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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
INTELLIGENT ELECTRONICS
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$63,800
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2) Form, Schedule or Registration Statement No.:
Initial Schedule 14A
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3) Filing Party:
Intelligent Electronics, Inc.
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4) Date Filed:
May 17, 1998
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INTELLIGENT ELECTRONICS, INC.
411 Eagleview Boulevard
Exton, PA 19341
(610) 458-5500
April 14, 1998
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
of Intelligent Electronics, Inc. to be held at the Holiday Inn, 815 North
Pottstown Pike, Exton, Pennsylvania 19341 on May 20, 1998 at 9:00 a.m. local
time.
At this meeting, you will be asked to vote on the acquisition, by means
of a merger, of Intelligent Electronics by Xerox Corporation. In the merger, you
will be entitled to receive $7.60 in cash for each share of Intelligent
Electronics common stock that you own.
A merger agreement with Xerox has been approved by your Board of
Directors. In deciding to approve the merger agreement, your Board of Directors
received the opinion of Lazard Freres & Co. LLC, its investment banker, dated
March 3, 1998, to the effect that, based upon the assumptions made, matters
considered and the limitations on the review undertaken in connection therewith,
the consideration to be received by Intelligent Electronics shareholders in the
merger, as of such date, was fair to such shareholders from a financial point of
view. The Board of Directors has concluded that the proposed merger is in the
best interests of Intelligent Electronics' shareholders and, therefore, THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER
AGREEMENT.
The attached notice of meeting and proxy statement explain the proposed
merger and provide specific information concerning the special meeting. Please
read these materials carefully.
Whether or not you plan to attend the special meeting, we urge you to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the meeting. The merger is an important step for
Intelligent Electronics and its shareholders. THE MERGER CANNOT BE COMPLETED
UNLESS INTELLIGENT ELECTRONICS SHAREHOLDERS ADOPT THE MERGER AGREEMENT.
On behalf of the Board of Directors, I thank you for your support and
urge you to vote FOR adoption of the merger agreement.
Sincerely,
/s/ Richard D. Sanford
Richard D. Sanford
Chairman of the Board of Directors and
Chief Executive Officer
<PAGE>
INTELLIGENT ELECTRONICS, INC.
411 Eagleview Boulevard
Exton, PA 19341
(610) 458-5500
NOTICE AND PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 20, 1998
To the shareholders of Intelligent Electronics, Inc.:
This notice is provided to inform you that a Special Meeting of
Shareholders of Intelligent Electronics, Inc. ("IE") will be held at the Holiday
Inn, 815 North Pottstown Pike, Exton, Pennsylvania 19341 on May 20, 1998 at 9:00
a.m. local time (the "Meeting"), for consideration of and action upon the
following matters:
1. To consider and vote on a proposal (the "Proposal") to approve and
adopt an Agreement and Plan of Merger, dated as of March 4, 1998 (the "Merger
Agreement"), by and between Xerox Corporation ("Xerox"), TDC Subsidiary
Corporation, a wholly-owned subsidiary of Xerox ("Acquisition Sub One"), TDC Two
Subsidiary Corporation, a wholly-owned subsidiary of Xerox ("Acquisition Sub
Two"), IE and XLConnect Solutions, Inc., an 80%-owned subsidiary of IE
("XLConnect"). Pursuant to the Merger Agreement, Acquisition Sub Two will be
merged into IE (the "Merger"), with IE continuing as the surviving corporation
(the "IE Surviving Corporation"). If the Merger Agreement is adopted and the
Merger approved by the shareholders and the other conditions to the Merger are
satisfied or waived, each share of common stock of IE ("IE Common Stock") issued
and outstanding immediately prior to the effective time of the Merger (other
than (i) shares of IE Common Stock held by IE as treasury stock, which shares
shall be canceled, and (ii) shares as to which statutory appraisal rights have
been exercised) will be converted into the right to receive $7.60 in cash,
without interest. The actual terms of the Merger are contained in the Merger
Agreement. The Merger Agreement is included in the Proxy Statement as Appendix
A.
2. To transact such other business as may properly come before the
Meeting and any postponement or adjournment thereof, and matters incident to the
conduct of the Meeting.
The Board of Directors has fixed the close of business on April 13,
1998 as the record date for the determination of shareholders of IE entitled to
notice of, and to vote at, the Meeting and any postponement or adjournment
thereof. Shareholders may vote in person or by proxy. In the event that there
are not sufficient votes to approve the Proposal, IE expects that the Meeting
will be postponed or adjourned in order to permit further solicitation of
proxies by IE. If the Meeting is adjourned for one or more periods aggregating
at least 15 days because of the absence of a quorum with respect to the
Proposal, then those shareholders entitled to vote who are present at the
adjourned Meeting in person or by proxy shall nevertheless constitute a quorum
for the purpose of acting upon such Proposal. The Proxy Statement and the
accompanying proxy card will first be sent to shareholders on or about April 14,
1998.
Whether or not you plan to attend the Meeting in person, please mark,
date and sign your proxy, and mail it in the stamped envelope enclosed for your
convenience. In order to avoid the additional expense to IE of further
solicitation, we ask your cooperation in mailing your proxy promptly. Returning
the proxy does not affect your right to vote in person on all matters brought
before the Meeting, but will help assure a quorum if you do not attend.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Richard D. Sanford
Richard D. Sanford
Chairman of the Board of Directors and
Chief Executive Officer
Exton, PA
April 14, 1998
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................................................................................1
SUMMARY .................................................................................................................3
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING...........................................................................8
VOTING SECURITIES OF THE COMPANY.........................................................................................8
SOLICITATION OF PROXIES..................................................................................................9
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE..........................................................................9
APPROVAL OF THE MERGER..................................................................................................11
Purpose, Structure and Effect of the Merger....................................................................11
Background of the Merger.......................................................................................12
IE's Reasons for the Merger; Recommendation of the Board of Directors..........................................14
Opinion of Lazard Freres & Co. LLC.............................................................................15
Interests of Certain Persons in the Merger.....................................................................18
Merger Agreement...............................................................................................20
Terms of the Merger...................................................................................20
Conversion of IE Common Stock and the Stock of Acquisition Sub Two in the Merger......................20
Appraisal Rights. ...................................................................................21
IE Options and Warrants. ............................................................................21
XLConnect Options and Warrants. .....................................................................21
Payment of Shares. ..................................................................................22
Representations and Warranties. .....................................................................23
Conduct of Business Pending the Merger. .............................................................24
Solicitations and Superior Proposals..................................................................24
Additional Covenants. ...............................................................................25
Conditions to the Merger. ...........................................................................25
Termination of Merger Agreement and Termination Fees. ...............................................26
Expenses .............................................................................................27
Amendment.............................................................................................27
Accounting Treatment...........................................................................................28
Certain Effects of the Merger..................................................................................28
Federal Income Tax Consequences................................................................................28
Regulatory Compliance..........................................................................................29
APPRAISAL RIGHTS........................................................................................................30
INFORMATION REGARDING IE AND XLCONNECT..................................................................................31
INFORMATION REGARDING XEROX, ACQUISITION SUB ONE
AND ACQUISITION SUB TWO........................................................................................34
MARKET PRICE FOR THE IE COMMON STOCK...................................................................................35
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF OFFICERS AND DIRECTORS...........................................................36
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INDEPENDENT ACCOUNTANTS.................................................................................................38
WHERE YOU CAN FIND ADDITIONAL INFORMATION...............................................................................38
OTHER BUSINESS..........................................................................................................39
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Appendix A - Agreement and Plan of Merger
Appendix B - Opinion of Lazard Freres & Co. LLC
Appendix C - Appraisal Rights Statute
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Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, Pennsylvania 19341
(610) 458-5500
PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS
OF INTELLIGENT ELECTRONICS, INC. ("IE")
MAY 20, 1998
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: When is the Special Meeting?
A: The Meeting will take place on May 20, 1998 at 9:00 a.m., local time, at the
Holiday Inn, 815 North Pottstown Pike, Exton, Pennsylvania 19341. At the
Meeting, the IE shareholders will be asked to approve the Merger and adopt the
related Merger Agreement.
Q: What will I receive in the Merger?
A: If the Merger is completed, the IE shareholders will have the right to
receive $7.60 in cash for each share of IE's common stock they own.
Q: Do I have the option to receive Xerox common stock in the Merger?
A: No.
Q: Why is IE recommending the Merger Agreement?
A: In the opinion of your Board of Directors, in order for IE to compete more
effectively in its market and increase shareholder value, it is necessary to
become or combine with a larger, diversified and better capitalized enterprise.
The IE Board of Directors, therefore, concluded that a sale of IE at the current
time is in the best interests of IE's shareholders. In addition, your Board of
Directors received the opinion of Lazard Freres & Co. LLC ("Lazard Freres"), its
investment banker, dated March 3, 1998, to the effect that, based upon the
assumptions made, matters considered and the limitations on the review
undertaken in connection therewith, the merger consideration, as of such date,
was fair to the IE shareholders from a financial point of view. The actual text
of the opinion of Lazard Freres is included in this Proxy Statement as Appendix
B. The price of $7.60 per share represents a 42% premium over the average
closing market price of the shares over the three month period ended February
27, 1998. To review the background and reasons for the Merger in greater detail,
see page 12.
Q: What is the required vote?
A: The affirmative vote of the holders of a majority of the votes cast at the
Meeting is required to adopt the Merger Agreement.
Q: Will I have appraisal rights?
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A: Any shareholder who does not wish to accept the merger consideration has the
right under Pennsylvania law to receive the "fair value" of his or her shares as
determined by the Pennsylvania courts. This "right of appraisal" is subject to a
number of restrictions and technical requirements. See page 30.
Q: What do I need to do now? Should I send in my stock certificates now?
A: Please mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the Meeting. In addition,
you may attend and vote at the Meeting in person, whether or not you have signed
and mailed your proxy card. DO NOT SEND IN YOUR STOCK CERTIFICATES NOW. If the
Merger is completed, you will receive written instructions on how to exchange
them.
Q: What if I want to change my vote?
A: Just send in a later-dated, signed proxy card before the Meeting or attend
the Meeting in person and vote.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares ONLY if you instruct your broker how to
vote. Your broker should mail information to you that will explain how to give
instructions to your broker. If you do not instruct your broker how to vote,
your shares will not be counted as a vote cast.
Q: Will I owe any federal income tax as a result of the Merger?
A: You will be taxed on your receipt of the merger consideration to the extent
that the amount you receive exceeds your tax basis in your common stock. Tax
matters are complicated, and tax results may vary among shareholders. We urge
you to contact your own tax advisor to fully understand how the Merger will
affect you.
Q: When do you expect the Merger to be completed?
A: IE and Xerox are working toward completing the Merger as quickly as possible.
We hope to complete the Merger on the same date that the Meeting is held, May
20, 1998. XLConnect Solutions, Inc., the Company's 80%- owned subsidiary, will
merge with a subsidiary of Xerox at the same time. XLConnect will also seek the
approval of the XLConnect Merger from its shareholders at a meeting to be held
on the same date as the meeting of the IE shareholders to approve the Merger.
The completion of the XLConnect Merger is a prerequisite to the completion of
the Merger.
Q: Whom should I call with questions?
A. If you have any questions about the Merger, please call IE Investor Relations
at (610) 458-6718.
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SUMMARY
This summary highlights selected information from this document. The
Merger will be completed immediately after the merger of a subsidiary of Xerox
into XLConnect so that XLConnect will become a wholly-owned subsidiary of IE
(the "XLConnect Merger"). Because a substantial portion of the business of IE is
its 80% ownership of XLConnect, we have utilized the term "Company" in this
document when describing the overall business or aspects of the business of IE
and XLConnect. We have utilized the terms "IE" or "XLConnect" when referring to
a specific entity, or their wholly-owned subsidiaries.
This summary may not contain all of the information that is important
to you. To understand the Merger fully and for a more complete description of
the legal terms of the Merger, you should read carefully this entire document
and the other documents to which we have referred you. See "Where You Can Find
Additional Information" at page 38 of this Proxy Statement. The actual terms of
the Merger are contained in the Merger Agreement. The Merger Agreement is
included in this Proxy Statement as Appendix A.
THE MERGER CONSIDERATION
If the Merger is completed, Xerox has agreed that shareholders who do
not exercise their statutory appraisal rights will receive $7.60 per share in
cash for their common stock. The total amount to be paid to all holders of
common stock (assuming no shareholders exercise their statutory appraisal
rights) and holders of stock options will be approximately $319 million.
VOTING
At the Meeting, the holders of common stock will vote on a proposal to
adopt the Merger Agreement. Each share of common stock is entitled to one vote.
In order to be approved, a majority of all the votes cast must be voted in favor
of adopting the Merger Agreement. On the record date, there were 41,798,091
shares of common stock outstanding and entitled to vote which were held by
approximately 952 shareholders of record.
Members of the IE Board of Directors and officers of IE, including the
Chairman of the Board and Chief Executive Officer, who have the power to vote
approximately 9.5% of the outstanding shares of common stock, have indicated
that they intend to vote their shares in favor of the Merger.
RECORD DATE
The close of business on April 13, 1998, is the record date for
determining who is entitled to vote at the Meeting.
RECOMMENDATION OF THE IE BOARD OF DIRECTORS (PAGE 14)
The IE Board of Directors has approved the Merger Agreement and
unanimously recommends that you vote to adopt the Merger Agreement. The IE Board
of Directors believes that the Merger is fair to, and in the best interests of,
IE shareholders.
FACTORS CONSIDERED BY THE IE BOARD OF DIRECTORS (PAGE 14)
In reaching its decision to recommend adoption of the Merger Agreement,
the IE Board of Directors considered a number of factors. These included the
following:
o The IE Board of Directors believed that in order for IE to
compete more effectively in its market and increase
shareholder value, it is necessary to become or to combine
with a larger, diversified
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and better capitalized enterprise. Accordingly, the IE Board
of Directors concluded that a sale of the IE at the current
time is in the best interests of the shareholders of IE.
o The IE Board of Directors believed that $7.60 per share was
the highest price that Xerox or another third party would be
willing to pay for IE at this time. The IE Board of Directors
formed this belief after substantial efforts to identify
interested parties and substantial negotiations with Xerox to
obtain the highest possible price.
o The IE Board of Directors compared the historical market
prices of the IE common stock with the merger consideration.
The merger consideration represents a 42% premium over the
average closing market price of the shares over the three
month period ended February 27, 1998.
o The Merger Agreement allows third parties to make bona fide
offers to acquire IE and specifically permits the IE Board of
Directors to provide information to and negotiate with third
parties. A termination fee may be owed to Xerox if IE accepts
a financially superior proposal.
OPINION OF LAZARD FRERES & CO. LLC (PAGE 15)
On March 3, 1998, Lazard Freres delivered to the IE Board of Directors
its oral opinion, which opinion was subsequently confirmed in a written opinion
dated as of such date, to the effect that, based upon the assumptions made,
matters considered and the limitations on the review undertaken in connection
therewith, the merger consideration, as of such date, was fair to the IE
shareholders from a financial point of view. The opinion of Lazard Freres is
included in this Proxy Statement as Appendix B. Shareholders of IE are urged to
read the opinion of Lazard Freres in its entirety.
INTERESTS OF IE MANAGEMENT IN THE MERGER (PAGE 18)
All members of the IE Board of Directors and officers of IE own stock
options and/or common stock of IE and, to that extent, their interest in the
Merger is the same as yours. However, some of the officers and directors of IE
have interests in the Merger that are different from your interests as a
shareholder. Some of these interests are set forth below. The IE Board of
Directors was aware of these interests and considered them in recommending and
approving the Merger.
o Certain IE officers will be entitled to deferred
compensation, severance payments or other consideration as a
result of the Merger.
o All members of the IE Board of Directors own stock options
and/or common stock of XLConnect.
o Two members of the IE Board of Directors are also members of
the XLConnect Board of Directors.
o The Merger Agreement provides that all rights to
indemnification in favor of any present or former director or
officer of IE as provided in the IE Bylaws and Articles of
Incorporation or certain applicable indemnification agreements
shall survive for six years after the Merger with respect to
matters occurring at or prior to the effective time of the
Merger. Xerox, subject to certain limitations, will maintain
the present IE director and officer liability insurance policy
for three years.
In addition, certain of XLConnect's senior management will continue to
be employed after the XLConnect Merger and will receive Xerox stock options as
employees of the surviving company.
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APPRAISAL RIGHTS (PAGE 30)
Any shareholder who does not wish to accept the merger consideration
has the right under Pennsylvania law to receive the "fair value" of his or her
shares as determined by a Pennsylvania court. This "right of appraisal" is
subject to a number of restrictions and technical requirements. Generally, in
order to exercise appraisal rights:
o you must not vote in favor of the Merger; and
o you must make a written demand for appraisal before the
vote on the Merger.
Merely voting against the Merger will not protect your right of
appraisal. Appendix C to this proxy statement contains the applicable provisions
of the PBCL relating to appraisal rights.
CONDITIONS TO THE MERGER (PAGE 25)
The obligations of IE, XLConnect and Xerox to complete the Merger and
the XLConnect Merger are subject to a number of conditions. If these conditions
are not satisfied or waived, the Merger and the XLConnect Merger will not be
completed. The most important of the mutual conditions are:
o approval of the Merger Agreement by the IE and XLConnect
shareholders;
o expiration or earlier termination of the waiting period
under the federal antitrust pre-merger notification law;
o absence of legal restraints or prohibitions that prevent
completion of the Merger or the XLConnect Merger;
o obtaining all governmental authorizations needed to
complete the Merger and the XLConnect Merger;
o the Merger will be completed only if the XLConnect Merger
is completed; and
o approval by the XLConnect shareholders of an amendment of
the Articles of Incorporation of XLConnect to opt out of
certain Pennsylvania law provisions concerning appraisal
rights in control acquisitions.
Several additional conditions exist that must be met to require Xerox
to complete the Merger and the XLConnect Merger. The most important of these
conditions are:
o IE and XLConnect's compliance with the Merger Agreement;
o accuracy in all material respects of the representations
and warranties made by IE and XLConnect in the Merger
Agreement;
o absence of a material adverse change with respect to IE or
XLConnect;
o absence of any injunctions, proceedings or laws that
prohibit the completion of the Merger or the XLConnect
Merger;
o retention of certain executive employees;
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o continuation of the Company's consolidated status for
federal income tax purposes; and
o implementation of a transitional business plan for IE's
direct computer products sales business.
Additional conditions exist that must be met to require IE to complete
the Merger. The most important of these conditions are:
o Xerox' compliance with the Merger Agreement; and
o accuracy in all material respects of the representations
and warranties made by Xerox in the Merger Agreement.
TERMINATION OF THE MERGER AGREEMENT (PAGE 26)
Either IE, XLConnect or Xerox may terminate the Merger Agreement if:
o they mutually agree to terminate the Merger Agreement
before or after shareholder approval;
o the Merger has not been consummated by July 31, 1998,
unless the terminating party has caused the failure to meet
the closing conditions by wrongful action or a failure to
act;
o the shareholders of IE or XLConnect do not approve the
Merger or the XLConnect Merger, respectively; or
o a law or a final court order prohibits the Merger.
Xerox may terminate the Merger Agreement if:
o the Board of Directors of IE or XLConnect has withdrawn or
adversely modified its favorable recommendation of the
Merger or the XLConnect Merger, respectively;
o IE or XLConnect fails to perform, in a material way, its
covenants in the Merger Agreement so as not to satisfy its
closing conditions; or
o IE or XLConnect breaches, in a material way, any of its
representations or warranties in the Merger Agreement in a
manner so as not to satisfy its closing conditions.
IE or XLConnect may terminate the Merger Agreement if Xerox breaches or
fails to perform in a material way any of its representations, warranties or
covenants in the Merger Agreement so as not to satisfy the applicable closing
conditions. Either IE or XLConnect may also terminate the Merger Agreement if it
receives a financially superior proposal to acquire substantially all of its
stock or assets. The Board of Directors of such company must determine in good
faith that the proposal is financially superior to the Merger or the XLConnect
Merger, as the case may be, and is reasonably capable of being financed. In such
case, IE or XLConnect, as the case may be, must notify Xerox if it receives such
a proposal prior to terminating the Merger Agreement, and IE and XLConnect must
pay the termination fee, if required as discussed below.
TERMINATION FEES (PAGE 26)
IE and XLConnect may be required to pay Xerox termination fees of $9.84
million and $2.46 million, respectively, if the Merger Agreement is terminated
and:
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o IE or XLConnect accepts a financially superior proposal;
o the Board of Directors of IE or XLConnect withdraws or
adversely modifies its favorable recommendation of the
Merger or the Board of Directors of XLConnect withdraws or
adversely modifies its favorable recommendation of the
XLConnect Merger;
o IE does not vote its shares of XLConnect common stock in
favor of the XLConnect Merger.
o under certain circumstances, IE or XLConnect breaches its
representations or warranties to Xerox so as not to satisfy
the applicable closing conditions; or
o IE or XLConnect breaches or fails to perform its covenants
in the Merger Agreement so as not to satisfy the applicable
closing conditions.
Xerox may be required to pay IE and XLConnect termination fees of $9.84
million and $2.46 million, respectively, if Xerox breaches or fails to perform
in a material way any of its representations, warranties or covenants in the
Merger Agreement so as not to satisfy the applicable closing conditions.
The termination fee is intended to be the only damages that the
non-breaching party is entitled to receive, unless such breach is in bad faith.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 28)
You will be taxed for federal income tax purposes on your receipt of
the merger consideration to the extent that the amount you receive exceeds your
tax basis in your IE common stock. Because determining the tax consequences of
the Merger can be complicated, especially in light of recent changes to the
federal tax laws governing capital gains, and because state tax laws may apply
as well, you should consult your tax advisor in order to understand fully how
the Merger will affect you.
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TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING
This proxy statement and the accompanying proxy card are solicited by
the Board of Directors (the "Board") of Intelligent Electronics, Inc. ("IE").
These proxies will be used at the Special Meeting of Shareholders (the
"Meeting") to be held at 9:00 a.m. local time, on May 20, 1998 at the Holiday
Inn, 815 North Pottstown Pike, Exton, Pennsylvania 19341, and at any and all
adjournments thereof. The purpose of the Meeting is to consider and vote on a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of March
4, 1998 (the "Merger Agreement"), by and among Xerox Corporation ("Xerox"), TDC
Subsidiary Corporation, a wholly-owned subsidiary of Xerox ("Acquisition Sub
One"), TDC Two Subsidiary Corporation, a wholly-owned subsidiary of Xerox
("Acquisition Sub Two"), IE and XLConnect Solutions, Inc., an 80%-owned
subsidiary of IE ("XLConnect"), pursuant to which Acquisition Sub Two will be
merged into IE (the "Merger") with IE continuing as the Surviving Corporation
(the "IE Surviving Corporation"). The Board of Directors of IE approved the
Merger Agreement. The Board of Directors of IE unanimously recommends that the
IE shareholders vote FOR approval and adoption of the Merger Agreement and the
Merger. See "The Merger--Background of the Merger."
The Merger will be completed immediately after the completion of the
merger of Acquisition Sub One into XLConnect, with XLConnect as the surviving
corporation (the "XLConnect Merger"). In connection with the XLConnect Merger:
(i) XLConnect will, upon completion of the IE Merger, become a wholly-owned
subsidiary of IE; and (ii) the holders of common stock, par value $.01 per
share, of XLConnect ("XLConnect Common Stock") (other than IE and holders of
XLConnect Common Stock who perfect their statutory appraisal rights) will
receive $20.00 per share, in cash (the "XLConnect Merger Consideration").
Because a substantial portion of the business of IE is the business of its
80%-owned subsidiary, XLConnect, the term "Company" will be used in this Proxy
Statement to describe the overall business or aspects of the business of IE and
XLConnect together. The terms "XLConnect" and "IE" will be used when referring
to a specific entity or their wholly-owned subsidiaries.
In arriving at its conclusion that the Merger is fair to, and in the
best interests of, IE's shareholders, the IE Board of Directors considered the
opinion of Lazard Freres & Co. LLC ("Lazard Freres"), its investment banker,
dated March 3, 1998, to the effect that, based upon the assumptions made,
matters considered and the limitations on the review undertaken in connection
therewith, the merger consideration, as of such date, was fair to the IE
shareholders from a financial point of view. A copy of the Lazard Freres opinion
is attached as Appendix B to this Proxy Statement and shareholders should read
this opinion in its entirety.
VOTING SECURITIES OF THE COMPANY
Only holders of record of IE's common stock, par value $0.01 per share
(the "IE Common Stock") at the close of business on April 13, 1998 (the "Record
Date") are entitled to notice of, and to vote at, the Meeting. At the close of
business on the Record Date, 41,798,091 shares of IE Common Stock were
outstanding. Each share of IE Common Stock is entitled to one vote on all
matters presented at the Meeting. This Proxy Statement and the proxy card will
be sent to shareholders beginning on or about April 14, 1998. If you give a
proxy, you may revoke it at any time before the proxy is voted. You may revoke
your proxy before it is voted by executing another proxy at a later date, by
notifying the secretary of IE in writing of your revocation, or by attending in
person and voting at the Meeting. Under Pennsylvania law and the bylaws of IE,
the presence at the Meeting, in person or by proxy, of shareholders entitled to
cast at least a majority of the votes that all shareholders are entitled to cast
on a particular matter to be acted upon at the Meeting shall constitute a
quorum. All valid proxies returned will be included in the determination of
whether a quorum is present at the Meeting.
An affirmative vote of a majority of the votes cast by shareholders
present in person or by proxy and entitled to vote at the Meeting is required
for approval of the Merger Agreement and the Merger and all other matters
presented at the Meeting. Votes withheld, abstentions and "broker non-votes"
will not be counted as votes cast and will not be voted.
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Members of the Board of Directors and officers of IE, including IE's
Chairman of the Board and Chief Executive Officer, who have the power to vote
approximately 9.5% of the outstanding shares of IE Common Stock, have indicated
that they intend to vote their shares in favor of the Merger.
If the enclosed proxy is duly executed and received in time for the
Meeting, and if no contrary instructions are included on the proxy, it is the
intention of the persons named as proxies to vote the shares of IE Common Stock
represented thereby in favor of the proposal to adopt the Merger Agreement, and
in the discretion of the persons named as proxies in connection with any other
business that may properly come before the Meeting or any adjournment thereof.
At this time, IE knows of no other matters that may be presented for
shareholder action at the Meeting. However, if any matters, other than those
referred to above, should properly come before the Meeting, it is the intention
of the persons named in the enclosed proxy to vote such proxy in accordance with
their best judgment.
In the event that there are not sufficient votes to approve the
Proposal raised at the Meeting, it is expected that the Meeting will be
postponed or adjourned in order to permit further solicitation of proxies by IE.
If the Meeting is adjourned for one or more periods aggregating at least 15 days
because of the absence of a quorum with respect to the Proposal, then those
shareholders entitled to vote who are present at the adjourned Meeting in person
or by proxy shall nevertheless constitute a quorum for the purpose of acting
upon such Proposal.
The delivery of this Proxy Statement shall not, under any
circumstances, create any implication that the information contained herein is
correct after the date hereof, April 14, 1998.
THE IE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ADOPTION OF THE MERGER AGREEMENT. THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE
VOTES CAST BY SHAREHOLDERS PRESENT IN PERSON OR BY PROXY AND ENTITLED TO VOTE AT
THE MEETING IS REQUIRED TO ADOPT THE MERGER AGREEMENT.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH IE'S SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY IE OR ANY
OTHER PERSON.
SOLICITATION OF PROXIES
IE has retained D.F. King & Co., Inc. (the "Proxy Agent") to assist in
the solicitation of proxies. IE will pay the Proxy Agent a fee of approximately
$6,000 for its services, plus reimbursement for its out-of-pocket expenses. IE
will pay all additional expenses of the solicitation of proxies for the Meeting,
including the cost of mailing. In addition to solicitation by mail and the
services performed by the Proxy Agent, officers and regular employees of IE may
solicit proxies from shareholders by telephone, telegram, facsimile or in
person. IE will not pay these individuals any additional compensation for such
services, except for the reimbursement of any reasonable out-of-pocket expenses
that they incur.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Some statements contained or incorporated by reference in this Proxy
Statement regarding future financial performance and results and other
statements that are not historical facts are forward-looking statements. The
words "expect," "project," "estimate," "predict," "anticipate," "believes" and
similar expressions are also intended to identify forward-looking statements.
Such statements and the Company's results are subject to numerous risks,
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uncertainties and assumptions, including but not limited to: the impact of
economic conditions generally and in the industry for microcomputer products and
services; the potential decline generally in the level of demand for the
Company's products and services; the potential termination or non-renewal of a
supply or services agreement with a major vendor or customer; continued
competitive and pricing pressures in the industry; billable technical employee
and product supply shortages; open sourcing of products from vendors; changes in
the mix of utilization to provide billable services between employees and
contractors; rapid product improvement and technological change, short product
life cycles and resulting obsolescence risks; legal proceedings; the potential
for year 2000 related expenditures; the risk factors described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results and Seasonality" in XLConnect's Form 10-K for the
year ended December 31, 1997 and in "Risk Factors" in XLConnect's Prospectus
dated October 17, 1996 filed with the Securities and Exchange Commission (the
"Commission") in connection with its initial public offering; and the risks of
unavailability of adequate products, credit, capital or financing.
Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those indicated.
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APPROVAL OF THE MERGER
Purpose, Structure and Effect of the Merger
The purpose of the Merger is for Xerox to acquire, through Acquisition
Sub Two, all of the outstanding capital stock of IE and to provide IE
shareholders (other than those who perfect their statutory appraisal rights)
with $7.60 in cash for each share of IE Common Stock that they hold. In
connection with the Merger: (i) IE will become a wholly-owned subsidiary of
Xerox; and (ii) the holders of IE Common Stock (other than holders of IE Common
Stock who perfect their statutory appraisal rights) will receive $7.60 per
share, in cash (the "IE Merger Consideration"). The Merger will be completed
immediately after the completion of the merger of Acquisition Sub One into
XLConnect, IE's 80%-owned subsidiary, with XLConnect as the surviving
corporation (the "XLConnect Merger"). In connection with the XLConnect Merger:
(i) XLConnect will become a wholly-owned subsidiary of IE; and (ii) the holders
of XLConnect Common Stock (other than IE and holders of XLConnect Common Stock
who perfect their statutory appraisal rights) will receive the XLConnect Merger
Consideration, $20.00 per share, in cash.
See "Background of the Merger."
The Merger is structured as a cash merger of Acquisition Sub Two with
and into IE, with the result that IE will be the surviving corporation and a
wholly-owned subsidiary of Xerox (the "IE Surviving Corporation"). The XLConnect
Merger is structured as a cash merger of Acquisition Sub One with and into
XLConnect, with the result that XLConnect will be the surviving corporation and
a wholly-owned subsidiary of IE (the "XLConnect Surviving Corporation"). Under
the Merger Agreement, the officers and directors of Acquisition Sub Two and
Acquisition Sub One immediately prior to the effective time of the Merger and
the XLConnect Merger, respectively (the "IE Effective Time" and the "XLConnect
Effective Time," and collectively, the "Effective Times") shall be the officers
and directors of the IE Surviving Corporation and the XLConnect Surviving
Corporation, respectively, on and immediately following the respective Effective
Times.
If the Merger and the XLConnect Merger are consummated, the
shareholders of IE and XLConnect, respectively, will no longer have any equity
interest in such companies, and therefore will not share in their respective
future earnings and growth. Instead, each shareholder (other than shareholders
who perfect statutory appraisal rights and IE in the XLConnect Merger) will
receive, upon surrender of the certificate or certificates evidencing the IE
Common Stock and the XLConnect Common Stock, the IE Merger Consideration or the
XLConnect Merger Consideration, as applicable. As a result of the Merger and the
XLConnect Merger, IE will become a wholly-owned subsidiary of Xerox and
XLConnect will become a wholly-owned subsidiary of IE. At such time, there will
cease to be any public market for the IE Common Stock and the XLConnect Common
Stock and, after the respective Effective Times, the IE Common Stock and the
XLConnect Common Stock will be delisted from the Nasdaq Stock Market. Upon such
event, the IE Surviving Corporation and the XLConnect Surviving Corporation will
apply to the Commission for the deregistration of the IE Common Stock and the
XLConnect Common Stock, respectively, under the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
The shareholders of XLConnect will be requested, in a separate proxy
statement sent to each shareholder of record of XLConnect on April 13, 1998, to
approve the XLConnect Merger and adopt the Merger Agreement. The shareholders of
XLConnect will also be requested to approve the amendment of the Articles of
Incorporation of XLConnect so as to exempt XLConnect from the provisions of
Subchapter E of Chapter 15 of the Pennsylvania Business Corporation Law of 1988,
as amended (the " PBCL") concerning payment of "fair value" for the shares of
XLConnect Common Stock in certain circumstances (the "XLConnect Articles
Amendment"). The XLConnect Articles Amendment is a condition to the obligation
of Xerox to complete the Merger. IE, IN SOLICITING YOUR PROXY IN THIS PROXY
STATEMENT, IS NOT REQUESTING YOUR APPROVAL OF THE XLCONNECT MERGER OR THE
XLCONNECT ARTICLES AMENDMENT. PURSUANT TO THE MERGER AGREEMENT, IE IS REQUIRED
TO VOTE ITS 80% OWNERSHIP INTEREST IN XLCONNECT IN FAVOR OF THE XLCONNECT MERGER
AND APPROVAL OF THE XLCONNECT ARTICLES AMENDMENT.
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Background of the Merger
Founded in 1982, IE commenced its indirect business, the wholesale
distribution of microcomputers through its Reseller Network (the "Indirect
Business"), in March 1984. In 1995, IE commenced its direct business, the
provision of information technology products, services and solutions to
corporate customers, educational institutions and governmental agencies in the
United States (the "Direct Business"). The professional services portion of the
Direct Business was separated from IE in 1996 through the formation of
XLConnect. The direct computer products sales portion of the Direct Business
remained at IE and was operated through IE's wholly-owned subsidiary, XLSource,
Inc. ("XLSource").
In response to market environment changes and competitive pricing
pressures throughout the industry which IE believed were having adverse effects
on its business, results of operations and financial position, IE sold its
Indirect Business on July 18, 1997 to Ingram Micro Inc. (the "RND Transaction").
On July 18, 1997, IE and XLConnect also consummated the sale of certain assets
of 20 of the 24 locations of XLSource (comprising approximately two-thirds of
the Direct Business based on revenues) and certain specified services contracts
that were part of XLConnect to GE Capital Information Technology Solutions
Acquisition Corp. ("GECITS"), a subsidiary of GE Capital Information Technology
Solutions, Inc. (the "GE Transaction").
After the RND Transaction and the GE Transaction, the Company's
operations focused on the XLConnect service business as supported by IE's
remaining direct computer products sales organization in XLSource, operating out
of four locations. These four XLSource locations comprised approximately
one-third of the Direct Business (based on revenues) prior to the transactions.
It was the assessment of the Company's management and the Board of
Directors of IE and XLConnect that the Company had to become substantially
larger to meet its business objectives and to compete more effectively in a
consolidating industry. Further, it was their assessment that it would be
difficult for the Company to achieve this either by acquisition or through
internal growth within a reasonable period of time, due to the greater financial
resources of many of the Company's competitors and, as a result, their greater
ability to hire and retain employees.
At a meeting of IE's Board of Directors on July 30, 1997, the directors
discussed various options and alternatives available to IE. At this meeting, the
directors authorized IE management to engage an investment banker to explore
such options, including a possible sale of IE. On September 18, 1997, IE
retained Lazard Freres as its investment banker.
At a joint meeting of the Boards of Directors of IE and XLConnect on
October 24, 1997 (the "October Board Meeting"), Lazard Freres reviewed various
aspects of a possible sale, by merger or otherwise, of all or substantially all
of IE's stock or assets. Each Board of Directors confirmed that fair and
equitable treatment should be provided in any such transaction by IE to the
holders of the XLConnect Common Stock other than IE, and that an acquisition of
the XLConnect Common Stock from such holders should be sought in any transaction
pursued by IE, with the fairness of the price to be paid for such XLConnect
Common Stock to be confirmed for XLConnect by an independent investment banker.
IE's Board of Directors authorized IE management to continue to pursue the
possibility of a sale transaction.
In October, Lazard Freres and IE began contacting select potential
acquirors of the Company, including Xerox. Lazard Freres contacted over 30
potential acquirors in this process. In November 1997 and early December 1997,
IE received initial indications of interest concerning a possible acquisition
transaction from several entities, including Xerox.
On December 8, 1997, Xerox and IE entered into a confidentiality
agreement concerning information about the Company. Shortly thereafter, IE and
XLConnect provided to Xerox certain non-public information regarding IE
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and XLConnect. Fifteen other potential acquirors signed confidentiality
agreements and were provided with non-public information regarding IE and
XLConnect.
On December 15, 1997, IE received, in writing, an initial letter from
Xerox expressing an interest in acquiring IE. This letter was non-binding and
did not include a definitive purchase price.
Between November 1997 and January 1998, several prospective acquirors,
including Xerox, conducted due diligence investigations of IE and XLConnect. IE,
XLConnect, Xerox and their respective counsel developed a possible structure for
the Merger and the XLConnect Merger and negotiated certain terms of the Merger
Agreement between December 1997 and February 1998.
On January 22, 1998, the XLConnect Board of Directors formed a
committee consisting of directors who were not employees of IE or XLConnect, or
directors of IE (the "Independent Committee"), to evaluate any acquisition
proposals. The Independent Committee authorized the engagement of independent
counsel and an investment banker. Two of the Committee members were former
members of the IE Board of Directors who resigned therefrom on December 31,
1997. Shortly after the January 22 meeting, the Independent Committee engaged
independent counsel.
On January 23, 1998, Xerox submitted, in writing, a proposal to acquire
IE for $8.00 per share, in cash. The proposal, which was subject to the approval
of Xerox' Board of Directors, legal and due diligence conditions and the
negotiation of satisfactory arrangements in respect of certain key Executive
Employees of XLConnect, did not include the purchase of the outstanding
XLConnect Common Stock not owned by IE.
At separate meetings on January 27, 1998 of the IE Board of Directors
and the XLConnect Board of Directors, the Boards of Directors were advised by
management of proposals received to date. One of these proposals included the
purchase of XLConnect. Present at the meetings, in person or by phone, were a
majority of IE's and all of XLConnect's directors, respectively, and at the IE
Board of Directors meeting, representatives of Lazard Freres. At the meeting of
the XLConnect Board of Directors the directors discussed the proposals and the
benefits which could flow to XLConnect from an acquisition of IE by Xerox. At
the IE Board of Directors meeting, Lazard Freres presented preliminary summaries
of the proposals received. The IE Board of Directors directed management to seek
to negotiate, subject to Board of Directors' approval, a satisfactory
transaction with Xerox providing for the acquisition of IE and fair and
equitable treatment to the holders of XLConnect Common Stock other than IE.
As a result of negotiations subsequent to January 27, 1998, Xerox
informed IE on January 30, 1998 that it was willing to pay cash in the amount of
$8.10 per share for IE and, on February 13, 1998, Xerox submitted, in writing,
an amended proposal which confirmed the $8.10 proposal and also provided for the
acquisition of the XLConnect Common Stock not owned by IE, for cash in the
amount of $19.00 per share. The proposal was subject to substantially the same
conditions as the January 23, 1998 proposal.
On February 19, 1998, IE received, in writing, an amended proposal
(which included the purchase of XLConnect) from another bidder that increased
the amount such bidder was willing to pay for the shares of IE Common Stock. IE
entered into a limited exclusivity agreement with this bidder that would allow
IE to continue its negotiations with Xerox and this bidder at the same time. On
February 27, 1998, IE was informed by this alternative bidder that it was no
longer interested in pursuing an acquisition.
On February 27, 1998, IE and XLConnect received, in writing, an amended
proposal from Xerox to purchase the shares of IE for cash in an amount equal to
$7.60 per share and the shares of XLConnect for cash in an amount equal to
$20.00 per share. Xerox indicated that the offer amendment resulted from its
analysis of XLConnect's results of operations for the calendar quarter ended
December 31, 1997.
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At a meeting of the XLConnect Board of Directors on March 2, 1998, the
XLConnect Board of Directors, based on the recommendation of the Independent
Committee, approved the XLConnect Merger and authorized the execution of the
Merger Agreement, as conclusively negotiated by management.
At a meeting of the IE Board of Directors on March 3, 1998, Lazard
Freres made a presentation that included a discussion of its valuation
methodologies and analyses used in arriving at its opinion. Lazard Freres also
delivered to the IE Board of Directors its oral opinion, which opinion was
subsequently confirmed in a written opinion dated as of such date, to the effect
that, based upon the assumptions made, matters considered and the limitations on
the review undertaken in connection therewith, the IE Merger Consideration, as
of such date, was fair to the IE shareholders from a financial point of view. In
addition, IE's counsel reviewed the terms of the Merger Agreement with the IE
Board of Directors.
After discussion and with the recommendation of the Company's senior
management, IE's Board of Directors determined that the Merger was fair to and
in the best interests of IE shareholders, approved the Merger and authorized the
execution of the Merger Agreement, as conclusively negotiated by management.
Thereafter, substantive negotiations continued by telephone and in
person among management of IE, XLConnect, Xerox, the investment bankers for IE
and Xerox, and counsel. After the close of business on March 4, 1998, Xerox, IE
and XLConnect reached agreement on all outstanding issues and entered into the
Merger Agreement. Prior to commencement of trading of the IE and XLConnect
Common Stock on March 5, 1998, IE, XLConnect and Xerox issued a joint press
release announcing the execution of the Merger Agreement.
IE's Reasons for the Merger; Recommendation of the Board of Directors
The IE Board of Directors has determined that the Merger is fair to,
and in the best interests of, the shareholders of IE, and has approved the
Merger Agreement. Accordingly, the Board of Directors of IE recommends that the
shareholders vote to adopt the Merger Agreement and approve the Merger. In
reaching its conclusion, IE's Board of Directors considered a number of factors,
including:
o The determination by IE's management and the Board of Directors of
IE that, in order for IE to compete more effectively in its market
and increase shareholder value, it is necessary to become or
combine with a larger, diversified and better capitalized
enterprise. Further, it was their assessment that it would be
difficult for IE to achieve this either by acquisition or through
internal growth within a reasonable period of time, due to the
greater financial resources of many of IE's competitors and, as a
result, their greater ability to hire and retain employees.
Accordingly, the directors concluded that a sale of IE at the
current time is in the best interests of the shareholders of IE.
o The IE Board of Directors compared the historical market prices of
the IE Common Stock with the merger consideration. The merger
consideration represents a 42% premium over the average closing
market price of the shares over the three month period ended
February 27, 1998.
o The substantial efforts of Lazard Freres and IE in seeking
potential acquirors and the conclusion of the IE Board of Directors
based on such effort that a Merger could not be structured with
another purchaser that would offer greater value to IE
shareholders.
o The financial presentation of Lazard Freres and delivery of its
oral opinion to the IE Board of Directors on March 3, 1998, which
opinion was subsequently confirmed in a written opinion dated as of
such date, to the effect that, based upon the assumptions made,
matters considered and the limitations on the review undertaken in
connection therewith, the IE Merger Consideration, as of such date,
was fair to the IE shareholders from a financial point of view. See
"Opinion of Lazard Freres & Co. LLC" below and the written opinion
of Lazard Freres attached as Appendix B.
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o The terms and conditions of the Merger Agreement, including the
right of IE's Board of Directors to terminate the Merger Agreement
under certain circumstances in the exercise of its fiduciary
duties.
The foregoing discussion of the factors considered by IE's Board of
Directors is not intended to be all-inclusive. In view of the variety of factors
considered in connection with its evaluation of the Merger, IE's Board of
Directors did not find it practicable to and did not attempt to rank or assign
relative weights to the foregoing factors.
The IE Board of Directors recommends that the shareholders vote FOR
adoption of the Merger Agreement and Merger.
Opinion of Lazard Freres & Co. LLC
On March 3, 1998, Lazard Freres delivered its oral opinion to the IE
Board of Directors, which opinion was subsequently confirmed in a written
opinion dated as of such date, to the effect that, as of such date, the IE
Merger Consideration was fair to the holders of IE Common Stock from a financial
point of view.
A COPY OF THE FULL TEXT OF THE OPINION OF LAZARD FRERES DATED MARCH 3,
1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
APPENDIX B. THIS SUMMARY DISCUSSION OF SUCH OPINION OF LAZARD FRERES IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE
ENGAGEMENT OF LAZARD FRERES AND ITS OPINION ARE FOR THE BENEFIT OF THE IE BOARD
OF DIRECTORS, AND ITS OPINION WAS RENDERED TO THE IE BOARD OF DIRECTORS IN
CONNECTION WITH ITS CONSIDERATION OF THE MERGER. LAZARD FRERES' OPINION IS
DIRECTED ONLY TO THE FAIRNESS OF THE IE MERGER CONSIDERATION FROM A FINANCIAL
POINT OF VIEW TO HOLDERS OF THE IE COMMON STOCK AND DOES NOT ADDRESS ANY OTHER
ASPECTS OF THE MERGER. THE OPINION IS NOT INTENDED TO, AND DOES NOT CONSTITUTE,
A RECOMMENDATION TO ANY HOLDER OF IE COMMON STOCK AS TO WHETHER SUCH HOLDER
SHOULD VOTE FOR THE MERGER. HOLDERS OF IE COMMON STOCK ARE URGED TO READ THE
OPINION OF LAZARD FRERES IN ITS ENTIRETY.
In connection with its written opinion dated March 3, 1998, to the IE
Board of Directors, Lazard Freres: (i) reviewed the financial terms and
conditions of the draft Merger Agreement, dated March 3, 1998; (ii) analyzed
certain historical business and financial information relating to IE, including
XLConnect; (iii) reviewed various financial forecasts and other data provided to
Lazard Freres by IE and XLConnect relating to their businesses; (iv) held
discussions with members of senior management of IE and XLConnect with respect
to the business and prospects of IE and the strategic objectives of IE; (v)
reviewed public information with respect to certain other companies in lines of
business Lazard Freres believed to be generally comparable to the business of
IE; (vi) reviewed the financial terms of certain business combinations involving
companies in lines of business Lazard Freres believed to be generally comparable
to those of IE and in other industries generally; (vii) reviewed the historical
stock prices and trading volumes of IE Common Stock; (viii) conducted such other
financial studies, analyses and investigations as Lazard Freres deemed
appropriate. The written opinion of Lazard Freres was necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information made available to it as of, March 3, 1998.
Lazard Freres relied upon the accuracy and completeness of the
foregoing information and did not assume any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of IE or XLConnect. With respect to financial
forecasts, Lazard Freres assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of management of
IE and XLConnect as to the future financial performance of IE. Lazard Freres
assumed no
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responsibility for and expressed no view as to such forecasts or the assumptions
on which they were based. In rendering its opinion, Lazard Freres did not
address the relative merits of the Merger or any alternative potential
transaction or IE's underlying decision to effect the Merger.
In rendering its opinion, Lazard Freres assumed that the Merger would
be consummated on the terms described in the Merger Agreement, without any
waiver of any material term or condition by IE, and that obtaining the necessary
regulatory approvals for the Merger would not have a material adverse effect on
IE. Lazard Freres also assumed that the definitive Merger Agreement would not
differ in any material respect from the drafts furnished to it.
The following is a summary of certain financial and comparative
analyses performed by Lazard Freres in connection with providing its oral
opinion to the IE Board of Directors and reviewing it with the IE Board of
Directors at its meeting on March 3, 1998.
Comparable Publicly Traded Companies Analysis. Lazard Freres reviewed
and compared certain actual and estimated financial, operating and stock market
information of companies in lines of business believed to be generally
comparable to those of IE and XLConnect in the computer services industry. Such
companies included Electronic Data Systems Corporation, TechForce Corporation
and Wang Laboratories, Inc. (collectively, the "Selected Comparable Computer
Services Providers"). The analysis indicated that the enterprise values
(determined as the market value of equity plus net debt) of the Selected
Comparable Computer Services Providers as a multiple of 1997 revenues ranged
from 0.97x to 1.39x, as a multiple of 1998 estimated revenues ranged from 0.89x
to 1.31x, as a multiple of 1997 earnings before interest, taxes, depreciation
and amortization ("EBITDA") ranged from 7.2x to 8.8x, as a multiple of 1998
estimated EBITDA ranged from 5.2x to 7.2x, as a multiple of 1997 earnings before
interest and taxes ("EBIT") ranged from 13.8x to 26.9x, as a multiple of 1998
estimated EBIT ranged from 9.6x to 18.4x, and also indicated that the equity
value as a multiple of 1997 net income ranged from 23.0x to 29.7x, and as a
multiple of 1998 estimated net income ranged from 15.0x to 27.2x. Lazard Freres
also reviewed and compared such information for International Network Services
("INS"), another computer services provider, and the corresponding multiples for
INS were 6.77x, 4.57x, 38.7x, 24.2x, 50.0x, 30.6x, 84.0x and 51.6x,
respectively.
Lazard Freres also reviewed and compared certain actual and estimated
financial, operating and stock market information of companies in lines of
business believed to be generally comparable to those of IE in the computer
reseller industry. Such companies included CompuCom Systems, Inc., En Pointe
Technologies, Inc., InaCom Corp., MicroAge, Inc. and Vanstar Corporation
(collectively, the "Selected Comparable Computer Resellers"). The analysis
indicated that the enterprise values of the Selected Comparable Computer
Resellers as a multiple of 1997 revenues ranged from 0.06x to 0.43x., as a
multiple of 1998 estimated revenues ranged from 0.05x to 0.30x, as a multiple of
1997 EBITDA ranged from 2.8x to 11.8x, as a multiple of 1998 estimated EBITDA
ranged from 2.4x to 7.5x, as a multiple of 1997 EBIT ranged from 3.8x to 15.1x,
as a multiple of 1998 estimated EBIT ranged from 3.2x to 8.5x, and also
indicated that the equity value as a multiple of 1997 net income ranged from
10.1x to 21.7x, and as a multiple of 1998 estimated net income ranged from 9.2x
to 12.8x.
Based upon the foregoing data and projections for IE and XLConnect
provided to Lazard Freres, the implied per share equity valuation of the IE
Common Stock analyzing IE on a consolidated basis was estimated to range from
$4.75 to $5.95, and the implied per share equity valuation of the IE Common
Stock analyzing IE's XLSource business and XLConnect on a separate
"sum-of-the-parts" basis was estimated to range from $5.65 to $7.00.
Discounted Cash Flow Analysis. Based upon forecasts provided by the
respective management of IE and XLConnect, Lazard Freres estimated the net
present value of the future free cash flows of IE on both a consolidated basis
and on a separate "sum-of-the-parts" basis for IE's XLSource business and
XLConnect. For the analysis of IE on a consolidated basis, Lazard Freres used
discount rates ranging from 15% to 18% and terminal multiples of estimated
EBITDA in year 2002 ranging from 4.5x to 6.5x. This analysis indicated an
implied value per share of IE Common Stock ranging from $6.90 to $9.60. For the
analysis of IE on a "sum-of-the-parts" basis, Lazard Freres
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used discount rates of 15% to 18% and terminal multiples of estimated EBITDA in
year 2002 ranging from 5.0x to 7.0x for XLConnect and 3.0x to 5.0x for XLSource.
This analysis indicated an implied value per share of IE Common Stock ranging
from $6.75 to $9.55.
Lazard Freres also estimated the net present value of the future free
cash flows of IE on both a consolidated basis and a separate "sum-of-the-parts"
basis based upon an alternative set of forecasts provided by the respective
managements of IE and XLConnect that assumed more conservative annual growth in
revenues at XLSource and at XLConnect. For analysis of IE on a consolidated
basis, Lazard Freres used discount rates ranging from 15% to 18% and terminal
multiples of estimated EBITDA in year 2002 ranging from 4.5x to 6.5x. This
analysis indicated an implied value per share of IE Common Stock ranging from
$6.30 to $8.65. For the analysis of IE on a "sum-of-the-parts" basis, Lazard
Freres used discount rates of 15% to 18% and terminal multiples of estimated
EBITDA in year 2002 ranging from 5.0x to 7.0x for XLConnect and 3.0x to 5.0x for
XLSource. This analysis indicated an implied value per share of IE Common Stock
ranging from $6.15 to $8.60.
Selected Precedent Transactions Analysis. Lazard Freres reviewed
selected financial, operating and stock market information related to 17
acquisition transactions in the computer services industry since 1995 (the
"Selected Computer Services Transactions"), and to ten acquisition transactions
in the computer reseller industry since 1994 (the "Selected Computer Reseller
Transactions"). Based upon such information for the Selected Computer Services
Transactions and the Selected Computer Reseller Transactions and upon financial
information provided by the management of IE and XLConnect, the implied per
share equity valuation of the IE Common Stock on a "sum-of-the-parts basis" was
estimated to range from $6.10 to $8.70.
Stock Price Analysis. Lazard Freres reviewed the performance of the per
share market price of the IE Common Stock and the XLConnect Common Stock for
various time periods and compared such per share market price movements to each
other and to the Standard & Poor's Average of 500 stocks. This analysis showed
that the IE Merger Consideration of $7.60 per share of IE Common Stock
represents a 13% premium above the closing price per share of the IE Common
Stock on February 27, 1998 of $6.72, a 42% and 86% premium above the average
closing price per share of the IE Common Stock for the three month and one-year
periods ending February 27, 1998 of $5.34 and $4.09, respectively, a 9% premium
above the 52-week high intra-day price per share of $7.00 on February 27, 1998,
and a 238% premium above the 52-week low intra-day price per share of $2.25 on
April 28, 1997.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or the summary set forth above without considering the
analyses as a whole, could create an incomplete or misleading view of the
process underlying the opinion of Lazard Freres. No company or transaction used
in the above analyses as a comparison is identical to IE, XLConnect or the
transactions contemplated by the Merger Agreement. The analyses were prepared
solely for the purpose of Lazard Freres providing its opinion to the IE Board of
Directors in connection with its consideration of the Merger and do not purport
to be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold, which may be significantly more or less
favorable than as set forth in these analyses. Similarly, any estimate of values
or forecast of future results contained in the analyses is not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses.
In performing its analyses, Lazard Freres made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of IE, XLConnect, Lazard Freres, or any other
person assumes responsibility if future results or actual values are materially
different from those forecasts or estimates contained in the analyses.
Lazard Freres is an internationally recognized investment banking firm
and is continually engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for
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estate, corporate and other purposes. Lazard Freres was selected to act as
investment banker to the IE Board of Directors because of its expertise and its
reputation in investment banking and mergers and acquisitions.
In connection with Lazard Freres' services as investment banker to IE,
including its delivery of the opinion summarized above, IE has agreed to pay
Lazard Freres a fee of approximately $3.3 million, a substantial portion of
which is contingent upon the completion of the Merger. IE also has agreed to
reimburse Lazard Freres for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of its legal counsel) and will indemnify Lazard
Freres and certain related parties against certain liabilities, including
certain liabilities arising under the federal securities laws.
In the ordinary course of its business, Lazard Freres and its
affiliates may actively trade in the securities of IE for its own account and
for the account of its customers and, accordingly, may at any time hold a long
or short position.
Interests of Certain Persons in the Merger
In considering the Merger, shareholders should be aware that certain
directors, officers and prior officers of IE have interests in the Merger, as
described below.
Severance and Employment Arrangements. Upon closing of the Merger,
Richard D. Sanford, IE's Chairman of the Board and Chief Executive Officer, is
eligible for continued health and medical benefits for him and his family for
one year, a $40,000 lump sum payment to cover administrative support for one
year, a $30,000 lump sum payment to cover office rent for one year and the
receipt of two vehicles and certain other miscellaneous equipment from IE with a
book value equal to approximately $75,000. In addition, IE will exercise its
right to terminate certain split-dollar agreements for Mr. Sanford, and IE has
agreed that it will not be entitled to reimbursement for any excess of premiums
paid by IE over the cash surrender values of the life insurance policies to
which the split-dollar agreements pertain. IE estimates this excess to be
approximately $138,000. In connection with the completion of the Merger and the
resulting change of control of IE, Mr. Sanford is entitled to an acceleration of
certain deferred compensation payments under a 1994 agreement. IE estimates the
amount subject to acceleration to equal approximately $1,145,000. In addition,
Mr. Sanford will receive approximately $690,000 in XLConnect Option
Consideration (as defined below).
Pursuant to an agreement dated September 11, 1997 with Mr. Michael A.
Norris, IE's prior President and Chief Executive Officer of the Reseller
Network, IE agreed to amend his initial employment letter so that Mr. Norris
will receive $593,750 as severance, which was equal to his base salary for
fifteen months, accelerate the vesting of his 750,000 stock options and make a
payment of $975,000 on September 30, 1997. IE also agreed that on January 31,
1999 (or earlier upon a change of control of IE), it would pay Mr. Norris an
additional $850,000 less the aggregate net amount that Mr. Norris had received
upon the exercise or other disposition of his IE and XLConnect stock options
prior to that time (the "Make Whole Payment"). In connection with the Merger, IE
will be required to pay the Make Whole Payment to Mr. Norris at the IE Effective
Time in the amount of approximately $548,000, which includes the excess of the
IE Merger Consideration and the XLConnect Merger Consideration over the exercise
price of his IE and XLConnect options, respectively, together with reimbursement
for certain tax costs associated with the receipt of consideration in respect of
his IE and XLConnect options. See "Merger Agreement--IE Options and Warrants"
and "Merger Agreement--XLConnect Options and Warrants."
IE's Chief Financial Officer, Eugene E. Marinelli, Jr., entered into an
agreement with IE dated February 24, 1997 and amended by an agreement on
February 27, 1998 in which the parties agreed that Mr. Marinelli would continue
to serve IE in that capacity at an annual salary of $97,000. Mr. Marinelli is
also eligible to receive severance of $97,000 and continuation for one year of
certain medical benefits upon termination of his employment for any reason.
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Other officers and employees of IE and XLConnect may be entitled to
severance payments based on existing agreements, severance plans and policies of
IE and XLConnect upon completion of the Merger or the XLConnect Merger, or
should such individuals be terminated after the Merger or the XLConnect Merger.
Options. Certain of the IE and XLConnect officers and directors hold IE
Stock Rights (as defined below). Such IE officers and directors who hold IE
Stock Rights will be entitled to receive payment of the IE Option Consideration
(as defined below), to the extent provided in the Merger Agreement, in
connection with the cancellation of such Stock Rights. In addition all members
of the IE Board of Directors own XLConnect Common Stock and/or XLConnect Stock
Rights (as defined below) and will receive the XLConnect Merger Consideration
and/or XLConnect Option Consideration (as defined below). See "Merger
Agreement--IE Options and Warrants," "Merger Agreement--XLConnect Options and
Warrants," "Severance and Employment Arrangements" and "Employment Arrangements
of Certain XLConnect Employees."
XLConnect Merger. The Merger Agreement provides that as a condition to
Xerox' obligation to complete the Merger, the XLConnect Merger shall have been
completed.
Employment Arrangements of Certain XLConnect Employees. The Merger
Agreement provides as a condition to the obligation of Xerox to consummate the
XLConnect Merger, that Timothy W. Wallace, the President of XLConnect, and
certain other key employees of XLConnect (each, an "Executive Employee" and
collectively, the "Executive Employees") enter into new employment agreements
with XLConnect that will remain in effect after the XLConnect Merger and that
such Executive Employees are employed by XLConnect at the XLConnect Effective
Time. Each employment agreement will be for a term commencing on the XLConnect
Effective Time and ending three years thereafter. Each Executive Employee
initially will be paid his or her current base salary. In exchange for each
Executive Employee's agreement to have his or her XLConnect stock options
(whether or not currently exercisable) canceled immediately prior to the
XLConnect Merger without payment of the XLConnect Option Consideration (as
defined below), the Executive Employees, other than Mr. Wallace, will receive
three-quarters of the value of the stock options (i.e., the difference between
$20.00 and the exercise price of the option) in cash at the time of the
XLConnect Merger. The remaining one-quarter of such value will be subject to a
bonus plan to be paid to them over the three year period after the XLConnect
Merger. Depending on the financial results of the XLConnect Surviving
Corporation after the Merger, the Executive Employees may receive none or up to
150% of the amount that is carried over (the "Additional Payment"). Mr. Wallace
will receive one-half of the value of his stock options in cash at the time of
the XLConnect Merger (approximately $1.38 million) and the remaining one-half
will be subject to a bonus plan subject to the same conditions as the other
Executive Employees. Mr. Wallace will also receive a $105,000 bonus payment upon
completion of the Merger and the XLConnect Merger.
The Executive Employees will be eligible for a bonus payable under a
bonus plan similar to that currently in effect for XLConnect. Each of the
Executive Employees will also receive options to purchase shares of Xerox common
stock pursuant to the existing Xerox employee stock option plan. In the event of
the termination of an Executive Employee's employment without cause by the
XLConnect Surviving Corporation or by an Executive Employee for good reason (in
each case, as defined in the employment agreements), such Executive Employee
will receive the Additional Payment as otherwise payable in addition to any
applicable payment under the XLConnect Surviving Corporation's general severance
policy or their employment agreement, whichever is greater. The employment
agreements also contain restrictions on solicitation of employees and clients
and other customary provisions.
XLConnect's Chief Financial Officer, Stephanie Cohen, entered into an
agreement dated July 31, 1997 and amended by an agreement with XLConnect on
March 2, 1998 in which the parties agreed that Ms. Cohen would continue to serve
XLConnect in that capacity through the earlier of June 30, 1998 or such time as
she and Richard D. Sanford, XLConnect's Chairman, agree otherwise. She would be
entitled to an annual salary of $175,000, plus certain living expense
reimbursements. Ms. Cohen is also eligible to receive $225,000 and continuation
for one year of certain standard benefits upon termination of her employment for
any reason. In addition, Ms. Cohen will receive approximately $2.29 million in
XLConnect Option Consideration (as defined below).
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Indemnification. The Merger Agreement provides that all rights to
indemnification and advancement of expenses existing in favor of any present or
former director or officer of IE or XLConnect, as provided in (i) IE's or
XLConnect's Articles of Incorporation or bylaws, respectively, or (ii) certain
indemnification agreements identified in the Merger Agreement as in effect on
the date thereof, shall survive for a period of six years after the Merger with
respect to matters occurring at or prior to the Effective Times. Pursuant to the
Merger Agreement, Xerox has agreed that, for a period of six years after the
Effective Times, it will indemnify and hold harmless the present and former
officers and directors of IE and XLConnect in respect of acts or omissions
occurring prior to the Effective Times, subject to limitations imposed under
applicable law. Xerox has agreed to maintain the existing IE and XLConnect
policies of directors' and officers' liability insurance for a period of three
years after the Effective Times so long as the annual premium for such
insurance, in the aggregate, is not in excess of 150% of the last annual premium
paid prior to the execution date of the Merger Agreement (the "Maximum
Premium"), and provided that if the existing coverage expires, or is terminated
or canceled by the insurance carrier during such three-year period, Xerox will
use its commercially reasonable efforts to obtain as much coverage as can be
obtained for the remainder of the period for an aggregate cost not in excess of
the Maximum Premium.
Other. Barry M. Abelson, a member of the IE and the XLConnect Boards of
Directors, a shareholder of IE and XLConnect and a holder of XLConnect stock
options, is a partner in the law firm of Pepper Hamilton LLP, which provides
legal services to IE and XLConnect, including legal services relating to the
Merger and the XLConnect Merger.
Mr. Sanford, the Chairman of the IE Board of Directors and Chief
Executive Officer of IE, is also the Chairman of the XLConnect Board of
Directors.
Merger Agreement
The following summary of the Merger Agreement is subject to, and
qualified in its entirety by, the complete text of the Merger Agreement which is
attached to this Proxy Statement as Appendix A. The terms of the Merger
Agreement are the result of arms' length negotiations between IE and Xerox.
Terms of the Merger. At the IE Effective Time, and subject to and upon
the terms and conditions of the Merger Agreement and the PBCL, Acquisition Sub
Two will be merged with and into IE, the separate corporate existence of
Acquisition Sub Two will cease, and IE will continue as the IE Surviving
Corporation.
Subject to and immediately following the receipt of the vote of
shareholders of IE and the satisfaction or waiver of the conditions to the
consummation of the Merger set forth in the Merger Agreement, the parties shall
cause the Merger to be consummated by filing articles of merger as contemplated
by the PBCL (the "Articles of Merger"). The Merger shall be effective at the
time the Articles of Merger are filed with the Pennsylvania Secretary of State
or such other time as specified in the Articles of Merger.
The Merger Agreement provides that the Articles of Incorporation of IE,
as in effect immediately prior to the IE Effective Time, shall be the Articles
of Incorporation of the IE Surviving Corporation. The Merger Agreement provides
that the bylaws of IE, as in effect immediately prior to the IE Effective Time,
shall be the bylaws of the IE Surviving Corporation.
The directors of Acquisition Sub Two immediately prior to the IE
Effective Time shall be the initial directors of the IE Surviving Corporation,
and the officers of Acquisition Sub Two immediately prior to the Effective Time
shall be the initial officers of the IE Surviving Corporation.
Conversion of IE Common Stock and the Stock of Acquisition Sub Two in
the Merger. At the IE Effective Time, each share of IE Common Stock which is
issued and outstanding immediately prior to the IE Effective Time (other than
(i) shares of IE Common Stock as to which appraisal rights are exercised and
(ii) shares of IE Common Stock held of record by Xerox or Acquisition Sub Two or
any other direct or indirect subsidiary of Xerox or IE)
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shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and represent the right to receive, in cash, the IE
Merger Consideration.
At the IE Effective Time, the 1,000 shares of common stock of
Acquisition Sub Two, par value $0.01 per share (the "Acquisition Common Stock"),
which are issued and outstanding immediately prior to the IE Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become the number of shares of IE Common Stock
issued and outstanding at the IE Effective Time and those shares shall
constitute the only issued and outstanding shares of capital stock of the IE
Surviving Corporation immediately after the IE Effective Time.
At the IE Effective Time, each share of IE Common Stock held in the
treasury of IE immediately prior to the IE Effective Time shall be canceled and
cease to exist, and no payment shall be made with respect thereto.
Appraisal Rights. Notwithstanding any provision of the Merger Agreement
to the contrary, any shares of IE Common Stock outstanding immediately prior to
the IE Effective Time held by a holder who has demanded and perfected the right
of appraisal of those shares in accordance with the provisions of Sections
1571-1580 of the PBCL and as of the IE Effective Time has not withdrawn or lost
such right to such appraisal ("Dissenting Shares") shall not be converted into
or represent a right to receive a cash payment pursuant to the Merger Agreement,
but the holder shall only be entitled to such rights as are granted by the PBCL.
See "Appraisal Rights." If a holder of shares of IE Common Stock who demands
appraisal of those shares under the PBCL effectively withdraws or loses (through
failure to perfect or otherwise) the right of appraisal, then, as of the IE
Effective Time or the occurrence of such event, whichever last occurs, those
shares shall be converted into and represent only the right to receive the IE
Merger Consideration, as the case may be, as provided in the Merger Agreement,
without interest, upon compliance with the provisions, and subject to the
limitations, of the Merger Agreement. The Merger Agreement requires that IE
shall give Xerox (a) prompt notice of any written demands for appraisal of any
shares of IE Common Stock, attempted withdrawals of such demands, and any other
instrument served pursuant to the PBCL and received by IE relating to
shareholders' rights of appraisal, and (b) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
PBCL. IE shall not, except with the prior written consent of Xerox, voluntarily
make any payment with respect to any demands for appraisal of IE Common Stock,
offer to settle or settle any such demands or approve any withdrawal of any such
demands.
IE Options and Warrants. At or immediately prior to the IE Effective
Time, all options (the "IE Stock Rights") to purchase shares of IE Common Stock
that were granted under any employee stock option or compensation plan, or other
arrangement shall, in accordance with the change in control provision applicable
thereto, become fully vested and each holder of an IE Stock Right shall be
entitled to receive in cancellation of such IE Stock Right a cash payment from
Xerox equal to the amount, if any, by which the IE Merger Consideration exceeds
the per share exercise price of such IE Stock Right, multiplied by the number of
shares of IE Common Stock then subject to such IE Stock Right (the "IE Option
Consideration"), but subject to all required tax withholdings by IE. Each IE
Stock Right shall be canceled upon payment of the IE Option Consideration. As
the outstanding IE Stock Rights do not automatically cancel upon consummation of
the Merger, the Merger Agreement provides that the IE Stock Rights will remain
outstanding after the Merger and shall entitle the holder thereof to convert
them for the IE Option Consideration at any time in the future. IE issued two
warrants to a third party on October 17, 1996 and January 13,1997 (the "Third
Party Warrants"). The Third Party Warrants shall remain outstanding until such
time as the holder exercises them for the IE Option Consideration. The exercise
prices of the Third Party Warrants are above the IE Merger Consideration and,
therefore, the holder would be required to pay more than it would receive upon
exercise of the Third Party Warrants. Accordingly, it is not anticipated that
the holder will exercise the Third Party Warrants. Holders of the IE Stock
Rights and Third Party Warrants will not receive interest on any IE Option
Consideration to be received in connection with the Merger.
XLConnect Options and Warrants. At or immediately prior to the
XLConnect Effective Time, each then outstanding option to purchase XLConnect
Common Stock (an "XLConnect Stock Right") that was granted under any employee
stock option or compensation plan or other arrangement, except for the Delayed
Vesting Stock Rights
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(as defined below), shall become fully vested and each holder thereof shall be
entitled to receive in cancellation of such XLConnect Stock Right a cash payment
from Xerox in an amount equal to the amount, if any, by which the XLConnect
Merger Consideration exceeds the per share exercise price of such XLConnect
Stock Right, multiplied by the number of shares of XLConnect Common Stock then
subject to such XLConnect Stock Right (the "XLConnect Option Consideration"),
but subject to all required tax withholdings by XLConnect. Each XLConnect Stock
Right shall be otherwise canceled upon the XLConnect Effective Time.
Notwithstanding the foregoing, the holders of stock options to purchase
approximately 53,000 shares of XLConnect Common Stock issued on July 9, 1997
(the "Delayed Vesting Stock Rights") will receive the XLConnect Option
Consideration in respect of all of the Delayed Vesting Stock Rights which are
fully exercisable at the XLConnect Effective Time and one-half of such Delayed
Vesting Stock Rights which are not exercisable at such time. Such holders will
receive the XLConnect Option Consideration with respect to the remaining
one-half of the Delayed Vesting Stock Rights not vested at the XLConnect
Effective Time one year after the XLConnect Effective Time, provided they are
employed by the XLConnect Surviving Corporation at the time. A third party, in
connection with its warrant to purchase 325,000 shares of XLConnect Common Stock
(the "Third Party XLConnect Stock Right"), shall be entitled to receive the
XLConnect Option Consideration in respect of such warrant upon exercise thereof.
The Third Party XLConnect Stock Right shall remain outstanding until such time
as the holder exercises it for the XLConnect Option Consideration; however, in
no event will the holder be entitled to any interest on the XLConnect Option
Consideration in respect of the Third Party XLConnect Stock Right. The holder
has agreed not to exercise the Third Party XLConnect Stock Right prior to the
earlier of the XLConnect Effective Time or June 30, 1998. In addition, XLConnect
has agreed with Xerox not to issue shares of XLConnect Common Stock upon
exercise of exercisable XLConnect Stock Rights prior to the XLConnect Effective
Time. In lieu thereof, XLConnect will pay holders the difference between the
market price of the XLConnect Common Stock at such time and the exercise price
of the XLConnect Stock Right as permitted by the applicable plan or instrument
(the "Stock Right Cash Payment"). IE has agreed to lend XLConnect the funds
necessary to pay the Stock Right Cash Payment, if needed.
In connection with employment arrangements entered into with XLConnect,
the Executive Employees have agreed to terminate their XLConnect Stock Rights
immediately prior to the XLConnect Effective Time in exchange for certain
payments from Xerox. These arrangements are discussed in further detail in
"Interests of Certain Persons in the Merger."
Payment of Shares. At the IE Effective Time, Xerox shall deposit, in
immediately available funds, with ChaseMellon Shareholder Services (the
"Disbursing Agent"), an amount sufficient to allow the IE Merger Consideration
and the IE Option Consideration to be paid to the holders of each share of IE
Common Stock and each IE Stock Right then entitled to be so paid (such sum being
hereinafter referred to as the "Fund"). Out of the Fund, the Disbursing Agent
shall, pursuant to instructions from the holders of IE Common Stock, make the
payments of the IE Merger Consideration and the IE Option Consideration referred
to in the Merger Agreement. Any amount remaining in the Fund twelve months after
the IE Effective Time shall be refunded to the IE Surviving Corporation and the
IE Surviving Corporation shall remain liable for payment of the IE Merger
Consideration and the IE Option Consideration.
In the event any certificate or certificates representing IE Common
Stock are lost, stolen or destroyed, then the person claiming such fact must
provide (i) an affidavit to that effect to IE and the Disbursing Agent and (ii)
a written indemnity agreement in form and substance satisfactory to the IE
Surviving Corporation or a bond in such sum as the IE Surviving Corporation may
direct as indemnity against any claim that may be made against the IE Surviving
Corporation with respect to the certificate or certificates of IE Common Stock
alleged to have been lost, stolen or destroyed. Upon receipt and processing of
such documents, the amount owing to such person shall be paid to such person.
At and after the IE Effective Time, all shares of IE Common Stock
issued and outstanding immediately prior to the IE Effective Time shall be
canceled and cease to exist, and each holder of a certificate or certificates
that represented shares of IE Common Stock issued and outstanding immediately
prior to the IE Effective Time shall cease to have any rights as a shareholder
of IE with respect to the shares of IE Common Stock represented by such
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certificate or certificates, except for the right to surrender such holder's
certificate or certificates in exchange for the payment provided pursuant to the
Merger Agreement or to perfect such holder's right to receive payment for such
holder's shares pursuant to the PBCL if such holder has validly exercised and
not withdrawn or lost such holder's right to receive payment for such holder's
shares pursuant to the PBCL, and no transfer of shares of IE Common Stock issued
and outstanding immediately prior to the IE Effective Time shall be made on the
stock transfer books of the IE Surviving Corporation.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED
TO SHAREHOLDERS AND HOLDERS OF IE STOCK RIGHTS PROMPTLY FOLLOWING THE IE
EFFECTIVE TIME AS TO THE METHOD OF EXCHANGING CERTIFICATES FORMERLY REPRESENTING
SHARES OF IE COMMON STOCK OR STOCK RIGHTS FOR THE IE MERGER CONSIDERATION OR
OPTION CONSIDERATION, AS APPLICABLE. SHAREHOLDERS AND HOLDERS OF IE STOCK RIGHTS
SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR SHARES OF IE COMMON STOCK OR
STOCK RIGHTS TO THE DISBURSING AGENT OR IE PRIOR TO RECEIPT OF THE TRANSMITTAL
LETTER.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of IE and XLConnect, in respect of themselves and
their subsidiaries, relating, among other things, to the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (i) corporate organization, qualification and corporate
power; (ii) capitalization; (iii) the authorization, execution, delivery and
enforceability of the Merger Agreement; (iv) the execution and delivery of the
Merger Agreement not conflicting with or resulting in a breach of (a) IE's or
any subsidiary's Articles of Incorporation or bylaws, (b) any applicable
material agreement, contract, lease, license, instrument or other arrangements
or (c) any applicable constitution, statute, regulation, rule, injunction,
judgement, order, decree, or requiring governmental consents (except filing
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
the PBCL or the Exchange Act); (v) the financial statements of IE and XLConnect;
(vi) compliance with the applicable Commission filing requirements and
compliance in all material respects of such filings with the requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act;
(vii) compliance with all applicable laws; (viii) taxes; (ix) the absence of
undisclosed litigation or liabilities; (x) the absence of brokers or finders
fees, other than Lazard Freres and the advisor for the Independent Committee of
XLConnect; (xi) material contracts; (xii) intellectual property; (xiii) absence
of undisclosed liabilities; (xiv) certain issues with respect to IE's Rights
Agreement dated as of March 22, 1996 between IE and Chemical Mellon Shareholder
Services L.L.C. (the "Rights Plan"); (xv) management letters of outside
auditors; (xvi) other equity interests; (xvii) employment and employee benefit
matters and labor matters; (xviii) environmental matters; (xix) credit support
arrangements; (xx) the absence of certain changes or events since November 1,
1997; (xxi) assets and properties; (xxii) contracts and insurance; (xxiii)
reserves; (xxiv) action by the board of directors; (xxv) transactions with
certain related persons; (xxvi) fairness opinions; and (xxvii) expenses.
The Merger Agreement contains various joint and several representations
and warranties of Xerox, Acquisition Sub One and Acquisition Sub Two relating,
among other things, to the following matters (which representations and
warranties are subject, in certain cases, to specific exceptions): (i) corporate
organization; (ii) the authorization, execution, delivery and enforceability of
the Merger Agreement; (iii) the execution and delivery of the Merger Agreement
not conflicting with or resulting in a breach of (a) any provision of any of
such respective entity's charter or bylaws, (b) any applicable material
agreement, contract, lease, license, instrument or other arrangements or (c) any
applicable constitution, statute, regulation, rule, injunction, judgement,
order, decree, or requiring governmental consents (except filing under the HSR
Act, the PBCL or the Exchange Act); (iv) adverse pending or threatened
litigation; (v) brokers or finders; (vi) financial ability to perform the
requirements set forth in the Merger Agreement; and (vii) information supplied
for inclusion in the Proxy Statement.
None of the representations or warranties of any of IE, XLConnect,
Xerox, Acquisition Sub One or Acquisition Sub Two survive the consummation of
the Merger.
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Conduct of Business Pending the Merger. The Merger Agreement provides
that, from the date of the Merger Agreement through the IE Effective Time and
the XLConnect Effective Time, respectively, IE and XLConnect shall conduct their
business only in the ordinary and usual course, and to the extent consistent
therewith, each of IE and XLConnect will use its commercially reasonable efforts
to preserve its business organization intact and maintain its existing relations
with customers, suppliers, employees and business associates. Without limiting
the generality of the foregoing, the Merger Agreement provides that, from the
date of the Merger Agreement through the IE Effective Time and the XLConnect
Effective Time, IE and XLConnect, respectively, shall not do any of the
following without the prior written consent of Xerox (except as otherwise
permitted or required by the Merger Agreement): (i) authorize or effect any
change in its charter or bylaws; (ii) grant, amend or modify any Stock Rights or
issue, sell or otherwise dispose of any of its capital stock (except, in the
case of IE, upon the exercise of Stock Rights outstanding as of the date of the
Merger Agreement; it being understood, however, that XLConnect shall not issue
any capital stock, whether or not upon the exercise of XLConnect Stock Rights
and, instead of issuing shares upon the exercise of the Stock Rights, will pay
the holder the Stock Right Cash Payment (which IE will lend to XLConnect, if
needed)), (iii) declare, set aside or pay any dividend or distribution with
respect to its capital stock, or redeem, repurchase or otherwise acquire any of
its capital stock or any Stock Rights; (iv) issue any debt security or create,
incur, assume or guarantee any indebtedness for borrowed money or capitalized
lease obligation other than borrowings under existing credit facilities to fund
current obligations in the ordinary course of business; (v) impose or allow to
be imposed any security interest upon any of its assets except pursuant to
certain existing security arrangements or purchase money security interests on
inventory financed in the ordinary course of business; (vi) make any expenditure
for a capital asset or lease any real property except in accordance with the
existing capital budgets; (vii) implement or adopt any change in its accounting
principles, other than as may be required by generally accepted accounting
principles; (viii) (I) enter into or amend or renew any written employment,
consulting, severance, "golden parachute" or similar agreement or arrangement
with any director, officer or employee of IE, XLConnect or any of their
subsidiaries, (II) grant any salary or wage increase, or (III) increase any
employee benefit (including incentive or bonus payments), except in the case of
"(II)" for normal individual increases in compensation to employees (other than
officers and directors of IE or any of its subsidiaries) in the ordinary course
of business consistent with past practice; (ix) enter into, establish, adopt or
amend (except as may be required by applicable law) any employee benefit,
incentive, or welfare contract, plan or arrangement, in respect of any director,
officer or employee of IE, XLConnect or any of their subsidiaries, or take any
action to accelerate the vesting or exercisability of stock options, restricted
stock or other compensation or benefits payable thereunder; (x) knowingly or
negligently take or fail to take any action, if such action or failure to act
would directly or indirectly, cause any of the subsidiaries of IE, including
XLConnect, to cease to be a member of the consolidated group of companies of
which IE is the common parent for Federal income tax purposes; it being
understood that compliance with terms of the Merger Agreement concerning the
exercise of the XLConnect Stock Rights and the payment of the Stock Right Cash
Payment in connection therewith will not constitute a violation of the
foregoing; (xi) take any action that would materially alter the strategic
business plan and/or service delivery capability of XLConnect; (xii) make any
capital investment in or make any loan to or acquire the securities or assets of
any other person other than to or from its subsidiaries in the ordinary course
of business; (xiii) make any change in employment terms for any of its
directors, officers and employees other than customary increases to non-director
or non-officer employees awarded in the ordinary course of business consistent
with past practices; or (xiv) except as may be required by law, intentionally
take or fail to take any action the reasonably foreseeable effect of which would
be to cause any representation or warranty in the Merger Agreement to be or
become inaccurate.
Solicitations and Superior Proposals. IE and XLConnect have agreed that
neither they, nor any of their respective officers, directors, employees, agents
and representatives will solicit, initiate or encourage (including by way of
furnishing information), or take any other action designed or reasonably likely
to facilitate any inquiries or the submission of any proposal or offer from any
person relating to a merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving, or any purchase of a significant portion of the assets or any equity
securities of or any tender offer or exchange offer for shares of equity
securities of IE, XLConnect or any of their subsidiaries (an "Acquisition
Proposal"), or participate in any discussions or negotiations regarding any such
Acquisition Proposal. Notwithstanding the foregoing, IE, XLConnect and their
respective directors and officers may participate in any discussions or
negotiations regarding, furnish information
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with respect to, assist or facilitate any effort or attempt by any person to do
or seek, an Acquisition Proposal, solely to the extent that the Board of
Directors of IE or XLConnect, as applicable, determines, in good faith, that
such actions are necessary in order to comply with its fiduciary obligations
under applicable law in response to an Acquisition Proposal or material
modification to an Acquisition Proposal that was made but not solicited after
the date of the Merger Agreement. The Board of Directors of IE and XLConnect
have agreed not to modify or withdraw their approval of the Merger and XLConnect
Merger, respectively, unless there is a bona fide proposal made by a third party
to acquire, for consideration consisting of cash and/or securities, all or
substantially all of the voting power of the shares of IE Common Stock or
XLConnect Common Stock then outstanding or all or substantially all of the
assets of IE or XLConnect on terms that the respective Board of Directors
determines in its good faith judgement to be materially more favorable to IE's
or XLConnect's shareholders, as applicable, than the Merger or XLConnect Merger,
as applicable, and which proposal is reasonably capable of being financed (a
"Superior Proposal"). Upon receipt of a Superior Proposal and after five (5)
days written notice thereof to Xerox, identifying the material terms and
conditions and the person making the proposal, the respective Board of Directors
may terminate the Merger Agreement. The Termination Fee (defined below) will be
due Xerox if either IE's Board of Directors or the XLConnect Board of Directors
modifies or withdraws its approval of the Merger or the XLConnect Merger,
respectively, or terminates the Merger Agreement upon the receipt of a Superior
Proposal.
Additional Covenants. Pursuant to the Merger Agreement, IE and
XLConnect have covenanted to: (i) convene a special meeting of their respective
shareholders as soon as practicable to vote upon adoption of the Merger
Agreement; (ii) prepare and file all materials required by federal and state
securities laws and the Nasdaq Stock Market after giving Xerox' counsel the
opportunity to review such materials; (iii) permit Xerox to have access to IE's
officers, employees, agents, independent auditors, representatives, properties,
books and records; (iv) if any anti-takeover statute or regulation becomes
applicable to the Merger, to use all commercially reasonable efforts to take
such actions as are reasonably necessary, lawful and requested or consented to
by Xerox so that the Merger may be completed and to otherwise act to eliminate
the effect of such anti-takeover statute on the Merger; (v) vote all shares of
XLConnect Common Stock owned by IE in favor of the XLConnect Merger and
XLConnect Articles Amendment; (vi) take any necessary action to obtain the
consent of IBM Credit Corporation to the Merger; and (vii) use all commercially
reasonable efforts to obtain any third party consents required to effectuate the
Merger Agreement.
Xerox has covenanted to cause: (i) at the Effective Time, the payment
of funds sufficient to pay the IE Merger Consideration and IE Option
Consideration and not enter into any transaction, commitment or obligation which
could reasonably result in not being able to do so; and (ii) all IE Common Stock
held by Xerox or any of its direct or indirect wholly-owned subsidiaries to be
voted in favor of the Merger.
IE, XLConnect, Xerox, Acquisition Sub One and Acquisition Sub Two each
have covenanted to: (i) make any filings required by the HSR Act; (ii) give any
required notices concerning breaches of its own representations and warranties
in the Merger Agreement; (iii) make a joint press release concerning the Merger;
and (iv) use all commercially reasonable efforts to take all actions and to do
all things necessary in order to consummate and make effective the transactions
contemplated by the Merger Agreement.
Conditions to the Merger. The obligations of IE, XLConnect, Xerox,
Acquisition Sub One and Acquisition Sub Two to complete the Merger and the
XLConnect Merger are subject to the fulfillment of the following conditions, any
one or more of which may be waived by any such party, to the extent permitted by
applicable law: (i) the Merger shall have been approved by the shareholders of
IE; (ii) the XLConnect Merger and the XLConnect Articles Amendment shall have
been approved by the shareholders of XLConnect and the XLConnect Merger and the
XLConnect Articles Amendment shall have been completed; (iii) IE and XLConnect
shall have received all governmental consents, approvals and authorizations
required to be obtained prior to the applicable Effective Time, including the
expiration of the applicable waiting period under the HSR Act; (iv) neither any
statute, rule, regulation, order, stipulation or injunction (each an "Order")
shall have been enacted, promulgated, entered, enforced or deemed applicable to
the Merger or the XLConnect Merger nor shall any other action have been taken by
any governmental authority, administrative agency or court of competent
jurisdiction which prohibits the consummation
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of the transactions contemplated by the Merger Agreement, prohibits Xerox'
ownership or operation of all or any material portion of the business assets of
IE or XLConnect or could compel Xerox to dispose of or hold separately all or a
material portion of such business or assets as a result of the transactions
contemplated in the Merger Agreement; (v) the XLConnect Merger shall not occur
unless all conditions to the Merger have been met and the Merger shall not occur
unless the XLConnect Merger occurs.
The obligations of Xerox, Acquisition Sub One and Acquisition Sub Two
to complete the Merger and the XLConnect Merger are further subject to the
fulfillment of the following conditions, any one or more of which may be waived
by Xerox, Acquisition Sub One or Acquisition Sub Two: (i) IE and XLConnect shall
have performed and complied with, in all material respects, all obligations and
covenants required to be performed or completed by them under the Merger
Agreement; (ii) the representations and warranties of IE and XLConnect set forth
in the Merger Agreement are true and correct in all material respects at and as
of the applicable Effective Time, except for changes contemplated by the Merger
Agreement; (iii) Xerox shall have received an opinion of counsel to IE and
XLConnect in form and substance agreed to by the parties; (iv) no court or
governmental action or proceeding shall have been instituted and be pending to
restrain, prohibit or to obtain substantial damages in respect of the
consummation of the Merger or the XLConnect Merger which, in the reasonable
opinion of Xerox, based upon advice of counsel respecting the likelihood of an
adverse outcome in such action or proceeding, may reasonably be expected to
result in an injunction against the Merger or the XLConnect Merger or damages
which would constitute a Material Adverse Change (as defined in the Merger
Agreement); (v) no Material Adverse Change shall have occurred; (vi) except for
certain liens, IE shall hold all shares of stock of its subsidiaries, including
XLConnect, free and clear of any liens or encumbrances; (vii) IE, XLConnect and
their subsidiaries shall remain members of IE's consolidated tax group; (viii)
certain of the Executive Employees of XLConnect shall have executed employment
agreements with XLConnect and shall remain employed by XLConnect as of the
applicable Effective Time; (ix) Xerox shall have received a letter from IE's
independent certified public accountants concerning certain procedures
substantially in the form previously agreed by Xerox, IE and XLConnect; (x)
neither IE nor XLConnect shall have granted, modified or amended any Stock Right
or issued any capital stock, except as permitted in the Merger Agreement; (xi)
all outstanding Stock Rights must either terminate upon completion of the Merger
or the XLConnect Merger or convert into the right to receive only the Option
Consideration; (xii) after the date of the Merger Agreement, neither IE nor
XLConnect shall have set aside or paid any dividends; and (xiii) the
implementation of a transitional business plan for IE's XLSource business.
The obligations of IE and XLConnect to complete the Merger and the
XLConnect Merger are further subject to the fulfillment of the following
conditions, any one or more of which may be waived by IE or XLConnect: (i)
Xerox, Acquisition Sub One and Acquisition Sub Two shall have performed and
complied with, in all material respects, all obligations and covenants required
to be performed or completed by them under the Merger Agreement; (ii) the
representations and warranties of Xerox, Acquisition Sub One and Acquisition Sub
Two set forth in the Merger Agreement are true and correct in all material
respects at and as of the applicable Effective Time, except for changes
contemplated by the Merger Agreement; and (iii) IE shall have received an
opinion of counsel to Xerox in form and substance agreed to by the parties.
Termination of Merger Agreement and Termination Fees. Except as
provided below, if any party terminates the Merger Agreement pursuant to the
terms of the Merger Agreement, all rights and obligations shall terminate
without any liability of any party to any other party.
The Merger Agreement may be terminated in the event of any of the
following:
(i) by mutual consent of IE, XLConnect and Xerox;
(ii) by any party to the Merger Agreement if the Merger or the
XLConnect Merger is not consummated by July 31, 1998, unless the terminating
party has caused the failure to meet the applicable closing conditions by
wrongful action or a failure to act;
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(iii) by any party to the Merger Agreement if the shareholders of IE or
XLConnect do not approve the Merger or the XLConnect Merger, respectively;
(iv) by any party to the Merger Agreement if a law or court order
prohibits the Merger or the XLConnect Merger;
(v) by Xerox in the event that (A) the Board of Directors of IE or
XLConnect shall have withdrawn or modified in a manner adverse to Xerox its
approval or recommendation of the Merger Agreement, or shall fail to reaffirm
such approval or recommendation at the request of Xerox, or (B) IE or XLConnect
shall have failed to perform in a material way any of its covenants under the
Merger Agreement in a manner so as not to satisfy the applicable closing
conditions, which failure to perform is incapable of being cured or has not been
cured within twenty days after giving notice thereof to IE or XLConnect, as
applicable;
(vi) by Xerox in the event that IE or XLConnect shall have breached any
of its representations in any material respect in a manner so as not to satisfy
the applicable closing conditions, which failure to perform is incapable of
being cured or has not been cured within twenty days after giving notice thereof
to IE or XLConnect, as applicable;
(vii) by IE or XLConnect if the Board of Directors of either IE or
XLConnect determines to accept a Superior Proposal or recommend that its
shareholders accept such Superior Proposal, but only after such Board of
Directors has been advised by counsel that approval, acceptance or
recommendation of such transaction is necessary in order for such Board of
Directors to act in a manner consistent with its fiduciary obligations under
applicable law and IE or XLConnect complies with all other related provisions of
the Merger Agreement, including providing prior notice of the Superior Proposal
to Xerox and the payment of the Termination Fee (defined below); or
(viii) by IE or XLConnect if Xerox has breached or failed to perform in
any material way any of its representations, warranties or covenants under the
Merger Agreement, which breach or failure to perform is incapable of being cured
or has not been cured withing twenty days after giving notice thereof to Xerox.
If the Merger Agreement is terminated pursuant to paragraphs (v), (vi)
(but only if the applicable breach was intentional, reckless or grossly
negligent) or (vii) above, then within one day after such termination, IE and
XLConnect shall pay to Xerox $9.84 million and $2.46 million, respectively, as a
termination fee (the "Termination Fee") in immediately available funds and, in
the absence of bad faith, such payment shall constitute Xerox' and its
affiliates exclusive remedy. If the Merger Agreement is terminated pursuant to
paragraph (viii) above, then within one day after such termination, Xerox shall
pay to IE and XLConnect $9.84 million and $2.46 million, respectively, as a
termination fee in immediately available funds and, in the absence of bad faith,
such payment shall constitute IE's and XLConnect's exclusive remedy.
Except for the provisions concerning indemnification discussed above,
none of the representations, warranties or agreements of any party to the Merger
Agreement survives the consummation of the Merger, unless the specific terms
specify otherwise.
Expenses. All expenses incurred in connection with the Merger Agreement
and the transactions contemplated in the Merger Agreement will be paid by the
party incurring such expenses.
Amendment. Subject to applicable law, the parties to the Merger
Agreement may modify or amend any provision of the Merger Agreement at any time
prior to the XLConnect Effective Time by written agreement executed and
delivered by duly authorized officers of the respective parties.
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Accounting Treatment
The Merger and the XLConnect Merger will each be accounted for under
the purchase method of accounting. A final determination of required purchase
accounting adjustments of the fair value of the assets and liabilities of IE and
XLConnect has not yet been made.
Certain Effects of the Merger
Upon consummation of the XLConnect Merger, Acquisition Sub One will be
merged into XLConnect, the separate corporate existence of Acquisition Sub One
will cease, and XLConnect will continue as the XLConnect Surviving Corporation.
Upon consummation of the Merger, Acquisition Sub Two will be merged into IE, the
separate corporate existence of Acquisition Sub Two will cease, and IE will
continue as the IE Surviving Corporation. Xerox will own directly or indirectly
all of the outstanding shares of common stock of the IE Surviving Corporation
and XLConnect Surviving Corporation and will be entitled to all of the benefits
and detriments resulting from that interest, including all income or losses
generated by IE Surviving Corporation's and XLConnect Surviving Corporation's
operations and any future increase or decrease in IE Surviving Corporation's and
XLConnect Surviving Corporation's value. After the IE Effective Time, the
present holders of the IE Common Stock will no longer have any equity interest
in IE, will not share in the future earnings or growth of the IE Surviving
Corporation and will no longer have rights to vote on corporate matters. After
the XLConnect Effective Time, the present holders of the XLConnect Common Stock
will no longer have any equity interest in XLConnect, will not share in the
future earnings or growth of the XLConnect Surviving Corporation and will no
longer have rights to vote on corporate matters. IE and XLConnect are each
currently subject to the information filing requirements of the Exchange Act,
and in accordance therewith, are required to file reports and other information
with the Commission relating to its business, financial statements and other
matters. As a result of the Merger and the XLConnect Merger, XLConnect will
become a wholly-owned subsidiary of IE, IE will become a wholly-owned subsidiary
of Xerox, there will cease to be any public market for the IE Common Stock and
the XLConnect Common Stock, and, after the respective Effective Times, the IE
Common Stock and the XLConnect Common Stock will be delisted from the Nasdaq
Stock Market. Upon such event, the IE Surviving Corporation and the XLConnect
Surviving Corporation will apply to the Commission for the deregistration of the
IE Common Stock and the XLConnect Common Stock, respectively, under the Exchange
Act. The termination of the registration of the IE Common Stock and the
XLConnect Common Stock under the Exchange Act would make certain provisions of
the Exchange Act (including the proxy solicitation provisions of Section 14(a),
and the short swing trading provisions of Section 16(b)), no longer applicable
to the IE Surviving Corporation and the XLConnect Surviving Corporation.
Federal Income Tax Consequences
Upon consummation of the Merger and the XLConnect Merger, respectively,
each outstanding share of IE Common Stock (except for those with respect to
which statutory appraisal rights are exercised) will be converted into the right
to receive the Merger Consideration and each outstanding share of XLConnect
Common Stock (except for those with respect to which statutory appraisal rights
are exercised and those owned by IE) will be converted into the right to receive
the XLConnect Merger Consideration.
The following discussion is a summary of the principal federal income
tax consequences of the Merger and the XLConnect Merger to shareholders of IE
and XLConnect whose shares of IE Common Stock and XLConnect Common Stock,
respectively, are surrendered pursuant to the Merger or the XLConnect Merger
(including any cash amounts received by dissenting shareholders pursuant to the
exercise of appraisal rights). The discussion applies only to shareholders in
whose hands shares of IE Common Stock or XLConnect Common Stock are capital
assets, and may not apply to shares of IE Common Stock or XLConnect Common Stock
received pursuant to the exercise of employee stock options or otherwise as
compensation or to shareholders who are not citizens or residents of the United
States.
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THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH SHAREHOLDER IS URGED TO CONSULT SUCH
SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO SUCH SHAREHOLDER AND THE PARTICULAR TAX EFFECTS OF THE MERGER
AND THE XLCONNECT MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL
AND OTHER TAX LAWS.
The receipt of cash pursuant to the Merger and the XLConnect Merger
(including any cash amounts received by dissenting shareholders pursuant to the
exercise of appraisal rights) will be a taxable transaction for federal income
tax purposes under the Internal Revenue Code of 1986, as amended (the "Code").
In general, for federal income tax purposes, a shareholder will recognize gain
or loss equal to the difference between the cash received by the shareholder
pursuant to the Merger Agreement and the shareholder's adjusted tax basis in the
shares of IE Common Stock and XLConnect Common Stock surrendered pursuant to the
Merger Agreement. Such gain or loss will be a capital gain or loss and will be a
long-term gain or loss if, at the IE Effective Time and the XLConnect Effective
Time, the shares of IE Common Stock and XLConnect Common Stock, respectively,
were held for more than one year. Long-term capital gain recognized by an
individual shareholder will be taxed at the lowest rates applicable to capital
gains if the shareholder has held the shares of IE Common Stock or XLConnect
Common Stock for more than 18 months. Certain limitations apply with respect to
the deductibility of capital losses.
Payments in connection with the Merger and the XLConnect Merger may be
subject to "backup withholding" at a 31% rate. Backup withholding generally
applies if the shareholder fails to furnish such shareholder's social security
number or other taxpayer identification number ("TIN"), or furnishes an
incorrect TIN. Backup withholding is not an additional tax but merely a
creditable advance payment, which may be refunded to the extent it results in an
overpayment of tax. Certain persons generally are exempt from backup
withholding, including corporations and financial institutions. Certain
penalties apply for failure to furnish correct information and for failure to
include reportable payments in income. Shareholders should consult with their
own tax advisors as to the qualifications and procedures for exemption from
backup withholding.
Regulatory Compliance
The Merger and the XLConnect Merger are each subject to review by the
Federal Trade Commission and the Antitrust Division of the Department of Justice
under the HSR Act. The applicable waiting period under the HSR Act expired on
March 31, 1998.
Articles of Merger must be filed on behalf of IE and Acquisition Sub
Two with the Secretary of State of the Commonwealth of Pennsylvania in order to
effect the Merger. Articles of Merger must be filed on behalf of XLConnect and
Acquisition Sub One with the Secretary of State of the Commonwealth of
Pennsylvania in order to effect the XLConnect Merger.
Except as described above, neither IE nor XLConnect is aware of any
licenses or regulatory permits that are material to their respective businesses
that might be adversely affected by the Merger or the XLConnect Merger, as the
case may be, or of any approval or other action by any governmental,
administrative or regulatory agency or authority which would be required prior
to the respective Effective Times.
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APPRAISAL RIGHTS
If the Merger is consummated, shareholders who fully comply with the
statutory procedures for exercising appraisal rights set forth in the PBCL will
be entitled to receive cash for the fair value of their IE Common Stock as
determined pursuant to the procedures prescribed by the PBCL. Merely voting
against the Merger Agreement will not perfect a shareholder's appraisal rights.
Shareholders are urged to review carefully the dissenting shareholders' rights
provisions of the PBCL, a description of which is provided below and the full
text of which is attached to this Proxy Statement as Appendix C and incorporated
herein by reference. SHAREHOLDERS WHO FAIL TO COMPLY STRICTLY WITH THE
APPLICABLE PROCEDURES WILL FORFEIT THEIR APPRAISAL RIGHTS IN CONNECTION WITH THE
MERGER.
Sections 1571-80 of the PBCL ("Subchapter D") and 1930(a) of the PBCL,
copies of which are attached to this Proxy Statement as Appendix C, entitle any
holder of record of IE Common Stock who objects to the Merger, in lieu of
receiving the consideration for such IE Common Stock provided under the Merger
Agreement, to demand in writing that he be paid in cash the fair value of his IE
Common Stock. Section 1572 of the PBCL defines "fair value" as: "The fair value
of shares immediately before the effectuation of the corporate action to which
the dissenter objects, taking into account all relevant factors, but excluding
any appreciation or depreciation in anticipation of the corporate action."
Any shareholder contemplating making demand for fair value is urged to
review carefully the provisions of Subchapter D, particularly the procedural
steps required to perfect his appraisal rights thereunder. APPRAISAL RIGHTS WILL
BE LOST IF THE PROCEDURAL REQUIREMENTS OF SUBCHAPTER D ARE NOT FULLY AND
PRECISELY SATISFIED. The following summary does not purport to be a complete
statement of the provisions of Subchapter D of the PBCL and is qualified in its
entirety by reference to Appendix C and the PBCL.
Filing Notice of Intention to Demand Fair Value. If you wish to
exercise your appraisal right or to preserve the right to do so, before the vote
of the shareholders is taken on the Merger you must deliver to IE a written
notice of intention to demand that you be paid the fair value of your IE Common
Stock if the Merger is effected. Such written notice must be sent to Eugene E.
Marinelli, Jr., Secretary of IE, at Intelligent Electronics, Inc., 411 Eagleview
Blvd, Exton, PA 19341. A vote against the Merger is not sufficient to satisfy
the requirement of delivering a written notice to IE. In addition, you must
continuously hold your IE Common Stock from the date of filing the notice with
IE through the consummation of the Merger, and you must not vote your IE Common
Stock in favor of the Merger. Your failure to comply with any of the foregoing
will result in the forfeiture of any right to payment of fair value for your IE
Common Stock. Once the demand has been properly made, the determination of "fair
value" will be made pursuant to the provisions of Pennsylvania law, including an
ultimate court determination if applicable.
Notice to Demand Payment. If the Merger is approved by the
shareholders, IE will mail you a further notice if you gave due notice of your
intention to exercise your statutory appraisal right and you refrained from
voting in favor of the Merger. This notice will provide you with certain
instructions for demanding payment and will notify you of a date by which such
right must be exercised.
Record Owners and Beneficial Owners. If you are a record holder of IE
Common Stock held in whole or in part for the benefit of another person, you may
assert appraisal rights as to fewer than all of the IE Common Stock registered
in your name only if you dissent with respect to all the IE Common Stock
beneficially owned by such person and disclose the name and address of the
person or persons on whose behalf you dissent. If you are a beneficial owner of
IE Common Stock and are not the record holder, you may assert appraisal rights
with respect to IE Common Stock held on your behalf if you submit to IE the
written consent of the record holder not later than the time of assertion of
appraisal rights. If you are a beneficial owner, you may not dissent with
respect to fewer than all of your IE Common Stock, whether or not such IE Common
Stock is registered in your name.
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INFORMATION REGARDING IE AND XLCONNECT
General. The Company provides information technology products, services
and solutions to corporate customers, educational institutions and governmental
agencies in the United States, primarily through its branch locations. IE was
founded in 1982. In March 1984, IE commenced the wholesale distribution of
microcomputers. On August 17, 1995, IE exchanged shares of its common stock for
all of the outstanding shares of common stock of The Future Now, Inc. ("FNOW")
not then owned by the Company. The acquisition of FNOW, a computer sales and
services company, expanded IE's offerings through the addition of the Direct
Business, which includes IE's XLSource direct computer products sales
organization, and a professional services organization providing a wide range of
sophisticated customer support and consulting services. The professional
services portion of the Direct Business was combined with one of IE's existing
subsidiaries to form XLConnect, which was incorporated in January 1996. On
October 17, 1996, XLConnect completed an initial public offering, with IE
retaining an 80%- ownership interest. On July 18, 1997, IE sold certain assets
of XLSource and XLConnect sold certain specified managed services contracts and
related assets to GECITS in the GE Transaction. On July 18, 1997, IE also sold
its Indirect Business, the wholesale distribution of microcomputers through its
reseller network, to Ingram Micro Inc. in the RND Transaction. Accordingly, the
Indirect Business is treated as a discontinued operation in IE's financial
statements. The principal products sold, installed and serviced by the Company
include microcomputers, workstations, local and wide area network systems,
computer software and peripherals and telecommunications equipment. The Company
also offers a wide range of sophisticated customer support and consulting
services.
XL Source. As a result of IE's acquisition of the FNOW, which was
completed in August 1995 by the purchase of the remaining 69% of FNOW's
outstanding capital stock that IE did not already own, IE acquired a direct
computer products sales organization, which in 1996 was renamed XLSource. As
part of the GE Transaction which was consummated on July 18, 1997, IE sold to a
subsidiary of GECITS certain assets, consisting primarily of the inventory,
accounts receivable and customer contracts relating to 20 of the 24 XLSource
locations and real property leases and fixed assets relating to six of such 20
locations. After the GE Transaction, XLSource continued to operate in four
locations in Pittsburgh, Pennsylvania, Cincinnati and Cleveland, Ohio and
Indianapolis, Indiana. XLSource is an authorized dealer for or a reseller of the
products of over 80 manufacturers. XLSource has substantially outsourced its
distribution, handling and inventory logistics to Ingram Micro Inc.,
substantially reducing the need to carry inventory and lease warehouse space.
XLSource, in conjunction with XLConnect (described below), focuses its
sales and marketing efforts on selling computer-related products and services to
Fortune 1000 corporations, professional firms, and governmental and educational
institutions. These customers are relying more on business partners and
suppliers to provide a complete solution to their information technology needs,
in addition to competitive pricing. Also, many larger customers are outsourcing
their information technology needs. In order to meet these complex needs,
XLSource supplies the hardware and partners with XLConnect, which provides
sophisticated information technology services.
Sales to targeted customers are generated primarily by XLSource's sales
representatives. These sales representatives generally have three or more years
of microcomputer sales experience involving multi-product authorizations and are
assigned to accounts on the basis of skill, experience and prior results.
Successful operations will depend in part on XLSource's ability to attract, hire
and retain highly skilled and motivated sales personnel. Compensation programs
for sales representatives involve both salary and commission. Commissions are
based on a percentage of the gross profit generated by the sale, thereby
allowing the sales representative to participate in XLSource's gross profit.
XLConnect. XLConnect is a professional services organization providing
enterprise-wide solutions to clients with complex computing and communications
requirements. As a single source provider, XLConnect offers comprehensive
internetworking services, applications development services, managed services
and telecommunications services. XLConnect's solutions are custom designed to
integrate computing and communications devices and equipment with software
applications and systems to develop local area networks
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("LANs") and to link LANs through public and private communications networks and
the Internet to form wide area networks ("WANs").
Internetworking services include consulting, design and implementation
of LANs and WANs. Applications development services include customization and
adaptation of proven software as well as training to support XLConnect's
applications development and internetworking solutions. Managed services enable
clients to outsource multiple aspects of their information technology functions,
including technology selection, deployment and support, network management and
help desk support. Telecommunications services include data, video and voice
transmission. XLConnect believes that its solutions enable its clients to
increase productivity and enhance competitiveness by improving the flow of
information among clients' employees, customers and suppliers.
As LANs have proliferated, computing and communications technologies
have continued to converge. Evolving business practices have created an
increased need for the instantaneous flow of information within and beyond
traditional corporate walls to branch sales offices, telecommuters, mobile
offices and customer and supplier networks. Businesses now share data, video and
voice information among diverse locations across telecommunications networks,
thereby creating WANs. In addition, access to the Internet is providing new
communications and marketing opportunities for virtually all businesses.
XLConnect believes that demand for internetworking, applications
development and outsourcing services is expected to increase as organizations
continue to: (i) migrate from legacy mainframe environments to distributed,
client/server environments characterized by LANs relying on multi-vendor,
multi-protocol technologies; (ii) share information among diverse client,
employee and supplier locations across telecommunications networks, creating
WANs; and (iii) experience difficulty in maintaining in-house technical
expertise and personnel sufficient to support these complex LAN and WAN
environments.
Competition. Competition in the microcomputer industry is intense,
principally in the areas of price, product availability and technical
consulting, support and service. The Company competes with computer aggregators,
distributors, resellers and retailers in the sale of its products and services
as well as firms offering information technology implementation consulting
services. The Company faces competition from microcomputer manufacturers that
sell their products through direct sales forces and from distributors that
emphasize mail order and telemarketing. Certain competitors have greater
technical, marketing and financial resources than the Company.
XLConnect operates in rapidly changing markets that are intensely
competitive. These markets are highly fragmented with many direct and indirect
competitors in each of them. XLConnect believes that the principal competitive
factors for its services include technical expertise, breadth of service
offerings, geographic reach, quality performance, client service and support,
reputation, price of services and financial stability. XLConnect's competitors
include the services organizations of established computer product
manufacturers, value-added resellers, systems integrators and consultants,
aggregators, distributors, specific service providers and long distance carriers
and Regional Bell Operating Companies ("ROBCs"). Many of XLConnect's current and
potential competitors have substantially longer operating histories and
financial, sales, marketing, technical and other competitive resources which are
substantially greater than those of XLConnect. As a result, such competitors may
be better able to respond or adapt to new or emerging technologies and changes
in client requirements, to devote greater resources than XLConnect to
XLConnect's markets, either through internal efforts or by forming strategic
alliances with hardware or software vendors, telecommunication providers or
other competitors of XLConnect, to offer new and improved services to
XLConnect's clients, or to increase their efforts to gain and retain market
share through competitive pricing. There can be no assurance that XLConnect will
be able to continue to compete successfully.
Trademarks and Service Marks. The trademarks or service marks "The
Future Now, Inc.," "IE," "IE Intelligent Electronics," "XLConnect," "XLConnect
Solutions," "XLConnectNets," "XLSource," and the design of the XLConnect logo
are in use and are currently registered or are in the process of registration in
the United States Patent and Trademark Office by the Company. Although the marks
may not be registered with any states, the Company claims common law rights to
the marks based on adoption and use. To the Company's knowledge, there
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are no pending interference, opposition or cancellation proceedings, or
litigation, threatened or claimed, with respect to the marks in any
jurisdiction. The Company holds no patents. Management believes that the
Company's marks are valuable; however, the loss of any of the marks would not
have a material adverse effect on the Company's business.
Employees. As of January 31, 1998, the Company (IE and XLConnect) had
1,646 full-time employees. No employee is represented by a labor union and the
Company believes that its employee relations are good.
Property. The Company leases approximately 16,000 square feet in Exton,
Pennsylvania, primarily for its principal executive offices with a lease
expiring on December 31, 1998. In addition, the Company leases facilities for
the XLConnect and XLSource branch locations expiring at various dates between
1998 and 2007. The Company believes that its facilities are adequate for its
present needs.
Legal Proceedings. 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. Management believes the resolution of these matters will not have a
material adverse effect on the Company's financial position or results of
operations.
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<PAGE>
INFORMATION REGARDING XEROX, ACQUISITION SUB ONE
AND ACQUISITION SUB TWO
Xerox is a leading provider of document processing products, systems,
supplies and services. In addition, Xerox provides document-related outsourcing
services, including document production, document management, workflow,
networking and support. TDC Subsidiary Corporation is a corporation recently
organized by Xerox for the purpose of effecting the XLConnect Merger. It has no
material assets and is not engaged in any material activities, except in
connection with the XLConnect Merger and the transactions contemplated thereby.
TDC Two Subsidiary Corporation is a corporation recently organized by Xerox for
the purpose of effecting the Merger. It has no material assets and is not
engaged in any material activities, except in connection with the Merger and the
transactions contemplated thereby.
The executive offices of Xerox, TDC Subsidiary Corporation and TDC Two
Subsidiary Corporation are located at 800 Long Ridge Road, Stamford, Connecticut
06904, and their telephone number is (203) 968-3000.
Xerox will finance the payment of the aggregate IE Merger Consideration
and XLConnect Merger Consideration from its existing cash reserves.
Prior Purchases. IE and XLConnect have periodically purchased products
or leased copiers from Xerox. Such purchases have been on arm's-length terms,
consistent with industry practice and have not been material. IE and XLConnect
have had no material arrangements or contracts with Xerox prior to the Merger
Agreement.
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<PAGE>
MARKET PRICE FOR THE IE COMMON STOCK
The IE Common Stock is listed on the Nasdaq Stock Market under the
symbol "INEL." On March 4, 1998, the last trading day preceding the public
announcement of the Merger Agreement, the high and low sales prices for the IE
Common Stock as reported by the Nasdaq Stock Market were 7 5/16 and 6 7/8,
respectively. Set forth below is the range of the high and the low sales prices
for the IE Common Stock as reported by the Nasdaq Stock Market during each
fiscal quarter within the two most recent fiscal years:
Quarter Ended High Low
- ------------- ---- ---
February 1, 1998 through March 31, $ 7 1/2 $ 4 15/16
1998
January 31, 1998 $ 5 5/8 $ 4 7/16
November 1, 1997 $ 5 13/16 $ 3 1/32
August 2, 1997 $ 3 3/4 $ 2 3/8
May 3, 1997 $ 4 3/4 $ 2 1/4
February 1, 1997 $ 9 1/8 $ 3 3/4
November 2, 1996 $10 3/4 $ 5 3/4
August 3, 1996 $11 1/2 $ 5
May 4, 1996 $ 9 7/8 $ 3 1/2
IE currently intends to retain future earnings, if any, for use in its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.
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PRINCIPAL SHAREHOLDERS AND HOLDINGS OF OFFICERS AND DIRECTORS
The following table sets forth the number and percentage of shares of
IE Common Stock which, according to information supplied to IE, are beneficially
owned by: (i) each person who is the beneficial owner of more than 5% of the IE
Common Stock; (ii) each of the members of the IE Board of Directors,
individually; (iii) IE's Chief Executive Officer and IE's most highly
compensated executive officer for the year ended January 31, 1998; and (iv) all
directors and current officers of IE as a group. Under rules of the Commission,
a person is deemed to be the beneficial owner of IE Common Stock with respect to
which such person has or shares voting power or investment power. A person is
also deemed to be the beneficial owner of shares of IE Common Stock as of a
given date with respect to which such person has the right to obtain voting or
investment power within 60 days of such given date, such as upon the exercise of
options or warrants. Unless otherwise indicated, the information in the
following table is as of March 31, 1998.
Percentage
Amount and Nature of Shares
of Beneficial Outstanding
Name of Beneficial Owner Ownership(1) (if 1% or greater)
- ------------------------ ------------ -------------
Barry M. Abelson 371,864 (2) --
Thomas J. Coffey (3) 63,100 --
Timothy D. Cook (4) 84,000 --
Christopher T. G. Fish 575,908 (5) 1.4%
Roger J. Fritz 60,004 --
Arnold S. Hoffman 6,000 --
Eugene E. Marinelli, Jr. 4,000 --
Michael A. Norris 750,000 1.8%
Gregory A. Pratt 330,000 --
William L. Rulon-Miller 14,136 --
Richard D. Sanford 3,640,751 (6) 8.6%
Strome Susskind Investment
Management L.P. 3,893,460 (7) 9.3%
The TCW Group, Inc. 2,301,400 (8) 5.5%
All directors and current officers
as a group (9 persons) 5,551,961(9) 12.8%
- ---------------------------------
(1) The number of shares of IE Common Stock indicated in this table as
beneficially owned by the following individuals includes the following
respective numbers of shares purchasable upon the exercise of stock
options which are exercisable within 60 days of March 31, 1998: Mr.
Coffey, 60,000; Mr. Cook, 80,000; Mr. Marinelli, 4,000; Mr. Norris,
750,000; Mr. Pratt, 330,000; Mr. Sanford, 480,000; and all directors
and current officers as a group, 1,564,000. The table does not reflect
the following respective numbers of shares purchasable upon exercise of
stock options that are not exercisable within 60 days of March 31,
1998: Mr. Coffey, 90,000; Mr. Cook, 70,000; Mr. Marinelli, 31,000; Mr.
Norris, 0; Mr. Pratt, 20,000; Mr. Sanford, 20,000; and all directors
and current officers as a group, 71,000.
(2) Includes 71,710 shares held in a trust (the beneficiary of which is a
child of Mr. Sanford) of which Mr. Abelson and Mr. Fish are
co-trustees; 128,262 shares held by Mr. Abelson as custodian for the
benefit of two children of Mr. Sanford; and 128,992 shares held by two
charities established by Mr. Sanford, of which Mr. Abelson is a
director or trustee. Mr. Abelson disclaims beneficial ownership as to
the shares held by the trust and charities and as custodian.
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(3) Mr. Coffey resigned as IE's Senior Vice President, Chief Financial
Officer and Treasurer on September 12, 1997.
(4) Mr. Cook resigned as IE's Senior Vice President on July 18, 1997.
(5) Includes 470,198 shares owned by Sprint Investments, S.A. The sole
shareholder of Sprint Investments, S.A. is a trust, the beneficiaries
of which are the wife and children of Mr. Fish. Also includes 71,710
shares held in a trust (the beneficiary of which is a child of Mr.
Sanford) of which Mr. Fish and Mr. Abelson are co-trustees (as to which
shares Mr. Fish disclaims beneficial ownership) and 4,000 shares held
by Mr. Fish as custodian for the benefit of and in the name of Mr.
Fish's daughter.
(6) Includes 128,992 shares held by two charities established by Mr.
Sanford, of which Mr. Sanford is a director or trustee. Mr. Sanford
disclaims beneficial ownership as to the shares held by the charities.
(7) The information with respect to Strome Susskind Investment Management
L.P. was reported on a Schedule 13-G filed by Strome Susskind
Investment Management L.P. with the Commission on February 11, 1998, a
copy of which was received by IE and relied upon in making this
disclosure. The address of Strome Susskind Investment Management L.P.
is 100 Wilshire Blvd., 15th Floor, Santa Monica, CA 90401.
(8) The information with respect to The TCW Group, Inc. was reported on a
Schedule 13-G filed by The TCW Group, Inc. with the Commission on
February 12, 1998, a copy of which was received by IE and relied upon
in making this disclosure. The address of The TCW Group, Inc. is 865
South Figueroa Street, Los Angeles, CA 90017.
(9) Excludes shares owned by Messrs. Coffey and Cook, who are no longer
employed by IE.
Although not an executive officer of IE, Timothy W. Wallace, the
President and a member of the Board of Directors of XLConnect, beneficially owns
19,889 shares of IE Common Stock (including options to purchase 16,332 shares of
IE Common Stock that are exercisable within 60 days of March 31, 1998 and
options to purchase 13,500 shares of IE Common Stock that are not exercisable
within 60 days of March 31, 1998).
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<PAGE>
INDEPENDENT ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP, IE's present independent
accountants, are expected to be present at the Meeting, where they will be
available to respond to appropriate questions and have the opportunity to make a
statement if they so desire.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
As required by law, IE files reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information contain additional information about IE. You can inspect and copy
these materials at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
and at the following Regional Offices of the Commission: 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite
1300, New York, New York 10048. For further information concerning the
Commission's public reference rooms, you may call the Commission at
1-800-SEC-0330. Some of this information may also be accessed on the World Wide
Web through the Commission's Internet address at "http://www.sec.gov."
The Commission allows IE to "incorporate by reference" information into
this Proxy Statement, which means that IE can disclose important information by
referring you to another document filed separately with the Commission.
Information incorporated by reference is considered part of this Proxy
Statement, except to the extent that the information is superseded by
information in this Proxy Statement. This Proxy Statement incorporates by
reference the information contained in the following documents previously filed
by IE with the Commission (Commission file number 0-15991):
(a) IE's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998; and
(b) IE's Current Report on Form 8-K filed on March 11, 1998.
IE also incorporates by reference the information contained in all
other documents IE files with the Commission after the date of this Proxy
Statement and before the Meeting. The information contained in any such document
will be considered part of this Proxy Statement from the date the document is
filed.
If you are a shareholder of IE and would like to receive a copy of any
document incorporated by reference into this Proxy Statement (which will not
include any of the exhibits to the document other than those exhibits that are
themselves specifically incorporated by reference into this Proxy Statement),
you should call or write to Eugene E. Marinelli, Jr., Chief Financial Officer,
Intelligent Electronics, Inc., 411 Eagleview Boulevard, Exton, PA 19341,
telephone no. (610) 458-6718. In order to ensure timely delivery of the
documents you request, you should make your request by April 22, 1998.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN (OR INCORPORATED
BY REFERENCE INTO) THIS PROXY STATEMENT. IE HAS NOT AUTHORIZED ANYONE TO GIVE
ANY INFORMATION DIFFERENT FROM THE INFORMATION CONTAINED IN (OR INCORPORATED BY
REFERENCE INTO) THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED APRIL 14,
1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT IS ACCURATE AS OF ANY LATER DATE, AND THE MAILING OF THIS PROXY
STATEMENT TO SHAREHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
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<PAGE>
OTHER BUSINESS
IE knows of no other matter to be presented at the Meeting. However, if
other matters should properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy to vote the proxy with respect to such
matters in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Richard D. Sanford
Richard D. Sanford
Chairman of the Board and Chief Executive Officer
Exton, Pennsylvania
April 14, 1998
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<PAGE>
INTELLIGENT ELECTRONICS, INC.
Proxy Solicited On Behalf Of The Board of Directors
The undersigned, revoking all previous proxies, hereby appoints Richard
D. Sanford and Eugene E. Marinelli, Jr., or any of them acting individually, as
the proxy of the undersigned, with full power of substitution, to vote, as
indicated below and in their discretion upon such other matters as may properly
come before the meeting, all shares which the undersigned would be entitled to
vote at the Special Meeting of the Company to be held at 9:00 A.M., May 20,
1998, at the Holiday Inn, 815 North Pottstown Pike, Exton, Pennsylvania 19341,
and at any postponement or adjournment thereof.
1. The approval and adoption of the Agreement and Plan of Merger, dated as of
March 4, 1998 (the "Merger Agreement"), by and among Xerox Corporation
("Xerox"), TDC Subsidiary Corporation, a wholly-owned subsidiary of Xerox, TDC
Two Subsidiary Corporation, a wholly-owned subsidiary of Xerox ("Acquisition Sub
Two"), Intelligent Electronics, Inc. (the "Company") and XLConnect Solutions,
Inc., an 80%-owned subsidiary of the Company, and the merger of Acquisition Sub
Two into the Company provided for therein.
[ ]For [ ]Against [ ] Abstain
2. In accordance with their best judgement, the Proxies are authorized to
transact and vote upon such other business as may properly come before the
Special Meeting and any postponement or adjournment thereof.
Please date and sign your Proxy on the reverse side and return it promptly.
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. UNLESS
OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED "FOR" THE APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT DESCRIBED ON THE REVERSE SIDE HEREOF. THIS PROXY ALSO
DELEGATES DISCRETIONARY AUTHORITY WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL
MEETING AND PROXY STATEMENT.
Date:____________________
----------------------------------
Signature of Shareholder
-----------------------------------
Signature of Shareholder
NOTE: PLEASE SIGN THIS PROXY EXACTLY
AS NAME(S) APPEAR ON YOUR STOCK
CERTIFICATE. WHEN SIGNING AS
ATTORNEY-IN-FACT, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE ADD YOUR TITLE AS SUCH, AND IF
SIGNER IS A CORPORATION, PLEASE SIGN
WITH FULL CORPORATE NAME BY A DULY
AUTHORIZED OFFICER OR OFFICERS AND
AFFIX THE CORPORATE SEAL. WHERE STOCK
IS ISSUED IN THE NAME OF TWO (2) OR
MORE PERSONS, ALL SUCH PERSONS SHOULD
SIGN.
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APPENDIX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Dated as of March 4, 1998
Among
Xerox Corporation
TDC Subsidiary Corporation
TDC Two Subsidiary Corporation
Intelligent Electronics, Inc.
and
XLConnect Solutions, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Execution
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (the "Agreement") entered into as of March
4, 1998 by and among Xerox Corporation, a New York corporation ("Purchaser"),
TDC Subsidiary Corporation, a Pennsylvania corporation and a wholly-owned
subsidiary of Purchaser ("Acquisition Sub One"), TDC Two Subsidiary Corporation,
a Pennsylvania corporation and a wholly-owned subsidiary of Purchaser
("Acquisition Sub Two"), Intelligent Electronics, Inc., a Pennsylvania
corporation ("Parent"), and XLConnect Solutions, Inc., a Pennsylvania
corporation ("Sub"). Purchaser, Acquisition Sub One, Acquisition Sub Two, Parent
and Sub are referred to individually herein as a "Party" and collectively herein
as the "Parties".
Recitals
--------
WHEREAS, this Agreement contemplates a transaction in which Purchaser
will indirectly acquire, through a reverse triangular merger of Acquisition Sub
One with and into Sub (the "Sub Merger"), all of the capital stock of Sub that
is not owned directly or indirectly by Parent;
WHEREAS, this Agreement contemplates that immediately after completion
of the Sub Merger, Purchaser will acquire, through a reverse triangular merger
of Acquisition Sub Two with and into Parent (the "Parent Merger") all of the
capital stock of Parent;
WHEREAS, the Board of Directors of Sub (the "Sub Board") has determined
that the Sub Merger is fair to and in the best interests of the holders of Sub's
common stock and has resolved to recommend the acceptance and approval of the
Sub Merger by the holders of Sub Shares and Parent-Owned Sub Shares (as defined
in Section 1.2);
WHEREAS, the Independent Committee of the Board of Directors of Sub
(the "Independent Committee") has determined that the Sub Merger is fair to and
in the best interests of the holders of Sub Shares and has resolved to recommend
the acceptance and approval of the Sub Merger by the holders of Sub Shares;
WHEREAS, the Sub Board, the Independent Committee and the respective
Boards of Directors of Purchaser and Acquisition Sub One have approved the Sub
Merger pursuant to and subject to the terms and conditions of this Agreement;
WHEREAS, the Board of Directors of Parent (the "Parent Board") has
determined that the Parent Merger is fair to and in the best interests of the
holders of Parent's common stock and has resolved to take all necessary action
to approve the Sub Merger and to recommend the acceptance and approval of the
Parent Merger by the holders of Parent Shares (as defined in Section 2.2);
1
<PAGE>
WHEREAS, the Parent Board and the respective Boards of Directors of
Purchaser and Acquisition Sub Two have approved the Parent Merger pursuant to
and subject to the terms and conditions of this Agreement;
WHEREAS, the Parties desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth herein, and in consideration of the representations,
warranties and covenants set forth herein, intending to be legally bound hereby,
the Parties agree as follows:
ARTICLE I
The Sub Merger
1.1 The Sub Merger. Subject to the terms and conditions of
this Agreement, at the Sub Effective Time (as defined in Section 1.8),
Acquisition Sub One shall be merged with and into Sub pursuant to the Sub Merger
and the separate corporate existence of Acquisition Sub One shall thereupon
cease. Sub shall be the surviving corporation in the Sub Merger (sometimes
hereinafter referred to as the "Sub Surviving Corporation") and shall continue
to be governed by the laws of the Commonwealth of Pennsylvania, with all of
Sub's rights, privileges, immunities, powers and franchises unaffected by the
Sub Merger except as set forth in Sections 3.1 and 3.2 hereof. The Sub Merger
shall have the effects specified in the Pennsylvania Business Corporation Law of
1988, as amended (the "PABCL").
1.2 Conversion of Securities. At the Sub Effective Time, by
virtue of the Sub Merger and without any action on the part of the holder of any
shares of capital stock of Sub or common stock of Acquisition Sub One:
(i) each share of common stock of Sub issued and
outstanding immediately before the Sub Effective Time ("Sub
Shares") shall as of the Sub Effective Time be converted into
and become the right to receive from Purchaser the Sub Share
Conversion Price, as provided in Section 1.3; provided,
however, that Sub Shares shall not include any shares of
common stock of Sub which immediately before the Sub Effective
Time are owned directly or indirectly by Parent ("Parent-Owned
Sub Shares");
(ii) each option or warrant to purchase a share of
common stock of Sub that is outstanding as of the Sub
Effective Time ("Sub Options") shall as of the Sub Effective
Time be converted into and become the right to receive from
Purchaser the applicable Sub Option Conversion Price, if any,
as provided in Section 1.4;
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<PAGE>
(iii) each share of common stock of Sub issued and
held in the treasury of Sub at the Sub Effective Time shall as
of the Sub Effective Time be cancelled and no such shares
shall be converted into rights to receive the Sub Share
Conversion Price;
(iv) each Parent-Owned Sub Share shall remain issued,
outstanding and unchanged, which shares shall be the only
capital stock of Sub outstanding after the Sub Effective Time,
and as of the Sub Effective Time Sub shall be a wholly-owned
subsidiary of XLSource, Inc., an Arkansas corporation and
indirect wholly-owned subsidiary of Parent; and
(v) the shares of common stock of Acquisition Sub One
issued and outstanding at the Sub Effective Time shall be
surrendered and cancelled.
1.3 Sub Share Conversion Price. The "Sub Share Conversion
Price" shall be an amount equal to $20.00.
1.4 Sub Option Conversion Price. The "Sub Option Conversion
Price" means, in the case of any Sub Option, the excess, if any, of $20.00 over
the exercise price of each such Sub Option, which excess shall be payable at
such time or times, if any, as shall be determined pursuant to the terms and
conditions of the applicable plan and/or agreement pursuant to which such Sub
Option is governed.
1.5 Payment for Sub Shares and Sub Options. Prior to the Sub
Effective Time, Purchaser shall designate a bank or trust company reasonably
acceptable to Sub to act as Paying Agent in connection with the Sub Merger
("Paying Agent") and to receive and disburse the cash to which holders of Sub
Shares or Sub Options become entitled pursuant to Section 1.2. At the Sub
Effective Time, Purchaser will provide Paying Agent with sufficient cash to
allow the Sub Share Conversion Price and the Sub Option Conversion Price to be
paid to the holders of each Sub Share or Sub Option then entitled to be so paid.
Promptly after the Sub Effective Time, the Sub Surviving Corporation shall cause
to be mailed to each Person who was, at the Sub Effective Time, a holder of
record of Sub Shares or Sub Options forms (in a form mutually agreed to by
Purchaser and Sub) of letters of transmittal, with instructions for use in
effecting the surrender of certificates that represented Sub Shares before the
Sub Effective Time in exchange for payment of the Sub Share Conversion Price or
in connection with the payment of the applicable Sub Option Conversion Price.
Upon surrender to Paying Agent of such certificates and proper submittal of the
related letter of transmittal (in connection with Sub Shares), or upon proper
submittal of the letter of transmittal (in connection with Sub Options), the Sub
Surviving Corporation shall promptly cause to be paid to the Persons entitled
thereto a check in the amount of the Sub Share Conversion Price and/or Sub
Option Conversion Price to which such Persons are entitled, after giving effect
to any required tax withholdings. No interest will be paid or will accrue on the
amount payable to any such Person. If payment of any Sub Share Conversion Price
is to be made to a Person other than the registered holder of the certificate
surrendered, it shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a Person other than the registered
holder of the certificate surrendered or establish to the satisfaction of the
Sub Surviving
3
<PAGE>
Corporation or the Paying Agent that such tax has been paid or is not
applicable. The Sub Surviving Corporation shall pay all charges and expenses,
including those of the Paying Agent, in connection with the exchange of cash for
Sub Shares and Sub Options. In the event any certificate representing Sub Shares
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, the Paying Agent will issue in exchange for such lost, stolen or
destroyed certificate the Sub Share Conversion Price payable in respect thereof;
provided, however, the Person to whom the Sub Share Conversion Price is paid
shall, as a condition precedent to the payment thereof, give the Sub Surviving
Corporation a bond in such sum as it may direct or otherwise indemnify the Sub
Surviving Corporation in a manner satisfactory to it against any claim that may
be made against the Sub Surviving Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed. Promptly following the first
anniversary of the Sub Effective Time, the Paying Agent shall deliver to the Sub
Surviving Corporation all cash held for payment for Sub Shares or Sub Options
and all other documents in its possession relating to the transactions described
in this Agreement, and the Paying Agent's duties shall terminate. Thereafter
each holder of a certificate representing Sub Shares, and each holder of a Sub
Option, may surrender such certificate and/or other appropriate documentation to
the Sub Surviving Corporation (subject to applicable abandoned property, escheat
and similar laws) and receive in exchange therefor the Sub Share Conversion
Price or Sub Option Conversion Price in respect thereof, without interest
thereon.
1.6 Transfers After the Sub Effective Time. No transfers of
Sub Shares or Sub Options shall be made on the stock transfer or other
applicable books of Sub at or after the Sub Effective Time.
1.7 Sub Closing. The closing of the Sub Merger (the "Sub
Closing") shall take place at the offices of Pepper Hamilton LLP, 3000 Two Logan
Square, Philadelphia, PA 19103-2799 at 10:00 A.M. on the first business day
after the last of the conditions set forth in Article 7 hereof shall be
fulfilled or waived in accordance with this Agreement, or at such other place
and time and/or on such other date as Sub and Purchaser may agree; provided that
the Sub Closing and the Parent Closing shall occur on the same day.
1.8 Filing of Sub Merger Documents; Sub Effective Time. In
connection with the Sub Closing, Sub and Acquisition Sub One will execute and
file, and Purchaser will cause Acquisition Sub One to execute and file, Articles
of Merger relating to the Sub Merger ("Sub Articles of Merger") with the
Secretary of State of Pennsylvania as provided in the PABCL. The Sub Merger
shall become effective at the time at which the Sub Articles of Merger have been
duly filed with the Secretary of State of Pennsylvania (the "Sub Effective
Time"), which shall occur immediately prior to the Parent Effective Time.
1.9 Dissenters Rights. Notwithstanding any provision of this
Article I to the contrary, shares held of record by shareholders who shall not
have voted such shares in favor of the Sub Merger and who shall have properly
exercised rights to demand payment of the fair value of such shares in
accordance with the applicable provisions of the PABCL ("Sub Dissenting Shares")
shall not be converted into the right to receive the Sub Share Conversion Price,
but the holders thereof shall be entitled to payment of the fair value of such
shares in accordance with the applicable provisions of the PABCL; provided,
however, that (i) if such a holder fails to file a notice of election to dissent
in accordance with the PABCL, or after having done so delivers an
4
<PAGE>
effective withdrawal of such notice or fails to establish (if he is required to
do so) his entitlement to dissenters rights as provided in the PABCL, or (ii) if
a court shall determine that such holder is not entitled to receive payment for
his shares or such holder shall otherwise lose his dissenters rights, each Sub
Share held of record by such holder shall automatically be converted into and
represent only the right to receive the Sub Share Conversion Price, upon the
surrender of the certificate or certificates representing such Sub Shares. Sub
will give Purchaser prompt notice of any demands received by Sub for payment of
the fair value of such shares, and Purchaser shall have the right to participate
in all negotiations and proceedings with respect to such demands, Sub will not,
except with the prior written consent of Purchaser, make any payment (except to
the extent that any such payment is made pursuant to a court order) with respect
to, or settle or offer to settle, any such demands.
1.10 PABCL. Section 1906 of the PABCL shall apply to the Sub
Merger. Dissenters rights shall be available to the holders of Sub Shares as
provided in Section 1.9.
ARTICLE II
The Parent Merger
-----------------
2.1 The Parent Merger. Subject to the terms and conditions of
this Agreement, at the Parent Effective Time (as defined in Section 2.8),
Acquisition Sub Two shall be merged with and into Parent pursuant to the Parent
Merger and the separate corporate existence of Acquisition Sub Two shall
thereupon cease. Parent shall be the surviving corporation in the Parent Merger
(sometimes hereinafter referred to as the "Parent Surviving Corporation") and
shall continue to be governed by the laws of the Commonwealth of Pennsylvania,
with all of Parent's rights, privileges, immunities, powers and franchises
unaffected by the Parent Merger except as set forth in Sections 3.1 and 3.2
hereof. The Parent Merger shall have the effects specified in the PABCL.
2.2 Conversion of Securities. At the Parent Effective Time, by
virtue of the Parent Merger and without any action on the part of the holder of
any shares of capital stock of Parent or common stock of Acquisition Sub Two:
(i) each share of common stock of Parent (and related
Right, as defined in the Rights Agreement) issued and
outstanding immediately before the Parent Effective Time
("Parent Shares") shall as of the Parent Effective Time be
converted into and become the right to receive from Purchaser
the Parent Share Conversion Price, as provided in Section 2.3;
(ii) each option or warrant to purchase a share of
common stock of Parent that is outstanding as of the Parent
Effective Time ("Parent Options") shall as of the Parent
Effective Time be converted into and become the right to
receive from Purchaser the applicable Parent Option Conversion
Price, if any, as provided in Section 2.4;
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(iii) each share of common stock of Parent issued and
held in the treasury of Parent at the Parent Effective Time
shall as of the Parent Effective Time be cancelled and no such
shares shall be converted into rights to receive the Parent
Share Conversion Price; and
(iv) the shares of common stock of Acquisition Sub
Two issued and outstanding at the Parent Effective Time shall
be converted into and become the number of shares of common
stock of Parent issued and outstanding at the Parent Effective
Time, which shares shall be the only capital stock of Parent
outstanding after the Parent Effective Time, and as of the
Parent Effective Time Parent shall become a wholly-owned
subsidiary of Purchaser.
2.3 Parent Share Conversion Price. The "Parent Share
Conversion Price" shall be an amount equal to $7.60.
2.4 Parent Option Conversion Price. The "Parent Option
Conversion Price" means, in the case of any Parent Option, the excess, if any,
of $7.60 over the exercise price of each such Parent Option, or such other
amount, if any, and which excess or other amount shall be payable at such time
or times, if any, as shall be determined pursuant to the terms and conditions of
the applicable plan and/or agreement pursuant to which such Parent Option is
governed.
2.5 Payment for Parent Shares and Parent Options. The Paying
Agent shall receive and disburse the cash to which holders of Parent Shares or
Parent Options become entitled pursuant to Section 2.2. At the Parent Effective
Time, Purchaser will provide Paying Agent with sufficient cash to allow the
Parent Share Conversion Price and the Parent Option Conversion Price to be paid
to the holders of each Parent Share or Parent Option then entitled to be so
paid. Promptly after the Parent Effective Time, the Parent Surviving Corporation
shall cause to be mailed to each Person who was, at the Parent Effective Time, a
holder of record of Parent Shares or Parent Options forms (in a form mutually
agreed to by Purchaser and Parent) of letters of transmittal, with instructions
for use in effecting the surrender of certificates that represented Parent
Shares before the Parent Effective Time in exchange for payment of the Parent
Share Conversion Price or in connection with the payment of the applicable
Parent Option Conversion Price. Upon surrender to Paying Agent of such
certificates and proper submittal of the related letter of transmittal (in
connection with Parent Shares), or upon proper submittal of the letter of
transmittal (in connection with Parent Options), the Parent Surviving
Corporation shall promptly cause to be paid to the Persons entitled thereto a
check in the amount of the Parent Share Conversion Price and/or Parent Option
Conversion Price to which such Persons are entitled, after giving effect to any
required tax withholdings. No interest will be paid or will accrue on the amount
payable to any such Person. If payment of any Parent Share Conversion Price is
to be made to a Person other than the registered holder of the certificate
surrendered, it shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a Person other than the registered
holder of the certificate surrendered or establish to the satisfaction of the
Parent Surviving Corporation or the Paying Agent that such tax has been paid or
is not applicable. The Parent Surviving Corporation shall pay all charges and
expenses, including those of the Paying Agent, in connection with the
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exchange of cash for Parent Shares and Parent Options. In the event any
certificate representing Parent Shares 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, the Paying Agent will issue in
exchange for such lost, stolen or destroyed certificate the Parent Share
Conversion Price payable in respect thereof; provided, however, the Person to
whom the Parent Share Conversion Price is paid shall, as a condition precedent
to the payment thereof, give the Parent Surviving Corporation a bond in such sum
as it may direct or otherwise indemnify the Parent Surviving Corporation in a
manner satisfactory to it against any claim that may be made against the Parent
Surviving Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed. Promptly following the first anniversary of the Parent
Effective Time, the Paying Agent shall deliver to the Parent Surviving
Corporation all cash held for payment for Parent Shares or Parent Options and
all other documents in its possession relating to the transactions described in
this Agreement, and the Paying Agent's duties shall terminate. Thereafter each
holder of a certificate representing Parent Shares, and each holder of a Parent
Option, may surrender such certificate and/or other appropriate documentation to
the Parent Surviving Corporation (subject to applicable abandoned property,
escheat and similar laws) and receive in exchange therefor the Parent Share
Conversion Price or Parent Option Conversion Price in respect thereof, without
interest thereon.
2.6 Transfers After the Effective Time. No transfers of Parent
Shares or Parent Options shall be made on the stock transfer or other applicable
books of Parent at or after the Parent Effective Time.
2.7 Parent Closing. The closing of the Parent Merger (the
"Parent Closing") shall take place at the offices of Pepper Hamilton LLP, 3000
Two Logan Square, Philadelphia, PA 19103-2799 at 10:00 A.M. on the first
business day after the last of the conditions set forth in Article 7 hereof
shall be fulfilled or waived in accordance with this Agreement, or at such other
place and time and/or on such other date as Parent and Purchaser may agree;
provided that the Parent Closing and the Sub Closing shall occur on the same
day.
2.8 Filing of Parent Merger Documents; Parent Effective Time.
In connection with the Closing, Parent and Acquisition Sub Two will execute and
file, and Purchaser will cause Acquisition Sub Two to execute and file, Articles
of Merger relating to the Parent Merger ("Parent Articles of Merger") with the
Secretary of State of Pennsylvania as provided in the PABCL. The Parent Merger
shall become effective at the time at which the Parent Articles of Merger have
been duly filed with the Secretary of State of Pennsylvania (the "Parent
Effective Time"), which shall occur immediately after the Sub Effective Time.
2.9 Dissenters Rights. Notwithstanding any provision of this
Article II to the contrary, and to the extent required under the applicable
provisions of the PABCL, Parent Shares held of record by shareholders who shall
not have voted such shares in favor of the Parent Merger and who shall have
properly exercised rights to demand payment of the fair value of such shares in
accordance with the applicable provisions of the PABCL ("Parent Dissenting
Shares") shall not be converted into the right to receive the Parent Share
Conversion Price, but the holders thereof shall be entitled to payment of the
fair value of such shares in accordance with the applicable provisions of the
PABCL; provided, however, that (i) if such a holder fails to file a notice of
election to dissent in accordance with the PABCL, or after having done so
delivers an effective withdrawal of such
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notice or fails to establish (if he is required to do so) his entitlement to
dissenters rights as provided in the PABCL, or (ii) if a court shall determine
that such holder is not entitled to receive payment for his shares or such
holder shall otherwise lose his dissenters rights, each Parent Share held of
record by such holder shall automatically be converted into and represent only
the right to receive the Parent Share Conversion Price, upon the surrender of
the certificate or certificates representing such Parent Shares. Parent will
give Purchaser prompt notice of any demands received by Parent for payment of
the fair value of such shares, and Purchaser shall have the right to participate
in all negotiations and proceedings with respect to such demands, Parent will
not, except with the prior written consent of Purchaser, make any payment
(except to the extent that any such payment is made pursuant to a court order)
with respect to, or settle or offer to settle, any such demands.
ARTICLE III
Articles of Incorporation and By-Laws
-------------------------------------
of the Surviving Corporations
-----------------------------
3.1 Articles of Incorporation. The Articles of Incorporation
of the Sub Surviving Corporation shall, upon the Sub Effective Time, be and
remain unchanged until further amended in accordance with the terms thereof and
the PABCL, subject, however, to the provisions of Section 6.2(f)(i) hereof. The
Articles of Incorporation of the Parent Surviving Corporation shall, upon the
Parent Effective Time, be and remain unchanged until
further amended in accordance with the terms thereof and the PABCL, subject,
however, to the provisions of Section 6.2(f)(i) hereof.
3.2 By-Laws. The By-Laws of the Sub Surviving Corporation in
effect at the Sub Effective Time shall be and remain unchanged until duly
amended in accordance with the terms thereof and the PABCL, subject, however, to
the provisions of Section 6.2(f)(i) hereof. The By-Laws of Parent Surviving
Corporation in effect at the Parent Effective Time shall be and remain unchanged
until duly amended in accordance with the terms thereof and the PABCL, subject,
however, to the provisions of Section 6.2(f)(i) hereof.
ARTICLE IV
Officers and Directors
----------------------
4.1 Sub. At the Sub Effective Time, the directors of
Acquisition Sub One shall be all the directors of the Sub Surviving Corporation,
each of such directors to hold office, subject to the applicable provisions of
the Articles of Incorporation and By-Laws of the Sub Surviving Corporation,
until their respective successors shall be duly elected or appointed and
qualified. At the Sub Effective Time, the officers of
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Acquisition Sub One immediately prior to the Sub Effective Time shall, subject
to the applicable provisions of the Articles of Incorporation and By-Laws of the
Sub Surviving Corporation, be the officers of the Sub Surviving Corporation
until their respective successors shall be duly elected or appointed and
qualified.
4.2 Parent. At the Parent Effective Time, the directors of
Acquisition Sub Two shall be all the directors of the Parent Surviving
Corporation, each of such directors to hold office, subject to the applicable
provisions of the Articles of Incorporation and By-Laws of the Parent Surviving
Corporation, until their respective successors shall be duly elected or
appointed and qualified. At the Parent Effective Time, the officers of
Acquisition Sub Two immediately prior to the Parent Effective Time shall,
subject to the applicable provisions of the Articles of Incorporation and
By-Laws of the Parent Surviving Corporation, be the officers of the Parent
Surviving Corporation until their respective successors shall be duly elected or
appointed and qualified.
ARTICLE V
Representations and Warranties
------------------------------
5.1 Representations and Warranties of Parent and Sub. Parent
and Sub hereby jointly and severally (but subject to Section 5.1(bb)) represent
and warrant to Purchaser that, except as set forth in the disclosure letter of
even date herewith delivered by Parent to Purchaser in conjunction with
execution of this Agreement (the "Disclosure Letter"):
(a) Organization, Qualification and Corporate Power.
Each of Parent and its subsidiaries (direct or indirect) (such subsidiaries,
including Sub, being collectively referred to as "Parent Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification would not
result in a Material Adverse Change. Each of the Parent and the Parent
Subsidiaries has full corporate power and corporate authority, and all foreign,
federal, state and local governmental permits, licenses and consents
(collectively, "Permits"), to carry on the businesses in which it is engaged and
to own and use the properties owned and used by it, except where the failure to
have Permits would not result in a Material Adverse Change. The Disclosure
Letter contains an accurate list of the Parent Subsidiaries and the Sub
Subsidiaries, their jurisdiction, date of incorporation and date of acquisition
directly or indirectly by Parent, and their respective material Permits as well
as material Permits the applicable entity does not have and which Parent or Sub
has knowledge that it is required to have.
(b) Capitalization. (I) The authorized capital stock
of Parent consists of 100,000,000 shares of common stock, par value $.01 per
share (the "Parent Common Stock") and 15,000,000 shares of
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preferred stock, par value $50.00 per share (the "Parent Preferred Stock"). As
of March 3, 1998, (i) 41,798,091 shares of Parent Common Stock are issued and
outstanding, and (ii) 7,006,540 shares of Parent Common Stock have been reserved
for issuance upon the exercise of outstanding options and warrants. No shares of
Parent Preferred Stock are issued and outstanding, and 200,000 shares of Series
A Junior Participating Preferred Stock have been reserved for issuance upon
exercise of the outstanding Rights (as defined in the Rights Agreement), none of
which is or will be outstanding at or before the Parent Effective Time. All
issued and outstanding shares of Parent's capital stock and all issued and
outstanding shares of each Parent Subsidiary's capital 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 detailed in the
Disclosure Letter, neither Parent nor any of the Parent Subsidiaries has any
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other agreements relating to the
acquisition of capital stock, or any cash settlement option, phantom stock,
stock appreciation right or similar instrument (the "Stock Rights") relating to
any capital stock of Parent or any Parent Subsidiary.
(II) The authorized capital stock of Sub
consists of 100,000,000 shares of common stock, par value $.01 per share (the
"Sub Common Stock") and 10,000,000 shares of preferred stock, par value $.01 per
shares (the "Sub Preferred Stock"). As of March 3, 1998, (i) 16,684,100 shares
of Sub Common Stock are issued and outstanding, (ii) 13,348,280 shares of Sub
Common Stock are owned by XLSource, Inc., an indirect wholly-owned subsidiary of
Parent, and (iii) 2,791,645 shares of Sub Common Stock have been reserved for
issuance upon the exercise of outstanding options and warrants. No shares of Sub
Preferred Stock are issued and outstanding. All issued and outstanding shares of
Sub's capital stock have been validly issued and are fully paid and
nonassessable, are entitled to full voting rights as to the election of
directors and other matters, and are not subject to, nor were they issued in
violation of, any preemptive rights. Except as detailed in the Disclosure
Letter, there exist no Stock Rights relating to any capital stock of Sub. No
stock of Sub or of any Sub Subsidiary owned by Parent or any Parent Subsidiary
is subject to any put option, redemption agreement (including a right to cause
redemption of stock) or any other instrument that provides for the right to
transfer such stock. Disregarding the execution of this Agreement, the Parent
Merger and the Sub Merger, (x) neither the shares of Sub capital stock directly
or indirectly owned by Parent nor the holders of any such shares are subject to
any limitations, pursuant to any provision of Chapter 25 of the PABCL, of voting
rights afforded generally to holders of shares of such class or series of
capital stock, and (y) no transaction has occurred or state of facts exists
which has triggered dissenters rights or any other right on the part of a
shareholder under the PABCL to receive payment in respect of such shares. Since
December 1, 1997, neither Parent nor any Parent Subsidiary has purchased or
otherwise acquired any shares of common stock of Sub for a per share price in
excess of the Sub Share Conversion Price.
(III) The Disclosure Letter describes the
equity capitalization of each Parent Subsidiary, including the authorized
capital stock, the issued and outstanding capital stock, and the ownership
thereof. With the exception of Sub and the Sub Subsidiaries, Parent is directly
or indirectly the owner of all shares of capital stock of each Parent
Subsidiary. All Sub Subsidiaries are 100% owned by Sub.
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(c) Authorization of Transaction. Each of Parent and
Sub has the requisite corporate power and authority, and has taken all required
action necessary, to properly execute and deliver this Agreement and to perform
its obligations hereunder, and this Agreement constitutes the valid and legally
binding obligation of each of Parent and Sub, enforceable in accordance with its
terms and conditions, except as limited by (i) applicable bankruptcy, insolvency
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) general principles of
equity, regardless of whether asserted in a proceeding in equity or at law;
provided, however, that Parent cannot consummate the Parent Merger and Sub
cannot consummate the Sub Merger unless and except upon receipt of the approval
of the holders of Parent Common Stock and Sub Common Stock to the extent
required by the PABCL.
(d) Noncontravention. Neither the execution and
delivery of this Agreement, nor the consummation by Parent or Sub of the
transactions contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree or other restriction of
any government, governmental agency or court to which Parent or any of the
Parent Subsidiaries is subject or any provision of the charter or bylaws of
Parent or any of the Parent Subsidiaries, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel or require any
notice under any contract required to be listed on the Disclosure Letter or
under any other material agreement, contract, lease, license, instrument or
other arrangement to which Parent or any of the Parent Subsidiaries is a party
or by which any of them is bound or to which any of their respective assets is
subject (or result in the imposition of any lien, encumbrance or other security
interest (a "Security Interest") upon any of their respective assets), except in
the case of clause (ii) as disclosed in the Disclosure Letter. Other than
filings required in connection with the provisions of the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended (the "HSR Act"), the PABCL and the
Exchange Act, neither Parent nor any of the Parent Subsidiaries needs to give
any notice to, make any filing with or obtain any authorization, consent or
approval of any government or government agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Filings with the SEC. Since January 1, 1992,
Parent and Sub have made all filings with the SEC that either of them has been
required to make under the Securities Act and the Exchange Act (collectively,
the "Public Reports"). Each of the Public Reports complied with the requirements
of the Securities Act and the Exchange Act in all material respects and none of
the Public Reports, as of their respective dates, contained any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
(f) Financial Statements. (I) Parent has filed an
Annual Report on Form 10-K, as amended by its Form 10-K/A (the "Parent 10-K"),
for the fiscal year ended on February 1, 1997 and a Quarterly Report on Form
10-Q (the "Parent 10-Q") for the fiscal quarter ended November 1, 1997 (the
"Parent Most Recent Quarter End"). The financial statements included in the
Parent 10-K and the Parent 10-Q (including the related notes and schedules) have
been prepared from the books and records of Parent and the Parent Subsidiaries
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent
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basis throughout the periods covered thereby, and present fairly in all material
respects the financial condition of Parent and the Parent Subsidiaries as of the
indicated dates and the results of operations and cash flows of Parent and the
Parent Subsidiaries for the indicated periods. In the opinion of Parent's
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
(II) Sub has filed an Annual Report on Form
10-K (the "Sub 10-K") for the fiscal year ended on December 31, 1996 and a
Quarterly Report on Form 10-Q, as amended by its Form 10-Q/A (the "Sub 10-Q")
for the fiscal quarter ended September 30, 1997 (the "Sub Most Recent Quarter
End"). The financial statements included in the Sub 10-K and the Sub 10-Q
(including the related notes and schedules) have been prepared from the books
and records of Sub and the Sub Subsidiaries in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, and present fairly in
all material respects the financial condition of Sub and the Sub Subsidiaries as
of the indicated dates and the results of operations and cash flows of Sub and
the Sub Subsidiaries for the indicated periods. In the opinion of Parent's and
Sub's management, all adjustments (consisting only of normal recurring
adjustments) which are necessary for a fair statement of operating results for
the interim periods presented have been made.
(g) Events Subsequent to Most Recent Quarter End. (I)
Since the Parent Most Recent Quarter End, there has not been any Material
Adverse Change or any development or combination of developments relating to
Parent or any of the Parent Subsidiaries of which Parent has knowledge and which
would result in a Material Adverse Change.
(II) Since the Sub Most Recent Quarter End, there has
not been any Material Adverse Change or any development or combination of
developments relating to Sub or any of the Sub Subsidiaries of which Parent or
Sub has knowledge and which would result in a Material Adverse Change.
(h) Compliance. Parent and the Parent Subsidiaries
are in compliance with all applicable laws, rules and regulations, except where
the failure to be in compliance would not result in a Material Adverse Change.
(i) Litigation and Liabilities. There are (i) no
actions, suits or proceedings pending or, to the knowledge of Parent or Sub,
threatened against Parent or any of the Parent Subsidiaries which (x) if
adversely determined against Parent or any of the Parent Subsidiaries could
reasonably be expected to result in a Material Adverse Change, or (y) could
reasonably be expected to materially impair or delay the Parties' ability to
consummate the transactions contemplated by this Agreement, and (ii) no
obligations or liabilities of Parent or any of the Parent Subsidiaries known to
Parent or Sub and not disclosed in the Disclosure Letter or reflected in the
financial statements or related notes included in the Parent 10-K, the Parent
10-Q, the Sub 10-K or the Sub 10-Q which could reasonably be expected to result
in a Material Adverse Change. The Disclosure Letter lists all pending and, to
the knowledge of Parent or Sub, threatened EEOC and similar investigations,
actions, suits or proceedings against Parent or any Parent Subsidiary
(regardless of the materiality thereof) and copies of the pleadings for each
such pending matter have been made available to Purchaser by Parent.
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(j) Taxes. (I) Each of Parent and the Parent
Subsidiaries has duly filed all federal, state, local and foreign tax returns
required to be filed by it and has duly paid, caused to be paid or made adequate
provision for the payment of all Taxes (as hereinafter defined) required to be
paid in respect of the periods covered by such returns. No claims for Taxes have
been asserted against Parent or any of the Parent Subsidiaries, and no
deficiency for any Taxes has been proposed, asserted or assessed against Parent
or any of the Parent Subsidiaries, in either case which has not been resolved or
paid in full. To Parent's knowledge, no Tax return for any taxable period of
Parent or any Parent Subsidiary is under examination by any taxing authority,
Parent has not received written notice of any pending audit by any taxing
authority against the Parent or any of the Parent Subsidiaries, and there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any Tax return for any taxable period of Parent or any of the
Parent Subsidiaries. "Taxes" means all federal, state, territorial, local,
foreign and other net income, gross income, gross receipts, sales, use, value
added, ad valorem, transfer, franchise, profits, license, lease, service, use,
withholding, payroll, employment, unemployment insurance, workers compensation,
social security, excise, severance, stamp, business license, occupation,
premium, property, environmental, windfall profits, customs, duties, alternative
minimum, estimated or other taxes, fees, premiums, assessments or charges of any
kind whatever imposed or collected by any governmental entity or political
subdivision thereof.
(II) Each of Sub and the Sub Subsidiaries has
duly filed all federal, state, local and foreign tax returns required to be
filed by it and has duly paid, caused to be paid or made adequate provision for
the payment of all Taxes required to be paid in respect of the periods covered
by such returns. No claims for Taxes have been asserted against Sub or any of
the Sub Subsidiaries, and no deficiency for any Taxes has been proposed,
asserted or assessed against Sub or any of the Sub Subsidiaries, in either case
which has not been resolved or paid in full. To Parent's and Sub's knowledge, no
Tax return for any taxable period of Sub is under examination by any taxing
authority, Sub has not received written notice of any pending audit by any
taxing authority against the Sub or any of the Sub Subsidiaries, and there are
no outstanding agreements or waivers extending the statutory period of
limitation applicable to any Tax return for any taxable period of Sub or any of
the Sub Subsidiaries.
(III) Parent and each Parent Subsidiary has
been a continuous member of the consolidated group of companies of which Parent
is the common parent for Federal income tax purposes since the time such
Subsidiary first became affiliated with the Parent's consolidated group.
(k) Brokers' and Other Fees. Except for the fees and
expenses of Lazard Freres & Co. LLC ("Lazard") for Parent and NationsBanc
Montgomery Securities LLC ("Montgomery") for Sub, none of Parent or the Parent
Subsidiaries has any liability or obligation to pay any fees or commissions to
any investment adviser, broker, finder or agent with respect to the transactions
contemplated by this Agreement.
(l) Fairness Opinions. Montgomery has delivered to
the Independent Committee of the Board of Directors of Sub, and not withdrawn,
its opinion that the consideration being paid to the holders of Sub Shares
(other than shares held directly or indirectly by Parent) pursuant to Section
1.2 hereof is fair to such holders, as of the date of such opinion, from a
financial point of view (the "Sub Fairness Opinion"), and a true
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and complete copy thereof has been furnished to Purchaser. Lazard has delivered
to the Board of Directors of Parent, and not withdrawn, its opinion that the
consideration being paid pursuant to Section 2.2 hereof is fair to the
shareholders of Parent, as of the date of such opinion, from a financial point
of view (the "Parent Fairness Opinion"), and a true and complete copy thereof
has been furnished to Purchaser.
(m) Rights Plan. Parent has amended the Rights
Agreement to provide that the Purchaser and all direct and indirect wholly-owned
subsidiaries thereof and their respective Associates and Affiliates (as such
terms are defined in the Rights Agreement), for purposes of entering into and
consummating the transactions contemplated by this Agreement, are considered an
"Exempt Person", as defined in the Rights Agreement, until such time as this
Agreement shall terminate, if at all. Parent has taken all necessary action so
that none of the execution and delivery of this Agreement or the consummation of
the Sub Merger or Parent Merger contemplated hereby will (i) cause the Rights
(as such term is defined in the Rights Agreement) issued pursuant to the Rights
Agreement to become exercisable, (ii) cause any Person to become an Acquiring
Person (as such term is defined in the Rights Agreement) or (iii) give rise to a
Distribution Date (as such term is defined in the Rights Agreement).
(n) Management Letters. There is no management letter
of outside auditors for the year ended February 1, 1997 (in the case of Parent)
or for the year ended December 31, 1996 (in the case of Sub).
(o) Environmental Matters. The conduct or operation
of Parent and Parent Subsidiaries and any condition of property presently or
previously owned, leased or operated by any of them violates or violated no
Environmental Laws in any material respect and no condition has existed or event
has occurred with respect to any of them or any such property that, with notice
or the passage of time, or both, is reasonably likely to result in any material
liability under Environmental Laws. Neither Parent nor any of the Parent
Subsidiaries has received any notice from any person or entity that Parent or
any Parent Subsidiary or the operation or condition of any property ever owned,
leased or operated by any of them are or were in violation of or otherwise are
alleged to have liability under any Environmental Law. "Environmental Laws"
means all applicable local, state and federal environmental, health and safety
laws and regulations, including, without limitation, the Resource Conservation
and Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Clean Water Act, the Federal Clean Air Act, and the
Occupational Safety and Health Act, each as amended, regulations promulgated
thereunder, and state counterparts.
(p) Other Interests. Neither Parent nor any Parent
Subsidiary owns any shares of capital stock in any corporation (other than in
the Parent Subsidiaries as disclosed herein) or holds any debt or equity
interest in any joint venture, partnership or other entity.
(q) Intellectual Property. (I) Parent and each Parent
Subsidiary owns, or is licensed or otherwise possesses legally enforceable
rights to use, all material patents, trademarks, trade names, service marks,
copyrights, technology, know-how, computer software programs (which shall
exclude off-the-shelf software programs) that are used in the business of Parent
and each of the Parent Subsidiaries as currently conducted (the "Intellectual
Property").
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(II) No claim against Parent or any Parent
Subsidiary has been asserted in writing or, to Parent's or Sub's knowledge,
orally by a third party respecting or related to the Intellectual Property or
related to the alleged infringement by Parent or any Parent Subsidiary of the
intellectual property of others and, in either case, Parent and the Parent
Subsidiaries do not know of any reasonable grounds for any such claim.
(III) To the knowledge of Parent and Sub, there
is no material unauthorized use, infringement or misappropriation of any
Intellectual Property by any third party, including any employee or former
employee of Parent or any Parent Subsidiary.
(r) Employment Matters. (I) The Disclosure Letter
identifies all stock options, restricted stock rights and other Stock Rights
outstanding under Parent's 1995 Long-Term Incentive Plan and Parent's
Non-Qualified Stock Option Plan for employees and directors and Sub's 1996
Long-Term Incentive Plan (the "Sub Plan") or any other agreement, plan or
arrangement of Parent or any Parent Subsidiary. Parent has provided Purchaser
with copies of all such agreements, plans and arrangements, except for
agreements utilizing a standard form of agreement, in which case Parent has
provided Purchaser with a copy of such standard form.
(II) Except as described in the Disclosure
Letter, neither Parent nor any Parent Subsidiary (i) is a party or subject to
any contract of employment with any person which is not terminable at will
without penalty (other than standard severance policies offered to all employees
generally), or which would entitle any person to any payment (severance or
otherwise) as a result of the Merger, or any collective bargaining agreement, or
(ii) maintains or contributes to any profit sharing, pension, retirement,
thrift, savings, incentive compensation, deferred compensation, bonus, stock
option, stock purchase, restricted stock, stock appreciation right, performance
share, performance unit, severance, salary continuation, holiday, vacation,
disability, insurance, medical or other employee benefit, incentive or welfare
plan, policy, material contract or material arrangement (collectively, the
"Employee Benefit Plans").
(III) During the last three years there have
been no actual or threatened strikes or labor stoppages involving any employees
of Parent or any Parent Subsidiary, and neither Parent nor any Parent Subsidiary
is aware of any organizing activity actively seeking to certify a collective
bargaining unit or representative for any employees.
(IV) All retirement and employee benefit or
welfare plans of Parent or any Parent Subsidiary have been maintained and
operated in accordance with their terms in all material respects, and all such
plans which are subject to the Employee Retirement Income Security Act of 1974
("ERISA") or the Internal Revenue Code ("IRC") have been maintained and operated
in material compliance with all applicable provisions of ERISA and the IRC and
the regulations thereunder and are not subject to any accumulated funding
deficiency within the meaning of ERISA and the regulations thereunder or to any
outstanding liability to the Pension Benefit Guaranty Corporation (other than
for routine premium payments). All such plans are identified in the Disclosure
Letter. No "prohibited transaction" has occurred with respect to any such plan,
nor has any
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"reportable event" occurred in respect thereof, as such terms are defined in
ERISA and the regulations thereunder, and no such plan is a "Multiemployer Plan"
or a "Multiple Employer Plan", as such terms are defined in ERISA and the
regulations thereunder.
(s) Credit Support Arrangements. Neither the Parent
nor any Parent Subsidiary has issued any currently existing guarantee or credit
support or has obtained any currently existing letter of credit or bond with
respect to, or has directly or indirectly made any currently existing promise,
agreement or undertaking to fund, support, guarantee or otherwise backstop any
obligation or liability, contingent or otherwise, of any person or entity other
than Parent or a Parent Subsidiary.
(t) Changes. Since November 1, 1997 Parent and each
Parent Subsidiary has been operated only in the ordinary course of business and
there has not been any:
(i) Material Adverse Change;
(ii) casualty loss, whether or not covered by
insurance, involving in any instance an amount in excess of
$50,000;
(iii) obligation or liability, contingent or
otherwise, incurred by Parent or any Parent Subsidiary other
than obligations and liabilities incurred in the ordinary
course of business and consistent with past practice, or loss
of a customer otherwise required to be listed on the
Disclosure Letter pursuant to Section 5.1(v)(II);
(iv) payment, discharge or settlement of any claim
against or obligation or liability of Parent or any Parent
Subsidiary except in the ordinary course of business and
consistent with past practice;
(v) capital expenditures or commitment to make any
capital expenditure by the Parent or any Parent Subsidiary not
included in Parent's or Sub's capital budget as set forth in
the Disclosure Letter;
(vi) issuance, sale, transfer or pledge by Parent or
any Parent Subsidiary of any capital stock of Parent or any
Parent Subsidiary;
(vii) sale, lease, transfer, pledge, mortgage or
encumbrance by Parent or any Parent Subsidiary of any capital
assets in an aggregate amount exceeding $100,000;
(viii) write-down or write off of any tangible or
intangible assets in an aggregate amount exceeding $100,000
except with respect to accounts receivable and inventory in
the ordinary course of business and consistent with past
practices; or
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(ix) event which, if this Agreement were in effect,
would have required the consent of Purchaser pursuant to
Section 6.1(a) (other than (viii), (xiii) or (xiv) of Section
6.1(a)) and with respect to which such consent was not
obtained.
(u) Assets and Property. Parent and each Parent
Subsidiary has good and marketable title to all the assets it purports to own,
free and clear of all liens, claims and encumbrances, and valid leasehold
interests in all assets it purports to lease. Neither Parent nor any Parent
Subsidiary owns any real property.
(v) Contracts. (I) The Disclosure Letter lists all
agreements and arrangements pursuant to which Parent or any Parent Subsidiary
has any rights, obligations or liabilities with respect to (i) borrowed money,
(ii) real property leases, (iii) royalty agreements, (iv) joint venture or
product development agreements, (v) indemnification agreements, (vi) limitations
or restrictions on the use of assets it may own, the businesses it may conduct,
the persons or entities with whom it may do business or whom it may hire or
retain, or the locations in which it may own assets or conduct business, or
(vii) the performance of intercompany services or other arrangements between or
among Parent and any of the Parent Subsidiaries.
(II) The Disclosure Letter lists all contracts
and arrangements to which Parent or any of the Parent Subsidiaries is a party
with vendors or customers that involve payments for services in excess of, for
any vendor or customer, $250,000 in the last fiscal year.
(III) Neither Parent or any Parent Subsidiary
nor, to the knowledge of Parent or Sub, any other party thereto is in breach or
default under any contract, agreement or instrument where the effect of such
breach or default would, singly or in the aggregate with breaches and defaults
under other contracts, agreements or instruments, result in a Material Adverse
Change.
(IV) Parent has provided Purchaser with a
complete and correct copy of each contract, agreement and instrument disclosed
in the Disclosure Letter (in the case of customer contracts, to the extent
available to Parent or Sub), and all such contracts, agreements and instruments
are in full force and effect, and are valid, binding and enforceable in
accordance with their terms subject, as to enforcement, to laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(w) Insurance. The Disclosure Letter lists all
insurance policies insuring Parent or any Parent Subsidiary or any of their
respective assets or operations. All such policies are and will be in full force
and effect through the Parent Effective Time except to the extent such policies
expire and cannot be renewed on a commercially reasonable basis. Except as
disclosed in the Disclosure Letter there are no pending or threatened disputes
or communications with or from any insurance carrier denying or disputing any
claim or coverage or regarding cancellation or nonrenewal of any such policy.
(x) Related Party Transactions. Except as described
in the Disclosure Letter, no executive officer of Parent or any Parent
Subsidiary, nor any entity in which any of the foregoing has a 1% or
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more equity interest is a party to any contract, agreement or other financial or
business arrangement with Parent or any Parent Subsidiary.
(y) Reserves etc. (I) Parent has previously furnished
to Purchaser a list of (i) all reserves maintained on the unaudited books and
records of Parent or any Parent Subsidiary as of January 31, 1998, (ii) each
item in respect of which such reserves are maintained, and (iii) the amount of
reserves maintained for each such item. Parent management believes no additional
material reserves are required under GAAP.
(II) Neither Parent nor any Parent Subsidiary
has any liability in respect of the Novaquest or Pacific On Line notes
receivable totalling approximately $5.9 million as of May 1, 1997 that have been
sold to Ingram Micro.
(III) The reserves maintained on the unaudited
books and records of Parent and the Parent Subsidiaries respecting the sale
transaction with GE Capital are sufficient to satisfy any claims which might
reasonably be expected to arise out of either of those transactions.
(z) Board Action. The Boards of Directors of Parent
and Sub have duly and validly approved and taken all corporate action required
to be taken by the Boards of Directors for the execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement. The Boards of Directors of Parent and Sub have determined that it is
advisable and in the best interest of their respective stockholders for the
Parent Merger and the Sub Merger to occur upon the terms and subject to the
conditions of this Agreement and the Parent's Board of Directors has resolved to
recommend that Parent's stockholders approve and adopt the Parent Merger and
Sub's Board of Directors and Independent Committee thereof have resolved to
recommend that Sub's stockholders approve and adopt the Sub Merger. The Board of
Directors of Sub has determined that the shareholders of Sub shall be entitled
to dissenters rights under Subchapter D of Chapter 15 of the PABCL in connection
with the Sub Merger in lieu of providing for a statutory class vote pursuant to
Section 1906(b) of the PABCL. The Board of Directors of Sub and the Independent
Committee thereof have approved an amendment to Sub's Articles of Incorporation
to provide that Subchapter E of Chapter 25 of the PABCL shall not be applicable
to Sub.
(aa) Expenses. Parent and Sub have provided to
Purchaser a good faith estimate and description of the expenses which either of
them has incurred or which either of them expects to incur in connection with
the transactions contemplated by this Agreement.
(bb) Effect of Certain Representations and
Warranties. (i) Insofar as any of the foregoing representations and warranties
are inaccurate with respect to or as a result of circumstances involving Sub,
and if Parent did not have knowledge of such inaccuracy, Parent will have no
liability for damages to Purchaser or Acquisition Sub One or Two for breach of
such representation and warranty; provided, however, that this subparagraph
shall have no effect on whether the condition set forth in Section 7.2(b) has
been
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satisfied, or on any right of Purchaser to terminate this Agreement under
Section 8.3, or on any obligation of Parent and Sub to pay the Termination Fee
to Purchaser pursuant to Section 9.1(b).
(ii) Insofar as any of the foregoing representations and
warranties are inaccurate with respect to or as a result of circumstances
involving Parent or any Parent Subsidiary (other than Sub or any Sub
Subsidiary), and if Sub did not have knowledge of such inaccuracy, Sub will have
no liability for damages to Purchaser or Acquisition Sub One or Two for breach
of such representation and warranty; provided, however, that this subparagraph
shall have no effect on whether the condition set forth in Section 7.2(b) has
been satisfied, or on any right of Purchaser to terminate this Agreement under
Section 8.3, or on any obligation of Parent and Sub to pay the Termination Fee
to Purchaser pursuant to Section 9.1(b).
5.2 Representations and Warranties of Purchaser, Acquisition
Sub One and Acquisition Sub Two. Purchaser, Acquisition Sub One and Acquisition
Sub Two jointly and severally represent and warrant to Parent and Sub that:
(a) Corporate Organization. Each of Purchaser,
Acquisition Sub One and Acquisition Sub Two is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each of Acquisition Sub One and Acquisition Sub Two is a direct,
wholly-owned subsidiary of Purchaser and was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement. Except for
obligations or liabilities incurred in connection with its incorporation or
other agreements or arrangements contemplated by this Agreement, neither
Acquisition Sub One nor Acquisition Sub Two has and will not have incurred,
directly or indirectly, through any subsidiary or affiliate, any obligations or
liabilities or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any Person.
(b) Corporate Authority. Purchaser, Acquisition Sub
One and Acquisition Sub Two each has the requisite corporate power and
authority, and has taken all required action necessary, to properly execute and
deliver this Agreement and to perform its obligations hereunder, and this
Agreement constitutes the valid and legally binding obligation of each of
Purchaser, Acquisition Sub One and Acquisition Sub Two, enforceable in
accordance with its terms and conditions, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law.
(c) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation by Purchaser, Acquisition Sub
One or Acquisition Sub Two of the transactions contemplated hereby, will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree or other restriction of any government, governmental agency or
court to which Purchaser, Acquisition Sub One or Acquisition Sub Two or any of
their respective subsidiaries is subject or any provision of the charter or
bylaws of the Purchaser, Acquisition Sub One or Acquisition Sub Two or any of
their respective subsidiaries, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the
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right to accelerate, terminate, modify or cancel or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
Purchaser, Acquisition Sub One or Acquisition Sub Two or any of their respective
subsidiaries is a party or by which any of them is bound or to which any of
their respective assets is subject, and which would have a material adverse
effect on the ability of the Parties to consummate the transactions contemplated
by this Agreement. Other than filings required in connection with the provisions
of the HSR Act, the PABCL and the Exchange Act, neither Purchaser nor
Acquisition Sub One nor Acquisition Sub Two needs to give any notice to, make
any filing with or obtain any authorization, consent or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Litigation. There are no actions, suits or
proceedings pending or, to the knowledge of the executive officers of Purchaser,
Acquisition Sub One or Acquisition Sub Two, threatened against Purchaser,
Acquisition Sub One or Acquisition Sub Two which if adversely determined against
Purchaser, Acquisition Sub One or Acquisition Sub Two would materially impair or
delay the Parties' ability to consummate the transactions contemplated by this
Agreement.
(e) Funds. Purchaser has all of the funds in its
control and possession required in order to consummate the Parent Merger and the
Sub Merger and to pay all fees and expenses as contemplated by this Agreement
(the "Payment Funds").
(f) Brokers' and Other Fees. Neither Parent nor any
Parent Subsidiary has or will have any liability or obligation to pay any fees
or commissions to any investment advisor, broker, finder or agent engaged by
Purchaser, Acquisition Sub One or Acquisition Sub Two with respect to the
transactions contemplated by this Agreement. Any such fees or commissions will
be paid by Purchaser.
(g) Proxy Statement. None of the information
supplied in writing by Purchaser or any subsidiary of Purchaser specifically for
inclusion in the Proxy Statements (as defined in Section 6.1(c)), including all
amendments and supplements thereto, shall, in the case of the Proxy Statements,
at the date thereof and at the time of the meetings of shareholders to vote on
the matters covered thereby, contain any untrue statement of a material fact, or
omit a state material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they are made, not misleading.
ARTICLE VI
Covenants
6.1 Covenants of the Parent and Sub. Parent and Sub jointly
and severally (but subject to Section 6.4) covenant and agree that, except as
otherwise required by this Agreement:
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(a) Interim Operations of Parent and Sub. From the
date hereof and continuing until the earlier of (i) the termination of this
Agreement or (ii) the Sub Effective Time (in the case of Sub) or (iii) the
Parent Effective Time (in the case of Parent), the business of Parent and Sub
and their respective subsidiaries, as applicable, shall be conducted only in the
ordinary and usual course and, to the extent consistent therewith, Parent and
Sub each shall use all commercially reasonable efforts to preserve its business
organization intact and maintain its existing relations with customers,
suppliers, employees and business associates. Without limiting the generality of
the foregoing from the date hereof and continuing until the earlier of (i) the
termination of this Agreement or (ii) the Sub Effective Time (in the case of
Sub) or (iii) the Parent Effective Time (in the case of Parent), Parent and Sub
will not with respect to themselves or any Parent Subsidiary without the prior
written consent of Purchaser (or except as expressly permitted by the Disclosure
Letter or as required by this Agreement) do or commit to do any of the
following:
(i) authorize or effect any change in its
charter or bylaws;
(ii) grant, amend or modify any Stock Rights or
issue, sell or otherwise dispose of any of its capital stock (except, in the
case of Parent, upon the exercise of Stock Rights outstanding as of the date of
this Agreement; it being understood, however, that Sub shall not issue any
capital stock, whether or not upon the exercise of Stock Rights);
(iii) declare, set aside or pay any dividend or
distribution with respect to its capital stock (whether in cash or in kind), or
redeem, repurchase or otherwise acquire any of its capital stock or any Stock
Rights;
(iv) issue any note, bond or other debt
security or create, incur, assume or guarantee any indebtedness for borrowed
money or capitalized lease obligation other than borrowings and reborrowings
under existing credit facilities to fund current obligations in the ordinary
course of business;
(v) impose or allow to be imposed any Security
Interest upon any of its assets except pursuant to after-acquired property
clauses in existing security arrangements disclosed in the Disclosure Letter or
purchase money security interests on inventory financed in the ordinary course
of business;
(vi) make any expenditure for a capital asset
or lease any real property except in accordance with the Parent or Sub capital
budget as disclosed in the Disclosure Letter;
(vii) implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
generally accepted accounting principles and provided that same is promptly
disclosed to Purchaser;
(viii) (I) enter into or amend or renew any
written employment, consulting, severance, "golden parachute" or similar
agreement or arrangement with any director, officer or employee of Parent or of
a Parent Subsidiary, or (II) grant any salary or wage increase, or (III)
increase any employee benefit
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(including incentive or bonus payments), except in the case of "(II)" for normal
individual increases in compensation to employees (other than officers and
directors of Parent or a Parent Subsidiary) in the ordinary course of business
consistent with past practice;
(ix) enter into, establish, adopt or amend
(except as may be required by applicable law) any pension, retirement, stock
option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, in respect of any director, officer or
employee of Parent or any Parent Subsidiary, or take any action to accelerate
the vesting or exercisability of stock options, restricted stock or other
compensation or benefits payable thereunder;
(x) knowingly or negligently take or fail to
take any action, if such action or failure to act would, directly or indirectly,
cause any of the Parent Subsidiaries to cease to be a member of the consolidated
group of companies of which Parent is the common parent for Federal income tax
purposes; it being understood that compliance with Section 6.1(g)(iii) and (iv)
will not constitute a violation of this Section 6.1(a)(x); and it being further
understood that except as contemplated by Section 6.1(g)(iv) or as otherwise
agreed by Purchaser in writing, Parent shall comply with this Section 6.1(a)(x)
without resort to exercising its rights to acquire additional shares of Sub
pursuant to that certain Stock Registration and Option Agreement dated as of May
31, 1996 among Parent, Sub and The Future Now of Arkansas, Inc., as amended;
(xi) take any action that would materially
alter the strategic business plan and/or services delivery capability of Sub;
(xii) make any capital investment in or make
any loan to or acquire the securities or assets of any other Person other than
to or from its subsidiaries in the ordinary course of business;
(xiii) make any change in employment terms for
any of its directors, officers and employees other than customary increases to
non-director or non-officer employees awarded in the ordinary course of business
consistent with past practices; or
(xiv) except as may be required by law,
intentionally take or fail to take any action the reasonably foreseeable effect
of which would be to cause any representation or warranty in this Agreement to
be or become inaccurate.
In the event Parent or Sub shall request Purchaser to
consent in writing to an action otherwise prohibited by this Section 6.1(a),
Purchaser shall use all reasonable efforts to respond in a prompt and timely
fashion, but may otherwise respond affirmatively or negatively in its sole
discretion exercised in good faith.
(b) Acquisition Proposals.
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(1) Neither the Parent nor the Sub or any of
their respective officers and directors shall, and the Parent and Sub will cause
their respective employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by the Parent
or Sub) not to, solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate (including, without limitation, any amendment, modification or
termination, or any agreement to do any of the foregoing, to the Rights
Agreement or any redemption of rights issued thereunder) any inquiries or the
submission or any proposal or offer from any Person relating to an Acquisition
Proposal (as defined below) involving Parent, Sub or any other Parent Subsidiary
or participate in any discussions or negotiations regarding any such Acquisition
Proposal; provided, however, that subject to compliance with this Section
6.1(b), the Parent, the Sub and their respective directors and officers may
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or facilitate any effort or attempt by any
Person to do or seek, an Acquisition Proposal, solely to the extent that the
Board of Directors of Parent or Sub, as applicable, determines in good faith,
that such actions are necessary in order for the Board of Directors of Parent or
Sub, as applicable, to comply with its fiduciary obligations under applicable
law in response to an Acquisition Proposal or material modification to an
Acquisition Proposal, which Acquisition Proposal or material modification was
made after the date hereof and was not solicited after the date hereof. As used
herein, the term "Acquisition Proposal" means, with respect to a particular
Person, a merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving, or
any purchase of all or any significant portion of the assets or any equity
securities of, or any tender offer or exchange offer for shares of any class of
equity securities of, such Person. The transactions contemplated by this
Agreement shall not be deemed an Acquisition Proposal. The Parent and Sub will
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal and will notify Purchaser promptly if any such Acquisition
Proposal is received by, any such information is requested from, or any such
negotiations or discussions are sought to be instituted or continued with, the
Parent or the Sub.
(2) Except as set forth in this paragraph (2),
neither the Board of Directors of Parent nor the Board of Directors of Sub nor
any committee of either of them shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Purchaser, or take any
action not explicitly permitted by this Agreement that would be inconsistent
with, the approval or recommendation by such Board of Directors or such
committee of the Parent Merger or the Sub Merger, (ii) approve or recommend, or
propose publicly to approve or recommend, any Acquisition Proposal, or (iii)
cause Parent or Sub to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "Acquisition
Agreement") related to any Acquisition Proposal. Notwithstanding the foregoing,
in the event that the Board of Directors of Parent or Sub has received a
Superior Proposal (defined below) and determines in good faith, after receipt of
advice from outside counsel, that it is necessary to do so in order to comply
with its fiduciary obligations under applicable law, the Board of Directors of
Parent or Sub, as applicable, may (subject to compliance with this Section
6.1(b) and subject to payment of any Termination Fee (as hereinafter defined)
then required pursuant to this Agreement), (x) withdraw or modify its approval
or recommendation of the Parent Merger or the Sub Merger or (y) terminate this
Agreement (and concurrently with or after such termination, if it so chooses,
cause Parent or Sub, as applicable, to enter into any Acquisition Agreement with
respect to any
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Superior Proposal), but in any such case set forth in this clause (y), only at a
time that is after the fifth (5th) day following Purchaser's receipt of written
notice advising Purchaser that the Board of Directors of Parent or Sub or any
such committee has received a Superior Proposal, specifying the material terms
and conditions of such Superior Proposal and identifying the Person making such
Superior Proposal. For purposes of this Agreement, a "Superior Proposal" means
any bona fide proposal made by a third party to acquire, directly or indirectly,
for consideration consisting of cash and/or securities, all or substantially all
of the voting power of the shares of Parent Common Stock or Sub Common Stock
then outstanding or all or substantially all of the assets of Parent (which
proposal may include as a component thereof the purchase of all or substantially
all of the shares of capital stock of Sub) or Sub and otherwise on terms which
the Board of Directors of Parent or Sub or such committee determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be materially more favorable to Parent's or Sub's
stockholders than the Parent Merger and the Sub Merger and for which financing,
to the extent required, is then committed or which, in the good faith judgment
of the Board of Directors of Parent or Sub or such committee, is reasonably
capable of being furnished by such third party.
(c) Meetings of the Shareholders. Each of Parent
and Sub will take all action necessary in accordance with applicable law and its
Articles of Incorporation and By-Laws to convene a meeting of its stockholders
as promptly as practicable to consider and vote upon the approval of this
Agreement and the Parent Merger or Sub Merger, as applicable (the "Stockholder
Meetings"). Subject to Section 6.1(b)(2), the Board of Directors of Parent shall
recommend approval of the Parent Merger, and the Board of Directors of Sub and
the Independent Committee of Sub's Board shall recommend approval of the Sub
Merger, and the Parent and Sub shall take all lawful action to solicit such
approvals, as applicable. Each of the Parent and Sub hereby severally
represents, warrants and covenants that the proxy or information statement with
respect to such meeting of its shareholders (each, a "Proxy Statement"), at the
date thereof and at the date of such meetings, will not include an 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; provided, however, the
foregoing shall not apply to the extent that any such untrue statement of a
material fact or omission to state a material fact was made in reliance upon and
in conformity with written information concerning the Purchaser, Acquisition Sub
One or Acquisition Sub Two furnished by Purchaser specifically for use in the
Proxy Statement. No Proxy Statement shall be filed, and no amendment or
supplement to such Proxy Statement will be made by the Parent or Sub, without
consultation with Purchaser and its counsel.
(d) Exchange Act Filings. Unless an exemption shall
be expressly applicable to the Parent or the Sub, or unless Purchaser agrees
otherwise in writing, the Parent and the Sub will each file with the SEC and
NASDAQ National Market System ("NASDAQ") all reports required to be filed by it
pursuant to the rules and regulations of the SEC (including, without limitation,
all required financial statements). Such reports and other information shall
comply in all material respects with all of the requirements of the SEC rules
and regulations and, when filed, will not include an 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. Purchaser and its counsel, shall be given
a reasonable opportunity to review and to comment on such filings prior to their
being filed with the SEC and NASDAQ.
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(e) Access. Upon reasonable notice, the Parent and
the Sub shall afford Purchaser's officers, employees, counsel, accountants and
other authorized representatives access, during reasonable business hours
throughout the period prior to the Parent Effective Time and in a manner which
will not unreasonably interfere with the management of the business of Parent or
any Parent Subsidiary, to its officers, employees, agents, independent auditors,
representatives, properties, books and records and, during such period, the
Parent and the Sub each shall furnish promptly to Purchaser all information
concerning its business, properties and personnel as Purchaser may reasonably
request provided, however, neither the Parent nor the Sub shall be obligated to
furnish Purchaser with information respecting any negotiations referred to in
the last sentence of Section 6.1(b)(1) of this Agreement.
(f) Takeover Statutes. If any "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation enacted under state or federal laws in the United States,
including, without limitation, Subchapter E, F, G or H of the PABCL (each, a
"Takeover Statute" and, collectively, "Takeover Statutes"), is or becomes
applicable to the Parent Merger or the Sub Merger or the transactions
contemplated hereby, Parent, Sub and their respective Boards or Directors will
use all commercially reasonable efforts (a) to grant such approvals and take
such actions as are reasonably necessary, lawful and requested or consented to
by Purchaser so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated hereby and
thereby, and (b) to otherwise act to eliminate the effects of any Takeover
Statute on any of the transactions contemplated hereby and thereby. Parent and
Sub will use all commercially reasonable efforts to effect, prior to the Sub
Effective Time, the amendment to Sub's Articles of Incorporation described in
Section 5.1(z) hereof.
(g) Options and Warrants.
(i) Prior to the Parent Effective Time, the
Parent shall take such actions (including obtaining any required consents) as
may be necessary such that at the Parent Effective Time each Stock Right issued
by the Parent shall be cancelled or converted into the right to receive, as the
case may be, and the holder thereof, upon surrender thereof, shall receive, the
Parent Option Conversion Price to which such holder is entitled, if any.
(ii) Prior to the Sub Effective Time, Sub shall
take such actions (including obtaining any required consents) as may be
necessary such that at the Sub Effective Time each Stock Right issued by Sub
shall be cancelled or converted into the right to receive, as the case may be,
and the holder thereof, upon surrender thereof, shall receive, the Sub Option
Conversion Price to which such holder is entitled, if any.
(iii) In connection with the exercise, prior to
the Sub Effective Time, of any employee stock options issued by Sub, Sub shall
(unless otherwise agreed by Purchaser in writing), in accordance with the
cash-out option of Sub under Section 3(l) of its 1996 Long-Term Incentive Plan
(the "XLC Plan"), pay to each holder of an option, upon notice of any exercise
thereof, cash in an amount equal to the spread between the exercise price and
the fair market value of the underlying common share or the Spread
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Value (as defined in the XLC Plan), and will take all other action as may be
necessary to ensure that in no event will any capital stock of Sub be issued
upon or in connection with the exercise of any such option. Parent will, if
necessary, lend sufficient funds to Sub on commercially reasonable terms to
enable Sub to pay such cash in a timely manner.
(iv) In connection with the exercise, prior to
the Sub Effective Time, of any Stock Rights issued by Sub (other than employee
stock options), Sub shall not issue or permit to be issued any shares of capital
stock of Sub upon the exercise thereof other than simultaneously with or after
Parent (or a direct or indirect wholly-owned subsidiary of Parent) shall have
purchased (which Parent hereby agrees to do or cause to be done), and Sub shall
have issued (which Sub agrees to do or cause to be done) that number of validly
issued shares of the same class to Parent or such subsidiary that is equal to
four times the number of shares of capital stock issuable upon such exercise of
such Stock Rights, it being understood that Parent, Sub and Purchaser expect
such purchase and issuance to occur pursuant to that certain Stock Registration
and Option Agreement dated as of May 31, 1996 among Parent, Sub and The Future
Now of Arkansas, Inc., as amended; provided, however, that in no event will
Parent or any Parent Subsidiary purchase or otherwise acquire any such shares of
Sub for a per share amount in excess of the Sub Share Conversion Price.
(h) [intentionally left blank]
(i) IBMCC. Parent and Sub shall request that IBM
Credit Corporation ("IBMCC") give any consent to the Sub Merger or the Parent
Merger necessary under Parent's and Sub's credit arrangements with IBMCC. If
Purchaser so requests, Parent and Sub will take all action necessary to pay, at
the time the Parent Merger and Sub Merger are consummated, any or all of the
balance of any amounts owed to IBMCC, subject, however, to Purchaser making
available to Parent and Sub the cash necessary to do so.
(j) Third Party Consents. Parent and Sub shall use
their commercially reasonable efforts to obtain all necessary consents to the
transactions contemplated by this Agreement as may be required under contracts
to which Parent or any Parent Subsidiary is a party and as to which Purchaser
requests that such consents be obtained, including without limitation the real
property leases required to be listed in Section 5.1(v) of the Disclosure
Letter.
6.2 Covenants of the Parties. Each of the Parties, severally
and not jointly, covenants and agrees as to itself, as follows:
(a) Confidentiality. The terms and conditions of that
certain letter agreement dated December 8, 1997 entered into by the Purchaser
and the Parent (the "Confidentiality Agreement") are ratified and confirmed and
shall remain in full force and effect. Notwithstanding the foregoing, the Parent
and Purchaser hereby amend the Confidentiality Agreement such that the
provisions of the paragraph 2(c) thereof do not apply to any public announcement
effected in accordance with the provisions of Section 6.2(d) below regarding the
Parties' execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.
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(b) Hart-Scott-Rodino Filings. Each Party will file
any Notification and Report Forms and related material that it may be required
to file with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the HSR Act, will use commercially
reasonable efforts to obtain termination of the applicable waiting period under
the HSR Act, and will make any further filings pursuant thereto that may be
necessary or appropriate.
(c) Notification of Certain Matters. Each Party will
give prompt written notice to the others of any development causing a breach of
any of its own representations and warranties set forth in this Agreement.
(d) Publicity. The initial press release relating to
the transactions contemplated hereby shall be a joint press release and
thereafter the Parent, the Sub and Purchaser 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 federal
or state governmental or regulatory agency or with any national securities
exchange with respect thereto. None of the Parties shall issue any such press
release or make any such public statement or filing prior to such consultation,
except as may be required by law or by obligations pursuant to any listing
agreement with any national securities exchange or the NASDAQ.
(e) Cooperation. Each Party shall upon the request of
another Party provide its commercially reasonable cooperation and assistance to
the requesting Party in the latter's efforts to obtain any consents, approvals
and amendments to contracts required or to take such actions as may be required
to comply with any applicable laws to effect the Sub Merger, the Parent Merger
or otherwise required under this Agreement.
(f) Indemnification; Directors' and Officers'
Insurance.
(i) The Parties agree that all rights to
indemnification and advancement of expenses by the Parent or the Sub now
existing in favor of each present and former director and officer of the Parent
or the Sub (acting in their capacities as directors and/or officers of the
Parent or the Sub, as applicable, the "Indemnified Parties") as provided in (i)
the Parent's or the Sub's respective Articles of Incorporation or ByLaws, or
(ii) the indemnification agreements listed in the Disclosure Letter as in effect
on the date thereof (the "Indemnification Agreements"), shall, with respect to
matters occurring at or prior to the Parent or Sub Effective Time, as
applicable, continue in full force and effect, shall survive the Sub Merger and
Parent Merger and shall continue in full force and effect thereafter until the
date which is six (6) years from the Sub Effective Time or Parent Effective
Time, as applicable; provided, however, in the event any claim or claims are
asserted or threatened within such period, all rights to indemnification in
respect of any such claim or claims shall continue until final disposition of
any and all such claims.
(ii) Subject to the provisions of Section
6.2(f)(iii) below, after the Sub Effective Time or Parent Effective Time, as
applicable, the Purchaser shall, subject to the further terms set forth herein,
indemnify and hold harmless, to the fullest extent permitted under applicable
law (and shall also advance
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expenses as incurred to the fullest extent permitted under applicable law
provided the Person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such Person is not
entitled to indemnification), each Indemnified Party against any costs or
expenses (including reasonable attorneys' fees and disbursements), judgments,
fines, losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to the transactions contemplated by this Agreement (and whether commenced prior
to or after the Sub Effective Time or the Parent Effective Time), for a period
of six (6) years after the Sub Effective Time or Parent Effective Time, as
applicable, in each case regardless of by whom asserted and regardless of
whether such claim, action, suit, proceeding or investigation arises out of,
pertains to or results from, solely or in part, the active, passive or
concurrent negligence of any Indemnified Party; provided, however, in the event
any claim or claims are asserted or threatened within such six-year period, all
right to indemnification in respect of any such claim or claims shall continue
until final disposition of any and all such claims. Any Indemnified Party
wishing to claim indemnification under this Section 6.2(f)(ii), and
notwithstanding the provisions set forth in the Parent's or the Sub's respective
Articles of Incorporation or By-Laws, or in the Indemnification Agreements, upon
learning of any such claim, action, suit, proceeding or investigation, such
Indemnified Party shall promptly notify Purchaser thereof, but the failure to so
notify shall not relieve Purchaser of any liability it may have to such
Indemnified Party if such failure does not materially prejudice the indemnifying
party. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Sub Effective Time or the Parent Effective
Time), (i) Purchaser shall have the right to assume the defense thereof and
Purchaser shall not be liable to such Indemnified Parties for any legal expenses
of other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Purchaser fails
to assume such defense or counsel for Purchaser advises that there are issues
which raise conflicts of interest between the Parties, on the one hand, and the
Indemnified Parties, on the other hand, or that there are additional defenses
available to the Indemnified Parties which are not otherwise available to the
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
the Purchaser shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that Purchaser shall be obligated pursuant to this paragraph (ii) to
pay for only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest, in which case Purchaser need only pay for
separate counsel to the extent necessary to resolve such conflict, (ii) the
Indemnified Parties will cooperate in the defense of any such matter and (iii)
Purchaser shall not be liable for any settlement effectuated without its prior
written consent. Purchaser shall not settle any action or claim identified in
this Section 6.2(f)(ii) in any manner that would impose any liability on an
Indemnified Party not paid by Purchaser or the Sub Surviving Corporation or the
Parent Surviving Corporation without such Indemnified Party's prior written
consent.
(iii) Notwithstanding any thing contained in
paragraph (ii) of this Section 6.2(f), Purchaser shall not have any obligation
hereunder to any Indemnified Party if the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law, or the
conduct of the Indemnified Party relating to the matter for which
indemnification is sought involved willful misconduct.
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(iv) Parent and Sub shall maintain their
respective existing officers' and directors' liability insurance ("D&O
Insurance") for a period of three (3) years after the Sub Effective Time or
Parent Effective Time, as applicable, so long as the annual premium therefor, in
the aggregate, is not in excess of 150% of the last annual premium paid prior to
the date hereof (the "Maximum Premium"); provided, however, if the existing D&O
Insurance expires, or is terminated or cancelled by the insurance carrier during
such three-year period, the Parent and Sub will use their commercially
reasonable efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis) of
the Maximum Premium.
(v) To the fullest extent not prohibited by
applicable New York law or federal securities laws, Purchaser agrees to
guarantee the payment and performance of the Parent's, Sub's, Acquisition Sub
One's and Acquisition Sub Two's obligations under this Section 6.2(f). This
Section 6.2(f) shall survive the closing of the transactions contemplated hereby
and is intended to benefit each of the Indemnified Parties (each of whom shall
be entitled to enforce this Section against the Parties). If any Party, or any
of their respective successors or assigns (i) reorganizes or consolidates with
or merges into any other Person and is not the resulting, continuing or
surviving corporation or entity of such consolidation or merger or (ii)
liquidates, dissolves or transfers all or substantially all of its properties
and assets to any Person, then, and in each such case, prior to such action,
proper provision will be made so that the successors and assigns of such party
assume the obligations of such party set forth in this Section.
6.3 Covenants of Purchaser. Purchaser covenants and
agrees as follows:
(a) Maintenance of Payment Funds. Prior to the Sub
Effective Time and Parent Effective Time, as applicable, Purchaser shall cause
the Payment Funds to be available to effect payment of the Sub Share Conversion
Price, the Sub Option Conversion Price, the Parent Share Conversion Price and
the Parent Option Conversion Price and neither Purchaser, Acquisition Sub One
nor Acquisition Sub Two will enter into any transaction, commitment or
obligation which could reasonably result in the Payment Funds not being so
available as and when required for such payments pursuant to the terms and
conditions of this Agreement.
(b) Purchaser Shares. At the Parent Stockholders'
Meeting, all Parent Shares then owned by Purchaser or any of its direct or
indirect wholly-owned subsidiaries shall be voted in favor of the Parent Merger.
At the Sub Stockholders' Meeting, all Sub Shares then owned by Purchaser or any
of its direct or indirect wholly-owned subsidiaries shall be voted in favor or
the Sub Merger.
6.4 Effect of Certain Covenants. (i) Insofar as any covenants
in this Article VI relate specifically to Sub, Parent shall have no obligation
to force Sub to comply therewith, but shall take such actions as may reasonably
assist and facilitate Sub in complying therewith. If Parent has done so and Sub
has nonetheless failed to comply with such covenant, Parent will have no
liability for damages to Purchaser, Acquisition Sub One or Acquisition Sub Two
for breach of such covenant; provided, however, that this subparagraph shall
have no effect on whether the condition set forth in Section 7.2(a) has been
satisfied, or on
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any right of Purchaser to terminate this Agreement under Section 8.3, or on any
obligation of Parent and Sub to pay the Termination Fee to Purchaser pursuant to
Section 9.1(b).
(ii) Insofar as any Covenants in this Article VI relate
specifically to Parent or any Parent Subsidiaries (other than Sub or any Sub
Subsidiaries), Sub shall have no obligation to force Parent to comply therewith,
but shall take such actions as may reasonably assist and facilitate Parent in
complying therewith. If Sub has done so and Parent has nonetheless failed to
comply with such covenant, Sub will have no liability for damages to Purchaser,
Acquisition Sub One or Acquisition Sub Two for breach of such covenant;
provided, however, that this subparagraph shall have no effect on whether the
condition set forth in Section 7.2(a) has been satisfied, or on any right of
Purchaser to terminate this Agreement under Section 8.3, or on any obligation of
Parent and Sub to pay the Termination Fee to Purchaser pursuant to Section
9.1(b).
ARTICLE VII
Conditions
7.1 Conditions to Obligations of the Parties. The obligations
of the Parties to consummate the Sub Merger and the Parent Merger are subject to
the fulfillment of each of the following conditions, any or all of which may be
waived in whole or in party by any of the Parties, as the case may be, to the
extent permitted by applicable law:
(a) Parent Shareholder Approval. The Parent Merger
shall have been duly approved by the holders of the outstanding stock of Parent
in accordance with the PABCL and the Articles of Incorporation and By-Laws of
the Parent.
(b) Sub Shareholder Approval. The Sub Merger and the
amendment to Sub's Articles of Incorporation described in Section 5.1(z) hereof
shall have been duly approved by the holders of the outstanding stock of Sub in
accordance with the PABCL and the Articles of Incorporation and By-Laws of the
Sub.
(c) Governmental and Regulatory Consent. (i) The HSR
waiting period shall have expired or been terminated, and (ii) other than the
filings provided for in Section 1.8, all other filings required to be made prior
to the Sub Effective Time or Parent Effective Time, as applicable, by the
Parties with, and all consents, approvals and authorizations required to be
obtained prior to the applicable Effective Time by the Parties from,
governmental and regulatory authorities in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall have been made or obtained (as the case may be).
(d) Statutes; Injunctions. Neither any statute, rule,
regulation, order, stipulation or injunction (each an "Order") shall be enacted,
promulgated, entered, enforced or deemed applicable to the Sub
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Merger or the Parent Merger, nor shall any other action have been taken by any
governmental authority, administrative agency or court of competent jurisdiction
which (i) prohibits the consummation of the transactions contemplated by this
Agreement, or (ii) prohibits Purchaser's direct or indirect ownership or
operation of all or any material portion of the business or assets of Parent or
Sub, or (iii) could compel Purchaser to dispose of or hold separate all or any
material portion of such business or assets as a result of the transactions
contemplated by this Agreement.
(e) Both Mergers. No Party shall be obligated to
consummate the Parent Merger if the Sub Merger shall not have been consummated.
No Party shall be obligated to consummate the Sub Merger unless all conditions
to the Parent Merger have been satisfied or waived.
(f) Amendment to Articles. The Articles of
Incorporation of Sub shall have been amended as described in Section 5.1(z).
7.2 Conditions to Obligations of Purchaser, Acquisition Sub
One and Acquisition Sub Two. The obligation of Purchaser, Acquisition Sub One
and Acquisition Sub Two to consummate the Sub Merger and Parent Merger is
further subject to the fulfillment of the following conditions, which may be
waived by Purchaser, Acquisition Sub One or Acquisition Sub Two:
(a) Compliance. The Parent and the Sub each shall
have performed and complied with, in all material respects, all obligations and
covenants required to be performed or completed with by it under, respectively,
this Agreement at or prior to the Sub Effective Time or Parent Effective Time,
as applicable, and Parent and Sub shall each have delivered to Purchaser a
certificate of an executive officer so certifying.
(b) Representations. Each of the representations and
warranties of Parent and of Sub made in this Agreement shall be true and correct
in all material respects as of the date when made and shall be deemed to be made
again at and as of the Sub Closing and the Parent Closing and shall then be true
and correct in all material respects, except to the extent changes are required,
permitted or contemplated pursuant to this Agreement, and Parent and Sub shall
each have delivered to Purchaser a certificate of an executive officer so
certifying.
(c) Opinion of Counsel. Purchaser shall have received
an opinion of counsel to Parent and Sub in form and substance substantially the
same as previously agreed by Purchaser, Parent and Sub.
(d) Proceedings. No action or proceeding shall have
been instituted and be pending before any court or governmental body to restrain
or prohibit, or to obtain substantial damages in respect of, the consummation of
this Agreement and the transactions contemplated hereby which, in the reasonable
opinion of Purchaser based upon advice of counsel respecting the likelihood of
an adverse outcome in such action or proceeding, may reasonably be expected to
result in a preliminary or permanent injunction against such consummation or
damages which would constitute a Material Adverse Change.
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(e) Material Adverse Change. There shall not have
occurred a Material Adverse Change.
(f) Liens. With the exception of the Security
Interest of IBMCC as disclosed in the Disclosure Letter, in all instances and
respects Parent (or the applicable Parent Subsidiaries as the case may be) shall
hold all shares of stock in all Parent Subsidiaries free and clear of any
restrictions, liens, claims and encumbrances whatsoever.
(g) Tax Consolidation. Each of the Parent
Subsidiaries shall be, and shall have been at all times from the date hereof to
the Parent Effective Time, a member of the consolidated group of companies of
which Parent is the common parent for Federal income tax purposes, it being
understood that compliance with Section 6.1(g)(iii) and (iv) will (for purposes
only of Sub Stock Rights) be deemed to satisfy this subparagraph (g).
(h) Employment Agreements. The employees of Sub
previously identified in writing by Purchaser shall be employees of Sub and
shall have entered into employment agreements on terms and conditions previously
identified in writing by Purchaser to Parent and Sub, and such employment
agreements shall be in full force and effect.
(i) Letter from Auditors. Purchaser shall have
received a letter (the "Agreed Upon Procedures Letter") from Parent's
independent certified public accountants substantially in the form previously
agreed by Purchaser, Parent and Sub.
(j) Stock Issuance, etc. Neither Parent, Sub nor any
Parent Subsidiary shall (I) after the date of this Agreement have granted,
amended or modified any Stock Rights (except as required pursuant to Section
6.1(g)(iii) or (iv)) or issued any capital stock (except, in the case of Parent,
but not Sub, upon the exercise of Stock Rights outstanding as of the date of
this Agreement), or (II) after December 1, 1997 have purchased or otherwise
acquired any shares of common stock of Sub for a per share price in excess of
the Sub Share Conversion Price.
(k) Stock Rights. There shall be outstanding no Stock
Right which by its terms does not either terminate upon the completion of the
Sub Merger or the Parent Merger or convert into the right to receive only the
Sub Option Conversion Price or the Parent Option Conversion Price, as the case
may be.
(l) Dividends, etc. After the date of this Agreement,
neither Parent nor Sub shall have declared, set aside or paid any dividend or
distribution with respect to its capital stock (whether in cash or in kind), or
shall have redeemed, repurchased or otherwise acquired any of its capital stock
or, except as required by this Agreement, any Stock Rights.
(m) XLSource Transition. Those portions of the
XLSource Transition Plan to have been implemented prior to the Sub Effective
Time shall have been implemented on a timely basis in all material
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respects, and there shall not have occurred a material adverse effect on the
ability of Parent or any Parent Subsidiary to implement the XLSource Transition
Plan on a timely basis.
7.3 Conditions to Obligations of Parent. The obligation of
Parent to consummate the Parent Merger and of Parent and Sub to consummate the
Sub Merger is further subject to the fulfillment of the following conditions,
which may be waived by Parent and Sub:
(a) Compliance. Purchaser, Acquisition Sub One and
Acquisition Sub Two each shall have performed and complied with, in all material
respects, all obligations and covenants required to be performed or completed
with by it under this Agreement at or prior to the Sub Effective Time or Parent
Effective Time, as applicable, and Purchaser shall have delivered to Parent and
Sub a certificate of an officer of Purchaser so certifying.
(b) Representations. Each of the representations and
warranties of Purchaser, Acquisition Sub One and Acquisition Sub Two made in
this Agreement shall be true and correct in all material respects as of the date
when made and shall be deemed to be made again at and as of the Sub Closing and
the Parent Closing and shall then be true and correct in all material respects,
except to the extent changes are required, permitted or contemplated pursuant to
this Agreement, and Purchaser shall have delivered to Parent and Sub a
certificate of an officer of Purchaser so certifying.
(c) Opinion of Counsel. Parent shall have received an
opinion of counsel to Purchaser in form and substance substantially the same as
previously agreed by Purchaser, Parent and Sub.
ARTICLE VIII
Termination
8.1 Termination by Mutual Consent. This Agreement may be
terminated and the Sub Merger and the Parent Merger may be abandoned at any time
prior to consummation thereof, before or after the approval by the stockholders
of Parent or Sub, by the written mutual consent of Purchaser, Sub and Parent.
8.2 Termination by Purchaser, Sub or Parent. This Agreement
may be terminated and the Merger may be abandoned by Purchaser, Sub or Parent if
(i) the Sub Merger or the Parent Merger shall not have been consummated by July
31, 1998 (unless the failure to consummate by such date is due to the wrongful
action or failure to act of the party seeking to terminate), or (ii) the
stockholders of Parent disapprove the Parent Merger at the Parent Stockholder
Meeting, or (iii) any Order shall have become final and non-appealable.
8.3 Termination by Purchaser. This Agreement may be terminated
by Purchaser and the Sub Merger and the Parent Merger may be abandoned at any
time prior to consummation thereof, before or after the approval by stockholders
of Parent or Sub if (a) the Parent Board shall have withdrawn or modified in a
manner
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adverse to Purchaser its approval or recommendation of this Agreement, or the
Parent Board, upon request by Purchaser, shall fail to reaffirm its approval or
recommendation, or shall have resolved to do any of the foregoing, or at the Sub
Stockholders' Meeting all shares of Sub Common Stock owned directly or
indirectly by Parent shall not have been voted in favor of the Sub Merger and in
favor of the amendment to Sub's Articles of Incorporation described in Section
5.1(z) hereof; or (b) Parent shall have failed to perform in any material way
any of its covenants under this Agreement in a manner so as not to satisfy the
condition to closing in Section 7.2(a), which failure to perform is incapable of
being cured or has not been cured within twenty (20) days after the giving of
notice thereof to Parent; or (c) Parent shall have breached any of its
representations or warranties in any material respect in a manner so as not to
satisfy the condition to closing in Section 7.2(b), which breach is incapable of
being cured or has not been cured within twenty (20) days after the giving of
notice thereof to Parent; or (d) the Board of Directors of Sub, or the
Independent Committee thereof, shall have withdrawn or modified in a manner
adverse to Purchaser its approval or recommendation of this Agreement, or the
Board of Directors of Sub, or the Independent Committee thereof, upon request by
Purchaser, shall fail to reaffirm its approval or recommendation, or shall have
resolved to do any of the foregoing; or (e) Sub shall have failed to perform in
any material way any of its covenants under this Agreement in a manner so as not
to satisfy the condition to closing in Section 7.2(a), which failure to perform
is incapable of being cured or has not been cured within twenty (20) days after
the giving of notice thereof to Sub; or (f) Sub shall have breached any of its
representations or warranties in any material respect in a manner so as not to
satisfy the condition to closing in Section 7.2(b), which breach is incapable of
being cured or has not been cured within twenty (20) days after the giving of
notice thereof to Sub.
8.4 Termination by the Parent. This Agreement may be
terminated by Parent and the Sub Merger and the Parent Merger may be abandoned
at any time (i) prior to the consummation thereof, before or after the approval
by stockholders of Parent or Sub, by action of the Parent Board if the Parent
Board receives an unsolicited written offer with respect to a Superior Proposal,
or if an unsolicited tender or exchange offer for the Parent Shares (with
respect to a Superior Proposal) is commenced, and the Parent Board determines to
accept such Superior Proposal or recommend that its shareholders accept such
tender or exchange offer, but only after the Parent Board has been advised by
counsel that approval, acceptance or recommendation of such transaction is
necessary in order for the Parent Board to act in a manner consistent with its
fiduciary obligations under applicable law, in accordance with clause "(y)" of
Section 6.1(b)(2) provided that Parent has complied with all provisions thereof,
including the notice provisions therein, and that Parent and Sub comply with
applicable requirements relating to the payment (including the timing of any
payment) of the Termination Fee, or (ii) before the Parent Effective Time, if
Purchaser shall have breached or failed to perform in any material way any of
its representations, warranties or covenants under this Agreement which breach
or failure to perform is incapable of being cured or has not been cured within
twenty (20) days after the giving of notice thereof to Purchaser.
8.5 Termination by the Sub. This Agreement may be terminated
by Sub and the Sub Merger and the Parent Merger may be abandoned at any time (i)
prior to the consummation thereof, before or after the approval by stockholders
of Parent or Sub, by action of the Sub Board if the Sub Board receives an
unsolicited written offer with respect to a Superior Proposal, or if an
unsolicited tender or exchange offer for the Sub Shares
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(with respect to a Superior Proposal) is commenced, and the Sub Board determines
to accept such Superior Proposal or recommend that its shareholders accept such
tender or exchange offer, but only after the Sub Board has been advised by
counsel that approval, acceptance or recommendation of such transaction is
necessary in order for the Sub Board to act in a manner consistent with its
fiduciary obligations under applicable law, in accordance with clause "(y)" of
Section 6.1(b)(2) provided that Sub has complied with all provisions thereof,
including the notice provisions therein, and that Parent and Sub comply with
applicable requirements relating to the payment (including the timing of any
payment) of the Termination Fee, or (ii) before the Sub Effective Time, if
Purchaser shall have breached or failed to perform in any material way any of
its representations, warranties or covenants under this Agreement in a manner so
as not to satisfy the condition to closing in Section 7.3(a) or (b) which breach
or failure to perform is incapable of being cured or has not been cured within
twenty (20) days after the giving of notice thereof to Purchaser.
8.6 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article 8, no party thereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except as
provided in Sections 9.1 and 9.2. No termination of this Agreement shall result
in the termination of the obligations of the parties under Sections 5.1(k),
5.2(f), 6.2(a) or 9.1.
ARTICLE IX
Miscellaneous and General
9.1 Payment of Expenses.
(a) Except as set forth in subsection (b) below,
whether or not the Merger shall be consummated, each Party hereto shall pay its
own expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the Merger, except that and provided the
Merger is consummated, the expenses of Sub shall be borne by Parent.
(b) In the event that this Agreement is terminated by
Purchaser pursuant to Section 8.3(a), (b), (d) or (e), Parent and Sub shall pay
Purchaser an aggregate fee equal to $12,300,000 (the "Termination Fee"), payable
by wire transfer in immediately available funds, within one (1) business day of
the date of such termination in the respective proportions set forth below, and
such payment shall constitute Purchaser's and its affiliates' exclusive remedy
and be a limit on any damages to which Purchaser and such affiliates may be
entitled for any loss or injury incurred with respect to any such termination.
In the event that this Agreement is terminated by Purchaser pursuant to Section
8.3(c) or (f), and if the applicable breach of representation by Parent or Sub
was intentional, reckless or grossly negligent, Parent and Sub shall pay
Purchaser the Termination Fee, payable by wire transfer in immediately available
funds, within one (1) business day of the date of such termination in the
respective proportions set forth below, and such payment shall constitute
Purchaser's and its affiliates' exclusive remedy and be a limit on any damages
to which Purchaser and such affiliates may be entitled for any loss or injury
incurred with respect to any such termination. Prior to any
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termination of this Agreement by Parent pursuant to Section 8.4(i) or by Sub
pursuant to Section 8.5(i), Parent and Sub shall pay Purchaser the Termination
Fee, payable by wire transfer of immediately available funds in the respective
proportions set forth below, and such payment shall constitute Purchaser's and
its affiliates exclusive remedy and be a limit on any damages to which Purchaser
and such affiliates may be entitled for any loss or injury incurred with respect
to any such termination. Parent and Sub acknowledge that the agreements
contained in this Section 9.1(b) are an integral part of the transactions
contemplated by this Agreement, that Parent and Sub will derive substantial
benefits from the transactions involving Sub contemplated by this Agreement, and
that, without the agreements contained in this Section 9.1(b), Purchaser would
not enter into this Agreement; accordingly, if Parent or Sub fails to promptly
pay any amount due pursuant to this Section 9.1(b), and, in order to obtain such
payment, Purchaser commences a suit which results in a judgment against Parent
or Sub for the applicable portion of the Termination Fee or damages in excess
thereof (to the extent permitted hereunder), Parent or Sub, as applicable, shall
also pay to Purchaser its costs and expenses (including reasonable attorneys'
fees) in connection with such suit, together with interest on the amount of the
Termination Fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made. If Purchaser terminates this Agreement pursuant
to Section 8.3(a), (b), (d) or (e), or if Purchaser terminates this Agreement
pursuant to Section 8.3(c) or (f) and is entitled to be paid the Termination
Fee, or if Parent terminates this Agreement pursuant to Section 8.4(i), or if
Sub terminates this Agreement pursuant to Section 8.5(i), then 80% of the
Termination Fee shall be paid to Purchaser by Parent and 20% of the Termination
Fee shall be paid to Purchaser by Sub. Notwithstanding the foregoing, if the
breach by Parent which gave rise to the ability to terminate this Agreement
under Section 8.3(b) or (c) or if the breach by Sub which gave rise to the
ability to terminate this Agreement under Section 8.3(e) or (f) constituted a
bad faith attempt by Parent or Sub to avoid its contractual obligations under
this Agreement, nothing in this Agreement shall limit the relief (in addition to
the Termination Fee) which Purchaser shall be entitled to recover under
applicable law. A good faith dispute as to whether the Termination Fee is
payable shall not constitute evidence of such bad faith.
(c) In the event that this Agreement is terminated by
Parent pursuant to Section 8.4(ii) or by Sub pursuant to Section 8.5(ii),
Purchaser shall pay Parent and Sub an aggregate amount equal to the Termination
Fee, payable by wire transfer in immediately available funds, within one (1)
business day of the date of such termination, payable 80% to Parent and 20% to
Sub, and such payment shall constitute Parent's and Sub's any of their
respective affiliates' exclusive remedy and be a limit on any damages to which
Parent or any such affiliate may be entitled for any loss or injury incurred
with respect to any such termination or breach or failure to perform that gave
rise to such termination. Notwithstanding the foregoing, if the breach by
Purchaser which gave rise to the ability to terminate this Agreement under
Section 8.4(ii) or 8.5(ii) constituted a bad faith attempt by Purchaser to avoid
its contractual obligations under this Agreement, nothing in this Agreement
shall limit the relief (in addition to the Termination Fee) which Parent or Sub
shall be entitled to recover under applicable law. A good faith dispute as to
whether the Termination Fee is payable shall not constitute evidence of such bad
faith. Purchaser acknowledges that the agreements contained in this Section
9.1(c) are an integral part of the transactions contemplated by this Agreement,
that Purchaser will derive substantial benefits from the transactions
contemplated by this Agreement, and that, without the agreements contained in
this Section 9.1(c), Parent and Sub would not enter into this Agreement;
accordingly, if Purchaser fails to promptly pay any amount due pursuant to this
Section 9.1(c), and, in order to obtain such payment, Parent or Sub commences a
suit which
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results in a judgment against Purchaser for the Termination Fee or damages in
excess thereof (to the extent permitted hereunder), Purchaser shall also pay to
Parent or Sub, as applicable, its costs and expenses (including reasonable
attorneys' fees but only for the attorneys of either Parent or Sub, as the case
may be, and not both) in connection with such suit, together with interest on
the amount of the Termination Fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made.
9.2 Survival. The representations, warranties, agreements and
covenants in this Agreement shall not survive the consummation of the Sub Merger
and the Parent Merger or the termination of this Agreement unless the terms of a
specific agreement or covenant specify otherwise, in which case it shall survive
in accordance with its terms. Without limiting the foregoing, the provisions of
Section 6.2(f) shall survive the consummation of the Sub Merger and the Parent
Merger.
9.3 Cooperation. The Parties will cooperate with one another
in effecting the transactions contemplated hereby, in the making of all
necessary governmental filings (including, without limitation, filings with any
applicable taxing authority) and in connection with the prosecution or defense
of any investigation, claim, suit, arbitration or other proceeding brought by or
against any governmental authority or other third party.
9.4 Modification or Amendment. Subject to the applicable
provisions of the PABCL, at any time prior to the Parent Effective Time or Sub
Effective Time, as applicable, the Parties hereto may modify or amend this
Agreement, by written agreement executed and delivered by duly authorized
officers of the respective Parties.
9.5 Waiver of Conditions. The conditions to each of the
Parties' obligations to consummate the transactions contemplated hereby are for
the sole benefit of such Party and may be waived by such Party in whole or in
part to the extent permitted hereby and by applicable law.
9.6 Counterparts and Facsimile Signatures. For the convenience
of the Parties hereto, this Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
Execution of this Agreement may be made by facsimile signature which, for all
purposes, shall be deemed to be an original signature.
9.7 GOVERNING LAW; JURISDICTION; AND SERVICE OF PROCESS.
EXCEPT AS EXPRESSLY SET FORTH BELOW, THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES
OF CONFLICTS OF LAWS THEREOF. IN ADDITION, EACH OF THE PARENT, THE PURCHASER AND
ACQUISITION SUB HEREBY AGREE THAT ANY DISPUTE ARISING OUT OF THIS AGREEMENT OR
THE MERGER SHALL BE HEARD IN THE COURT OF COMMON PLEAS, COUNTY OF CHESTER, OF
THE COMMONWEALTH OF PENNSYLVANIA, OR IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN
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DISTRICT OF PENNSYLVANIA AND, IN CONNECTION THEREWITH, EACH PARTY TO THIS
AGREEMENT HEREBY CONSENTS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ANY
SERVICE OF PROCESS IN CONNECTION WITH ANY DISPUTE ARISING OUT OF THIS AGREEMENT
OR THE MERGER MAY BE GIVEN TO ANY OTHER PARTY HERETO BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, AT THE RESPECTIVE ADDRESSES SET FORTH IN SECTION 9.8 BELOW.
9.8 Notices. Any notice, request, instruction or other
document to be given hereunder by any party to the others shall be in writing
and shall be deemed delivered upon receipt, if to Purchaser, Acquisition Sub One
or Acquisition Sub Two, addressed to Purchaser, Acquisition Sub One or
Acquisition Sub Two, as the case may be, Attention: Barry D. Romeril, P.O. Box
1600, 800 Long Ridge Road, Stamford, CT 06904, facsimile: (203) 968-3633 (with a
copy to Attention: Richard S. Paul, facsimile: (203) 968-3446; and with a copy
to Nixon, Hargrave, Devans & Doyle LLP, 437 Madison Avenue, New York, NY
10022-7001, Attention: Richard F. Langan, Esq., facsimile (212) 940-3111); and
if to the Parent, addressed to the Parent c/o Pepper Hamilton LLP, 3000 Two
Logan Square, Philadelphia, Pennsylvania 19103-2799, Attention Barry M. Abelson,
facsimile (215) 981-4750 (with a copy to Pepper Hamilton LLP, 3000 Two Logan
Square, Philadelphia, PA 19103-2799, Attention: Elam M. Hitchner, III, Esq.,
facsimile (215) 981-4750); and if to the Sub, addressed to the Sub at 411
Eagleview Boulevard, Exton, Pennsylvania 19341, Attention: Timothy W. Wallace,
facsimile (610) 458-6530 (with a copy to McCausland, Keen & Buckman, Radnor
Court, 259 Radnor-Chester Road, Suite 160, Radnor, Pennsylvania 19087-5240,
Attention Robert H. Young, facsimile (610) 341-1099); or to such other Persons
or addresses as may be designated in writing by the party to receive such
notice.
9.9 Entire Agreement, etc. This Agreement (including any
schedules, exhibits or Annexes hereto) and the Confidentiality Agreement (i)
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties both written and oral among the
parties, with respect to the subject matter hereof, (ii) shall not be assignable
by operation of law or otherwise and are not intended to create any obligations
to, or rights in respect of, any Persons other than the parties hereto;
provided, however, Purchaser may cause Acquisition Sub One and/or Acquisition
Sub Two to assign its rights and obligations hereunder to Purchaser or any other
wholly-owned subsidiary of Purchaser, but no such assignment shall relieve
Purchaser, Acquisition Sub One and Acquisition Sub Two of their obligations
hereunder.
9.10 Obligation of Purchaser. Whenever this Agreement requires
Acquisition Sub One or Acquisition Sub Two to take any action (including,
without limitation, the making of payment for the Parent Shares or the Sub
Shares), such requirement shall be deemed to include an undertaking on the part
of Purchaser to cause Acquisition Sub One and/or Acquisition Sub Two to take
such action.
9.11 Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
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9.12 Specific Performance. The parties hereto agree that if
any of the provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist, and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
9.13 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect except to the extent that the enforcement of such remaining provisions
would be inequitable.
9.14 Certain Definitions. (a) As used herein, the term
"knowledge" of a particular Person shall mean the actual knowledge of any such
individual or the actual knowledge of the executive officers (which, or purposes
hereof, shall mean those individuals who are required to file reports under
Section 16(a) of the Exchange Act) of any Person which is a corporation or other
entity.
(b) As used in this Agreement, the following terms shall have
the meanings set forth below:
"Acquisition Agreement" is defined in Section 6.1(b)(2).
"Acquisition Proposal" is defined in Section 6.1(b)(1).
"Acquisition Sub One" means TDC Subsidiary Corporation, a Pennsylvania
corporation.
"Acquisition Sub Two" means TDC Two Subsidiary Corporation, a
Pennsylvania corporation.
"Agreed Upon Procedures Letter" is defined in Section 7.2(j).
"Auditors" is defined in Section 7.2(j).
"Confidentiality Agreement" is defined in Section 6.2(a).
"D & O Insurance" is defined in Section 6.2(f)(iv).
"Disclosure Letter" is defined in Section 5.1.
"Employee Benefit Plans" is defined in Section 5.1(r)(II).
"Environmental Laws" is defined in Section 5.1(o).
"ERISA" is defined in Section 5.1(r)(II).
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" is defined in Section 5.1(f).
"HSR Act" is defined in Section 5.1(d).
"IBMCC" is defined in Section 6.1(i).
"Indemnification Agreements" is defined in Section 6.2(f)(i).
"Indemnified Parties" is defined in Section 6.2(f)(i).
"Independent Committee" means the Independent Committee of the Sub Board.
"Intellectual Property" is defined in Section 5.1(q).
"IRC" is defined in Section 5.1(r)(IV).
"January 1998 Financial Statements" is defined in Section 7.2(j).
"Lazard" is defined in Section 5.1(k).
"Material Adverse Change" means a material adverse effect on
the assets, property, prospects, business condition (financial or otherwise) or
results of operations of either Parent and the Parent Subsidiaries (including
Sub and the Sub Subsidiaries) taken as a whole or Sub and the Sub Subsidiaries
taken as a whole, or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. Whenever a representation,
warranty, covenant, agreement or condition involves a determination as to
whether there has been a Material Adverse Change, the market price of Parent
Common Stock and Sub Common Stock on NASDAQ shall not constitute evidence as to
whether or not a Material Adverse Change has occurred.
"Maximum Premium" is defined in Section 6.2(f)(iv).
"Montgomery" is defined in Section 5.1(k).
"Most Recent Financial Statements" is defined in Section 7.2(j).
"NASDAQ" is defined in Section 6.1(d).
"Order" is defined in Section 7.1(d).
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"PABCL" is defined in Section 1.1.
"Parent" means Intelligent Electronics, Inc., a Pennsylvania corporation.
"Parent Articles of Merger" is defined in Section 2.8.
"Parent Board" is defined in the recitals.
"Parent Closing" is defined in Section 2.7.
"Parent Common Stock" is defined in Section 5.1(b)(I).
"Parent Dissenting Shares" is defined in Section 2.9.
"Parent Effective Time" is defined in Section 2.8.
"Parent Fairness Opinion" is defined in Section 5.1(l).
"Parent Merger" is defined in the recitals.
"Parent Most Recent Quarter End" is defined in Section 5.1(f)(I).
"Parent Option Conversion Price" is defined in Section 2.4.
"Parent Options" is defined in Section 2.2(ii).
"Parent-Owned Sub Shares" is defined in Section 1.2(i).
"Parent Preferred Stock" is defined in Section 5.1(b).
"Parent Share Conversion Price" is defined in Section 2.3.
"Parent Shares" is defined in Section 2.2(i).
"Parent Subsidiaries" is defined in Section 5.1(a).
"Parent Surviving Corporation" is defined in Section 2.1.
"Parent 10-K" is defined in Section 5.1(f)(I).
"Parent 10-Q" is defined in Section 5.1(f)(I).
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"Party" is defined in the introduction.
"Paying Agent" is defined in Section 1.5.
"Payment Funds" is defined in Section 5.2(e).
"Permits" is defined in Section 5.1(a).
"Person" means an individual, a partnership (general or limited), a joint
venture, a corporation, a trust, an unincorporated organization, a limited
liability company, a group and a government or other department or agency
thereof.
"Proxy Statement" is defined in Section 6.1(c).
"Public Reports" is defined in Section 5.1(e).
"Purchaser" means Xerox Corporation, a New York corporation.
"Purchaser Companies" means Purchaser and all direct and indirect
subsidiaries thereof.
"Rights Agreement" means the Rights Agreement dated as of March 22, 1996
between Parent and Chemical Mellon Shareholder Services L.L.C.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" is defined in Section 5.1(d).
"Stock Rights" is defined in Section 5.1(b)(I).
"Stockholders Meeting" is defined in Section 6.1(c).
"Sub" means XLConnect Solutions, Inc., a Pennsylvania corporation.
"Sub Articles of Merger" is defined in Section 1.8.
"Sub Board" is defined in the recitals.
"Sub Closing" is defined in Section 1.7.
"Sub Common Stock" is defined in Section 5.1(b)(II).
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"Sub Dissenting Shares" is defined in Section 1.9.
"Sub Effective Time" is defined in Section 1.8.
"Sub Fairness Opinion" is defined in Section 5.1(l).
"Sub Merger" is defined in the recitals.
"Sub Most Recent Quarter End" is defined in Section 5.1(f)(II).
"Sub Option Conversion Price" is defined in Section 1.4.
"Sub Options" is defined in Section 1.2(ii).
"Sub Plan" is defined in Section 5.1(r)(I).
"Sub Preferred Stock " is defined in Section 5.1(b)(II).
"Sub Share Conversion Price" is defined in Section 1.3.
"Sub Shares" is defined in Section 1.2(i).
"Sub Subsidiaries" means all direct and indirect subsidiaries of Sub.
"Sub Surviving Corporation" is defined in Section 1.1.
"Sub 10-K" is defined in Section 5.1(f)(II).
"Sub 10-Q" is defined in Section 5.1(f)(II).
"Superior Proposal" is defined in Section 6.1(b)(2).
"Takeover Statutes" is defined in Section 6.1(f).
"Taxes" is defined in Section 5.1(j)(I).
"Termination Fee" is defined in Section 9.1(b).
"XLC Plan" is defined in Section 6.1(g)(iii).
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"XLSource Transition Plan" means the plan Parent has
previously delivered to Purchaser regarding the pending transition of certain
business of XLSource, Inc.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first hereinabove written.
INTELLIGENT ELECTRONICS, INC.
/s/ Richard D. Sanford
By:______________________________
Title: Chairman and CEO
XLCONNECT SOLUTIONS, INC.
/s/ Richard D. Sanford
By:______________________________
Title: Chairman
XEROX CORPORATION
/s/ W. F. Buehler
By:______________________________
Title: Executive Vice President
TDC SUBSIDIARY CORPORATION
/s/ Charles P. Gilliam
By:______________________________
Title: President
TDC TWO SUBSIDIARY CORPORATION
/s/ Charles P. Gilliam
By:______________________________
Title: President
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APPENDIX B
[Letterhead of Lazard Freres & Co. LLC]
March 3, 1998
The Board of Directors
Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, PA 19341
Dear Members of the Board:
We understand that Intelligent Electronics, Inc. (the
"Company"), XLConnect Solutions, Inc., an approximately 80% owned subsidiary of
the Company (the "Subsidiary"), Xerox Corporation (the "Purchaser"), TDC
Subsidiary Corporation, a wholly-owned subsidiary of the Purchaser, and TDC Two
Subsidiary Corporation, a wholly-owned subsidiary of the Purchaser ("Acquisition
Sub Two"), propose to enter into an Agreement and Plan of Merger (the
"Agreement") pursuant to which, among other things, Acquisition Sub Two will be
merged with and into the Company (the "Merger") as a result of which the Company
will become a wholly-owned subsidiary of the Purchaser. Pursuant to the
Agreement, each share of common stock, par value $.01 per share, of the Company
(the "Common Stock") outstanding immediately prior to the effective time of the
Merger (other than shares of Common Stock held in the treasury of the Company
and shares of Common Stock held by stockholders who properly exercise and
perfect dissenter's rights, if any) will be converted into the right to receive
cash in an amount of $7.60 (the "Merger Consideration").
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of Common Stock of the Merger
Consideration. In connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of
the draft Agreement dated March 3, 1998;
(ii) Analyzed certain historical business and
financial information relating to the Company, including the
Subsidiary;
(iii) Reviewed various financial forecasts and other
data provided to us by the Company and the Subsidiary relating to their
businesses;
(iv) Held discussions with members of the senior
management of the Company and the Subsidiary with respect to the
business and prospects of the Company and the strategic objectives of
the Company;
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(v) Reviewed public information with respect to
certain other companies in lines of business we believe to be generally
comparable to the business of the Company;
(vi) Reviewed the financial terms of certain
business combinations involving companies in lines of business we
believe to be generally comparable to those of the Company, and in
other industries generally;
(vii) Reviewed the historical stock prices and
trading volumes of the Common Stock; and
(viii) Conducted such other financial studies,
analyses and investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the
foregoing information and have not assumed any responsibility for any
independent verification of such information or any independent valuation or
appraisal of any of the assets or liabilities of the Company or the Subsidiary.
With respect to financial forecasts, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of management of the Company and the Subsidiary as to the future
financial performance of the Company. We assume no responsibility for and
express no view as to such forecasts or the assumptions on which they are based.
Further, our opinion is necessarily based on economic,
monetary, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. In rendering our opinion, we did not
address the relative merits of the Merger and any alternative potential
transaction or the Company's underlying decision to effect the Merger.
In rendering our opinion, we have assumed that the Merger will
be consummated on the terms described in the Agreement without any waiver of any
material term or condition by the Company and that obtaining the necessary
regulatory approvals for the Merger will not have a material adverse effect on
the Company. We have also assumed that the definitive Agreement will not differ
in any material respect from the draft thereof furnished to us.
Lazard Freres & Co. LLC ("Lazard") is acting as investment
banker to the Company in connection with the Merger and will receive a fee for
our services, a substantial portion of which is contingent upon the consummation
of the Merger. We have in the past provided financial advisory services to the
Purchaser for which we received usual and customary compensation. In addition,
the Company has agreed to indemnify us for certain liabilities that may arise
out of the rendering of this opinion.
Our engagement and the opinion expressed herein are for the
benefit of the Company's Board of Directors and our opinion is rendered to the
Company's Board of
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Directors in connection with its consideration of the Merger. This opinion is
not intended to and does not constitute a recommendation to any holder of Common
Stock of the Company as to whether such stockholder should vote for the Merger.
It is understood that this letter may not be disclosed or otherwise referred to
without our prior consent, except as may otherwise be required by law or by a
court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion
that, as of the date hereof, the Merger Consideration is fair to the holders of
Common Stock from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ Michael J. Price
---------------------
Michael J. Price
Managing Director
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APPENDIX C
15 Pa.C.S.A. Section 1571
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1571 Application and effect of subchapter.--
(a) General rule.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on transfer
of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
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Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the holders of the shares
of any class or series of shares that, at the record date fixed to determine the
shareholders entitled to notice of and to vote at the meeting at which a plan
specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be voted on,
are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be available
without regard to the exception provided in that paragraph in the case of:
(i) Shares converted by a plan if the shares are not converted solely into
shares of the acquiring, surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles, the plan
or the terms of the transaction entitle all shareholders of the class to vote
thereon and require for the adoption of the plan or the effectuation of the
transaction the affirmative vote of a majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c) (relating to
dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation and
with or without the intervention of another corporation or other person, shall
not be entitled to the rights and remedies of dissenting shareholders provided
in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholder to dissenters rights.
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(d) Notice of dissenters rights.--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) A statement of the proposed action and a statement that the shareholders
have a right to dissent and obtain payment of the fair value of their shares by
complying with the terms of this subchapter; and
(2) A copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall also be applicable
to any transaction described in any statute other than this part that makes
reference to this subchapter for the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective.--This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to restriction on equitable
relief), 1904 (relating to de facto transaction doctrine abolished) and 2512
(relating to dissenters rights procedure).
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15 Pa.C.S.A. Section 1572
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1572 Definitions.--
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter before
the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation of
the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
"Interest." Interest from the effective date of the corporate action until the
date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
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15 Pa.C.S.A. Section 1573
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1573 Record and beneficial holders and owners.--
(a) Record holders of shares.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
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15 Pa.C.S.A. Section 1574
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1574 Notice of intention to dissent.--
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
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15 Pa.C.S.A. Section 1575
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1575 Notice to demand payment.--
(a) General rule.--If the proposed corporate action is approved by the required
vote at a meeting of shareholders of a business corporation, the corporation
shall mail a further notice to all dissenters who gave due notice of intention
to demand payment of the fair value of their shares and who refrained from
voting in favor of the proposed action. If the proposed corporate action is to
be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and certificates
for certificated shares must be deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what extent transfer of shares
will be restricted from the time that demand for payment is received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
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15 Pa.C.S.A. Section 1576
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1576 Failure to comply with notice to demand payment, etc.--
(a) Effect of failure of shareholder to act.--A shareholder who fails to timely
demand payment, or fails (in the case of certificated shares) to timely deposit
certificates, as required by a notice pursuant to section 1575 (relating to
notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not represented by
certificates, the business corporation may restrict their transfer from the time
of receipt of demand for payment until effectuation of the proposed corporate
action or the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
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15 Pa.C.S.A. Section 1577
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1577 Release of restrictions or payment for shares.--
(a) Failure to effectuate corporate action.--Within 60 days after the date set
for demanding payment and depositing certificates, if the business corporation
has not effectuated the proposed corporate action, it shall return any
certificates that have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.--When uncertificated shares have been
released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of the
shares held or owned by the dissenter for a fiscal year ending not more than 16
months before the date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the shares.
(3) A notice of the right of the dissenter to demand payment or supplemental
payment, as the case may be, accompanied by a copy of this subchapter.
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(d) Failure to make payment.--If the corporation does not remit the amount of
its estimate of the fair value of the shares as provided by subsection (c), it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
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15 Pa.C.S.A. Section 1578
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1578 Estimate by dissenter of fair value of shares.--
(a) General rule.--If the business corporation gives notice of its estimate of
the fair value of the shares, without remitting such amount, or remits payment
of its estimate of the fair value of a dissenter's shares as permitted by
section 1577(c) (relating to payment of fair value of shares) and the dissenter
believes that the amount stated or remitted is less than the fair value of his
shares, he may send to the corporation his own estimate of the fair value of the
shares, which shall be deemed a demand for payment of the amount or the
deficiency.
(b) Effect of failure to file estimate.--Where the dissenter does not file his
own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
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15 Pa.C.S.A. Section 1579
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1579 Valuation proceedings generally.--
(a) General rule.--Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575 (relating
to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever residing, whose
demands have not been settled shall be made parties to the proceeding as in an
action against their shares. A copy of the application shall be served on each
such dissenter. If a dissenter is a nonresident, the copy may be served on him
in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the court shall be plenary
and exclusive. The court may appoint an appraiser to receive evidence and
recommend a decision on the issue of fair value. The appraiser shall have such
power and authority as may be specified in the order of appointment or in any
amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be entitled
to recover the amount by which the fair value of his shares is found to exceed
the amount, if any, previously remitted, plus interest.
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(e) Effect of corporation's failure to file application.--If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
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15 Pa.C.S.A. Section 1580
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1997-50
1580 Costs and expenses of valuation proceedings.--
(a) General rule.--The costs and expenses of any proceeding under section 1579
(relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
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15 Pa.C.S.A. Section 1930
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 19. FUNDAMENTAL CHANGES
SUBCHAPTER C. MERGER, CONSOLIDATION, SHARE EXCHANGES AND SALE OF ASSETS
Current through Act 1997-50
1930 Dissenters rights.--
(a) General rule.--If any shareholder of a domestic business corporation that is
to be a party to a merger or consolidation pursuant to a plan of merger or
consolidation objects to the plan of merger or consolidation and complies with
the provisions of Subchapter D of Chapter 15 (relating to dissenters rights),
the shareholder shall be entitled to the rights and remedies of dissenting
shareholders therein provided, if any. See also section 1906(c) (relating to
dissenters rights upon special treatment).
(b) Plans adopted by directors only.--Except as otherwise provided pursuant to
section 1571(c) (relating to grant of optional dissenters rights), Subchapter D
of Chapter 15 shall not apply to any of the shares of a corporation that is a
party to a merger or consolidation pursuant to section 1924(b)(1)(i) (relating
to adoption by board of directors).
(c) Cross references.--See sections 1571(b) (relating to exceptions) and 1904
(relating to de facto transaction doctrine abolished).
15
