SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED April 29, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _____________ TO ____________.
Commission file number 0-15991
Intelligent Electronics, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2208404
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
411 Eagleview Boulevard, Exton, PA 19341
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(610) 458-5500
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 31,472,949 shares of Common
Stock, par value $0.01 per share were outstanding at June 1, 1995.
<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
April 29, 1995 and January 28, 1995 3
Consolidated Statement of Operations
Three Months Ended April 29, 1995 and April 30, 1994 4
Consolidated Statement of Cash Flows
Three Months Ended April 29, 1995 and April 30, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 13
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION FORM 10-Q
INTELLIGENT ELECTRONICS, INC. and Subsidiaries
Consolidated Balance Sheet
thousands, except share-related data)
April 29, January 28,
1995 1995
----------- -----------
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 69,299 $ 69,027
Marketable securities available for sale 8,851 8,398
Accounts receivable, net 94,120 77,890
Inventory 340,757 364,606
Prepaid expenses and other current assets 4,457 3,973
Deferred income taxes 11,684 11,256
----------- ----------
Total current assets 529,168 535,150
Property and equipment 46,000 36,463
Intangible assets, primarily goodwill, net 73,629 71,693
Investments in affiliates 15,662 18,692
Other assets 8,468 8,776
----------- ----------
Total assets $ 672,927 $ 670,774
=========== ==========
Current liabilities:
Accounts payable $ 465,174 $ 467,109
Accrued liabilities 37,713 36,181
----------- ----------
Total current liabilities 502,887 503,290
----------- ----------
Commitments and contingencies -- --
Shareholders' equity:
Common stock $.01 par value per share:
Authorized 100,000,000 shares,
issued and outstanding:
39,573,549 and 39,519,949 shares 396 395
Additional paid-in capital 221,713 221,312
Treasury stock (105,677) (105,677)
Retained earnings 53,508 51,758
Unrealized holding gain (loss) on securities and investments 100 (304)
----------- ----------
Total shareholders' equity 170,040 167,484
----------- ----------
Total liabilities and shareholders' equity $ 672,927 $ 670,774
=========== ==========
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries
Consolidated Statement of Operations
(in thousands, except per-share data)
(unaudited)
Three months ended
----------------------------
April 29, April 30,
1995 1994
---------- ----------
<S> <C> <C>
Revenues $ 827,439 $ 762,314
Cost of goods sold 789,764 726,847
---------- ----------
Gross profit 37,675 35,467
---------- ----------
Operating expenses:
Selling, general and administrative expenses 26,818 15,248
Amortization of intangibles, primarily goodwill 1,293 1,180
---------- ----------
Total operating expenses 28,111 16,428
---------- ----------
Income from operations 9,564 19,039
Other income (expense):
Investment and other income, net 498 1,096
Interest expense (988) (164)
---------- ----------
Income before provision for income taxes
and equity in earnings (loss) of affiliate 9,074 19,971
Provision for income taxes 3,938 7,572
---------- ----------
Income before equity in earnings (loss)
of affiliate 5,136 12,399
Equity in earnings (loss) of affiliate (net of
tax expense of $0 and $232) (246) 394
---------- ----------
Net income $ 4,890 $ 12,793
========== ==========
Income per common share $ 0.16 $ 0.36
========== ==========
Dividends declared per share $ 0.10 $ 0.08
========== ==========
Weighted average number of common shares
and share equivalents outstanding: 31,366 36,034
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
Three months ended
--------------------------
April 29, April 30,
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 4,890 $ 12,793
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 3,254 2,223
Provision for deferred taxes (428) 796
Provision for losses on trade receivables 228 27
Provision for write-down of inventory 486 88
Equity in (earnings) loss of affiliate 246 (626)
Changes in assets and liabilities:
Accounts receivable (16,458) (12,856)
Inventory 23,363 (55,444)
Other current assets (194) (3,176)
Accounts payable (1,935) 51,901
Accrued liabilities 1,511 6,183
----------- -----------
Net cash provided by operating activities 14,963 1,909
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities -- (18,669)
Sales and maturities of marketable securities -- 35,000
Acquisitions of property and equipment, net of disposals (11,499) (2,670)
Other (475) --
----------- -----------
Net cash provided by (used for) investing activities (11,974) 13,661
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (3,119) (2,809)
Proceeds from exercise of stock options 402 632
Reduction in capital lease obligations -- (36)
----------- -----------
Net cash used for financing activities (2,717) (2,213)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 272 13,357
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 69,027 122,249
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 69,299 $ 135,606
=========== ===========
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except share-related data)
(unaudited)
(1) Basis of Presentation
---------------------
The consolidated financial statement information included herein is unaudited
but, in the opinion of management, reflects all adjustments necessary for a fair
statement of the results for the interim periods presented. Such adjustments
are of a normal, recurring nature. These financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended January 28, 1995.
(2) Investments in Affiliates
------------------------
The Company has an investment in The Future Now, Inc. ("FNOW"), a member of the
network and publicly traded company, which is accounted for by the equity
method. For the quarter ended April 29, 1995, the Company recognized a loss
of $246 as its proportionate share of FNOW's net loss. As of April 29, 1995,
the carrying value of the FNOW common stock was approximately $14,870 and the
aggregate market price, based on FNOW's quoted market price, was approximately
$12,892.
On April 28, 1995, the Company executed an Agreement and Plan of Merger (the
"Agreement") to acquire all of the remaining shares of FNOW, in a stock-for-
stock merger transaction. The Agreement provides for the conversion of each
outstanding share of FNOW common stock (other than shares held by dissenting
shareholders, shares held by FNOW or any of its subsidiaries and shares held by
the Company or any of its subsidiaries) into 0.6588 shares of the Company's
common stock. The conversion number is subject to a possible adjustment based
on the market price of the Company's common stock. The transaction is subject
to the satisfaction of customary closing conditions, including registration of
the shares of the Company's common stock to be issued in the merger with the
Securities and Exchange Commission and receipt of third party and governmental
approvals, including approval of the merger by shareholders of FNOW.
Summarized financial information for FNOW for the quarters ended March 31, 1995
and 1994,is as follows:
March 31, March 31,
1995 1994
---------- ----------
Revenues $ 151,995 $ 193,688
Gross profit 26,971 29,002
Net income (loss) (566) 1,024
The Company also has an investment in Random Access, Inc. ("RA"), a network
member and publicly-traded company. The Company accounts for this investment
as available-for-sale in accordance with FAS 115, and accordingly, the carrying
value of the RA common stock is recorded at fair market value with changes in
fair value recorded in shareholders' equity. At April 29, 1995, the aggregate
market value of the Company's investment, based on RA's quoted market price of
$2.56 per share, was approximately $237. In May 1995, RA announced that it was
being acquired by an unrelated third party for $3.50 per share. The original
cost of the Company's investment in RA was $3.18 per share.
<PAGE>
(3) Common Stock Dividends
----------------------
On April 27, 1995, the Board of Directors declared a $0.10 per share cash
dividend to shareholders of record on May 15, 1995, which was paid on June 1,
1995.
On March 1, 1995, the Company paid the $0.10 per share cash dividend which was
declared on January 27, 1995.
On May 4, 1994, the Board of Directors declared an $0.08 per share cash dividend
to shareholders of record on May 18, 1994, which was paid on June 1, 1994.
On March 1, 1994, the Company paid the $0.08 per share cash dividend which was
declared on February 1, 1994.
(4) Supplemental Cash Flow Information
----------------------------------
Cash payments during the three-month periods ended April 29, 1995 and April 30,
1994 included interest of $889 and $377, respectively, and income taxes of $19
and $1,810, respectively.
In February 1994, the Company entered into a capital lease obligation for
computer equipment totaling $181.
(5) Contingencies
-------------
In December 1994, several purported class action lawsuits were filed in the
United States District Court for the Eastern District of Pennsylvania (Civil
Action Nos. 94-3753, 94-CV-7410, 94-CV-7388 and 94-CV-7405) against the Company
and certain directors and officers; these lawsuits have been consolidated with
a class action lawsuit filed several years ago against the Company, certain
directors and officers, and the Company's auditors (who are not named in the
most recent complaint) in the United States District Court for the Eastern
District of Pennsylvania (Civil Action No. 92-CV-1905). A purported derivative
lawsuit was also filed in December 1994 in the Court of Common Pleas of
Philadelphia County (No. 803) against the Company and certain of its directors
and officers. These lawsuits allege violations of certain disclosure and
related provisions of the federal securities laws and breach of fiduciary
duties, including allegations relating to the Company's practices regarding
vendor marketing funds, and seek damages in unspecified amounts as well as other
monetary and equitable relief. In addition, the Company is subject to a
Securities and Exchange Commission investigation. The Company believes that all
such allegations and lawsuits are without merit and intends to defend against
them vigorously. While management of the Company, based on its investigation
of these matters and consultations with counsel, believes resolution of these
matters will not have a material adverse effect on the Company's financial
position, the ultimate outcome of these matters cannot presently be determined.
In addition, the Company is involved in various litigation and arbitration
matters in the ordinary course of business. The Company believes that it has
meritorious defenses in and is vigorously defending against all such matters.
During fiscal 1994, based in part of the advice of legal counsel, the Company
established a reserve of $9 million in respect of all litigation and arbitration
matters. Although the aggregate amount of the claims may exceed the amount of
the reserve, management believes that the resolution of these matters will not
have a material adverse effect on the Company's financial position or results
of operations in any subsequent period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Revenues increased 9% to $827.4 million for the quarter ended April 29, 1995
compared to $762.3 million for the quarter ended April 30, 1994. The increase
was due primarily to the addition of new members to the network and revenues
generated by the Company's branch locations, which were acquired in December
1994.
Gross profit as a percentage of revenues for the quarter ended April 29, 1995
was 4.6% compared to 4.7% for the quarter ended April 30, 1994. The decrease
in gross margin percent was due primarily to intensified competitive pricing
pressures as certain manufacturers expanded their distribution channels, and was
offset in part by higher gross margins realized by the Company's branch
locations. Competitive pressures and their impact on margins are expected to
continue in the future.
Selling, general and administrative expenses increased from $15.2 million for
the quarter ended April 30, 1994 to $26.8 million for the quarter ended April
29, 1995. Costs increased as a result of the Company's acquisition of the
branch locations, servicing the higher volume of revenues and larger network,
supporting new programs, vendors and SKU's, certain operating inefficiencies and
costs associated with IE2000 (a project designed to transform the Company to a
process-driven operating model). The Company expects recurring costs associated
with IE2000 and operating inefficiencies through the middle of Fiscal 1995.
Investment and other income declined for the quarter ended April 29, 1995 when
compared to the quarter ended April 30, 1994. This decline can be primarily
attributable to the use of available cash during fiscal 1994 for the payment of
cash dividends, share repurchases, the acquisition of certain assets of branch
locations from FNOW and capital expenditures. Interest expense increased for the
quarter ended April 29, 1995 as the Company used its available financing
arrangements for working capital needs.
The Company's effective tax rate increased from 37.9% for the quarter ended
April 30, 1994 to 43.4% for the quarter ended April 29, 1995. Factors primarily
responsible for this increase during the quarter ended April 29, 1995 were the
effect of non-deductible goodwill amortization on lower pre-tax earnings,
decreased tax-exempt investment income and a change in the Company's effective
state tax rate.
Net income decreased to $4.9 million for the quarter ended April 29, 1995
compared to $12.8 million for the quarter ended April 30, 1994, for the reasons
outlined above.
As it is upgrading its management information systems, the Company is putting
more focus on growing revenues, which could increase pressures on gross margins.
Gross profit and selling, general and administrative expenses are expected to
increase both in amount and as a percentage of revenues as a result of the
Company's branch locations and if the proposed acquisition of FNOW is completed.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its growth to date from stock offerings, bank and
subordinated borrowings, inventory financing and internally generated funds.
The principal uses of its cash have been to fund its accounts receivable and
inventory, make acquisitions, repurchase common stock and pay cash dividends.
During the quarter ended April 29, 1995, the Company's operating activities
generated $15.0 million in cash. At April 29, 1995 the Company had cash, cash
equivalents and marketable securities totaling $78.2 million ($77.4 million at
January 28, 1995). Working capital totaled $26.3 million at April 29, 1995
compared to $31.9 million at January 28, 1995. The increase in accounts
receivable from January 28, 1995 is primarily due to higher receivables from
certain finance companies and from the Company's branch locations. The Company
expects accounts receivable to continue to increase as it extends credit to
its network and end-users. The Company may outsource some of its financing
programs which could slow the growth or reduce the level of accounts
receivable. The Company has a $170 million financing agreement with a finance
company. At April 29, 1995, the Company had approximately $83.8 million
available from this facility. The Company's $20 million guarantee to an
inventory finance company on behalf of FNOW remained in place at April 29,
1995.
During the quarter ended April 29, 1995, the Company paid the quarterly cash
dividend of $0.10 per share which was declared on January 27, 1995. On April
27, 1995, the Company's Board of Directors declared a dividend of $0.10 per
share to shareholders of record on May 15, 1995, which was paid on June 1, 1995.
The Board of Directors has authorized the repurchase, in open-market
transactions, of up to 13.6 million shares of the Company's common stock. As
of April 29, 1995, the Company had repurchased approximately 8.3 million shares
at a cost of approximately $105.7 million.
The Company's transformation project, IE2000, is expected to be completed by the
end of fiscal 1996 and is estimated to cost up to $40 million, primarily
due to upgrades in its management information systems, including costs of
approximately $14 million through April 29, 1995.
Based on the Company's current level of operations and capital expenditures
requirements, management believes that the Company's cash and marketable
securities, internally-generated funds, and available financing arrangements and
opportunities will be sufficient to meet the Company's cash requirements for the
foreseeable future.
Inflation and Seasonality
- -------------------------
The Company believes that inflation has not had a material impact on its
operations or liquidity to date. The Company's financial performance does not
exhibit significant seasonality, although certain computer product lines have
displayed a seasonal pattern with peaks occurring near the end of the calendar
year.
<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 2. Agreement and Plan of Merger dated as of April 28,
1995 among the Company, IE Ohio Acquisition Corp. and The Future
Now, Inc.
Exhibit 11. Statement re: Computation of Per Share Earnings
(b) Reports filed on Form 8-K.
The Company's Report on Form 8-K dated March 6, 1995 relating to
the execution of a letter of intent for the proposed acquisition
of The Future Now, Inc.
The Company's Report on Form 8-K dated April 28, 1995 relating to
the execution of an Agreement and Plan of Merger for the
acquisition of The Future Now, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTELLIGENT ELECTRONICS, INC.
/s/ Edward A. Meltzer
--------------------------------
Edward A. Meltzer
Vice President, Chief
Financial Officer and
Chief Accounting Officer
Date: June 13, 1995
AGREEMENT AND PLAN OF MERGER
By and Among
INTELLIGENT ELECTRONICS, INC.
and
IE OHIO ACQUISITION CORPORATION
and
THE FUTURE NOW, INC.
Dated as of April 28, 1995
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 - THE MERGER AND RELATED MATTERS. . . . . . . . . . . . . . . 1
1.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Conversion of Stock. . . . . . . . . . . . . . . . . . . . . 2
1.3. Dissenting Shareholders. . . . . . . . . . . . . . . . . . . 3
1.4. Exchange Procedures. . . . . . . . . . . . . . . . . . . . . 3
1.5. Options and Warrants . . . . . . . . . . . . . . . . . . . . 6
1.6. Certificate of Incorporation of the Surviving
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 7
1.7. Code of Regulations of the Surviving Corporation . . . . . . 7
1.8. Directors and Officers of the Surviving
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 7
1.9. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . 8
2.1. Representations and Warranties of the Company. . . . . . . . 8
2.2. Representations and Warranties of Parent and Sub . . . . . . 22
ARTICLE 3 - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.1. Acquisition Proposals. . . . . . . . . . . . . . . . . . . . 30
3.2. Employee Benefits. . . . . . . . . . . . . . . . . . . . . . 30
3.3. Access and Information . . . . . . . . . . . . . . . . . . . 31
3.4. Certain Filings, Consents and Arrangements . . . . . . . . . 32
3.5. Indemnification and Insurance. . . . . . . . . . . . . . . . 32
3.6. Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.7. Proxy; Registration Statement. . . . . . . . . . . . . . . . 33
3.8. Shareholders' Meeting. . . . . . . . . . . . . . . . . . . . 34
3.9. Antitakeover Statutes. . . . . . . . . . . . . . . . . . . . 34
3.10. Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.11. Restriction on Dividends, Splits, Etc. . . . . . . . . . . . 35
3.12. Conduct of the Business of the Company Pending
the Closing Date . . . . . . . . . . . . . . . . . . . . . . 35
3.13. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . 36
3.14. Notice of Default. . . . . . . . . . . . . . . . . . . . . . 37
3.15. Treatment of Certain Debt. . . . . . . . . . . . . . . . . . 37
3.16. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 4 - CONDITIONS PRECEDENT TO MERGER. . . . . . . . . . . . . . . 38
4.1. Conditions Precedent to Obligations of Parent,
Sub and the Company. . . . . . . . . . . . . . . . . . . . . 38
4.2. Conditions Precedent to Obligations of Parent and
Sub. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 5 - TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . . . 42
5.1. Termination. . . . . . . . . . . . . . . . . . . . . . . . . 42
5.2. Effect of Termination. . . . . . . . . . . . . . . . . . . . 45
5.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.4. Basic Fee. . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE 6 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 46
6.1. Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.2. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.3. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.4. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.5. Entire Agreement; Etc. . . . . . . . . . . . . . . . . . . . 48
6.6. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 48
6.9. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . 49
6.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . 49
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 28, 1995
("Agreement"), by and among INTELLIGENT ELECTRONICS, INC., a Pennsylvania
corporation ("Parent"), IE OHIO ACQUISITION CORPORATION, an Ohio
corporation ("Sub") and a wholly-owned subsidiary of Parent, and THE FUTURE
NOW, INC., an Ohio corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and
the Company have approved the acquisition of the Company by Parent, subject
to the terms and conditions of this Agreement;
WHEREAS, to complete such acquisition, the respective Boards of
Directors of Parent, Sub and the Company have approved the merger of Sub
into the Company (the "Merger") pursuant to and subject to the terms and
conditions of this Agreement;
WHEREAS, the parties intend that the Merger qualify as a
reorganization pursuant to Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code");
NOW THEREFORE, in consideration of the foregoing premises and of
the mutual covenants, representations, warranties and agreements herein
contained, the parties, intending to be legally bound hereby, agree as
follows:
ARTICLE 1
THE MERGER AND RELATED MATTERS
------------------------------
1.1. The Merger.
(a) Subject to the terms and conditions of this Agreement,
at the time of the Closing (as defined in Section 1.9 hereof), a
certificate of merger (the "Ohio Certificate of Merger") shall be duly
prepared, executed and acknowledged by Sub and the Company in accordance
with the Ohio General Corporation Law (the "OGCL") and shall be filed on
the Closing Date (as defined in Section 1.9 hereof). The Merger shall
become effective upon the filing of the Ohio Certificate of Merger with the
Secretary of State of the State of Ohio in accordance with the provisions
and requirements of the OGCL, or at such other time as may be set forth, by
mutual agreement of the parties, in the Ohio Certificate of Merger. The
date and time when the Merger shall become effective is hereinafter
referred to as the "Effective Time."
(b) At the Effective Time, Sub shall be merged with and
into the Company and the separate corporate existence of Sub shall cease,
and the Company shall continue as the surviving corporation under the laws
of the State of Ohio under the name of The Future Now, Inc. (the "Surviving
Corporation").
(c) From and after the Effective Time, the Merger shall
have the effects set forth in Section 1701.82 of the OGCL.
1.2. Conversion of Stock.
(a) At the Effective Time, each share of Common Stock, no
par value, of the Company (the "Company Common Stock") then issued and
outstanding (other than (i) any shares of Company Common Stock which are
held by any subsidiary of the Company or in the treasury of the Company, or
which are held, directly or indirectly, by Parent or any subsidiary of
Parent (including Sub), all of which shall be canceled and none of which
shall receive any payment with respect thereto, and (ii) shares of Company
Common Stock held by Dissenting Shareholders, as defined in Section 1.3
hereof) shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and represent the Per Share Merger
Consideration (as defined in paragraph (b) below); and each issued and
outstanding share of common stock of Sub shall be converted into and
represent an issued and outstanding share of common stock of the Surviving
Corporation.
(b) As used herein, the term "Per Share Merger
Consideration" shall mean .6588 (the "Conversion Number") shares of common
stock, par value $.01 per share, of Parent (the "Parent Stock"). In the
event that prior to the Effective Time the outstanding shares of Parent
Stock shall have been increased, decreased or changed into or exchanged for
a different number or kind of shares or securities by reorganization,
recapitalization, reclassification, stock dividend, stock split or other
like changes in Parent's capitalization, all without Parent receiving
adequate consideration therefor, then an appropriate and proportionate
adjustment shall be made in the Conversion Number and in the number and
kind of shares of Parent Stock to be thereafter delivered pursuant to this
Agreement.
(c) Notwithstanding the foregoing, no fractional shares of
Parent Stock shall be issued to holders of Company Common Stock. In lieu
thereof, each holder of shares of Company Common Stock who would otherwise
have been entitled to receive a fraction of a share of Parent Stock (after
taking into account all certificates delivered by such holder at any one
time) shall receive an amount in cash equal to such fraction of a share of
Parent Stock, multiplied by the Average Closing Price of a share of Parent
Stock. "Average Closing Price of a share of Parent Stock" means the
average of the closing price per share of Parent Stock, as reported by The
Nasdaq Stock Market (as reported by The Wall Street Journal or, if not
reported thereby, by another authoritative source), for the 20 trading days
ending on the second trading day prior to the Closing Date.
(d) The shares of the Parent Stock issued and outstanding
immediately prior to the Effective Time shall remain outstanding and
unchanged after the Merger.
1.3. Dissenting Shareholders. Notwithstanding anything in this
Agreement to the contrary but only to the extent required by Section
1701.85 of the OGCL, shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and are held by holders
who comply with all the provisions of Ohio law concerning the right of
holders of Company Common Stock to dissent from the Merger and require
appraisal of their shares of Company Common Stock ("Dissenting
Shareholders") shall not be converted into the Per Share Merger
Consideration but shall become the right to receive such consideration as
may be determined to be due such Dissenting Shareholders pursuant to Ohio
law; provided, however, that shares of Company Common Stock outstanding
immediately prior to the Effective Time and held by a Dissenting
Shareholder who shall, after the Effective Time, withdraw his or her demand
for appraisal or lose his or her right of appraisal, in either case
pursuant to the OGCL, shall thereupon be deemed to have been converted, as
of the Effective Time, into the Per Share Merger Consideration, without
interest. The Company shall give Parent and Sub (i) prompt notice of any
written demands for appraisal, withdrawals of demands for appraisal and any
other related instruments received by the Company, and (ii) the opportunity
to direct all negotiations and proceedings with respect to demands for
appraisal under Ohio law. Except with the prior written consent of Parent,
the Company will not voluntarily make any payment with respect to any
demands for appraisal and will not settle or offer to settle any demand.
1.4. Exchange Procedures.
(a) At and after the Effective Time, each certificate or
certificates previously representing shares of Company Common Stock, taking
into account all certificates of a holder of Company Common Stock delivered
by such holder at any one time (taken together, a "Certificate"), shall
represent (i) the number of whole shares of Parent Stock and (ii) the right
to receive cash in lieu of fractional shares into which such Company Common
Stock has been converted pursuant to Section 1.2 hereof. Certificates
previously representing shares of Company Common Stock shall be exchanged
for certificates representing whole shares of Parent Stock and cash in lieu
of fractional shares issued in consideration therefor upon the surrender of
such Certificates in accordance with this Section 1.4 without any interest
thereon.
(b) As of the Effective Time, for the benefit of the
holders of shares of Company Common Stock, Parent shall deposit, or shall
cause to be deposited, with an exchange agent (the "Exchange Agent"), for
exchange in accordance with this Section 1.4, certificates representing the
shares of Parent Stock and the Company shall deposit, or shall cause to be
deposited with the Exchange Agent, cash in lieu of fractional shares (such
cash and certificates for shares of Parent Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred
to as the "Exchange Fund") issued pursuant to Section 1.2 and to be paid
pursuant to this Section 1.4 in exchange for outstanding shares of Company
Common Stock. The Exchange Agent shall be Mellon Securities Transfer
Services, or such other bank, trust company or financial institution as is
mutually agreeable to Parent and the Company.
(c) Promptly after the Effective Time, Parent shall cause
the Exchange Agent to mail to each holder of record of a Certificate or
Certificates the following: (i) a letter of transmittal specifying that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent,
which shall be in a form and contain any other provisions as Parent and the
Company may reasonably agree; and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of Parent Stock and cash in lieu of fractional shares. Upon the
proper surrender of a Certificate to the Exchange Agent, together with a
properly completed and duly executed letter of transmittal, the holder of
such Certificate shall be entitled to receive in exchange therefor (x) a
certificate representing that number of whole shares of Parent Stock and
(y) a check representing the amount of cash in lieu of any fractional
shares and unpaid dividends and distributions, if any, which such holder
has the right to receive in respect of the Certificate surrendered pursuant
to the provisions of Section 1.2, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on the cash in
lieu of fractional shares and unpaid dividends and distributions, if any,
payable to holders of Certificates. In the event of a transfer of
ownership of any shares of the Company Common Stock not registered in the
transfer records of the Company, a certificate representing the proper
number of shares of Parent Stock, together with a check for the cash to be
paid in lieu of fractional shares, may be issued to the transferee if the
Certificate representing such Company Common Stock is presented to the
Exchange Agent, accompanied by documents sufficient (1) to evidence and
effect such transfer and (2) to evidence that all applicable stock transfer
taxes have been paid.
(d) Until surrendered in accordance with the provisions of
this Section 1.4, each Certificate shall, subject to this paragraph (d), be
deemed for all purposes to evidence ownership of the number of shares of
Parent Stock into which the shares of Company Common Stock represented by
such Certificate have been changed or converted. Whenever a dividend or
other distribution is declared by Parent on the Parent Stock, the record
date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares issuable pursuant to
this Agreement; provided that no dividend or other distribution declared or
made on the Parent Stock shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Stock represented thereby
until the holder of such Certificate shall duly surrender such Certificate
in accordance with this Section 1.4. Following such surrender of any such
Certificate, there shall be paid to the holder of the certificates
representing whole shares of Parent Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of
dividends or other distributions having a record date after the Effective
Time theretofore payable with respect to such whole shares of Parent Stock
and not yet paid and (ii) at the appropriate payment date, the amount of
dividends or other distributions having (x) a record date after the
Effective Time but prior to surrender and (y) a payment date subsequent to
surrender payable with respect to such whole shares of Parent Stock.
(e) From and after the Effective Time, there shall be no
transfers on the stock transfer records of the Company of any shares of the
Company Common Stock that were outstanding immediately prior to the
Effective Time. If after the Effective Time Certificates are presented to
Parent, they shall be canceled and exchanged for the shares of Parent Stock
and cash in lieu of fractional shares, if any, deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set
forth in this Section 1.4.
(f) Any portion of the Exchange Fund (including the
proceeds of any investments thereof and any Parent Stock) that remains
unclaimed by the shareholders of the Company for one year after the
Effective Time shall be distributed and repaid to Parent. Any shareholders
of the Company who have not theretofore complied with this Section 1.4
shall thereafter look only to Parent for payment of their shares of Parent
Stock, cash in lieu of fractional shares and any unpaid dividends and
distributions on Parent Stock deliverable in respect of each share of
Company Common Stock such stockholder holds as determined pursuant to this
Agreement, in each case, without any interest thereon. If outstanding
certificates for shares of Company Common Stock are not surrendered or the
payment for them not claimed prior to the date on which such payments would
otherwise escheat to or become the property of any governmental unit or
agency, the unclaimed items shall, to the extent permitted by abandoned
property and any other applicable law, become the property of Parent (and
to the extent not in its possession shall be paid over to it), free and
clear of all claims or interest of any person previously entitled to such
claims, except that any cash in lieu of fractional shares shall become the
property of the Surviving Corporation. Notwithstanding the foregoing, none
of Parent, the Exchange Agent or any other person shall be liable to any
former holder of Company Common Stock for any amount delivered to a public
official pursuant to applicable abandoned property, escheat or similar
laws.
(g) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such person of a bond in such amount as
Parent may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the shares of
Parent Stock and cash in lieu of fractional shares deliverable (and unpaid
dividends and distributions) in respect thereof pursuant to this Agreement.
1.5. Options and Warrants. At the Effective Time, each option
and warrant granted by the Company to purchase shares of Company Common
Stock, which is outstanding and unexercised immediately prior thereto,
shall be converted into an option or warrant (as applicable) to purchase
shares of Parent Stock on the same terms and conditions as are in effect
immediately prior to the Merger as adjusted as set forth below. Each such
option and warrant that is converted shall be converted into an option or
warrant (as applicable) to purchase such number of shares of Parent Stock
at such exercise price as is determined as provided below (and otherwise
having the same duration and other terms as the original option or warrant,
including any terms in the original option or warrant regarding
acceleration; provided that, with respect to the directors of the Company
and with respect to those employees of the Company whose employment with
the Company or Parent is terminated by Parent or the Company within 180
days following the Closing Date (such directors and employees being herein
referred to as "Subject Persons"), such options shall remain outstanding
and exercisable and continue to vest throughout the full term thereof
notwithstanding termination of the optionee's service as a director of, or
employment with, the Company or Parent, but only on the condition that any
such director or employee who holds "incentive stock options" (as defined
in Section 422 of the Code) waives the loss of incentive stock option
treatment with respect to such options):
(a) the number of shares of Parent Stock to be subject to
the new option or warrant shall be equal to the product of (i) the number
of shares of the Company Common Stock subject to the original option or
warrant and (ii) the Conversion Number (after giving effect to any increase
or decrease thereto pursuant to Section 1.2(b) hereof), the product being
rounded, if necessary, up or down, to the nearest whole share;
(b) the exercise price per share of Parent Stock under the
new option or warrant shall be equal to (i) the exercise price per share of
the Company Common Stock under the original option or warrant divided by
(ii) the Conversion Number (after giving effect to any increase or decrease
thereto pursuant to Section 1.2(b) hereof), rounded, if necessary, up or
down, to the nearest cent;
(c) any reference in the original option or warrant to the
Company shall refer instead to Parent in the new option or warrant.
The adjustment provided herein with respect to options which are incentive
stock options shall be effected in a manner consistent with Section 424(a)
of the Code, except for options held by Subject Persons who have waived the
loss of incentive stock option treatment with respect to such options.
Immediately after the Effective Time, Parent shall file a registration
statement or a post-effective amendment to the Registration Statement (as
defined in Section 2.1(d)) or to any other registration statement
registering the issuance of shares of Parent Common Stock upon exercise of
the stock options or warrants issued or granted pursuant to this
Section 1.5.
1.6. Certificate of Incorporation of the Surviving Corporation.
The Certificate of Incorporation of the Company shall be the Certificate of
Incorporation of the Surviving Corporation.
1.7. Code of Regulations of the Surviving Corporation. The Code
of Regulations of the Company, as in effect immediately prior to the
Effective Time, shall be the Code of Regulations of the Surviving
Corporation until thereafter amended as provided by law.
1.8. Directors and Officers of the Surviving Corporation. At
the Effective Time, the directors of Sub shall be the directors of the
Surviving Corporation, each of such directors to hold office, subject to
the applicable provisions of the Certificate of Incorporation and Code of
Regulations of the Surviving Corporation, until the next annual
stockholders' meeting of the Surviving Corporation and until their
respective successors shall be duly elected or appointed and qualified. At
the Effective Time, the persons specified by Parent to the Company at or
prior to the Effective Time shall, subject to the applicable provisions of
the Certificate of Incorporation and Code of Regulations of the Surviving
Corporation, be the officers of the Surviving Corporation until their
respective successors shall be duly elected or appointed and qualified.
1.9. Closing. The closing of the Merger (the "Closing") shall
take place at the offices of Pepper, Hamilton & Scheetz, 3000 Two Logan
Square, Philadelphia, Pennsylvania, at 10:00 A.M., local time, on the day
which is the third business day after the day on which the last of the
conditions set forth in Section 4.1(a) and 4.1(b) hereof is fulfilled or
waived (subject to applicable law), or at such other time and place and on
such other date as Parent and the Company shall mutually agree (the
"Closing Date").
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to and for the benefit of Parent and Sub all
of the following except as and to the extent expressly disclosed on the
schedule (the "Company Disclosure Schedule") attached hereto as Exhibit A,
with reference to the corresponding paragraph of this Section 2.1 to which
each disclosure relates:
(a) Due Organization, Good Standing and Corporate Power.
Each of the Company and its subsidiaries is a corporation validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and each such corporation has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of the Company and its subsidiaries
is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by its makes such qualification
necessary, except in such jurisdictions where the failure to be so
qualified or licensed and in good standing would not have a material
adverse effect on the business, results of operations or financial
condition (the "Condition") of the Company and its subsidiaries taken as a
whole. As used herein, the term "subsidiary" shall mean, with respect to
any entity or person, any corporation, association, joint venture,
partnership or other business entity (whether now existing or hereafter
organized) of which at least a majority of the voting stock or other
ownership interests having ordinary voting power for the election of
directors (or the equivalent) is, at the time as of which any determination
is being made, owned or controlled by such entity or person or one or more
subsidiaries of such entity or person or by such entity or person and one
or more subsidiaries of such entity or person. The Company Disclosure
Schedule accurately identifies each of the jurisdictions in which the
Company and its subsidiaries have been incorporated and each of the
jurisdictions in which the Company and its subsidiaries have registered or
qualified to do business as foreign corporations.
(b) Authorization and Validity of Agreement. The Company
has full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance
by the Company of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly authorized and approved by
its Board of Directors, and no other corporate action on the part of the
Company is necessary to authorize the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
hereby (other than the approval of the Merger by the holders of the
outstanding shares of Company Common Stock pursuant to the OGCL). This
Agreement has been duly executed and delivered by the Company and, subject
to the approval of the Merger by the holders of the outstanding shares of
Company Common Stock pursuant to the OGCL, constitutes the valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that such enforcement may be limited by
applicable bankruptcy, insolvency or other similar laws affecting
creditors' rights generally, and general equitable principles. The
execution and delivery of this Agreement and the consummation of all
transactions contemplated hereby or taken in furtherance hereof shall in no
way be construed to have violated the Standstill Agreement dated as of July
2, 1992 (the "Standstill Agreement") between Parent and the Company.
(c) Capitalization.
(i) The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock. As of the date of
this Agreement, (1) 7,578,566 shares of Company Common Stock are issued and
outstanding, (2) 573,500 shares of Company Common Stock are reserved for
issuance upon the exercise of outstanding options granted by the Company
under the stock option plans identified in the Company Disclosure Schedule,
and (3) 159,161 shares of Company Common Stock have been reserved for
issuance pursuant to outstanding warrants of the Company. The Company
Disclosure Schedule accurately sets forth the names of each person holding,
as of the date hereof, an option, warrant or other right to acquire shares
of Company Common Stock, the number of shares of Company Common Stock
issuable upon the exercise of each such option, warrant or other right to
acquire shares of Company Common Stock, the exercise prices thereof and the
expiration dates thereof. All issued and outstanding shares of Company
Common Stock have been validly issued and are fully paid and nonassessable,
and are not subject to, nor were they issued in violation of, any
preemptive rights. Except as set forth in this Section 2.1(c) or the
Company Disclosure Schedule, there are no shares of capital stock of the
Company authorized, issued or outstanding, and there are not as of the date
hereof, and at the Effective Time there will not be, any outstanding or
authorized options, warrants, rights, subscriptions, claims of any
character, agreements, obligations, convertible or exchangeable securities,
or other commitments, contingent or otherwise, relating to the Company
Common Stock or any other shares of capital stock of the Company, pursuant
to which the Company is or may become obligated to issue shares of Company
Common Stock, any other shares of its capital stock or any securities
convertible into, exchangeable for, or evidencing the right to subscribe
for, any shares of the capital stock of the Company. All of the shares of
Company Common Stock have the same voting and other rights, except as
provided in the OGCL.
(ii) All of the outstanding shares of capital stock of
each of the Company's subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable, are not subject to, nor were they
issued in violation of, any preemptive rights, and are owned, directly or
indirectly, by the Company, free and clear of all liens, encumbrances,
options or claims whatsoever. No shares of capital stock of any of the
Company's subsidiaries are reserved for issuance and there are no
outstanding or authorized options, warrants, rights, subscriptions, claims
of any character, agreements, obligations, convertible or exchangeable
securities, or other commitments, contingent or otherwise, relating to the
capital stock of any subsidiary of the Company, pursuant to which such
subsidiary is or may become obligated to issue any shares of capital stock
of such subsidiary or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of such subsidiary.
There are no restrictions of any kind which prevent the payment of
dividends by any of the Company's subsidiaries. Except for the Company's
subsidiaries set forth in the Company Disclosure Schedule, the Company does
not own, directly or indirectly, any capital stock or other equity interest
in any person or entity or have any direct or indirect equity or ownership
interest in any person or entity, and neither the Company nor any of its
subsidiaries is subject to any obligation or requirement to provide funds
for or to make any investment (in the form of a loan, capital contribution
or otherwise) to or in any person or entity.
(d) Consents and Approvals; No Violations. Assuming (i)
the filings required under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), are made and the waiting period
thereunder has been terminated or has expired, (ii) the filing of the Ohio
Certificate of Merger and other appropriate merger documents, if any, as
required by the laws of the State of Ohio are made, (iii) the requirements
of the federal securities laws relating to (A) the registration of Parent
Stock issuable in the Merger at the Effective Time pursuant to a
registration statement on Form S-4 (the "Registration Statement") to be
filed by Parent with the Securities and Exchange Commission (the
"Commission") and applicable state securities laws, and (B) the submission
of the Merger to, and the solicitation of proxies from, the Company's
shareholders, are complied with, (iv) approval of the Merger by the holders
of the Company Common Stock is received in compliance with the OGCL and (v)
the requirements and conditions of this Agreement are met, the execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby will not: (1) violate any
provision of the Articles of Incorporation, By-Laws or Code of Regulations
of the Company or of any of its subsidiaries; (2) violate in any material
respect any statute, ordinance, rule, regulation, order or decree of any
court or of any governmental or regulatory body, agency or authority
applicable to the Company or any of its subsidiaries or by which any of
their respective properties or assets may be bound; (3) require any filing
with, or permit, consent or approval of, or the giving of any notice to,
any governmental or regulatory body, agency or authority; or (4) result in
a material violation, termination or breach of, conflict with, constitute
(with or without the giving of notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation, payment or
acceleration) under, 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, result in the forfeiture of any rights,
entitlements or privileges under, create any right or entitlement
(including, without limitation, to employment or compensation) not
expressly provided for herein, or require the consent or approval of any
party under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or other instrument or obligation to which the Company
or any of its subsidiaries is a party, or by which it or any of their
respective properties or assets may be bound, except for such violations,
filings, consents, approvals, notices, terminations, breaches, conflicts,
defaults, liens, security interests, charges, encumbrances, forfeitures,
rights and entitlements that would not, individually or in the aggregate,
have a material adverse effect on the Condition of the Company. Without
limiting the generality of the foregoing, the conversion of options and
warrants pursuant to Section 1.5 hereof will not require the consent or
approval of any of the holders of such options or warrants, and all notices
required by the terms of the options and warrants to be given thereunder in
connection with the Merger will have been given no later than the times
required thereunder.
(e) Certain Information. When the Registration Statement
to be filed by Parent pursuant to Section 3.7 hereof or any post-effective
amendment thereto shall become effective, and at all times subsequent to
such effectiveness up to and including the time of the Company Meeting (as
defined in Section 3.8), such Registration Statement and all amendments or
supplements thereto, with respect to all information set forth therein
furnished by the Company relating to the Company or its subsidiaries, shall
comply in all material respects with the provisions of all applicable
securities laws. The Proxy Statement (as defined in Section 3.7) will
comply in all material respects with the provisions of all applicable
securities laws. If at any time prior to the time of the Company Meeting
any event occurs which should be described in the Proxy Statement or any
supplement or amendment thereto, the Company will file and disseminate, as
required, a supplement or amendment which complies in all material respects
with the provisions of all applicable securities laws. Prior to its filing
with the Commission, the Proxy Statement and each amendment or supplement
thereto shall be delivered to Parent and its counsel. The Proxy Statement
will not, at the time it is mailed and at the Closing Date, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any written information supplied or to be supplied by the
Company specifically for inclusion in the Registration Statement will not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made not
misleading. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information with respect to
Parent, Sub or their respective officers, directors or affiliates provided
to the Company by Parent in writing for inclusion in the Proxy Statement or
in any supplements or amendments thereto.
(f) Company Reports and Financial Statements. Since
January 1, 1992, the Company has filed all forms, reports and documents
with the Commission required to be filed by it pursuant to the federal
securities laws and the Commission rules and regulations thereunder (the
"Company Commission Filings"), and all such forms, reports and documents
filed with the Commission have complied in all material respects with all
applicable requirements of the federal securities laws and the Commission
rules and regulations promulgated thereunder. The Company has heretofore
made available to Parent true and complete copies of all forms, reports,
documents, amendments thereto and other filings filed by the Company with
the Commission since January 1, 1992 and prior to the date hereof (such
forms, reports, documents and other filings, together with any amendments
thereto, are sometimes collectively referred to herein as the "Company
Commission Filings"). As of their respective dates, the Company Commission
Filings 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. Each of the balance sheets as of the end of the
fiscal years ended December 31, 1992, December 31, 1993 and December 31,
1994, and the quarters ended within such fiscal years, and the statements
of income, statements of shareholders' equity (if presented) and statements
of cash flows for the fiscal years ended December 31, 1992, December 31,
1993 and December 31, 1994 and the quarters ended within such fiscal years
included in the Company Commission Filings, were prepared in accordance
with generally accepted accounting principles consistently applied and
fairly present the consolidated financial position of the Company as of the
dates thereof and the results of its operations, shareholders' equity and
cash flows for the periods then ended.
(g) Absence of Undisclosed Liabilities. Except as set
forth in the audited balance sheet of the Company as of December 31, 1994
or the notes thereto (the "Audited Balance Sheet") or in the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries has
any material outstanding claims against it, liabilities or indebtedness,
contingent or otherwise, other than liabilities incurred subsequent to
December 31, 1994 in the ordinary course of business, consistent with past
practices.
(h) Accounts Receivable. The accounts receivable of the
Company as reflected in the Audited Balance Sheet are, to the extent
uncollected on the date of this Agreement, valid and existing and, to the
Company's Knowledge (as defined in Section 6.1), fully collectible through
the use of ordinary collection procedures (except for reserves set forth in
such financial statements, which reserves were established in accordance
with generally accepted accounting principles ("GAAP") and in an amount
consistent with the Company's historical accounting policies), represent
monies due for goods sold and delivered or services rendered (except as set
forth in the Audited Balance Sheet), and are subject to no refunds,
discounts, rebates or other adjustments (except discounts for prompt
payment given in the ordinary course of business) and, to the Company's
Knowledge, are not subject to any defenses, rights of setoff, assignments,
restrictions, encumbrances or conditions enforceable by third parties on or
affecting any thereof. None of the Company's accounts receivable is
subject to any factoring agreement.
(i) Inventories. The inventories reflected in the Audited
Balance Sheet were, and those reflected on the books of the Company since
the date thereof have been, determined and valued in accordance with GAAP
applied on a consistent basis as reflected in the Audited Balance Sheet,
subject to inventory and obsolescence reserves established in accordance
with GAAP applied on a consistent basis as reflected in the Audited Balance
Sheet. In all material respects, the inventories of the Company consist of
items which are good and merchantable, and are of a quality and quantity
presently usable or salable in the ordinary course of business, subject to
inventory and obsolescence reserves established in accordance with GAAP
applied on a consistent basis.
(j) Title to Properties; Encumbrances. The Company and
each of its subsidiaries has good, valid and marketable title to (i) all
its material tangible properties and assets (real and personal), including,
without limitation, tangible properties and assets reflected in the Audited
Balance Sheet, except as indicated in the notes thereto and except for
tangible properties and assets reflected in such balance sheet which have
been sold or otherwise disposed of in the ordinary course of business
consistent with past practices, and (ii) all the material tangible
properties and assets purchased by the Company and any of its subsidiaries
since December 31, 1994, except for such properties and assets which have
been sold or otherwise disposed of in the ordinary course of business
consistent with past practices; in each case subject to no encumbrance,
lien, charge or other restriction of any kind or character, except for
(1) liens reflected in the Audited Balance Sheet, (2) liens consisting of
zoning or planning restrictions, easements, permits and other restrictions
or limitations on the use of real property or irregularities in title
thereto which do not materially detract from the value of, or impair the
use of, such property by the Company or any of its subsidiaries in the
operation of its respective business and (3) liens for current taxes,
assessments or governmental charges or levies on property not yet due and
delinquent. The Company and each of its subsidiaries are in material
compliance with all leases of real property leased by any of them, and have
no Knowledge of any material default by the landlords under any such
leases. In all material respects, the buildings and improvements owned or
leased by the Company and its subsidiaries, and the operation and
maintenance thereof, do not contravene any zoning or building law or
ordinance or violate any restrictive covenant or any provision of federal,
state or local law. The Company Disclosure Schedule hereto contains an
accurate list and summary description of all real estate owned or leased by
the Company or any of its subsidiaries. The Company has no Knowledge of
any pending or threatened condemnation, eminent domain or similar
proceeding with respect to any real property owned or leased by the Company
or any of its subsidiaries.
(k) Absence of Certain Changes and Events. Since
December 31, 1994: (i) there has not been any material adverse change in
the Condition of the Company and its subsidiaries, taken as a whole; (ii)
the businesses of the Company and each of its subsidiaries have been
conducted in the ordinary course consistent with past practices; (iii)
neither the Company nor any of its subsidiaries has incurred any material
liabilities (direct, contingent or otherwise) or engaged in any material
transaction or entered into any material agreement except in the ordinary
course of business consistent with past practice; (iv) the Company and its
subsidiaries have not increased the compensation of any officer or granted
any general salary or benefits increase to their employees except in the
ordinary course of business consistent with past practice; (v) neither the
Company nor any of its subsidiaries has taken any action referred to in
Sections 3.12(a), 3.12(b)(i), (iii), (iv), (v), (vi), (vii) or (to the
extent it relates to the foregoing) (viii) or 3.12(c) hereof; (vi) the
Company has not issued or sold any capital stock or other securities of any
kind, except for the issuance of shares of Company Common Stock upon the
exercise of options granted by the Company under one or more of the stock
option plans identified in the Company Disclosure Schedule and except for
the issuance of shares of Company Common Stock upon the exercise of
warrants granted by the Company under one or more of the warrant agreements
identified in the Company Disclosure Schedule, in either case in amounts
not exceeding those set forth in the Company Disclosure Schedule; (vii) the
Company has not declared, paid or set aside for payment any dividend or
other distribution (payable in cash, securities or other property) in
respect of its capital stock or other securities; and (viii) the Company
has not split, combined, reclassified, redeemed, purchased or otherwise
acquired any capital stock or other securities of the Company. Since
December 31, 1994, no options or warrants have been granted by the Company
covering shares of Company Common Stock and having a per share exercise
price below the fair market value of the Company Common Stock on the date
of grant.
(l) Minute Books. In all material respects, the minute
books of the Company and its subsidiaries, as previously made available to
Parent and its representatives, contain accurate records of all corporate
actions of the shareholders and Boards of Directors of the Company and its
subsidiaries.
(m) Compliance with Laws; Permits. The Company and its
subsidiaries are in compliance in all material respects with all applicable
laws, regulations, orders, judgments and decrees (whether domestic or
foreign), and have all material franchises, licenses, permits and
certificates and other authorizations from federal, state, local and
foreign governments and governmental agencies that are necessary for the
conduct of their business except where such failure to comply or to obtain
such authorization does not have, and is not reasonably likely to have, a
material adverse effect on the Condition of the Company.
(n) Environmental Liability. There is no legal,
administrative, arbitral or other proceeding, claim, action, cause of
action or governmental investigation of any nature seeking to impose, or
that is reasonably likely to result in the imposition, on the Company or
any of its subsidiaries of any liability arising under any local, state or
federal environmental statute, regulation or ordinance, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, pending or, to the Knowledge of the
Company, threatened against the Company or any of its subsidiaries, which
would be required to be disclosed pursuant to Item 103 or 303 of Regulation
S-K (17 CFR 229); to the Knowledge of the Company and except as set forth
in the Company Disclosure Schedule, there is no reasonable basis for any
such proceeding, claim, action or governmental investigation that would
impose any such liability; and neither the Company nor any of its
subsidiaries is subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency
or third party imposing any such liability.
(o) Material Contracts. The Company Disclosure Schedule
contains a list of (i) any material agreement, arrangement or commitment of
the Company or any of its subsidiaries, whether or not made in the ordinary
course of business, or any agreement of the Company or any of its
subsidiaries restricting its business activities, (ii) any agreement,
indenture or other instrument relating to the borrowing of money by the
Company or any of its subsidiaries, other than instruments relating to
transactions entered into in the ordinary course of business and other than
any covered by the preceding clause (i), (iii) any agreement, arrangement
or commitment of the Company or any of its subsidiaries relating to the
employment, election, retention in office or severance of any present or
former director or officer, (iv) any written employment or severance
agreement between the Company or any of its subsidiaries and any employee
thereof and (v) any agreement, arrangement or commitment involving payments
by the Company or any of its subsidiaries in excess of $500,000
(collectively, the "Contracts").
All such Contracts are valid, enforceable in accordance with
their terms and in full force and effect and neither the Company nor any of
its subsidiaries is in default thereunder in any material respect, except
as set forth in the Company Disclosure Schedule. Except as set forth in
the Company Disclosure Schedule, neither this Agreement nor the
consummation of the Merger will authorize, entitle or permit any party to
any of the Contracts to terminate, cancel, amend or renegotiate any such
Contract or will adversely affect any of the Contracts in any material
manner. Neither the Company nor any subsidiary has received notice that
any party to any such Contract intends to cancel, terminate, amend or
renegotiate such Contract.
(p) Litigation. Set forth in the Company Disclosure
Schedule is an accurate and complete list, as of the date of this
Agreement, of each action, suit, proceeding at law or in equity, or any
arbitration or any administrative or other proceeding by or before (or, to
the Knowledge of the Company, any investigation by) any governmental or
other instrumentality or agency (each, a "Proceeding") against or affecting
the Company or any of its subsidiaries, or any of their properties or
rights. There is no Proceeding pending, or, to the Knowledge of the
Company, threatened, against or affecting the Company or any of its
subsidiaries, or any of their properties or rights, except for such
Proceedings that do not have and are not reasonably likely to have,
individually or in the aggregate, a material adverse effect on the
Condition of the Company. There are no such suits, actions, claims,
proceedings or investigations pending or, to the Knowledge of the Company,
threatened, seeking to prevent or challenging the transactions contemplated
by this Agreement. Neither the Company nor any of its subsidiaries is
subject to any judgment, order or decree entered in any lawsuit or
proceeding, that has had or could reasonably be expected to have a material
adverse effect on the Condition of the Company.
(q) Employee Benefit Plans.
(i) List of Plans. Set forth in the Company
Disclosure Schedule is an accurate and complete list of all material
Benefit Plans established, maintained or contributed to by the Company or
any of its subsidiaries in which any employees of the Company or any of its
subsidiaries currently participates. As used herein, the term "Benefit
Plans" means all employee benefit plans within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), as well as all plans, programs and arrangements providing profit
sharing, retirement, pension, savings, thrift, deferred compensation, stock
option, stock purchase, group insurance, accident, sickness, medical,
dental, disability, and all vacation pay, severance pay, incentive
compensation, bonus and other employee benefits or fringe benefits
(including health, life insurance and other benefit plans maintained for
retirees), whether or not such plans, programs and arrangements constitute
"employee benefit plans" within the meaning of Section 3(3) of ERISA, and
whether or not pursuant to any collective bargaining arrangements, whether
or not any such Benefit Plans are otherwise exempt from the provisions of
ERISA, and whether or not any such Benefit Plans are considered material
and listed in the Company Disclosure Schedule.
(ii) Status of Plans. Neither the Company nor any of
its subsidiaries maintains or contributes to any Benefit Plan subject to
ERISA which is not in material compliance with ERISA and, to the extent
applicable, the Code. No liability under Title IV of ERISA has been
incurred by the Company or any trade or business (whether or not
incorporated) which, together with the Company, is treated as a single
employer under Section 414 of the Code (an "ERISA Affiliate") that has not
been satisfied in full, and no condition exists that presents a material
risk to the Company or an ERISA Affiliate of incurring a liability under
such Title. None of the Benefit Plans is subject to Title IV of ERISA.
(iii) Contributions. Full payment has been made of all
material amounts which the Company or any of its subsidiaries is required,
under applicable law or under any Benefit Plan or any agreement relating to
any Benefit Plan to which the Company or any of its subsidiaries is a
party, to have paid as contributions thereto as of the last day of the most
recent fiscal year of such Benefit Plan ended prior to the date hereof.
The Company has made adequate provision for reserves in accordance with
GAAP to meet contributions that have not been made because they are not yet
due under the terms of any Benefit Plan or related agreements. The Benefit
Plan documents made available to Parent accurately reflect the level of
benefits provided thereunder in all material respects and such benefits
have not been increased subsequent to the date as of which documents have
been provided except as may be effected to satisfy any applicable
requirements under the Code or ERISA and as disclosed on the Company
Disclosure Schedule.
(iv) Tax Qualification. The Company has applied to the
Internal Revenue Service ("IRS") for a determination letter for each
Benefit Plan intended to be qualified under Section 401(a) of the Code and
intends to make any changes requested by the IRS in order to obtain a
favorable determination.
(v) Transactions. Neither the Company nor any of its
subsidiaries nor any of their respective directors, officers or employees
to the extent they or any of them are fiduciaries under Title I of ERISA
has engaged in any transaction with respect to the Benefit Plans which
would, if not corrected, subject it to a material tax, penalty or liability
for prohibited transactions under ERISA or the Code or would result in any
material claim being made under or by or on behalf of any such Plans by any
party with standing to make such claim.
(vi) Documents. The Company has made available to
Parent true and complete copies of (1) all Benefit Plans as in effect or a
description thereof if no written plan document exists, together with all
amendments thereto which have been adopted and which will become effective
at a later date, as well as the latest IRS determination letter obtained
with respect to any such Benefit Plan qualified under Section 401 or 501 of
the Code and (2) the most recently filed Form 5500 for each Benefit Plan
required to file such form.
(r) Employment Relations and Agreements. (i) Each of the
Company and its subsidiaries is in compliance in all material respects with
all federal, state or other applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours, and has not and is not engaged in any unfair labor practice; (ii) no
unfair labor practice complaint against the Company or any of its
subsidiaries is pending before the National Labor Relations Board; (iii)
there is no labor strike, dispute, slowdown or stoppage actually pending or
threatened against or involving the Company or any of its subsidiaries;
(iv) no representation question exists respecting the employees of the
Company or any of its subsidiaries; (v) no grievance which might have a
material adverse effect on the Condition of the Company or any of its
subsidiaries or the conduct of their respective businesses exists, no
arbitration proceeding arising out of or under any collective bargaining
agreement is pending and no claim therefor has been asserted; (vi) no
collective bargaining agreement is currently being negotiated by the
Company or any of its subsidiaries; (vii) neither the Company nor any of
its subsidiaries has experienced any material labor difficulty since
January 1, 1993; and (viii) no "plant closing" or "mass layoff" within the
meaning of the Worker Adjustment and Retraining Notification Act has
occurred with respect to the Company or any of its subsidiaries. There has
not been, and to the Knowledge of the Company, there will not be, any
change in relations with employees of the Company or any of its
subsidiaries as a result of the transactions contemplated by this Agreement
which could have a material adverse effect on the Condition of the Company
or any of its subsidiaries. Except as disclosed in the Company Disclosure
Schedule, there exist no employment, consulting, severance or
indemnification agreements between the Company and any director, officer,
employee or agent of the Company or any agreement that would give any
person or entity the right to receive any payment from the Company as a
result of the Merger.
(s) Relations with Certain Vendors. The Company and its
subsidiaries have maintained and have good working relationships with their
respective vendors and suppliers, as a group, and neither the Company nor
any of its subsidiaries has any disputes with their respective vendors
which, individually or in the aggregate, have or are reasonably likely to
have a material adverse effect on the Condition of the Company.
(t) Taxes and Audits. All federal tax returns, reports,
statements, estimates, declarations and forms (collectively, the "Company
Federal Returns") and all state and local tax returns, reports, statements,
estimates, declarations and forms (collectively, the "Company State and
Local Returns") required to be filed by the Company on or prior to the
Closing Date have been or will be filed (or extensions for such filings
will have been obtained) with the appropriate governmental agencies in all
jurisdictions in which such Company Federal Returns and Company State and
Local Returns are required to be filed. All of the Company Federal Returns
are or will be, when filed, true, correct and complete in all material
respects and all amounts shown as owing on any Company Federal Returns have
been or will be paid or accrued. All of the Company State and Local
Returns are or will be, when filed, true, correct and complete in all
material respects, and all amounts shown as owing thereon have been or will
be paid or accrued. To the Company's Knowledge, there is no action, suit,
proceeding, investigation, audit, claim or assessment pending or proposed
with respect to any Company Federal Return or Company State and Local
Return, except as disclosed in the Company Disclosure Schedule.
All federal, state or local income, profits, franchise, sales,
use, occupation, property, business and occupation, labor and industry,
excise or other taxes (including interest and penalties) payable by the
Company for the period extending up to the Closing Date, relating to or
chargeable against the Company or its assets, properties, revenues or
income, or for which an assessment or demand has been made, have been or
will be fully paid or accrued in accordance with GAAP. All business and
occupation, payroll and other employment-related tax deposits for the
period extending up to the Closing Date and payable by the Company have
been or will be fully paid or accrued in accordance with GAAP.
(u) Intellectual Properties. The Company and its
subsidiaries own or have the right to use all domestic and foreign patents,
patent applications, patent licenses, software licenses, know-how licenses,
trade names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service mark registrations and
applications, copyright registrations and applications (collectively the
"Intellectual Property") necessary to the operation of its business. The
Company Disclosure Schedule attached hereto contains an accurate and
complete list of all Intellectual Property which is of importance to the
operation of the business of the Company and its subsidiaries (other than
commonly available software used by the Company or its subsidiaries
pursuant to a valid license). The Company Disclosure Schedule lists all
material notices or claims currently pending or received by the Company or
any of its subsidiaries during the past two years which claim infringement,
contributory infringement, inducement to infringe, misappropriation or
breach by the Company or any of its subsidiaries of any domestic or foreign
patents, patent applications, patent licenses and know-how licenses, trade
names, trademark registrations and applications, service marks, copyrights,
copyright registrations or applications, trade secrets or other
confidential proprietary information. To the Knowledge of the Company, no
basis exists upon which a material claim (a "Company Infringement Claim")
may be asserted against the Company or any of its subsidiaries, for
infringement, contributory infringement, inducement to infringe,
misappropriation or breach of any domestic or foreign patents, patent
applications, patent licenses, know-how licenses, trade names, trademark
registrations and applications, common law trademarks, service marks,
copyrights, copyright registrations or applications, trade secrets or other
confidential proprietary information. To the Knowledge of the Company, no
person or entity is infringing the Intellectual Property.
(v) Insurance. The Company Disclosure Schedule sets forth
a list of all policies or binders of fire, liability, product liability,
worker's compensation, vehicular or other insurance held by or on behalf of
the Company or any of its subsidiaries (specifying for each such insurance
policy the insurer, the policy number or covering note number with respect
to binders, and each pending claim thereunder of more than $25,000 and
setting forth the aggregate amounts paid out under each such policy through
the date hereof). Such policies and binders are valid, in full force and
effect and in the Company's reasonable belief sufficient to protect the
Company and its subsidiaries against all insured hazards.
(w) Transactions with Management. There are no
transactions which the Company would be required to disclose pursuant to 17
C.F.R. Section 229.404, which are not contained in the Company Commission
Filings. In addition, and without limiting the generality of the
foregoing, to the Knowledge of the Company, no director, officer or
shareholder beneficially owning 5% or more of the total number of issued
and outstanding shares of Common Stock: (i) has any contractual
relationship with the Company, other than employment contracts and
contracts made on an arm's-length basis in the ordinary course of business;
(ii) has any direct or indirect interest in any right, property or asset
which is used by the Company or any of its subsidiaries in the conduct of
its or their business; (iii) owns any securities of, or has any material
direct or indirect interest in, any entity which does business with the
Company or any of its subsidiaries; or (iv) is a party to any agreement,
arrangement or commitment or is a party to any pending action or proceeding
which could interfere with the performance of such person's duties to the
Company.
(x) Fairness Opinion. The Company has received an opinion
dated April 28, 1995 (the "Fairness Opinion") from The Robinson-Humphrey
Company, Inc. to the effect that the Conversion Number is fair to the
Company's shareholders from a financial point of view.
(y) Broker's or Finder's Fee. Except for The Robinson-
Humphrey Company, Inc. (whose fees and expenses will be paid by the
Company), no agent, broker, person or firm acting on behalf of the Company
is, or will be, entitled to any commission or broker's or finder's fees
from any of the parties hereto, or from any person controlling, controlled
by, or under common control with any of the parties hereto, in connection
with this Agreement or any of the transactions contemplated herein.
2.2. Representations and Warranties of Parent and Sub. Each of
Parent and Sub represents and warrants to and for the benefit of the
Company and the Shareholders all of the following except as and to the
extent expressly disclosed on the Schedule (the "Parent Disclosure
Schedule") attached hereto as Exhibit B, with reference to the
corresponding paragraph of this Section 2.2 to which each disclosure
relates:
(a) Due Organization; Good Standing and Corporate Power.
Each of Parent and its subsidiaries is a corporation validly existing and
in good standing under the laws of the jurisdiction of its incorporation
(or domestication) and each such corporation has all requisite corporate
power and authority to own, lease and operate its properties and to carry
on its business as now being conducted. Each of Parent and its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by its makes such
qualification necessary, except in such jurisdictions where the failure to
be so qualified or licensed and in good standing would not have a material
adverse effect on the Condition of Parent and its subsidiaries taken as a
whole.
(b) Authorization and Validity of Agreement. Each of
Parent and Sub has full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement by Parent and Sub, and the consummation
by each of them of the transactions contemplated hereby, have been duly
authorized and approved by the Boards of Directors of Parent and Sub and by
Parent as the sole shareholder of Sub. No other corporate action on the
part of either of Parent or Sub is necessary to authorize the execution,
delivery and performance by each of Parent and Sub of this Agreement and
the consummation by them of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of Parent and Sub
and is a valid and binding obligation of each of Parent and Sub,
enforceable against each of Parent and Sub in accordance with its terms,
except that such enforcement may be limited by applicable bankruptcy,
insolvency or other similar laws affecting creditors' rights generally, and
general equitable principles.
(c) Capitalization of Parent.
(i) The authorized capital stock of Parent consists of
100,000,000 shares of Parent Stock and 15,000,000 shares of preferred
stock, par value $1.00 per share ("Preferred Stock"). As of the date of
this Agreement, (1) 31,247,349 shares of Parent Stock are issued and
outstanding, (2) 6,068,485 shares of Parent Stock have been reserved for
issuance upon the exercise of outstanding options and warrants of Parent
and (3) no shares of Preferred Stock have been issued. All issued and
outstanding shares of Parent Stock have been validly issued and are fully
paid and nonassessable, and are not subject to, nor were they issued in
violation of, any preemptive rights. All of the shares of Parent Stock
have the same voting and other rights.
(ii) All of the outstanding shares of capital stock of
each of Parent's subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable, are not subject to, nor were they issued
in violation of, any preemptive rights, and are owned, directly or
indirectly, by Parent, free and clear of all liens, encumbrances, options
or claims whatsoever.
(d) Capitalization of Sub. The authorized capital stock of
Sub consists of 1,000 shares of Common Stock, par value $.01 per share, all
of which shares are validly issued and outstanding and owned by Parent on
the date hereof, and all of which shares have the same voting and other
rights.
(e) Consents and Approvals. Assuming (i) the filings
required under the HSR Act are made and the waiting period thereunder has
been terminated or has expired, (ii) the filing of the Ohio Certificate of
Merger and other appropriate merger documents, if any, as required by the
laws of the State of Ohio are made, (iii) the requirements of the federal
securities laws relating to (A) the registration of Parent Stock issuable
in the Merger at the Effective Time pursuant to the Registration Statement
and applicable state securities laws, and (B) the submission of the Merger
to, and the solicitation of proxies from, the Company's shareholders, are
complied with, and (iv) the requirements and conditions of this Agreement
are met, the execution and delivery of this Agreement by Parent and Sub and
the consummation by Parent and Sub of the transactions contemplated hereby
will not: (1) violate any provision of the charter documents or by-laws of
Parent or Sub; (2) violate in any material respect any statute, ordinance,
rule, regulation, order or decree of any court or of any governmental or
regulatory body, agency or authority applicable to Parent or Sub or by
which any of their respective properties or assets may be bound; (3)
require any filing with, or permit, consent or approval of, or the giving
of any notice to, any governmental or regulatory body, agency or authority;
or (4) except as disclosed on the Parent Disclosure Schedule, result in a
material violation, termination or breach of, conflict with, constitute
(with or without the giving of notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation, payment or
acceleration) under, result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Parent under,
result in the forfeiture of any rights, entitlements or privileges under,
create any right or entitlement (including, without limitation, to
employment or compensation) not expressly provided for herein, or require
the consent or approval of any party under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, franchise,
permit, agreement, lease, franchise agreement or other instrument or
obligation to which Parent or any of its subsidiaries is a party, or by
which it or any of their respective properties or assets may be bound,
except for such violations, filings, consents, approvals, notices,
terminations, breaches, conflicts, defaults, liens, security interests,
charges, encumbrances, forfeitures, rights and entitlements that would not,
individually or in the aggregate, have a material adverse effect on the
Condition of Parent.
(f) Registration Statement. When the Registration
Statement or any post-effective amendment thereto shall become effective,
and at all times subsequent to such effectiveness up to and including the
time of the Company Meeting, the Registration Statement and all amendments
or supplements thereto, with respect to all information set forth therein
furnished by Parent relating to Parent or its subsidiaries, shall comply in
all material respects with the provisions of all applicable securities
laws. If at any time prior to the Closing Date any event occurs which
should be described in the Registration Statement or any supplement or
amendment thereto, Parent will file and disseminate, as required, a
supplement or amendment which complies in all material respects with the
provisions of all applicable securities laws. Prior to its filing with the
Commission, the Registration Statement and each amendment or supplement
thereto shall be delivered to the Company and its counsel. The
Registration Statement will not, at the time the prospectus included
therein is mailed to shareholders of the Company, and at the Closing Date,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Any written information supplied or to be supplied
by Parent specifically for inclusion in the Proxy Statement will not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made not
misleading. Notwithstanding the foregoing, Parent makes no representation
or warranty with respect to any information with respect to the Company or
its officers, directors or affiliates provided to Parent by the Company in
writing for inclusion in the Registration Statement or in any supplements
or amendments thereto.
(g) Parent Reports and Financial Statements. Since
February 1, 1992, Parent has filed all forms, reports and documents with
the Commission required to be filed by it pursuant to the federal
securities laws and the Commission rules and regulations thereunder, and
all such forms, reports and documents filed with the Commission have
complied in all material respects with all applicable requirements of the
federal securities laws and the Commission rules and regulations
promulgated thereunder. Parent has heretofore made available to the
Company true and complete copies of all forms, reports, documents,
amendments thereto and other filings filed by Parent with the Commission
prior to the date hereof (such forms, reports, documents and other filings,
together with any amendments thereto, are listed on the Parent Disclosure
Schedule and are collectively referred to herein as the "Parent Commission
Filings"). As of their respective dates, the Parent Commission Filings 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. Each of the balance sheets as of the end of the
fiscal years ended January 30, 1993, January 29, 1994 and January 28, 1995,
and the quarters ended within such fiscal years, and the statements of
income, statements of shareholders' equity (if presented) and statements of
cash flows for the fiscal years ended January 30, 1993, January 29, 1994
and January 28, 1995 and the quarters ended within such fiscal years
included in the Parent Commission Filings, were prepared in accordance with
generally accepted accounting principles consistently applied and fairly
present the consolidated financial position of Parent as of the dates
thereof and the results of its operations, shareholders' equity and cash
flows for the periods then ended.
(h) Absence of Undisclosed Liabilities. Except as set
forth in the audited balance sheet of Parent as of January 28, 1995 or the
notes thereto, (the "Parent Balance Sheet") or on the Parent Disclosure
Schedule, neither Parent nor any of its subsidiaries has any material
outstanding claims against it, liabilities or indebtedness, contingent or
otherwise, other than liabilities incurred subsequent to January 28, 1995
in the ordinary course of business, consistent with past practices.
(i) Accounts Receivable. The accounts receivable of Parent
as reflected in the Parent Balance Sheet are, to the extent uncollected on
the date of this Agreement, valid and existing and, to Parent's Knowledge,
fully collectible through the use of ordinary collection procedures (except
for reserves set forth in such financial statements, which reserves were
established in accordance with GAAP and in an amount consistent with
Parent's historical accounting policies), represent monies due for goods
sold and delivered or services rendered (except as set forth in the Parent
Audited Balance Sheet), and are subject to no refunds, discounts, rebates
or other adjustments (except discounts for prompt payment given in the
ordinary course of business) and, to Parent's Knowledge, are not subject to
any defenses, rights of setoff, assignments, restrictions, encumbrances or
conditions enforceable by third parties on or affecting any thereof. None
of Parent's accounts receivable is subject to any factoring agreement.
(j) Inventories. The inventories reflected in the Parent
Balance Sheet were, and those reflected on the books of Parent since the
date thereof have been, determined and valued in accordance with GAAP
applied on a consistent basis as reflected in the Parent Balance Sheet,
subject to inventory and obsolescence reserves established in accordance
with GAAP applied on a consistent basis as reflected in the Parent Balance
Sheet. In all material respects, the inventories of Parent consist of
items which are good and merchantable, and are of a quality and quantity
presently usable or salable in the ordinary course of business, subject to
inventory and obsolescence reserves established in accordance with GAAP
applied on a consistent basis.
(k) Title to Properties; Encumbrances. Parent and each of
its subsidiaries has good, valid and marketable title to (i) all its
material tangible properties and assets (real and personal), including,
without limitation, tangible properties and assets reflected in the Parent
Balance Sheet, except as indicated in the notes thereto and except for
tangible properties and assets reflected in such balance sheet which have
been sold or otherwise disposed of in the ordinary course of business
consistent with past practices, and (ii) all the material tangible
properties and assets purchased by Parent and any of its subsidiaries since
January 28, 1995, except for such properties and assets which have been
sold or otherwise disposed of in the ordinary course of business consistent
with past practices; in each case subject to no encumbrance, lien, charge
or other restriction of any kind or character, except for (1) liens
reflected in the Parent Balance Sheet or liens granted in the ordinary
course of business which are not material, (2) liens consisting of zoning
or planning restrictions, easements, permits and other restrictions or
limitations on the use of real property or irregularities in title thereto
which do not materially detract from the value of, or impair the use of,
such property by Parent or any of its subsidiaries in the operation of its
respective business and (3) liens for current taxes, assessments or
governmental charges or levies on property not yet due and delinquent.
Parent and each of its subsidiaries are in material compliance with all
leases of real property leased by any of them, and have no Knowledge of any
material default by the landlords under any such leases. In all material
respects, the buildings and improvements leased by Parent and its
subsidiaries, and the operation and maintenance thereof, do not contravene
any zoning or building law or ordinance or violate any restrictive covenant
or any provision of federal, state or local law. Parent has no Knowledge
of any pending or threatened condemnation, eminent domain or similar
proceeding with respect to any real property owned or leased by the Parent
or any of its subsidiaries.
(l) Absence of Certain Changes and Events. Except as
expressly disclosed in the Commission Filings, since January 28, 1995: (i)
there has not been any material adverse change in the Condition of Parent
and its subsidiaries, taken as a whole; (ii) the businesses of Parent and
each of its subsidiaries have been conducted in the ordinary course consis-
tent with past practices; and (iii) neither Parent nor any of its
subsidiaries has incurred any material liabilities (direct, contingent or
otherwise) or engaged in any material transaction or entered into any
material agreement except in the ordinary course of business.
(m) Compliance with Laws; Permits. Parent and its
subsidiaries are in compliance in all material respects with all applicable
laws, regulations, orders, judgments and decrees (whether domestic or
foreign), and have all material franchises, licenses, permits and
certificates and other authorizations from federal, state, local and
foreign governments and governmental agencies that are necessary for the
conduct of their business except where such failure to comply or to obtain
such authorization does not have, and is not reasonably likely to have, a
material adverse effect on the Condition of Parent.
(n) Environmental Liability. There is no legal,
administrative, arbitral or other proceeding, claim, action, cause of
action or governmental investigation of any nature seeking to impose, or
that is reasonably likely to result in the imposition, on Parent or any of
its subsidiaries of any liability arising under any local, state or federal
environmental statute, regulation or ordinance, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, pending or, to the Knowledge of Parent,
threatened against Parent or any of its subsidiaries, which would be
required to be disclosed pursuant to Item 103 or 303 of Regulation S-K (17
CFR 229); to the Knowledge of Parent and except as set forth in the Parent
Disclosure Schedule, there is no reasonable basis for any such proceeding,
claim, action or governmental investigation that would impose any such
liability; and neither Parent nor any of its subsidiaries is subject to any
agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
(o) Material Contracts. All of the material contracts of
Parent or any of its subsidiaries are valid, enforceable in accordance with
their terms and in full force and effect and neither Parent nor any of its
subsidiaries is in default thereunder in any material respect.
(p) Litigation. Except as expressly disclosed in the
Parent Commission Filings, there is no action, suit, proceeding at law or
in equity, or any arbitration or any administrative or other proceeding by
or before (or, to the Knowledge of Parent, any investigation by) any
governmental or other instrumentality or agency, pending, or, to the
Knowledge of Parent, threatened, against or affecting Parent or any of its
subsidiaries, or any of their properties or rights, except for such
actions, suits, proceedings, arbitrations or investigations that do not
have and are not reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Condition of Parent. There are
no such suits, actions, claims, proceedings or investigations pending or,
to the Knowledge of Parent, threatened, seeking to prevent or challenging
the transactions contemplated by this Agreement. Neither Parent nor any of
its subsidiaries is subject to any judgment, order or decree entered in any
lawsuit or proceeding, that has had or could have a material adverse effect
on the Condition of Parent.
(q) Employee Benefit Plans. Neither Parent nor any of its
subsidiaries maintains or contributes to any Benefit Plan subject to ERISA
which is not in material compliance with ERISA and, to the extent
applicable, the Code. No material liability under Title IV of ERISA has
been incurred by Parent or any trade or business (whether or not
incorporated) which, together with Parent, is treated as an ERISA Affiliate
that has not been satisfied in full, and no condition exists that presents
a material risk to Parent or an ERISA Affiliate of incurring a material
liability under such Title.
(r) Relations With Certain Vendors. Parent and its
subsidiaries have maintained and have good work relationships with their
respective vendors and suppliers, as a group, and neither Parent nor any of
its subsidiaries has any disputes with their respective vendors, which,
individually or in the aggregate, have or are reasonably likely to have a
material adverse effect on the Condition of Parent.
(s) Taxes and Audits. All federal tax returns, reports,
statements, estimates, declarations and forms (collectively, the "Parent
Federal Returns") and all state and local tax returns, reports, statements,
estimates, declarations and forms (collectively, the "Parent State and
Local Returns") required to be filed by Parent on or prior to the Closing
Date have been or will be filed (or extensions for such filings will have
been obtained) with the appropriate governmental agencies in all
jurisdictions in which such Parent Federal Returns and Parent State and
Local Returns are required to be filed. All of the Parent Federal Returns
are or will be, when filed, true, correct and complete in all material
respects and all amounts shown as owing on any Parent Federal Returns have
been or will be paid or accrued. All of the Parent State and Local Returns
are or will be, when filed, true, correct and complete in all material
respects, and all amounts shown as owing thereon have been or will be paid
or accrued. To Parent's Knowledge, there is no action, suit, proceeding,
investigation, audit, claim or assessment pending or proposed with respect
to any Parent Federal Return or Parent State and Local Return, except as
disclosed in the Parent Disclosure Schedule.
All federal, state or local income, profits, franchise, sales,
use, occupation, property, business and occupation, labor and industry,
excise or other taxes (including interest and penalties) payable by Parent
for the period extending up to the Closing Date, relating to or chargeable
against Parent or its assets, properties, revenues or income, or for which
an assessment or demand has been made, have been or will be fully paid or
accrued in accordance with GAAP. All business and occupation, payroll and
other employment-related tax deposits for the period extending up to the
Closing Date and payable by Parent have been or will be fully paid or
accrued in accordance with GAAP.
(t) Intellectual Properties. Parent and its subsidiaries
own or have the right to use all domestic and foreign patents, patent
applications, patent licenses, software licenses, know-how licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks,
trademark registrations and applications, service mark registrations and
applications, copyright registrations and applications (collectively the
"Intellectual Property") necessary to the operation of its business. The
Parent Disclosure Schedule lists all material notices or claims currently
pending or received by Parent or any of its subsidiaries during the past
two years which claim infringement, contributory infringement, inducement
to infringe, misappropriation or breach by Parent or any of its
subsidiaries of any domestic or foreign patents, patent applications,
patent licenses and know-how licenses, trade names, trademark registrations
and applications, service marks, copyrights, copyright registrations or
applications, trade secrets or other confidential proprietary information.
To the Knowledge of Parent, no basis exists upon which a material claim (a
"Parent Infringement Claim") may be asserted against Parent or any of its
subsidiaries, for infringement, contributory infringement, inducement to
infringe, misappropriation or breach of any domestic or foreign patents,
patent applications, patent licenses, know-how licenses, trade names,
trademark registrations and applications, common law trademarks, service
marks, copyrights, copyright registrations or applications, trade secrets
or other confidential proprietary information. To the Knowledge of Parent,
no person or entity is infringing the Intellectual Property.
(u) Broker's or Finder's Fee. Except for Merrill Lynch &
Co. (whose fees and expenses will be paid by Parent), no agent, broker,
person or firm acting on behalf of Parent is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or
from any person controlling, controlled by, or under common control with
any of the parties hereto, in connection with this Agreement or any of the
transactions contemplated herein.
ARTICLE 3
COVENANTS
---------
3.1. Acquisition Proposals. The Company agrees that neither it
nor any of its subsidiaries nor any of the respective officers, directors,
employees, representatives, investment bankers, attorneys, accountants and
other agents and affiliates (collectively, "Representatives") of the
Company or any of its subsidiaries shall, during the period commencing on
the date hereof and ending at the Effective Time: subject to fiduciary
duties of its Board of Directors under applicable law, directly or
indirectly, take any action to encourage, solicit, initiate, discuss or
negotiate with, or furnish any information to, or afford any access to the
properties, books or records of the Company, to any person other than
Parent and its Representatives in connection with any possible or proposed
merger, consolidation, business combination, liquidation, reorganization,
sale or other disposition of a material amount of assets, acquisition of a
material amount of assets or similar transaction involving the Company.
3.2. Employee Benefits. For the remainder of the calendar year
in which the Merger occurs, officers and employees of the Company and its
subsidiaries who remain employees of the Surviving Corporation and its
subsidiaries following the Merger shall continue to be provided with
employee benefits, including, without limitation, pension benefits, health
and welfare benefits, life insurance and vacation, which are no less
favorable in the aggregate than those which were provided to such officers
and employees prior to the Merger. Parent hereby agrees to, and to cause
its subsidiaries to, provide to officers and employees of the Company and
its subsidiaries who become regular (full time) employees of the Parent or
any of its subsidiaries (other than the Surviving Corporation and its
subsidiaries) within such calendar year employee benefits, including,
without limitation, pension benefits, health and welfare benefits, life
insurance and vacation, which are no less favorable in the aggregate to
those provided from time to time by the Parent and its subsidiaries to
their similarly situated officers and employees or, if Parent has no other
employees in similar positions, which are no less favorable in the
aggregate than those provided to such employees of the Company prior to the
Merger. Any employee of the Company or any of its subsidiaries who becomes
a participant in any employee benefit plan, program, policy, or arrangement
of the Parent or any of its subsidiaries shall be given credit under such
plan, program, policy, or arrangement for all service prior to becoming
such a participant with the Company or any of its subsidiaries for purposes
of eligibility, vesting and benefit accrual. If the group medical benefit
plan covering employees and officers of the Company and its subsidiaries is
replaced by a group medical benefit plan of Parent or any of its
subsidiaries, all participants in the Company's group medical benefit plan
shall be credited with benefits received and payments made under the
Company's group medical benefit plan, for purposes of applying provisions
regarding pre-existing condition limitations, deductibles, co-insurance,
benefit maximums and out-of-pocket maximums in the new plan. Parent will
not take any action or permit the Surviving Corporation to take any action,
after the Effective Time, inconsistent with the employment agreements of
the Company and certain Company employees expressly disclosed on the
Company Disclosure Schedule.
3.3. Access and Information. Upon reasonable notice, each of
the parties shall (and shall cause each of the parties' subsidiaries to)
afford to the other parties and their Representatives such access during
normal business hours throughout the period prior to the Effective Time to
the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as any party may reasonably request; provided, however, that no
investigation pursuant to this Section 3.3 shall affect or be deemed to
limit or modify any representation or warranty made herein. Each party
will not, and will cause its representatives not to, use any information
obtained pursuant to this Section 3.3 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. The
rights and obligations of Parent, Sub and the Company pursuant to the
confidentiality letters dated January 27, 1995 and March 8, 1995,
respectively (the "Confidentiality Agreements") from The Robinson-Humphrey
Company, Inc. to Parent and from Parent to the Company, respectively, shall
survive the execution and delivery of this Agreement, and all information
heretofore and hereafter obtained by the parties hereto or any of their
respective representatives pursuant to this Section 3.3 (including writings
based on such information) or otherwise shall be deemed "Proprietary
Information" (as that term is defined in the Confidentiality Agreements),
and shall be subject to the provisions of the Confidentiality Agreements.
3.4. Certain Filings, Consents and Arrangements. Parent and the
Company shall (a) promptly make any filings and applications required to be
filed in order to obtain all approvals, consents and waivers of
governmental authorities necessary or appropriate for the consummation of
the transactions contemplated hereby, (b) cooperate with one another (i) in
promptly determining what filings are required to be made or approvals,
consents or waivers are required to be obtained under any relevant federal,
state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information required in connection therewith and
seeking timely to obtain any such approvals, consents or waivers and
(c) deliver to the other copies of the publicly available portions of all
such filings and applications promptly after they are filed.
3.5. Indemnification and Insurance.
(a) Subject to applicable law, for a period of six years
after the Effective Time, Parent will indemnify the present and former
directors, officers, employees and agents of the Company to the extent
provided in Article IV of the Company's Code of Regulations in effect on
the date of this Agreement and will not amend, reduce or limit rights of
indemnity afforded to them or the ability of Parent to indemnify them, nor
hinder, delay or make more difficult the exercise of such rights of
indemnity. For a period of two years after the Effective Time, Parent
shall use its best efforts to maintain director and officer liability
insurance coverage providing the present and former directors and officers
of the Company with coverage at least as favorable as, at Parent's option
from time to time, either (i) the policies in effect immediately prior to
the Effective Time covering the Company's directors and officers (as
summarized in the Company Disclosure Schedule) or (ii) the policies
covering Parent's directors and officers from time to time.
(b) If any claim is (or claims are) made against any
present or former director, officer, employee or agent of the Company,
arising from his or her services as such, within six years from the
Effective Time, the provisions of this Section 3.5 respecting the Company's
Code of Regulations shall continue in effect until the final disposition of
all such claims.
(c) Any indemnified party wishing to claim indemnification
under this Section, upon learning of any indemnifiable action, suit, claim,
proceeding or investigation, shall promptly notify Parent thereof;
provided, however, that any failure so to notify Parent of any obligation
to indemnify such indemnified party or of any other obligation imposed by
this Section shall not affect such obligation except to the extent Parent
is prejudiced thereby. The indemnified parties as a group shall retain
only one counsel in each jurisdiction to represent them with respect to any
such matter (which counsel shall be reasonably acceptable to the Parent);
provided, however, in the event that there is, under applicable standards
of professional conduct, a conflict on any significant issue between the
positions of any two or more indemnified parties, Parent and such
indemnified parties may retain, at the expense of Parent, such number of
additional counsel as are necessary to eliminate all conflicts of the type
referred to above.
(d) Notwithstanding anything to the contrary contained in
this Section 3.5: (i) Parent will have no obligation to indemnify any
present director, officer, employee or agent of the Company in respect of
matters relating to periods of time preceding the Effective Time (or for
third party claims in respect of such matters) if (1) the matters are not
disclosed in this Agreement or in the Company Disclosure Schedule, (2) such
non-disclosure constitutes a breach of a representation or warranty made by
the Company herein and (3) such director, officer, employee or agent had
Knowledge of such non-disclosure and that such non-disclosure constituted a
material breach of a representation or warranty made by the Company herein,
and (ii) Parent will have no obligation to indemnify a present or former
director, officer, employee or agent of the Company against any loss, cost,
liability or expense arising out of or in connection with any action or
claim asserted by Parent or any of its subsidiaries against such director,
officer, employee or agent for fraud, provided that Parent prevails in such
action or claim.
(e) The provisions of this Section 3.5 shall be binding on
any successor entity to Parent.
3.6. Publicity. The initial press release announcing this
Agreement shall be a joint press release and thereafter the Company and
Parent shall consult with each other in issuing any press releases or
otherwise making public statements with respect to the transactions
contemplated hereby and in making any filings with any governmental entity
or with any national securities exchange with respect thereto.
3.7. Proxy; Registration Statement. As soon as practicable
after the date hereof, the Company and Parent shall prepare and file with
the Commission a proxy statement and related materials to be furnished by
the Company to the holders of Company Common Stock in connection with the
Merger (the "Proxy Statement") and the Registration Statement, subject,
however, to deferral until such time as Parent and the Company may
reasonably agree in the event that Parent enters into a Business
Combination Agreement (as defined in Section 4.2(k)) and, as a result
thereof, Parent is required to obtain shareholder approval of the Merger
either under Pennsylvania corporate law or NASDAQ requirements, as provided
in Section 4.2(k). As soon as practicable following receipt of final
comments from the staff of the Commission on the Proxy Statement and the
Registration Statement (or advice that such staff will not review such
filing), Parent shall use its best efforts to have the Registration
Statement declared effective by the Commission and to maintain the
effectiveness of such Registration Statement until completion of the
Merger. Promptly after the effectiveness of the Registration Statement,
the Company shall mail the Proxy Statement to all holders of Company Common
Stock. Parent and the Company shall cooperate with each other in the
preparation of the Proxy Statement and the Registration Statement and shall
advise the other in writing if, at any time prior to the Company Meeting,
any such party shall obtain Knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Proxy Statement or the
Registration Statement in order to make the statements contained or
incorporated by reference therein not misleading or to comply with
applicable law. Notwithstanding the foregoing, each party shall be
responsible for the information and disclosures which it makes or
incorporates by reference in all regulatory filings, the Proxy Statement
and the Registration Statement. In the event that Parent enters into a
Business Combination Agreement and, as a result thereof, Parent is required
to obtain shareholder approval of the Merger, then Parent shall take all
action necessary in accordance with applicable law, NASDAQ requirements and
its Articles of Incorporation and By-laws, to convene a meeting of its
shareholders as promptly as practicable for the purpose of considering and
taking action on the Merger.
3.8. Shareholders' Meeting. The Company shall take all action
necessary, in accordance with applicable law and its Articles of
Incorporation and Code of Regulations, to convene a meeting of the holders
of the Company Common Stock (the "Company Meeting") as promptly as
practicable for the purpose of considering and taking action required by
this Agreement, subject, however, to deferral until such time as Parent and
the Company may reasonably agree in the event that Parent enters into a
Business Combination Agreement and, as a result thereof, Parent is required
to obtain shareholder approval of the Merger either under Pennsylvania
corporate law or NASDAQ requirements. Except to the extent legally
required for the discharge by the board of directors of its fiduciary
duties, the board of directors of the Company shall recommend that the
holders of the Company Common Stock vote in favor of and approve the Merger
and adopt this Agreement at the Company Meeting.
3.9. Antitakeover Statutes. The Company shall take all steps
reasonably requested by Parent for the purpose of (i) compliance with the
requirements of any state antitakeover law by action of its board of
directors or otherwise and (ii) assistance in any challenge by Parent to
the applicability to the Merger of any state antitakeover law.
3.10. Listing. Parent shall use its best efforts to list on the
Nasdaq National Market upon official notice of issuance the Parent Stock to
be issued in the Merger.
3.11. Restriction on Dividends, Splits, Etc. Each of the
Company and Parent agrees that, except as expressly consented to or
approved in writing by the other, during the period commencing on the date
hereof and ending on the Closing Date, it will not declare, pay or make any
dividend or other distribution or payment with respect to, or split, redeem
or reclassify, any shares of its capital stock.
3.12. Conduct of the Business of the Company Pending the Closing
Date. The Company agrees that, except as set forth in the Company
Disclosure Schedule, expressly permitted by this Agreement or otherwise
consented to or approved in writing by Parent, during the period commencing
on the date hereof and ending on the Closing Date:
(a) The Company and each of its subsidiaries will conduct
their respective operations only in the ordinary course of business
consistent with past practice (subject, in any event, to the provisions of
paragraph (b) below) and will use reasonable efforts to preserve intact
their respective business organizations, keep available the services of
their officers and employees and maintain satisfactory relationships with
licensors, suppliers, distributors, customers, clients and others having
business relationships with them;
(b) Neither the Company nor any of its subsidiaries shall
(i) make any change in or amendment to its Articles of Incorporation or
Code of Regulations; (ii) grant, issue or sell any shares of its capital
stock (except shares of Company Common Stock issued upon the exercise of
options and warrants outstanding on the date hereof granted under any of
the stock option plans or pursuant to any of the warrant agreements
identified in the Company Disclosure Schedule) or any other securities, or
grant, issue or sell any securities convertible into, or options, warrants
or rights to purchase or subscribe to, or enter into any arrangement or
contract with respect to the issuance or sale of, any shares of its capital
stock or any other securities, or make any other changes in its capital
structure, (iii) terminate operations at any site where operations are
currently being conducted or commence operations at any site where
operations are not currently being conducted; (iv) enter into, terminate,
assign or sublease any lease of real property; (v) amend any employee or
non-employee benefit plan or program, employment agreement, license
agreement, franchise agreement or retirement agreement, or pay any bonus or
contingent compensation, or contribute to any pension or profit-sharing
plan, or grant any severance or termination pay except in each case as may
be required by law or contract; (vi) incur any indebtedness for borrowed
money in excess of $250,000 or subject or allow their properties or assets
to be subjected to any mortgages, pledges, security interests,
encumbrances, liens and charges of any kind (other than to secure inventory
financing and commitments under the "Power By the Hour Program" in the
ordinary course of business consistent with past practice or such as are
covered by clauses (1), (2) or (3) of Section 2.1(j) hereof), incur any
liability on any guaranties, or make any investments in or loans, advances
(other than advances to employees not exceeding $7,500 in the aggregate for
any individual employee and only if made in the ordinary course of business
at levels consistent with past practices) or extensions of credit (other
than trade credit extended to customers in the ordinary course of business
at levels consistent with past practices) to any person or entity, (vii)
agree to the settlement of any Proceeding in excess of $200,000, or (viii)
agree, in writing or otherwise, to take any of the foregoing actions. The
Company and its subsidiaries (1) may only enter into a contract or
commitment (i) if such contract or commitment is entered into in the
ordinary course of business and the amount involved thereunder, viewed
individually and collectively with other contracts and commitments entered
into by the Company and its subsidiaries, is at a level consistent with
past practices of the Company and its subsidiaries or (ii) if such contract
or commitment is outside the ordinary course of business, if the amount
involved thereunder does not exceed $500,000 and if the amount involved
thereunder, when added to the amount involved under other such contracts
and commitments entered into between the date hereof and the Closing Date,
does not exceed $1,000,000; (2) shall not dispose of any assets except
inventory and fixed assets in the ordinary course of business; and (3)
shall not agree, in writing or otherwise, to take any of the foregoing
actions.
(c) The Company shall not, and shall not permit any of its
subsidiaries to, purchase or acquire, or offer to purchase or acquire, any
shares of capital stock of the Company.
3.13. Best Efforts. Subject to the terms and conditions herein
provided, each of the Company, Parent and Sub shall, and the Company shall
cause each of its subsidiaries to, cooperate and use their respective
reasonable best efforts to take, or cause to be taken, all appropriate
action, and to make, or cause to be made, all filings necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including,
without limitation, their respective reasonable best efforts to obtain,
prior to the Closing Date, all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts with the Company and its subsidiaries as are necessary
for consummation of the transactions contemplated by this Agreement and to
fulfill the conditions to the Merger and to rectify any event or
circumstance which could impede consummation of the transactions
contemplated by this Agreement; provided, however, that no loan agreement
or contract for borrowed money shall be repaid, in whole or in part, and no
contract shall be amended to increase the amount payable thereunder or
otherwise to be more burdensome to the Company or any of its subsidiaries
in order to obtain any such consent, approval or authorization without
first obtaining the written approval of Parent; and provided further, that
Parent shall have no obligation to take any steps not expressly provided
for herein to facilitate satisfaction of the conditions contained in
Sections 4.1(j) and 4.1(k).
3.14. Notice of Default.
(a) The Company and Parent promptly will give notice to the
other of the occurrence of any event or the failure of any event to occur
that results in a breach of any representation or warranty by the Company
or Parent contained herein or a failure by the Company or Parent to comply
with any covenant, condition or agreement contained herein.
(b) The Company and Parent will (i) use their respective
reasonable best efforts to take all action necessary to render accurate in
all material respects as of the Closing Date the representations and
warranties of the Company and Parent contained herein, (ii) refrain from
taking any action that would render any such representation or warranty
inaccurate as of such time and (iii) use their respective reasonable best
efforts to perform or cause to be satisfied each covenant or condition to
be performed or satisfied by them as contemplated by this Agreement.
3.15. Treatment of Certain Debt. Promptly following completion
of the Merger (and no later than the close of business on the Closing
Date), unless the Banks (as defined below) shall have consented, at the
request of Parent, to the continuation after the Merger of the Company's
secured indebtedness under the Secured Credit Agreement dated as of
September 9, 1993, by and among the Company, its subsidiaries and PNC Bank,
Ohio, N.A., as Agent, The First National Bank of Chicago as Co-Agent and
other participating banks (collectively, the "Banks"), or any agreement
successor thereto, Parent, in its sole discretion, shall either discharge
such indebtedness in full, including any accrued and unpaid interest to the
date of payment, or purchase from the Banks such indebtedness in full,
including any accrued and unpaid interest to the date of payment (or
effected a combination of such discharge and purchase). The Company agrees
to take all steps reasonably requested by Parent to assist Parent in
discharging or purchasing, without premium or penalty, the indebtedness to
the Banks, as contemplated above. The Company represents and warrants to
and for the benefit of Parent and Sub that the Company's indebtedness to
the Banks may be prepaid or paid as a result of the Merger without premium
or penalty.
3.16. Tax Status. In the event that Arnold & Porter is unable
to deliver the opinion referred to in Section 4.1(j) hereof within 30 days
after the execution of this Agreement, Parent, Sub and the Company shall
take all reasonable action to amend this Agreement to modify the structure
of, or to substitute affiliated parties to, the transactions contemplated
by this Agreement, if possible to do so without adversely affecting the
economic consequences of the transactions contemplated hereby to Parent,
the Company or their respective shareholders, to the extent necessary to
obtain such opinion within 60 days after execution of this Agreement.
ARTICLE 4
CONDITIONS PRECEDENT TO MERGER
------------------------------
4.1. Conditions Precedent to Obligations of Parent, Sub and the
Company. The respective obligations of Parent and Sub, on the one hand,
and the Company, on the other hand, to effect the Merger are subject to the
satisfaction or waiver (subject to applicable law) at or prior to the
Effective Time of each of the following conditions:
(a) Shareholder Approval. This Agreement and the Merger
shall have been approved and adopted by the requisite vote of shareholders
of the Company.
(b) Governmental Approvals. All filings required to be
made prior to the Effective Time with, and all authorizations, consents,
orders or approvals required to be obtained prior to the Effective Time
from, and all expirations of waiting periods imposed by, any governmental
entity (including without limitation under the HSR Act) shall have been
made or obtained.
(c) Registration Statement. The Registration Statement
shall have become effective in accordance with the provisions of the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and remain
in effect.
(d) Injunction. No preliminary or permanent injunction or
other order shall have been issued by any court or by any governmental or
regulatory agency, body or authority which prohibits the consummation of
the Merger and which is in effect at the Effective Time.
(e) Statutes. No statute, rule, regulation, executive
order, decree or order of any kind shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which
prohibits the consummation of the Merger.
(f) Nasdaq. The Parent Stock, including the shares
issuable in the Merger, shall have been designated for inclusion in The
Nasdaq National Market.
(g) Legal Actions. There shall not have been any action
taken, or any statute, rule, regulation, judgment, order or injunction
promulgated, enacted, entered or enforced by any state, federal or foreign
government or governmental authority or by any court, domestic or foreign,
that would (i) require the divestiture by Parent, Sub or the Company or any
of their respective subsidiaries or affiliates of all or any material
portion of the business, assets or property of any of them or impose any
material limitation on the ability of any of them to conduct their business
and own such assets and properties or (ii) impose any limitations on the
ability of Parent or Sub or any of their respective subsidiaries
effectively to control in any material respect the business or operations
of the Company or any of the Company's subsidiaries.
(h) Third Party Consents. Each of the persons and entities
listed on the Company Disclosure Schedule and the Parent Disclosure
Schedule shall have consented to the consummation of the Merger if, and to
the extent, required by the provisions of the existing documents between
such persons and entities and the Company or Parent, respectively, or their
respective subsidiaries, and if the failure to have obtained such consent
would have a material adverse effect on the Company or Parent,
respectively.
(i) Blue Sky Approvals. Parent shall have received all
state securities laws and "Blue Sky" permits and other authorizations
necessary to consummate the transactions contemplated hereby.
(j) Tax Opinion. Within 30 days of the execution of this
Agreement, Arnold & Porter shall have delivered to the Company an opinion,
reasonably satisfactory in form and substance to the Company, to the effect
that the Merger when consummated in accordance with the terms hereof should
constitute a reorganization within the meaning of Section 368(a) of the
Code, and Arnold & Porter shall not have revoked such opinion provided,
however, that in the event that Arnold & Porter is not able to deliver such
opinion within such time and this Agreement is amended pursuant to Section
3.16 hereof, then Arnold & Porter shall have delivered such opinion within
60 days of the execution of this Agreement.
(k) Confirmation of Fairness Opinion. The Robinson-
Humphrey Company, Inc. shall have delivered to the Company a letter, as of
a date not more than five days prior to the date the Proxy Statement is
mailed to the Company's shareholders, confirming the Fairness Opinion.
4.2 Conditions Precedent to Obligations of Parent and Sub.
The obligations of Parent and Sub to effect the Merger are also subject
to the satisfaction or waiver, at or prior to the Effective Time, of each of
the following conditions unless waived by Parent and Sub:
(a) Accuracy of Representations and Warranties. All
representations and warranties of the Company contained herein shall be
true and correct in all material respects as of the date hereof and at and
as of the Closing, with the same force and effect as though made on and as
of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as consented to in writing by Parent.
(b) The Company's Performance. The Company shall have
performed in all material respects all obligations and agreements, and
complied in all material respects with all covenants and conditions,
contained in this Agreement to be performed or complied with by it prior to
the Closing Date, except as consented to in writing by Parent.
(c) No Material Changes. No change shall have occurred
(and no condition, event or development shall have occurred involving a
prospective change) in the Condition of the Company or any of its
subsidiaries which is or is reasonably likely to be materially adverse to
such Condition.
(d) Third Party Consents. Each of the persons and entities
listed on the Parent Disclosure Schedule shall have consented to the
consummation of the Merger if, and to the extent, required by the
provisions of the existing documents between such persons and entities and
Parent or its subsidiaries.
(e) Accountant's Letter. Parent shall have received from
the Company's independent certified public accountants "cold comfort"
letters, dated (i) the date of the mailing of the Proxy Statement to the
Company's shareholders and (ii) shortly prior to the Effective Date, with
respect to certain financial information regarding the Company in
substantially the form customarily issued by such accountants at such time
in transactions of this type.
(f) Dissenting Shareholders. Holders of not more than ten
percent (10%) of the issued and outstanding shares of Company Common Stock
entitled to make a demand under Section 1701.85(A)(2) of the OGCL shall
have properly served a written demand, in accordance with Section
1701.85(A)(2) of the OGCL, upon the Company for the payment of the fair
cash value of their shares of Company Common Stock.
(g) Execution of Employment-Related Agreements. Neither
Terry L. Theye nor Lewis E. Miller shall have rescinded, terminated (other
than on account of death or disability) or breached any agreement he might
reach with Parent regarding his employment with Parent or the Surviving
Corporation following the Merger (as contemplated by Section 5.1(l)
hereof).
(h) Opinion of Counsel. Parent shall have received the
opinion of Norma Skoog, Esq., Vice President, Secretary and General Counsel
of the Company, dated the Closing Date, covering the matters identified on
Schedule 4.2(h).
(i) Compliance Certificate. Parent shall have received a
certificate of the Chief Executive Officer of the Company, dated the
Closing Date, that, to the best of his knowledge and belief after due
inquiry, the conditions set forth in Sections 4.2(a) and 4.2(b) have been
satisfied.
(j) Limit on Indebtedness. The amount of the Company's
secured indebtedness which may be required to be discharged pursuant to
Section 3.15 hereof does not exceed $55,000,000.
(k) Parent Shareholder Approval. In the event that Parent,
after the date of this Agreement, enters into any agreement for a business
combination with a third party (a "Business Combination Agreement") as a
result of which, under Pennsylvania corporate law or NASDAQ requirements,
Parent would be required to obtain shareholder approval as a condition to
the consummation of the Merger, then Parent shall have received such
shareholder approval.
4.3. Conditions Precedent to the Obligations of the Company.
The obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver, at or prior to the Effective Time, of each of the
following conditions unless waived by the Company:
(a) Accuracy of Representations and Warranties. All
representations and warranties of Parent and Sub contained herein shall be
true and correct in all material respects as of the date hereof and at and
as of the Closing, with the same force and effect as though made on and as
of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as consented to in writing by the Company.
(b) Parent's Performance. Parent and Sub shall have
performed in all material respects all obligations and agreements, and
complied in all material respects with all covenants and conditions,
contained in this Agreement to be performed or complied with by them prior
to the Closing Date, except as consented to in writing by the Company.
(c) No Material Changes. No change shall have occurred
(and no condition, event or development shall have occurred involving a
prospective change) in the Condition of Parent which is or may be
materially adverse to such Condition.
(d) Accountant's Letter. The Company shall have received
from Parent's independent certified public accountants "cold comfort"
letters, dated (i) the date of the mailing of the Proxy Statement to the
Company's shareholders and (ii) shortly prior to the Effective Date, with
respect to certain financial information regarding Parent in substantially
the form customarily issued by such accountants at such time in
transactions of this type.
(e) Opinion of Counsel. The Company shall have received
the opinion of Pepper, Hamilton & Scheetz, dated the Closing Date, covering
the matters identified on Schedule 4.3(e).
(f) Compliance Certificate. The Company shall have
received a certificate of the Chief Executive Officer of Parent, dated the
Closing Date, that, to the best of his knowledge and belief after due
inquiry, the conditions set forth in Sections 4.3(a) and (b) have been
satisfied.
ARTICLE 5
TERMINATION AND ABANDONMENT
---------------------------
5.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned:
(a) at any time prior to the Effective Time, by mutual
consent of the Company, on the one hand, and of Parent and Sub, on the
other hand;
(b) by either Parent or the Company if the Effective Time
shall not have occurred by September 30, 1995, unless extended by mutual
agreement of Parent, Sub and the Company, provided that, if the Effective
Time shall not have occurred by September 30, 1995 because Parent enters
into a Business Combination Agreement which, under Pennsylvania corporate
law or NASDAQ requirements, would require Parent to obtain shareholder
approval as a condition to consummation of the Merger, Parent may only
terminate this Agreement pursuant to this Section 5.1(b) if the Effective
Time shall not have occurred by December 31, 1995;
(c) by Parent, if there has been a breach of a
representation or warranty in this Agreement (including the Schedules and
Exhibits) or any certificate, instrument or other document delivered
pursuant hereto by the Company in any material respect, or a breach by the
Company of any covenant of the Company set forth herein in any material
respect, or a failure of any condition to which the obligations of Parent
and Sub hereunder are subject in any material respect, except (i) as
consented to in writing by Parent or (ii) insofar as any breach of a
representation or warranty is attributable to the initiation of a
Proceeding against the Company or any of its subsidiaries or is
attributable to the assertion against the Company or any of its
subsidiaries of a Company Infringement Claim, in each case after the date
hereof and in each case which does not have (viewed individually and
collectively with any other such Proceedings or Company Infringement
Claims) and is not reasonably likely to have (viewed individually and
collectively with any other such Proceedings or Company Infringement
Claims) a material adverse effect on the Condition of the Company;
(d) by the Company, if there has been a breach of a
representation or warranty in this Agreement (including the Schedules and
Exhibits) or any certificate, instrument or other document delivered
pursuant hereto by Parent or Sub in any material respect, or a breach by
Parent or Sub of any covenant of Parent or Sub, as the case may be, set
forth herein in any material respect, or a failure of any condition to
which the obligations of the Company hereunder are subject in any material
respect, except (i) as consented to in writing by the Company or (ii)
insofar as any breach of a representation or warranty is attributable to
the initiation of a Proceeding against Parent or any of its subsidiaries or
the assertion against Parent or any of its subsidiaries of a Parent
Infringement Claim, in each case after the date hereof and in each case
which does not have (viewed individually and collectively with any other
such Proceedings or Parent Infringement Claims) and is not reasonably
likely to have (viewed individually and collectively with any other such
Proceedings or Parent Infringement Claims) a material adverse effect on the
Condition of Parent;
(e) by the Company, if the shareholders of the Company do
not approve the Merger at the Company Meeting, or by Parent, if Parent
enters into a Business Combination Agreement which, under Pennsylvania
corporate law or NASDAQ requirements, would require Parent to obtain
shareholder approval as a condition to the consummation of the Merger and
the shareholders of Parent do not approve the Merger at a shareholders
meeting convened by Parent for a shareholder vote on the Merger;
(f) by Parent, on the one hand, or the Company, on the
other hand, if any court of competent jurisdiction in the United States, or
other United States governmental body shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and unappealable;
(g) by the Company, in the event (i) of the acquisition,
without the consent of the Company, by any person or group of persons
(other than persons or groups of persons who (A) acquire shares of Parent
Stock pursuant to any merger of Parent in which Parent is the surviving
corporation or (B) disclose their beneficial ownership of shares of Parent
Stock on Schedule 13G under the Securities Exchange Act of 1934 (the
"Exchange Act")), of beneficial ownership of 50% or more of the outstanding
shares of Parent Stock (the terms "person," "group" and "beneficial
ownership" having the meanings ascribed thereto in Section 13(d) of the
Exchange Act) (as constituted prior to the Merger and computed on a fully
diluted basis assuming the exercise of all options and warrants granted by
Parent and the conversion and exchange of all convertible and exchangeable
Parent securities, whether or not then exercisable, convertible or
exchangeable), (ii) the Board of Directors of Parent, without the consent
of the Company, accepts or publicly recommends acceptance of an offer from
a third party to acquire 50% or more of the outstanding shares of Parent
Stock (as constituted prior to the Merger and computed on a fully diluted
basis assuming the exercise of all options and warrants granted by Parent
and the conversion and exchange of all convertible and exchangeable Parent
securities, whether or not then exercisable, convertible or exchangeable)
or of Parent's consolidated assets; or (iii) Parent, without the consent of
the Company, executes a definitive agreement for any transaction involving
the issuance of a number of shares of Parent Stock, or securities
exchangeable therefor, that would increase the total number of shares of
Parent Stock issued and outstanding by at least 20% (as constituted prior
to the Merger and computed on a fully diluted basis assuming the exercise
of all options and warrants granted by Parent and the conversion and
exchange of all convertible and exchangeable Parent securities, whether or
not then exercisable, convertible or exchangeable). The Company shall be
deemed to have consented to the occurrence of one or more events described
in clause (i), (ii) or (iii) of this paragraph (g) if the Company does not
object thereto in writing to Parent within 10 business days after written
notice from Parent that such an event has occurred;
(h) by Parent, if the Company shall have taken any action
entitling Parent to receive payment of the Basic Fee pursuant to Section
5.4 upon termination of this Agreement;
(i) by Parent, if the Average Closing Price of a share of
Parent Stock exceeds $11.00, subject, however, to the right of the Company
to override any such termination election by Parent by agreeing in writing,
by no later than 5:00 p.m. on the trading day preceding the Closing Date,
that the Conversion Number will be changed to the quotient that results
from dividing $7.2468 by the Average Closing Price of a share of Parent
Stock;
(j) by the Company, if the Average Closing Price of a share
of Parent Stock is less than $9.00, subject, however, to the right of
Parent to override any such termination election by the Company by agreeing
in writing, by no later than 5:00 p.m. on the trading day preceding the
Closing Date, that the Conversion Number will be changed to the quotient
that results from dividing $5.9292 by the Average Closing Price of a share
of Parent Stock;
(k) by Parent, if the Banks referenced in Section 3.15
accelerate the secured indebtedness referenced therein or otherwise pursue
legal remedies against the Company or any of its subsidiaries on account of
a default under the agreements relating thereto; or
(l) by Parent, on or before June 15, 1995, if Parent has
not entered into agreements satisfactory to it, after good faith
negotiations on its behalf, with each of Terry L. Theye and Lewis E. Miller
replacing the existing employment agreements (each dated January 1, 1994)
between each of such executives and the Company by the earlier of (i) the
thirtieth day following the date hereof and (ii) date of the mailing by the
Company of the Proxy Statement pursuant to Section 3.7.
5.2. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 5.1 hereof by Parent or Sub, on the one
hand, or the Company, on the other hand, written notice thereof shall
forthwith be given to the other party or parties specifying the provision
hereof pursuant to which such termination is made, and this Agreement shall
become void and have no effect (other than Section 3.3, Article V and
Article VI, which shall survive termination), and there shall be no
liability hereunder on the part of Parent, Sub or the Company; provided
that, subject to Section 5.4 hereof, (i) if Parent terminates this
Agreement pursuant to Section 5.1(c) or if the Company terminates this
Agreement pursuant to Section 5.1(d) on account of an intentional or wilful
breach of a representation, warranty or covenant, then the terminating
party shall have the right to pursue its legal and equitable remedies for
breach of contract and (ii) if Parent terminates this Agreement pursuant to
Section 5.1(c) or if the Company terminates this Agreement pursuant to
Section 5.1(d) other than on account of an intentional or wilful breach of
a representation, warranty or covenant, then the terminating party shall
have the right to recover its costs and expenses incurred in connection
with the transactions contemplated hereby.
5.3. Expenses. Subject to Section 5.2, each party hereto shall
bear and pay all costs and expenses incurred by it in connection with the
transactions contemplated hereby, including fees and expenses of its own
financial consultants, accounts and counsel, except that Parent and the
Company each shall bear and pay 50% of all printing costs.
5.4. Basic Fee. If on or prior to September 30, 1995, the
Company shall have consummated, or entered into an agreement providing for,
a merger of the Company with, sale of all or a substantial part of the
assets of the Company to (excluding sales of inventory in the ordinary
course of business), or any other business combination involving the
Company with, any person or entity, including any "group" within the
meaning of Rule 13d-5 promulgated under the Exchange Act (other than Parent
or Sub) (a "Company Combination Event") and this Agreement is terminated as
a result thereof, the Company shall, within two days after the first of
such events has occurred, pay Parent an amount (the "Basic Fee") equal to
$1.5 million. If this Agreement is terminated on account of the occurrence
of a Company Combination Event, then payment of the Basic Fee shall be
inclusive of all expenses incurred by Parent and Sub in connection with
this Agreement and the matters contemplated hereby and shall be the
exclusive remedy of Parent for any claim of liability against the Company
arising out of such termination or the breach of this Agreement resulting
from the occurrence of the Company Combination Event.
ARTICLE 6
MISCELLANEOUS
-------------
6.1. Knowledge. For purposes of Section 3.5(d)(i)(3) of this
Agreement, "Knowledge" shall mean the actual knowledge (but not the
constructive or implied knowledge) of the person in question, and a fact
shall not be within the knowledge of any such person if it is not actually
and specifically known by such person, regardless of whether that person
should have known of such fact. For all other purposes of this Agreement,
"Knowledge" shall mean both the actual knowledge of an "Applicable Person"
(as defined below) and the knowledge which the Applicable Person would have
acquired had he or she conducted a reasonable inquiry of the applicable
subject matter. Each of the following is an Applicable Person of the
Company and its subsidiaries: Terry L. Theye, Lewis E. Miller, Timothy M.
Mooney and Norma Skoog. Each of the following is an Applicable Person of
Parent and its subsidiaries: Richard D. Sanford, Gregory A. Pratt,
Stephanie D. Cohen, Edward A. Meltzer and Steven M. Kawalick.
6.2. Survival. Only those agreements and covenants of the
parties that are applicable in whole or in part after the Effective Time
shall survive the Effective Time. All representations and warranties and
other agreements and covenants shall be deemed to be conditions of this
Agreement and shall not survive the Effective Time.
6.3. Waiver. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefitted by the provision or by
both parties by a writing executed by an executive officer, or (ii) amended
or modified at any time (including the structure of the transaction ) by an
agreement in writing between the parties hereto approved by their
respective boards of directors, except that, after the vote by the
shareholders of the Company at the Company Meeting, no such amendment or
modification which by law requires further approval by shareholders may be
made without further shareholder approval.
6.4. Notices. All notices, requests, acknowledgements and other
communications hereunder to a party shall be in writing and shall be deemed
to have been duly given when delivered by hand, telecopy, telegram or telex
(confirmed in writing) to such party at its address set forth below or such
other address as such party may specify by notice to the other party
hereto.
If to the Company, to:
The Future Now, Inc.
8044 Montgomery Road
Suite 601
Cincinnati, Ohio 45236
Attention: Terry L. Theye
With copies to:
The Future Now, Inc.
8044 Montgomery Road
Suite 601
Cincinnati, Ohio 45236
Attention: Norma Skoog, Esquire
and
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Attention: Steven L. Kaplan, Esquire
If to Parent or Sub, to:
Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, Pennsylvania 19341
Attention: Richard D. Sanford
With copies to:
Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, Pennsylvania 19341
Attention: Legal Department
and
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103
Attention: Barry M. Abelson, Esquire
6.5. Entire Agreement; Etc. This Agreement represents the
entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore or contemporaneously made. All terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Except for the provisions of Sections 1.5, 3.2 and 3.5, nothing in this
Agreement is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
6.6. Assignment. This Agreement may not be assigned by any
party hereto without the written consent of the other parties, provided
that Parent and Sub may assign their rights and obligations hereunder to a
direct or indirect wholly-owned subsidiary, but no such assignment shall
relieve Parent of its obligations hereunder.
6.7. Headings. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the
meaning or interpretation of this Agreement.
6.8. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of
which together shall be deemed to be one and the same instrument.
6.9. Applicable Law. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania, without regard to the
conflict of laws rules thereof, except that the Merger, and the effects
thereof, shall be governed by and construed in accordance with the laws of
the State of Ohio, without regard to the conflict of laws rules thereof.
6.10. Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or
against its regulatory policy, the remainder of the terms, provisions,
covenants and restrictions contained in this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, each of Parent, Sub and the Company has
executed this Agreement as of the date first above written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Edward A. Meltzer
------------------------
Name: Edward A. Meltzer
Title: Vice President
IE OHIO ACQUISITION CORPORATION
By: /s/ Edward A. Meltzer
------------------------
Name: Edward A. Meltzer
Title: Vice President
THE FUTURE NOW, INC.
By: /s/ Terry L. Theye
-------------------------
Name: Terry L. Theye
Title: Chairman and Chief Executive
Officer
<TABLE>
<CAPTION>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Exhibit 11
Primary Income Per Share Calculation Page 1 of 2
Three months ended
----------------------------------------------------------------
April 29, 1995 April 30, 1994
---------------------------- ---------------------------
$ Per Share $ Per Share
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income 4,890,000 $0.16 12,793,000 $0.36
========== ========== ========== ==========
Weighted average common shares
outstanding, common share equivalents
& other dilutive securities 31,365,657 36,033,562
========== ==========
Computation of Common Shares, Common Share Equivalents
& Other Dilutive Securities
Three months ended
-----------------------------------------------------------------
April 29, 1995 April 30, 1994
---------------------------- ----------------------------
End of Weighted End of Weighted
Period Average Period Average
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common shares outstanding 39,573,549 31,209,648 39,364,859 35,130,428
Common share equivalents:
Options 3,400,765 3,409,488 2,764,725 2,819,425
Assumed repurchased @ average price (3,253,479) (1,916,291)
Warrants 0 0 0 0
Assumed repurchased @ average price 0 0
---------- ----------
Weighted average common share equivalents 156,009 903,134
---------- ----------
Weighted average common shares
outstanding, common share equivalents
& other dilutive securities 31,365,657 36,033,562
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Exhibit 11
Fully Diluted Income Per Share Calculation Page 2 of 2
Three months ended
----------------------------------------------------------------
April 29, 1995(1) April 30, 1994(1)
---------------------------- ---------------------------
$ Per Share $ Per Share
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income 4,890,000 $0.16 12,793,000 $0.36
========== ========== ========== ==========
Weighted average common shares outstanding,
common share equivalents & other
dilutive securities 31,365,657 36,033,562
========== ==========
Computation of Common Shares, Common Share Equivalents
& Other Dilutive Securities
Three months ended
-----------------------------------------------------------------
April 29, 1995 April 30, 1994
---------------------------- ----------------------------
End of Weighted End of Weighted
Period Average Period Average
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common shares outstanding 39,573,549 31,209,648 39,364,859 35,130,428
Common share equivalents:
Options 3,400,765 3,409,488 2,764,725 2,819,425
Assumed repurchased @ ending price (3,253,479) (1,916,291)
Warrants 0 0 0 0
Assumed repurchased @ ending price 0 0
---------- ----------
Weighted average common share equivalents 156,009 903,134
---------- ----------
Weighted average common shares outstanding,
common share equivalents & other
dilutive securities 31,365,657 36,033,562
========== ==========
(1) For the three months ended April 29, 1995 and April 30, 1994, the average market price for the period
exceeded the ending market price. As such, fully diluted earnings per share was antidilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> APR-29-1995
<CASH> 69,299
<SECURITIES> 8,851
<RECEIVABLES> 94,558
<ALLOWANCES> 440
<INVENTORY> 340,757
<CURRENT-ASSETS> 529,168
<PP&E> 62,835
<DEPRECIATION> 16,835
<TOTAL-ASSETS> 672,927
<CURRENT-LIABILITIES> 502,887
<BONDS> 0
<COMMON> 396
0
0
<OTHER-SE> 169,644
<TOTAL-LIABILITY-AND-EQUITY> 672,927
<SALES> 827,439
<TOTAL-REVENUES> 827,439
<CGS> 789,764
<TOTAL-COSTS> 789,764
<OTHER-EXPENSES> 27,883
<LOSS-PROVISION> 228
<INTEREST-EXPENSE> 988
<INCOME-PRETAX> 9,074
<INCOME-TAX> 3,938
<INCOME-CONTINUING> 4,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,890
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
