount
and form of consideration, the nature of the parties' representations,
warranties, covenants and agreements, and the conditions to the obligations of
Purchaser and Acquisition Sub under the Merger Agreement including Purchaser's
ability to finance the transaction;
(iii)the belief of the members of the Special Committee that $6.00 per
Common Share was the best price that could be obtained from Purchaser;
(iv)the fact that the $6.00 per Common Share to be received by the Company
Stockholders in the Merger represented a substantial premium over the reported
average closing price of the Common Shares during the prior five (5) years;
(v)the opinion of Hill Thompson as to the fairness from a financial point of
view of the $6.00 per Common Share to be received by the Company Stockholders
and the analyses presented to the Special Committee by Hill Thompson. See "--
Opinion of Financial Advisor - Hill Thompson Capital Markets, Inc.";
(vi)the stock price and trading volume history of the Common Shares and the
fact that such Common Shares are thinly traded; and
(vii)the availability of dissenters' rights under the DGCL to dissenting
Company Stockholders in the Merger.
In light of the number and variety of factors the Special Committee
considered in connection with its evaluation of the Merger, the Special
Committee did not find it practicable to assign relative weights to the
foregoing factors, and, accordingly, the Special Committee did not do so.
Although the Special Committee did consider historical trading prices of the
Common Shares, the Special Committee did not consider trading prices of the
Common Shares for the period from its initial public offering in November 1986
at $12.00 per share to the commencement of the 1989 recession as the real
estate industry was significantly restructured during this period with
significantly reduced demand in turn significantly reducing the Company's gross
margins as compared to the margins it earned prior to the Company's public
offering. The Special Committee did consider the discounted cash flow value of
the Company as computed by Hill Thompson.
The Special Committee consulted with Hill Thompson during the course of the
Special Committee's deliberations regarding Hill Thompson's financial
evaluation of the Company. The Special Committee believed that Hill Thompson's
analysis was reasonable.
The Special Committee believes that the Merger is procedurally fair because:
(i) the Special Committee consists of disinterested directors appointed to
represent the interests of, and to negotiate on an arm's length basis with
Purchaser on behalf of, the Company Stockholders; and (ii) Hill Thompson, as
financial advisor, conducted a wide ranging search for and evaluation of the
opportunities identified during this process, and is satisfied with the efforts
undertaken to seek to identify prospective purchasers. In addition, the
Special Committee believes that the Merger is procedurally fair because the
$6.00 per Common Share price and the other terms and conditions of the Merger
Agreement resulted from an extensive search and evaluation process which
identified Purchaser and from active arm's length bargaining between the
Special Committee and Purchaser.
The Special Committee recognized that the sale of a continuing business
often takes place in the ordinary course under circumstances in which (i)
operating management owns a significant amount of the business's equity prior
to the transaction; (ii) operating management continues to be employed in the
business by the purchaser after the transaction; (iii) operating management is
afforded the opportunity to invest in the continuing business; and (iv) the
prospective purchaser may obtain one or more of a variety of "lock-up"
agreements from one or more significant owners of the business to insure the
completion of the sale transaction. The interests of operating management and
certain significant Company Stockholders as discussed in this Proxy Statement
were considered by the Special Committee in its negotiation of this proposed
transaction.
The Special Committee noted that although Company management owned, in the
aggregate, approximately 24% of the Company's equity, the negotiation of the
Merger Agreement including the terms of the Merger and the amount and type of
consideration was conducted on an arm's length basis by the Special Committee
consisting solely of outside directors. Further, it was not a condition of the
Merger Agreement that terms of employment be reached between the Purchaser and
Company management and it was noted that the Company did not have any existing
employment agreements with Company management that could be assigned to the
Purchaser. Although the Purchaser may afford certain members of Company
management the opportunity to invest in up to an aggregate of $750,000 of
Purchaser capital, it was not a condition of the Merger Agreement that any
Company Stockholder or member of Company management make such an investment.
Further, the grant of the voting power to the Purchaser by certain significant
Company Stockholders pursuant to the Proxy Agreement was made only after the
negotiation of the terms of the Merger, and the voting power granted to the
Purchaser by the Proxy Agreement would be terminated if the Company determined
that a superior proposal existed and the Company unilaterally terminated the
Merger Agreement. Finally, the Special Committee obtained from the Purchaser a
representation and warranty that, although the Purchaser might enter into
employment arrangements with members of Company management prior to the
Effective Time, during the negotiations and prior to the execution of the
Merger Agreement, there were no agreements, arrangements or understandings
between Company management and/or Company Stockholders on the one hand, and the
Purchaser or its affiliates on the other hand that could result in any payment
(cash or otherwise) to such members of Company management or Company
Stockholder other than the Merger Consideration. Accordingly, the Special
Committee did not believe that the presence of these circumstances in the
proposed transaction impaired the fairness of the transaction.
THE BOARD OF DIRECTORS OF THE COMPANY. The Board of Directors has
determined, following the unanimous recommendation of the Special Committee and
the receipt from Hill Thompson of its written opinion dated November 7, 1996 to
the effect that the Merger is fair to the Company Stockholders from a financial
point of view, that the Merger is fair to, and in the best interests of, all of
the Company Stockholders, including all unaffiliated Company Stockholders, has
approved and adopted the Merger Agreement, and recommends that all of the
Company Stockholders vote to approve and adopt the Merger Agreement. Messrs.
Gaites and Yanuklis initially abstained from voting in the matter based on the
potential conflict arising from their ongoing interest in the Purchaser which
had been fully disclosed to the Special Committee.
After the Board approved the Merger, by a vote of five in favor and Messrs.
Gaites and Yanuklis abstaining, Messrs. Gaites and Yanuklis noted for the
minutes their determination that the Merger was fair to and in the best
interests of all of the Company Stockholders and that the minutes reflect that
the entire Board was unanimous in this determination.
The Merger is not structured so that approval of at least a majority of
unaffiliated Company Stockholders is required. A majority of directors who are
not employees of the Company did not retain an unaffiliated representative to
act solely on behalf of unaffiliated Company Stockholders for the purposes of
negotiating the terms of the Merger and/or preparing a report concerning the
fairness of the Merger.
PURCHASER. The Purchaser did not have any involvement in the Special
Committee's evaluation of the fairness of the Merger to the Company
Stockholders and did not undertake any formal evaluation of its own as to the
fairness to the Company Stockholders.
OPINION OF FINANCIAL ADVISOR -- HILL THOMPSON CAPITAL MARKETS, INC.
HILL THOMPSON CAPITAL MARKETS, INC. The Company retained Hill Thompson
Capital Markets, Inc. ("HILL THOMPSON") to act as financial advisor to the
Company in connection with the Merger and has assisted the Board of Directors
of the Company in its review of the fairness from a financial point of view of
the consideration to be received by the Company Stockholders. Hill Thompson
was retained based on its experience in connection with mergers and
acquisitions and in securities valuations generally as well as Hill Thompson's
familiarity with relevant markets and the Company. THE COMPLETE TEXT OF HILL
THOMPSON'S OPINION IS ATTACHED HERETO AS ANNEX B AND THE SUMMARY OF THE OPINION
SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH OPINION. THE
COMPANY'S STOCKHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY AND IN ITS
ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS CONSIDERED
AND THE ASSUMPTIONS MADE BY HILL THOMPSON.
On November 8, 1996, Hill Thompson delivered to the Company's Board its
written opinion dated November 7, 1996 to the effect that, as of such date and
based on matters described therein, the Merger is fair to the Company
Stockholders from a financial point of view. Hill Thompson orally confirmed
such opinion to the Board as of the date of its delivery, and subsequently
consented to its inclusion in the Proxy Statement. Hill Thompson did not
determine the amount of consideration to be paid in the Merger, but rather the
consideration was offered by the Purchaser and negotiated by the Special
Committee. Hill Thompson's opinion to the Company's Board addresses only the
fairness from a financial point of view of the Merger, and does not constitute
a recommendation to the Company Stockholders as to how such Stockholders should
vote at the Special Meeting. Hill Thompson expresses no opinion as to the tax
consequences of the Merger and Hill Thompson's opinion as to the fairness of
the Merger does not take into account the tax status or position of any
particular Company Stockholder.
In connection with its opinion, Hill Thompson reviewed, among other things,
the Merger Agreement; the Company's Annual Reports to Stockholders, Annual
Reports on Form 10-K of the Company, and related financial information for each
of the last five fiscal years ended December 31, 1995; Quarterly Reports on
Form 10-Q and the related unaudited financial information for the quarterly
periods ending March 31, 1996 and June 30, 1996 and a preliminary draft
quarterly report on Form 10-Q for the quarterly period ending September 30,
1996; certain information, including financial forecasts, relating to the
business, earnings, cash flow, assets and prospects of the Company furnished to
Hill Thompson by the Company; and certain financial information regarding
various entities affiliated with the Purchaser furnished by such entities.
Hill Thompson also held discussions with members of the senior management of
the Company regarding the Company's past and current business operations,
financial condition and future prospects. At the request of the Company, Hill
Thompson also solicited third party interest with respect to the acquisition of
the Company. The only limitation imposed by the Company on the scope of Hill
Thompson's search and evaluation was that although the building materials
distributors operating in the Company's market region which were competitors of
the Company were aware of the search and evaluation process, upon their
inquiry, the information provided them was limited so as to not provide such
competitors with key inside confidential information concerning the Company's
methods of operations, manpower loading and product mix. Such limitations were
not imposed upon building materials distributors operating outside the
Company's market region. In addition, Hill Thompson reviewed the reported
price and trading history of the Company, compared certain financial and stock
market information for the Company with similar information for certain other
publicly traded companies deemed by it to be comparable to the Company,
reviewed the financial terms of certain recent business combinations that Hill
Thompson deemed relevant, and performed such other studies and analyses and
considered such other information as it considered appropriate.
The financial forecasts of the Company reviewed by Hill Thompson were
prepared by the management of the Company. Such forecasts were not prepared
with a view towards public disclosure and have not been independently verified
by Hill Thompson. The forecasts were based on numerous variables and
assumptions which are inherently uncertain, including, without, limitation,
factors related to industry performance and general business, commodity and
economic forecasts. Accordingly, actual results could vary significantly from
those set forth in such forecasts.
In connection with its opinion, Hill Thompson did not independently verify
the financial, legal, tax, operating and other information provided by the
Company and the various entities affiliated with the Purchaser. Hill Thompson
relied upon the assurances of the Company and Purchaser that all such
information provided by them, respectively, is complete and accurate in all
material respects and that there is no additional information known to either
of them that would make information made available to Hill Thompson either
incomplete or misleading. Hill Thompson did not make any independent appraisal
or valuation of any asset of either company. With respect to the projected
financial data of the Company, Hill Thompson assumed that such data have been
reasonably prepared and represent the best currently available estimates and
judgements of the Company's management as to the future financial performance
of the Company.
In connection with its opinion, Hill Thompson also performed studies,
analyses and inquires and considered other information as it considered
relevant. In particular, in conducting its analysis and arriving at its
opinion as to the fairness, from a financial point of view of the consideration
to be received by the Company's Stockholders, rendered to the Company's Board
of Directors on November 8, 1996, Hill Thompson performed the following
financial analyses:
(i) DISCOUNTED CASH FLOW ANALYSIS - Based upon the forecasts
prepared by the management of the Company, Hill Thompson
performed a discounted cash flow analysis to estimate the net
present value of future free cash flows as of December 31,
1996 if the Company were to continue to operate on a stand-
alone basis. In conducting this analysis, Hill Thompson
assumed a discount rate in the range of 13%-16%, derived from
a weighted average cost of capital analysis of the Company,
and a terminal free cash flow multiple of 12, derived from a
review of market multiples of comparable publicly traded
companies, to determine the residual value of the Company.
The net present value of projected free cash flow, when
combined with the terminal values, yielded a total enterprise
value in the range of $28.0-$30.8 million. On a fully
diluted basis, which would include the proceeds from the
conversion of outstanding options, Hill Thompson derived an
implied equity value of the Company's Common Shares of $5.16
to $5.64 per share.
(ii) STOCK PRICE AND TRADING ANALYSIS - Hill Thompson reviewed the
trading activity, including price and volume of the Common
Shares since January 2, 1987. Hill Thompson noted that since
January 31, 1990, the daily closing prices of the Common
Shares ranged from a high of $6.00 per share on November 11,
1993 to a low of $.875 per share on December 18-20, 1990.
Hill Thompson also noted that from the period beginning
January 31, 1990 and ending on November 6, 1996, the Common
Shares have traded at or below $4 per share for 77% of all
trading days during this period and have traded at or below
$5 per share for 98% of all trading days during this period.
In addition, Hill Thompson compared the indexed performance
of the Common Shares and the NASDAQ Index since 1989. The
detailed information of the indexed performance of the
Company's Common Shares and the NASDAQ Index is included in
Annex E. Hill Thompson noted that the Company's Common
Shares had been under-performing the market during this
period. Hill Thompson believes that the results of the above
stock price and trading analysis support Hill Thompson's
conclusion as to the fairness of the Merger Consideration to
the Company Stockholders from a financial point of view.
(iii) ANALYSIS OF COMPARABLE PUBLICLY TRADED COMPANIES - Hill
Thompson compared certain financial data and multiples of
income statement parameters accorded to other publicly-traded
companies that Hill Thompson deemed comparable to the
Company. Financial data compared included market
capitalization, total capitalization, revenues, gross profit,
EBIT (earnings before interest and taxes), EBITDA (earnings
before interest, taxes, depreciation and amortization), net
income, book value, gross margin, EBIT margin, EBITDA margin,
net margin, and debt to equity ratio. Multiples compared
included total capitalization to revenue, total
capitalization to EBIT, total capitalization to EBITDA, price
per share to earnings per share, and market capitalization to
book value. Although the comparisons of EBIT, EBITDA and
earnings per share were less favorable than the comparisons
of revenue and book value, Hill Thompson believed that this
was due in part to differences in financial and operating
characteristics of the comparable companies and, overall,
regarded the conclusions with respect to such comparisons as
supportive of its opinion with respect to the fairness from a
financial point of view of the consideration to be received
by the Company Stockholders. A list of the publicly traded
companies that Hill Thompson deemed comparable to the Company
and a comparison of their applicable ratios to those of the
Company is attached hereto as Annex E.
(iv) ANALYSIS OF COMPARABLE TRANSACTIONS - Hill Thompson examined
publicly available information on acquisition transactions in
the past few years, including acquisitions of one comparable
public company and one public company with some of the
characteristics of the Company. Hill Thompson noted that the
premiums paid in these transactions were slightly higher than
the premium paid in this transaction (i.e. 17.8% and 17.6% as
compared to 14.3%). A summary of these two transactions is
set forth in Annex E. Overall, Hill Thompson believes that
the result of its comparable transactions analysis support
Hill Thompson's conclusion as to the fairness of the Merger
Consideration to the Company Stockholders from a financial
point of view. However, Hill Thompson concluded that these
analyses were less useful because (x) there were only two
comparable transactions where public information was
available and (y) the possible effect on the Company stock
price from the public disclosure on February 20, 1996 of Hill
Thompson's retention by the Company for the purpose of
advising on strategies to enhance Company Stockholder value.
The analysis of Comparable Publicly Traded Companies performed by Hill
Thompson indicated that the price to earnings ("P/E") ratio of the Company was
lower than that of four of the seven other comparable companies listed in Annex
E. Hill Thompson recognized that if the Company's value was determined by the
use of the average P/E ratio of other building material distributors as applied
to the Company's earnings, then a higher value would be implied and that this
factor taken alone would not support the fairness determination. However, Hill
Thompson noted that three of the seven other comparable building material
distributors listed in Annex E had losses and thus lower P/E ratios than that
of the Company and that the Company's low P/E ratio could be attributed to the
Company's business being concentrated in the Northeast and essentially limited
to professional contractors which often requires the Company to provide trade
financing. On balance, Hill Thompson determined that the comparison of P/E
ratios led to mixed results and, accordingly, should be viewed as not being
supportive of its conclusion as to the fairness of the Merger Consideration to
the Company Stockholders from a financial point of view.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Hill Thompson believes its analyses must be
considered as a whole and that considering any portion of such analyses and of
the factors considered, without considering all analyses and current factors,
could create a misleading or incomplete view of the process underlying the
opinion. In its analyses, Hill Thompson made numerous assumptions with respect
to industry performance, general business and other conditions and matters,
many of which are beyond the Company's control. Any estimates contained in
these analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than as set forth therein. Hill Thompson's opinion is based on market,
economic and other conditions that exist and can be evaluated as of the date of
its opinion, and on information available to it as of such date.
Hill Thompson is a 65 year old, New York based investment banking firm.
As part of its investment banking business, Hill Thompson is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwriting, secondary distributions of listed
and unlisted securities, private placements and other purposes.
Pursuant to a letter agreement dated August 16, 1995 (the "ENGAGEMENT
LETTER"), the Company engaged Hill Thompson to act as the Company's financial
advisor in connection with a possible Sale Transaction (as defined in the
Engagement Letter) to enhance the value of the Company in a manner satisfactory
to the Company Stockholders. Pursuant to the terms of the Engagement Letter,
it was agreed that the Company would pay Hill Thompson (a) a $20,000 non-
refundable retainer (the "RETAINER"); (b) a fee equal to 1.5% of the first $20
million of the Aggregate Consideration (as defined in the Engagement Letter)
received in connection with any Sale Transaction and 2% of the balance of said
Aggregate Consideration (less the Retainer), with a minimum fee of $150,000;
and (c) a fee in connection with the rendering of its opinion of $62,500. It
was further agreed that the Company would reimburse Hill Thompson for its
reasonable out-of-pocket fees and expenses, including professional fees and
disbursements, and indemnify Hill Thompson against certain liabilities. In the
event the Merger is consummated, Hill Thompson will be paid an aggregate fee of
approximately $609,770 by the Company.
SOURCES AND AMOUNT OF FUNDS; PAYMENT FOR COMMON SHARES
The total amount of funds to be used to purchase the Common Shares and
terminate all then outstanding options for Common Shares following the
Effective Time of the Merger is $32,363,510. The Purchaser has delivered to
the Company copies of commitment letters (the "FINANCING LETTERS") expiring
February 28, 1997 from Congress Financial Corporation (the "CONGRESS LETTER")
and CoreStates Financial Corp. (the "CORESTATES LETTER"). Under the terms of
the Congress Letter, the Surviving Corporation will be provided with a $25
million revolving line of credit with a minimum three (3) year term (the
"CREDIT LINE"). The Credit Line provides an interest rate of 1% per annum
above the rate announced from time to time by CoreStates Bank, N.A. as its
"prime rate" or, at the Surviving Corporation's option, a rate of 3.25% per
annum above, the adjusted Eurodollar rate used by Congress Financial
Corporation. The Credit Line will be secured by a first security interest in
and lien upon all of the existing and future assets of the Surviving
Corporation and any of its subsidiaries and will be guaranteed by the Surviving
Corporation and any of its subsidiaries. Under the terms of the CoreStates
Letter, an aggregate of $4 million will be provided through the issuance of
subordinated amortizing six (6) year notes (the "NOTES"). The Notes provide an
interest rate of 6.50% in excess of the yield on five year treasury notes (and
may be fixed by Purchaser), are secured by a second lien on all of the accounts
receivable and inventory of the Surviving Corporation of its subsidiaries and
are guaranteed by the Surviving Corporation and any of its subsidiaries.
Additionally, pursuant to the CoreStates Letter, the Surviving Corporation will
grant to CoreStates Financial Corp. warrants representing the right to purchase
up to 10% of the fully diluted outstanding common stock of the Surviving
Corporation (the "WARRANTS"). The Warrants will be exercisable for ten (10)
years from the date of issuance and will have an exercise price equal to the
book value of the Surviving Corporation's stock at the time of issuance. The
Financing Letters currently expire on February 28, 1997. Although the
Purchaser has agreed to use its best efforts to obtain financing to consummate
the Merger and the obtaining of such financing is not a condition to
Purchaser's obligations to consummate the Merger, there can be no assurance
that such extension, or alternative financing in lieu of such extension, will
be forth. See "The Merger -- Sources and Amounts of Funds; Payment for Common
Shares," and "Special Factors -- Fees and Expenses."
Equity investments in the aggregate of $9 million are also being made in
the Purchaser. Purchaser has represented that, assuming satisfaction or waiver
of all applicable conditions set forth in the Financing Letters, the debt
financing and the equity investment will provide sufficient funds to (i) pay
the Merger Consideration with respect to all of the Common Shares; and (ii)
prepay, redeem, refinance or renegotiate the Company's existing indebtedness,
if required to consummate the Merger, and pay any and all fees, expenses, costs
and penalties in connection with any such prepayment, redemption, refinancing
or renegotiation. Based on the Company's assets as of December 31, 1996, and
assuming the closing conditions of the Financing Letters are met, the eligible
borrowing base of the Surviving Corporation as it would be defined under the
Financing Letters would be sufficient, together with the Purchaser's $9 million
of equity and the Company's existing cash balances, so as to pay the Merger
Consideration, transaction costs and closing fees. Purchaser has agreed not to
amend the Financing Letters (except for possible extensions) without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. It is currently contemplated that Purchaser may afford certain
officers of the Company the opportunity to invest up to an aggregate of
$750,000 of the anticipated $9 million of Purchaser capital for which such
members of Company management will receive approximately 8.1% of Purchaser's
equity on a fully diluted basis solely as a means to align the interests of
management of the Surviving Corporation with the interests of its stockholders.
It is not a condition of the Merger that such Company management members make
such contribution. In the event such Company management members are afforded
the opportunity to invest and elect not to so invest, the remaining equity
investments will be made in Purchaser by individuals or entities who are not
employed by or on the Board of Directors of the Company. In the event that
such Company management members make such equity investments, the investments
will be made subsequent to the Effective Date and will be effected by
purchasing such equity interests from the Purchaser. The proposed equity
investments by members of the Company's management will be made at the same
price per share or other equity unit as that made by the other investors in
Purchaser. See "Management of Purchaser, Acquisition Sub and the Company --
Directors and Executive Officers (or Equivalent) -- Company Management
Participation."
PLANS FOR THE COMPANY AFTER THE MERGER
Except as indicated in this Proxy Statement, the Purchaser does not have
any present plans or proposals which relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the sale of the Company or any of its subsidiaries, a
sale or transfer of a material amount of assets of the Company or any of its
subsidiaries or any material change in the Company's capitalization or any
other material changes in the Company's corporate structure. The Purchaser
may, following the consummation of the Merger, effect various mergers involving
the Surviving Corporation and certain of its subsidiaries with and into various
newly formed limited liability companies, corporations or similar entities in
order to accomplish certain financial, tax and administrative goals. Those
transactions will not result in a change in control of the Purchaser or the
Surviving Corporation. Purchaser may also pursue various transactions, both in
the Company's geographic region and in areas contiguous thereto, which may
result in growth of the Surviving Corporation's business and/or customer base
or in Purchaser's acquisition of businesses or assets which complement the
Company's existing business and customer base. Any of such transactions may
require Purchaser and/or the Surviving Corporation to pursue additional equity
investments and/or debt financing in order to consummate such transactions.
There can be no assurance that any such transactions will be consummated on
terms acceptable to Purchaser, if at all. In addition, the Board of Directors
of Acquisition Sub shall be the Board of Directors of the Surviving
Corporation. The Board of Directors of the Surviving Corporation will
subsequently elect officers of the Surviving Corporation.
Upon consummation of the Merger, Purchaser intends to retain the
Surviving Corporation as a partially-owned or wholly-owned subsidiary of
Purchaser and the executive officers of the Surviving Corporation after the
Merger will include Frederick Marino as Chairman of the Board and Chief
Executive Officer, Robert J. Gaites as Chief Operating Officer, John Yanuklis
as Executive Vice President and David Polishook as Chief Financial Officer.
Each of the Company's managers in charge of the Company's 11 facilities would
also be invited to continue their employment with the Surviving Corporation on
substantially similar terms. Purchaser anticipates that the assets, business
and operations of the Surviving Corporation will be continued substantially as
they are currently being conducted by the Company. Management of Purchaser
may, however, cause the Surviving Corporation to make such changes as are
deemed appropriate, including investigating potential transactions to enhance
the Surviving Corporation's operations after the Merger, and intends to
continue to review the Surviving Corporation and its assets, businesses,
operations, properties, policies, corporate structure, capitalization and
management and to consider if any changes would be desirable in light of the
circumstances then existing. In addition, Purchaser intends to continue to
review the business of the Surviving Corporation and identify synergies and
cost savings. See "-- Interest of Certain Persons in the Merger."
SUBSEQUENT EVENTS; STOCKHOLDER LITIGATION
As set forth in the Background of the Merger, the Company spent over one
year in planning and conducting a search for and evaluation of alternatives to
its independent operation to seek to enhance value for the benefit of all
Company Stockholders with the result that on November 11, 1996 the Company
announced execution of the Merger Agreement providing for the sale of the
Company at $6.00 per share.
On November 22, 1996, an action entitled VICKREY V. THE STROBER
ORGANIZATION, INC., ET AL, was commenced in New York State Supreme Court, New
York County (Index 96-605853) against the Company and each of the seven
directors of the Company seeking certification as a class action. The
plaintiff, allegedly a Company Stockholder, alleges upon information and belief
that the directors breached their fiduciary and other common law duties by
failing to act in good faith to maximize Company Stockholder value in the sale
of the Company. Substantively, the complaint alleges that the $6.00 per Common
Share sales price would constitute a price/earnings (P/E) ratio of less than 10
and that other companies allegedly within the same industry are consistently
priced by the public market at P/E multiples of 10 or higher. Pre-trial
discovery has not yet commenced in this case. The Company's management
(principal members of which are defendants in the action) believe that the
actions of the Board in undertaking its search and evaluation process has
resulted in significant enhancement of value for the benefit of all Company
Stockholders during which time the Company and its directors have only acted in
good faith in accordance with all of their fiduciary duties to the Company
Stockholders and accordingly, that the VICKREY action is without merit.
The VICKREY complaint demands judgement as follows:
(a) declaring the suit to be a proper class action and certifying
plaintiff as representative;
(b) ordering the individual defendants to carry out their fiduciary
duties to plaintiff and the other members of the alleged class by
announcing their intention to:
(i) cooperate fully with any entity or person having a BONA
FIDE interest in proposing any transaction which would maximize
Company Stockholder value, including but not limited to, a buy-out
or takeover of the Company;
(ii) immediately undertake an appropriate evaluation of the
Company's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance the Company's
value and attractiveness as a merger/acquisition candidate;
(iv) take all appropriate steps to effectively expose the
Company to the marketplace in an effort to create an active auction
of the Company;
(v) act independently so that the interests of the public
Company Stockholders
will be protected; and
(vi) adequately ensure that no conflicts of interest exist
between the individual defendant's own interests and their
fiduciary obligations to maximize shareholder value and act with
entire fairness or, in the event such conflicts exist, to ensure
that all conflicts of interest are resolved in the best interests
of the public Company Stockholders;
(c) enjoining the proposed transaction or, if consummated, rescinding
it;
(d) ordering the individual defendants, jointly and severally to
account to plaintiff and the alleged class for all damages suffered
and to be suffered by them as a result of the acts and transactions
alleged;
(e) awarding plaintiff the costs and disbursements of the VICKREY
action, including a reasonable allowance for plaintiff's attorneys'
and experts' fees; and
(f) granting such other and further relief as may be just and proper.
On January 8, 1997, all defendants served their answers to the VICKREY
action denying the substantive claims made and setting forth defenses including
that the complaint fails to state a claim upon which relief can be granted,
that the complaint is barred because plaintiff lacks standing to bring the
action as a class action, that the claims alleged are derivative in nature and
plaintiff has failed to make proper demand upon the Board of Directors of the
Company and that the directors have all acted in good faith. Pre-trial
discovery in the VICKREY action commenced in mid-January 1997.
The VICKREY action is a pending legal proceeding that occurred after the
execution of the Merger Agreement and may have a materially adverse effect on
the Surviving Corporation and its subsidiaries taken as a whole so as to
constitute a "Pending Legal Proceeding" as that term is defined in the Merger
Agreement. The obligation of the Purchaser to consummate the Merger is subject
to the satisfactory termination of any Pending Legal Proceeding (including the
VICKREY action) or waiver by the Purchaser of the presence of any such Pending
Legal Proceeding. Therefore, there can be no assurance that the Merger will be
consummated. In the event the Purchaser elects not to consummate the Merger as
a result of a Pending Legal Proceeding, the Purchaser would be obligated to
reimburse the Company for the Company Expenses.
On July 31, 1996, a non-profit organization of local Brooklyn, New York
civic associations sought to prevent The Port Authority of New York and New
Jersey from leasing Pier 3 on the Brooklyn, New York waterfront to a subsidiary
of the Company by filing an action against the Port Authority and the Company
in the United States District Court, Eastern District of New York. During the
pendency of this action, the Company completed its leasehold improvements at
the Pier 3 site and commenced operations there. On January 22, 1997, the
Company announced that a decision had been rendered in the case dismissing with
prejudice all of the federal claims asserted by the plaintiff. The Court also
noted that the Port Authority and the Company had made strong arguments for
dismissing the claims that were brought under state law, but the Court declined
to exercise supplemental jurisdiction over those claims. Accordingly, the
state law claims were dismissed without prejudice.
INTEREST OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of the
Company, the Company Stockholders should be aware that certain officers and
directors of the Company have certain interests in the Merger, including those
referred to below, that present actual or potential conflicts of interest in
connection with the Merger. The Special Committee and the Board of Directors
were aware of these potential or actual conflicts of interest and considered
them along with other matters described under "-- Recommendation of the Special
Committee and Board of Directors of the Company; Fairness of the Merger."
OWNERSHIP OF COMMON SHARES. As of the date of this Proxy Statement, the
executive officers and directors of the Company beneficially owned an aggregate
of 1,239,101 Common Shares, constituting approximately 24% of the total number
of Common Shares then outstanding. Such individuals have informed Purchaser
that they intend to vote all of their Common Shares in favor of the Merger. If
the Merger is consummated, such persons will receive an aggregate of
approximately $8.5 million for their Common Shares and options for Common
Shares.
The following table sets forth, as of the date of this Proxy Statement,
the number of Common Shares and options for Common Shares owned by, and the
aggregate amounts to be received by, each executive officer and director of the
Company who owns any Common Shares pursuant to the Merger. Other than the
individuals named below, no executive officer or director of the Company owns
any Common Shares.
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES MERGER CONSIDERATION
DIRECTOR/EXECUTIVE OFFICER OPTIONS TO BE RECEIVED
<S> <C> <C> <C>
Robert J. Gaites, Chairman, CEO 482,136 (1)(2)(17) 88,053 (3) $3,051,452
and President
David W. Bernstein, Director 29,100 (4) 50,000 (5) 262,881
Joseph Mangino, Sr., Director 10,500 50,000 (5) 151,281
Alvin Murstein, Director 15,000 50,000 (5) 178,281
Emil W. Solimine, Director 18,500 (6) 50,000 (5) 199,281
John Yanuklis, Director and 476,540 (1)(7)(17) 73,618 (8) 2,984,554
Executive Vice President
Eliott Zieky, Director and Senior 0(16) 20,867 (9) 39,763
Vice President
Albert Brower, Senior Vice 104,231 (1)(12)(17) 27,637(13) 674,203
President
David J. Polishook, Chief 17,000(14) 60,000(15 207,938
Financial Officer
Richard Schaefer, Vice President 77,049(10) 65,597(11) 580,880
Richard Young, Senior Vice 9,045(17) 20,000(16) 89,583
President
Edward Zieky, Senior Vice 0(17) 20,867 (9) 39,763
President
All officers and directors as a 1,239,101 576,639 $8,459,860
group (12 persons)
</TABLE>
________________________
(1) This person is a party to the Proxy Agreement with Purchaser which
permits Purchaser to vote this person's Common Shares in favor of the Merger.
See "-- Proxy Agreement."
(2) Includes 147,180 shares held by a charitable remainder trust for the
benefit of Mr. Gaites and his spouse and for which Mr. Gaites retains an
irrevocable proxy to vote such Common Shares and 2,000 shares held by Mr.
Gaites' spouse as trustee for their son. Mr. Gaites disclaims beneficial
ownership of such shares. Includes 25,000 Common Shares as a result of the
exercise of options that would have expired December 31, 1996. See "Special
Factors -- Exercise of Company Stock Options Expiring on December 31, 1996."
(3) Consists of 25,000, 37,500 and 25,553 of Common Shares subject to
presently exercisable options held by Mr. Gaites at exercise prices of $4.75,
$3.625 and $4.50 per share which expire on December 31, 1997, March 8, 2000 and
March 12, 2001, respectively.
(4) Includes 100 Common Shares owned by Mr. Bernstein's wife. Mr.
Bernstein is also the trustee of a trust established by Sue Strober for the
benefit of her son and daughter which holds 180,960 Common Shares for which Ms.
Strober retains an irrevocable proxy to vote such Common Shares. Ms. Strober
is also a party to the Proxy Agreement. Mr. Bernstein disclaims beneficial
ownership of all such Common Shares.
(5) Consists of 12,500, 18,750 and 18,750 Common Shares subject to
presently exercisable options each held by the outside directors at an exercise
price of $4.75, $3.625 and $4.50 per share, respectively, which expire on March
9, 1997, March 8, 2000 and March 12, 2001, respectively.
(6) 1,000 of these Common Shares are owned by Emar, Ltd., of which Mr.
Solimine is the sole shareholder and 17,500 of these Common Shares are owned by
Deye Limited Partnership of which Mr. Solimine is a general partner.
(7) Includes 140,000 Common Shares held by a charitable remainder trust
for the benefit of Mr. Yanuklis and his spouse for which Mr. Yanuklis retains
an irrevocable proxy to vote such Common Shares. Mr. Yanuklis disclaims
beneficial ownership of such shares. Includes 23,286 Common Shares as a result
of the exercise of options that would have expired December 31, 1996. See
"Special Factors -- Exercise of Company Stock Options expiring on December 31,
1996."
(8) Consists of 22,737, 23,503 and 27,378 Common Shares subject to
presently exercisable options held by Mr. Yanuklis at exercise prices of $4.75,
$3.625 and $4.50 per share respectively of which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively.
(9) Consists of 1,684, 10,152 and 9,031 of Common Shares subject to a
presently exercisable option held by each of Edward and Eliott Zieky at an
exercise price of $4.75, $3.625 and $4.50 per share respectively which expire
on December 31, 1997, March 8, 2000 and March 12, 2001, respectively.
(10) Includes 67,218 Common Shares as a result of the exercise of
options that would have expired December 31, 1996. See "Special Factors --
Exercise of Company Stock Options Expiring on December 31, 1996."
(11) Consists of 15,789, 27,586 and 22,222 Common Shares subject to
presently exercisable options held by Mr. Schaefer at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively.
(12) Includes 25,000 Common Shares held by a charitable remainder trust
for which Mr. Brower retains an irrevocable proxy to vote such Common Shares.
Excludes 150 shares owned by a relative of Mr. Albert Brower. Mr. Brower
disclaims beneficial ownership of such shares. Includes 9,107 Common Shares as
a result of the exercise of options that would have expired December 31, 1996.
See "Special Factors -- Exercise of Company Stock Options Expiring on
December 31, 1996."
(13) Consists of 8,211, 10,759 and 8,667 Common Shares subject to
presently exercisable options held by Mr. Brower at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively.
(14) Includes 15,000 Common Shares as a result of the exercise of
options that would have expired December 31, 1996. See "Special Factors --
Exercise of Company Stock Options Expiring on December 31, 1996."
(15) Consists of 15,000, 22,500 and 22,500 of Common Shares subject to
presently exercisable options held by Mr. Polishook at exercise prices of
$4.75, $3.625 and $4.50 per share which expire on December 31, 1997, March 8,
2000 and March 12, 2001, respectively.
(16) Consists of 5,000, 7,500 and 7,500 of Common Shares subject to
presently exercisable options held by Mr. Young at exercise prices of $4.75,
$3.625 and $4.50 per share which expire on December 31, 1997, March 8, 2000 and
March 12, 2001, respectively.
(17) The above-named director or member of management is a party to a
reorganization agreement dated as of October 1, 1986, as amended, providing
such individual with a right of prior notice and first refusal to purchase
Common Shares which any other party to the agreement desires to sell. These
rights have been waived by each such individual, and by all other individuals
holding such rights, in order to enter into the Merger Agreement and the Proxy
Agreement and to consummate the transactions contemplated thereby.
_______________________________
DIRECTORS AND OFFICERS. Immediately upon consummation of the Merger, all
of the Company's directors will resign. Pursuant to the Merger Agreement, the
directors and officers of Acquisition Sub will be the directors and officers of
the Surviving Corporation, and the Purchaser will appoint their successors.
Subsequent to the closing of the Merger, all of the Company's officers are
expected to be employed by the Surviving Corporation. It is currently
contemplated that Purchaser may afford certain officers of the Company the
opportunity to invest up to an aggregate of $750,000 of the anticipated $9
million of Purchaser capital for which such members of Company management will
receive approximately 8.1% of Purchaser's equity on a fully diluted basis
solely as a means to align the interests of management of the Surviving
Corporation with the interests of its stockholders. It is not a condition of
the Merger that such Company management members make such contribution. In the
event that such Company management members are afforded the opportunity to
invest and make such equity investments, the investments will be made
subsequent to the Effective Date and will be effected by purchasing such equity
interests from the Purchaser. In the event such Company management members are
afforded the opportunity to invest and elect not to so invest, the remaining
equity investments will be made in the Purchaser by individuals or entities who
are not employed by or on the Board of Directors of the Company. In the event
that such Company management members make such equity investments, the
investments will be made subsequent to the Effective Date and will be effected
by purchasing such equity interests from the Purchaser. The proposed equity
investments by members of the Company's management will be made at the same
price per share or other equity unit as that made by the other investors in
Purchaser. Robert J. Gaites and John Yanuklis, the President and Chief
Executive Officer, and an Executive Vice President of the Company,
respectively, have each indicated a present intention to invest up to $200,000
in the Purchaser after the completion of the Merger. These executives have
advised the Company that in the event the Purchaser affords them an opportunity
to invest in the Purchaser, they expect to make all or a portion of such
investment. The following persons constitute the remaining members of
management who may be afforded the opportunity to invest up to an aggregate of
$350,000 in the Purchaser after the completion of the Merger:
NAME TITLE
Edward Zieky Senior Vice President
Eliott Zieky Director and Senior Vice President
Richard Schaefer Vice President
Nicholas Tenebruso Vice President of Brooklyn subsidiary
Robert Groeninger Vice President of Brooklyn subsidiary
William Umbach Vice President of New Jersey subsidiary
Lawrence Hamershock Vice President of Pennsylvania subsidiary
David Polishook Chief Financial Officer
Richard Young Vice President
Neither the Purchaser's initial proposal, nor the negotiations between
the Purchaser and the Company which followed, required any member of the
Company's management to invest in the Purchaser as a condition to a proposed
transaction between the Purchaser and the Company. None of the directors
serving on the Special Committee have been nor will be afforded investment
opportunities in the Purchaser. The Purchaser has advised the Company that
these investment opportunities are being provided solely as a means for
establishing incentive to management of the Surviving Corporation by providing
them with a small, non-controlling equity stake. See "Special Factors --
Sources and Amount of Funds; Payment for Common Shares," and "Management of
Purchaser, Acquisition Sub and the Company -- Directors and Executive Officers
(or Equivalent) of Purchaser and Acquisition Sub -- Company Management
Participation."
SPECIAL COMMITTEE. Each member of the Board of Directors who was not,
and is not at the present time, an employee of the Company serves on the
Special Committee that approved the Merger and its recommendation to the
Company stockholders. The Special Committee initially included Robert J.
Gaites, the Company's President and Chief Executive Officer. When it became
apparent that one of the likely prospective investors would be a financial
purchaser and might seek an equity contribution to be made by Company
management in connection with the acquisition of the Company, the Committee
overseeing the search and evaluation process was reconstituted with the
resignation of Mr. Gaites, so that the Special Committee would have only
members who were outside directors and not employees of the Company.
Accordingly, the Special Committee that approved the Merger and its
recommendation to the Company Stockholders consists of Messrs. Bernstein,
Mangino, Murstein and Solimine. In accordance with existing Board compensation
policies, each member of the Special Committee has been paid $1,000 for each
meeting attended in person and $250 for each meeting held by teleconference of
the Special Committee. From August 1995 through the date of this Proxy
Statement, the Special Committee has been paid an aggregate of $17,000 for
their efforts. This compensation arrangement is in accordance with the
Company's existing policies and is intended to compensate the members thereof
for the significant additional time commitment that would be required of them
in connection with fulfilling their duties and responsibilities as members of
the Special Committee and is payable without regard to whether the Special
Committee approved the Merger or whether the Merger is consummated.
INDEMNIFICATION AND INSURANCE. Purchaser has agreed in the Merger
Agreement that all rights to indemnification or exculpation existing in favor
of, and all limitations on the personal liability of, the directors, officers,
employees and agents of the Company provided for in the Company's Certificate
of Incorporation and in each subsidiaries' certificate of incorporation (or
similar organizational document) or their respective By-laws as in effect as of
the date of the Merger Agreement with respect to matters occurring prior to the
Effective Time shall survive the Merger and continue without amendment in full
force and effect for a period of not less than six (6) years from the Closing;
PROVIDED; HOWEVER, that all rights to indemnification in respect of any claims
(a "CLAIM") asserted or made within such period shall continue until the
disposition of such Claim. Purchaser has further agreed that at or prior to
the Effective Time, Purchaser shall also continue the Company's existing
directors' and officers' liability insurance coverage for the Company's
directors which shall provide such directors with coverage for six years
following the Effective Time; PROVIDED, HOWEVER, that the aggregate cost of
such policy may not exceed $200,000. Accordingly, the Company has obtained a
rider to its existing directors' and officers' insurance policy which, for a
one-time premium payment of $178,000 would provide for such coverage. The
Company expects to pay such premium immediately prior to the Effective Time.
See "The Merger -- Officers' and Directors' Insurance; Indemnification."
SEVERANCE ARRANGEMENTS. The Company and its Chief Financial Officer,
David J. Polishook, are parties to a Severance and Non-Competition Agreement
dated as of January 1, 1995, pursuant to which, among other things, Mr.
Polishook is entitled to certain benefits if subsequent to a Change in Control
of the Company (as defined in the agreement), (a) Mr. Polishook terminates his
employment for Good Reason (as defined in the agreement) or (b) the Company
terminates Mr. Polishook's employment. Such benefits include (a) Mr.
Polishook's base salary, as of the date of employment termination, on a bi-
weekly basis, for a period of two years (with a possible reduction under
certain circumstances); (b) the maintenance for a period of two years after
employment termination (with certain exceptions) of insurance benefits; and (c)
all outstanding and unexpired Company stock options held by Mr. Polishook that
are not then exercisable shall become immediately exercisable.
REORGANIZATION AGREEMENT. Under a reorganization agreement dated as of
October 1, 1986 entered into as part of the Company's initial public offering
among the Company, Messrs. Brower, Gaites, Yanuklis, Young, Edward Zieky and
Eliott Zieky, two other executive officers and certain other Company
stockholders and former officers, in the event the Company terminates without
cause the employment of a party to the reorganization agreement, the Company is
obligated to engage the terminated party as a consultant for two years with a
retainer equal to 75% of that individual's then current base salary. During
such period the consultant would be barred from competing against the Company
in its existing markets. The parties to the reorganization agreement have
waived their rights under the reorganization agreement and have agreed that the
reorganization agreement will be terminated as of the Effective Time of the
Merger.
EXERCISE OF COMPANY STOCK OPTIONS EXPIRING ON DECEMBER 31, 1996
At the November 7, 1996 meeting of the Special Committee, the members
discussed the circumstances under which Company stock options to purchase an
aggregate of 166,751 Common Shares were issued as of December 31, 1991 at an
exercise price of $1.125 and as of March 4, 1993 at an exercise price of $1.75
(which in each case, as provided in the applicable stock option plan, was the
then current market price of the Common Shares) and would expire on December
31, 1996 in accordance with their respective terms. The Special Committee was
advised that (i) if the Merger were successfully consummated, the trading price
of the Common Shares prior to the consummation of the Merger would typically
not be expected to reach the level of the Merger Consideration; (ii) the
exercise of such options was a taxable event to the eight individuals holding
such options and that a significant tax withholding payment would by required
to be made by such option holders; (iii) closing of any possible transaction
resulting from the search and evaluation process would most likely extend
beyond December 31, 1996; and (iv) several of the option holders were insiders,
who under Company policies could not then buy or sell Common Shares on the
market to fund the applicable tax withholding payment. Accordingly, the
Special Committee determined to recommend to the Board that the Company offer
to loan to these option holders the exercise price of the options together with
the tax withholding amount to facilitate their exercise of the options, such
loan to bear interest at the Company's rate of borrowing and to be payable upon
the sooner of the closing of any sale transaction or one year from the date of
loan. The loan would be secured by a pledge of the purchased Common Shares
pending repayment of the loan. Upon exercise of such options, the holders of
the purchased Common Shares would be entitled to vote such Common Shares. As
of the date of this Proxy Statement, all of such holders have borrowed an
aggregate of approximately $495,070 from the Company and exercised all such
options to purchase an aggregate of 166,751 Common Shares, which Common Shares
are held by the Company as collateral for the loan. As three holders of
options for 57,393 Common Shares are also signatories of the Proxy Agreement,
the exercise of these options had the effect of increasing the number of Common
Shares subject to the Proxy Agreement from 3,103,548 Common Shares at the date
of execution of the Merger Agreement to 3,160,941 Common Shares as of the date
of this Proxy Statement.
The following table sets forth the names of the option holders who
participated in Company financed option exercises, the number of Common Shares
received as a result of such exercises, the Merger Consideration to be received
for such Common Shares financed by the Company to enable such option holders to
exercise those options, and the amount of proceeds to be received by such
option holder for such Common Shares following the repayment of such loan.
<TABLE>
<CAPTION>
NAME Number of Common Shares Merger Consideration to AMOUNT FINANCED Amount of Proceeds
Received Upon Company be Received for Such BY THE COMPANY After Repayment of
Financed Option Shares Company Loan
Exercises (1)
<S> <C> <C> <C> <C>
Albert C. Brower 9,107 $ 54,642 $ 26,388 $ 28,254
Robert J. Gaites 25,000 150,000 76,750 73,250
Robert Groeninger 11,429 68,574 35,087 33,487
Robert Merkl 3,000 18,000 9,210 8,790
David J. Polishook 15,000 90,000 43,956 46,044
Richard Schaefer 73,929 443,574 217,540 226,034
Nicholas Tenebruso 6,000 36,000 18,420 17,580
John Yanuklis 23,286 139,716 67,719 71,997
</TABLE>
(1) Sets forth the options exercised on December 10, 1996 of which
options for an aggregate of 40,250 Common Shares were granted on December 31,
1991, and options for 126,501 Common Shares were granted on March 4, 1993,
respectively, at exercise prices of $1.13 per share and $1.75 per share,
respectively. All of such Common Shares are pledged to the Company as
collateral to secure the loans made by the Company to finance the option
exercises.
PROXY AGREEMENT
In the course of its negotiations with the Company, the Purchaser
requested that several of the significant Company Stockholders consider whether
it was in the best interests of all of the Company Stockholders for the Company
to enter into the Merger Agreement with Purchaser and if so, if such Company
Stockholder would enter into the Proxy Agreement dated as of November 11, 1996
(the "PROXY AGREEMENT") pursuant to which the Purchaser would be entitled to
vote such Company Stockholders' Common Shares in favor of the Merger. A copy
of the Proxy Agreement is set forth in Annex D. The table set forth below
identifies each of the Company Stockholders who are a party to the Proxy
Agreement; the number of issued and outstanding Common Shares beneficially
owned by such persons; the voting power of which shall be voted by the
Purchaser; the number of options for Company Shares held by such persons and
the aggregate Merger Consideration to be received by such persons. Because any
possible exercise of the options listed below would post date the Record Date
for the Special Meeting, these options do not represent potential voting power
at the Special Meeting.
<TABLE>
<CAPTION>
NAME/CAPACITY COMMON SHARES OPTIONS MERGER
BENEFICIALLY OWNED EXERCISABLE FOR CONSIDERATION TO BE
<S> <C> <C> <C>
Sue Strober, Investor (1)(4)(5) 948,201 -0- $5,689,206
Robert J. Gaites, Chairman, CEO and 482,136 88,053 3,051,452
President (2)(4)(5)(6)
John Yanuklis, Director and Executive 476,540 73,618 2,984,554
Vice President (3)(4)(5)(6)
John Guerin, Investor (4)(5) 422,250 -0- 2,533,500
Gordon Sandler, Investor (4)(5) 399,486 -0- 2,396,916
Richard King, Investor (4)(5) 200,931 -0- 1,205,586
Nathan Schwartzberg, Investor (4)(5) 127,166 -0- 762,996
Albert C. Brower, Senior Vice President 104,231 27,637 674,203
(4)(5)(6)(7)
TOTAL: 3,160,941
</TABLE>
(1) Includes an aggregate of 84,650 Common Shares held in trusts of which
Ms. Strober is the trustee for her son and daughter and 180,960 Common Shares
held in a trust of which Mr. David Bernstein is a trustee for Sue Strober's son
and daughter. Includes an aggregate of 91,200 Common Shares which Ms. Strober
gave to her son and daughter but Ms. Strober retains an irrevocable proxy to
vote such Common Shares. Ms. Strober disclaims beneficial ownership of all
such Common Shares. Includes an aggregate of 1,500 Common Shares which have
previously been transferred to third parties as a gift but have not yet been
registered in such parties' names.
(2) Excludes 25,000, 37,500 and 25,553 shares of Common Stock subject to
presently exercisable options held by Mr. Gaites at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively. Includes 147,180 shares held
by a charitable remainder trust for the benefit of Mr. Gaites and his spouse
and for which Mr. Gaites retains an irrevocable proxy to vote such Common
Shares and 2,000 shares held by Mr. Gaites' spouse as trustee for their son.
Mr. Gaites disclaims beneficial ownership of such shares.
(3) Excludes 22,737, 23,503 and 27, 378 shares of Common Stock subject to
presently exercisable options held by Mr. Yanuklis at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, of which 22,737 expire on December
31, 1997, 23,503 expire on March 8, 2000 and 27,378 expire on March 12, 2001.
Includes 140,000 Common Shares held by a charitable remainder trust for the
benefit of Mr. Yanuklis and his spouse for which Mr. Yanuklis retains an
irrevocable proxy to vote such Common Shares.
(4) The above-named beneficial owner is a party to a reorganization
agreement dated as of October 1, 1986 providing such beneficial owner with a
right of prior notice and first refusal to purchase shares of the Company's
Common Stock which any other party to the agreement desires to sell. These
rights have been waived by each such individual, and by all other individuals
holding such rights, in order to enter into the Merger Agreement and the Proxy
Agreement and to consummate the transactions contemplated thereby. (See
"Special Factors -- Interest of Certain Persons in the Merger").
(5) Such shares are subject to the proxy granted to Purchaser pursuant
to the Proxy Agreement. See "Special Factors -- Interest of Certain Persons in
the Merger."
(6) Additional options to purchase 166,751 Common Shares were
outstanding at the time the Merger Agreement was executed which by their terms
would have expired on December 31, 1996. These 166,751 options have
subsequently been exercised and applicable tax withholdings made utilizing loan
proceeds from the Company. Of these options, Mr. Gaites borrowed $76,750 from
the Company to exercise 25,000 options; Mr. Yanuklis borrowed $67,719 to
exercise 23,286 options and Mr. Brower borrowed $26,388 from the Company to
exercise 9,107 options. See "Special Factors -- Exercise of Company Stock
Options Expiring on December 31, 1996."
(7) Excludes 8,211, 10,759 and 8,667 Common Shares subject to presently
exercisable options held by Mr. Brower at exercise prices of $4.75, $3.624 and
$4.50 per share, respectively, which expire on December 31, 1997, March 8, 2000
and March 12, 2001, respectively. Includes 25,000 Common Shares held by a
charitable remainder trust for which Mr. Brower retains an irrevocable proxy to
vote such Common Shares. Excludes 150 shares owned by a relative of Mr. Albert
Brower. Mr. Brower disclaims beneficial ownership of such shares.
Sue Strober is the spouse of Eric Strober, the grandson of the Company's
founder and principal stockholder and chief executive officer of the Company
when it went public in November 1986. Ms. Strober succeeded to these Common
Shares upon Mr. Strober's death in 1988. Messrs. Guerin, King, Sandler, and
Schwartzberg are former directors and Senior Vice Presidents of the Company.
All of these persons have entered into customary confidentiality agreements
concerning the Company. Mr. Guerin, joined the Company in 1981 and resigned in
1990. Mr. King joined the Company in 1981 and resigned in 1988. Mr. Sandler
joined the Company in 1976 and resigned in 1991. Mr. Schwartzberg joined the
Company in 1980 and resigned in 1990. At the time of their respective
resignations, Messrs. Guerin, King, Sandler and Schwartzberg had 21, 26, 38,
and 38 years of experience in the industry, respectively. Each of these five
individuals have had no subsequent role in the management of the Company,
collectively own 2,098,034 Common Shares or approximately 40% of the
outstanding Common Shares and each advised the Company that they believed that
it was in the best interests of all of the Company's Stockholders for the
Company to enter into the Merger Agreement with Purchaser. In addition, the
eight Company Stockholders agreed that if the Merger Agreement were to be
terminated because the Company had entered into a binding definitive agreement
to effect a superior proposal and those Company Stockholders within six months
of the termination of the Merger Agreement subsequently were to sell their
Common Shares, then such Company Stockholder would be obligated to pay to
Purchaser an amount in cash equal to 50% of the difference between the
consideration to be paid in the superior proposal and the Merger Consideration
provided under this Merger.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest of the Company will
be owned by Purchaser. Therefore, following the Merger, the Company
Stockholders will no longer benefit from any increases in the value of the
Company and will no longer bear the risk of any decreases in the value of the
Company. Following the Merger, Purchaser will benefit from any increases in
the value of the Company and also bear the risk of any decreases in the value
of the Company.
The Company Stockholders will have no continuing interest in the Company
following the Merger. As a result, the Common Shares will no longer meet the
requirements of the NASDAQ National Market for continued listing and will,
therefore, be delisted from the NASDAQ National Market.
The Common Shares are currently registered as a class of securities under
the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). Registration of the
Common Shares under the Exchange Act may be terminated upon application of the
Company to the Securities and Exchange Commission ("SEC") if the Common Shares
are not listed on a national securities exchange or quoted on the NASDAQ
National Market and there are fewer than 300 record holders of the Common
Shares. Termination of registration of the Common Shares under the Exchange
Act would substantially reduce the information required to be furnished by the
Company to the Company Stockholders and to the SEC and would make certain
provisions of the Exchange Act, such as the short-swing trading provisions of
Section 16(b), the requirement of furnishing a proxy statement in connection
with stockholders' meetings pursuant to Section 14(a), and the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private" transactions,
no longer applicable to the Company. If registration of the Common Shares
under the Exchange Act is terminated, the Common Shares would no longer be
eligible for listing on the NASDAQ National Market. It is the present
intention of the Purchaser to seek to cause the Company to make an application
for the termination of the registration of the Common Shares under the Exchange
Act as soon as practicable after the Effective Time of the Merger.
In addition, assuming that Messrs. Gaites and Yanuklis each invest
$200,000 in the Purchaser after the completion of the Merger, the interest of
Messrs. Gaites and Yanuklis in the Company's tangible book value and net income
would decrease from their current respective levels of 9.3% and 9.2% to that of
2% each. Following the Merger, in dollar terms, the respective interests of
Messrs. Gaites and Yanuklis in (i) the Company's tangible book value as of
September 30, 1996 would decrease from their current respective levels of
approximately $2.75 million and $2.72 million to that of approximately $63,000
each and (ii) the Company's net income for the nine months ended September 30,
1996 would decrease from approximately $243,000 and $240,000 to $33,200 each.
See "Management of Purchaser, Acquisition Sub and the Company -- Company
Management Participation."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to the holders of the Common Shares under the law in
effect as of the date hereof. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1986, as amended (the "CODE"),
existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to the Company Stockholders as described herein. The following
discussion is for general information only, and may not apply to particular
categories of holders, such as financial institutions, broker-dealers, tax-
exempt entities, holders who acquired their Common Shares pursuant to the
exercise of employee stock options or other compensation arrangements with the
Company and holders who are not citizens or residents of the United States.
THE FOLLOWING SUMMARY WAS PREPARED BY OUTSIDE COUNSEL TO THE COMPANY. THE
COMPANY HAS NOT RETAINED AN INDEPENDENT TAX CONSULTANT WITH REGARD TO THE TAX
CONSEQUENCES OF THE MERGER. ALL HOLDERS OF THE COMMON SHARES SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE MERGER TO THEM WITH
SPECIFIC REFERENCE TO THEIR PARTICULAR TAX SITUATIONS, INCLUDING SUCH TAX
CONSEQUENCES UNDER STATE, LOCAL, FEDERAL AND FOREIGN TAX LAWS.
The receipt of cash in exchange for Common Shares pursuant to the Merger,
and the receipt of cash by a Company Stockholder who exercises his, her or its
dissenter's rights under the DGCL, will be a taxable transaction for federal
income tax purposes and may also be a taxable transaction under applicable
state, local and foreign tax laws. A Company Stockholder will generally
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between such Company Stockholder's adjusted tax basis in the
Common Shares and the amount of cash received in exchange therefor (other than
amounts received pursuant to a Company Stockholder's statutory rights of
appraisal that are denominated as interest, which amounts would be taxable as
ordinary income). Such gain or loss will be a capital gain or loss if such
Company Stockholder has held such Common Shares as capital assets within the
meaning of Section 1221 of the Code. Such capital gain or loss will be a long-
term capital gain or loss if such Company Stockholder has held such Common
Shares for more than one year as of the date of exchange. There are certain
limitations on the deductibility of capital losses. A Company Stockholder who
also owns, directly or by attribution, stock or other equity interest of
Purchaser as of the date of exchange should consult such Company Stockholder's
own tax advisor regarding the possibility that the cash received will be
treated as a dividend.
Pursuant to the Merger Agreement, either Acquisition Sub or the Company
will pay or cause to be paid any real property transfer taxes arising from the
Merger. The amount of such taxes paid by either Acquisition Sub or the Company
may result in the deemed receipt of additional consideration by Company
Stockholders. However, in that event, under Section 164(a) of the Code, a
Company Stockholder should reduce the amount realized on the sale by the amount
of the tax paid, so that the payment of the tax would have no effect on the
amount of gain or loss recognized by the Company Stockholder in the Merger.
Cash received in exchange for Common Shares in the Merger may be subject
to a backup withholding tax at a rate of 31%, unless the relevant Company
Stockholder is an exempt recipient or complies with certain identification
procedures. Upon the consummation of the Merger, the Company's Paying Agent
will forward to each Company Stockholder a Form W-9 which when properly
completed and returned would fulfill such identification procedures.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase", as such term is used
under generally accepted accounting principles, for accounting and financial
reporting purposes. Accordingly, a determination of the fair value of the
Company's assets and liabilities will be made in order to allocate the purchase
price to the assets acquired and the liabilities assumed.
FEES AND EXPENSES
Estimated fees and expenses incurred or to be incurred by the Company in
connection with the Merger are approximately as follows:
Investment banking fees and expenses (excluding fairness opinion fee)...$484,770
Investment banking fairness opinion fee...................................62,500
Legal fees and expenses..................................................800,000
SEC filing fee.............................................................6,473
Printing and mailing fees.................................................24,100
Proxy Solicitation Agent fees..............................................7,500
Paying Agent fees..........................................................4,500
Special Committee fees....................................................17,000
Miscellaneous expenses.....................................................3,500
Accounting expenses........................................................7,500
____________
Total..................................................$1,417,843
____________
For information regarding Hill Thompson's engagement by the Special
Committee, see "Special Factors -- Background of the Merger," "-- Opinion of
Financial Advisor -- Hill Thompson Capital Markets, Inc."
Estimated fees and expenses incurred or to be incurred by or on behalf of
Purchaser in connection with the Merger or which may otherwise be paid or
payable by the Company or the Surviving Corporation include financial advisory
and consulting fees and expenses of $800,000 to be paid to Proteus Financial
Group Incorporated ("PROTEUS"); legal fees and expenses of $850,000;
accounting fees and expenses of $20,000; financing commitment fees and related
expenses of $453,000; and miscellaneous fees and expenses of $190,000.
Neither Purchaser nor the Company will pay any fees or commissions to any
broker or dealer or any other person (other than Hill Thompson, Proteus, the
Proxy Solicitation Agent, and the Paying Agent) for soliciting Common Shares
pursuant to the Merger. Brokers, dealers, commercial banks and trust companies
will, upon request, be reimbursed by the Company for reasonable and necessary
costs and expenses incurred by them in forwarding materials to their customers.
THE MERGER
GENERAL
The following is a summary of the Merger Agreement. All references to
and summaries of the Merger Agreement in this Proxy Statement are qualified in
their entirety by reference to the Merger Agreement, a copy of which is
attached hereto as Annex A. The Merger Agreement provides for the merger of
Acquisition Sub with and into the Company. The Company will be the Surviving
Corporation and it will continue its corporate existence under the laws of the
State of Delaware. At the Effective Time, the separate corporate existence of
Acquisition Sub shall cease. The Surviving Corporation shall possess all the
property, rights, privileges, powers and franchise of Acquisition Sub and the
Company and shall assume and become liable for all debts, liabilities,
obligations, restrictions, disabilities and duties of the Company and
Acquisition Sub.
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
On November 11, 1996 the Company, Acquisition Sub and the Purchaser
entered into the Agreement and Plan of Merger dated November 11, 1996 (the
"Original Merger Agreement") pursuant to which Acquisition Sub would be merged
with and into the Company with the Company being the surviving corporation in
the Merger and the entire equity interest in the Company would be owned by the
Purchaser. As a result of the Merger, each outstanding Common Share other than
Dissenting Shares would be converted into the right to receive the Merger
Consideration of $6.00 in cash, without interest all as more fully described in
this Proxy Statement. The Original Merger Agreement included a closing
condition with respect to the Hart Scott Rodino Antitrust Improvements Act of
1976 and established a termination date of February 28, 1997. On January 22,
1997 the Original Merger Agreement was amended and restated (the "Merger
Agreement") by the Company, Acquisition Sub and the Purchaser to delete the
aforementioned closing condition and to extend the termination date to March
31, 1997. A copy of the Merger Agreement as amended and restated is attached
hereto as Annex A.
EFFECTIVE TIME
The Effective Time will occur upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or at such later
time as is specified in the Certificate of Merger. The Certificate of Merger
will be filed as promptly as practicable after requisite approval and adoption
of the Merger Agreement and the Merger by the Company Stockholders at the
Special Meeting is obtained and the other conditions precedent to the
consummation of the Merger have been satisfied, or if permissible, waived. See
"The Merger -- Conditions to the Merger," and "Termination and Amendment."
CERTIFICATE OF INCORPORATION; BY-LAWS
At the Effective Time, the Certificate of Incorporation and by-laws of
Acquisition Sub or, at the election of Purchaser, of the Company, shall be the
Certificate of Incorporation and By-Laws of the Surviving Corporation.
DIRECTORS
The Directors of Acquisition Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation.
STOCK TRANSFER BOOKS
At the Effective Time, the Company Share transfer books shall be closed
and no transfer of Common Shares may be made thereafter. If after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Paying Agent, they shall be cancelled and exchanged for the Merger
Consideration as provided above (subject to applicable law in the case of
Dissenting Shares).
CONVERSION OF COMMON SHARES
At the Effective Time: (a) each issued and outstanding Common Share
immediately prior to the Effective Time other than (i) Treasury Shares, (ii)
Common Shares then owned by Purchaser, Acquisition Sub or any other subsidiary
of Purchaser, and (iii) Dissenting Shares, shall by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and
converted into the right to receive the Merger Consideration, upon surrender of
the Certificate that immediately prior to the Effective Time evidenced such
Common Share; and (b) each Treasury Share and each Common Share outstanding
immediately prior to the Effective Time which is then owned by Purchaser,
Acquisition Sub or any other subsidiary of Purchaser shall, by virtue of the
Merger and without any action on the part of the holder thereof, be canceled
and retired and cease to exist, without any conversion thereof and no payment
or distribution shall be made with respect thereto.
Holders of Common Shares who do not vote in favor of the Merger at the
Special Meeting and who shall have properly elected to dissent in the manner
provided in Section 262 of the DGCL shall be entitled to payment of the fair
value of their Common Shares in accordance with, and subject to the provisions
of, Section 262 of the DGCL. See "Appraisal - Rights of Dissenting
Stockholders; Waiver of Notice."
All shares of Common Stock of Acquisition Sub issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for, in the aggregate, one thousand (1,000) validly issued, fully
paid and non-assessable shares of common stock, par value $.01, of the
Surviving Corporation, which shall constitute all of the issued and outstanding
shares of the Surviving Corporation.
COMPANY STOCK OPTIONS
Commencing at least fifteen (15) days prior to the Effective Time, each
option holder shall be entitled to exercise such option and if such options are
not so exercised prior to the Effective Time, each such holder shall be
entitled to receive from the Company in consideration for cancellation of each
such option, a cash payment in an amount equal to the product of (x) the number
of Common Shares provided for in such option and (y) the excess, if any, of the
Merger Consideration over the exercise price per Common Share provided for in
such option.
SOURCE OF FUNDS; PAYMENT FOR COMMON SHARES
The Purchaser has delivered to the Company copies of commitment letters
(the "FINANCING LETTERS") expiring February 28, 1997 from Congress Financial
Corporation (the "CONGRESS LETTER") and CoreStates Financial Corp. (the
"CORESTATES LETTER"). Under the terms of the Congress Letter, the Surviving
Corporation will be provided with a $25 million revolving line of credit
secured by a first security interest in and lien upon all of the existing and
future assets of the Surviving Corporation and any of its subsidiaries. Under
the terms of the CoreStates Letter, an aggregate of $4 million of financing
will be provided through the issuance of subordinated amortizing six (6) year
notes secured by second liens on the accounts receivable and inventory of the
Surviving Corporation and any of its subsidiaries. The Financing Letters
currently expire on February 28, 1997. Although the Purchaser has agreed to
use its best efforts to obtain financing to consummate the Merger and the
obtaining of such financing is not a condition to Purchaser's obligations to
consummate the Merger, there can be no assurance that such extension, or
alternative financing in lieu of such extension, will be forthcoming. See "The
Merger -- Sources and Amount of Funds; Payment for Common Shares," and "Special
Factors -- Termination Fees and Expenses." Equity investments in the aggregate
of $9 million are also being made in the Purchaser. Purchaser has represented
that, assuming satisfaction or waiver of all applicable conditions set forth in
the Financing Letters, the debt financing and the equity investment will
provide sufficient funds to (i) pay the Merger Consideration with respect to
all of the Common Shares; and (ii) prepay, redeem, refinance or renegotiate the
Company's existing indebtedness, if required to consummate the Merger, and pay
any and all fees, expenses, costs and penalties in connection with any such
prepayment, redemption, refinancing or renegotiation. Purchaser has agreed not
to amend the Financing Letters (except for possible extensions) without the
prior written consent of the Company, which consent shall not be unreasonably
withheld. It is currently contemplated that Purchaser may afford certain
officers of the Company the opportunity to invest up to an aggregate of
$750,000 of the anticipated $9 million of Purchaser capital for which such
members of Company management would receive approximately 8.1% of Purchaser's
equity on a fully diluted basis solely as a means to align the interests of
management of the Surviving Corporation with the interests of its stockholders.
It is not a condition of the Merger that such Company management members make
such contribution. In the event such Company management members are afforded
the opportunity to invest and elect not to so invest, the remaining equity
investments will be made in Purchaser by individuals or entities who are not
employed by or on the Board of Directors of the Company. The proposed equity
investments by members of the Company's management will be made at the same
price per share or other equity unit as that made by the other investors in
Purchaser. See "Security Ownership of Purchaser and Acquisition Sub."
SURRENDER OF COMMON SHARE CERTIFICATES
The Purchaser and the Company have designated American Stock Transfer and
Trust Company to act as the Paying Agent under the Merger Agreement.
Immediately following the Effective Time, Purchaser or Acquisition Sub shall
deposit in trust with the Paying Agent, cash in an aggregate amount equal to
the product of: (x) the number of Common Shares issued and outstanding on a
fully diluted basis immediately prior to the Effective Time (other than Common
Shares owned by the Company, Purchaser or Acquisition Sub and Dissenting
Shares); and (y) the Merger Consideration (such amount being hereinafter
referred to as the "PAYMENT FUND"). The Paying Agent shall, pursuant to
irrevocable instructions, make the payments provided for under the Merger
Agreement out of the Payment Fund.
Promptly after the Effective Time, the Surviving Corporation shall cause
the Paying Agent to mail to each person who was a record holder of an
outstanding certificate or certificates that immediately prior to the Effective
Time represented Common Shares (the "CERTIFICATES"), a form letter of
transmittal (which shall specify that delivery shall be effected and risk of
loss and title to Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for its use in effecting the
surrender of such Certificates for payment in accordance with the Merger
Agreement. Upon the surrender to the Paying Agent of a Certificate, together
with a properly completed and duly executed letter of transmittal, and other
documents that are customarily required by letters of transmittal in similar
situations, the holder thereof shall be entitled to receive cash in an amount
equal to the product of the number of Common Shares formerly represented by
such Certificate and the Merger Consideration, less any applicable withholding
tax, if any, and such Certificate shall then be cancelled.
Until surrendered pursuant to the procedures described above, except with
respect to Dissenting Shares, each Certificate shall represent solely the right
to receive the Merger Consideration, without interest, into which the number of
Common Shares formerly represented by such Certificate shall have been
converted.
Promptly following the date which is one year after the Effective Time,
the Paying Agent shall return to the Surviving Corporation all cash,
certificates and other instruments in its possession that constitute any
portion of the Payment Fund and the Paying Agent's duties shall terminate.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Purchaser and Acquisition Sub to the Company including, without limitation,
with respect to the following matters: (i) the due organization, valid
existence and good standing of Purchaser and Acquisition Sub; (ii) the power
and authority of Purchaser and Acquisition Sub to enter into the Merger
Agreement and the due authorization of the execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated thereby; (iii)
that the execution and delivery of the Merger Agreement will not result in a
breach of or require any consent or constitute a default under Purchaser's or
Acquisition Sub's certificate of incorporation or by-laws or similar governing
document or any agreements or contracts to which Purchaser or any of its
subsidiaries is a party; (iv) regulatory filings and approvals; (v) the absence
of any brokerage fees (other than fees payable to Hill Thompson and Proteus);
and (vi) that Purchaser has delivered to the Company true and complete copies
of signed letters required by Purchaser with respect to the financing required
for the consummation of the transactions contemplated by the Merger Agreement.
The Merger Agreement also contains various representations and warranties
of the Company to Purchaser and Acquisition Sub including, without limitation,
with respect to the following matters: (i) the due incorporation, valid
existence and good standing of the Company; (ii) the power and authority of the
Company to enter into the Merger Agreement and the due authorization of the
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby; (iii) that (except as disclosed) the
execution and delivery of the Merger Agreement will not result in a breach of
or require any consent or constitute a default under the Company's or any of
its subsidiaries certificate of incorporation or by-laws or any agreements or
contracts to which the Company or any of its subsidiaries is a party; (iv)
capitalization of the Company; (v) the accuracy of the Company's filings with
the SEC; (vi) the absence of certain changes or events with respect to the
Company since December 31, 1995; (vii) the disclosure of certain litigation
matters; (viii) the disclosure of all of the Company's and its subsidiaries'
employee benefit plans; (ix) labor matters affecting the Company or its
subsidiaries; (x) that (except as disclosed) the Company and each of its
subsidiaries has paid all material taxes except such as are reserved for in the
Company's balance sheet contained in the most recently filed Company report
with the SEC and are being contested in good faith by appropriate proceedings
and (except as disclosed) neither the IRS nor any other taxing authority or
agency is asserting against the Company or any of its subsidiaries any
deficiency or claim for additional taxes; (xi) environmental matters; (xii)
real property either owned or leased (currently or in the past) by the Company
or its subsidiaries; and (xiii) the absence of any brokerage fees (other than
fees payable to Hill Thompson). Such representations and warranties are
subject in certain cases to specified exceptions and qualifications.
CONDITIONS TO THE MERGER
Pursuant to the Merger Agreement, the obligations of each of Purchaser,
the Acquisition Sub and the Company, to effect the Merger are subject to the
following conditions: (a) the Merger Agreement and the transactions
contemplated thereby, including the Merger shall have been approved and adopted
by the affirmative vote of the Company Stockholders to the extent required by
law and the Company's Certificate of Incorporation, (b) all necessary
approvals, authorizations and consents of any governmental or regulatory entity
required to consummate the Merger shall have been obtained and remain in full
force and effect, and all waiting periods relating to such approvals,
authorizations and consents shall have expired or been terminated, except where
the failure to so obtain will not, either individually or in the aggregate,
have a material adverse effect on the Company and its subsidiaries taken as a
whole, (c) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect which would (i) make the consummation of the
Merger illegal, or (ii) otherwise restrict, prevent or prohibit the
consummation of the transactions contemplated by the Merger Agreement,
including the Merger.
In addition, the obligation of the Company to effect the Merger is also
subject to the satisfaction, or waiver by the Company, of the following
conditions: (a) each of the representations and warranties of Purchaser and
Acquisition Sub in the Merger Agreement which is qualified as to materiality
shall be true and correct and each such representation or warranty that is not
so qualified shall be true and correct in all material respects and (b)
Purchaser and Acquisition Sub shall have performed in all material respects all
obligations and complied in all material respects with all of the respective
agreements or covenants to be performed or complied with by such party under
the Merger Agreement.
Additionally, the obligations of Purchaser and Acquisition Sub to effect
the Merger are also subject to the satisfaction, or waiver by Purchaser and
Acquisition Sub, of the following conditions: (a) each of the representations
and warranties of the Company in the Merger Agreement which is qualified as to
materiality shall be true and correct and each such representation or warranty
that is not so qualified shall be true and correct in all material respects;
(b) the Company shall have performed in all material respects all obligations
and complied in all material respects with all agreements or covenants of the
Company to be performed or complied with by it at or prior to the Effective
Date under the Merger Agreement; (c) no pending legal proceeding in (a "PENDING
LITIGATION"), or preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or pending in (together with
a Pending Litigation a "PENDING LEGAL PROCEEDING"), or issued by, a
governmental, regulatory or administrative agency or commission nor any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority shall be in effect, which would have certain enumerated
effects such as restricting, preventing or prohibiting the ownership or
operation by Purchaser (or any of its subsidiaries) of any portion of its or
the Surviving Corporation's or its subsidiaries' business, properties or assets
which is material to such businesses as a whole, or compelling Purchaser (or
any of its subsidiaries) to dispose of or hold separate any portion of the
Surviving Corporation's or its subsidiaries' business, properties or assets
which is material to such businesses as a whole; (d) there shall not have
occurred (i) any general suspension of trading in, or limitation on prices for,
securities on the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market System, (ii) the declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States (whether or
not mandatory), (iii) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States having a significant effect on the functioning of financial markets in
the United States, or (iv) any limitation (whether or not mandatory) by any
United States governmental authority or agency on the extension of credit by
banks or other financial institutions which would have a material adverse
effect on Purchaser's ability to borrow sufficient funds as contemplated by the
Financing Letters to pay the Merger Consideration; (e) since the date of the
Merger Agreement, there shall not have occurred any change having a material
adverse effect on the Company and its subsidiaries taken as a whole; (f) the
Company shall have obtained all necessary consents of third parties to the
consummation of the Merger and the other transactions contemplated by this
Agreement; (g) the Company shall have obtained waivers with respect to any
default, termination, acceleration of payment or performance or modification
clause contained in any contract, agreement, commitment, arrangement, lease,
policy or other instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries, or their respective
properties or assets is bound which is triggered or otherwise caused by reason
of the entering into the Merger Agreement or the consummation of the Merger and
the other transactions contemplated by the Merger Agreement; (h) holders of
capital stock of the Company shall not have demanded or perfected the right for
appraisal of Common Shares representing more than five percent (5%) of an
issued and outstanding shares of capital stock of the Company; and (i)
Purchaser shall have received satisfactory evidence (x) that holders of all
options have consented to the cancellation of such options and (y) that such
options and the stock option plans of the Company will terminate at or prior to
the Effective Time.
TERMINATION AND AMENDMENT
The Merger Agreement may be terminated at any time prior to the closing
of the Merger (a) by mutual written consent of Purchaser, Acquisition Sub and
the Company; (b) by either Purchaser and Acquisition Sub or the Company if the
Effective Time shall not have occurred on or before March 31, 1997 or such
later date as shall be mutually agreed to in each party's sole discretion; (c)
by either Purchaser and Acquisition Sub or the Company if there shall have been
a material breach of any of the representations or warranties set forth in the
Merger Agreement on the part of the other party, which breach by its nature
cannot be cured prior to the Effective Time or within thirty (30) business days
following receipt by the breaching party of written notice of such breach from
the other party; (d) by either Purchaser and Acquisition Sub or the Company if
any United Stated federal or state court of competent jurisdiction shall have
issued an injunction or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger, and such injunction or other
action shall have become final and non-appealable; (e) by the Company if either
Purchaser or Acquisition Sub shall have failed to perform or has breached in
any material respect any of its covenants, obligations or agreements under or
contained in the Merger Agreement unless the failure to so perform or the
breach, as the case may be, has been caused by or results from a breach of the
Merger Agreement by the Company; (f) by the Company if the Company enters into
a binding definitive agreement to effect a Superior Proposal (as defined in the
Merger Agreement); (g) by Purchaser and Acquisition Sub if the Board of
Directors of the Company shall have failed to recommend or shall have withdrawn
its recommendation or approval of the Merger, or if the Board shall have
recommended to the Company Stockholders any acquisition proposal of any other
person or shall have resolved to do any of the foregoing; (h) by Purchaser and
Acquisition Sub if the Company shall have failed to perform in any material
respect any of its covenants, obligations or agreements under or contained in
the Merger Agreement unless the failure to so perform or the breach, as the
case may be, has been caused by or results from a breach of the Merger
Agreement by Purchaser of Acquisition Sub; or (i) by Purchaser and Acquisition
Sub if any United States federal or state court of competent jurisdiction shall
have issued an injunction or taken any other action permanently restraining,
enjoining or otherwise prohibiting the enforcement of any of the terms of the
Proxy Agreement, and such injunction or other action shall have become final
and non-appealable.
If (x) Purchaser and Acquisition Sub terminate the Merger Agreement (A)
pursuant to (g) in the paragraph above or (B) pursuant to (h) in the paragraph
above as a result of a willful breach by the Company or (y) if the Company
terminates the Merger Agreement pursuant to (f) above, then the Company is
required to pay to Purchaser an amount in cash equal to the sum of (i)
$1,000,000, plus (ii) Purchaser's and Frederick Marino's out-of-pocket costs
and expenses (the "PURCHASER EXPENSES"). If Purchaser and Acquisition Sub
terminate the Merger Agreement pursuant to (h) in the paragraph above (except
for a termination because of a willful breach by the Company), the Company is
required to reimburse Purchaser and Mr. Marino for the Purchaser Expenses. If
the Company terminates the Merger Agreement pursuant to (e) in the paragraph
above as a result of a willful breach by Purchaser and Acquisition Sub, the
Purchaser and Acquisition Sub are required to pay to the Company an amount in
cash equal to the sum of (i) $1,000,000, plus (ii) the Company's out-of-pocket
costs and expenses (the "COMPANY EXPENSES"). If the Company terminates the
Merger Agreement pursuant to (e) in the paragraph above (except for termination
because of a willful breach by Purchaser and Acquisition Sub), Purchaser is
required to reimburse the Company for the Company Expenses.
The Merger Agreement may be terminated at any time prior to the Merger
and may be amended by the parties in writing at any time before or after
approval by the Company Stockholders, provided that after Company Stockholder
approval, no amendment may be made which reduces the amount or changes the form
of the Merger Consideration or in any way materially adversely affects the
rights of the Company Stockholders.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the terms of the Merger Agreement, during the period from the
date of the Merger Agreement to the Effective Time, with certain exceptions,
the Company has agreed that it shall, and shall cause each of its subsidiaries
to carry on their respective businesses in the usual, regular and ordinary
course, reasonably consistent with past practice, and use their best efforts to
preserve intact their present business organizations, keep available the
services of their present advisors, managers, officers and employees and
preserve their relationships with customers, suppliers, licensors and others
having business dealings with them and continue existing contracts (for the
term provided in such contracts), provided that the Company shall not be
required to make any payments (cash or otherwise) outside the ordinary course
or enter into or amend any contractual arrangements or understandings to
satisfy the foregoing obligations. Without limiting the generality of the
foregoing, neither the Company nor any of its subsidiaries may, with certain
exceptions:
(a)(i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, (ii) split, combine, or reclassify any of its capital
stock or (iii) repurchase, redeem or otherwise acquire any of its securities,
except, in the case of clause (iii), for the acquisition of Common Shares from
holders of the options in full or partial payment of the exercise price payable
by such holders upon exercise of the options outstanding on the date of the
Merger Agreement;
(b)acquire, sell, lease, encumber, transfer or dispose of any assets
outside the ordinary course of business which are material to the Company or
any of its subsidiaries (whether by asset acquisition, stock acquisition or
otherwise);
(c)(i) incur any indebtedness for borrowed money, guarantee any
indebtedness, issue or sell debt securities or warrants or rights to acquire
any debt securities, guarantee (or become liable for) any debt of others, make
any loans, advances or capital contributions, mortgage, pledge or otherwise
encumber any material assets, or create or suffer any material lien thereupon,
other than, as to each of the foregoing, in the ordinary course of business
reasonably consistent with prior practice or (ii) incur any short-term
indebtedness for borrowed money, except, in each such case, pursuant to credit
facilities in existence on the date of the Merger Agreement under the terms
thereof on the date of the Merger Agreement, which credit facilities have been
disclosed in writing to Purchaser and Acquisition Sub prior to the date of the
Merger Agreement;
(d)except as required by law, (i) enter into, adopt, amend or terminate
any employee benefit plan, (ii) enter into, adopt, amend, or terminate any
agreement, arrangement, plan or policy between the Company or any of its
subsidiaries and one or more of their directors or officers, or (iii) except
for normal increases in the ordinary course of business reasonably consistent
with past practice, increase in any manner the compensation or fringe benefits
of any director, officer or employee or pay any benefit not required by any
plan or arrangement as in effect as of the date of the Merger Agreement; or
(e)take certain other actions enumerated in the Merger Agreement.
ADDITIONAL AGREEMENTS
The Merger Agreement provides that the Company will, as promptly as
practicable: (i) prepare; (ii) file with the SEC; (iii) use its best efforts to
have cleared by the SEC; and (iv) promptly thereafter mail to its stockholders
a Proxy Statement with respect to the Special Meeting of the Company's
Stockholders. The Merger Agreement further provides that the Company shall (i)
give Purchaser and its counsel a reasonable opportunity to review and comment
upon the Proxy Statement prior to its being filed with the SEC; and (ii) give
Purchaser and its counsel a reasonable opportunity to review all amendments and
supplements to the Proxy Statement and all responses to requests for additional
information and replies to comments prior to their being filed with, or sent
to, the SEC and, in the case of the Proxy Statement and any amendments or
supplements thereto, prior to its being disseminated to Company stockholders.
Pursuant to the Merger Agreement, each of the Company, Purchaser and
Acquisition Sub shall, as promptly as practicable, prepare and file any other
filings required under the Exchange Act or any other federal or state law
relating to the Merger and the transactions contemplated therein (including
filings, if any, required under the Hart-Scott-Rodino Act) (collectively,
"OTHER FILINGS"). In accordance with this provision, each of Purchaser and the
Company are required to promptly notify the other of the receipt of any
comments on, or any request for amendments or supplements to, the Proxy
Statement or any Other Filings by the SEC or any other governmental entity, and
each of the Company and Purchaser shall supply the other with copies of all
correspondence between it and each of its subsidiaries and representatives. on
the one hand, and the SEC or any other appropriate government official, on the
other hand, with respect to the Proxy Statement and any of the Other Filings.
The Merger Agreement imposes upon each of the Company, Purchaser and
Acquisition Sub the obligation to use its respective best efforts to obtain and
furnish the information required to be included in the Proxy Statement and any
Other Filings. Additionally, the Company, after consultation with Purchaser,
is obligated to use its best efforts to respond promptly to any comments made
by the SEC with respect to the Proxy Statement and any preliminary version
thereof. The information provided and to be provided by Purchaser, Acquisition
Sub and the Company, respectively, for use in the Proxy Statement shall, on
both the date of the Proxy Statement is first mailed to the Company
Stockholders and the date such stockholders meeting is held, not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading, or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the stockholders' meeting which shall have become
false or misleading, and shall comply in all material respects as to form and
substance with all applicable requirements of law. Pursuant to the Merger
Agreement each of Purchaser, the Company, and Acquisition Sub agree to correct
promptly any such information provided by it for use in the Proxy Statement
which shall have become false or misleading.
OFFICERS' AND DIRECTORS' INSURANCE; INDEMNIFICATION
The Merger Agreement provides that Purchaser has agreed that all rights
to indemnification existing in favor of, and all limitations on the personal
liability of, the directors and officers of the Company provided for in the
Company's Certificate and in each subsidiary's certificate of incorporation (or
similar organizational document) or their respective by-laws as in effect as of
the date of the Merger Agreement with respect to matters occurring prior to the
Effective Time shall continue without amendment in full force and effect for a
period of not less than six (6) years from the Closing; PROVIDED; HOWEVER, that
all rights to indemnification in respect of any claims (a "CLAIM") asserted or
made within such period shall continue until the disposition of such Claim.
The Merger Agreement also provides that Purchaser has agreed that at or prior
to the Effective Time, Purchaser shall continue existing directors' and
officers' liability insurance coverage for the Company's directors and officers
which shall provide such directors and officers with coverage for six years
following the Effective Time; PROVIDED, HOWEVER, that the cost of such policy
may not exceed $200,000. Subsequently, the Company has obtained an amendment
to its existing policy which, for a premium payment of $178,000, will extend
the coverage of such policy through April 2003. This premium will be paid only
in the event of Company Stockholder approval of the Merger and prior to the
Effective Time.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase," as such term is used
under generally accepted accounting principles, for accounting and financial
reporting purposes. Accordingly, a determination of the fair value of the
Company's assets and liabilities will be made in order to allocate the purchase
price to the assets acquired and the liabilities assumed.
REGULATORY APPROVALS
No federal or state regulatory approvals are required to be obtained, nor
any regulatory requirements complied with, in connection with consummation of
the Merger by any party to the Merger Agreement, except for the requirements of
the DGCL regarding Company Stockholder approvals and consummation of the Merger
and the requirements of federal securities law.
SUBSEQUENT EVENTS; STOCKHOLDER LITIGATION
On November 22, 1996, an action entitled VICKREY V. THE STROBER
ORGANIZATION, INC., ET AL, was commenced in New York State Supreme Court, New
York County (Index 96-605853) against the Company and each of the seven
directors of the Company seeking certification as a class action. The
plaintiff, allegedly a Company Stockholder, alleges upon information and belief
that the directors breached their fiduciary and other common law duties by
failing to act in good faith to maximize Company Stockholder value in the sale
of the Company. Substantively, the complaint alleges that the $6.00 sales
would constitute a price/earnings (P/E) ratio of less than 10 and that other
companies allegedly within the same industry are consistently priced by public
market at P/E multiples of 10 or higher. Pre-trial discovery has not yet
commenced in this case. The Company's management (principal members of which
are defendants in the action) believe that the actions of the Board in
undertaking its search and evaluation proces since August 1995 has resulted in
significant enhancement of value for the benefit of all Company Stockholders
during which time the Company and its directors have only acted in good faith
in accordance with all of their fiduciary duties to the Company Stockholders
and accordingly, that the VICKREY action is without merit.
The VICKREY complaint demands judgement as follows:
(a)declaring the suit to be a proper class action and certifying
plaintiff as representative;
(b)ordering the individual defendants to carry out their fiduciary duties
to plaintiff and the other members of the alleged class by announcing
their intention to:
(i) cooperate fully with any entity or person having a BONA FIDE
interest in proposing any transaction which would maximize Company
Stockholder value, including but not limited to, a buy-out or takeover
of the Company;
(ii) immediately undertake an appropriate evaluation of the
Company's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance the Company's value and
attractiveness as a merger/acquisition candidate;
(iv) take all appropriate steps to effectively expose the Company
to the marketplace in an effort to create an active auction of the
Company;
(v) act independently so that the interests of the public Company
Stockholders will be protected; and
(vi) adequately ensure that no conflicts of interest exist between
the individual defendants' own interests and their fiduciary
obligations to maximize shareholder value and act with entire fairness
or, in the event such conflicts exist, to ensure that all conflicts of
interest are resolved in the best interests of the public Company
Stockholders;
(c)enjoining the proposed transaction or, if consummated, rescinding it;
(d)ordering the individual defendants, jointly and severally to account
to plaintiff and the alleged class for all damages suffered and to be
suffered by them as a result of the acts and transactions alleged;
(e)awarding plaintiff the costs and disbursements of the VICKREY action,
including a reasonable allowance for plaintiff's attorneys' and
experts' fees; and
(f)granting such other and further relief as may be just and proper.
On January 8, 1997, all defendants served their answers to the VICKREY
action denying the substantive claims made and setting forth defenses including
that the complaint fails to state a claim upon which relief can be granted,
that the complaint is barred because plaintiff lacks standing to bring the
action as a class action, that the claims alleged are derivative in nature and
plaintiff has failed to make proper demand upon the Board of Directors of the
Company and that the directors have all acted in good faith. Pre-trial
discovery in the VICKREY action commenced in mid-January 1997.
The VICKREY action is a pending legal proceeding that occurred after the
execution of the Merger Agreement and may have a materially adverse effect on
the Surviving Corporation and its subsidiaries taken as a whole so as to
constitute a "Pending Legal Proceeding" as that term is defined in the Merger
Agreement. The obligation of the Purchaser to consummate the Merger is subject
to the satisfactory termination of any Pending Legal Proceeding (including the
VICKREY action) or waiver by the Purchaser of the presence of any such Pending
Legal Proceeding. Therefore, there can be no assurance that the Merger will be
consummated. In the event the Purchaser elects not to consummate the Merger as
a result of a Pending Legal Proceeding, the Purchaser would be obligated to
reimburse the Company for the Company Expenses.
On July 31, 1996, a non-profit organization of local Brooklyn, New York
civic associations sought to prevent The Port Authority of New York and New
Jersey from leasing Pier 3 on the Brooklyn, New York waterfront to a subsidiary
of the Company by filing an action against the Port Authority and the Company
in the United States District Court, Eastern District of New York. During the
pendency of this action, the Company completed its leasehold improvements at
the Pier 3 site and commenced operations there. On January 22, 1997, the
Company announced that a decision had been rendered in the case dismissing with
prejudice all of the federal claims asserted by the plaintiff. The Court also
noted that the Port Authority and the Company had made strong arguments for
dismissing the claims that were brought under state law, but the Court declined
to exercise supplemental jurisdiction over those claims. Accordingly, the
state law claims were dismissed without prejudice.
APPRAISAL
RIGHTS OF DISSENTING STOCKHOLDERS; WAIVER OF NOTICE
Company Stockholders who follow the procedures specified in Section 262
of the DGCL ("SECTION 262") will be entitled to have their Common Shares
appraised by the Delaware Court of Chancery and to receive payment of the "fair
value" of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such Court. THE PROCEDURES SET FORTH IN
SECTION 262 SHOULD BE STRICTLY COMPLIED WITH. FAILURE TO FOLLOW ANY OF SUCH
PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER
SECTION 262.
The following discussion of the provisions of Section 262 is not intended
to be a complete statement of its provisions and is qualified in its entirety
by reference to the full text of that section, a copy of which is attached as
Annex C to this Proxy Statement.
Under Section 262, a Company Stockholder electing to exercise appraisal
rights must both:
(a) deliver to the Company, before the date of the Special Meeting, a
written demand for appraisal of his or her Common Shares which reasonably
informs the Company of the identity of the stockholder of record and that
such record stockholder intends thereby to demand the appraisal of his or
her Common Shares. This written demand is in addition to and separate
from any proxy relating to the Merger. Voting against, abstaining from
voting or failing to vote on the Merger will not constitute a demand for
appraisal within the meaning of Section 262. Such written demand for
appraisal should be delivered either in person to the Secretary of the
Company or by mail (certified mail, return receipt requested, being the
recommended form of transmittal) to the Secretary, at Pier 3 - Furman
Street, Brooklyn, New York 11201, prior to the Effective Date; and
(b) not vote in favor of the Merger. Neither an abstention from
voting with respect to, nor failure to vote in person or by proxy against
approval of the Merger constitutes a waiver of the rights of a dissenting
stockholder.
Within 10 days after the Effective Time, the Surviving Corporation is
required to, and will, notify each Company Stockholder who has satisfied the
conditions of Section 262 of the date on which the Merger became effective.
Within 120 days after the Effective Time of the Merger, the Surviving
Corporation or any such Company Stockholder who has satisfied the conditions of
Section 262 and is otherwise entitled to appraisal rights under Section 262,
may file a petition in the Delaware Court of Chancery demanding a determination
of the value of the Company Shares held by all Company Stockholders entitled to
appraisal rights. If no such petition is filed, appraisal rights will be lost
for all Company Stockholders who had previously demanded appraisal of their
Common Shares. Company Stockholders seeking to exercise appraisal rights
should not assume that the Surviving Corporation will file a petition with
respect to the appraisal of the value of their Common Shares or that the
Surviving Corporation will initiate any negotiations with respect to the "fair
value" of such shares. ACCORDINGLY, COMPANY STOCKHOLDERS WHO WISH TO EXERCISE
THEIR APPRAISAL RIGHTS SHOULD REGARD IT AS THEIR OBLIGATION TO TAKE ALL STEPS
NECESSARY TO PERFECT THEIR APPRAISAL RIGHTS IN THE MANNER PRESCRIBED IN SECTION
262.
Within 120 days after the Effective Time, any Company Stockholder who has
complied with the provisions of Section 262 is entitled, upon written request,
to receive from the Surviving Corporation a statement setting forth the
aggregate number of Common Shares not approving the Merger and with respect to
which demands for appraisal were received by the Surviving Corporation and the
number of holders of such shares. Such statement must be mailed within 10 days
after the written request therefor has been received by the Surviving
Corporation or within 10 days after expiration of the time for delivery of
demands for appraisal under Section 262, whichever is later.
If a petition for an appraisal is timely filed, after a hearing to
determine the Company Stockholders entitled to appraisal rights, the Delaware
Court of Chancery will appraise the Common Shares owned by such Company
Stockholders, determining its fair value, exclusive of any element of value
arising from the accomplishment or expectation of the Merger. The Court will
direct the payment of the fair value of such Common Shares together with a fair
rate of interest, if any, on such fair value to Company Stockholders entitled
thereto upon surrender to the Surviving Corporation of share certificates.
Upon application of a Company Stockholder, the Court may, in its discretion,
order that all or a portion of the expenses incurred by any Company Stockholder
in connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged
pro-rata against the value of all the shares entitled to an appraisal.
Although the Company, Purchaser and Acquisition Sub believe that the
Merger Consideration is fair, none of such parties can make any representation
as to the outcome of the appraisal of fair value as determined by the Delaware
Court of Chancery, and Company Stockholders should recognize that such an
appraisal could result in a determination of a value that is lower, higher or
equivalent to the Merger Consideration.
Any Company Stockholder who has demanded an appraisal in compliance with
Section 262 will not, from and after the Effective Time, be entitled to vote
his or her Common Shares for any purpose nor be entitled to the payment of
dividends or other distributions on his or her Common Shares (other than those
payable to stockholders of record at a date prior to the date of the Effective
Time).
If no petition for an appraisal is filed within the time provided, or if
a Company Stockholder delivers to the Company a written withdrawal of his or
her demand for an appraisal within 60 days after the Effective Time, then the
right of such Company Stockholder to an appraisal will cease and such Company
Stockholder shall be entitled to receive the Merger Consideration which he or
she would have been entitled had he or she not demanded appraisal of his or her
shares. Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery will be dismissed as to any Company Stockholder without the approval
of the Court, which approval may be conditioned on such terms as the Court
deems just.
MARKET PRICES AND DIVIDENDS
The Common Shares are traded on the NASDAQ National Market under the
symbol "STRB". Since going public in November 1986, the Company has not paid
any dividends. Pursuant to a Credit Agreement dated as of December 9, 1994
between and among the Company, its subsidiaries, and The Chase Manhattan Bank
(N.A.), the Company's ability to make and declare dividend payments is
conditioned upon the Company not being in default under the Credit Agreement
and certain other financial conditions being satisfied, including the
conditions that: (i) the fixed charges ratio as of the last day of the fiscal
quarter most recently ended prior to the date of dividend payment shall not
exceed the ratio of 1 to 1; and (ii) the leverage ratio as at the last day of
the fiscal quarter most recently ended prior to the date of dividend payment
shall not exceed the ratio of 2 to 1. The Credit Agreement by its terms was to
expire on January 31, 1997 but was extended on January 8, 1997 for an
additional year ending January 31, 1998. Although there can be no assurance
that the proposed transaction will be effected, it is currently anticipated
that the Merger will be completed in February, 1997, at which time the Company
expects that the Credit Agreement will be terminated by the Surviving
Corporation and replaced by the $25 million revolving credit line being
obtained by Purchaser to finance the Merger. See "Special Factors -- Sources
and Amount of Funds; Payment for Common Shares" and "The Merger -- Sources and
Amount of Funds; Payment for Common Shares".
The following table sets forth, for the calendar periods indicated, the
high and low sales prices per Common Share, as quoted on the NASDAQ National
Market.
SALES PRICES PER COMMON SHARE
CALENDAR PERIODS
HIGH LOW
1992
First Quarter $2 1/8 1 1/4
Second Quarter 2 1 5/8
Third Quarter 1 3/4 1 1/4
Fourth Quarter 2 1/8 1 5/8
1993
First Quarter $2 1/8 1 9/16
Second Quarter 2 3/8 1 5/8
Third Quarter 3 1/4 2
Fourth Quarter 6 3
1994
First Quarter $5 5/16 3 3/4
Second Quarter 4 7/8 3 1/2
Third Quarter 4 5/8 2 1/2
Fourth Quarter 3 7/8 3 1/8
1995
First Quarter $4 1/8 3
Second Quarter 4 1/2 3 1/4
Third Quarter 5 7/8 4
Fourth Quarter 4 3/4 3 1/2
1996
First Quarter $4 5/8 3 3/8
Second Quarter 4 3/4 3 7/8
Third Quarter 5 3 1/2
Fourth Quarter (10/01/96 through 11/08/96) 5 3/8 4 5/8
Fourth Quarter (11/11/96 through 12/31/96) 6 1/8 4 5/8
1997
First Quarter (1/01/97 through 1/20/97) 6 5 3/4
On November 8, 1996, the last full trading day prior to the public
announcement that the parties had entered into the Merger Agreement, the last
reported closing sale price and high and low share prices per Common Share on
the were $5.25, $5.25, and $5.25, respectively. On January 20, 1997, the last
reported sale price per Common Share on the NASDAQ National Market was $6.00.
Holders of Common Shares are urged to obtain a current market quotation for the
Common Shares.
The Common Shares could be considered to be thinly traded as of the
5,194,198 Common Shares outstanding as of the date of this Proxy Statement,
approximately 60% of the Common Shares are held by prior or existing officers
and directors of the Company, or by their heirs, and are subject to the
Reorganization Agreement dated as of October 1, 1986 which imposes an
obligation to provide prior notice of any proposed sale of such Common Shares
and provides each of the parties thereto a right of first refusal with respect
to the subsequent sale of any such Common Shares. The Company believes that
the effect of this has been to tend to limit the number of Common Shares
available for active trading on the public market and thus the Common Shares
may be characterized as being "thinly-traded" or "illiquid." The
Reorganization Agreement has been waived with respect to this proposed
transaction. See "Special Factors -- Interest of Certain Persons in the Merger
- -- Reorganization Agreement."
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected consolidated historical financial
data of the Company. The selected financial data should be read in conjunction
with the Consolidated Financial Statements of the Company, related notes and
other financial information incorporated by reference into this Proxy
Statement. The selected financial data at September 30, 1996 and 1995 for the
nine month periods then ended is unaudited but includes, in the opinion of
management, all adjustments necessary for a fair presentation of the results of
operations and the financial position at and for each of the interim periods
presented. Operating results for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
The selected consolidated financial data as of December 31 and for each of the
years in the five (5) year period ended December 31, 1995, have been derived
from the Company's consolidated financial statements, which have been audited.
The following summary is qualified in its entirety by reference to such
financial statements, related notes and other financial information.
THE STROBER ORGANIZATION, INC.
(In thousands of dollars, except percentage and per share data)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
(Unaudited) (Unaudited)
Sept. 30, Sept. 30, 1995 1994 1993 1992 1991
1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $100,898 96,066 125,813 125,378 118,975 104,812 90,150
Gross profit 26,676 25,242 33,186 32,670 31,703 27,787 24,897
Gross profit percentage 26% 26% 26% 26% 27% 27% 28%
Selling, general and
administrative 22,692 21,276 27,858 28,395 28,090 26,955 26,707
expenses
Amortization of acquisition 157 157 210 210 268 910 910
costs
Income (loss) from operations 3,827 3,809 5,118 4,065 3,345 (78) (2,720)
Other income (expense) 675 191 230 (332) (787) (812) (686)
Income (loss) before income 4,502 4,000 5,348 3,733 2,558 (890) (3,406)
tax
Net income (loss) 2,611 2,360 3,082 2,576 1,650 (763) (2,072)
Net income (loss) per share $ 0.51 0.45 0.59 0.50 0.33 (0.15) (0.41)
Weighted average number of 5,159 5,264 5,247 5,165 5,031 5,021 5,044
shares outstanding
OTHER DATA:
Ratio of earnings to fixed 6.1X 5.5X 3.2X
charges
BALANCE SHEET DATA:
Working capital $25,985 23,593 23,691 21,844 20,158 22,032 24,769
Total assets 53,731 46,725 44,544 42,649 44,328 43,145 47,814
Long-term debt less current 2,669 1,088 1,224 1,171 2,407 8,584 11,551
installments
Stockholders' equity(1) 36,169 33,065 33,524 30,687 28,569 26,511 27,265
Book value per share(2) 7.19 6.53 6.72 6.07 5.54 5.28 5.43
Tangible book value(3) 29,600 26,287 26,798 23,751 21,424 19,098 18,942
Tangible book value per $ 5.89 5.19 5.37 4.70 4.15 3.80 3.77
share(2)
</TABLE>
(1) Does not give effect to the exercise of outstanding options.
(2) Based on Common Shares outstanding (excluding treasury shares) at the
Balance Sheet Date.
(3) Stockholders equity less intangible assets.
<PAGE>
UNAUDITED PROJECTED SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The Company does not ordinarily make public forecasts as to future sales,
earnings or cash flows. However, in connection with its discussions with
Purchaser and others concerning the feasibility of the Merger, the Company
prepared certain projections of financial performance summarized below for the
three months ended December 31, 1996 and 1995, and the year ended December 31,
1997.
The projections appearing on this page are forward looking statements.
The projections are unaudited and were not prepared with a view to complying
with published guidelines of the SEC or the American Institute of Certified
Public Accountants regarding forecasts or generally accepted accounting
principles regarding projections. In addition, because the projections are
based on a number of assumptions and are subject to significant uncertainties
and contingencies, many of which are beyond the Company's control, there can be
no assurance that they will be realized, and actual results may be higher or
lower than those shown, possibly by material amounts. The projections were not
prepared with a view toward public disclosure and information concerning the
projections is included in this Proxy Statement because they were furnished to
prospective purchasers and their respective advisors. Although the projections
represent the best estimate of the Company, for which the Company believes it
had a reasonable basis as of the time of the preparation thereof, of the
results of operations and financial position of the Company, they are only an
estimate, and actual results may vary considerably. Consequently, the
inclusion of the projection information herein should not be regarded as a
representation by the Company or any other entity or person that the projection
results will be achieved. Readers are cautioned not to place undue reliance on
this data. The Company's independent public accountants have not examined the
project selected consolidated financial data presented and do not express an
opinion or any other form of assurance thereon.
The projections should be read together with the information contained in
the consolidated financial statements and the pro forma selected consolidated
financial data incorporated by reference into this Proxy Statement.
THE STROBER ORGANIZATION, INC.
(In thousands of dollars, except percentage and per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
(Unaudited) December 31,
(Unaudited)
Dec. 31, Dec. 31, 1997
1996 1995
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $37,200 29,747 143,540
Gross profit 9,900 7,943 37,607
Net income 777 721 3,796
Net income per share $ 0.14 0.14 0.70
Weighted average number of 5,394 5,195 5,394
shares outstanding
BALANCE SHEET DATA:
Working capital $25,992 23,691 30,369
Total assets 52,571 44,544 56,708
Long-term debt less current 2,498 1,224 4,338
installments
Stockholders' equity(1) 37,213 33,524 40,010
Book value per share 7.16 6.72 7.70
Tangible book value(2) 30,697 26,798 33,704
Tangible book value per share $ 5.91 5.37 6.49
</TABLE>
____________________________________
(1) Assumes the exercise on October 1, 1996 of all options that expire on
December 31, 1996 for an aggregate of 166,751 Common Shares with an
aggregate exercise price of $266,658 resulting in total outstanding
Common Shares of 5,194,198.
(2) Stockholders equity less intangible assets.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
Pursuant to the Merger Agreement, Acquisition Sub, a Delaware corporation
and a wholly-owned subsidiary of the Purchaser, a Delaware limited liability
company, would be merged with and into the Company. The Company would be the
surviving corporation in the Merger and the entire equity interest in the
Company would be owned by Purchaser. Upon the consummation of the Merger, each
Common Share, other than Common Shares held by Purchaser and the Company and
Dissenting Shares will be converted into the right to receive $6.00 in cash,
without interest. Following the Merger, Purchaser will own 100% of the
Surviving Corporation's outstanding capital stock and the Company Stockholders
will cease to have any ownership interest in the Company or rights as
stockholders.
The acquisition was accounted for using the purchase method of
accounting. The excess of the cost over the book value of net assets acquired
($5,865,000) has been allocated to goodwill as the fair value of the assets
acquired approximates their historic value.
The pro forma consolidated financial statements refer to the period in
time after the Merger. The pro forma consolidated financial statements are
presented on a different basis of accounting than the historical financial
statements and therefore, are not comparable to the historical financial
information of the Company. The pro forma consolidated financial statements
reflect the effects of purchase accounting, whereby assets and liabilities were
adjusted to their estimated fair values at the date of the Merger.
The following unaudited pro forma consolidated financial statements of
the Company have been prepared on the assumptions that the Merger was effective
as of September 30, 1996 for the pro forma consolidated balance sheet and as of
the beginning of the respective year of each income statement presented below.
The pro forma consolidated financial statements are for illustrative purposes
only and do not purport to represent what the Company's financial position or
results of operations would actually have been had the transaction in fact
occurred on the dates indicated, or to project the Company's financial position
or results of operations for any future date or period. The adjustments for
the pro forma consolidated financial statements are based on available
information and upon certain assumptions which management believes are
reasonable. The pro forma consolidated financial statements presented below
should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto, incorporated by
reference into this Proxy Statement.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Strober Hamilton NY Pro Forma Combined Pro
Historical Acquisition Adjustments Forma
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 4,553 0 (4,553)(a) 0
Accounts receivable, net 21,988 0 21,988
Inventory 12,880 0 12,880
Deferred income taxes 921 0 921
Other current assets 536 0 536
Total current assets 40,878 0 36,325
Property and equipment, net 5,513 0 5,513
Goodwill, net 6,569 0 (6,569)(b) 5,865
5,865 (c)
Other assets 771 0 445 (e) 1,628
412 (d)
Total assets $53,731 0 49,331
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current installments of long-term debt $ 725 0 725
Accounts payable 8,982 0 8,982
Accrued expenses and taxes 5,186 0 173 (d) 5,359
Total current liabilities 14,893 0 15,066
Long-term debt, less current installments 2,669 0 22,596 (a) 25,265
Total liabilities 17,562 0 40,331
Stockholders' equity:
Preferred stock 0 0 0
Common stock 52 0 (52)(c) 0
9,000 (a) 9,000
Additional paid-in capital 7,099 0 (7,099)(c) 0
Retained earnings 29,801 0 (29,801)(c) 0
Less: Treasury stock at cost (783) 0 783 (c) 0
Total stockholders' equity 36,169 0 9,000
Total liabilities and stockholders' equity $53,731 0 49,331
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands)
(a)To record the following estimated funds to finance the merger:
Company cash on hand $ 4,553
Purchaser's equity 9,000
New revolving credit facility 18,596
New subordinated note 4,000
$36,149
(b)Represents the elimination of historical goodwill.
(c)Represents the excess of merger consideration and transaction costs in
excess of the fair value of the assets and liabilities acquired.
(d)Reclassify a transaction cost previously treated as an operating expense net
of income tax effect.
(e)To record deferred financing charges associated to the borrowings under the
new revolving credit facility and subordinated note.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Strober Hamilton NY Pro Forma
Historical Acquisition Adjustments Combined Pro
(Unaudited) Corp. Forma
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $100,898 0 100,898
Cost of goods sold 74,222 74,222
Gross profit 26,676 0 26,676
Selling, general and administrative 22,849 0 49 (a) 22,535
expenses 63 (b)
(426)(c)
Income from operations 3,827 0 4,141
Interest expense (156) 0 (1,759)(d) (1,915)
Interest income 355 0 (196)(e) 159
Equity in earnings of joint venture 182 0 182
Gain on sale of fixed assets and 294 0 294
other income
Net income before income taxes 4,502 0 2,861
Provision for income taxes 1,891 0 (690)(f) 1,201
Net income $ 2,611 0 1,660
See Notes To Unaudited Pro Forma Consolidated Statement of Operations
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Strober Hamilton NY Pro Forma Combined Pro
Historical Acquisition Adjustments Forma
(Unaudited) Corp.
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $125,813 0 125,813
Cost of goods sold 92,627 92,627
Gross profit 33,186 0 33,186
Selling, general and administrative 28,068 0 66 (a) 28,137
expenses 83 (b)
(80)(c)
Income from operations 5,118 0 5,049
Interest expense (228) 0 (2,339)(d) (2,567)
Interest income 480 0 (221)(e) 259
Equity in earnings of joint venture 0 0 0
Gain on sale of fixed assets and (22) 0 (22)
other income
Net income before income taxes 5,348 0 2,719
Provision for income taxes 2,266 0 (1,114)(f) 1,152
Net income $ 3,082 0 1,567
See Notes To Unaudited Pro Forma Consolidated Statements of Operations
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(a)Represents additional management, servicing and finance auditing fees
associated with the financing to fund the merger transaction.
(b)Represents additional amortization of goodwill resulting from the merger.
It has been assumed that the merger consideration and transaction costs in
excess of the fair value of the Company's assets and liabilities creates
goodwill to be amortized over 20 years.
(c)Reflects the elimination of costs associated with the Company's managed sale
process.
(d)The following table presents a reconciliation of pro forma interest
expenses:
<TABLE>
<CAPTION>
(in thousands) Nine Months Ended Year Ended
9/30/96 12/31/95
<S> <C> <C>
Historical interest expense $ 156 228
Add:
Interest on revolving line of credit at the assumed rate of 1313 1751
9.25%
Interest on subordinated note at the assumed rate of 13.25% 403 530
Amortization of deferred financing costs on new debt 94 125
Deduct:
Unused line fee and amortization of deferred financing costs -51 -67
on retired debt
Proforma adjustment 1759 2339
Proforma interest expense $1915 2567
</TABLE>
(e)Reflects the elimination of interest earned.
(f)Represents reduction in the provision for income taxes resulting from
certain pro forma adjustments.
<PAGE>
OWNERSHIP OF COMMON SHARES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of the date of this
Proxy Statement concerning the beneficial ownership of Common Shares by each
person known by the Company to own more than 5% of its Common Shares.
NAME AND ADDRESS OF COMMON SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
Hamilton Acquisition LLC(1) 3,160,941 60.9%
82 Devonshire Street
Boston, Massachusetts 02109
Sue Strober (2)(5)(6) 948,201 18.3%
133 Jericho Turnpike
Old Westbury, New York 11568
Robert J. Gaites (3)(5)(6)(7) 570,189 10.8%
c/o The Strober Organization, Inc.
Pier 3 - Furman Street
Brooklyn, New York 11201
John Yanuklis (4)(5)(6)(7) 550,158 10.4%
c/o The Strober Organization, Inc.
Pier 3 - Furman Street
Brooklyn, New York 11201
John T. Guerin (5)(6) 422,250 8.1%
14 Summit Road
Morristown, New Jersey 07960
Gordon Sandler (5)(6) 399,486 7.7%
6468 Via Rosa
Boca Raton, Florida 33433
___________________
(1) Beneficial ownership arises from Purchaser's irrevocable proxy to vote
these Common Shares pursuant to the Proxy Agreement and Purchaser's ownership
of the Surviving Corporation upon consummation of the Merger. See "Special
Factors - Proxy Agreement."
(2) Includes an aggregate of 84,650 Common Shares held in trusts of which
Ms. Strober is the trustee for her son and daughter and 180,960 Common Shares
held in a trust of which Mr. David Bernstein is a trustee for Sue Strober's son
and daughter. Includes an aggregate of 91,200 Common Shares which Ms. Strober
gave to her son and daughter but Ms. Strober retains an irrevocable proxy to
vote such Common Shares. Ms. Strober disclaims beneficial ownership of all
such Common Shares. Includes an aggregate of 1,500 Common Shares which have
previously been transferred to third parties as a gift but have not yet been
registered in such parties' names.
(3) Includes 25,000, 37,500 and 25,553 Common Shares subject to presently
exercisable options held by Mr. Gaites at exercise prices of $4.75, $3.625 and
$4.50 per share, respectively, which expire on December 31, 1997, March 8, 2000
and March 12, 2001, respectively. Includes 147,180 Common Shares held by a
charitable remainder trust for the benefit of Mr. Gaites and his spouse and for
which Mr. Gaites retains an irrevocable proxy to vote such Common Shares and
2,000 Common Shares held by Mr. Gaites' spouse as trustee for their son. Mr.
Gaites disclaims beneficial ownership of such Common Shares.
(4) Includes 22,737, 23,503 and 27,378 Common Shares subject to presently
exercisable options held by Mr. Yanuklis at exercise prices of $4.75, $3.625
and $4.50 per share, respectively, which expire on December 31, 1997, March 8,
2000 and March 12, 2001, respectively. Includes 140,000 Common Shares held by
a charitable remainder trust for the benefit of Mr. Yanuklis and his spouse for
which Mr. Yanuklis retains an irrevocable proxy to vote such Common Shares.
Mr. Yanuklis disclaims beneficial ownership of such shares.
(5) The above-named beneficial owner is a party to a reorganization
agreement dated as of October 1, 1986, as amended, providing such beneficial
owner with a right of prior notice and first refusal to purchase Common Shares
which any other party to the agreement desires to sell. These rights have been
waived by each such individual, and by all other individuals holding such
rights, in order to enter into the Merger Agreement and the Proxy Agreement and
to consummate the transactions contemplated thereby. See "Special Factors --
Interest of Certain Persons in the Merger."
(6) Such Common Shares are subject to the proxy granted to Purchaser
pursuant to the Proxy Agreement. See "Special Factors - Proxy Agreement."
(7) Additional options to purchase 166,751 Common Shares were outstanding
at the time the Merger Agreement was executed which by their terms would have
expired on December 31, 1996. These 166,751 options have subsequently been
exercised and applicable tax withholdings made utilizing loan proceeds from the
Company. Of these options, Mr. Gaites borrowed $78,812 from the Company to
exercise 25,000 options and Mr. Yanuklis borrowed $69,640 to exercise 23,286
options. See "Special Factors - Exercise of Company Stock Options Expiring on
December 31, 1996."
SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY
The following table, prepared from the records of the Company and from
information furnished to it, sets forth, as of the date of this Proxy
Statement, the number of Common Shares beneficially owned by each director, the
chief executive officer and the four other most highly compensated executive
officers (collectively, the "Named Executive Officers"), all directors and
executive officers of the Company as a group, and The Strober Organization,
Inc. Retirement Plan. Unless otherwise indicated, the persons/entities listed
below have sole voting and investment power with respect to all Common Shares
shown as beneficially owned by them.
<TABLE>
<CAPTION>
COMMON SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
<S> <C> <C>
Robert J. Gaites, Chairman, CEO and 570,189 (1)(8)(10) 10.8%
President
David W. Bernstein, Director 79,100 (2)(3) 1.5%
Joseph Mangino, Sr., Director 60,500 (3) 1.2%
Alvin Murstein, Director 65,000 (3) 1.2%
Emil W. Solimine, Director 68,500 (3)(4) 1.3%
John Yanuklis, Director and Executive 550,158 (5)(8)(10) 10.4%
Vice President
Edward Zieky, Senior Vice President 20,867 (6)(8) *
Eliott Zieky, Director and Senior Vice 20,867 (6)(8) *
President
Richard Schaefer, Senior Vice President 142,646 (7) 2.7%
All officers and directors as a group 1,815,740 31.5%
(12 persons) (9)
The Strober Organization, Inc. 23,500(11) *
Retirement Plan
</TABLE>
________________________
* Less than one percent of the outstanding Common Shares.
(1) Includes 25,000, 37,500 and 25,553 Common Shares subject to presently
exercisable options held by Mr. Gaites at exercise prices of $4.75, $3.625 and
$4.50 per share, respectively, which expire on December 31, 1997, March 8, 2000
and March 12, 2001, respectively. Includes 147,180 Common Shares held by a
charitable remainder trust for the benefit of Mr. Gaites and his spouse for
which Mr. Gaites retains an irrevocable proxy to vote such Common Shares and
2,000 Common Shares held by Mr. Gaites' spouse as trustee for their son. Mr.
Gaites disclaims beneficial ownership of such Common Shares.
(2) Includes 100 Common Shares owned by Mr. Bernstein's wife. Mr.
Bernstein is also the trustee of a trust established by Sue Strober for the
benefit of her son and daughter which holds 180,960 Common Shares for which Ms.
Strober retains an irrevocable proxy to vote such Common Shares. Mr. Bernstein
disclaims beneficial ownership of such shares.
(3) Includes 12,500, 18,750 and 18,750 Common Shares subject to presently
exercisable options each held by the outside directors at an exercise price of
$4.75, $3.625 and $4.50 per share, respectively, which expire on March 9, 1997,
March 8, 2000 and March 12, 2001, respectively.
(4) 1,000 of these Common Shares are owned by Emar, Ltd., of which Mr.
Solimine is the sole shareholder and 17,500 of these Common Shares are owned by
Deye Limited Partnership of which Mr. Solimine is a general partner.
(5) Includes 22,737, 23,503 and 27,378 Common Shares subject to presently
exercisable options held by Mr. Yanuklis at exercise prices of $4.75, $3.625
and $4.50 per share, respectively, which expire on December 31, 1997, March 8,
2000 and March 12, 2001, respectively. Includes 140,000 Common Shares held by
a charitable remainder trust for the lifetime benefit of Mr. Yanuklis and his
spouse for which Mr. Yanuklis retains an irrevocable proxy to vote such Common
Shares. Mr. Yanuklis disclaims beneficial ownership of all such Common Shares.
(6) Includes 1,684, 10,152 and 9,031 Common Shares subject to a presently
exercisable option held by each of Edward and Eliott Zieky at an exercise price
of $4.75, $3.625 and $4.50 per share, respectively, which expire on December
31, 1997, March 8, 2000 and March 12, 2001, respectively.
(7) Includes 15,789, 27,586 and 22,222 shares of Common Stock subject to
presently exercisable options held by Mr. Schaefer at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively.
(8) The above-named director or member of management is a party to a
reorganization agreement dated as of October 1, 1986, as amended, providing
such individual with a right of prior notice and first refusal to purchase
Common Shares which any other party to the reorganization agreement desires to
sell. These rights have been waived by each such individual, and by all other
individuals holding such rights, in order to enter into the Merger Agreement
and the Proxy Agreement and to consummate the transactions contemplated
thereby. See "Special Factors - Interest of Certain Persons in the Merger."
(9) Includes 576,639 Common Shares subject to presently exercisable options
and warrants held by certain directors and executive officers of the Company at
exercise prices ranging from $3.625 to $4.75 per share. Excludes 150 shares
owned by a relative of Mr. Albert Brower. Mr. Brower disclaims beneficial
ownership of such shares.
(10) Such Common Shares are subject to the proxy granted to Purchaser
pursuant to the Proxy Agreement. See "Special Factors -- Proxy Agreement."
(11) The Company's Retirement Plan owns 23,500 Common Shares and will be
entitled to receive the Merger Consideration in full for each such share at the
Effective Time.
SECURITY OWNERSHIP OF PURCHASER AND ACQUISITION SUB
PURCHASER. The following table sets forth certain information as of the
date of this Proxy Statement concerning the beneficial ownership of the equity
interests in Purchaser.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER EQUITY INTERESTS PERCENT OF CLASS
BENEFICIALLY OWNED
<S> <C> <C>
FMR Corp. (1) 50%(2)
82 Devonshire Street
Boston, Massachusetts 02109
Fidelity Investors Management Corp. (1) 50%(3)
400 East Los Colinas Boulevard,
Suite 470
Irving, Texas 75034
</TABLE>
(1) Equity interests in Purchaser, a Delaware limited liability company,
are currently stated as a percentage of Purchaser's total members' equity
rather than as a number of shares or units.
(2) Represents interests owned by Fidelity Ventures Limited Partnership
("FVLP"), a member of Purchaser. FMR Corp, ("FMR") may be deemed to be an
indirect beneficial owner of such interests as sole owner of Fidelity Capital
Associates, Inc. ("FCA"), the general partner of FVLP. Certain information
pertaining to FVLP, FMR and FCA is set forth in Annex F hereto.
(3) Represents interests owned by Fidelity Investors Limited Partnership
("FILP"), a member of Purchaser. Fidelity Investors Management Corp. ("FIMC")
may be deemed to be an indirect beneficial owner of such interests as the
general partner of FILP. Certain information pertaining to FILP and FIMC is
set forth in Annex F hereto.
Prior to the Effective Date, Frederick M. Marino, the proposed Chairman of
the Board of Directors and Chief Executive Officer of the Surviving
Corporation, who is not affiliated with the Company, will make an equity
investment of at least $250,000 in Purchaser, which will reduce the percentage
interests of the current members of Purchaser on a pro rata basis. The dollar
amount of this investment, and the percentage equity interest in Purchaser to
be received by Mr. Marino prior to the Effective Date were negotiated
concurrently with Purchaser's discussions with the Company regarding a proposed
transaction. Mr. Marino is not a director, or officer or otherwise an
affiliate of the Company.
It is currently contemplated that Purchaser may afford certain executive
officers of the Company the opportunity to invest up to an aggregate of
$750,000 of the anticipated $9 million of Purchaser capital for which such
members of Company management will receive approximately 8.1% of Purchaser's
equity on a fully diluted basis. It is not a condition of the Merger that such
Company management members make such contribution. In the event such Company
management members are afforded the opportunity to invest and elect not to so
invest, the remaining equity investments will be made in Purchaser by
individuals or entities who are not employed by or on the Board of Directors of
the Company. The proposed equity investments by members of the Company's
management will be made at the same price per share or other equity unit as
that paid by other investors in Purchaser. See "Management of Purchaser,
Acquisition Sub and the Company -- Directors and Executive Officers (or
Equivalent) of Purchaser and Acquisition Sub -- Company Management
Participation."
ACQUISITION SUB. Acquisition Sub is a wholly owned subsidiary of Purchaser
and has one (1) class of stock outstanding, common stock, par value $.01 per
share.
TRANSACTIONS BY CERTAIN PERSONS IN COMMON SHARES
EXERCISE OF COMPANY STOCK OPTIONS EXPIRING ON DECEMBER 31, 1996. At the
November 7, 1996 meeting of the Special Committee, the members discussed the
circumstances under which Company stock options to purchase an aggregate of
166,751 Common Shares were issued as of December 31, 1991 at an exercise price
of $1.125 and as of March 4, 1993 at an exercise price of $1.75 (which in each
case, as provided in the applicable stock option plan, was the then current
market price of the Common Shares) and would expire on December 31, 1996 in
accordance with their respective terms. The Committee was advised that (i) if
the Merger were successfully consummated, the trading price of the Common
Shares prior to the consummation of the Merger would typically not be expected
to reach the level of the Merger consideration; (ii) the exercise of such
options was a taxable event to the eight individuals holding such options and
that a significant tax withholding payment would by required to be made by such
option holders; (iii) closing of any possible transaction resulting from the
search and evaluation process would most likely extend beyond December 31,
1996; and (iv) several of the option holders were insiders, who under Company
policies could not then buy or sell Common Shares on the market, to fund the
applicable tax withholding payment. Accordingly, the Special Committee
determined to recommend to the Board that the Company offer to loan to these
option holders the exercise price of the options together with the tax
withholding amount to facilitate their exercise of the options, such loan to
bear interest at the Company's rate of borrowing and to be payable upon the
sooner of the closing of any sale transaction or one year from the date of
loan. The loan would be secured by a pledge of the purchased shares pending
repayment of the loan. Upon exercise of such options, the holders of the
purchased shares would be entitled to vote such shares. Accordingly, as of the
date of this Proxy Statement, all of such holders have borrowed an aggregate of
approximately $495,070 from the Company and exercised all such options to
purchase an aggregate of 166,751 Common Shares which are held by the Company as
collateral for the loan. As three of the option holders for 57,393 Common
Shares are also signatories of the Proxy Agreement, the exercise of these
options had the effect of increasing the number of Common Shares subject to the
Proxy Agreement from 3,103,548 at the date of execution to 3,160,941 Common
Shares as of the date of this Proxy Statement.
On October 4, 1996, Sue Strober made a gift of 45,600 Common Shares to each
of her son and daughter and 180,960 Common Shares to a trust for the benefit of
her son and daughter, naming David Bernstein as trustee. Ms. Strober retains
an irrevocable proxy to vote all of the foregoing Common Shares.
On November 8, 1996, Messrs. Brower, Gaites and Yanuklis made respective
gifts of 25,000, 147,180 and 140,000 Common Shares to separate charitable
annuity remainder trusts for the lifetime benefit of their respective selves
and spouses and each retains an irrevocable proxy to vote all of the foregoing
Common Shares.
The Company, Sue Strober, certain current executive officers of the Company
and certain former executive officers and directors of the Company are parties
to the Reorganization Agreement providing such parties with prior notice and a
right of first refusal to purchase shares of the Company's Common Stock which
any of the parties desires to sell. The remaining parties of the
Reorganization Agreement (including the Company) have waived and/or terminated
their rights under the Reorganization Agreement.
The following table sets forth the purchases of Common Shares by the Company
and members of Company Management from January 1, 1995 through December 31,
1996, including the amount of Common Shares purchased, the range of prices paid
for such Common Shares, and the average purchase price during the quarterly
period such purchase(s) occurred.
<TABLE>
<CAPTION>
ISSUER/AFFILIATE AMOUNT PURCHASED RANGE OF PRICES AVERAGE PURCHASE PRICE PER QUARTERLY
(SHARES) ($) PERIOD
($)
4th Quarter 4th Quarter
1995 1996
<S> <C> <C> <C> <C>
The Company 15,000(1) 3.63 - 4.00 3.75 N/A
Robert J. Gaites 25,000(3) 1.75(2) N/A 1.75
John Yanuklis 23,286(4) 1.13 - 1.75(2) N/A 1.51
Albert C. Brower 9,107(5) 1.13 - 1.75(2) N/A 1.49
David J. Polishook 15,000(6) 1.13 - 1.75(2) N/A 1.54
Richard Schaefer 73,929(7) 1.13 - 1.75(2) N/A 1.56
</TABLE>
(1) On May 22, 1995, the Company announced that management believed the
Company to be undervalued by the market and that it had authorized a repurchase
program to repurchase from time to time up to 250,000 Common Shares. On the
business day immediately prior to such announcement, the Company's shares had
closed at $3.625 per share. Pursuant to such plan, on November 10 and December
28, 1995, the Company purchased on the open market 5,000 Common Shares and
10,000 Common Shares, respectively, at purchase prices of $4.00 per share and
$3.63 per share, respectively.
(2) Price represents exercise price of option to purchase Common Shares
received pursuant to the Company's stock incentive plan(s).
(3) On December 10, 1996, Mr. Gaites exercised an option to purchase 25,000
Common Shares at an exercise price of $1.75 per share.
(4) On December 10, 1996, Mr. Yanuklis exercised options for 9,000 and
14,286 Common Shares at exercise prices of $1.13 and $1.75 per share,
respectively.
(5) On December 10, 1996, Mr. Brower exercised options for 3,750 and 5,357
Common Shares at exercise prices of $1.13 and $1.75 per share, respectively.
(6) On December 10, 1996, Mr. Polishook exercised options for 5,000 and
10,000 Common Shares at exercise prices of $1.13 and $1.75 per share,
respectively.
(7) On December 10, 1996, Mr. Schaefer exercised options for 22,500 and
51,429 Common Shares at exercise prices of $1.13 and $1.75 per share,
respectively.
<PAGE>
MANAGEMENT OF PURCHASER, ACQUISITION SUB AND THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS (OR EQUIVALENT) OF
PURCHASER AND ACQUISITION SUB
Set forth below is the name and business address of each person who is a
manager of Purchaser, which is a Delaware limited liability company, and who is
a director or officer of Acquisition Sub, the present principal occupation or
employment of each such person and the name and principal business of the
corporation or other organization in which such occupation or employment of
each such person is conducted and the material occupations, positions, office
or employment that each such person has held during the last five years. Each
such person is presently employed by either Fidelity Capital Associates, Inc.
("FIDELITY CAPITAL"), a private venture capital and related asset management
firm, or Fidelity Management & Research Company ("FMR CO."). The principal
executive officers of Fidelity Capital and FMR Co. are located at 82 Devonshire
Street, Boston, Massachusetts 02109. Each person listed below has a business
address at 82 Devonshire Street, Boston, Massachusetts 02109 and is a citizen
of the United States.
<TABLE>
<CAPTION>
NAME POSITION WITH PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
AND FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
John J. Remondi Purchaser - Manager Mr. Remondi has served as Managing
Acquisition Sub - President and Director of Fidelity Capital and as a Vice
Director President of FMR Co. since 1983.
Warren T. Morrison Purchaser - Manager Mr. Morrison has served as a Vice
Acquisition Sub - Treasurer and President of Fidelity Capital since
Director November 1995. Prior to joining Fidelity
Capital, Mr. Morrison served as Senior
Vice President and Senior Credit
Administration Officer, Asset-Based
Lending of US Trust Company from November
1991 through November 1995.
Robert M. Gervis Acquisition Sub - Secretary Mr. Gervis has served as Vice President
and Director of Investment Situations for
FMR Co. since March 1996 and served as
Associate General Counsel to FMR Co. from
July 1994 to February 1996. Prior to
joining FMR Co., Mr. Gervis was a Partner
with the law firm of Weil, Gotshal &
Manges from January 1993 to June 1994 and
was an associate attorney with Weil,
Gotshal & Manges from August 1985 to
December 1992.
</TABLE>
It is proposed that prior to or concurrent with the Effective Date,
Frederick M. Marino, who is not affiliated with the Company, will be elected
the Chairman of the Board of Directors and Chief Executive Officer of
Acquisition Sub and/or the Surviving Corporation, as the case may be. In
addition, it is currently proposed that existing members of the Company's
management will continue their employment with the Surviving Corporation and/or
its subsidiaries, as the case may be, on terms substantially similar to the
terms of each such individual's employment with the Company and/or its
subsidiaries as of the date hereof. See "Special Factors -- Interests of
Certain Persons in the Merger."
COMPANY MANAGEMENT PARTICIPATION. Immediately upon consummation of the
Merger, all of the Company's directors will resign. Pursuant to the Merger
Agreement, the directors and officers of Acquisition Sub will be the directors
and officers of the Surviving Corporation, and the Purchaser will appoint their
successors. Subsequent to the closing of the Merger, all of the Company's
officers are expected to be employed by the Surviving Corporation. It is
currently contemplated that Purchaser may afford certain officers of the
Company the opportunity to invest up to an aggregate of $750,000 of the
anticipated $9 million of Purchaser capital for which such members of Company
management will receive approximately 8.1% of Purchaser's equity on a fully
diluted basis as a means to align the interests of management of the Surviving
Corporation with the interests of its stockholders. It is not a condition of
the Merger that such Company management members make such contribution. In the
event that such Company management members are afforded the opportunity to
invest and make such equity investments, the investments will be made
subsequent to the Effective Date and will be effected by purchasing such equity
interests from the Purchaser. In the event such Company management members are
afforded the opportunity to invest and elect not to so invest, the remaining
equity investments will be made in the Purchaser by individuals or entities who
are not employed by or on the Board of Directors of the Company. In the event
that such Company management members make such equity investments, the
investments will be made subsequent to the Effective Date and will be effected
by purchasing such equity interests from the Purchaser. The proposed equity
investments by members of the Company's management will be made at the same
price per share or other equity unit as that made by the other investors in
Purchaser. Robert J. Gaites and John Yanuklis, the President and Chief
Executive Officer, and an Executive Vice President of the Company,
respectively, have each indicated a present intention to invest up to $200,000
in the Purchaser after the completion of the Merger. These executives have
advised the Company that in the event the Purchaser affords them an opportunity
to invest in the Purchaser, they expect to make all or a portion of such
investment. The following persons constitute the remaining members of
management who may be afforded the opportunity to invest up to an aggregate of
$350,000 in the Purchaser after the completion of the Merger:
NAME TITLE
Edward Zieky Senior Vice President
Eliott Zieky Director and Senior Vice President
Richard Schaefer Vice President
Nicholas Tenebruso Vice President of Brooklyn subsidiary
Robert Groeninger Vice President of Brooklyn subsidiary
William Umbach Vice President of New Jersey subsidiary
Lawrence Hamershock Vice President of Pennsylvania subsidiary
David Polishook Chief Financial Officer
Richard Young Vice President
Neither the Purchaser's initial proposal, nor the negotiations between
the Purchaser and the Company which followed, required any member of the
Company's management to invest in the Purchaser as a condition to a proposed
transaction between the Purchaser and the Company. None of the directors
serving on the Special Committee have been nor will be afforded investment
opportunities in the Purchaser. The Purchaser has advised the Company that
these investment opportunities are being provided solely as a means for
establishing incentive to management of the Surviving Corporation by providing
them with a small, non-controlling equity stake. See "Special Factors --
Sources and Amount of Funds; Payment for Common Shares" and Special Factors --
Certain Effects of the Merger."
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is the name and business address of each person who is a
director or executive officer of the Company and, unless disclosed elsewhere
herein, the present principal occupation or employment of each such person and
the name, principal business and address of the corporation or other
organization in which such occupation or employment of each such person is
conducted and the material occupation, positions, offices and employment and
the name, principal business and address of any corporation or other
organization in which any material occupational position, office or employment
of each such person was held during the last five years. Unless otherwise
indicated, each person listed below has a business address care of the Company
at Pier 3, Furman Street, Brooklyn, New York 11201 and is a citizen of the
United States.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE-YEAR EMPLOYMENT HISTORY
DAVID W. BERNSTEIN Mr. Bernstein is an attorney engaged in
14 Aliso Road private practice and had served as Director
Carmel Valley, CA 93924 general counsel to the Company from 1953
through 1990.
ALBERT C. BROWER Mr. Brower was elected as Senior Vice
President in October 1986.
Senior Vice President
ROBERT J. GAITES Mr. Gaites has been with the Company since
Chairman of the Board, 1976. He was Senior Vice President since 1986
Chief Executive Officer, and and CEO since June 1991. He has 29 years of
President experience in the industry.
JOSEPH MANGINO, SR. Mr. Mangino has been the President of
Director Metropolitan Trucking, Inc. a privately
75 Broad Avenue held trucking company since 1980. He is a
Fairview, NJ 07022 regional director of Bank of
New York, National Community Division.
ALVIN MURSTEIN Mr. Murstein has been Chairman of the Board
Director of Directors of Medallion Financial Corp.,
205 East 42nd Street the parent corporation of Medallion Funding
New York, NY 10017 Corp., since 1996 and the Chairman of the
Board of Directors of Medallion Funding
Corp. since 1979.
DAVID J. POLISHOOK Mr. Polishook was elected to the Board of
Chief Financial Officer, Directors on January 31, 1988, elected Chief
Secretary and Treasurer Financial Officer and Treasurer of the
Company on June 28, 1988 and was elected
Secretary on November 12, 1991. He resigned
as a Director on February 28, 1991.
RICHARD SCHAEFER Mr. Schaefer was elected as Vice President
Vice President of the Company on July 20, 1989.
EMIL W. SOLIMINE Mr. Solimine is the Chairman of the Board of
Directors and Chief Executive Officer of
Emar Group, inc., an insurance brokerage
concern which he started in 1971 and which
has served as insurance broker for the
Company's property and casualty insurance
since 1983. Mr. Solimine is also a
director of DiGiorgio Corporation, an
independent wholesale food distributor.
<PAGE>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE YEAR EMPLOYMENT HISTORY
JOHN YANUKLIS Mr. Yanuklis has been with the Company since
Executive Vice President, 1981 and manages its Hudson Valley, New York
and Director region. He was a Director and Senior Vice
President since 1986 and an Executive Vice
President since June 1992. He has over 30
years of experience in the industry.
RICHARD W. YOUNG Mr. Young was elected as Senior Vice
Senior Vice President President in October 1986.
EDWARD N. ZIEKY Mr. Zieky was elected as Senior Vice
Senior Vice President President and Director of the Company as of
January 25, 1988 and with his cousin,
Eliott Zieky, managesthe Company's Hartford,
Connecticut region. Mr. Zieky resigned as a
Director on February 28, 1991. He was an
officer of The General Building Supply
Company prior to its acquisition by the
Company in 1988. He has over 20 years of
experience in the industry.
ELIOTT ZIEKY Mr. Zieky was elected as Senior Vice
President and Director of the Company as of
January 25, 1988, and with his cousin,
Edward Zieky, manages its Hartford,
Connecticut region. He was an officer of
The General Building Supply Company prior to
its acquisition by the Company in 1988. He
has over 20 years of experience in the industry.
The members of the Special Committee which has unanimously recommended
the Merger Agreement for approval and adoption by the Company Stockholders
consists of Messrs. Bernstein, Mangino, Murstein and Solimine.
Immediately after consummation of the Merger, all of the Company's
directors will resign and the Purchaser will appoint their successors.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of December 30,
1995 and 1994, and for each of the years in the three year period ended
December 31, 1995 incorporated by reference into this Proxy Statement were
audited by KPMG Peat Marwick LLP, the Company's independent certified public
accountants. A representative of KPMG Peat Marwick LLP will be at the Special
Meeting to answer questions by Company Stockholders and will have the
opportunity to make a statement if so desired.
STOCKHOLDER PROPOSALS
Under the DGCL and the By-Laws of the Company, no other business may be
transacted at the Special Meeting. If the Merger is not for any reason
consummated, then, in accordance with regulations issued by the SEC, Company
Stockholder proposals intended for presentation at the Company's 1997 annual
meeting of stockholders must be received by the Secretary of the Company no
later than March 17, 1997, if such proposals are to be considered for inclusion
in the Company's proxy statement. Proposals should be mailed via certified
mail and addressed to: Corporate Secretary, The Strober Organization, Inc.,
Pier 3 - Furman Street, Brooklyn, New York 11201.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by the Company are
incorporated by reference into this Proxy Statement:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as provided to each Company Stockholder together
with this Proxy Statement;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996; June 30, 1996; and September 30, 1996, as provided
to each Company Stockholder together with this Proxy Statement;
3. The Company's Current Reports on Form 8-K filed on February 20,
1996; June 27, 1996; November 20, 1996; November 27, 1996 and
November 29, 1996.
All documents and reports filed by the Company with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the date of the Special Meeting shall be deemed to
be incorporated by reference in this Proxy Statement and to be a part hereof
from the respective dates of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNERS, TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON
WRITTEN OR ORAL REQUEST TO DAVID POLISHOOK, CHIEF FINANCIAL OFFICER, THE
STROBER ORGANIZATION, INC., PIER 3 - FURMAN STREET, BROOKLYN, NEW YORK 11201.
IN ORDER TO ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING,
REQUESTS MUST BE RECEIVED BY [ , 1997.]
AVAILABLE INFORMATION
The Company is 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 of the SEC at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the regional offices of the SEC located at 7 World Trade Center, 13th Floor,
Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th
Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. In addition, such reports, proxy statements and other
information can be inspected at the offices of NASDAQ National Market, 1735 K
Street, Washington, D.C. 20006.
MISCELLANEOUS
Where information contained in this Proxy Statement rests particularly
within the knowledge of a person other than the Company, the Company has relied
upon information furnished by such person or contained in filings made by such
person with the SEC.
By Order of the Board of Directors
Robert J. Gaites
Chairman, President and Chief Executive
Officer
<PAGE>
- -------------------------------------------------------------------------------
REVOCABLE PROXY
THE STROBER ORGANIZATION, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE STROBER
ORGANIZATION, INC.
The undersigned hereby appoints Robert J. Gaites, David J. Polishook, or
any of them, each with full power of substitution, as the lawful proxies of the
undersigned and hereby authorizes such persons to represent and to vote as
designated below all shares of the common stock of The Strober Organization,
Inc. ("STROBER") which the undersigned would be entitled to vote if personally
present at the Special Meeting of Stockholders of Strober to be held on
February __, 1997, and at any adjournments or postponements thereof (the
"SPECIAL MEETING").
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ITEM 1.
IMPORTANT -- PLEASE SIGN AND DATE ON THE OTHER SIDE AND RETURN PROMPTLY.
(Continued on other side)
- -------------------------------------------------------------------------------
PLEASE MARK BOXES IN BLUE OR BLACK INK.
1. Approval of Amended and Restated Agreement and Plan of Merger dated as of
November 11, 1996, by and among Hamilton Acquisition LLC, Hamilton NY
Acquisition Corp., and The Strober Organization, Inc.
FOR AGAINST ABSTAIN
{__} {__} {__}
2. To transact such other business as may properly come before the Special
Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
ITEM 1.
The undersigned acknowledges receipt of the Notice of Special Meeting and
Proxy Statement for the Special Meeting.
When signed as an attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
<PAGE>
Whether or not you plan to attend the Special Meeting, you are urged to
execute, date and return this proxy, which may be revoked at any time prior to
its use.
Dated: , 1997
(Signature of Stockholder)
(Signature of Additional
Stockholder(s))
Please sign your name exactly
as it appears hereon, date
and return this proxy in the reply
envelope provided. If you
receive more than one proxy
card, please sign, date and
return all cards received.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- -------------------------------------------------------------------------------
<PAGE>
ANNEX A
31037.77996 144 351245.c2
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
PARENT,
ACQUISITION SUB
AND THE STROBER ORGANIZATION, INC.
Dated as of November 11, 1996
<PAGE>
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TABLE OF CONTENTS
Page
1. [INTENTIONALLY OMITTED]....................................1
2. THE MERGER.................................................2
2.1 The Merger............................................2
2.2 Effective Time........................................2
2.3 Effects of the Merger.................................2
2.4 Certificate of Incorporation; By-Laws.................2
2.5 Directors.............................................3
2.6 Officers..............................................3
2.7 Conversion of Securities..............................3
2.8 Company Stock Options and Related Matters.............3
2.9 Taking of Necessary Action; Further Action............4
3. PAYMENT FOR SHARES; DISSENTING SHARES......................4
3.1 Payment for Shares of Company Common Stock............4
3.2 Dissenting Shares.....................................6
4.REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB..7
4.1 Organization and Qualification........................7
4.2 Authority Relative to this Agreement..................7
4.3 No Violations.........................................8
4.4 Brokerage Fees........................................9
4.5 Financing.............................................9
4.6 Arrangements..........................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............10
5.1 Organization and Qualification.......................10
5.2 Authority Relative to this Agreement.................10
5.3 No Violations; Consents and Approvals................11
5.4 Capitalization.......................................12
5.5 Commission Filings...................................12
5.6 Absence of Certain Changes or Events.................13
5.7 Absence of Litigation................................14
5.8 Employee Benefit Plans...............................14
5.9 Labor Matters........................................15
5.10 Taxes................................................16
5.11 Environmental Matters................................17
5.12 Books and Records....................................19
5.13 Real and Personal Property...........................19
5.14 Contracts............................................24
5.15 Trade Names..........................................24
5.16 Affiliate Transactions...............................25
5.17 Brokerage Fees.......................................25
5.18 Subsidiaries.........................................25
5.19 Disclosure...........................................26
6. CONDUCT OF BUSINESS PENDING THE MERGER....................26
6.1 Conduct of Business by the Company...................26
7. ADDITIONAL AGREEMENTS.....................................29
7.1 Proxy Statement; Other Filings.......................29
7.2 Meeting of the Company's Stockholders................30
7.3 Additional Agreements................................30
7.4 Fees and Expenses....................................31
7.5 No Solicitations.....................................31
7.6 Officers' and Directors' Insurance; Indemnification..32
7.7 Access to Information; Confidentiality...............32
7.8 Financial and Other Statements.......................33
7.9 Observer Rights......................................33
7.10 Advice of Change; Schedule Update....................34
7.11 Rowley Building Transaction..........................34
7.12 Certain Litigation...................................34
7.13 Public Announcements.................................34
7.14 Environmental Matters................................35
7.15 Stop Transfer; Reorganization Agreement..............35
7.16 Transfer Taxes.......................................35
8. CONDITIONS TO THE MERGER..................................36
8.1 Conditions to the Obligations of Each Party to
Effect the Merger....................................36
8.2 Additional Conditions to the Obligations of
the Company..........................................36
8.3 Additional Conditions to the Obligations of Parent
and Acquisition Sub..................................37
8.4 Certain Payments.....................................39
9. TERMINATION, AMENDMENT AND WAIVER.........................39
9.1 Termination..........................................39
9.2 Effect of Termination................................40
9.3 Amendment............................................42
9.4 Extension; Waiver....................................42
10. GENERAL PROVISIONS........................................42
10.1 Notices..............................................42
10.2 Interpretation.......................................43
10.3 Non-Survival of Representations, Warranties,
Covenant and Agreements..............................43
10.4 Miscellaneous........................................44
10.5 Assignment...........................................44
10.6 Knowledge; Best Efforts..............................44
10.7 Severability.........................................44
10.8 Choice of Law/Consent to Jurisdiction................44
10.9 Third-Party Beneficiary..............................45
SCHEDULES AND EXHIBITS
SCHEDULE TITLE
Schedule 2.8 Company Stock Options and Related Matters
Schedule 5.1 Qualification
Schedule 5.2(b)Authority Relative to this Agreement
Schedule 5.3 No Violations; Consents and Approvals
Schedule 5.4 Capitalization
Schedule 5.5 Commission Filings
Schedule 5.6 Absence of Certain Changes or Events
Schedule 5.7 Absence of Litigation
Schedule 5.8 Employee Benefit Plans
Schedule 5.9 Labor Matters
Schedule 5.10 Taxes
Schedule 5.11 Environmental Matters
Schedule 5.12 Books and Records
Schedule 5.13 Real and Personal Property
Schedule 5.14 Contracts
Schedule 5.15 Trade Names
Schedule 5.16 Affiliate Transactions
Schedule 5.18 Subsidiaries
Schedule 6.1 Conduct of Business by the Company
Schedule 8.3(f)Third Party Consents
<PAGE>
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DEFINED TERM CROSS REFERENCE
(Not Part of this Agreement)
1995 Balance Sheet Section 5.5(e)
Agreement Introduction
Acquisition Property Section 5.13(a)
Acquisition Proposal Section 7.5(a)
Acquisition Sub Introduction
Affiliate Transactions Section 5.16
Blue Sky Laws Section 4.3(b)
Board Introduction
Certificate of Merger Section 2.2
Certificates Section 3.1(b)
Claim Section 7.6
Code Section 5.8(a)
Commission Section 5.5(a)
Commission Reports Section 5.5(b)
Company Introduction
Company Common Stock Introduction
Company's Certificate Section 2.4(a)
Company Expenses Section 9.2(d)
Confidentiality Agreement Section 7.7
Corporation Section 2.4(a)
Corporation Law Introduction
Dissenting Stockholders Section 3.2(a)
Dissenting Shares Section 3.2(a)
Effective Date Section 2.2
Effective Time Section 2.2
Environmental Laws Section 5.11(a)
Environmental Permits Section 5.11(a)
ERISA Section 5.8(a)
Exchange Act Section 4.3(b)
Financing Section 4.5
Financing Letters Section 4.5
Hart-Scott-Rodino Act Section 4.3(b)
Hazardous Substances Section 5.11(b)
Indemnification Agreement Section 7.12
Intellectual Property Rights Section 5.15
IRS Section 5.10(b)
ISRA Section 4.3(b)
Leases Section 5.13(b)(i)
Managee Introduction
Managees Introduction
Leased Real Property Section 5.13(b)
Material Adverse Effect Section 4.1
Material Contracts Section 5.14
Merger Introduction
Merger Consideration Section 2.7(b)
Mortgages Section 5.13(a)(ii)
Option Section 2.8
Option Consideration Section 2.8
Optionees Section 2.8
Other Filings Section 7.1
Owned Real Property Section 5.13(a)
Parent Introduction
Parent Expenses Section 9.2(b)
Paying Agent Section 3.1(a)
Payment Fund Section 3.1(a)
Pending Litigation Section 8.3(c)
Pending Legal Proceeding Section 8.3(c)
Permitted Encumbrances Section 5.13(a)(i)
Plans Section 5.8(a)
Port Authority Section 7.12
Port Authority Lease Section 7.12
Preferred Stock Section 5.4
Principal Stockholder Introduction
Principal Stockholders Introduction
Profit Sharing Plan Shares Section 2.7(a)
Proxy Agreement Introduction
Proxy Statement Section 7.1
Reorganization Agreement Section 7.15
Requisite Rights Section 5.15(b)(i)
Rowley Building Products Section 7.11
Stock Option Plans Section 2.8
Stockholders' Meeting Section 7.2
Subsidiary Section (10.2)
Superior Proposal Section 7.5(b)
Surviving Corporation Section 2.1
Taxes Section 5.10(f)
Transfer Taxes Section 7.16
<PAGE>
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"),
dated as of November 11, 1996, as amended and restated as of January 17,
1997, by and among Hamilton Acquisition LLC, a Delaware limited liability
company ("PARENT"), Hamilton NY Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("ACQUISITION SUB"), and The
Strober Organization, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the Board of Directors of the Company (the "BOARD") has, in
light of and subject to the terms and conditions set forth herein, (i)
determined that the consideration to be received by the stockholders of the
Company for each of the issued and outstanding shares of common stock, par
value $.01 per share, of the Company (the "COMPANY COMMON STOCK"), in the
Merger (as defined below) is fair to and in the best interests of the
Company and its stockholders and (ii) resolved to approve this Agreement
and the transactions contemplated hereby and to recommend approval and
adoption of this Agreement and approval of the Merger by the stockholders
of the Company;
WHEREAS, also in furtherance of such transactions, the manager or
managers, as the case may be, of Parent (as the case may be, the "MANAGER"
or "MANAGERS") and the Board of Directors of Acquisition Sub have each
unanimously approved the merger of Acquisition Sub with and into the
Company (the "MERGER") in accordance with the General Corporation Law of
the State of Delaware (the "CORPORATION LAW") and the provisions of this
Agreement pursuant to which Merger the holders of Company Common Stock
(other than the Company, Acquisition Sub, Parent and any direct or indirect
subsidiary of any them) shall receive the Merger Consideration (as defined
in Section 2.7(b) hereof); and
WHEREAS, as a condition to the willingness of Parent and Acquisition
Sub to enter into this Agreement, certain stockholders of the Company (each
individually a "PRINCIPAL STOCKHOLDER" and collectively the "PRINCIPAL
STOCKHOLDERS") have entered into a Proxy Agreement, dated as of the date
hereof, with Parent and Acquisition Sub (the "PROXY AGREEMENT") pursuant to
which each Principal Stockholder has, among other things, granted to Parent
an irrevocable proxy to vote all shares of Company Common Stock owned
(beneficially or otherwise) by such Principal Stockholder in favor of the
Merger, all upon the terms and conditions set forth in the Proxy Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, Parent, Acquisition Sub and the Company hereby
agree as follows:
1. [INTENTIONALLY OMITTED]
2. THE MERGER
2.1 THE MERGER. Upon the terms and subject to the conditions
contained in this Agreement, and in accordance with the relevant provisions
of the Corporation Law, at the Effective Time (as hereinafter defined),
Acquisition Sub shall be merged with and into the Company. Following the
Merger, the Company shall continue its corporate existence as the surviving
corporation in the Merger (the "SURVIVING CORPORATION") under the laws of
the State of Delaware, and the separate corporate existence of Acquisition
Sub shall cease. The name of the Surviving Corporation shall continue to
be "The Strober Organization, Inc."
2.2 EFFECTIVE TIME. As promptly as practicable after all of the
conditions set forth in Section 8 shall have been satisfied or, if
permissible, waived by the party entitled to the benefit of the same,
Acquisition Sub and the Company shall duly execute and file a certificate
of merger in form and substance satisfactory to the parties hereto (the
"CERTIFICATE OF MERGER") with the Secretary of State of the State of
Delaware in accordance with the Corporation Law. The Merger shall become
effective at such time as the Certificate of Merger is filed with the
Secretary of State of the State of Delaware or at such later time as is
specified in the Certificate of Merger (the "EFFECTIVE TIME"). Prior to
such filing, a closing shall be held at the offices of Goodwin, Procter &
Hoar LLP, Exchange Place, Boston, Massachusetts 02109, or at such other
place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver, as the case may be, of the conditions set forth in
Section 8 (the date of such closing being, the "EFFECTIVE DATE").
2.3 EFFECTS OF THE MERGER. At the Effective Time, the Merger shall
have the effects set forth herein and in the Corporation Law. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises
of the Company and Acquisition Sub shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and
duties of the Company and Acquisition Sub shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.
2.4 CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) At the Effective Time, the Certificate of Incorporation of
Acquisition Sub, or at the election of Parent, the Company's Restated
Certificate of Incorporation (the "COMPANY'S CERTIFICATE"), in each case as
in effect at the Effective Time, which shall in either case include the
provisions required by Section 7.6 hereof, shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance
with applicable law and such Certificate of Incorporation, PROVIDED,
HOWEVER, that at the Effective Time, Article First of the Certificate of
Incorporation of Acquisition Sub shall be amended to read as follows:
"FIRST, the name of the corporation is The Strober Organization, Inc. (the
"CORPORATION")."
(b) At the Effective Time, the By-laws of Acquisition Sub, or at
the election of Parent, the By-laws of the Company, in each case as in
effect at the Effective Time, which shall in either case include the
provisions required by Section 7.6 hereof, shall be the By-laws of the
Surviving Corporation, until duly amended in accordance with applicable
law, the Certificate of Incorporation of the Surviving Corporation and such
By-laws.
2.5 DIRECTORS. The directors of Acquisition Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation.
2.6 OFFICERS. The officers of the Surviving Corporation shall be
appointed by the directors of the Surviving Corporation.
2.7 CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of Acquisition Sub, the
Company or the holders of Company Common Stock:
(a) Each issued and outstanding share of Company Common Stock
held by the Company as a treasury share or held by any direct or indirect
subsidiary of the Company (which does not include the 23,500 shares of
Company Common Stock held by the Company's profit-sharing plan as of the
date hereof (the "PROFIT SHARING PLAN SHARES")) and each issued and
outstanding share of Company Common Stock owned by Parent, Acquisition Sub
or any other direct or indirect subsidiary of Parent immediately prior to
the Effective Time shall be canceled and retired and cease to exist without
any conversion thereof and no payment or distribution shall be made with
respect thereto;
(b) Each issued and outstanding share of Company Common Stock
immediately prior to the Effective Time, other than (i) those shares of
Company Common Stock referred to in Section 2.7(a) and (ii) Dissenting
Shares (as defined in Section 3.2 below), shall be canceled and shall be
converted automatically into and represent the right to receive an amount
equal to six dollars ($6.00) in cash (such amount of cash being referred to
herein as the "MERGER CONSIDERATION") payable, without interest, to the
holder of such share of Company Common Stock upon surrender, in the manner
provided in Section 3.1, of the certificate that formerly evidenced such
share of Company Common Stock;
(c) The shares of common stock, par value $.01 per share, of
Acquisition Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchangeable for, in the aggregate, One
Thousand (1,000) validly issued, fully paid and non-assessable shares of
common stock, par value $.01, of the Surviving Corporation, which shall
constitute all of the issued and outstanding shares of the Surviving
Corporation; and
(d) All of the certificates evidencing shares of Company Common
Stock, by virtue of the Merger and without any action on the part of the
stockholders of the Company or the Company, shall be deemed to be no longer
outstanding, shall not be transferable on the books of the Surviving
Corporation, and shall represent solely the right to receive the amount set
forth in Section 2.7(b) hereof.
2.8 COMPANY STOCK OPTIONS AND RELATED MATTERS. Commencing at least
fifteen (15) days prior to the Effective Time, each holder of a then
outstanding option to purchase shares of Company Common Stock (an "OPTION")
granted under the Company's stock option plans identified on SCHEDULE 2.8
hereto (collectively, the "STOCK OPTION PLANS") (it being understood that
the aggregate number of shares of Company Common Stock subject to purchase
under such Stock Option Plans is not, or shall not at the Effective Time,
be more than 842,438 shares) shall be entitled to exercise such Option
(whether or not such Option would otherwise have been exercisable), and if
such Options are not so exercised prior to the Effective Time, immediately
prior to the Effective Time, each such holder shall be entitled to receive
from the Company in consideration for cancellation of each such Option, a
cash payment (the "OPTION CONSIDERATION") in an amount equal to the product
of (w) the number of shares provided for in such Option and (x) the excess,
if any, of the Merger Consideration over the exercise price per share of
Company Common Stock provided for in such Option, provided that the
foregoing shall be subject to the obtaining of any necessary consents of
the holders of such Options (the "OPTIONEES") and that, to the extent
required by applicable law, such Option Consideration shall be treated as
compensation and shall be net of any applicable federal or state
withholding tax. All such Option Consideration shall be deemed allocable
to the period immediately prior to the Effective Time to the extent
permitted by applicable law. Subject to the foregoing, the Stock Option
Plans and all Options issued thereunder shall terminate at the Effective
Time. In connection with the foregoing, the Company shall obtain the
consent of the Optionees to the cancellation of such Options and the
cancellation of any right to acquire equity securities of the Company from
and after the Effective Time in consideration for the payment provided
herein.
2.9 TAKING OF NECESSARY ACTION; FURTHER ACTION. Parent, Acquisition
Sub and the Company, respectively, shall each use its best efforts to take
all such action as may be necessary or appropriate in order to effectuate
the Merger under the Corporation Law as promptly as practicable. If at any
time after the Effective Time 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 possession to all assets, property,
rights, privileges, powers and franchises of both of the Company and
Acquisition Sub, the officers of the Surviving Corporation are fully
authorized in the name of the Surviving Corporation, as successor by merger
to such corporations, or otherwise to take, and shall take, all such lawful
and necessary action.
3. PAYMENT FOR SHARES; DISSENTING SHARES
3.1 PAYMENT FOR SHARES OF COMPANY COMMON STOCK.
(a) Prior to the Effective Time, Parent shall designate a U.S.
bank or trust company having at least $50,000,000 in capital, surplus and
undivided profits that shall be subject to the Company's approval, such
approval to not be unreasonably withheld, to act as paying agent in the
Merger (the "PAYING AGENT") for purposes of effecting the exchange for the
Merger Consideration of certificates which, prior to the Effective Time,
represented shares of Company Common Stock entitled to receive the Merger
Consideration pursuant to Section 2.7(b). The Paying Agent shall not be
changed without the prior written consent of the Company, which shall not
be unreasonably withheld. Immediately following the Effective Time, Parent
or Acquisition Sub shall deposit in trust with the Paying Agent cash in an
aggregate amount equal to the product of (i) the number of shares of
Company Common Stock issued and outstanding on a fully diluted basis
immediately prior to the Effective Time (other than shares owned by, or
issuable to, upon conversion of other securities, the Company, Parent,
Acquisition Sub or any direct or indirect subsidiary of Parent or the
Company (which shall be deemed to exclude the Profit Sharing Plan Shares);
and shares of Company Common Stock known immediately prior to the Effective
Time to be Dissenting Shares (as defined in Section 3.2 below)) and (ii)
the Merger Consideration (such aggregate amount being hereinafter referred
to as the "PAYMENT FUND"). The parties hereto acknowledge that fully
diluted shares of Company Common Stock shall be determined in accordance
with generally accepted accounting principles. The Payment Fund shall be
invested by the Paying Agent as directed by the Surviving Corporation (so
long as such directions do not impair the rights of the holders of
certificates that formerly evidenced shares of Company Common Stock) in:
direct obligations of the United States of America or obligations for which
the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest and any net earnings with
respect thereto shall be paid to the Surviving Corporation as and when
requested by the Surviving Corporation. The Paying Agent shall, pursuant
to irrevocable instructions, make the payments referred to in Section
2.7(b) out of the Payment Fund. The Payment Fund shall not be used for any
other purpose except as provided herein.
(b) Promptly after the Effective Time, the Surviving Corporation
shall cause the Paying Agent to mail to each person who was a record holder
of an outstanding certificate or certificates which immediately prior to
the Effective Time represented shares of Company Common Stock (the
"CERTIFICATES") a form letter of transmittal (which shall specify that
delivery shall be effected and risk of loss and title to Certificates shall
pass, only upon proper delivery of the Certificates to the Paying Agent)
and instructions for its use in surrendering Certificates and receiving
payment therefor. Upon the surrender to the Paying Agent of such a
Certificate, together with such properly completed and duly executed letter
of transmittal and other documents that are customarily required by letters
of transmittal in similar situations, the holder thereof shall be paid,
without interest thereon, the Merger Consideration to which such holder is
entitled hereunder, and such Certificate shall forthwith be canceled.
Until so surrendered, except with respect to Dissenting Shares, each such
Certificate shall, after the Effective Time, represent solely the right to
receive the Merger Consideration, without interest, into which the shares
of Company Common Stock such Certificate theretofore represented shall have
been converted pursuant to Section 2.7(b), and the holder thereof shall not
be entitled to be paid any cash to which such holder otherwise would be
entitled. In case any payment pursuant to this Section 3.1 is to be made
to a holder other than the registered owner of a surrendered certificate,
it shall be a condition of such payment that the Certificate so surrendered
shall be properly endorsed or otherwise in proper form for transfer and
that the person requesting such exchange shall pay to the Paying Agent any
transfer or other taxes required by reason of the payment of such cash to a
person other than the registered holder of the Certificate surrendered, or
that such person shall establish to the satisfaction of the Paying Agent
that such tax has been paid or is not applicable.
(c) Promptly following the date which is one year after the
Effective Time, the Paying Agent shall return to the Surviving Corporation
all cash, certificates and other instruments in its possession that
constitute any portion of the Payment Fund (including, without limitation,
all interest and other income received by the Paying Agent in respect of
all funds made available to it), and the Paying Agent's duties shall
terminate. Thereafter, each holder of a Certificate shall be entitled to
look to the Surviving Corporation (subject to applicable abandoned
property, escheat and similar laws) only as a general creditor thereof with
respect to any Merger Consideration, without interest, that may be payable
upon due surrender of the Certificate or Certificates held by them.
Notwithstanding the foregoing, neither the Paying Agent nor any party
hereto shall be liable to a holder of certificates that prior to the
Effective Time evidenced shares of Company Common Stock for any Merger
Consideration delivered pursuant hereto to a public official pursuant to
applicable abandoned property, escheat or other similar laws.
(d) At the Effective Time, the Company Common Stock transfer
books shall be closed and no transfer of shares of Company Common Stock
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Paying Agent, they shall be
canceled and exchanged for the Merger Consideration as provided in Section
2.7(b), subject to applicable law in the case of Dissenting Shares (as
defined below).
(e) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact in form and
substance reasonably satisfactory to the Surviving Corporation by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent or the Surviving Corporation in their sole discretion,
upon the posting by such person of a bond in such amount as Parent or the
Surviving Corporation may reasonably direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying
Agent will issue in exchange for such lost, stolen or destroyed
Certificate, the cash representing the Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
3.2 DISSENTING SHARES.
(a) Any shares of Company Common Stock outstanding immediately
prior to the Effective Time as to which the holder thereof shall have not
voted in favor of the Merger or consented thereto in writing and as to
which the holder thereof shall have validly exercised such holder's
appraisal rights, if any, under Section 262 of the Corporation Law
("DISSENTING SHARES") shall not, after the Effective Time, be entitled to
vote for any purpose or be entitled to the payment of dividends or other
distributions (except dividends or other distributions payable to
stockholders of record prior to the Effective Time), nor shall such
Dissenting Shares be converted into the right to receive the Merger
Consideration hereunder. Such holders of Dissenting Shares duly making
demand for appraisal (hereinafter referred to as "DISSENTING STOCKHOLDERS")
shall be entitled to receive payment of the appraised value of such
Dissenting Shares in accordance with the provisions of such Section 262 of
the Corporation Law, except that all shares of Company Common Stock held by
stockholders who shall fail to perfect, or shall have effectively withdrawn
or lost, such stockholders' right to appraisal of such shares of Company
Common Stock under Section 262 of the Corporation Law shall thereupon be
deemed to have been converted into and to have become exchangeable for, as
of the Effective Time, the right to receive the Merger Consideration,
without any interest thereon. The Company shall give Parent (i) prompt
notice of any demands for appraisal received by the Company, withdrawals of
such demands and any other instrument served pursuant to Section 262 of the
Corporation Law and received by the Company, and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for
appraisal under the Corporation Law. The Company shall not, except with
the written consent of Parent, make any payment with respect to any demands
for appraisal, or settle or offer to settle or negotiate, any such demands.
(b) Each Dissenting Stockholder who becomes entitled under the
Corporation Law to payment for the Dissenting Shares shall receive payment
therefor after the Effective Time from the Surviving Corporation (but only
after the amount thereof shall have been agreed upon or finally determined
pursuant to the Corporation Law) and such shares of Company Common Stock
shall be canceled.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
Parent and Acquisition Sub jointly and severally hereby represent and
warrant to the Company as follows:
4.1 ORGANIZATION AND QUALIFICATION. Parent is a limited liability
company duly organized, validly existing and in good standing under the
laws of the State of Delaware. Acquisition Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware. Each of Parent and Acquisition Sub has the requisite
power and authority to carry on its business as it is now being conducted.
Each of Parent and Acquisition Sub is duly qualified to do business and is
in good standing in each jurisdiction in which the character of its
properties, owned or leased, or the nature of its activities make such
qualification necessary, except where the failure to be so qualified or in
good standing would not have a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise) or
prospects (a "MATERIAL ADVERSE EFFECT") of Parent and its subsidiaries
taken as a whole. Neither Parent nor Acquisition Sub has conducted any
business prior to the date hereof other than in furtherance of the
transactions contemplated hereby and has any assets and liabilities other
than those incident to its formation and to the consummation of the
transactions contemplated hereby. Copies of the Certificate of Formation
of Parent and the Certificate of Incorporation and By-laws of Acquisition
Sub heretofore delivered to the Company are true, complete and correct as
of the date hereof.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Acquisition Sub has the requisite 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 the Manager or Managers
(as the case may be) and, if necessary, the member or members of Parent and
by the Board of Directors and the sole stockholder of Acquisition Sub, and
no other corporate proceedings on the part of Parent or Acquisition Sub are
necessary to authorize this Agreement and the transactions contemplated
hereby (other than, with respect to the Merger, the filing and recordation
of the appropriate merger documents as required by the Corporation Law).
This Agreement has been duly and validly executed and delivered by each of
Parent and Acquisition Sub and, assuming this Agreement constitutes a valid
and binding obligation of the Company, constitutes the legal, valid and
binding obligation of each of Parent and Acquisition Sub enforceable
against each of Parent and Acquisition Sub in accordance with its terms.
4.3 NO VIOLATIONS.
(a) Neither the execution and delivery of this Agreement by
Parent or Acquisition Sub nor the consummation of the transactions
contemplated hereby nor compliance by Parent or Acquisition Sub with any of
the provisions hereof will: (i) violate, conflict with, or result in a
breach of any provision of, require any consent, approval or notice under,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) or result in a right of termination or
acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under any of the terms, conditions or
provisions of (x) their respective Certificates of Incorporation, as
amended, or By-laws or (y) any note, bond, mortgage, indenture, deed of
trust, lease, agreement, lien, contract or other instrument or obligation
to which Parent or any of its subsidiaries is a party or to which any of
them, or any of their respective properties or assets, may be subject or by
which Parent or any of its subsidiaries is bound; or (ii) subject to
compliance with the statutes and regulations referred to in Section 4.3(b),
violate any judgment, ruling, order, writ, injunction, determination,
award, decree, statute, ordinance, rule or regulation applicable to Parent
or any of its subsidiaries or any of their respective properties or assets
(except, in the case of each of clauses (i) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances which, or
any consents, approvals or notices which if not given or received, would
not, individually or in the aggregate, have a Material Adverse Effect on
Parent and its subsidiaries taken as a whole or on the ability of Parent or
Acquisition Sub to consummate the transactions contemplated hereby or which
are cured, waived or terminated prior to the Effective Time and, except in
the case of (i) above, for those liens, security interests, charges and
encumbrances as may be imposed or otherwise created in connection with
financing the Merger and the other transactions contemplated hereby); or
(iii) cause the suspension or revocation of any authorization, consent,
approval or license currently in effect, which suspension or revocation
would have a Material Adverse Effect on Parent and its subsidiaries taken
as a whole.
(b) There is no legal impediment to Parent's or Acquisition
Sub's consummation of the transactions contemplated by this Agreement. No
filing or registration with, or authorization, consent or approval of, any
domestic public body or authority is necessary for the consummation by
Parent or Acquisition Sub of the transactions contemplated by this
Agreement, except (i) for applicable requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), state securities
laws and regulations ("BLUE SKY LAWS") and the filing and recordation of
the Certificate of Merger, as required by the Corporation Law, and (ii) for
such filings or registrations which, if not made, or for such
authorizations, consents or approvals, which, if not received, would not,
individually or in the aggregate, have a Material Adverse Effect on Parent
and its subsidiaries taken as a whole or on the ability of Parent and
Acquisition Sub to consummate the transactions contemplated hereby.
(c) There is no "person" which "controls" Parent, in each case
within the meaning of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HART-SCOTT-RODINO ACT") and Parts 801 through 803 of
Title 16 of the Code of Federal Regulations (the "HSR REGULATIONS"), and,
accordingly, no "person" has (1) the right to fifty percent (50%) or more
of the profits of Parent, (2) the right in the event of dissolution of
Parent to fifty percent (50%) or more of the assets of Parent, or (3) the
contractual power currently to designate fifty percent (50%) or more of the
members effecting management control of Parent
4.4 BROKERAGE FEES. Neither Parent nor Acquisition Sub has retained
any financial adviser, broker, agent or finder or paid or agreed to pay any
financial adviser, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby, except that Proteus International
Group Incorporated has been retained as Frederick M. Marino's financial
adviser, each in connection with the transactions contemplated hereby.
Other than the foregoing arrangements and the Company's arrangements with
Hill Thompson Capital Markets, Inc., neither Parent nor Acquisition Sub is
aware of any claim for payment of any finder's fee, brokerage or agent's
commissions or other like payments in connection with the negotiations
leading to the Merger, this Agreement or the consummation of the
transactions contemplated hereby.
4.5 FINANCING. Parent has delivered to the Company true and correct
copies of signed letters received by Parent with respect to the financing
(the "FINANCING LETTERS") required for the consummation of the transactions
contemplated hereby. Assuming satisfaction or waiver of all applicable
conditions set forth in the Financing Letters, such financing (the
"FINANCING") will, together with equity investments in the aggregate of
$9,000,000 being made in connection with the transactions contemplated
hereby, provide sufficient funds to (i) pay, with respect to all shares of
Company Common Stock in the Merger, the Merger Consideration pursuant to
Section 2.7(b); and (ii) prepay, redeem, refinance or renegotiate the
Company's existing indebtedness, if required to consummate the Merger, and
pay any and all fees, expenses, costs and penalties in connection with any
such prepayment, redemption, refinancing or renegotiation. Parent shall
not amend the Financing Letters (excluding amendments that solely
constitute extensions thereof provided that this provision shall not impair
the rights of, or impose additional obligations upon, either party under
Section 9.1(b) hereof) without the prior written consent of the Company,
which consent shall not be unreasonably withheld.
4.6 ARRANGEMENTS. Neither Parent nor Acquisition Sub has entered
into any employment agreements with any current officer of the Company,
provided, however, that discussions respecting continuation of current
compensation and benefit arrangements for a two year period have taken
place which discussions may, prior to the Effective Time, result in an
employment agreement or arrangement with such officer respecting employment
by the Surviving Corporation and/or any of its subsidiaries after the
Effective Time. Parent and Acquisition Sub represent and warrant that no
agreements, arrangements or understandings exist between any current
officer of the Company and Parent, Acquisition Sub or any entity that
controls, is controlled by or is under common control with Parent or
Acquisition Sub that could result in any payment (cash or otherwise) as a
result of the negotiation and execution of this Agreement and/or the
consummation of the transactions contemplated hereby including the Merger
except as specifically provided in this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition Sub as follows:
5.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and
has the corporate power and corporate authority to carry on its business as
it is now being conducted. Each of the Company and its subsidiaries is
duly qualified to do business and is in good standing in each jurisdiction
in which the character of its properties, owned or leased, or the nature of
its activities make such qualification necessary, except as set forth on
Schedule 5.1 hereto or where the failure to be so qualified or in good
standing would not individually or in the aggregate have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole. Copies of the
respective Certificates of Incorporation, as amended, and By-laws of the
Company and each of its subsidiaries heretofore delivered to Parent are
true, complete and correct as of the date hereof and no amendments thereto
have been effected since such copies were delivered, or are pending or
contemplated. Neither the Company nor any of its subsidiaries is in
violation of any term of its respective Certificate of Incorporation or By-
laws.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Each of the Company and its subsidiaries has the requisite
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 the Board. Except for the approval by the Company's
stockholders which is referred to in Section 7.2 below, no other corporate
proceedings on the part of the Company or any of its subsidiaries are
necessary to authorize this Agreement and the transactions contemplated
hereby (other than, with respect to the Merger, the filing and recordation
of the appropriate merger documents as required by the Corporation Law).
This Agreement has been duly and validly executed and delivered by the
Company and, assuming this Agreement constitutes a valid and binding
obligation of Parent and Acquisition Sub, constitutes the legal, valid and
binding obligation of the Company enforceable against the Company and each
of its subsidiaries in accordance with its terms.
(b) The Board has, by resolutions duly adopted by unanimous
vote, approved the Merger, this Agreement and the transactions contemplated
hereby and has agreed to recommend that the stockholders of the Company
approve and adopt this Agreement and the Merger. In connection with the
foregoing, the Board has taken such actions and votes as are necessary on
its part to render the provisions of Section 203 of the Corporation Law and
all other applicable takeover statutes of the Corporation Law and any other
applicable takeover statutes of any other state, and any "fair price,"
takeover or similar provisions of the Company's Certificate, inapplicable
to this Agreement, the Merger and the transactions contemplated by this
Agreement. As of the date hereof, except as set forth on SCHEDULE 5.2(B)
hereto, all of the directors and executive officers of the Company have
indicated that they presently intend to vote their shares of Company Common
Stock to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger.
5.3 NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Except as set forth in SCHEDULE 5.3 to this Agreement,
neither the execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated hereby nor compliance by the
Company or any of its subsidiaries with any of the provisions hereof will:
(i) violate, conflict with, or result in breach of any provision of,
require any consent, approval or notice under, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any of
its subsidiaries under any of the terms, conditions or provisions of (x)
their respective Certificates of Incorporation, as amended, or By-laws or
(y) any note, bond, mortgage, indenture, deed of trust, lease, agreement,
lien, contract, or other instrument or obligation to which the Company or
any of its subsidiaries is a party or to which any of them, or any of their
respective properties or assets, may be subject or by which the Company or
any of its subsidiaries is bound; or (ii) subject to compliance with the
statutes and regulations referred to in Section 5.3(b), violate any
judgment, ruling, order, writ, injunction, determination, award, decree,
statute, ordinance, rule or regulation applicable to the Company or any of
its subsidiaries or any of their respective properties or assets (except,
in the case of each of clauses (i) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances which, or any consents,
approvals or notices which if not given or received, would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole or on the ability of the
Company to consummate the transactions contemplated hereby or which are
cured, waived or terminated prior to the Effective Time and, except in the
case of (i) above, for those liens, security interests, charges and
encumbrances as may be imposed or otherwise created in connection with the
financing of the Merger and the other transactions contemplated hereby); or
(iii) cause the suspension or revocation of any authorization, consent,
approval or license currently in effect, which suspension or revocation
would have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole.
(b) Except as set forth in SCHEDULE 5.3(B), there is no legal
impediment to the Company's consummation of the transactions contemplated
by this Agreement. No filing or registration with, or authorization,
consent or approval of, any domestic public body or authority is necessary
for the execution, delivery or consummation by the Company of the
transactions contemplated by this Agreement, except (i) for applicable
requirements of the Hart-Scott-Rodino Act (if any), the Exchange Act, Blue
Sky Laws, the NASDAQ Listing Agreement, and the filing and recordation of
the Certificate of Merger, as required by the Corporation Law, and (ii) for
such filings or registrations which, if not made, or for such
authorizations, consents or approvals, which, if not received, would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole or on the ability of the
Company to consummate the transactions contemplated hereby.
5.4 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 shares of Company Common Stock
and 1,000,000 shares of Preferred Stock, par value $.01 per share (the
"PREFERRED STOCK"). As of the date hereof, 5,027,447 shares of Company
Common Stock were issued and outstanding, 190,601 shares of Company Common
Stock were held by the Company as treasury shares and no shares of
Preferred Stock were issued and outstanding. As of the date hereof,
842,438 shares of Company Common Stock were reserved for issuance upon
exercise of Options granted pursuant to the Stock Option Plans and Options
to purchase 842,438 shares of Common Stock are outstanding as of the date
hereof. Except for the matters set forth on SCHEDULE 5.4 hereto, which
terminate upon or prior to the consummation of the Merger and will be of no
further force and effect after the Effective Time, and for the Options,
there are no options, warrants or other rights, agreements or commitments
of any character whatsoever requiring the issuance, sale or transfer by the
Company of any shares of capital stock of the Company or any securities
convertible into or exchangeable or exercisable for, or otherwise
evidencing the right to acquire, any shares of capital stock of the
Company. All of the outstanding shares of Company Common Stock have been
duly authorized and validly issued, are fully paid and non-assessable and
are not subject to, nor were they issued in violation of, any preemptive
rights.
5.5 COMMISSION FILINGS.
(a) The Company has heretofore delivered to Parent true and
complete copies of its (i) Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, (ii) Quarterly Report on Form 10-Q for each of the
fiscal quarters ended March 31, June 30 and September 30, 1995, and March
31 and June 30, 1996, (iii) Proxy Statement for the annual meeting of
stockholders held on July 11, 1996, and (iv) all other reports or
registration statements filed by the Company with the Securities and
Exchange Commission (the "COMMISSION") since January 1, 1996, in each case
as filed with the Commission.
(b) Except as set forth in SCHEDULE 5.5 hereto, the Company has
filed all required forms, reports and documents with the Commission since
December 31, 1992 (collectively, the "COMMISSION REPORTS"), all of which
were prepared in accordance with the applicable requirements of the
Securities Act of 1933, as amended, and the Exchange Act in all material
respects. Except to the extent, if any, as may have been appropriately
disclosed in a Commission Report filed subsequent thereto and prior to the
date hereof as of their respective dates, the Commission Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and complied as to form and substance in all material respects
with all applicable requirements of law.
(c) The Company will deliver to Parent as soon as they become
available true and complete copies of any report or statement mailed by it
to its stockholders generally or filed by it with the Commission subsequent
to the date hereof and prior to the Effective Time. As of their respective
dates, such reports and statements (excluding any information therein
provided by Parent or Acquisition Sub, as to which the Company makes no
representation) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
are made, not misleading, and will comply in all material respects with all
applicable requirements of law.
(d) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Commission Reports
has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or in SCHEDULE 5.5), and
each fairly presents in accordance with generally accepted accounting
principles the consolidated financial position of the Company and its
subsidiaries as at the respective dates thereof and the consolidated
results of their operations and changes in cash flow for the periods
indicated, except as may be indicated in the notes thereto and/or in the
consolidated financial statements contained in a Commission Report filed
subsequent thereto and prior to the date hereof, and except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
(e) Except as set forth in SCHEDULE 5.5 hereto and except as and
to the extent set forth on the consolidated balance sheet of the Company
and its subsidiaries as at December 31, 1995, including the notes thereto
(the "1995 BALANCE SHEET"), neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which would be required to be reflected
on a consolidated balance sheet of the Company and its subsidiaries, or in
the notes thereto, prepared in accordance with generally accepted
accounting principles, except for liabilities or obligations (a) incurred
in the ordinary course of business since December 31, 1995, or (b) any
liability or obligation existing at December 31, 1995 which, individually
or in the aggregate, is not material to the Company and its subsidiaries
taken as a whole as of such date.
5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995,
except as set forth in SCHEDULE 5.6 or as and to the extent disclosed in
any Commission Report filed after December 31, 1995:
(a) the Company and its subsidiaries have conducted their
businesses only in the ordinary course and in a manner reasonably
consistent with past practice, and
(b) since December 31, 1995, there has not been (i) any change
in, or event affecting, the Company or any of its subsidiaries having
a Material Adverse Effect on the Company and its subsidiaries taken as
a whole, (ii) any change by the Company in its accounting methods,
principles or practices, (iii) any entry by the Company or any of its
subsidiaries into a material contract outside the ordinary course of
business taken as a whole, (iv) any declaration, setting aside or
payment of any dividends or distributions in respect of, or any
redemption, purchase or other acquisition of, any of its securities or
(v) any increase in the benefits under or the establishment of any
bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or
other employee benefit plan, program, or arrangement for the benefit
of any director, officer or employee of the Company or any of its
subsidiaries pursuant to which employees are contractually entitled to
benefit that would be materially above those mandated by applicable
law, except in the ordinary course of business reasonably consistent
with past practice. No officer, director, or other employee other
than those disclosed in SCHEDULE 5.6 hereto are parties to any
severance pay agreements or change in control agreements.
5.7 ABSENCE OF LITIGATION. Except as disclosed in the Commission
Reports filed after December 31, 1995 or in SCHEDULE 5.7 hereto, there are
no claims, actions, proceedings or investigations pending or, to the best
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or, to the best knowledge of the Company, pending or
threatened against any of its directors, officers, employees or agents, by
any claimant or involving any properties or rights of the Company or any of
its subsidiaries, at law or in equity, before any court, arbitrator or
administrative governmental regulatory authority or body that (i)
individually or in the aggregate would have or are reasonably likely to
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole or (ii) seek to delay or prevent the consummation of the
transactions contemplated hereby. Except as set forth on SCHEDULE 5.7
hereto, to the best knowledge of the Company, there are no ongoing or
threatened claims, actions, proceedings or investigations instituted by or
on behalf of the Department of Justice or any similar foreign, federal,
state, county or local government agency against the Company, any of its
subsidiaries or any of their respective directors, officers, employees or
agents involving the business, properties, rights and/or activities of the
Company and/or any of its subsidiaries. As of the date hereof, neither the
Company nor any of its subsidiaries nor any of their respective properties
are subject to any order, writ, judgment, injunction, decree, determination
or award of any court, arbitrator or governmental authority that,
individually or in the aggregate, have or are reasonably likely to have a
Material Adverse Effect on the Company and its subsidiaries taken as a
whole.
5.8 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 5.8 hereto includes a list of each stock option,
stock purchase, insurance, bonus, incentive compensation, severance, profit
sharing, retirement, or other material employee benefit plan, policy or
arrangement, including any employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") which the Company maintains, to which the Company or any
one of its subsidiaries contributes, or under which any of the employees or
former employees of the Company or any one of its subsidiaries are covered
(collectively, the "PLANS"). Prior to the date of this Agreement, the
Company has provided or made available to Parent a true and complete copy
of each Plan as in effect on the date hereof. Other than as specifically
disclosed in SCHEDULE 5.8 hereto, (i) none of the Plans is a multiemployer
plan within the meaning of ERISA; (ii) none of the Plans provides for or
promises retiree medical benefits or life insurance to any current or
former employee, officer or director of the Company or its subsidiaries;
(iii) each Plan which is intended to be qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "CODE"), is so
qualified; (iv) each Plan is now and has been operated in all material
respects in accordance with the requirements of applicable law; and (v)
with respect to Plans subject to Title IV of ERISA, the aggregate projected
benefit obligations of such Plans (determined for each such Plan as of the
date of the most recent actuarial valuation prepared for such Plan) does
not exceed the fair market value of the assets of such Plans (determined as
of the date of such valuation).
(b) Except as disclosed in SCHEDULE 5.8 hereto, the execution
of, and performance of the transactions contemplated by, this Agreement
will not (either alone or upon the occurrence of any additional subsequent
events directly related to the transactions contemplated hereby) (i)
constitute an event under any Plan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to
fund benefits with respect to any employee, director or consultant of the
Company or any of its subsidiaries pursuant to any Plan or (ii) result in
the triggering or imposition of any restrictions or limitations on the
right of the Company or Parent to amend or terminate any Plan. No payment
or benefit which will be required to be made pursuant to the terms of any
agreement, commitment or Plan, as a result of the transactions contemplated
by this Agreement, to any officer, director or employee of the Company or
any of its subsidiaries, could be characterized as an "excess parachute
payment" within the meaning of Section 280G of the Code or could be non-
deductible by reason of Section 162(m) of the Code.
(c) All contributions have been made in all material respects as
required by the terms of each of the Plans listed in SCHEDULE 5.8 and the
terms of any related collective bargaining agreements, and, except as set
forth in SCHEDULE 5.8 hereto, neither the Company nor any of its
subsidiaries has any knowledge or has received any notice that any such
plan is in reorganization, that increased contributions are required to
avoid a reduction in plan benefits or the imposition of any excise tax,
that any such plan is or has been (except as used in accordance with the
terms of such Plan and in accordance with applicable law) funded at a rate
less than required under Section 412 of the Code, or that any such plan is
insolvent.
5.9 LABOR MATTERS. Except as set forth in SCHEDULE 5.9 hereto,
neither the Company nor any of its subsidiaries is a party to, or bound by,
any collective bargaining agreement or contract or other agreement or
understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries relating to their business, except for any such proceeding
which would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole. There is not currently pending or, to the
best knowledge of the Company, threatened any labor dispute or labor
stoppage regarding any of the Company's, or any of its subsidiaries',
current employees or any of the labor relations or collective bargaining
contracts listed on SCHEDULE 5.9 hereto, except for that labor relations
contract listed on SCHEDULE 5.9 hereto that expires on December 31, 1996,
the negotiation of a new contract of which is expressly provided for in
Section 6.1 hereof. Except as set forth in SCHEDULE 5.9 hereto, to the
knowledge of the Company, there are no organizational efforts with respect
to the formation of a collective bargaining unit presently being made or
threatened involving employees of the Company or any of its subsidiaries.
5.10 TAXES.
(a) Except as set forth in SCHEDULE 5.10 hereto, the Company and
each of its subsidiaries has paid or caused to be paid all material Taxes
(as defined below), owed by it through the date hereof except such as are
reserved for in the Company's balance sheet contained in the most recently
filed Commission Report and are being contested in good faith by
appropriate proceedings. Except as set forth in SCHEDULE 5.10 hereto, the
Company and its subsidiaries have timely filed and properly prepared all
foreign, federal, state and local tax returns and reports required to be
filed by any of them through the date hereof, and all such returns and
reports completely and accurately in all material respects set forth the
amount of any Taxes relating to the applicable period.
(b) Except as set forth in SCHEDULE 5.10 hereto, neither the
Internal Revenue Service (the "IRS") nor any other governmental or taxing
authority or agency is now asserting or, to the best of the Company's
knowledge, threatening to assert, against the Company or any of its
subsidiaries or any partnership, joint venture or limited liability company
in which the Company or any of its subsidiaries is a partner, joint
venturer or member, as the case may be, any deficiency or claim for any
additional material Tax or Taxes. Except as set forth in SCHEDULE 5.10
hereto, there is no dispute or claim concerning any Tax liability of the
Company or any subsidiary, either claimed or raised by any governmental or
taxing authority, or as to which any director or officer of the Company or
any of its subsidiaries has reason to believe may be claimed or raised by
any governmental or taxing authority that is material, either individually
or in the aggregate, to the Company and its subsidiaries taken as a whole.
Except as set forth in SCHEDULE 5.10, no claim has ever been made by a
taxing authority in a jurisdiction where the Company does not file reports
and returns that the Company is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the assets of the
Company or any of its subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Taxes. The Company has never
entered into a closing agreement pursuant to Section 7121 of the Code.
(c) Except as set forth in SCHEDULE 5.10 hereto, neither the
Company nor any of its subsidiaries has received written notice of any
audit of any tax return filed by the Company or its subsidiaries, and
neither the Company nor any of its subsidiaries has been notified by any
governmental or taxing authority that any such audit is contemplated or
pending. Except as set forth in SCHEDULE 5.10 hereto, neither the Company
nor any of its subsidiaries has executed or filed with the IRS or any other
governmental or taxing authority any agreement now in effect extending the
period for assessment or collection of any Taxes, and no extension of time
with respect to any date on which a tax return was or is to be filed by the
Company is in force. True, correct and complete copies of all foreign,
federal, state and local income or franchise tax returns filed by the
Company and each of its subsidiaries for those tax years or periods for
which the applicable statute of limitations, or an extension or waiver
thereof, has not lapsed, expired, or otherwise terminated, and all
communications relating thereto have been delivered to the Parent or made
available to representatives of the Parent. Except as set forth in
SCHEDULE 5.10, neither the Company nor any of its subsidiaries has granted
any waiver of any statute of limitations with respect to, or any extension
of a period for the assessment of, any foreign, federal, state or local
income tax.
(d) The accruals and reserves for taxes reflected in the 1995
Balance Sheet are adequate to cover all Taxes accruable through such date
(including interest and penalties, if any, thereon) in accordance with
generally accepted accounting principles.
(e) None of the Company and its subsidiaries has filed a consent
under Section 341(f) of the Code concerning collapsible corporations. None
of the Company and its subsidiaries has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code. None of the Company and its
subsidiaries has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code. Each of the
Company and its subsidiaries has disclosed on its federal income tax
returns all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of Section 6662 of
the Code. None of the Company and its subsidiaries is a party to any tax
allocation or sharing agreement. Except as set forth in SCHEDULE 5.10,
none of the Company and its subsidiaries (A) has, except as set forth in
SCHEDULE 5.10 hereto, been a member of an affiliated group filing a
consolidated federal income tax return (other than a group the common
parent of which was the Company) or (B) has any liability for the Taxes of
any person (other than any of the Company and its subsidiaries) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(f) The term "TAXES" shall mean, for purposes of this Agreement,
all foreign, federal, state, local, and other taxes, including without
limitation income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or
in part by net income, and all deficiencies or other additions to tax,
interest, fines and penalties relating to any such taxes.
5.11 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in SCHEDULE 5.11 hereto and for the
matters specifically identified in environmental reports received by Parent
or Acquisition Sub, and except for any other matters which, either
individually or in the aggregate, would not have a Material Adverse Effect
on the Company and its subsidiaries taken as a whole, to the Company's
knowledge, the Company and its subsidiaries are in compliance with all
applicable federal, state and local statutes, laws, codes, regulations,
ordinances, rules, judgements, judicial decisions, decrees, injunctions,
permits, and orders relating to (i) emissions, discharges or releases to
the environment of Hazardous Substances (as hereinafter defined), (ii) the
use, storage, handling, transport or disposal of Hazardous Substances, or
(iii) any matters of environmental regulation or control or similar
protection of human health and safety (collectively, "ENVIRONMENTAL LAWS").
Except as disclosed in SCHEDULE 5.11 hereto, the Company has not received
any written notice of any pending civil or criminal litigation, violation
or formal administrative proceeding relating to the Environmental Laws
involving the Company or any of its subsidiaries. Except as disclosed in
SCHEDULE 5.11 hereto and for the matters specifically identified in
environmental reports received by Parent or Acquisition Sub, and except for
any other matters which, either individually or in the aggregate, would not
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole, to the Company's knowledge, no conditions exist which could
reasonably be expected to result in any litigation, notice or
administrative proceeding described in the preceding sentence. Except as
disclosed in SCHEDULE 5.11, and for the matters specifically identified in
environmental reports received by Parent or Acquisition Sub and except for
any other matters which, either individually or in the aggregate, would not
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole, to the Company's knowledge, the Company and each of its
subsidiaries have all permits, licenses, consents and approvals required by
Environmental Laws ("ENVIRONMENTAL PERMITS") for the conduct and operation
of their respective businesses, all such Environmental Permits are in good
standing and the Company and each of its subsidiaries are in compliance
with all material terms and conditions of such Environmental Permits.
(b) Except as disclosed in SCHEDULE 5.11 hereto and for the
matters specifically identified in the environmental reports received by
Parent and Sub, neither the Company nor any of its subsidiaries has
received any written notice (A) of any actual or alleged violation of
Environmental Laws by the Company or any of its subsidiaries, (B) of the
institution or pendency of any action, claim, proceeding or investigation
of the Company or any of its subsidiaries by any third party or
governmental entity pursuant to Environmental Laws, (C) requiring the
investigation, remediation or removal of Hazardous Substances from any of
the Company's or any of its subsidiaries' properties or any part thereof,
or (D) alleging that the Company or any of its subsidiaries are potentially
responsible parties with respect to the release or threat of release of
Hazardous Substances to the environment at any location. Except as
disclosed in SCHEDULE 5.11 hereto, and for the matters specifically
identified in environmental reports received by Parent or Acquisition Sub,
and except for any other matters which, either individually or in the
aggregate, would not have a Material Adverse Effect on the Company or its
subsidiaries, to the Company's knowledge neither the Company nor any of its
subsidiaries (i) has held, stored, released, transported or disposed of any
Hazardous Substances on, under or at any of the Company's or any of its
subsidiaries' properties or any part thereof, whether currently or formerly
leased, owned or used for any purpose; (ii) has arranged for the disposal
of Hazardous Substances at any location owned, leased or operated by any
third party; or (iii) owns or operates real or personal property that has
been the subject of any lien imposed by a governmental entity or a deed
notice or restriction, which lien, notice or restriction relates to
Hazardous Substances or the violation of any Environmental Laws. For
purposes of this Agreement, the term "HAZARDOUS SUBSTANCES" shall mean any
toxic or hazardous materials or substances or hazardous wastes, including
but not limited to oil and petroleum products, defined as, or included in
the definition of, "hazardous substances," "hazardous waste," "hazardous
materials" or "toxic substances" under any Environmental Law and any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation.
(c) No filing, approval or other action required under the New
Jersey Industrial Site Remediation Act, commonly known as ISRA or any
similar federal or State Environmental Law is required to consummate the
transactions contemplated hereby.
(d) Notwithstanding anything to the contrary in this Agreement,
(i) the representations and warranties made in Sections 5.11(a) and 5.11(b)
hereof which are qualified as to the knowledge of the Company speak as of
the date of this Agreement, (ii) to the extent any of the representations
and warranties in Sections 5.5, 5.6, 5.7, 5.11 and 5.13 would otherwise be
deemed incorrect by reason of the existence of any environmental matters or
conditions existing as of the date hereof as to which the Company does not
have knowledge as of the date hereof, such representations and warranties
shall not be deemed to be incorrect; and (iii) any inability to bring down
the representations and warranties set forth in Sections 5.5, 5.6, 5.7,
5.11 and 5.13, because of the existing unknown environmental matters or
conditions referred to in clause (ii), as may be required by Section 8.3(a)
or 8.3(b) hereof shall not constitute a condition to Parent's and
Acquisition Sub's obligations to consummate the transactions contemplated
under this Agreement and such existing environmental matters or conditions
shall not cause a failure to satisfy Section 8.3(e). Notwithstanding the
foregoing, the foregoing shall not apply to environmental matters or
conditions (a) of which the Company has knowledge as of the date hereof, or
(b) which occur after the date hereof which do not relate to such existing
environmental matters or conditions.
5.12 BOOKS AND RECORDS.
(a) The books of account and other financial records of the
Company and each of its subsidiaries are true, complete and correct in all
material respects and have been maintained in accordance with good business
practices.
(b) Except as set forth in SCHEDULE 5.12 the minute books and
other corporate records of the Company and each of its subsidiaries have
been made available to Parent or its representatives, contain in all
material respects accurate records of all meetings, and accurately reflect
in all material respects all other corporate actions, of the stockholders
and directors and any committees of the board of directors of the Company
and each of its subsidiaries.
5.13 REAL AND PERSONAL PROPERTY.
(a) OWNED REAL PROPERTY. All of the real property which is now
owned and, to the best knowledge of the Company, has ever been owned by the
Company and each of its subsidiaries (collectively referred to herein as
the "OWNED REAL PROPERTY") is identified on SCHEDULE 5.13(A) hereto.
SCHEDULE 5.13(A) hereto also sets forth by address (i) all real property
under contract to be acquired by the Company or any of its subsidiaries
(the "ACQUISITION PROPERTY"), (ii) to the knowledge of the Company, the
owner and usage of the Owned Real Property and the Acquisition Property and
(iii) whether the Owned Real Property is currently owned by the Company or
any of its subsidiaries. The Company hereby makes the following
representations and warranties with respect to the Owned Real Property
which is currently owned by the Company:
(i) TITLE AND DESCRIPTION. Each of the Company and its
subsidiaries, as the case may be, has good, clear, record and
marketable fee simple title to the Owned Real Property, free and clear
of all (A) mortgages, deeds of trust, ground leases, assessments,
leases and tenancies, claims, covenants, conditions, restrictions,
easements, judgments or other encumbrances and free of encroachments
onto or off of the Owned Real Property, except for (w) easements,
claims, conditions, covenants, restrictions and similar encumbrances
that do not interfere with the use of the Owned Real Property as
currently used and improved, (x) encroachments that do not adversely
affect the value or use of the Owned Real Property as currently used
and improved, (y) any of same which are disclosed in any title report
or title search received by, or made available by the Company to,
Parent and Acquisition Sub or (z) matters set forth on
SCHEDULE 5.13(A) ((w), (x), (y) and (z) are collectively referred to
as "PERMITTED ENCUMBRANCES").
(ii) SECURITY INTERESTS. All of the mortgages, deeds of
trust, ground leases, security interests or similar material
encumbrances on the Owned Real Property are set forth on SCHEDULE
5.13(A) (collectively, the "MORTGAGES"). Except as set forth on
SCHEDULE 5.13(A), the Company and each of its applicable subsidiaries
has obtained the consent of the holder of any Mortgage if the
transactions contemplated hereby would otherwise cause a default under
the Mortgage, and such transactions will not give the holder of any
Mortgage any remedy, or the right to charge any premium or penalty.
SCHEDULE 5.13(A) also indicates all Mortgages which are, by their
terms, by means of a separate guaranty or otherwise, recourse, in
whole or in part, to the Company or any of its subsidiaries.
(iii) CONDITION. Except as set forth on SCHEDULE 5.13(A),
to the Company's knowledge, (A) there are no material defects in the
physical condition of any improvements constituting a part of the
Owned Real Property, including, without limitation, structural
elements, mechanical systems, roofs or parking and loading areas, and
(B) all of such improvements are in good operating condition and
repair, have been well maintained and are free from infestation by
rodents or insects except for those exceptions which individually or
in the aggregate do not have a Material Adverse Effect on the Company
or its subsidiaries taken as a whole. Except as set forth on SCHEDULE
5.13(A), none of the Owned Real Property is subject to special flood
or mudslide hazards or within the 100 year flood plain. All water,
sewer, gas, electric, telephone, drainage and other utilities required
by law or necessary for the current or planned operation of the Owned
Real Property have been connected pursuant to valid permits and are
sufficient to service the Owned Real Property.
(iv) COMPLIANCE WITH LAW; GOVERNMENT APPROVALS. Neither
the Company nor any of its subsidiaries has received any notice from
any governmental authority of any violation of any law, ordinance,
regulation, license, permit or authorization issued with respect to
any of the Owned Real Property that has not been corrected heretofore,
and to the Company's knowledge no such violation exists which could
have a material adverse effect on the operation or value of any of the
Owned Real Property. Except for those matters which do not
individually or in the aggregate have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole, to the Company's
knowledge (i) all improvements constituting part of the Owned Real
Property have been completed and are now in compliance in all respects
with all applicable laws, ordinances, regulations, licenses, permits
and authorizations, and there are presently in effect all licenses,
permits and authorizations required by law, ordinance, or regulation
and (ii) the transactions contemplated hereby will not affect the
rights of the Company or any of its subsidiaries to the use of any
off-site facilities necessary to ensure compliance with all such laws,
ordinances, codes and regulations. There is at least the minimum
access required by applicable subdivision or similar law to the Owned
Real Property. Neither the Company nor any of its subsidiaries has
received any notice of any pending or threatened real estate tax
deficiency or reassessment or condemnation of all or any portion of
any of the Owned Real Property.
(b) LEASED REAL PROPERTY. SCHEDULE 5.13(B) hereto sets forth,
by address, owner, tenant, and usage, all of the real property which is now
leased or operated and, to the best knowledge of the Company, has ever been
leased or operated by the Company or any of its subsidiaries (collectively,
the "LEASED REAL PROPERTY"). The Company hereby makes the following
representations and warranties with respect to the Leased Real Property
which is now leased or operated by the Company and its subsidiaries:
(i) LEASES. The copies of the leases of the Leased Real
Property (collectively, the "LEASES") delivered by the Company to
Parent are complete, accurate, true and correct, and the information
with respect to each of the Leases set forth in SCHEDULE 5.13(B) is
complete, accurate, true and correct in all material respects as of
the date hereof. With respect to each of the Leases, except as set
forth on SCHEDULE 5.13(B):
(A) each of the Leases is in full force and
effect and has not been modified, amended, or altered, in writing
or otherwise;
(B) to the Company's knowledge, (I) all
obligations of the landlord or lessor under the Leases which have
accrued have been performed in all material respects, and (II) no
landlord or lessor is in default under any Lease in any material
respect;
(C) to the Company's knowledge, (I) all
obligations of the tenant or lessee under the Leases which have
accrued have been performed in all material respects, and neither
the Company nor any of its subsidiaries is in default under any
Lease in any material respect provided that the Company's timely
payment of its rental obligations under the Leases is not
qualified by the Company's knowledge, and (II) no circumstance
presently exists which, with notice or the passage of time, or
both, would give rise to a material default by the Company or any
of its subsidiaries; and
(D) the Company and each of its subsidiaries, as
the case may be, has obtained or will obtain prior to the Closing
the consent of each landlord or lessor under any Leases whose
consent is required to the transactions contemplated hereby and
any necessary landlord waiver or subordinations in the form
heretofore presented to the Company by Parent required by the
entities providing Parent and Acquisition Sub with the financing
to consummate the Merger and the other transactions contemplated
hereby, and, subject to obtaining the foregoing consents, the
Merger and the other transactions contemplated hereby (other than
the Financing) will not give any landlord or lessor under any
Lease any remedy, including, without limitation, any right to
declare a default under any Lease; provided, however that with
respect to those Leases marked as such on SCHEDULE 5.13(B), the
Company shall be required only to exercise its best efforts to
obtain such consent or landlord waiver.
(ii) TITLE AND DESCRIPTION. The Company and each of its
subsidiaries, as the case may be, holds a good, clear, marketable,
valid and enforceable leasehold interest in the Leased Real Property
pursuant to the Leases, subject only to the right of reversion of the
landlord or lessor under the Leases and any mortgagee thereof, free
and clear, to the Company's knowledge, of all other prior or
subordinate interests, including, without limitation, mortgages, deeds
of trust, ground leases, leases, subleases, assessments, tenancies,
claims, covenants, conditions, restrictions, easements, judgments or
other encumbrances or matters affecting title, and free of
encroachments onto or off of the Leased Real Property, except for (v)
any of the same which are disclosed in any title report or title
search received by Parent or Acquisition Sub or made available by the
Company to Parent or Acquisition Sub, (w) any rights of any person
which has been granted rights by any owner of any such property,
(x) easements, claims, conditions, covenants, restrictions and
similar encumbrances that do not materially interfere with the use of
the Leased Real Property as currently used and improved,
(y) encroachments that do not materially adversely affect the value or
use of the Leased Real Property as currently used and improved and (z)
matters set forth on SCHEDULE 5.13(B).
(iii) CONDITION. Except as set forth on SCHEDULE 5.13(B)
and except for those matters which do not individually or in the
aggregate have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole, to the Company's knowledge, (A) there
are no material defects in the physical condition of any improvements
constituting a part of the Leased Real Property, including, without
limitation, structural elements, mechanical systems, roofs or parking
and loading areas, and, (B) all of such improvements are in good
operating condition and repair, have been well maintained and are free
from infestation by rodents or insects. Except as set forth on
SCHEDULE 5.13(B), none of the Leased Real Property is subject to
special flood or mudslide hazards or within the 100 year flood plain.
Except for any which does not individually or in the aggregate have a
Material Adverse Effect on the Company or its subsidiaries taken as a
whole, all water, sewer, gas, electric, telephone, drainage and other
utilities required by law or necessary for the current or planned
operation of the Leased Real Property have been installed and
connected pursuant to valid permits, and are sufficient to service the
Leased Real Property.
(iv) COMPLIANCE WITH LAW; GOVERNMENT APPROVALS. Neither
the Company nor any of its subsidiaries has received any written
notice from any governmental authority of any violation of any law,
ordinance, regulation, license, permit or authorization issued with
respect to any of the Leased Real Property that has not been corrected
heretofore. To the Company's knowledge, except as described on
SCHEDULE 5.13(B) and except for violations that would not have a
Material Adverse Effect on the Company and its subsidiaries taken as a
whole, (A) no such violation now exists which could have an adverse
effect on the operation or value of any of the Leased Real Property,
and (B) all improvements constituting a part of the Leased Real
Property are in compliance in all respects with all applicable laws,
ordinances, regulations, licenses, permits and authorizations, and
there are presently in effect all licenses, permits and authorizations
required by law, ordinance, or regulation. The transactions
contemplated hereby will not affect the rights of the Company or any
of its subsidiaries to use any off-site facilities necessary to ensure
compliance with all such laws, ordinances, codes and regulations.
There is at least the minimum access required by applicable
subdivision or similar law to the Leased Real Property. Neither the
Company nor any of its subsidiaries has received any notice of any
pending or threatened real estate tax deficiency or reassessment or
condemnation of all or any portion of any of the Leased Real Property.
(c) VIOLATIONS/CONDEMNATION. Except as set forth in SCHEDULE
5.13(C) hereto, neither the Company nor any of its subsidiaries has
received, with respect to any Owned Real Property currently owned, leased
or operated by the Company or Leased Real Property currently owned, leased
or operated by the Company, any written notice of default or termination or
any written notice of noncompliance with respect to applicable federal,
state or local laws and regulations relating to zoning, building, fire, use
restriction or safety or health codes which have not been remedied in all
respects which, either individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole. There is no pending or, to the knowledge of
the Company or any of its subsidiaries, threatened condemnation or other
governmental taking of any of the Owned Real Property or Leased Real
Property.
(d) Notwithstanding anything to the contrary contained in this
Agreement, those representations and warranties contained in this Agreement
with respect to Owned Real Property which is not currently either leased,
operated or owned by either the Company or any of its subsidiaries, and
Leased Real Property which is not currently either leased, owned or
operated by either the Company or any of its subsidiaries, is subject to
the knowledge of the Company.
5.14 CONTRACTS. Except as set forth on Schedule 5.14 hereto, neither
the Company nor any of its subsidiaries is in default, or has received any
notice that it is in default, in any respect under any contract, agreement,
commitment, arrangement, lease, policy or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any such subsidiary is bound (excluding contracts, agreements, commitments,
arrangements, leases, policies or other instruments involving total
payments not in excess of $100,000 and which may be terminated within
90 days by the Company or any of its subsidiaries) ("MATERIAL CONTRACTS"),
except for those defaults which could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole, and there has not occurred
any event that, with the lapse of time or the giving of notice or both,
would constitute such a material default. To the Company's knowledge, no
other party to any such Material Contact is in material breach or default
of the terms thereunder or has refused or otherwise failed to materially
perform under the terms thereof.
5.15 TRADE NAMES.
(a) Except as set forth on SCHEDULE 5.15, the Company and each
of its applicable subsidiaries, as the case may be, owns all rights to, or
possesses a valid, subsisting and enforceable exclusive license to use (in
each case, free and clear of any liens), all trade names used by the
Company or any of its subsidiaries in the jurisdictions in which such names
are used. To the best knowledge of the Company, except as disclosed in
SCHEDULE 5.15 hereto, (i) the use of trade names by the Company and its
subsidiaries does not infringe on the rights of any person, (ii) no person
is infringing on any right of the Company or any of its subsidiaries with
respect to any of the Company's or such subsidiaries' trade names, (iii)
there is no decree, undertaking or agreement limiting the scope of the
Company's or any of its subsidiaries' right to use any of its trade names
and (iv) neither the Company nor any of its subsidiaries has granted any
license to any person for the use of the Company's or any of its
subsidiaries' trade names.
(b) Except in each case as disclosed in the Company's Commission
Reports or as set forth in SCHEDULE 5.15 hereto:
(i) to the best knowledge of the Company, the Company
owns, has the right to use, sell, license and dispose of, and has the
right to bring actions for the infringement of, and, where necessary,
has made timely and proper application for all Intellectual Property
Rights (as defined below) necessary or required for the conduct of its
business as currently conducted (such Intellectual Property Rights,
collectively, the "REQUISITE RIGHTS") and has such rights to use,
sell, license, dispose of and bring such actions as are sufficient for
such conduct of its business;
(ii) to the best knowledge of the Company, there are no
royalties, honoraria, fees or other payments payable by the Company to
any person by reason of the ownership, use, license, sale or
disposition of Requisite Rights; and
(iii) to the best knowledge of the Company, neither the
marketing, license, sale nor use of any product currently or proposed
to be licensed or sold by the Company materially violates or will
materially violate any license or agreement with any third party to
which the Company is a party or materially infringe any Intellectual
Property Right of any other party.
As used herein, the term "INTELLECTUAL PROPERTY RIGHTS" shall mean all
industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark applications,
copyrights, copyright applications, know-how, trade secrets, proprietary
processes and formulae, franchises, licenses, inventions, marketing
materials, trade dress, logos and designs and all documentation and media
constituting, describing or relating to the foregoing, including, without
limitation, manuals, memoranda and records.
5.16 AFFILIATE TRANSACTIONS. Except as set forth on SCHEDULE 5.16
hereto, (i) the Company has not engaged in any transaction involving any
lease or other transaction or the transfer of any cash, property or rights
to or from the Company or any of its subsidiaries from, to or for the
benefit of any affiliate or former affiliate of the Company or any of its
subsidiaries ("AFFILIATE TRANSACTIONS") during the period commencing
January 1, 1994 through the date hereof, (ii) neither the Company nor any
of its subsidiaries has any existing commitments to engage in the future in
any material Affiliate Transactions and (iii) to the best knowledge of the
Company, no affiliate of the Company or any of its subsidiaries is party to
any contract with a third party pursuant to which (x) as a result of a
claimed breach a claim against the Company or any such subsidiary may arise
or (y) a liability (whether absolute, contingent or otherwise) might accrue
against the Company or any such subsidiary.
5.17 BROKERAGE FEES. The Company has not retained any financial
adviser, broker, agent or finder or paid or agreed to pay any financial
adviser, broker, agent or finder on account of this Agreement or any
transaction contemplated hereby, except that Hill Thompson Capital Markets,
Inc. has been retained as the Company's financial advisor in connection
with certain matters including the transactions contemplated hereby. The
Company has heretofore furnished to Parent a complete and correct copy of
all agreements between the Company and Hill Thompson Capital Markets, Inc.
pursuant to which such firm would be entitled to any payment relating to
the transactions contemplated hereby. Other than the foregoing
arrangements and Frederick Marino's arrangements with Proteus International
Group Incorporated, the Company is not aware of any claim for payment of
any finder's fee, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to the Merger, this Agreement
or the consummation of the transactions contemplated hereby.
5.18 SUBSIDIARIES. The Company's subsidiaries and investments in any
other corporation, partnership, joint venture or other business
organization are listed in SCHEDULE 5.18 hereto. The Company owns
beneficially and of record all of the outstanding shares of capital stock
or other equity interest of each of its subsidiaries, and such shares or
other equity interest are duly authorized, validly issued, fully paid and
non-assessable, and are free and clear of all preemptive rights and, except
as set forth on SCHEDULE 5.18 hereto, all liens, charges, encumbrances,
equities, claims and options whatsoever. There are not any outstanding
subscriptions, options, warrants or other rights, agreements or commitments
to purchase any additional shares of such subsidiary's capital stock or any
other securities convertible into or evidencing the right to subscribe for
any capital stock of such subsidiary. Except as disclosed in SCHEDULE 5.18,
all of the outstanding shares of capital stock or other equity interest of
each of the Company's subsidiaries are owned beneficially and of record by
the Company free of any lien, restriction or encumbrance and said shares
have been duly authorized and validly issued and are outstanding, fully
paid and non-assessable.
5.19 DISCLOSURE. The representations, warranties and statements made
by the Company in this Agreement and in the schedules and exhibits attached
hereto and in the certificates and other documents delivered pursuant to
Section 8.3(a) and 8.3(b) hereof do not contain any untrue statement of a
material fact, and, when taken together, do not omit to state any material
fact necessary to make such representations, warranties and statements, in
light of the circumstances under which they are made, not misleading and
may be relied upon regardless of any investigation by or independent
inquiry or knowledge of Parent, Acquisition Sub or any of their respective
employees, consultants, advisers or affiliates. Parent and Acquisition Sub
acknowledge that they are not relying on any representations and warranties
other than the representations and warranties contained in this Agreement
and the schedules and exhibits attached hereto.
6. CONDUCT OF BUSINESS PENDING THE MERGER
6.1 CONDUCT OF BUSINESS BY THE COMPANY. During the period from the
date of this Agreement to the Effective Time, except as otherwise
contemplated by this Agreement or as set forth in SCHEDULE 6.1 hereto, the
Company shall, and shall cause each of its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course, reasonably
consistent with past practice in all material respects, and use their best
efforts to preserve intact their present business organizations, keep
available the services of their present advisors, managers, officers and
employees and preserve their relationships in all material respects with
customers, suppliers, licensors and others having business dealings with
them and continue existing contracts (for the term provided in such
contracts), provided that the Company shall not be required to make any
payments (cash or otherwise) outside the ordinary course or enter into or
amend any contractual arrangements or understandings to satisfy the
foregoing obligations; PROVIDED, HOWEVER, that the covenant contained in
this sentence shall not be deemed to be breached in any material respect
unless any actions or failures to act when taken together constituted
unreasonable business judgements determined on the basis of the Company's
compliances, or non-compliances, taken on the whole with this sentence; and
the Company shall have the right within ten (10) days after receipt of the
written notice from Parent to cure any such claimed breach as is reasonably
susceptible of cure. Notwithstanding the foregoing and without limiting
the generality of the foregoing, neither the Company nor any of its
subsidiaries will (except as expressly permitted by this Agreement or to
the extent that Parent shall otherwise consent in writing):
(a) (i) declare, set aside or pay any dividend or other
distribution (whether in cash, stock, or property or any combination
thereof) in respect of any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or (iii) repurchase, redeem or
otherwise acquire any of its securities, except, in the case of clause
(iii), for the acquisition of shares of Company Common Stock from holders
of the Options in full or partial payment of the exercise price payable by
such holders upon exercise of the Options outstanding on the date of this
Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting
of options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including,
without limitation, stock appreciation rights) (other than the issuance of
Company Common Stock upon the exercise of the Options outstanding on the
date of this Agreement in accordance with their present terms);
(c) acquire, sell, lease, encumber, transfer or dispose of any
assets outside the ordinary course of business which are material to the
Company and its subsidiaries taken as a whole (whether by asset
acquisition, stock acquisition or otherwise), except pursuant to
obligations in effect on the date hereof which have been disclosed in
writing to Parent and Acquisition Sub prior to the date hereof;
(d) (i) incur any indebtedness for borrowed money, guarantee any
indebtedness, issue or sell debt securities or warrants or rights to
acquire any debt securities, guarantee (or become liable for) any debt of
others, make any loans, advances or capital contributions, mortgage, pledge
or otherwise encumber any material assets, or create or suffer any material
lien thereupon, other than, as to each of the foregoing, in the ordinary
course of business reasonably consistent with prior practice or (ii) incur
any short-term indebtedness for borrowed money, except, in each such case,
pursuant to credit facilities in existence on the date hereof under the
terms thereof on the date hereof, which credit facilities have been
disclosed in writing to Parent and Acquisition Sub prior to the date
hereof;
(e) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than any payment, discharge or satisfaction (i) in the
ordinary course of business reasonably consistent with past practice, or
(ii) in connection with the transactions contemplated by this Agreement;
(f) change any of the accounting principles or practices used by
it (except as required by generally accepted accounting principles, in
which case written notice shall be provided to Parent and Acquisition Sub
prior to any such change);
(g) except as required by law, (i) enter into, adopt, amend or
terminate any employee benefit plan, (ii) enter into, adopt, amend or
terminate any agreement, arrangement, plan or policy between the Company or
any of its subsidiaries and one or more of their directors or officers, or
(iii) except for normal increases in the ordinary course of business
reasonably consistent with past practice, increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan or arrangement as in effect as of the
date hereof;
(h) adopt any amendments to the Company's Certificate or the
Company's By-laws, except as expressly provided by the terms of this
Agreement;
(i) enter into a new agreement or amend any existing agreement
which could reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole;
(j) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(k) enter into or amend, extend or otherwise alter any
collective bargaining agreement;
(l) settle or compromise any litigation (whether or not
commenced prior to the date of this Agreement) other than settlements or
compromises or litigation where the amount paid (after giving effect to
insurance proceeds actually received) in settlement or compromise does not
exceed $50,000;
(m) grant any new or modified severance or termination
arrangement or increase or accelerate any benefits payable under its
severance or termination pay policies in effect on the date hereof, except
with respect to the Options and except to the extent provided by the terms
of any such arrangements or policies in effect on the date hereof which
arrangements or policies have been disclosed in SCHEDULE 5.8 hereto;
(n) except as set forth on SCHEDULE 6.1 hereto, enter into any
transaction, contract or arrangement with any affiliate;
(o) except as set forth on SCHEDULE 6.1 hereto, enter into any
other material agreement, arrangement or understanding, whether oral or
written, outside the ordinary course of business;
(p) enter into an agreement to take any of the foregoing actions
or enter into an agreement that would foreseeably result in the failure of
any of the conditions to the Merger set forth in Section 8 hereof to occur
or be satisfied; or
(q) authorize any of, or commit or agree to take any of, or take
any corporate action in furtherance of, any of the foregoing actions.
Notwithstanding the foregoing, the Company may negotiate and enter
into a collective bargaining agreement with Local 282, the existing
contract of which expires December 31, 1996, on terms acceptable to the
Company, without the consent of Parent or Acquisition Sub and the absence
of an agreement with Local 282 after December 31, 1996 or a resulting
strike by Local 282 shall not be deemed to have a Material Adverse Effect
on the Company or constitute the failure of any obligations under this
Agreement.
7. ADDITIONAL AGREEMENTS
7.1 PROXY STATEMENT; OTHER FILINGS. As promptly as practicable, the
Company shall prepare, shall file with the Commission under the Exchange
Act, shall use its best efforts to have cleared by the Commission and
promptly thereafter shall mail to its stockholders, a Proxy Statement with
respect to the meeting of the Company's stockholders referred to in
Section 7.2. The term "PROXY STATEMENT" shall mean such proxy statement,
as the case may be, and all related proxy materials at the time such
documents initially are mailed to the Company's stockholders, and all
amendments or supplements thereto, if any, similarly filed and mailed. The
Company shall give Parent and its counsel a reasonable opportunity to
review and comment upon the Proxy Statement prior to its being filed with
the Commission and shall give Parent and its counsel a reasonable
opportunity to review all amendments and supplements to the Proxy Statement
and all responses to requests for additional information and replies to
comments prior to their being filed with, or sent to, the Commission and,
in the case of the Proxy Statement and any amendments or supplements
thereto, prior to its being disseminated to holders of shares of Company
Common Stock. As promptly as practicable, the Company, Parent and
Acquisition Sub each shall properly prepare and file any other filings
required under the Exchange Act or any other federal or state law relating
to the Merger and the transactions contemplated herein (including filings,
if any, required under the Hart-Scott-Rodino Act) (collectively, "OTHER
FILINGS"). Each of Parent and the Company shall promptly notify the other
of the receipt of any comments on, or any request for amendments or
supplements to, the Proxy Statement or any Other Filings by the Commission
or any other governmental entity or official, and each of the Company and
Parent shall supply the other with copies of all correspondence between it
and each of its subsidiaries and representatives, on the one hand, and the
Commission or the members of its staff or any other appropriate
governmental official, on the other hand, with respect to the Proxy
Statement and any of the Other Filings. The Company, Parent and
Acquisition Sub each shall use its respective best efforts to obtain and
furnish the information required to be included in the Proxy Statement and
any Other Filings, and the Company, after consultation with Parent, shall
use its best efforts to respond promptly to any comments made by the
Commission with respect to the Proxy Statement and any preliminary version
thereof. The information provided and to be provided by Parent,
Acquisition Sub and the Company, respectively, for use in the Proxy
Statement shall, on both the date the Proxy Statement is first mailed to
the Company's stockholders as referred to in Section 7.2 hereof and the
date such stockholders meeting is held, not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the stockholders' meeting which shall have
become false or misleading, and shall comply in all material respects as to
form and substance with all applicable requirements of law. Parent, the
Company and Acquisition Sub each agree to correct promptly any such
information provided by it for use in the Proxy Statement which shall have
become false or misleading.
7.2 MEETING OF THE COMPANY'S STOCKHOLDERS. In order to consummate the
Merger, the Company, acting through the Board, shall take all action
necessary in accordance with applicable laws, the Company's Certificate and
By-laws to duly call, give notice of, convene and hold an annual or special
meeting of its stockholders as promptly as practicable to consider and vote
upon the approval and adoption of this Agreement and the approval of the
Merger and to take such other action as is necessary or desirable to
consummate the transactions contemplated hereby (the "STOCKHOLDERS'
MEETING"). Except to the extent required by law or the Company's By-Laws
(a) the Company shall not convene any meeting of its Stockholders prior to
the Stockholders' Meeting, and (b) the company shall not present any other
matter at the Stockholders' Meeting except for the matters contemplated by
this Agreement. At the Stockholders' Meeting, all the shares of Company
Common Stock owned by Parent, Acquisition Sub or any other subsidiary or
affiliate of Parent shall be voted in favor of the Merger. The stockholder
vote required for the adoption of this Agreement and the Merger shall be
the vote required by the Corporation Law. The Proxy Statement shall,
except to the extent legally required under the Corporation Law for the
discharge of the fiduciary duties of the Board as advised by its counsel,
contain the determination and the recommendation of the Board that the
stockholders of the Company approve and adopt this Agreement and the
transactions contemplated hereby including the Merger and the Company,
acting through the Board, shall use its best efforts to obtain such
approval and adoption. Parent and the Company shall coordinate and
cooperate with respect to the foregoing matters.
7.3 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts
(i) to take, or cause to be taken, all actions and (ii) to do, or cause to
be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement and to cooperate with each other in connection with the
foregoing, including the taking of such actions as are necessary to obtain
any necessary consents, approvals, orders, exemptions and authorizations by
or from any public or private third party, including without limitation any
that are required to be obtained under any federal, state or local law or
regulation or any contract, agreement or instrument to which the Company or
any subsidiary is a party or by which any of their respective properties or
assets are bound, (iii) to defend all lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions
contemplated hereby, (iv) to cause to be lifted or rescinded any injunction
or restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby, and (v) to
effect all necessary registrations and Other Filings, including, but not
limited to, filings under the Hart-Scott-Rodino Act, if any, and
submissions of information requested by governmental authorities. Each of
the parties hereto further agrees to use its respective best efforts to
effectuate the Merger as soon as reasonably practicable after February 28,
1997 in the event that the Merger has not been consummate on or prior to
such date. Without limiting the generality of the foregoing, Parent and
Acquisition Sub will use their best efforts to obtain appropriate financing
to consummate the Merger. For purposes of the foregoing sentence and as to
the Company's obligations under Section 5.13(b)(i)(D) hereof, the
obligation of the Company, Parent and Acquisition Sub to use their "best
efforts" to obtain waivers, consents and approvals to loan agreements,
leases and other contracts shall not include any obligation to agree to an
adverse modification of the terms of such documents or to prepay or incur
additional obligations (payment or otherwise) to such other parties.
7.4 FEES AND EXPENSES. Except as set forth in Section 9.2 below,
whether or not the Merger is consummated, all fees, costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such cost or
expense. Notwithstanding the foregoing, upon consummation of the Merger,
Parent may be reimbursed by the Company for all costs and expenses incurred
by Parent and Acquisition Sub in connection with this Agreement and the
transactions contemplated hereby.
7.5 NO SOLICITATIONS.
(a) Unless and until this Agreement shall have been terminated
in accordance with its terms, the Company agrees and covenants that (i)
neither it nor any of its subsidiaries shall, and each of them shall direct
and use its best efforts to cause its respective officers, directors,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or any of its
subsidiaries) not to, directly or indirectly, initiate, solicit or
encourage any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, tender offer, exchange
offer, consolidation or similar transaction involving any purchase of 10%
or more of the assets or securities of the Company or any of its
subsidiaries, other than the transactions contemplated by this Agreement
(any such proposal or offer being hereinafter referred to as an
"ACQUISITION PROPOSAL") or engage in any negotiations with, or provide any
confidential information or data to, or have any discussions with, any
person relating to, an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal; (ii) the
Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any persons conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to above of the
obligations undertaken in this Section; and (iii) the Company will notify
the Parent immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, the Company,
which notification shall include the terms of any such inquiries or
proposals.
(b) Notwithstanding anything set forth in this Agreement to the
contrary, the Board may furnish or cause to be furnished by any committee
thereof, any executive officer of the Company, the Company's counsel or the
Company's investment advisor information or data to or enter into
discussions or negotiations with any person that on an unsolicited basis,
makes a bona fide Acquisition Proposal, if, and only to the extent that,
the Board (x) determines in good faith, after consideration of written
advice of its financial advisors, that the Acquisition Proposal, if
consummated as proposed, may result in a transaction more favorable to the
Company's stockholders from a financial point of view than the transactions
contemplated by this Agreement (any such Acquisition Proposal being
referred to herein as a "SUPERIOR PROPOSAL") and (y) determines in good
faith, after consultation with its outside counsel, that the failure to
take such action may be a breach of the directors' fiduciary duties under
applicable law, provided that prior to furnishing such information to, or
entering into discussions or negotiations with, such person, the Company
provides written notice to Parent to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such
person and the Company keeps Parent informed of the status of any such
discussions or negotiations and the principal terms of any such Acquisition
Proposal. Notwithstanding the foregoing (a) the Company and its
representatives (as set forth above) may advise any person expressing an
interest in the Company and/or making an Acquisition Proposal that such
person must review and comply with, and the Company must comply with, the
provisions of Section 7.5 hereof (as contained in this Agreement as filed
with the Commission) prior to the Company entering into any discussion or
negotiations with such person or providing any information or data to such
person, and any such statement to such effect (when initially made to such
person) shall not constitute a breach of this Agreement, and (b) nothing
contained herein shall preclude the Company from entering into a definitive
agreement with any person providing a bona fide Acquisition Proposal that
the Company is entitled to negotiate pursuant to the terms of this Section
7.5 provided that the Company and its representatives comply with the
obligations contained in this Section 7.5 and in Sections 9.1(f) and 9.2
hereof. As used in this Agreement, the word "person" means an individual,
a corporation, a partnership, an association, a joint-stock company, a
trust, a limited liability company, an unincorporated organization or any
other entity.
7.6 OFFICERS' AND DIRECTORS' INSURANCE; INDEMNIFICATION. Parent
agrees that all rights to indemnification existing in favor of, and all
limitations on the personal liability of, the directors and officers of the
Company provided for in the Company's Certificate and in each subsidiaries'
certificate of incorporation (or similar organizational document) or their
respective By-laws as in effect as of the date hereof with respect to
matters occurring prior to the Effective Time shall continue without
amendment in full force and effect for a period of not less then six (6)
years from the Closing; PROVIDED, HOWEVER, that all rights to
indemnification in respect of any claims (a "CLAIM") asserted or made
within such period shall continue until the disposition of such Claim. At
or prior to the Effective Time, Parent also shall continue the Company's
existing directors' and officers' liability insurance coverage for the
Company's directors in a form reasonably acceptable to the Company which
shall provide such directors with coverage for six years following the
Effective Time; PROVIDED, HOWEVER, that the cost of such policy shall not
exceed $200,000 in the aggregate. Notwithstanding anything to the contrary
in this Section 7.6, nothing contained in this Section 7.6 shall at any
time be construed to limit or otherwise impair or shall at any time limit
or otherwise impair the rights of any officer or director to
indemnification for acts occurring prior to the Effective Date by the
Company, any subsidiary or the Surviving Corporation under the Corporation
Law, it being understood that the provisions of this Section 7.6 constitute
a contractual obligation.
7.7 ACCESS TO INFORMATION; CONFIDENTIALITY. From the date hereof
until the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, employees and agents to, afford to Parent and to
the officers, employees and agents of Parent complete access at all
reasonable times to their officers, employees, agents, properties, books,
records and contracts, and shall furnish Parent such financial, operating
and other data and information as Parent may reasonably request PROVIDED,
HOWEVER, that the Company shall not be required to disclose or permit
access to certain information regarding the deliberations of the Company's
Board of Directors or committees thereof to the extent same relates solely
to an Acquisition Proposal or this Agreement. Prior to the Effective Time,
Parent and Acquisition Sub shall hold in confidence all such information on
the terms and subject to the conditions contained in that certain
confidentiality agreement between Fidelity Ventures Limited and the Company
(the "CONFIDENTIALITY AGREEMENT") the provisions of which shall survive the
termination of this Agreement. The parties hereto on behalf of the
signatories to the Confidentiality Agreement hereby waive the provisions of
the Confidentiality Agreement as and to the extent necessary to permit the
making and consummation of the transactions contemplated hereby. Upon the
consummation of the Merger, such Confidentiality Agreement shall terminate.
7.8 FINANCIAL AND OTHER STATEMENTS. Notwithstanding anything
contained in Section 7.7, during the term of this Agreement, the Company
shall also provide to Parent the following documents and information:
(a) As soon as reasonably available, but in no event more than
45 days after the end of each fiscal quarter ending after the date of
this Agreement, the Company will deliver to Parent its Quarterly
Report on Form 10-Q as filed under the Exchange Act. The Company will
also deliver to Parent, contemporaneously with its being filed with
the SEC, a copy of all Current Reports on Form 8-K.
(b) Promptly upon receipt thereof, the Company will furnish to
Parent copies of all internal control reports submitted to the Company
or any subsidiary by independent accountants in connection with each
annual, interim or special audit of the books of the Company or any
such subsidiary made by such accountants.
(c) As soon as practicable, the Company will furnish to Parent
copies of all such financial statements and reports as it or any
subsidiary shall send to its stockholders, the Commission or any other
regulatory authority, to the extent any such reports furnished to any
such regulatory authority are not confidential and except as legally
prohibited thereby.
(d) With reasonable promptness, the Company will furnish to
Parent (i) monthly profit and loss statements, (ii) a listing of
accounts receivable, including aging, as of the end of each month,
(iii) inventory analysis as of the end of each month, (iv) a listing
of accounts payable, including aging, as of the end of each month, and
(v) such additional financial data as Parent may reasonably request.
7.9 OBSERVER RIGHTS. From the date hereof until the earlier to occur
of the Effective Time or the termination of this Agreement in accordance
with its terms, the Company shall afford a representative designated by
Parent observation rights for all meetings (whether in person, telephonic
or otherwise) of the Company's Board of Directors and shall provide Parent
and Acquisition Sub copies of all notices, minutes, consents and other
materials that it provides to its directors in the same manner and at the
same time as it provides such materials to its directors (including those
related to the committees thereof), except to the extent the same relates
solely to an Acquisition Proposal or this Agreement; provided, however,
that such representative shall agree to hold in confidence all information
so provided.
7.10 ADVICE OF CHANGE; SCHEDULE UPDATE. Each party will promptly
advise the other of (i) any change or the occurrence or non-occurrence of
any event having a Material Adverse Effect or which would be reasonably
likely to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect and (ii) any material
failure of such party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement.
7.11 ROWLEY BUILDING TRANSACTION. The Company shall involve Parent
and its advisors in its continued investigations of and discussions with
Rowley Building Products Corp. ("ROWLEY BUILDING PRODUCTS"), shall consult
with Parent regarding any proposed transaction involving Rowley Building
Products including the structure of the transaction, the form and substance
of the documents to be executed in connection with such transaction and the
specific nature of any post-closing obligations (payment, indemnification
or otherwise) and agrees to not consummate any such transaction without the
prior written consent of Parent.
7.12 CERTAIN LITIGATION. Notwithstanding anything to the contrary
contained in this Agreement, the outcome of the currently pending
litigation commenced against the Post Authority of New York and New Jersey
(the "PORT AUTHORITY") and the Company and/or one or more of its
subsidiaries in the United States District Court for the Eastern District
of New York (styled as Case No.: CV96-3793), and any related legal
proceeding in state or federal court including without limitation any
reasonably related legal proceedings instituted by individual members of
the coalition which is the plaintiff in the aforementioned proceeding
involving the lease dated March 29, 1996 between the Company and the Port
Authority (the "PORT AUTHORITY LEASE"), shall not constitute an event which
gives rise to a failure of a condition to Parent's and Acquisition Sub's
respective obligations under this Agreement (including without limitation,
if the Port Authority Lease is deemed unenforceable and the Company has not
secured or occupied another location prior to the expiration of the
Company's lease at 550 Hamilton Avenue, Brooklyn, New York), or which
otherwise provides Parent or Acquisition Sub with the right to decline to
consummate the Merger as a result of a failure of a closing condition. The
Company has, prior to the date hereof, delivered a true and correct copy of
the Indemnification Agreement, dated October 8, 1996, by and between the
Port Authority and the Company and/or one or more of its subsidiaries (the
"INDEMNIFICATION AGREEMENT"). The Company (a) shall keep Parent and its
counsel advised in writing of the status of, and material developments in,
the pending legal proceeding referred to above, (b) shall notify Parent and
its counsel in writing of the commencement of any related legal proceeding,
(c) shall preserve its rights under the Indemnification Agreement, and (d)
shall not settle or compromise the pending legal proceeding or any such
related legal proceeding without the prior written consent of Parent and
Acquisition Sub, which consent shall not be unreasonably withheld.
7.13 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statements or announcements with respect to this Agreement or any
transaction contemplated herein and shall not issue any such press release
or make any such public statement without the prior written consent of the
other party, which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that a party may, without the prior consent of the other party,
issue such press release or make such public statement or announcement as
may be required by law if it has used its reasonable best efforts to
consult with the other party and to obtain such party's consent but has
been unable to do so. Notwithstanding anything to the contrary set forth
in this Agreement, the Company shall not, and shall use its best efforts to
ensure that its stockholders, directors, officers, employees, agents,
advisors or affiliates do not, disclose any information concerning Parent
or any of its affiliates without the prior written consent of a majority of
the equity holders of Parent. Access to any information concerning Parent
and its affiliates shall be limited by the Company only to those employees,
advisors and representatives who have a need to receive any such
information for the purpose of consummating the Merger and the other
transactions contemplated by this Agreement and who are under an
enforceable obligation to the Company to hold such information in
confidence under similar terms and conditions as set forth in the
Confidentiality Agreement.
7.14 ENVIRONMENTAL MATTERS. The Company (a) shall promptly prepare
and file all such reports, notices, filings, requests for consent or
waiver, applications for permit or license and such other documents (if
any) as required by applicable federal, state and local law with respect to
those environmental matters set forth in, or referred to in, SCHEDULE 5.11
hereto, and (b) shall promptly notify Parent and its counsel in writing of
any matter, issue, discovery, notice or other event which occurs, or of
which the Company becomes aware, after the date hereof, and which would
have required disclosure on SCHEDULE 5.11 hereto had it occurred or had the
Company become aware prior to the date hereof.
7.15 STOP TRANSFER; REORGANIZATION AGREEMENT. The Company
acknowledges and agrees to be bound by and comply with the provisions of
the Proxy Agreement as if a party thereto with respect to transfers of
record ownership of shares of the Common Stock, and agrees to notify the
transfer agent of the provisions of the Proxy Agreement and to request that
the transfer agent place a stop transfer order on the shares that are
subject to the provisions of such agreement except for the transfers
permitted by Section 1(a) of the Proxy Agreement. The Company hereby
waives any and all rights that it might have under the Agreement and Plan
of Reorganization dated October 1, 1986 by and among the Company and the
Stockholders (as defined therein), as amended (the "REORGANIZATION
AGREEMENT"), to the extent necessary to consummate the transaction
contemplated hereby and in order for the Principal Stockholders to enter
into the Proxy Agreement. The Company further agrees not to take any
action under such Reorganization Agreement that would affect the Proxy
Agreement and the arrangements contained therein. Furthermore, the Company
agrees that, at the Effective Time, the Reorganization Agreement shall
terminate as to the Company and the Company shall have no further rights
thereunder.
7.16 TRANSFER TAXES. Acquisition Sub and Parent agree that either
Acquisition Sub or the Company will pay the applicable state and local
transfer taxes arising as a result of the consummation of the Merger
(collectively, the "TRANSFER TAXES") including but not limited to the New
York State Real Property Transfer Tax, the New York City Real Property
Transfer Tax and the Connecticut Real Estate Conveyance Tax, if any, and
any penalties or interest with respect to the Transfer Taxes payable as a
result of the consummation of the Merger. The Company agrees to cooperate
with Acquisition Sub in the filing of any returns with respect to the
Transfer Taxes, including supplying in a timely manner any information with
respect to the Company's real property interests that is reasonably
necessary to complete such returns.
8. CONDITIONS TO THE MERGER
8.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver, where permissible, at or prior to the
Effective Time, of each of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby, including the Merger, shall have been approved and
adopted by the affirmative vote of the stockholders of the Company to the
extent required by the Corporation Law and the Company's Certificate.
(b) [Intentionally Omitted]
(c) OTHER REGULATORY APPROVALS. All necessary approvals,
authorizations and consents of any governmental or regulatory entity
required to consummate the Merger shall have been obtained and remain in
full force and effect, and all waiting periods relating to such approvals,
authorizations and consents shall have expired or been terminated, except
where the failure to so obtain will not, either individually or in the
aggregate, have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole .
(d) NO INJUNCTIONS, ORDERS OR RESTRAINTS; ILLEGALITY. No
preliminary or permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission nor any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority shall
be in effect which would (i) make the consummation of the Merger illegal,
or (ii) otherwise restrict, prevent or prohibit the consummation of the
transactions contemplated by this Agreement, including the Merger.
8.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the
satisfaction, or waiver by the Company, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of Parent and Acquisition Sub in this Agreement which is
qualified as to materiality shall be true and correct and each such
representation or warranty that is not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Effective Date. Parent and
Acquisition Sub shall each have delivered to the Company a certificate of
such party to such effect signed by the Manager or Managers (as the case
may be) of Parent dated as of the Effective Date.
(b) AGREEMENTS AND COVENANTS. Parent and Acquisition Sub shall
have performed in all material respects all obligations and complied in all
material respects with all of the respective agreements or covenants to be
performed or complied with by such party under this Agreement and the
Company shall have received a certificate signed by the Chief Executive or
Chief Financial Officer of Parent to such effect dated as of the Effective
Date.
8.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND
ACQUISITION SUB. The obligations of Parent and Acquisition Sub to effect
the Merger are also subject to the satisfaction, or waiver by Parent and
Acquisition Sub, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of the Company in this Agreement which is qualified as to
materiality shall be true and correct and each such representation or
warranty that is not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement, as applicable, and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Effective Time. The Company shall have delivered
to Parent a certificate of the Company to such effect signed by the Chief
Executive Officer and the Chief Financial Officer of the Company as of the
Effective Date.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed
in all material respects all obligations and complied in all material
respects with all agreements or covenants of the Company to be performed or
complied with by it at or prior to the Effective Date under this Agreement
and Parent shall have received a certificate signed on behalf of the
Company by the Chief Executive Officer and Chief Financial Officer of the
Company to such effect dated as of the Effective Date.
(c) NO ORDERS, INJUNCTIONS OR RESTRAINTS ON OPERATION OF
BUSINESS; ILLEGALITY. No pending legal proceeding in (a "PENDING
LITIGATION"), or preliminary or permanent injunction or other order, decree
or ruling issued by, a court of competent jurisdiction or pending in
(together with a Pending Litigation a "PENDING LEGAL PROCEEDING"), or
issued by, a governmental, regulatory or administrative agency or
commission nor any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority shall be in effect, which (i)
restricts, prevents or prohibits the ownership or operation by Parent (or
any of its subsidiaries) of any portion of its or the Surviving
Corporation's or its subsidiaries' business, properties or assets which is
material to such businesses as a whole, or compels Parent (or any of its
subsidiaries) to dispose of or hold separate any portion of the Surviving
Corporation's or its subsidiaries' business, properties or assets which is
material to such businesses as a whole, (ii) imposes any material
limitation on the ability of Parent or Acquisition Sub to effect the Merger
or on the ability of Parent to hold or to exercise full rights of ownership
of the shares of common stock of the Surviving Corporation, including,
without limitation, the right to vote the shares of common stock of the
Surviving Corporation on all matters presented to the stockholders of the
Surviving Corporation, (iii) imposes any limitations on the ability of
Parent or any of its affiliates or subsidiaries to control in any material
respect the business, properties and operations of the Company or the
Surviving Corporation, or (iv) occurs after the execution of this Agreement
and is otherwise reasonably likely to have a Materially Adverse Effect on
the Surviving Corporation and its subsidiaries taken as a whole.
(d) FINANCIAL MARKETS. There shall not have occurred (i) any
general suspension of trading in, or limitation on prices for, securities
on the New York Stock Exchange, the American Stock Exchange or The Nasdaq
Stock Market, Inc.'s National Market, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States having a significant effect on the
functioning of financial markets in the United States, or (iv) any
limitation (whether or not mandatory) by any United States governmental
authority or agency on the extension of credit by banks or other financial
institutions which would have a material adverse effect on Parent's ability
to borrow sufficient funds as contemplated by the Financing Letters to pay
the Merger Consideration.
(e) NO MATERIAL ADVERSE EFFECT. Since the date of the
Agreement, there shall not have occurred any change having a Material
Adverse Effect on the Company and its subsidiaries taken as a whole
PROVIDED, HOWEVER, that the financial results of the Company for the three
months ended March 31, 1997, to the extent that they are reasonably
consistent with the financial results for the three months ended March 31,
1996, shall be excluded in determining any such change.
(f) THIRD PARTY CONSENTS. The Company shall have obtained all
consents of third parties to the consummation of the Merger and the other
transactions contemplated by this Agreement (other than the Financing,
except as specifically contemplated in this Agreement) necessary under any
contract, agreement, arrangement or understanding listed on SCHEDULE 8.3(F)
hereto and under any other contract, agreement, arrangement or
understanding the failure of which to obtain would have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole.
(g) WAIVERS OF CONTRACTUAL DEFAULTS, ACCELERATIONS, ETC. The
Company shall have obtained waivers (on terms satisfactory to Parent and
Acquisition Sub) with respect to any default, termination, acceleration of
payment or performance or modification clause contained in any contract,
agreement, commitment, arrangement, lease, policy or other instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries, or their respective properties or
assets is bound which is triggered or otherwise caused by reason of the
entering into this Agreement or the consummation of the Merger and the
other transactions contemplated by this Agreement (other than the
Financing, except as specifically contemplated in this Agreement), except
where the failure to have so obtained would not have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole, on the
Surviving Corporation and its subsidiaries taken as a whole, on the Parent
or on the ability to consummate the Merger.
(h) APPRAISAL RIGHTS. Holders of capital stock of the Company
shall not have demanded or perfected the right for appraisal of shares of
Company Stock representing more than five percent (5%) of all issued and
outstanding shares of capital stock of the Company taken as a whole as of
the Effective Date in accordance with Section 262 of the Corporation Law
and the Company shall have delivered to Parent a certificate dated as of
the Effective Date certifying to the foregoing effect.
(i) STOCK OPTION PLANS. Parent shall have received satisfactory
evidence (x) that holders of all Options have consented to the cancellation
of such Options and (y) that such Options and the Stock Option Plans will
terminate at or prior to the Effective Time.
8.4 CERTAIN PAYMENTS. In the event Parent and Acquisition Sub elect
to not consummate the Merger and the other transactions contemplated under
this Agreement as a result of a Pending Legal Proceeding, Parent shall
reimburse the Company for the Company Expenses (as defined in Section
9.2(d) hereof) which payment shall be payable to the Company (by wire
transfer of immediately available funds to an account designated by the
Company) within two (2) business days after demand theretofore is made in
writing by the Company.
9. TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of Parent, Acquisition Sub and the
Company;
(b) by either Parent and Acquisition Sub or the Company if the
Effective Time shall not have occurred on or before March 31, 1997 or such
later date as shall be mutually agreed to in each party's sole discretion;
(c) by either Parent and Acquisition Sub or the Company if there
shall have been a material breach of any of the representations or
warranties set forth in this Agreement on the part of the other party,
which breach by its nature cannot be cured prior to the Effective Time or
within thirty (30) business days following receipt by the breaching party
of written notice of such breach from the other party hereto;
(d) by either Parent and Acquisition Sub or the Company if any
United States federal or state court of competent jurisdiction shall have
issued an injunction or taken any other action (which the parties shall use
their best efforts to stay or reverse) permanently restraining, enjoining
or otherwise prohibiting the Merger, and such injunction or other action
shall have become final and non-appealable;
(e) by the Company if either Parent or Acquisition Sub shall
have failed to perform or has breached in any material respect any of its
covenants, obligations or agreements under or contained in this Agreement
unless the failure to so perform or the breach, as the case may be, has
been caused by or results from a breach of this Agreement by the Company;
(f) by the Company if the Company enters into a binding
definitive agreement to effect a Superior Proposal (which entrance shall
not require Parent's or Acquisition Sub's consent); PROVIDED, HOWEVER, that
the Company shall notify Parent in writing at least three business days
prior to the exercise of its termination rights under this Section 9.1(f),
where such notice shall include the proposed terms of such agreement into
which the Company may enter;
(g) by Parent and Acquisition Sub if the Board shall have failed
to recommend or shall have withdrawn its recommendation or approval of the
Merger, or if the Board shall have recommended to stockholders of the
Company any Acquisition Proposal of any other person or shall have resolved
to do any of the foregoing, provided that any notice sent to Parent and
Acquisition Sub under Section 9.1(f) prior to the exercise of the
termination rights under such section shall not require the entrance into
such agreement or be deemed to constitute an act described in this Section
9.1(g) but the entrance into a binding definitive agreement to effect a
Superior Proposal shall constitute an act described in this Section 9.1(g);
(h) by Parent and Acquisition Sub if the Company shall have
failed to perform in any material respect any of its covenants, obligations
or agreements under or contained in this Agreement unless the failure to so
perform or the breach, as the case may be, has been caused by or results
from a breach of this Agreement by Parent or Acquisition Sub; or
(i) by Parent and Acquisition Sub if any United States federal
or state court of competent jurisdiction shall have issued an injunction or
taken any other action (which the parties shall use their best efforts to
stay or reverse) permanently restraining, enjoining or otherwise
prohibiting the enforcement of any of the terms of the Proxy Agreement, and
such injunction or other action shall have become final and non-appealable.
9.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement pursuant
to Section 9.1 hereof, this Agreement shall forthwith become void and have
no effect, without any liability on the part of any party hereto or its
affiliates, trustees, directors, officers or stockholders and all rights
and obligations of any party hereto shall cease except for the agreements
contained in Sections 7.4, 7.7, 9 and 10; PROVIDED, HOWEVER, that nothing
contained in this Section 9.2(a) shall relieve any party from liability
under this Section 9 for any breach of this Agreement.
(b) If (x) Parent and Acquisition Sub terminate this Agreement
(A) pursuant to Section 9.1(g) or (B) pursuant to Section 9.1(h) as a
result of a willful breach by the Company or (y) if the Company terminates
this Agreement pursuant to Section 9.1(f), then the Company shall pay to
Parent an amount in cash equal to the sum of (i) $1,000,000, plus (ii)
Parent's and Frederick Marino's out-of-pocket costs and expenses in
connection with this Agreement and the transactions contemplated hereby
including, without limitation, fees and disbursements of its outside
counsel, accountants and other consultants retained by or on behalf of
Parent together with the other out-of-pocket costs incurred by it in
connection with analyzing, structuring, participating in the negotiations
of the terms and conditions, arranging financing, conducting due diligence
and other activities related to the Merger and the transactions
contemplated by this Agreement and the negotiations and evaluations leading
to the Merger, including, without limitation, commitment fees and expense
reimbursements paid to potential lenders (collectively, the "PARENT
EXPENSES"). Following the Company's reasonable request, Parent and Mr.
Marino shall provide such reasonable documentation of such expenses to
enable the Company to appropriately account for such expenses in its
financial records and to report such expenses in its tax returns and
reports.
(c) If Parent and Acquisition Sub terminate this Agreement
pursuant to Sections 9.1(h) (except for a termination because of a willful
breach by the Company, in which case the provisions of Section 9.2(b) will
apply), the Company shall reimburse Parent and Mr. Marino for the Parent
Expenses.
(d) If the Company terminates this Agreement pursuant to Section
9.1(e) hereof as a result of a willful breach by Parent and Acquisition
Sub, the Parent and Acquisition Sub shall pay to the Company an amount in
cash equal to the sum of (i) $1,000,000, plus (ii) the Company's
out-of-pocket costs and expenses in connection with this Agreement and the
transactions contemplated hereby including, without limitation, fees and
disbursements of its outside counsel, accountants and other consultants
retained by or on behalf of the Company together with the other
out-of-pocket costs incurred by it in connection with participating in the
negotiations of the terms and conditions of this Agreement and the other
activities related to the Merger and the other transactions contemplated by
this Agreement and the negotiations with Parent and its affiliates leading
to the Merger (collectively, the "COMPANY EXPENSES"). Following Parent's
reasonable request, the Company shall provide such reasonable documentation
of such expenses to enable Parent to appropriately account for such
expenses in its financial records and to report such expenses in its tax
returns and reports.
(e) If the Company terminates this Agreement pursuant to Section
9.1(e) (except for termination because of a willful breach by Parent and
Acquisition Sub, in which case the provisions of Section 9.2(d) will
apply), Parent shall reimburse the Company for the Company Expenses.
(f) Any payment required by this Section 9.2 shall be payable
(i) by the Company to Parent and Mr. Marino, or (ii) by Parent to the
Company, as the case may be, (by wire transfer of immediately available
funds to accounts designated by the recipients thereof) within two business
days after demand therefore is made in writing by the person entitled to
make such demand. The parties acknowledge and agree that the provisions of
this Section 9.2 are included herein in order to induce each of the parties
hereto to enter into this Agreement and to reimburse such parties for
incurring the costs and expenses related to entering into this Agreement
and consummating the transactions contemplated by this Agreement.
(g) Notwithstanding anything to the contrary in this Agreement,
the parties hereto acknowledge and agree that the sole and exclusive
remedies available to them with respect to any proposed or actual
termination of this Agreement or any act or failure to act prior to the
consummation of the Merger and the other transactions contemplated by this
Agreement, including any misrepresentation or breach of any representation,
warranty, covenant, agreement or obligation under this Agreement shall be
the rights to payment under this Section 9.2. The parties hereto expressly
acknowledge and agree that, in light of the difficulty of accurately
determining actual damages with respect to the foregoing, the rights to
payment under this Section 9.2: (i) constitute a reasonable estimate of the
damages that will be suffered by reason of any such proposed or actual
termination of this Agreement or any such act or failure to act in
accordance with this Agreement, and (ii) shall be in full and complete
satisfaction of any and all damages arising as a result of the foregoing.
The parties agree that, except as set forth in this Section 9.2(g), they
shall not, in respect of any proposed or actual termination of this
Agreement or any act or failure to act prior to the consummation of the
Merger and the other transactions contemplated by this Agreement, exercise
or attempt to exercise any other rights or remedies, in contract, at law,
in equity or otherwise against any other party hereto.
9.3 AMENDMENT. This Agreement may be amended by the parties hereto
by an instrument in writing signed on behalf of each of the parties hereto
at any time before or after any approval hereof by the stockholders of the
Company and Acquisition Sub; provided, however, that after any such
approval of the Company's stockholders, no amendment shall be made which
reduces the amount or changes the form of the Merger Consideration or in
any way materially adversely affects the rights of stockholders of the
Company, without the further approval of such stockholders.
9.4 EXTENSION; WAIVER. At any time prior to the Closing, the parties
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in a written instrument signed
on behalf of such party.
10. GENERAL PROVISIONS
10.1 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered if delivered personally or as of the
date sent if sent by cable, telegram or telecopier, or, as of the next
business day if sent by prepaid overnight carrier to the parties at the
following addresses (or at such other addresses as shall be specified by
the parties by like notice):
(a) if to Parent or Acquisition Sub:
c/o Fidelity Capital Associates, Inc.
82 Devonshire Street, R25C
Boston, MA 02109-3614
Attn: Mr. John J. Remondi
with a copy to:c/o Fidelity Capital Associates, Inc.
82 Devonshire Street, E2OE
Boston, MA 02109-3614
Attn: Robert M. Gervis, Esq.
and a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Laura C. Hodges Taylor, P.C.
Joseph L. Johnson III, Esq.
(b) if to the Company:550 Hamilton Avenue
Brooklyn, New York 11232
Attention: President
with a copy to:Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attn: Stanley U. North, III, Esq.
10.2 INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of Parent, Acquisition Sub or the Company, the word
"subsidiary" means any corporation more than 50 percent of whose
outstanding voting securities, or any partnership, joint venture or other
entity more than 50 percent of whose total equity interest, is directly or
indirectly owned by Parent, Acquisition Sub or the Company, as the case may
be. 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.
10.3 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANT AND
AGREEMENTS. Except for Section 7.6, and the obligations contained in
Section 3 hereof, none of the representations, warranties, covenants and
agreements contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time, and thereafter
there shall be no liability on the part of either Parent, Acquisition Sub
or the Company or any of their respective officers, directors or
stockholders in respect thereof. Except as expressly set forth in this
Agreement, there are no representations or warranties of any party hereto,
express or implied.
10.4 MISCELLANEOUS. This Agreement (i) constitutes, together with the
Confidentiality Agreement, the entire agreement and supersedes all of the
prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof, (ii)
shall be binding upon and inure to the benefits of the parties hereto and
their respective successors and permitted assigns and is not intended to
confer upon any other person (except as set forth below) any rights or
remedies hereunder and (iii) may be executed in two or more counterparts
(and via facsimile) which together shall constitute a single agreement.
Section 7.6 is intended to be for the benefit of those persons described
therein and their respective legatees, distributees, heirs, estates,
executors and other personal representatives, as fully in each case as if
each such person was a party hereto and the covenants contained therein may
be enforced by such persons. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties and
each of the persons referred to Section 7.6 and this Section 10.4 shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in
the Chancery Court of the State of Delaware, this being in addition to any
other remedy to which they are entitled at law or in equity that is not
limited by this Agreement.
10.5 ASSIGNMENT. Except as expressly permitted by the terms hereof,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties (and any assignment to a non-permitted
assignee shall be void and of no effect).
10.6 KNOWLEDGE; BEST EFFORTS. Wherever the terms "the Company's
knowledge," "the Company's best knowledge," "the receipt of notice," "the
best knowledge of the Company," and any similar term is used, in each case
each such term shall mean the knowledge or best knowledge or receipt (as
the case may be) of any of Robert Gaites, David Polishook, Richard Young,
John Yanuklis and David Bernstein and includes any fact, matters or
circumstances which any of such individuals, as an ordinary and prudent
business person employed or retained in the same capacity in the same type
and size of business as the Company should have known.
10.7 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby,
and to such end, the provisions of this Agreement are agreed to be
severable.
10.8 CHOICE OF LAW/CONSENT TO JURISDICTION. The validity,
interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of Delaware. The parties hereby
irrevocably and unconditionally consent to the jurisdiction of the Chancery
Court of the State of Delaware for any action, suit or proceeding arising
out of or relating to this Agreement or the transactions contemplated
hereby, and the parties agree not to commence any action, suit or
proceeding related thereto except in such court unless, as a result of
Surviving Corporation's merger with a non-Delaware entity or other similar
corporate event occurring after the Effective Time, such court
affirmatively refuses to resolve any such action, suit or proceeding. The
parties further irrevocably and unconditionally waive any objection to the
laying of venue of any action, suit or proceeding arising out of or
relating to this Agreement in the Chancery Court of the State of Delaware,
and hereby further irrevocably and unconditionally waive and agree not to
plead or claim in such court that any such action, suit or proceeding
brought in such court has been brought in an inconvenient forum. Each
party further agrees that service of any process, summons, notice or
document by U.S. registered mail to the address of such party set forth in
Section 10.1 above shall be effective service of process for any action,
suit or proceeding brought against such party in such court.
10.9 THIRD-PARTY BENEFICIARY. With respect to those provisions of
Section 9.2 pursuant to which certain expenses are to be reimbursed to
Frederick M. Marino, Mr. Marino is a direct and intended third-party
beneficiary of such Section 9.2.
<PAGE>
31037.77996 144 351245.c2
1/16/97 10:07 pm
IN WITNESS WHEREOF, Parent, Acquisition Sub and the Company have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
HAMILTON ACQUISITION LLC
By:/S/ JOHN J. REMONDI
--------------------------
Name: John J. Remondi
Title: President
HAMILTON NY ACQUISITION CORP.
By:/S/ JOHN J. REMONDI
--------------------------
Name: John J. Remondi
Title: Manager
THE STROBER ORGANIZATION, INC.
By:/S/ ROBERT J. GAITES
--------------------------------
Name: Robert J. Gaites
Title:President and Chief Executive
Officer
351245.c2
<PAGE>
ANNEX B
[HILL THOMPSON LETTERHEAD]
November 7, 1996
PERSONAL & CONFIDENTIAL
The Board of Directors
The Strober Organization, Inc.
550 Hamilton Avenue
Brooklyn, New York 11201
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding Common Shares (the "Common Shares") of
The Strober Organization, Inc. ("Strober" or the "Company"), of the
consideration to be received by such shareholders in connection with the
proposed acquisition of Strober's Common Shares by Hamilton NY Acquisition
Corporation (the "Proposed Transaction"). The terms of the Proposed
Transaction are included in the Acquisition Agreement dated November 8, 1996
and the related agreements among Strober, certain Strober shareholders and
Hamilton NY Acquisition Corporation (the "Agreement"). The Agreement provides,
among other things, that the outstanding Common Shares of Strober will be
acquired by Hamilton NY Acquisition Corporation ("Hamilton") at $6.00 per
share.
We understand that the acquisition may result in tax consequences for certain
holders of Strober Common Stock. We express no opinion as to the tax
consequences of the acquisition and our opinion as to the fairness of the stock
purchase price does not take into account the tax status or position of any
holder of Strober Common Stock.
Hill Thompson Capital Markets, Inc. has acted as financial advisor to the Board
of Directors of Strober in connection with the Proposed Transaction, and we
will receive a fee for our services including rendering this opinion. As a
customary part of its investment banking business, Hill Thompson Capital
Markets, Inc. is often engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements and
valuations for corporate and other purposes.
For purposes of this opinion we have among other things:
1. Reviewed the Agreement;
2. Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1995 and the
Company's Forms 10-Q and the related unaudited financial information for
the quarterly periods ending March 31, 1996 and June 30, 1996;
3. Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company
furnished to Hill Thompson by the Company;
4. Reviewed financial information on Fidelity Capital furnished to us by
Fidelity Capital;
5. Held discussions with members of senior management of the Company
concerning their business, financial statements, operations and
prospects;
6. At the request of the Company, solicited third party interest with
respect to the acquisition of the Company;
7. Reviewed the stock price and trading history of the Company;
8. Reviewed the valuation of publicly traded companies we deemed comparable
to the Company;
9. Compared the financial terms of the Proposed Transaction with other
transactions which we deemed relevant; and
10. Performed such other studies, analyses and inquiries and considered such
other information as we deemed relevant.
In connection with our opinion, we have not independently verified the
financial, legal, tax, operating and other information provided by Strober and
Hamilton and have relied upon the assurances of Strober and Hamilton that all
such information provided by them, respectively, is complete and accurate in
all material respects and that there is no additional information known to
either of them that would make information made available to Hill Thompson
Capital Markets, Inc. either incomplete or misleading. We have not made any
independent appraisal or valuation of any asset of either company. With
respect to the projected financial data of Strober, we have assumed that such
data have been reasonably prepared and represent the best currently available
estimates and judgments of Strober management as to the future financial
performance of the Company.
While we believe that our review, as described herein, is an adequate basis for
the opinion we express, this opinion is necessarily based upon market, economic
and other conditions that exist and can be evaluated as of the date of this
letter, and on information available to us as of the date hereof. We also
believe our analyses must be considered as a whole and that considering any
portion of such analyses and of the factors considered, without considering all
analyses and current factors, could create a misleading or incomplete view of
the process underlying the opinion.
This opinion is addressed to the Board of Directors of the Company and does not
constitute a recommendation to any shareholder as to how such shareholder
should vote on the Proposed Transaction.
This letter is only for the information of the Board of Directors of Strober
and may not be used for any other purposes without our prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion, as
investment bankers, that as of the date hereof the consideration to be received
by the holders of the Common Shares of Strober in the Proposed Transaction is
fair to such holders from a financial point of view.
Very truly yours,
HILL THOMPSON CAPITAL MARKETS, INC.
<PAGE>
ANNEX C
<PAGE>
<section>262 OF THE DELAWARE GENERAL CORPORATION LAW - APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with the provisions of subsection (d) of this
Section and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to <section>228 of this Chapter shall be
entitled to an appraisal by the Court of Chancery of the fair value of his
shares of stock under the circumstances described in subsections (b) and (c) of
this Section. As used in this Section, the word "stockholder" means a holder
of record of stock in a stock corporation and also member of record of a non-
stock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a non-stock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, or 263 of this Chapter;
(1) provided, however, that no appraisal rights under this
Section shall be available for the shares of any class or series of stock
which, at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any shares of
stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this
Section, appraisal rights under this Section shall be available for the shares
of any class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or consolidation
pursuant to Sections 251, 252, 254, 257 and 258 of this Chapter to accept for
such stock anything except (i) shares of stock of the corporation surviving or
resulting from such merger or consolidation; (ii) shares of stock of any other
corporation which at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of record by more than
2,000 stockholders; (iii) cash in lieu of fractional shares of the corporations
described in the foregoing clauses (i) and (ii); or (iv) any combination of the
shares of stock and cash in lieu of fractional shares described in the
foregoing clauses (i), (ii) and (iii) of this subsection.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this chapter is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this Section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this Section, including those set forth in
subsections (d) and (e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this Section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) and (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this Section. Each stockholder electing
to demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identify of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with the
provisions of this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this Chapter, each constituent corporation,
either before or after the effective date of the merger or consolidation or
within ten days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective date
of the merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights may,
within twenty days after the date of mailing of such notice, demand in writing
from the surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice did
not notify stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has
been given shall, in absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the notice is
given; provided that, if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective date. If
no record date is fixed and the notice is given prior to the effective date,
the record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by one or more
publications at least one week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this Section and who have
become entitled to appraisal rights. The Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Court may dismiss
the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discover or other pretrial proceedings and may
proceed to trail upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this Section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this Section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and in the case of holders
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
other state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
of the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this Section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this Section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE>
ANNEX D
PROXY AGREEMENT
This is a PROXY AGREEMENT (the "Agreement"), dated as of November 11,
1996 by and among Hamilton Acquisition LLC, a Delaware limited liability
company ("Parent"), Hamilton NY Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("Acquisition Sub"), and certain
stockholders of The Strober Organization, Inc., a Delaware corporation (the
"Company") who are signatories hereto (collectively, the "Stockholders" and
each, a "Stockholder").
BACKGROUND
A. As of the date hereof, each Stockholder owns (either beneficially
or of record) that number of shares of common stock, par value $.01 per
share (the "Common Stock"), of the Company set forth on EXHIBIT A hereto
(together with any shares of Common Stock acquired by such Stockholder
during the Proxy Term (as defined in Section 2 hereof), whether upon the
exercise of options, conversion of convertible securities or otherwise, the
"Stockholder Shares").
B. Parent, Acquisition Sub and the Company propose to enter into an
Agreement and Plan of Merger of even date herewith (as the same may be
amended from time to time, the "Merger Agreement") (all capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement) which provides, upon the terms and subject to the conditions
thereof, for the merger of Acquisition Sub with the Company (the "Merger").
C. As a condition to their willingness to enter into the Merger
Agreement, Parent and Acquisition Sub have requested that each Stockholder
agree, and in order to induce the Parent and Acquisition Sub to enter into
the Merger Agreement, each of the Stockholders has agreed to, among other
things, grant Parent irrevocable proxies to vote the Stockholder Shares
owned of record or beneficially by each such Stockholder on the terms and
conditions provided herein.
TERMS
In consideration of the promises and the mutual covenants herein
contained and intending to be legally bound, the parties hereto agree as
follows:
1. TRANSFER AND VOTING OF SHARES.
(a) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE. Each
Stockholder hereby agrees, while this Agreement is in effect, and except as
contemplated hereby, not to (i) offer to sell, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the
sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any of the Stockholder Shares or any other shares of Common
Stock; (ii) deposit any Stockholder Shares into a voting trust or enter
into a voting agreement with respect to any Stockholder Shares or grant any
proxy or power of attorney with respect to any such Stockholder Shares; or
(iii) take any action that would make any representation or warranty of
such Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Stockholder from performing his or her
obligations under this Agreement or otherwise take any action that is
contrary to the transactions contemplated hereby and by the Merger
Agreement. Notwithstanding anything herein to the contrary, the parties
hereto shall be entitled (x) to pledge or hypothecate shares of Common
Stock to institutional lenders as security for personal or commercial
loans, or (ii) to transfer shares of Common Stock to charitable trusts,
descendants or trusts for the benefit of any spouse or descendant subject
to the condition precedent to any such transfer that the transferee (or in
the case of a pledge or hypothecation, the pledgee) shall execute and
deliver to the Company and to Parent the Proxy Agreement agreeing to be
personally bound thereby and appointing the transferor as the transferee's
proxy in voting all the transferred shares as long as the Proxy Agreement
remains in effect.
(b) VOTING OF SHARES; FURTHER ASSURANCES. Except as otherwise
provided in this Section 1(b), each Stockholder, by this Agreement, with
respect to those Stockholder Shares that such Stockholder owns of record,
does hereby constitute and appoint Parent, or any affiliate of Parent that
is a party to the Merger Agreement, with full power of substitution, during
and for the Proxy Term, as such Stockholder's true and lawful attorney and
irrevocable proxy, for and in such Stockholder's name, place and stead, to
vote each of such Stockholder Shares as such Stockholder's proxy, at every
meeting of the stockholders of the Company or any adjournment thereof or in
connection with any written consent of the Company's stockholders (A) in
favor of the approval and adoption of the Merger Agreement and approval of
the Merger and the other transactions contemplated by the Merger Agreement,
(B) against any proposal for any action or agreement that would result in a
material breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or which
could result in any of the conditions of the Company's obligations under
the Merger Agreement not being fulfilled, and (C) in favor of any other
matter directly relating to consummation of the transactions contemplated
by the Merger Agreement which is considered at any such meeting of
stockholders or in such consent, and in connection therewith to execute any
documents which are necessary or appropriate in order to effectuate the
foregoing. Each Stockholder intends this proxy to be irrevocable and
coupled with an interest during the Proxy Term and will take such further
action and execute such other instruments as may be necessary to effectuate
the intent of this proxy and hereby revokes any proxy previously granted by
such Stockholder with respect to his or her Stockholder Shares. Each
Stockholder further agrees to cause the Stockholder Shares owned by such
Stockholder beneficially to be voted in accordance with the foregoing.
Notwithstanding anything to the contrary in this Agreement (including
Section 6(b) hereof), Parent is not authorized under this Agreement to, and
shall not, directly or indirectly, vote the Stockholder Shares, execute a
written consent of the Company's stockholders or otherwise act pursuant to
this Agreement in any manner (a) to elect or remove any director of the
Company, (b) which would prevent the Company from taking the actions
permitted by Section 7.5(b) of the Merger Agreement (other than approval
and adoption of the Merger Agreement and related agreements and approval of
the transactions contemplated thereby, including the Merger), (c) to amend,
supplement or otherwise modify the By-laws or Certificate of Incorporation
of the Company (except with respect to and in connection with the Merger)
or (d) to require the Board of Directors of the Company to take or refrain
from taking any action.
(c) CERTAIN EVENTS. Each Stockholder agrees that this Agreement
and the obligations hereunder shall attach to his or her Stockholder Shares
and shall be binding upon any person or entity to which legal or beneficial
ownership of his or her Stockholder Shares shall pass, whether by operation
of law or otherwise, including without limitation such Stockholder's heirs,
guardians, administrators or successors.
2. PROXY TERM. For the purposes of this Agreement, "Proxy Term"
shall mean the period from the execution of this Agreement until the
earlier of (a) the termination of the Merger Agreement or (b) the Effective
Time (as such term is defined in the Merger Agreement).
3. PAYMENTS TO PARENT.
(a) In the event that on or after the date hereof, (i) the
Merger Agreement has been terminated pursuant to the provisions of Section
9.1(f) thereof and at the time of such termination neither Parent nor
Acquisition Sub is in breach of its obligations under the Merger Agreement
and (ii) any Stockholder thereafter sells Stockholder Shares in connection
with the consummation of a Superior Proposal (as defined in Section 7.5(b)
of the Merger Agreement) within six months of the termination of the Merger
Agreement, such selling Stockholder shall pay to Parent an amount in cash
equal to fifty percent (50%) of the product of (x) the number of such
Stockholder Shares sold and (y) the excess, if any, of (A) the per share
cash (and/or if consideration is received in such sale in the form of
securities, the "fair market value" (as defined in Section 3(b) below) of
such securities) received by such Stockholder as a result of such sale (the
"Selling Stockholder Price") over (B) the Merger Consideration (as defined
in the Merger Agreement).
(b) For purposes of this Agreement, the fair market value of any
securities listed on a national securities exchange or traded on The Nasdaq
Stock Market shall be equal to the average closing price per share of such
security as reported on such exchange or The Nasdaq Stock Market for the
twenty (20) trading days immediately preceding the effective date of the
transaction pursuant to which the Stockholder is entitled to receive such
securities.
(c) Any payment required to be made pursuant to Section 3(a) of
this Agreement shall be made within two business days after the settlement
of such sale.
4. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent and Acquisition
Sub jointly and severally hereby represent and warrant to the Stockholders
as follows:
(a) ORGANIZATION AND QUALIFICATION. Parent is a limited
liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware. Acquisition Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of Parent and Acquisition Sub has the requisite
power and authority to carry on its business as it is now being conducted.
Each of Parent and Acquisition Sub is duly qualified to do business and is
in good standing in each jurisdiction in which the character of its
properties, owned or leased, or the nature of its activities make such
qualification necessary, except where the failure to be so qualified or in
good standing would not have a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise) or
prospects (a "Material Adverse Effect") of Parent and its subsidiaries
taken as a whole. Acquisition Sub has not conducted any business prior to
the date hereof and has no assets and liabilities other than those incident
to its formation and to the consummation of the transactions contemplated
hereby and by the Merger Agreement. Copies of the Certificate of Formation
of Parent and the Certificate of Incorporation, and By-laws of Acquisition
Sub heretofore delivered to the Company are true, complete and correct as
of the date hereof.
(b) AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Acquisition Sub has the requisite 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 the managers and members,
if required, of Parent and by the Board of Directors and the sole
stockholder of Acquisition Sub, if required, and no other proceedings on
the part of Parent or Acquisition Sub are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by each of Parent and
Acquisition Sub and, assuming this Agreement constitutes a valid and
binding obligation of the Stockholders, constitutes the legal, valid and
binding obligation of each of Parent and Acquisition Sub enforceable
against each of Parent and Acquisition Sub in accordance with its terms.
(c) CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
and delivery of this Agreement by Parent or Acquisition Sub nor the
consummation of the transactions contemplated hereby will (i) conflict with
or result in any breach of any provision of their respective certificates
of incorporation or by-laws; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (A) in connection with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-
R Act"), (B)pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (C) such filings and approvals as may be required
under the "blue sky," takeover or securities laws of various states, or (D)
where the failure to obtain such consent, approval, authorization or
permit, or to make such filing or notification, would not prevent or delay
consummation of the transactions contemplated by this Agreement or would
not otherwise prevent Parent or Acquisition Sub from performing their
respective obligations under this Agreement; (iii) result in a default (or
give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, license, agreement
or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which any of their respective assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained
or which, individually or in the aggregate, would not have a Material
Adverse Effect on Parent and its subsidiaries taken as a whole; or
(iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Parent or Acquisition Sub, any of their respective
subsidiaries or any of their respective assets, except for violations which
would not have a Material Adverse Effect on Parent and its subsidiaries
taken as a whole.
5. REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER. Each
Stockholder hereby severally (for himself, herself or itself only)
represents and warrants to Parent and Acquisition Sub as follows:
(a) OWNERSHIP OF SHARES. Such Stockholder owns of record or
beneficially the number of shares of Common Stock set forth on EXHIBIT A
hereto and such shares constitute all of the shares of Common Stock owned
of record or beneficially by such Stockholder. Such Stockholder has sole
voting power and sole power of disposition with respect to his or her
Stockholder Shares, with no restrictions, except those that may be imposed
by applicable federal securities laws, on such Stockholder's rights of
disposition pertaining thereto. Except as specifically set forth on
EXHIBIT A hereto, such Stockholder has not granted any proxy with respect
to his or her Stockholder Shares and neither such Stockholder nor his or
her Stockholder Shares is bound by or party to any agreement or other
instrument restricting such Stockholders' voting rights with respect to
such Stockholder Shares. Such Stockholder owns of record or beneficially
the number and type of securities issued or granted by the Company,
including without limitation options, warrants and other convertible
securities, set forth on EXHIBIT A hereto and such securities constitute,
along with such shares of Common Stock set forth on EXHIBIT A hereto, all
of the securities of the Company or instruments convertible into securities
of the Company owned of record or beneficially by such Stockholder. The
Stockholder Shares are, and immediately prior to the Effective Time will
be, duly authorized, validly issued, fully paid, non-assessable and, except
for those pledges set forth on SCHEDULE 5(A) hereto, free and clear of any
and all liens, security interests, proxies, voting trusts or agreements,
encumbrances, charges or claims of any kind whatsoever except for any
encumbrance or proxy arising under this Agreement.
(b) ORGANIZATION; AUTHORITY RELATIVE TO THIS AGREEMENT. Such
Stockholder has the legal capacity, power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
such Stockholder and, assuming this Agreement constitutes a valid and
binding obligation of Parent and Acquisition Sub, this Agreement
constitutes a legal, valid and binding agreement of such Stockholder
enforceable against such Stockholder in accordance with its terms. Except
as set forth on SCHEDULE 5(B) hereto, there is no beneficiary or holder of
a voting trust certificate or other interest of any trust of which such
Stockholder is a trustee whose consent is required for the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby; PROVIDED, HOWEVER, that any such consent has been
obtained in writing prior to the execution of this Agreement.
(c) CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
and delivery of this Agreement by such Stockholder, the performance by such
Stockholder of the obligations and transactions contemplated hereby,
including without limitation the granting of the irrevocable proxy and the
appointment of an attorney-in-fact pursuant to Section 1(b) hereof, nor the
compliance by such Stockholder with any provision hereof, will (i) require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (A) in
connection with the H-S-R Act, (B) pursuant to the Exchange Act, (C) such
filings and approvals as may be required under the "blue sky," takeover or
securities laws of various states, or (D) where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or
notification, would not prevent or delay the performance by such
Stockholder of his or her obligations under this Agreement; (ii) result in
any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default or give rise to any right of
termination, amendment, cancellation or acceleration) under, or result in
the creation of a lien or encumbrance on any of his or her Stockholder
Shares pursuant to, any of the terms, conditions or provisions of any note,
license, agreement or other instrument or obligation to which such
Stockholder is party or by which such Stockholder or any of his or her
assets, including the Stockholder Shares, may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which,
individually or in the aggregate, would not prevent or delay the
performance by such Stockholder of his or her obligations under this
Agreement; or (iii) conflict with or violate any order, writ, injunction,
judgment, decree, statute, law, rule or regulation applicable to such
Stockholder or any of his or her assets, including the Stockholder Shares.
(d) ACKNOWLEDGMENT OF RELIANCE. Such Stockholder understands
and acknowledges that the Parent and Acquisition Sub are entering into the
Merger Agreement in reliance upon such Stockholder's execution and delivery
of this Agreement.
(e) BROKERS. No broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such
Stockholder.
6. CERTAIN COVENANTS OF STOCKHOLDER. Except in accordance with
Subsection 6(e), each Stockholder hereby covenants and agrees (with respect
to himself or herself but not as to the other Stockholders) as follows:
(a) NEGOTIATIONS. Unless and until this Agreement shall have
been terminated in accordance with its terms, each of the Stockholders
agrees and covenants that (i) he or she will not, directly or indirectly,
initiate, solicit or encourage any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation or similar
transaction involving, or any purchase of 10% or more of the assets or
securities of the Company or any of its subsidiaries, other than the
transactions contemplated by the Merger Agreement (any such proposal or
offer being hereinafter referred to as an "ACQUISITION PROPOSAL") or engage
in any negotiations concerning, or provide any confidential information or
data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal; (ii) each of the Stockholders will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing; and (iii) each of the Stockholders will
notify Parent immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with any of the
Stockholders or, to the knowledge of such Stockholder, the Company, which
notification shall include the terms of any such inquiries or proposals,
PROVIDED, HOWEVER, that if the Company actually provides the information
and notice to Parent required by Section 7.5 of the Merger Agreement with
respect to any contact with the Company, such Stockholder shall not have
any obligation to provide any such duplicate information.
(b) VOTING. Each Stockholder hereby agrees that, during the
Proxy Term, at any meeting of the stockholders of the Company, however
called, or in connection with any written consent of the Company's
Stockholders, such Stockholder shall vote (or cause to be voted) his or her
Stockholder Shares, except as specifically requested by the Parent in
writing in advance: (a) in favor of the Merger; (b) against any action or
agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement
of the Company under the Merger Agreement; and (c) against any action or
agreement (other than the Merger Agreement or the transactions contemplated
thereby) that would impede, interfere with, delay, postpone or attempt to
discourage the Merger, including, but not limited to: (i) any
extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or any of any of its
subsidiaries; (ii) a sale, lease or transfer of a material amount of assets
of the Company or any of its subsidiaries or a reorganization,
recapitalization, dissolution or liquidation of the Company or its
subsidiaries; (iii) any change in the management or board of directors of
the Company, except as agreed to in writing by Parent; (iv) any material
change in the present capitalization or dividend policy of the Company; (v)
any amendment of the Company's Certificate of Incorporation; or (vi) any
other material change in the Company's corporate structure, management or
business. Such Stockholder shall not enter into any agreement or
understanding with any person or entity during the Proxy Term to vote or
give instructions to vote in any manner inconsistent with the terms of this
Section 6(b). Notwithstanding the foregoing, in the event that the Company
has properly terminated the Merger Agreement pursuant to Section 9.1(f)
thereof, a Stockholder may vote (or cause to be voted) his or her
Stockholder Shares in favor of a Superior Proposal.
(c) ADDITIONAL SHARES. Each Stockholder hereby agrees, while
this Agreement is in effect, to promptly notify Parent of the number of any
new shares of Common Stock acquired, beneficially or of record, by such
Stockholder, if any, after the date hereof whether through acquisition in
the open market, upon exercise of any option, warrant or other convertible
security, or otherwise.
(d) WAIVER OF APPRAISAL AND DISSENTER'S RIGHTS. Each
Stockholder hereby waives any rights of appraisal or rights to dissent from
the Merger that such Stockholder may have.
(e) ACTING AS DIRECTOR AND EXECUTIVE OFFICER. Notwithstanding
anything in this Section 6 to the contrary, the covenants and agreements
set forth in Section 6(a) shall not be deemed to prevent any Stockholder,
while acting in his or her capacity as a director of the Company, from
taking any action that is specifically permitted under the applicable
provisions of the Merger Agreement. Further, any Stockholder may act in
his capacity as an executive officer of the Company upon direction by the
Board of Directors of the Company pursuant to Section 7.5(b) of the Merger
Agreement.
(f) STOP TRANSFER. Each Stockholder agrees with, and covenants
to, Parent and Acquisition Sub that such Stockholder may not request that
the Company register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any of his or her
Stockholder Shares, unless such transfer is made in compliance with this
Agreement. Each Stockholder agrees, with respect to any Stockholder Shares
in certificated form, that such Stockholder will deliver to the Company
within fifteen business days after the date hereof, the certificates
representing such Stockholder Shares and the Company will inscribe upon
such certificates the following legend (the "Legend"): "The shares of
Common Stock, par value $.01 per share, of The Strober Organization, Inc.
(the "Company"), represented by this certificate are subject to a Proxy
Agreement dated as of November 11, 1996, and may not be sold or otherwise
transferred, except in accordance therewith. Copies of such Agreement may
be obtained at the principal executive offices of the Company." Each
Stockholder agrees that within ten business days after the date hereof,
such Stockholder will no longer hold any Stockholder Shares, whether
certificated or uncertificated, in "street name" or in the name of any
nominee. In the event that the Company enters into a Superior Proposal and
has terminated the Merger Agreement in accordance with Section 9.1(f)
thereof, the Company will remove the Legend from all certificates
representing Stockholder Shares and will return such certificates to the
Stockholders. Pursuant to the Merger Agreement, the Company has agreed to
notify the transfer agent of the provisions set forth in this Section and
each Stockholder agrees to provide such documentation and to take such
other actions as may be reasonably required to give effect to such
provisions with respect to such Stockholder Shares.
(g) REORGANIZATION AGREEMENT. Each Stockholder hereby agrees
that, at the Effective Time, the Reorganization Agreement shall terminate
as to such Stockholder and such Stockholder shall have no further rights
thereunder.
7. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each party hereto (as to the
Stockholders, in their capacity as stockholders) shall execute and deliver
such additional documents and take all such further action as may be
necessary or reasonably desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement and the Merger Agreement. Without limiting the generality of the
foregoing, during the Proxy Term, each Stockholder shall perform such
further acts and execute such further documents and instruments as may
reasonably be required to vest in the Parent and Acquisition Sub the power
to carry out the provisions of this Agreement including without limitation
the exercise of the power afforded by Section 1 hereof.
8. MISCELLANEOUS.
(a) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
(i) constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them
with respect to the subject matter hereof and (ii) shall not be assigned by
operation of law or otherwise, provided that Parent may assign any of its
rights and obligations to any wholly-owned direct or indirect subsidiary of
Parent or to any entity which controls or is under common control with
Parent, but no such assignment shall relieve Parent of its obligations
hereunder and Parent shall remain as fully and primarily liable as if there
was no such assignment.
(b) AMENDMENT. This Agreement may not be modified, amended,
altered or supplemented except by an instrument in writing signed on behalf
of all the parties hereto; PROVIDED that EXHIBIT A hereto may be
supplemented by the Parent and Acquisition Sub by adding the name and other
relevant information concerning any stockholder of the Company who agrees
to be bound by the terms of this Agreement without the agreement of any
other party hereto, and thereafter such added stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(c) ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof
in addition to any other remedy to which they are entitled at law or in
equity, and the parties hereto further agree to waive any requirement for
the posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief.
(d) VALIDITY. IF ANY TERM OR OTHER PROVISION OF THIS AGREEMENT
IS INVALID, ILLEGAL OR INCAPABLE OF BEING ENFORCED BY ANY RULE OF LAW OR
PUBLIC POLICY, ALL OTHER CONDITIONS AND PROVISIONS OF THIS AGREEMENT SHALL
NEVERTHELESS REMAIN IN FULL FORCE AND EFFECT SO LONG AS THE ECONOMIC OR
LEGAL SUBSTANCE OF THE TRANSACTIONS CONTEMPLATED HEREBY IS NOT AFFECTED IN
ANY MANNER MATERIALLY ADVERSE TO ANY PARTY. UPON SUCH DETERMINATION THAT
ANY TERM OR OTHER PROVISION IS INVALID, ILLEGAL OR INCAPABLE OF BEING
ENFORCED, THE PARTIES HERETO SHALL NEGOTIATE IN GOOD FAITH TO MODIFY THIS
AGREEMENT SO AS TO EFFECT THE ORIGINAL INTENT OF THE PARTIES AS CLOSELY AS
POSSIBLE TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW IN AN ACCEPTABLE
MANNER TO THE END THAT THE TRANSACTIONS CONTEMPLATED HEREBY ARE FULFILLED
TO THE EXTENT POSSIBLE.
(e) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by cable, telegram, facsimile
transmission with confirmation of receipt, or telex, or by registered or
certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
if to Parent or Acquisition Sub:
Hamilton Acquisition LLC
c/o Fidelity Capital Associates, Inc.
82 Devonshire Street, R25C
Boston, MA 02109-3614
Attn: Mr. John J. Remondi
with a copy to:
Fidelity Capital Associates, Inc.
82 Devonshire Street, E20E
Boston, MA 02109-3614
Attn: Robert M. Gervis, Esq.
and a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Laura C. Hodges Taylor, P.C.
Joseph L. Johnson III, Esq.
if to Stockholders:
c/o Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, NJ 07102
Attn: Stanley U. North III, Esq.
with a copy to:
Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, NJ 07102
Attn: Stanley U. North III, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
(f) CHOICE OF LAW/CONSENT TO JURISDICTION. The validity,
interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of Delaware without regard to its rules
of conflict of laws. The parties hereby irrevocably and unconditionally
consent to the jurisdiction of the Chancery Court of the State of Delaware
for any action, suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby, and the parties agree
not to commence any action, suit or proceeding related thereto except in
such court. The parties further irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding arising
out of or relating to this Agreement in the Chancery Court of the State of
Delaware, and hereby further irrevocably and unconditionally waive and
agree not to plead or claim in such court that any such action, suit or
proceeding brought in such court has been brought in an inconvenient forum.
Each party further agrees that service of any process, summons, notice or
document by U.S. registered mail (i) in the case of Parent or Acquisition
Sub, to the address of such party set forth in Section 8(e) above; or (ii)
in the case of any Stockholder, to the address of such Stockholder set
forth on EXHIBIT A hereto, shall be effective service of process for any
action, suit or proceeding brought against such party in such court.
(g) DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts (and via Facsimile), each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
(i) PERFORMANCE BY ACQUISITION SUB. Parent hereby agrees to
cause Acquisition Sub to comply with its obligations hereunder as
contemplated in the Merger Agreement.
(j) EXPENSES. Each of the parties hereto will pay all fees and
expenses it incurs in connection with this Agreement, whether or not
consummated, including without limitation the fees and expenses of its
financial and legal advisors.
(k) PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
(l) SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties and agreements of Acquisition Sub, Parent and
the Stockholders pursuant to this Agreement shall survive the consummation
of the Merger or the termination of the Merger Agreement.
(m) NO AGREEMENT UNTIL EXECUTED. Irrespective of negotiations
among the parties or the exchanging of drafts of this Agreement, this
Agreement shall not constitute or be deemed to evidence a contract,
agreement, arrangement or understanding among the parties hereto unless and
until (i) the Board of Directors of the Company has approved, for purposes
of Section 203 of the Delaware General Corporation Law and any applicable
provision of the Company's certificate of incorporation, the possible
acquisition of the Stockholder Shares by Parent and Acquisition Sub
pursuant to this Agreement and (ii) this Agreement is executed by all
parties hereto.
<PAGE>
IN WITNESS WHEREOF, Parent, Acquisition Sub and the Stockholders have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
HAMILTON ACQUISITION LLC
By:/S/ JOHN J. REMONDI
------------------------------
Name: JOHN J. REMONDI
Title: Manager
HAMILTON NY ACQUISITION CORP.
By:/S/ JOHN J. REMONDI
------------------------------
Name: JOHN J. REMONDI
Title: PRESIDENT
/s/ Robert J. Gaites /s/ John T. Guerin
- ------------------------------ ----------------------------------
Robert J. Gaites John T. Guerin
/s/ Sue Strober /s/ Richard D. King
- ------------------------------ ----------------------------------
Sue Strober Richard D. King
/s/ Sue Strober /s/ Steven Strober
- ------------------------------ ----------------------------------
Sue Strober, as Trustee for Steven Strober
Steven Strober
/s/ Sue Strober /s/ Hiliary Strober
- ------------------------------ ----------------------------------
Sue Strober, as Trustee for Hiliary Strober
Hilary Strober
/s/ Gordon Sandler /s/ David W. Berstein
- ------------------------------ ----------------------------------
Gordon Sandler David W. Berstein, Trustee, Trust
F/J/B/O Steven and Hilary Strober
/s/ Nathan Schwartzberg /s/ John Yanuklis
- ------------------------------ ----------------------------------
Nathan Schwartzberg John Yanuklis
/s/ Albert C. Brower
- ------------------------------
Albert C. Brower By:______________________________
Trustee, Trust F/B/O Yanuklis
Charitable Remainder Trust
<PAGE>
PROXY AGREEMENT
[SIGNATURE CONTINUATION PAGE]
/s/ Robert J. Gaites
---------------------------------
Robert J. Gaites; proxy for
Robert J. Gaites Charitable Trust
/s/ John Yanuklis
---------------------------------
John Yanuklis; proxy for
John Yanuklis Charitable trust
/s/ Albert C. Brower
---------------------------------
Albert C. Brower, proxy for
Albert C. Brower Charitable Trust
<PAGE>
<PAGE>
EXHIBIT A TO PROXY AGREEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS OF Number of Shares of Other Company Securities
STOCKHOLDER COMMON STOCK OWNED OWNED
<S> <C> <C>
Sue Strober 592,141 None
Sue Strober, trustee for son 42,325 None
Sue Strober, trustee for
daughter 42,325 None
Sue Strober, proxy for son{*} 45,600
Sue Strober, proxy for daughter{*} None
45,600
David W. Bernstein, trustee of 180,960 None
trust for Steven and Hilary
Strober{*}
Robert J. Gaites 309,955 Options for 113,053 Shares,
including 25,000 at $1.75 per
share, 25,000 at $4.75 per
share, 37,500 at $3.63 per
share, and 25,553 at $4.50 per
share.
John Yanuklis 313,254 Options for 96,904 Shares,
including 9,000 at $1.13 per
share, 14,286 at $1.75 per
share, 22,737 at $4.75 per
share, 23,503 at $3.63 per
share, and 27,378 at $4.50 per
share.
Gordon Sandler{++} 399,486 None
Richard King 200,931 None
Albert Brower 69,124 Options for 36,744 Shares,
including 3,750 at $1.13 per
share, 5,357 at $1.75 per
share, 8,211 at $4.75 per
share, 10,759 at $3.63 per
share, and 8,667 at $4.50 per
share.
Nathan Schwartzberg 127,166 None
John T. Guerin 422,249 None
John Yanuklis Charitable Trust 140,000 None
Robert J. Gaites Charitable 147,180 None
Trust
Albert C. Brower Charitable 25,000 None
Trust
Total 3,103,296
</TABLE>
**FOOTNOTES**
{*} Subject to proxy held by Sue Strober.
{++} Subject to (i) a Collateral Pledge Agreement
between Mr. Sandler and The Chase Manhattan Bank (the "BANK") and (ii) a
Forbearance Agreement between Mr. Sandler and the Bank.
<PAGE>
SCHEDULE 5(A)
TO
PROXY AGREEMENT
The certificates representing 399,486 shares of Common Stock, $.01 par
value, of the Company (the "GORDON SHARES") in the name of Gordon Sandler
("SANDLER") are in the physical possession of The Chase Manhattan Bank,
successor by merger to Chemical Bank (the "BANK"), subject to (i) that
certain Collateral Pledge Agreement between Sandler and the Bank and (ii)
that certain Forbearance Agreement between Sandler and the Bank. The
Company and the Purchaser are hereby irrevocably directed to set the record
address and the address for the transmission of payment for the Gordon
Shares as follows:
Gordon Sandler
c/o Sills Cummis Zuckerman Radin Tischman
Epstein & Gross, P.A., as Escrow Agent
One Riverfront Plaza
Newark, New Jersey 07102
Attention:Stanley U. North, III, Esq.
The Bank consents to the grant by Sandler of a proxy in respect of the
Gordon Shares pursuant to the terms of the Proxy Agreement between and
among the Company and the various other parties thereto dated the date
hereof (the "PROXY AGREEMENT"), and agrees not to take any action which is
contrary to or inconsistent with the terms of the Proxy Agreement.
CONSENTED AND AGREED TO BY:
THE CHASE MANHATTAN BANK
/S/ HARVEY CAVAYERO
- -------------------------------------------
by: HARVEY CAVAYERO, ESQ., ATTORNEY-IN-FACT
(AN AUTHORIZED OFFICER)
/S/ GORDON SANDLER
- -------------------------------------------
GORDON SANDLER
<PAGE>
ANNEX E
<GRAPH>
<PAGE>
<GRAPH>
<PAGE>
<GRAPH>
<PAGE>
SELECTED PUBLICLY-TRADED BUILDING MATERIAL DISTRIBUTORS
MARKET MULTIPLE ANALYSIS
(Figures in millions except per share data)
<TABLE>
<CAPTION>
STROBER SUNBELT BMC CAMERON GROSSMAN'S MOORE NATIONAL WOLOHAN
COMPANY ORGANIZATION COMPANIES WEST ASHLEY INC. HANDLEY HOME CTRS LUMBER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Last Fiscal Year 12/31/96(est.) 1/29/95 12/31/95 10/31/95 12/31/95 12/31/95 1/31/96 12/31/95
LAST QUARTER 12/31/96(est.) 7/29/95 6/30/96 7/31/96 6/30/96 6/30/96 7/31/96 9/28/96
SHARE PRICE $6.00 $7.95 $12.00 $13.88 $1.16 $3.38 $2.13 $12.44
SHARES OUTSTANDING 5.2 3.2 10.0 9.2 26.3 2.2 7.1 7.0
MARKET CAPITALIZATION $31.0 $25.7 $119.5 $127.1 $30.4 $7.3 $15.2 $86.9
DEBT $3.4 $9.8 $95.3 $57.9 $25.1 $12.0 $41.6 $26.5
PREF'D STOCK $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
CASH $4.6 $0.04 $4.6 $1.7 $1.7 $0.4 $0.1 $9.2
TOTAL CAPITALIZATION $29.9 $35.4 $210.2 $183.3 $53.7 $18.9 $56.6 $104.1
LTM DATA
REVENUES $136.7 $89.0 $684.1 $567.1 $549.8 $144.2 $171.4 $422.4
GROSS PROFIT $35.9 $19.7 $149.0 $109.1 $131.7 $14.3 $42.6 $102.6
EBIT $5.9 $4.3 $27.2 $20.3 ($40.6) $0.6 $0.8 $11.4
EBITDA $7.2 $5.1 $37.2 $26.1 ($32.4) $1.8 $3.8 $21.1
NET INCOME $3.3 $2.0 $9.1 $10.1 ($48.2) ($0.04) ($1.6) $5.1
BOOK VALUE (EXCL. G/W) $30.4 $13.6 $119.8 $69.4 $16.7 $16.4 $28.1 $107.3
EQUITY $30.4 $13.6 $138.8 $91.1 $16.7 $16.4 $28.1 $107.3
MARGIN ANALYSIS
GROSS MARGIN 26.3% 22.1% 21.8% 19.2% 24.0% 9.9% 24.8% 24.3%
EBIT MARGIN 4.3% 4.8% 4.0% 3.6% NM 0.4% 0.5% 2.7%
EBITDA MARGIN 5.3% 5.8% 5.4% 4.6% NM 1.2% 2.2% 5.0%
NET MARGIN 2.4% 2.3% 1.3% 1.8% NM NM NM 1.2%
TOTAL DEBT/EQUITY 11.2% 71.8% 68.6% 63.6% 149.7% 72.8% 148.1% 24.6%
MARKET MULTIPLES
TOTAL CAP. / SALES 0.22 x 0.40 x 0.31 x 0.32 x 0.10 x 0.13 x 0.33 x 0.25
TOTAL CAP. / EBIT 5.0 8.3 7.7 9.0 NM 29.6 69.5 9.1
TOTAL CAP. / EBITDA 4.1 6.9 5.6 7.0 NM 10.6 14.8 4.9
PRICE / EARNINGS 9.3 12.6 13.2 12.6 NM NM NM 17.1
MARKET CAP./BK. VALUE 1.02 1.88 1.00 1.83 1.82 0.44 0.54 0.81
ACQ. PRICE/BK. VALUE 1.09
</TABLE>
<PAGE>
COMPARATIVE ANALYSIS OF THE STROBER TRANSACTION
AND RECENTLY COMPLETED ACQUISITIONS OF BUILDING MATERIAL DISTRIBUTORS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Date of Acquirer/Target Transaction Purchase Stock Price Premium Sales
Announcement Value Price Before
($Million) Per Share Announcement
<S> <C> <C> <C> <C> <C> <C>
9/8/95 Pelican/Sunbelt $24.9 $ 7.95 $ 6.75 17.8% $ 89.0
(LTM)
8/15/96 Sears/Orchard $415.0 $35.00 $29.75 17.6% $532.4
(FYE
1/28/96)
11/11/96 Fidelity/Strober $32.0 $ 6.00 $ 5.25 14.3% $133.0
(LTM)
- -------------------
LTM - Latest Twelve Months
</TABLE>
<PAGE>
ANNEX F
<PAGE>
INFORMATION CONCERNING EXECUTIVE OFFICERS AND DIRECTORS OF
CERTAIN ENTITIES RELATED TO PURCHASER
This Annex F sets forth information regarding certain limited
partnerships that are the members of Purchaser, a Delaware limited liability
company, as well as information regarding certain entities that are directly or
indirectly affiliated with such limited partnerships, including information
pertaining to such entities' executive officers and directors (if any). The
presentation of this information is in no way an admission that any such
entities or individuals constitute a "group" for purposes of the Securities
Exchange Act of 1934, as amended.
Hamilton Acquisition LLC, a Delaware limited liability company
("Purchaser"), was formed in November 1996 (i) to serve as the parent of
Hamilton NY Acquisition Corp. ("Acquisition Subsidiary"), the acquisition
vehicle through which Purchaser intends to acquire The Strober Organization,
Inc. (the "Company") and (ii) to act as the entity into which equity
investments will be made in order to consummate the acquisition of the Company,
including those investments that will be made prior to the Effective Date by
Frederick M. Marino, the proposed Chairman of the Board of Directors and Chief
Executive Officer of the Surviving Corporation. Purchaser or related parties
may also pursue various transactions, including additional acquisitions and
capital raising activities, to grow the business and/or customer base although
there can be no assurance that any such transactions will be effected on terms
acceptable to Purchaser or such related party, if at all. Fidelity Ventures
Limited Partnership ("FVLP") is a Delaware limited partnership that currently
owns a 50% equity interest in Purchaser. FVLP is engaged in venture capital
and related asset management services. Fidelity Investors Limited Partnership
("FILP") is a Delaware limited partnership that currently owns a 50% equity
interest in Purchaser. FILP is engaged in private venture capital and related
asset management services. Fidelity Capital Associates, Inc., a Delaware
corporation ("FCA"), serves as the general partner of FVLP. FMR Corp., a
Massachusetts corporation ("FMR"), is a holding company that owns 100% of the
capital stock of FCA. Fidelity Investors Management Corp., a Texas
corporation ("FIMC"), serves as the general partner of FILP. Each of
Purchaser's, Acquisition Subsidiary's, FVLP's, FILP's, FCA's and FMR's
principal executive offices are located at 82 Devonshire Street, Boston,
Massachusetts 02109. FIMC's principal executive offices are located at 400
East Los Colinas Boulevard, Suite 470, Irving, Texas 75034.
The names of the executive officers and directors of FCA, FMR and FIMC are
set forth below. The business address of each person is 82 Devonshire Street,
Boston, Massachusetts 02109, and the address of the corporation or organization
in which such persons conduct their employment is the same as their business
address. Except as noted below, each of the persons listed below has held the
position with, and been employed by, such corporation or organization during
the past five years. All of the persons listed below are U.S. citizens.
<PAGE>
POSITION WITH
<TABLE>
<CAPTION>
PRINCIPAL NAME FMR CORP. FIDELITY INVESTORS MANAGEMENT FIDELITY CAPITAL
CORP. ASSOCIATES, INC.
<S> <C> <C> <C>
Edward C. Johnson 3d President, Director, CEO, Director --
Chairman & Managing Director
J. Gary Burkhead (1) Director - -
Caleb Loring, Jr. Director, Managing Director - -
James C. Curvey Director, Senior Vice - Director and President
President
James P. Hynes - - Managing Director
William L. Byrnes Vice Chairman, Director and - -
Managing Director
Abigail P. Johnson (3) Director - -
Robert C. Pozen Senior Vice President - and - -
General Counsel
David C. Weinstein (4) Senior Vice President - Vice President -
Administration
Gerald M. Lieberman (5) Senior Vice President - Vice President -
Chief Financial Officer
John J. Remondi Vice President President, Treasurer and Vice President, Managing
Director Director and Director
Donald E. Alhart (6) - Vice President, Assistant -
Secretary and Director
Warren T. Morrison (7) - - Vice President
</TABLE>
(1) Mr. Burkhead serves as President of Fidelity Management & Research
Company.
(2) During January 1997, Ms. Johnson assumed a position overseeing the
technology systems used by stock mutual fund managers as well as
assuming responsibility for the Specialized Growth group of
Fidelity Management & Research Company. Prior to January 1997, Ms.
Johnson served as a portfolio manager for Fidelity Management &
Research Company.
(3) Mr. Weinstein has served as Senior Vice President - Administration
of FMR and as a Vice President of FIMC since September 1995. Prior
to September 1994, Mr. Weinstein served as a Vice President and
Corporate Counsel fo FMR.
(4) Mr. Lieberman had served as Senior Vice President - Chief Financial
Officer of FMR and as a Vice President of FIMC since September
1995. Prior to September 1995, Mr. Lieberman served as Senior Vice
President - Administration of FMR.
(5) Mr. Alhart serves as Director of Crosby Advisors, an affiliate of
FMR.
(6) Mr. Morrison has served as a Vice President of FCA since November
1995. Prior to joining FCA, Mr. Morrison served as Senior Vice
President and Senior Credit Administration Officer, Asset Based
Lending of US Trust Company from November 1991 through November
1995.
