<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1999
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INACOM CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5045 47-0681813
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
10810 FARNAM DRIVE
OMAHA, NEBRASKA 68154
(402) 758-3900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DAVID C. GUENTHNER
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
10810 FARNAM DRIVE
OMAHA, NEBRASKA 68154
(402) 758-3900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID L. HEFFLINGER STANLEY R. HULLER
A. GUY LAWSON J. DAVID WASHBURN
MCGRATH, NORTH, MULLIN & KRATZ, P.C. ARTER & HADDEN LLP
SUITE 1400 1717 MAIN STREET, SUITE 4100
ONE CENTRAL PARK PLAZA DALLAS, TX 75201-4605
OMAHA, NE 68102
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective time of the merger described in this
registration statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT OFFERING PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
Common Stock......................... 32,000,000 N/A $464,667,400 $56,962
</TABLE>
(1) Based upon an estimate of the maximum number of shares of common stock of
InaCom Corp. that may be issued pursuant to the merger described herein.
(2) Estimated solely for the purpose of calculating the registration fee and
computed pursuant to Rule 457(c) and (f) of the Securities Act of 1933, as
amended, based on the product of (i) $9.34, the average of the high and low
per share prices of the common stock of Vanstar Corporation on the New York
Stock Exchange on January 11, 1999 and (ii) the estimated maximum number of
shares of Vanstar common stock outstanding at the time of the merger less
(iii) $72,216 previously paid under Rule 14a-6(i)(1) with respect to the
merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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<CAPTION>
[LOGO] [LOGO]
<S> <C>
</TABLE>
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of InaCom Corp. and Vanstar Corporation have agreed
on a merger designed to create one of the leading technology services companies
in the world. After the merger, Vanstar will operate as a wholly-owned
subsidiary of InaCom.
If the merger is completed, Vanstar stockholders will be entitled to receive
.64 shares of InaCom common stock for each share of Vanstar common stock that
they own. InaCom stockholders will continue to own their existing shares after
the merger. InaCom expects to issue approximately 28 million shares of InaCom
common stock to Vanstar stockholders in connection with the merger. As a result,
the former Vanstar stockholders will own approximately 62.6% of the outstanding
InaCom common stock after the merger and the former InaCom stockholders will own
the remaining 37.4%.
The merger cannot be completed unless the matters proposed in this joint
proxy statement/prospectus are approved by Vanstar and InaCom stockholders.
Approval of the merger agreement by the Vanstar stockholders is virtually
assured because, as part of the merger negotiations, holders of approximately
43% of the Vanstar common stock have agreed to approve the merger agreement. We
have scheduled special meetings for our stockholders to vote on the matters
proposed in this joint proxy statement/prospectus.
Whether or not you plan to attend the meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. YOUR VOTE IS VERY
IMPORTANT.
Both InaCom common stock, under the symbol "ICO," and Vanstar common stock,
under the symbol "VST," are traded on the New York Stock Exchange.
The dates, times and places of the meetings are as follows:
FOR VANSTAR STOCKHOLDERS:
February 17, 1999 11:00 a.m.
2575 Westside Parkway, Suite 500
Alpharetta, Georgia 30004
FOR INACOM STOCKHOLDERS:
February 17, 1999 10:00 a.m.
10810 Farnam Drive
Omaha, Nebraska 68154
This document is the joint proxy statement of InaCom and Vanstar for their
respective meetings and the prospectus of InaCom for the InaCom common stock to
be issued in connection with the merger. This document provides you with
detailed information about the proposed merger. In addition, you may obtain
information about our companies from documents that we have previously filed
with the Securities and Exchange Commission. Please see "Additional Information"
on page 84. We encourage you to read this entire document carefully.
<TABLE>
<CAPTION>
[SIG] [SIG]
<S> <C>
Bill L. Fairfield William Y. Tauscher
President and Chief Executive Officer Chairman of the Board, Chief Executive Officer
InaCom Corp. and President
Vanstar Corporation
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN RISKS TO BE
CONSIDERED IN CONNECTION WITH THE PROPOSED MERGER.
------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN
CONNECTION WITH THE MERGER OR DETERMINED IF THIS DOCUMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------------------------------
Joint Proxy Statement/Prospectus dated January 15, 1999, and first
mailed to stockholders on or about January 16, 1999.
<PAGE>
INACOM CORP.
10810 FARNAM DRIVE
OMAHA, NEBRASKA 68154
------------------------
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON FEBRUARY 17, 1999
------------------------
TO THE STOCKHOLDERS OF INACOM:
A special meeting of the stockholders of InaCom Corp. will be held at 10810
Farnam Drive, Omaha, Nebraska on February 17, 1999 at 10:00 a.m., local time for
the following purposes:
1. To approve the issuance of shares of common stock of InaCom to
stockholders of Vanstar Corporation, a Delaware corporation, pursuant to
the Agreement and Plan of Merger dated as of October 8, 1998, among
Vanstar, InaCom and InaCom Acquisition, Inc., a Delaware corporation and
wholly-owned subsidiary of InaCom. The merger agreement is attached to
the accompanying document as Annex A.
2. To approve an amendment to the certificate of incorporation of InaCom to
increase the number of authorized shares of InaCom common stock to
100,000,000 shares.
3. To approve an increase of an additional 10,000,000 shares of InaCom
common stock authorized for issuance under the 1997 InaCom Stock Plan.
4. To transact such other business as may properly come before the InaCom
special meeting.
The close of business on December 31, 1998 has been fixed by the InaCom
board of directors as the record date for the determination of stockholders
entitled to vote at the InaCom special meeting. Your vote is important. Approval
of each of proposals 1 and 2 will require an affirmative vote by the holders of
more than 50% of the shares of InaCom common stock casting a vote on the
proposals at the InaCom special meeting (provided that the total votes cast on
the proposal represent more than 50% of all shares of InaCom common stock that
are entitled to vote on the proposal). Approval of proposal 3 will require an
affirmative vote by the holders of more than 50% of the shares of InaCom common
stock outstanding as of the InaCom record date. Each of the proposals is
conditioned upon approval of all of the proposals.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted FOR approval and adoption of proposals 1, 2 and
3 above.
You are urged to read the attached document carefully. It is very important
that your shares be represented at the InaCom special meeting. WHETHER OR NOT
YOU PLAN TO ATTEND THE INACOM SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED
PRE-ADDRESSED AND PRE-PAID ENVELOPE SO THAT IT WILL BE RECEIVED NO LATER THAN
FEBRUARY 16, 1999. If you attend the InaCom special meeting, you may vote in
person if you wish, even though you have previously returned your proxy. Any
action may be taken on any of the foregoing proposals at the InaCom special
meeting on the date specified above or on any dates to which the original or
later adjournment of the special meeting may be adjourned or postponed.
By order of the InaCom Board of
Directors,
[SIG]
Michael Steffan
SECRETARY
InaCom Corp.
Omaha, Nebraska
January 16, 1999
<PAGE>
VANSTAR CORPORATION
2001 WESTSIDE PARKWAY, SUITE 260
ALPHARETTA, GEORGIA 30004
------------------------
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON FEBRUARY 17, 1999
------------------------
TO THE STOCKHOLDERS OF VANSTAR:
A special meeting of the stockholders of Vanstar Corporation will be held at
2575 Westside Parkway, Suite 500, Alpharetta, Georgia on February 17, 1999 at
11:00 a.m., local time for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of October 8, 1998, among InaCom Corp., a Delaware
corporation, InaCom Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of InaCom, and Vanstar. The merger agreement
provides for the merger of InaCom Acquisition, Inc. with and into
Vanstar, resulting in Vanstar becoming a wholly-owned subsidiary of
InaCom.
2. To transact such other business as may properly come before the Vanstar
special meeting.
The close of business on December 28, 1998 has been fixed by the Vanstar
board of directors as the record date for the determination of stockholders
entitled to vote at the Vanstar special meeting. Your vote is important. The
affirmative vote of the holders of shares representing at least a majority of
the Vanstar common stock issued and outstanding on the record date, is necessary
to adopt the merger proposal made by the Vanstar board.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted FOR approval of the merger agreement.
You are urged to read the attached document carefully. It is very important
that your shares be represented at the Vanstar special meeting. WHETHER OR NOT
YOU PLAN TO ATTEND THE VANSTAR SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED PRE-
ADDRESSED AND PRE-PAID ENVELOPE SO THAT IT WILL BE RECEIVED NO LATER THAN
FEBRUARY 16, 1999. If you attend the Vanstar special meeting, you may vote in
person if you wish, even though you have previously returned your proxy.
By order of the Vanstar Board of
Directors,
[SIG]
William Y. Tauscher
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Alpharetta, Georgia
January 16, 1999
<PAGE>
This document incorporates important business and financial information
about us that is not included in this document. That information is described
under "Additional Information."
We will provide the information incorporated into this document without
charge to stockholders upon written or oral request, to the extent it does not
already accompany this document. Requests should be made in writing or by
telephone to the following:
<TABLE>
<S> <C>
INACOM CORP. VANSTAR CORPORATION
Investor Relations Department Investor Relations Department
10810 Farnam Drive 2001 Westside Parkway, Suite
Omaha, Nebraska 68154 260
Tel: (402) 758-3281 Alpharetta, Georgia 30004
Tel: (770) 619-6284
</TABLE>
If you would like to request documents from us, please do so by February 10,
1999 to receive them before the special meetings of the stockholders.
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 1
SUMMARY.................................................................................................... 2
The Companies.......................................................................................... 2
The InaCom Special Meeting............................................................................. 2
The Vanstar Special Meeting............................................................................ 3
Risk Factors Meriting Special Attention................................................................ 3
The Merger and the Merger Agreement.................................................................... 4
Interests of Certain Persons in the Merger............................................................. 5
Reciprocal Stock Option Agreements..................................................................... 5
Effect of Certain Agreements........................................................................... 5
Selected Historical Financial Information of InaCom.................................................... 6
Selected Historical Financial Information of Vanstar................................................... 7
Selected Unaudited Pro Forma Combined Financial Data................................................... 8
Comparative Per Share Data of InaCom and Vanstar....................................................... 10
Market Prices.......................................................................................... 12
RISK FACTORS............................................................................................... 13
The value of the InaCom shares to be received by Vanstar stockholders will fluctuate with the InaCom
share price........................................................................................... 13
The merger may cause significant debt obligations to become immediately payable........................ 13
The merger may result in defaults under other Vanstar and InaCom agreements............................ 13
We expect substantial expenses and payments even if the merger fails to occur.......................... 14
The expected benefits from the merger may not occur.................................................... 14
The merger may result in loss of customers, employees and suppliers.................................... 14
Warburg will own 23.7% of InaCom common stock after the merger, providing it with significant voting
influence............................................................................................. 14
InaCom stockholders may have less influence following the merger....................................... 15
If recent reductions in gross margins continue, our profitability will be adversely affected........... 15
Receipt of InaCom common stock may be taxable if expected tax treatment does not occur................. 15
If the supply agreements with out key vendors were materially revised, not renewed or terminated, it
would have an adverse effect on our business.......................................................... 16
If key vendors decrease incentive funds, our profitability will be adversely affected.................. 16
If our vendors do not continue price protection policies or there are unforeseen events, we may have to
devalue our inventory................................................................................. 16
If we are unable to properly manage "build-to-order" programs, our business may be adversely
affected.............................................................................................. 16
</TABLE>
<PAGE>
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PAGE
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<S> <C>
Our business will be adversely affected if we cannot counteract future declines in gross margins....... 17
We must recruit and retain key management and technical personnel in order to be
competitive...................................................................... 17
We maintain a significant amount of rate-sensitive working capital to finance our
operations....................................................................... 17
If we fail to manage our growth, our profitability may be adversely affected...... 17
We will have substantial debt after the Vanstar merger which may impair our
ability to obtain additional financing........................................... 17
Significant consolidation and manufacturers selling direct to consumers may cause
competition to increase in intensity............................................. 18
Future InaCom acquisitions may result in increased debt and dilution to InaCom
stockholders..................................................................... 18
Failure of our procurement and delivery systems could result in our failure to
take orders, ship products and react to market conditions........................ 18
THE INACOM SPECIAL MEETING............................................................ 19
Date, Time and Place.............................................................. 19
Matters to be Considered at the InaCom Special Meeting............................ 19
InaCom Board Recommendation....................................................... 19
Vote Required..................................................................... 19
Voting of Proxies................................................................. 20
Revocability of Proxies........................................................... 20
Record Date; Stock Entitled to Vote; Quorum....................................... 20
Solicitation of Proxies........................................................... 21
1999 Annual Meeting of Stockholders of InaCom..................................... 21
THE VANSTAR SPECIAL MEETING........................................................... 22
Date, Time and Place.............................................................. 22
Matters to be Considered at the Vanstar Special Meeting........................... 22
Vanstar Board Recommendation...................................................... 22
Vote Required..................................................................... 22
Voting of Proxies................................................................. 22
Revocability of Proxies........................................................... 23
Record Date; Stock Entitled to Vote; Quorum....................................... 23
Solicitation of Proxies........................................................... 23
1999 Annual Meeting of Stockholders of Vanstar.................................... 23
THE MERGER............................................................................ 24
General........................................................................... 24
Background of the Merger.......................................................... 24
InaCom's Reasons for the Merger................................................... 29
Vanstar's Reasons for the Merger.................................................. 30
Recommendation of the InaCom Board of Directors................................... 31
Recommendation of the Vanstar Board of Directors.................................. 31
Opinion of J.P. Morgan............................................................ 32
Opinion of Credit Suisse First Boston............................................. 36
Material Federal Income Tax Consequences of the Merger on Vanstar Stockholders.... 41
Interests of Certain Persons in the Merger........................................ 43
Ownership Interest of Vanstar Stockholders After the Merger....................... 45
Treatment of Existing Vanstar Stock Options....................................... 45
Stock Exchange Listing............................................................ 45
Delisting and Deregistration of Vanstar Common Stock.............................. 45
Accounting Treatment.............................................................. 45
Absence of Appraisal Rights....................................................... 46
Government and Regulatory Approvals............................................... 46
Procedures for Exchange of Vanstar Common Stock Certificates...................... 46
Resales of InaCom Common Stock.................................................... 47
</TABLE>
<PAGE>
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<CAPTION>
PAGE
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<S> <C>
INACOM PROPOSAL TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF INACOM COMMON STOCK......................... 48
INACOM PROPOSAL TO INCREASE THE NUMBER OF SHARES AUTHORIZED UNDER INACOM'S 1997 STOCK PLAN................. 48
THE MERGER AGREEMENT....................................................................................... 52
Structure of the Merger................................................................................ 52
Conversion of Vanstar Common Stock..................................................................... 52
Certain Representations and Warranties................................................................. 52
Conduct of Business Pending the Merger................................................................. 53
Conditions to Consummate the Merger.................................................................... 53
Pooling................................................................................................ 54
Employee Benefits...................................................................................... 54
No Solicitation........................................................................................ 54
Third-Party Standstill Agreements...................................................................... 55
Indemnification and Insurance.......................................................................... 55
Affiliate Agreements................................................................................... 55
InaCom's Board of Directors............................................................................ 55
Vanstar's Trust Convertible Preferred Securities....................................................... 56
Termination............................................................................................ 57
Fees and Expenses; Effect of Termination............................................................... 58
Amendment and Modification............................................................................. 59
Waiver................................................................................................. 59
STOCK OPTION AGREEMENTS.................................................................................... 59
Trigger Events......................................................................................... 59
Term of the Options.................................................................................... 59
First Refusal Rights of the Grantor.................................................................... 60
Repurchase Rights of the Grantor and Grantee........................................................... 60
Profit Limitation...................................................................................... 60
Adjustment and Registration Provisions................................................................. 60
VOTING AGREEMENTS.......................................................................................... 61
Warburg Voting Agreement............................................................................... 61
Voting Agreements of Vanstar Directors................................................................. 61
Voting Agreements of InaCom Directors.................................................................. 61
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION......................................................... 62
INACOM..................................................................................................... 71
Business............................................................................................... 71
Recent Developments.................................................................................... 71
Management............................................................................................. 73
VANSTAR.................................................................................................... 75
Business............................................................................................... 75
Recent Developments.................................................................................... 76
Board of Directors..................................................................................... 77
DESCRIPTION OF INACOM CAPITAL STOCK........................................................................ 79
General................................................................................................ 79
Common Stock........................................................................................... 79
Preferred Stock........................................................................................ 79
Liquidation and Other Rights........................................................................... 80
Advance Notice Requirements in Connection with Stockholder Meetings.................................... 80
Section 203 of the Delaware General Corporation Law.................................................... 80
Transfer Agent......................................................................................... 80
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
COMPARISON OF THE RIGHTS OF HOLDERS OF VANSTAR COMMON STOCK AND INACOM COMMON STOCK... 81
Introduction...................................................................... 81
Authorized Capital Stock.......................................................... 81
Board or Stockholder Approved Preferred Stock..................................... 82
Number of Directors............................................................... 82
Special Meetings of Stockholders.................................................. 82
Amendment of By-laws.............................................................. 83
Advance Notice for Raising Business or Making Nominations at Annual Meetings...... 83
Appraisal Rights.................................................................. 83
EXPERTS............................................................................... 84
LEGAL MATTERS......................................................................... 84
ADDITIONAL INFORMATION................................................................ 84
Cautionary Statement Concerning Forward-Looking Statements........................ 84
Where You Can Find More Information............................................... 84
</TABLE>
ANNEXES
Annex A--Agreement and Plan of Merger
Annex B--Opinion of J.P. Morgan Securities Inc.
Annex C--Opinion of Credit Suisse First Boston Corporation
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are the two companies proposing to merge?
A: InaCom and Vanstar believe that the combination of the two companies will
create a more competitive technology services company than either InaCom or
Vanstar would be on its own. We are optimistic about the potential cost
savings and opportunities for other synergies to be achieved as a result of
the merger and expect this transaction to provide a platform for further
growth, both internally and through future strategic acquisitions. To review
the reasons for the merger and certain related uncertainties in greater
detail, see "The Merger--InaCom's Reasons for the Merger," "--Vanstar's
Reasons for the Merger," and "Additional Information--Cautionary Statement
Concerning Forward-Looking Statements."
Q: When do you expect the merger to be completed?
A: We are working towards completing the merger as quickly as possible. We
expect to complete the merger on or shortly after February 17, 1999.
Q: What do I need to do now?
A: Stockholders of InaCom and Vanstar should mail their signed and dated proxy
card in the enclosed envelope as soon as possible to ensure that their
shares will be represented at the InaCom special meeting or the Vanstar
special meeting. The InaCom meeting and the Vanstar meeting will take place
on February 17, 1999. The boards of directors of both InaCom and Vanstar
have recommended voting in favor of the merger proposals.
Q: Should I send in my certificates now?
A: No, after the merger is completed, Vanstar stockholders will receive written
instructions for exchanging their Vanstar share certificates for InaCom
share certificates. VANSTAR STOCKHOLDERS SHOULD NOT SEND IN THEIR SHARE
CERTIFICATES AT THIS TIME OR WITH THEIR PROXIES. INACOM STOCKHOLDERS WILL
KEEP THEIR CERTIFICATES..
Q: Can stockholders of InaCom and Vanstar change their vote after they have
mailed in a signed proxy card?
A: Yes, stockholders of InaCom and Vanstar can change their vote in one of three
ways at any time before their proxies are used at the InaCom special meeting
or the Vanstar special meeting. First, stockholders can revoke their proxies
by written notice. Second, stockholders can complete new, later-dated proxy
cards. Third, stockholders can attend the InaCom special meeting and the
Vanstar special meeting and vote in person.
Q: Whom should stockholders call with additional questions?
A: InaCom stockholders who have questions about the merger should call InaCom's
Investor Relations Department at (402) 758-3281. Vanstar stockholders who
have questions about the merger should call Vanstar's Investor Relations
Department at (770) 619-6284.
1
<PAGE>
SUMMARY
This summary highlights selected information from this document and 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. See "Additional
Information" on page 84.
------------------------
THE COMPANIES
INACOM CORP.
10810 FARNAM DRIVE
OMAHA, NEBRASKA 68154
(402) 758-3900
InaCom is in the business of providing computer products and computer
services to Fortune 1000 companies and other large enterprises. InaCom assists
businesses with its expertise in planning, procurement, integration, support and
management of computer networks. InaCom sells its products and services through
company-owned business centers and a large network of resellers. InaCom also has
international affiliations to satisfy the technology management needs of its
multinational clients. See "InaCom."
VANSTAR CORPORATION
2001 WESTSIDE PARKWAY, SUITE 260
ALPHARETTA, GEORGIA 30004
(770) 619-6000
Vanstar provides products and services to Fortune 1000 companies and other
large enterprises which enable those customers to build, manage and enhance
their personal computer networks. Vanstar provides customized information
technology and networking solutions for its customers. Vanstar supplies services
and expertise in providing and supporting computer hardware, network products,
computer peripherals and software from many vendors. See "Vanstar."
THE INACOM SPECIAL MEETING
PURPOSE. InaCom will hold a special meeting to approve:
- - a proposal to issue shares of InaCom common stock to the Vanstar stockholders
in the merger;
- - a proposal to amend InaCom's certificate of incorporation to increase the
authorized number of shares of InaCom common stock to 100,000,000; and
- - a proposal to amend the 1997 InaCom Stock Plan to authorize an additional
10,000,000 shares of InaCom common stock for issuance under the plan.
WHO MAY VOTE. If you were an InaCom stockholder at the close of business on
December 31, 1998, then you are entitled to vote at the InaCom special meeting
and to cast one vote for each share you owned. On December 31, 1998 there were
16,768,473 shares entitled to be voted at the InaCom special meeting.
REQUIRED VOTE. Approval of the issuance of InaCom common stock in the
merger will require an affirmative vote by the holders of more than 50% of the
shares of InaCom common stock casting a vote on such proposal at the InaCom
special meeting (assuming that the total votes cast on the proposal represent
more than 50% of all shares of InaCom common stock that are entitled to vote on
the proposal).
Approval of an additional 10,000,000 shares of InaCom common stock for
issuance under the 1997 InaCom Stock Plan will require the affirmative vote by
the holders of more than 50% of the shares of InaCom common stock casting a vote
on such proposal at the InaCom special meeting (assuming that the total votes
cast on the proposal represent more than 50% of all shares of InaCom common
stock that are entitled to vote on the proposal).
Approval of the proposal to amend InaCom's certificate of incorporation to
increase the authorized number of shares of InaCom common stock to 100,000,000
will require an affirmative vote by the holders of more than 50% of the shares
of InaCom common stock outstanding as of December 31, 1998.
Each of the above InaCom proposals is conditioned upon the approval of all
of the InaCom proposals.
2
<PAGE>
EFFECT OF BROKER NONVOTE AND ABSTENTION. A broker nonvote or a failure to
vote will have the effect of a vote against the proposal to amend InaCom's
certificate of incorporation. A broker nonvote will have no effect on the
approval of the proposals to issue InaCom common stock in the merger or approve
additional shares for issuance under the 1997 InaCom Stock Plan (assuming that
the total votes cast on the proposal represent more than 50% of the shares
entitled to vote on the proposal). An abstention with respect to any of the
InaCom proposals will have the effect of a vote against such proposal.
SHARES HELD BY AFFILIATES; AGREEMENTS TO VOTE. As of December 31, 1998, the
percentage of outstanding shares of InaCom common stock entitled to vote held by
InaCom directors, executive officers and their respective affiliates was 2.5% or
419,778 shares of InaCom common stock. The directors of InaCom, holding
approximately 2% of the InaCom common stock, entered into voting agreements and
agreed to vote their shares of InaCom common stock for the approval of the
InaCom proposals. See "Voting Agreements."
RECOMMENDATION OF THE INACOM BOARD. The board of directors of InaCom
believes that the merger is in your best interest and unanimously recommends
that you vote FOR the InaCom proposals.
THE VANSTAR SPECIAL MEETING
PURPOSE. Vanstar will hold a special meeting of its stockholders to approve
the merger agreement.
WHO MAY VOTE. If you were a Vanstar stockholder at the close of business on
December 28, 1998, then you are entitled to vote at the Vanstar special meeting
and to cast one vote for each share that you owned. On December 28, 1998 there
were 43,791,900 shares of Vanstar common stock entitled to be voted at the
Vanstar special meeting.
REQUIRED VOTE; EFFECT OF BROKER NONVOTE AND ABSTENTION. Adoption of the
merger agreement will require an affirmative vote by the holders of more than
50% of the shares of Vanstar common stock outstanding as of December 28, 1998. A
broker nonvote, a failure to vote or an abstention will have the effect of a
vote against the adoption of the merger agreement.
SHARES HELD BY AFFILIATES; AGREEMENTS TO VOTE. Warburg, Pincus Capital
Company, L.P., holder of approximately 38% of the outstanding Vanstar common
stock, and the directors of Vanstar, holders of an additional 5% of the
outstanding Vanstar common stock, have agreed to vote all of their shares in
favor of the adoption of the merger agreement. Accordingly, approval of the
merger agreement by the Vanstar stockholders is virtually assured. As of
December 28, 1998, the percentage of outstanding shares of Vanstar common stock
entitled to vote held by Vanstar directors, executive officers and their
respective affiliates was approximately 43%, or 18,800,039 shares of Vanstar
common stock.
RECOMMENDATION OF THE VANSTAR BOARD. The board of directors of Vanstar
believes that the merger agreement is advisable and in the best interests of the
Vanstar stockholders and unanimously recommends that you vote FOR the proposal
to adopt the merger agreement.
RISK FACTORS MERITING SPECIAL ATTENTION
Before you decide to vote for the adoption of the merger agreement, or for
the approval of the InaCom proposals, you should consider the following risk
factors, which are more fully described in the "Risk Factors" section on pages
13 through 18 of this document.
- - the exchange ratio of .64 shares of InaCom common stock for one share of
Vanstar common stock is fixed whether or not there is an increase or decrease
in the market price of the InaCom common stock or the Vanstar common stock;
- - certain debt obligations of InaCom and Vanstar may be accelerated as a
consequence of the merger;
- - holders of InaCom's outstanding convertible subordinated debentures have the
right to require InaCom to repurchase all or a portion of such debentures
following consummation of the merger;
- - the degree to which InaCom is able to successfully integrate Vanstar and
realize the anticipated synergies from the merger will materially affect the
operating results of the combined company;
- - customers may seek alternative sources of product supply and/or service due
to, among other reasons, a desire not to do business with the previously
unaffiliated company; and
3
<PAGE>
- - following the merger, Warburg, Pincus Capital Company, L.P. is expected to own
approximately 23.7% of the outstanding InaCom common stock and such ownership
may have a significant effect on matters submitted to a vote of InaCom
stockholders.
THE MERGER AND THE MERGER AGREEMENT
The merger agreement is attached as Annex A to this document. We encourage
you to read the merger agreement in its entirety as it is the legal document
that governs the merger. See "The Merger Agreement."
EXCHANGE RATIO. If the merger is completed, holders of Vanstar common stock
will be entitled to receive .64 shares of InaCom common stock for each share
held at the effective time of the merger. Therefore, based on the closing price
of InaCom shares on January 14, 1999 (the latest practicable date prior to the
printing of this document) of $15.19, each Vanstar share would be exchanged for
InaCom common stock having a market value of $9.72 per share as a result of the
merger. InaCom will pay cash in lieu of any fractional share of InaCom common
stock to which a Vanstar holder would otherwise be entitled based on the trading
prices of InaCom common stock shortly before the merger.
EXAMPLE: IF YOU CURRENTLY OWN 100 SHARES OF VANSTAR COMMON STOCK, THEN,
AFTER THE MERGER, YOU WILL BE ENTITLED TO RECEIVE 64 SHARES OF INACOM
COMMON STOCK.
MATERIAL TAX CONSEQUENCES. Generally, the merger will be tax-free to
stockholders of both companies for federal income tax purposes. However, any
cash paid in lieu of issuing fractional shares will be taxable. To review the
tax consequences to stockholders in greater detail, see pages 41 and 42.
CONDITIONS TO THE MERGER. The completion of the merger depends on meeting a
number of conditions, including the following:
- - obtaining approvals of InaCom and Vanstar stockholders;
- - InaCom and Vanstar materially performing their obligations under the merger
agreement;
- - the receipt by both companies of assurances that the merger will qualify for
pooling of interests accounting treatment; and
- - the receipt by both companies of tax opinions from their respective counsel to
the effect that the merger will be generally tax-free to Vanstar stockholders.
Any condition to the merger may be waived by the company entitled to assert
the condition.
NO DISSENTERS' OR APPRAISAL RIGHTS. Neither the stockholders of InaCom nor
the stockholders of Vanstar are entitled to dissenters' or appraisal rights
under applicable Delaware law in connection with the merger.
TERMINATION OF THE MERGER AGREEMENT. InaCom and Vanstar can agree to
terminate the merger agreement at any time without completing the merger. In
addition, either company can agree to terminate the merger agreement without
completing the merger, if, among other things, any of the following occurs:
- - the merger is not completed by March 31, 1999;
- - the stockholders of InaCom or Vanstar do not give the required approvals at
the special meetings;
- - any governmental entity prevents completion of the merger;
- - the other party materially breaches the merger agreement; or
- - the board of directors of the other company:
(1) fails to convene a special meeting of its stockholders on or before
March 15, 1999;
(2) fails to recommend its approval of the proposals to its stockholders; or
(3) withdraws, amends or modifies its approval in a manner adverse to the
other company.
Vanstar also may terminate the merger agreement if someone other than InaCom
proposes to acquire Vanstar with an offer the Vanstar board determines is more
favorable.
TERMINATION FEES. The merger agreement generally requires InaCom and
Vanstar to pay the other a termination fee of $12 million or $18 million if the
merger agreement is terminated under certain circumstances.
NO SOLICITATION OF THIRD PARTIES. Under the merger agreement, InaCom and
Vanstar cannot engage in discussions or trade information with a
4
<PAGE>
third party about an acquisition transaction. However, before its stockholders
approve the relevant proposals, either InaCom or Vanstar may respond to an
unsolicited superior proposal if it is deemed necessary for its board of
directors to comply with its fiduciary duties.
ACCOUNTING TREATMENT. We expect the merger to qualify as a pooling of
interests, which means that we will treat our companies as if they had always
been combined for accounting and financial reporting purposes.
TRANSFERABILITY OF INACOM COMMON STOCK. All shares of InaCom common stock
issued in connection with the merger will be freely tradable on the New York
Stock Exchange. However, transfers of shares held by persons deemed to be
"affiliates" are subject to certain securities law considerations and
contractual resale restrictions.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Vanstar's management, the Vanstar board and Warburg,
Pincus Capital Company, L.P. have interests in the merger that are different
from or in addition to your interests. For example:
- - William Y. Tauscher, Chairman of the Board, Chief Executive Officer and
President of Vanstar, William H. Janeway, a Warburg, Pincus Capital Company,
L.P. representative and Vanstar board member, and Richard H. Bard and John R.
Oltman, two additional outside Vanstar board members, will be appointed as
members of the InaCom board;
- - William Y. Tauscher and InaCom have a one-year agreement for Mr. Tauscher to
provide certain services and to receive compensation of $1 million and bonus
of up to $3 million following the merger;
- - Warburg, Pincus Capital Company, L.P. has agreed to vote its shares of Vanstar
common stock for adoption of the merger agreement; and
- - Warburg, Pincus Capital Company, L.P. and Mr. Tauscher have the right under
certain circumstances to require InaCom to register the resale of their InaCom
common stock under the securities laws.
Also, W. Grant Gregory, a member of the InaCom board, is chairman of a firm
which will receive a fee of approximately $2.25 million in connection with
advisory services rendered to InaCom in connection with the merger. See "The
Merger--Interests of Certain Persons in the Merger."
RECIPROCAL STOCK OPTION AGREEMENTS
In connection with the merger agreement, each of InaCom and Vanstar granted
to the other an option to purchase up to 19.9% of its outstanding common stock
at the time of granting such option.
Each option to purchase the other company's common stock is only exercisable
if:
- - the merger agreement is terminated and a termination fee is payable by the
other company;
- - prior to the termination of the merger agreement, a third party proposes to
acquire the other company; and
- - the other company's stockholders approve such third party's acquisition
proposal within 12 months following the termination of the merger agreement.
InaCom or Vanstar, as an optionholder, has the right to require the
repurchase of all or any portion of the options (while the option remains
exercisable) and any shares purchased pursuant to the options. In addition,
InaCom or Vanstar, as the grantor of their options, has the right to repurchase
all of the option or shares purchased pursuant to the option (while the option
remains exercisable). The total profit an option holder may realize on the
option or shares purchased pursuant to the option, plus the termination fees
payable under the merger agreement, is limited to $18 million. See "Stock Option
Agreements."
EFFECT OF CERTAIN AGREEMENTS
The stock option agreements between InaCom and Vanstar, and the voting
agreements entered into with Warburg, Pincus Capital Company, L.P. and the
directors of Vanstar and InaCom, were entered into as a condition and an
inducement to the other company's entering into the merger agreement. Those
stock options and voting agreements, as well as the termination fee provisions
in the merger agreement, are expected to increase the likelihood that the merger
will occur by making it more difficult for a third party to acquire control of
either company.
5
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF INACOM
The following summary selected historical financial information should be
read in conjunction with the historical financial statements and accompanying
notes that InaCom has included in its Annual Report on Form 10-K, as amended,
for the fiscal year ended December 27, 1997 and its Quarterly Report on Form
10-Q for the nine months ended September 26, 1998 incorporated by reference
herein. See "Additional Information."
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED FISCAL YEAR ENDED
-------------------- -----------------------------------------------------
SEPT. 26, SEPT. 27, DEC. 27, DEC. 28, DEC. 30, DEC. 31, DEC. 25,
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues...................... $3,201,410 $2,827,238 $3,896,302 $3,102,055 $2,200,344 $1,800,539 $1,545,227
Net earnings (loss)........... 31,926 19,183 29,456 18,733 11,707 (2,256) 11,975
Earnings (loss) per share
Basic....................... 2.02 1.68 2.48 1.80 1.17 (0.22) 1.27
Diluted..................... $ 1.71 $ 1.49 $ 2.17 $ 1.66 $ 1.16 $ (0.22) $ 1.25
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
--------------------
SEPT. 26, SEPT. 27, DEC. 27, DEC. 28, DEC. 30, DEC. 31, DEC. 25,
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.................. $1,158,646 $1,004,089 $ 960,539 $ 847,600 $ 624,238 $ 519,875 $ 456,894
Current maturities of
long-term debt.............. -- -- -- -- 6,667 6,710 257
Long-term debt, less current
maturities.................. 141,500 55,250 141,500 55,250 23,667 30,333 20,000
Stockholders' equity.......... $ 414,201 $ 214,248 $ 325,216 $ 176,830 $ 148,775 $ 135,590 $ 136,491
</TABLE>
6
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF VANSTAR
The following summary historical financial information should be read in
conjunction with the historical financial statements and accompanying notes that
Vanstar has included in its Annual Report on Form 10-K, as amended, for the
fiscal year ended April 30, 1998 and its Quarterly Report on Form 10-Q for the
six months ended October 31, 1998 incorporated by reference herein. See
"Additional Information."
Vanstar's earnings set forth below represent income from continuing
operations before distributions on preferred securities of the Vanstar Financing
Trust. These distributions were $4.5 million (net of applicable taxes) in both
the six months ended October 31, 1998 and October 31, 1997, and $8.9 million and
$5.1 million (net of applicable taxes) for the fiscal years ended April 30, 1998
and 1997, respectively. The sole asset of the Vanstar Financing Trust is $207.5
million aggregate principal amount of Vanstar's 6 3/4% convertible subordinated
debentures due 2016. See "The Merger Agreement--Vanstar's Trust Convertible
Preferred Securities."
The earnings per share for fiscal years ended April 30, 1996 and 1995 are
presented giving effect to the conversion of all previously outstanding
preferred stock into Vanstar common stock and the exchange of all warrants for
shares of Vanstar common stock in connection with Vanstar's initial public
offering on March 11, 1996, as if the conversion or exchange had occurred at the
later of the beginning of the fiscal year ended April 30, 1995 or the issuance
date of the respective security.
<TABLE>
<CAPTION>
UNAUDITED SEVEN MONTHS FISCAL YEAR
SIX MONTHS ENDED FISCAL YEAR ENDED ENDED ENDED
------------------------ ------------------------------------------ ------------- -------------
OCTOBER 31, OCTOBER 31, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, SEPTEMBER 30,
1998 1997 1998 1997 1996 1995 1994 1993
----------- ----------- --------- --------- --------- --------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............... $1,258,557 $1,422,383 $2,838,802 $2,214,786 $1,884,635 $1,430,585 $ 603,451 $ 1,119,704
Earnings (loss) from
continuing operations
before distributions
on preferred
securities of
trust................ (43,854) 20,316 44,859 33,951 7,514 1,752 (6,392) (17,645)
Net earnings (loss).... (48,312) 15,860 35,947 28,807 16,708 1,752 45,147 (3,140)
Earnings (loss) from
continuing operations
per share
Basic................ (1.11) 0.37 0.83 0.68 0.22 0.06 (0.51) (1.68)
Diluted.............. (1.11) 0.36 0.81 0.66 0.21 0.05 (0.21) (1.34)
Earnings (loss) per
share
Basic................ (1.11) 0.37 0.83 0.68 0.50 0.06 3.47 (0.52)
Diluted.............. $ (1.11) $ 0.36 $ 0.81 $ 0.66 $ 0.47 $ 0.05 $ 1.40 $ (0.42)
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
------------------------
OCTOBER 31, OCTOBER 31, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, SEPTEMBER 30,
1998 1997 1998 1997 1996 1995 1994 1993
----------- ----------- --------- --------- --------- --------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........... $ 781,682 $1,009,027 $1,095,764 $ 761,423 $ 830,008 $ 720,969 $ 618,705 $ 581,771
Current maturities of
long-term debt....... 4,057 4,089 5,800 4,785 2,926 8,415 12,985 23,954
Long-term debt, less
current maturities... 581 3,762 2,337 5,946 302,277 349,528 12,212 16,139
Company-obligated
mandatorily
redeemable
convertible preferred
securities of
subsidiary trust
holding solely
convertible
subordinated debt
securities of
Vanstar.............. 194,915 194,562 194,739 194,518 -- -- -- --
Redeemable preferred
stock and accrued
dividends............ -- -- -- -- -- -- 4,777 4,464
Stockholders' equity... $ 159,348 $ 183,820 $ 207,948 $ 166,971 $ 126,043 $ 22,118 $ 24,921 $ 12,698
</TABLE>
7
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables show financial information of InaCom and Vanstar on a
pro forma basis and should be read in conjunction with, and are qualified in
their entirety by, the respective historical financial statements and notes
thereto of InaCom and Vanstar incorporated by reference in this document. The
unaudited pro forma combined financial information is presented to reflect the
estimated impact of the merger on InaCom's historical consolidated financial
statements. The merger will be accounted for as a pooling of interests. The
operating data assume that the merger had been consummated at the beginning of
the earliest period presented, and the balance sheet data assume that the merger
had been consummated as of September 26, 1998 with respect to InaCom and October
31, 1998 with respect to Vanstar. InaCom's fiscal years ended on December 27,
1997, December 28, 1996 and December 30, 1995; Vanstar's fiscal years ended on
April 30, 1998, 1997 and 1996. InaCom's financial reporting period will be
adopted by the combined entity. For purposes of the Selected Unaudited Pro Forma
Combined Financial Data, Vanstar's fiscal year end has been adjusted to conform
with Regulation S-X of the Securities and Exchange Commission. For purposes of
presenting unaudited pro forma combined financial data, Vanstar's fiscal year
end has been adjusted to January 31 by including the reported financial data for
the quarter ended January 31 and the three previous quarters ended October 31,
July 31 and April 30. Vanstar's nine month financial data has been adjusted to
include reported financial data for quarters ended October 31, July 31 and April
30. The unaudited pro forma combined financial data are not necessarily
indicative of the operating results or financial position that would have been
achieved had the merger been in effect as of the beginning of the periods
presented and should not be construed as representative of future operations.
The pro forma earnings represent income from continuing operations before
distributions on preferred securities of the Vanstar Financing Trust. These
distributions were $6.7 million (net of applicable taxes) in both the nine
months ended September 26, 1998 and September 27, 1997, and $8.9 million and
$2.9 million (net of applicable taxes) for the fiscal years ended December 27,
1997 and December 28, 1996, respectively. The sole asset of the Vanstar
Financing Trust is $207.5 million aggregate principal amount of Vanstar's 6 3/4%
convertible subordinated debentures due 2016. The pro forma earnings also
represent income from continuing operations before recognition of gain on
disposal of discontinued businesses of $9.2 million (net of applicable taxes)
for the fiscal year ended December 30, 1995.
Pro forma earnings per share for the fiscal years ended December 28, 1996
and December 30, 1995 are presented giving effect to the conversion of all
previously outstanding Vanstar preferred stock into Vanstar common stock and the
exchange of all outstanding Vanstar warrants for shares of Vanstar common stock
in connection with Vanstar's initial public offering on March 11, 1996, as if
the conversion or exchange had occurred at the later of the beginning of the
fiscal year ended December 30, 1995 or the issuance date of the respective
stock.
The pro forma combined earnings from continuing operations per share and
earnings per share represent the pro forma combined earnings from continuing
operations and net earnings for InaCom and Vanstar divided by total pro forma
common shares of the combined entity, assuming an exchange ratio of .64.
8
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
NINE MONTHS ENDED FISCAL YEAR ENDED
-------------------- -------------------------------
SEPT. 26, SEPT. 27, DEC. 27, DEC. 28, DEC. 30,
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues.............................................. $5,173,022 $4,797,822 $6,570,250 $5,280,632 $3,978,956
Earnings (loss) from continuing operations before
distributions on preferred securities of subsidiary
trust of Vanstar.................................... (70) 43,359 66,317 65,242 3,569
Net earnings (loss)................................... (6,756) 36,675 57,405 62,326 12,763
Earnings (loss) from continuing operations per share
Basic............................................... (0.15) 0.94 1.46 1.70 0.12
Diluted............................................. (0.15) 0.90 1.39 1.62 0.11
Earnings (loss) per share
Basic............................................... (0.15) 0.94 1.46 1.70 0.41
Diluted............................................. $ (0.15) $ 0.90 $ 1.39 $ 1.62 $ 0.41
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
SEPT. 26,
1998
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total assets.......................................... $1,962,508
Short term borrowings and current maturities of
long-term debt...................................... 415,201
Long-term debt, less current maturities............... 581
Vanstar-obligated mandatorily redeemable convertible
preferred securities of subsidiary trust holding
solely convertible subordinated debt securities of
Vanstar............................................. 194,915
Stockholders' equity.................................. $ 478,729
</TABLE>
9
<PAGE>
COMPARATIVE PER SHARE DATA OF INACOM AND VANSTAR
The following tables set forth certain historical per share data of InaCom
and Vanstar and combined per share data on an unaudited pro forma combined basis
and on a per share equivalent pro forma combined basis after giving effect to
the merger using the pooling of interests basis of accounting. Pro forma
earnings per share and book value per share have been calculated assuming that
.64 shares of InaCom common stock are issued in exchange for each share of
Vanstar common stock outstanding. The information set forth below should be read
in conjunction with the selected historical financial data included elsewhere in
this document, and is qualified in its entirety by the respective historical
financial statements and notes thereto of InaCom and Vanstar incorporated by
reference in this document. The unaudited pro forma combined financial data are
not necessarily indicative of the operating results or financial position that
would have been achieved had the merger been in effect as of the beginning of
the periods presented and should not be construed as representative of future
operations. Neither InaCom nor Vanstar has paid cash dividends to the holders of
their common stock.
All basic earnings per share data are computed using the weighted average
number of shares of common stock outstanding during the period. All diluted
earnings per share data are computed using the weighted average number of shares
of common stock outstanding and dilutive potential common stock outstanding
during the period. All book value per share data are based upon the number of
shares of common stock outstanding at the end of the related period.
The historical earnings per share of Vanstar for the fiscal year ended April
30, 1996 are presented giving effect to the conversion of all outstanding
preferred securities into Vanstar common stock and the exchange of all
outstanding warrants for shares of Vanstar common stock in connection with
Vanstar's initial public offering on March 11, 1996, as if the conversion or
exchange had occurred at the later of the beginning of the fiscal year ended
April 30, 1995 or the issuance date of the respective security.
The InaCom pro forma combined earnings (loss) from continuing operations per
share, earnings (loss) per share and book value per share represent the pro
forma combined earnings (loss) from continuing operations, net earnings (loss)
and stockholders' equity for InaCom and Vanstar divided by the total pro forma
common shares of the combined entity, assuming an exchange ratio of 0.64. The
InaCom pro forma earnings (loss) per share for the fiscal years ended December
28, 1996 and December 30, 1995 are presented giving effect to the conversion of
all Vanstar preferred securities into Vanstar common stock and the exchange of
all outstanding warrants for shares of Vanstar common stock in connection with
Vanstar's initial public offering on March 11, 1996, as if the conversion or
exchange had occurred at the later of the beginning of the fiscal year ended
December 30, 1995 or the issuance date of the respective security. The Vanstar
pro forma equivalent earnings (loss) from continuing operations per share,
earnings (loss) per share and book value per share are computed by multiplying
the InaCom pro forma combined per share amounts by the exchange ratio of 0.64.
10
<PAGE>
COMPARATIVE PER SHARE DATA OF INACOM AND VANSTAR (CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED NINE MONTHS
ENDED FISCAL YEAR ENDED
------------------------ -------------------------------------
SEPT. 26, SEPT. 27, DEC. 27, DEC. 28, DEC. 30,
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INACOM--HISTORICAL:
Earnings per share:
Basic......................................................... $ 2.02 $ 1.68 $ 2.48 $ 1.80 $ 1.17
Diluted....................................................... 1.71 1.49 2.17 1.66 1.16
Book value per share............................................ $ 24.70 $ 18.53 $ 21.94 $ 16.30 $ 14.85
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED SIX MONTHS
ENDED FISCAL YEAR ENDED
------------------------ -------------------------------------
OCT. 31, OCT. 31, APRIL 30, APRIL 30, APRIL 30,
1998 1997 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
VANSTAR--HISTORICAL:
Earnings (loss) from continuing operations
per share
Basic........................................................ $ (1.11) $ 0.37 $ 0.83 $ 0.68 $ 0.22
Diluted...................................................... (1.11) 0.36 0.81 0.66 0.21
Earnings (loss) per share
Basic........................................................ (1.11) 0.37 0.83 0.68 0.50
Diluted...................................................... (1.11) 0.36 0.81 0.66 0.47
Book value per share........................................... $ 3.64 $ 4.25 $ 4.78 $ 3.89 $ 3.02
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED NINE MONTHS
ENDED UNAUDITED FISCAL YEAR ENDED
------------------------ -------------------------------------
SEPT. 26, SEPT. 27, DEC. 27, DEC. 28, DEC. 30,
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INACOM--PRO FORMA COMBINED:
Earnings (loss) from continuing operations per share
Basic......................................................... $ (0.15) $ 0.94 $ 1.46 $ 1.70 $ 0.12
Diluted....................................................... (0.15) 0.90 $ 1.39 1.62 0.11
Earnings (loss) per share
Basic......................................................... (0.15) 0.94 1.46 1.70 0.41
Diluted....................................................... $ (0.15) $ 0.90 $ 1.39 $ 1.62 $ 0.41
Book value per share............................................ $ 10.69
VANSTAR--PRO FORMA EQUIVALENT:
Earnings (loss) from continuing operations per share
Basic......................................................... $ (0.10) $ 0.60 $ 0.93 $ 1.09 $ 0.08
Diluted....................................................... (0.10) 0.58 0.89 1.04 0.07
Earnings (loss) per share
Basic......................................................... (0.10) 0.60 0.93 1.09 0.26
Diluted....................................................... $ (0.10) $ 0.58 $ 0.89 $ 1.04 $ 0.26
Book value per share............................................ $ 6.84
</TABLE>
11
<PAGE>
MARKET PRICES
The table below sets forth, for the fiscal quarters indicated, the high and
low sales prices per share reported by the New York Stock Exchange Composite
Transactions List for the Vanstar common stock and the InaCom common stock.
Vanstar's fiscal year ends on April 30 each year and InaCom's fiscal year ends
on the last Saturday of December each year.
<TABLE>
<CAPTION>
VANSTAR COMMON STOCK
HIGH LOW
------------ ------------
<S> <C> <C>
Fiscal year:
1997
First Quarter ended July 31, 1996: $ 173/8 $ 121/4
Second Quarter ended October 31, 1996: 293/4 153/4
Third Quarter ended January 31, 1997: 281/4 133/4
Fourth Quarter ended April 30, 1997: 161/2 61/2
1998
First Quarter ended July 31, 1997: 151/2 71/4
Second Quarter ended October 31, 1997: 171/4 119/16
Third Quarter ended January 31, 1998: 16 11
Fourth Quarter ended April 30, 1998: 161/4 111/4
1999
First Quarter ended July 31, 1998: 1515/16 10
Second Quarter ended October 31, 1998: 113/4 63/4
Third Quarter (through January 14, 1999): 125/16 83/8
<CAPTION>
INACOM COMMON STOCK
HIGH LOW
------------ ------------
<S> <C> <C>
Fiscal year:
1997
First Quarter ended March 29, 1997: $ 401/8 $ 205/8
Second Quarter ended June 28, 1997: 321/2 20
Third Quarter ended September 27, 1997: 375/8 311/8
Fourth Quarter ended December 27, 1997: 393/8 243/8
1998
First Quarter ended March 28, 1998: 331/16 225/8
Second Quarter ended June 27, 1998: 371/4 255/8
Third Quarter ended September 26, 1998: 3315/16 151/2
Fourth Quarter ended December 27, 1998: 211/8 139/16
1999
First Quarter (through January 14, 1999): 161/16 143/16
</TABLE>
The following chart sets forth the last reported sale prices per share of
InaCom common stock and Vanstar common stock as reported on the New York Stock
Exchange Composite Transactions List on October 8, 1998, the last trading day
prior to the announcement of the merger agreement.
STOCK PRICE PRECEDING ANNOUNCEMENT
<TABLE>
<S> <C> <S> <C>
InaCom...................................................... $1613/16
Vanstar............................................................................................ $ 83/8
</TABLE>
The following chart sets forth the last reported sale prices per share of
InaCom common stock and Vanstar common stock as reported on the New York Stock
Exchange Composite Transactions List on January 14, 1999, the latest practicable
date prior to the printing of this document.
STOCK PRICE PRECEDING PRINTING
<TABLE>
<S> <C>
InaCom...................................................... $153/16
Vanstar..................................................... $ 91/8
</TABLE>
12
<PAGE>
RISK FACTORS
In addition to the other information included in this document, the risk
factors described below should be considered by InaCom stockholders in
determining whether to vote to approve the InaCom proposals and by Vanstar
stockholders in determining whether to vote to adopt the merger agreement.
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED IN CONNECTION WITH THE
EFFECTS OF THE MERGER.
THE VALUE OF THE INACOM SHARES TO BE RECEIVED BY VANSTAR STOCKHOLDERS WILL
FLUCTUATE WITH THE INACOM SHARE PRICE.
The number of shares to be received by Vanstar stockholders in the merger is
fixed at .64 shares of InaCom common stock for each share of Vanstar common
stock and will not change even if the market price of InaCom common stock or
Vanstar common stock changes before the merger is completed. Accordingly,
stockholders will not know the actual market value of InaCom common stock to be
received in connection with the merger when they vote upon the merger proposals.
Stockholders are urged to obtain current market quotations for the InaCom common
stock and the Vanstar common stock. Stock price variations could be the result
of changes in the business, operations or prospects of InaCom, Vanstar or the
combined company, market assessments of the likelihood that the merger will be
consummated and the timing thereof, general market and economic conditions and
other factors both within and beyond the control of InaCom or Vanstar. InaCom
does not intend to obtain an updated fairness opinion of J.P. Morgan Securities
Inc. ("J.P. Morgan") and Vanstar does not intend to obtain an updated fairness
opinion of Credit Suisse First Boston Corporation ("CSFB") prior to the
completion of the merger.
THE MERGER MAY CAUSE SIGNIFICANT DEBT OBLIGATIONS TO BECOME IMMEDIATELY PAYABLE.
InaCom and Vanstar have significant debt obligations that may be accelerated
by the merger. As a result, InaCom could be required to immediately repay as
much as $1.18 billion in debt obligations after the merger if appropriate
consents are not obtained. In addition, Vanstar and InaCom maintain certain
other debt obligations that contain cross-default provisions and will therefore
also become due and payable if either company should default on one or more of
its debt obligations. See "The Merger Agreement-- Vanstar's Trust Convertible
Preferred Securities" and "InaCom--Recent Developments."
InaCom and Vanstar intend to seek consents from the other parties to its
debt agreements. In those cases where consents are not available or are not
obtained, the parties intend to seek to refinance their obligations. The parties
cannot provide any assurance that InaCom will be able to obtain sufficient funds
on reasonable terms to refinance all necessary debt obligations.
If InaCom is able to refinance these obligations, any new arrangements may
carry higher interest rates than the original obligations and could contain
terms and conditions less favorable to InaCom than those contained in the
original obligations. Any inability of InaCom to obtain any required refinancing
could result in defaults under one or more of its major debt obligations, which
would have a material adverse effect on InaCom.
THE MERGER MAY RESULT IN DEFAULTS UNDER OTHER VANSTAR AND INACOM AGREEMENTS.
Consummation of the merger may result in a default under one or more
agreements applicable to InaCom or Vanstar, dealing with, among other things,
severance arrangements, real property and equipment leases and contracts
affecting customer relations, unless consents are obtained from the other
parties to such agreements. Such defaults may result in InaCom becoming liable
for litigation costs, settlement expenses or, possibly, contractual liabilities.
InaCom and Vanstar cannot provide any assurance that the consents necessary to
avoid such liability can be obtained or, if they are not obtained, that the
consequences of such failure would not be material.
13
<PAGE>
WE EXPECT SUBSTANTIAL EXPENSES AND PAYMENTS EVEN IF THE MERGER FAILS TO OCCUR.
The merger may not be consummated. Whether or not the merger is consummated,
InaCom and Vanstar will have incurred substantial expenses. In addition, if the
merger agreement is terminated under certain circumstances, the terminating
party may be required to pay the non-terminating party a termination fee in an
amount up to $18 million. See "The Merger Agreement--Fees and Expenses; Effect
of Termination."
THE EXPECTED BENEFITS FROM THE MERGER MAY NOT OCCUR.
InaCom and Vanstar have entered into the merger agreement with the
expectation that the merger will result in certain benefits, including, without
limitation, cost savings, operating efficiencies, revenue enhancements and other
synergies. There can be no assurance, however, that InaCom will realize any of
the anticipated benefits of the merger. Achieving the benefits of the merger
will depend in part upon the integration of our businesses in an efficient
manner, and there can be no assurance that this will occur. Consequently,
although InaCom expects the merger will be accretive to earnings by the end of
1999, the merger would have had a dilutive effect on InaCom's earnings per share
on a pro forma combined basis for recent periods. The following table sets
forth, on a pro forma combined basis, assuming consummation of the merger,
InaCom's earnings (loss) per share for the year ended December 27, 1997 and the
nine months ended September 26, 1998, as compared to earnings (loss) per share
for the same periods, without giving effect to the merger:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 27, 1997 SEPTEMBER 26, 1998
---------------------- ----------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Earnings (loss) per share:
Basic................................. $ 2.48 $ 1.46 $ 2.02 $ (.15)
Diluted............................... $ 2.17 $ 1.39 $ 1.71 $ (.15)
</TABLE>
See "Unaudited Pro Forma Combined Financial Information" beginning on page 62.
No assurances can be given that the merger will in fact be accretive to earnings
in the future or that the benefits derived by InaCom in the merger will outweigh
or exceed the dilutive effects of such merger. For a discussion of other
relevant factors and assumptions, see "The Merger--InaCom's Reasons for the
Merger," "--Vanstar's Reasons for the Merger," "--Recommendation of the InaCom
Board of Directors" and "--Recommendation of the Vanstar Board of Directors,"
beginning on page 29.
THE MERGER MAY RESULT IN LOSS OF CUSTOMERS, EMPLOYEES AND SUPPLIERS.
Historically, in business combinations of this nature, certain customers
seek alternative sources of product supply and/or service after the announcement
of the transaction due to, among other reasons, a desire not to do business with
the previously unaffiliated company. Management of InaCom and Vanstar anticipate
that InaCom will experience some customer attrition after the merger.
Difficulties in combining operations could also result in the loss of key
employees or suppliers. There can be no assurance that any steps taken by
management to counter such increased customer, employee and supplier attrition
will be effective. Failure by InaCom to control attrition would adversely affect
InaCom's future growth and profitability.
WARBURG WILL OWN 23.7% OF INACOM COMMON STOCK AFTER THE MERGER, PROVIDING IT
WITH SIGNIFICANT VOTING INFLUENCE.
Upon consummation of the merger, Warburg, Pincus Capital Company, L.P.,
holder of approximately 38% of the outstanding shares of Vanstar common stock
prior to the merger, by reason of its expected ownership of approximately 23.7%
of the then outstanding InaCom common stock, may have a significant effect on
the outcome of the vote on all matters submitted to a vote of holders of InaCom
common stock.
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<PAGE>
INACOM STOCKHOLDERS MAY HAVE LESS INFLUENCE FOLLOWING THE MERGER.
InaCom and Vanstar estimate that there will be approximately 44.8 million
shares of InaCom common stock outstanding upon consummation of the merger, of
which the former Vanstar stockholders will own an aggregate of 62.6% and the
former InaCom stockholders will own an aggregate of 37.4%. Accordingly, the
InaCom stockholders may have less influence over the management and policies of
InaCom than they currently exercise.
IF RECENT REDUCTIONS IN GROSS MARGINS CONTINUE, OUR PROFITABILITY WILL BE
ADVERSELY AFFECTED.
Competition faced by the major vendors of computer products, particularly
from direct sellers, has placed significant pressure on those vendors to find
ways to reduce costs. As a result, manufacturers have been assessing the manner
in which they deal with computer resellers, such as InaCom and Vanstar, and have
made significant changes in fundamental aspects of their relationships with
computer resellers, including those described below under "--If key vendors
decrease incentive funds, our profitability will be adversely affected," "--If
our vendors do not continue price protection policies or there are other
unforeseen events, we may have to devalue our inventory," "--If we are unable to
properly manage "build-to-order" programs, our business may be adversely
affected" and "--Our business will be adversely affected if we cannot counteract
future declines in gross margins." In addition, manufacturers have priced their
products more aggressively, which has led to significant declines in average
sales prices of computers in recent periods. As a consequence, gross margins on
computer product sales have declined over the past several years.
Compaq has recently indicated that it intends to implement a direct selling
program for some of its products. As a result, Compaq's reliance on InaCom and
other resellers as a primary distribution channel for its products could
decrease. To the extent other manufacturers adopt a similar strategy, InaCom's
business could be adversely affected.
InaCom's future operating results after the merger will depend largely upon
its ability to react appropriately to conform its delivery model to these
changes in the industry by further streamlining its operations or implementing
other programs that will enable it to deliver its products and services more
efficiently. InaCom and Vanstar cannot provide any assurance that steps taken by
InaCom to respond to these changing conditions will be successful or that
manufacturers, as they respond to further industry competition, will not make
additional changes that could have a material adverse effect on InaCom.
RECEIPT OF INACOM COMMON STOCK MAY BE TAXABLE IF EXPECTED TAX TREATMENT DOES NOT
OCCUR.
The merger is intended to be generally tax-free to the stockholders of
Vanstar. If, however, the expected tax treatment does not occur, the receipt in
the merger by Vanstar stockholders of InaCom common stock may be taxable.
Although Vanstar and InaCom will receive opinions from their respective counsel
that the merger will be treated as a reorganization (and therefore generally
tax-free), such opinions are not binding on the Internal Revenue Service or the
courts. See "The Merger--Material Federal Income Tax Consequences of the Merger
on Vanstar Stockholders."
15
<PAGE>
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE INACOM COMMON STOCK.
IF THE SUPPLY AGREEMENTS WITH OUR KEY VENDORS WERE MATERIALLY REVISED, NOT
RENEWED OR TERMINATED, IT WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
InaCom's business depends on its relationship with key vendors. An
unanticipated interruption in one or more of the relationships could have a
material adverse effect on InaCom. In 1997 InaCom derived 63.6% of its computer
products revenue from Compaq, IBM and Hewlett-Packard products, and
approximately 85% of its communications products and services revenues from
Lucent Technologies and AT&T products. InaCom's agreements with these vendors
are on a non-exclusive basis and may be terminated by the vendors on notice
typically ranging from 30 to 90 days. InaCom's business relationships with the
key vendors are good but a material adverse effect on InaCom's business would
occur if a supply agreement with a key vendor were materially revised, were not
renewed or were terminated, key computer vendors materially decreased marketing
development funds paid to InaCom, or the supply of products were insufficient or
interrupted.
IF KEY VENDORS DECREASE INCENTIVE FUNDS, OUR PROFITABILITY WILL BE ADVERSELY
AFFECTED.
InaCom's key vendors provide various incentives for promoting and marketing
their product offerings. A material decrease in the level of vendor incentive
funding or credits would have a material adverse effect on InaCom's business.
Beginning in May 1998, funds or credits received by InaCom became primarily
based on the sales of the vendor's products through the independent reseller and
InaCom-owned channels rather than based upon purchases of the products from the
vendors. The three major forms of vendor incentives received by InaCom are
co-operative funds, market development funds and vendor rebates. The funds or
credits are earned through performance of specific marketing programs or upon
completion of objectives outlined by the vendors. These funds or credits from
InaCom's primary vendors typically range from 1% to 5% of sales of the vendors'
products by InaCom.
IF OUR VENDORS DO NOT CONTINUE CURRENT PRICE PROTECTION POLICIES OR THERE ARE
OTHER UNFORESEEN EVENTS, WE MAY HAVE TO DEVALUE OUR INVENTORY.
The personal computer industry is characterized by rapid product improvement
and technological change resulting in relatively short product life cycles and
rapid product obsolescence. These factors can place inventory at considerable
valuation risk. InaCom's information technology suppliers generally provide
price protection intended to reduce the risk of inventory devaluation. However,
beginning in May 1998, the major suppliers announced plans to reduce the number
of days for which they will provide price protection to periods ranging from two
to four weeks rather than the unlimited protection previously available and to
allow product returns on average of 2% to 3% of product sales per quarter,
rather than the 5% of sales per quarter previously available. If the suppliers
do not continue current price protection policies or if there are unforeseen
product developments, InaCom's business could be materially adversely affected.
IF WE ARE UNABLE TO PROPERLY MANAGE "BUILD-TO-ORDER" PROGRAMS, OUR BUSINESS MAY
BE ADVERSELY AFFECTED.
InaCom is participating in "build-to-order" programs of Compaq, IBM and
Hewlett-Packard. Under each of these programs, InaCom performs the final
assembly of computer products after a customer order is received. InaCom
believes the build-to-order program reduces InaCom's inventory requirements and
improves margins. The potential disadvantages of the build-to-order program
include a decrease in the number of days of price protection available from
manufacturers, and the costs and additional administrative burdens of meeting
manufacturers' strict qualification standards for final assembly of computer
products. The failure of InaCom to meet the manufacturers' qualification
standards, or the inability of
16
<PAGE>
InaCom to manage its inventory to meet customer demands and within the
manufacturers' price protection limits, could have a material adverse effect on
InaCom's business.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE CANNOT COUNTERACT FUTURE DECLINES
IN GROSS MARGINS.
Gross margins on computer product sales declined over the past several years
because of computer product price reductions and intense competition. Gross
margins for computer services and communications products and services may also
decline as competition intensifies. InaCom has responded by reducing operating
expenses as a percentage of revenue and by focusing on sales of higher margin
computer services and communication products and services. A material decrease
in the gross margin for computer services and communication products and
services or a failure by InaCom to successfully maintain reduction of operating
expenses as a percentage of revenue could have a material adverse effect on
InaCom's business.
WE MUST RECRUIT AND RETAIN KEY MANAGEMENT AND TECHNICAL PERSONNEL IN ORDER TO BE
COMPETITIVE.
InaCom depends heavily on its senior management team. Further, InaCom faces
intense competition in attracting and retaining qualified technical personnel,
including systems engineers and communications specialists. InaCom's strategy
for growth in the sale of computer services and communication services depends
on its ability to attract and retain qualified technical personnel, including
systems engineers and communications specialists. The failure to recruit and
retain senior management and technical personnel could have a material adverse
effect on InaCom's business.
WE MAINTAIN A SIGNIFICANT AMOUNT OF RATE-SENSITIVE WORKING CAPITAL TO FINANCE
OUR OPERATIONS.
InaCom borrows a significant amount of working capital to purchase inventory
and to finance accounts receivable. InaCom borrows working capital through a
revolving credit facility and an asset securitization program. InaCom has also
raised capital through the public sale of debentures. InaCom's working capital
financing is subject to interest rate increases because much of the borrowing
bears a floating interest rate. In addition, such financing is subject to
additional uncertainty because there is no assurance that future borrowing will
be available in amounts and on terms acceptable to InaCom.
IF WE FAIL TO MANAGE OUR GROWTH, OUR PROFITABILITY MAY BE ADVERSELY AFFECTED.
InaCom's goal is to increase the scale of its operations through internal
growth and through the acquisition of other businesses. Consequently, InaCom may
experience periods of rapid growth with significantly increased staffing
requirements. InaCom's ability to maintain and manage its growth effectively
will require it to expand its management information systems capabilities and to
improve its operational and financial systems and controls. Moreover, InaCom
will need to attract, train, motivate, retain and manage its senior managers,
technical professionals and other employees. Any failure to expand its
management information systems capabilities and its operational and financial
systems and controls or to recruit appropriate additional personnel in an
efficient manner at a pace consistent with any business growth InaCom may
experience would have a material adverse effect on InaCom's business, financial
condition and results of operations.
WE WILL HAVE SUBSTANTIAL DEBT AFTER THE VANSTAR MERGER WHICH MAY IMPAIR OUR
ABILITY TO OBTAIN ADDITIONAL FINANCING.
InaCom's business requires significant working capital which is currently
provided through an inventory and working capital financing agreement, a
revolving credit facility and the public sale of debentures. InaCom's
substantial level of debt may impair InaCom's ability to obtain other financing
in the future, requires a substantial portion of InaCom's cash flow from
operations to pay principal and interest on its indebtedness, and may make
InaCom more vulnerable to economic downturns and limit its ability to withstand
competitive pressures. Immediately following the merger, InaCom expects that its
debt to capital
17
<PAGE>
ratio will be 67% based on total debt of approximately $980,697,000 and total
equity of approximately $478,700,000, in each case, as of September 26, 1998.
InaCom's ability to meet its debt service obligations or to refinance its
indebtedness depends on its financial and operating performance, which is
subject to prevailing economic conditions and to financial, business and other
factors beyond its control. See "--The merger may cause significant debt
obligations to become immediately payable" above.
SIGNIFICANT CONSOLIDATION AND MANUFACTURERS SELLING DIRECT TO CONSUMERS MAY
CAUSE COMPETITION TO INCREASE IN INTENSITY.
The technology management services industry is highly competitive and
continues to experience a significant amount of consolidation. In the future,
InaCom may face fewer but larger and better financed competitors as a
consequence of such consolidation. In addition, several computer manufacturers
have expanded their channels of delivery, pricing and product positioning and
compete with InaCom's marketing network for potential clients. To the extent
that the technology services industry continues to consolidate or computer
manufacturers continue to compete directly for InaCom customers, InaCom's
business could be adversely affected.
FUTURE INACOM ACQUISITIONS MAY RESULT IN INCREASED DEBT AND DILUTION TO INACOM
STOCKHOLDERS.
InaCom acquires businesses and enters into strategic alliance relationships
with resellers in selected geographic markets and service areas. Acquisitions
involve a number of special risks, including integrating acquired businesses
into InaCom's operation, the potential loss of key employees of acquired
businesses, accurate valuation of acquired businesses, incurrence of additional
debt to finance acquisitions and the financial impact of goodwill amortization.
Although InaCom has no definite plans to acquire any particular business, it may
issue InaCom common stock to consummate certain such acquisitions in the future
which may cause dilution to current stockholders.
FAILURE OF OUR PROCUREMENT AND DELIVERY SYSTEMS COULD RESULT IN OUR FAILURE TO
TAKE ORDERS, SHIP PRODUCTS AND REACT TO MARKET CONDITIONS.
InaCom depends on a variety of information systems to provide it with a
competitive advantage. A failure of InaCom's proprietary procurement and
delivery systems or any of its other information systems could prevent InaCom
from taking orders and/or shipping product and prevent clients from accessing
product availability information from InaCom. Such failure could also prevent
InaCom from determining appropriate product processing or the adequacy of
inventory levels, and prevent InaCom from reacting to rapidly changing market
conditions.
18
<PAGE>
THE INACOM SPECIAL MEETING
DATE, TIME AND PLACE
This document is being furnished to the holders of InaCom common stock in
connection with the solicitation of proxies by the InaCom board for use at the
InaCom special meeting to be held on February 17, 1999, at 10810 Farnam Drive,
Omaha, Nebraska, commencing at 10:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE INACOM SPECIAL MEETING
At the InaCom special meeting, InaCom stockholders will be asked to consider
and vote upon:
- approval of the issuance of InaCom common stock to Vanstar stockholders in
the merger;
- approval of an amendment to InaCom's certificate of incorporation to
increase the number of authorized shares of InaCom common stock to
100,000,000;
- approval of an increase of an additional 10,000,000 shares of InaCom
common stock authorized for issuance under the 1997 InaCom Stock Plan; and
- such other matters as may be properly brought before the InaCom special
meeting, or any adjournment or postponement thereof.
INACOM BOARD RECOMMENDATION
THE INACOM BOARD HAS DECLARED THAT THE AMENDMENT OF THE CERTIFICATE OF
INCORPORATION IS ADVISABLE, HAS UNANIMOUSLY APPROVED THE ISSUANCE OF INACOM
COMMON STOCK IN THE MERGER, THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION
AND THE INCREASE OF THE NUMBER SHARES OF INACOM COMMON STOCK AVAILABLE FOR
ISSUANCE UNDER THE 1997 INACOM STOCK PLAN AND RECOMMENDS THAT HOLDERS OF INACOM
COMMON STOCK VOTE IN FAVOR OF THE APPROVAL OF THESE PROPOSALS.
VOTE REQUIRED
The approval of each of the issuance of InaCom common stock in the merger
and the increase of the number of shares of InaCom common stock available for
issuance under the 1997 InaCom Stock Plan will require the affirmative vote of
the holders of a majority of the shares of InaCom common stock casting a vote on
such proposals at the InaCom special meeting, provided that the total votes cast
on the proposal must represent more than 50% of all shares of InaCom common
stock that are entitled to vote on the proposal. The approval of the amendment
of the InaCom certificate of incorporation will require the affirmative vote of
the holders of a majority of the outstanding shares of InaCom common stock. Each
proposal is conditioned upon approval of all other proposals. The consummation
of the merger is conditioned upon the approval of the InaCom proposals by the
InaCom stockholders. If any proposal is not approved, none of the proposals will
be implemented.
A broker nonvote (which occurs when a nominee holding shares for a
beneficial owner does not vote on a proposal because the nominee does not have
discretionary voting power and has not received instructions from the beneficial
owner) or a failure to vote will have the effect of a vote against the amendment
of the InaCom certificate of incorporation, but will have no effect on the
approval of the proposals to issue InaCom common stock in the merger or to
increase of the number of shares of InaCom common stock available for issuance
under the 1997 InaCom Stock Plan (assuming that the total votes cast on the
proposal represent more than 50% of all shares entitled to vote on the
proposal). An abstention with respect to any of the proposals will have the
effect of a vote against such proposal.
19
<PAGE>
VOTING OF PROXIES
All shares of InaCom common stock which are entitled to vote and are
represented at the InaCom special meeting by properly executed proxies received
prior to or at the InaCom special meeting, and not revoked, will be voted at the
InaCom special meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated, such proxies will be voted for
approval of the InaCom proposals.
If any other matters are properly presented at the InaCom special meeting
for consideration, including, among other things, consideration of a motion to
adjourn the InaCom special meeting to another time or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the merger), the persons
named in the enclosed forms of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment. Shares voted
against any of the InaCom proposals will not be voted in favor of adjournment
for the purpose of the continued solicitation of proxies.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of InaCom, at or before the taking of the vote
at the InaCom special meeting, a written notice of revocation bearing a
later date than the proxy;
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of InaCom before the taking of the vote at
the InaCom special meeting; or
- attending the InaCom special meeting and voting in person (although
attendance at the meeting will not in and of itself constitute a
revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent to
InaCom Corp., 10810 Farnam Drive, Omaha, Nebraska 68154, Attention: Secretary,
or hand delivered to the Secretary of InaCom at or before the taking of the vote
at the InaCom special meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
The InaCom board has fixed the close of business on December 31, 1998 as the
record date for the determination of the InaCom stockholders entitled to notice
of and to vote at the InaCom special meeting. Accordingly, only InaCom
stockholders of record as of the record date will be entitled to notice of and
to vote at the InaCom special meeting. As of the record date, there were
outstanding and entitled to vote 16,768,473 shares of InaCom common stock
(constituting all of the voting stock of InaCom), which shares were held by
approximately 713 holders of record. Each holder of record of shares of InaCom
common stock as of the record date is entitled to cast one vote per share, which
may be cast either in person or by properly executed proxy, at the InaCom
special meeting.
The presence, in person, or by properly executed proxy, of the holders of a
majority of the outstanding shares of InaCom common stock entitled to vote at
the InaCom special meeting is necessary to constitute a quorum at the InaCom
special meeting. Shares of InaCom common stock represented in person or by proxy
will be counted for the purpose of determining whether a quorum is present at
the InaCom special meeting. Broker nonvotes and shares that are present and
entitled to vote which abstain from voting as to a particular matter will be
treated as shares that are present and entitled to vote at the InaCom special
meeting for purposes of determining whether a quorum exists.
As of the record date, directors and executive officers of InaCom and their
affiliates may be deemed to have or share beneficial ownership of approximately
2.5% of the outstanding shares of InaCom common stock. Each of the directors and
executive officers of InaCom has advised InaCom that he or she intends to vote
or direct the vote of all shares of InaCom common stock over which he or she has
or shares voting
20
<PAGE>
control for approval of the InaCom proposals. The directors of InaCom hold an
aggregate of 2% of the outstanding InaCom common stock and have agreed, under
voting agreements, to vote for approval of the InaCom proposals. See "Voting
Agreements."
SOLICITATION OF PROXIES
All expenses of InaCom's solicitation of proxies, including the cost of
mailing this document to InaCom stockholders, will be borne by InaCom. In
addition to solicitation by use of the mails, proxies may be solicited from
InaCom stockholders by directors, officers and employees of InaCom in person or
by telephone or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Arrangements will also be made with the brokerage houses, custodians, nominees
and fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such brokerage houses, custodians, nominees
and fiduciaries, and InaCom will reimburse such brokerage houses, custodians,
nominees and fiduciaries for their reasonable expenses incurred in connection
therewith. In addition, InaCom has retained Corporate Investor Communications,
Inc. to assist in the solicitation of proxies by InaCom for a fee currently not
expected to exceed more than $5,500, plus reasonable out-of-pocket expenses.
1999 ANNUAL MEETING OF STOCKHOLDERS OF INACOM
Stockholder proposals intended to be presented at the next annual
stockholders' meeting of InaCom were required to be received by InaCom no later
than November 20, 1998 in order for such proposals to be considered for
inclusion in InaCom's proxy statement relating to such meeting.
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<PAGE>
THE VANSTAR SPECIAL MEETING
DATE, TIME AND PLACE
This document is being furnished to the holders of Vanstar common stock in
connection with the solicitation of proxies by the Vanstar board for use at the
Vanstar special meeting to be held on February 17, 1999, at 2575 Westside
Parkway, Suite 500, Alpharetta, Georgia, commencing at 11:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE VANSTAR SPECIAL MEETING
At the Vanstar special meeting, Vanstar stockholders will be asked to
consider and vote upon the adoption of the merger agreement and such other
matters as may be properly brought before the Vanstar special meeting, or any
adjournment or postponement thereof.
VANSTAR BOARD RECOMMENDATION
THE VANSTAR BOARD HAS DECLARED THAT THE MERGER AGREEMENT IS ADVISABLE, HAS
UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND RECOMMENDS THAT
HOLDERS OF VANSTAR COMMON STOCK VOTE IN FAVOR OF THE ADOPTION OF THE MERGER
AGREEMENT.
VOTE REQUIRED
The adoption of the merger agreement will require the affirmative vote of
the holders of a majority of the shares of Vanstar common stock issued and
outstanding as of the record date. A broker nonvote, a failure to vote or an
abstention will have the effect of a vote against the adoption of the merger
agreement. Warburg and the directors of Vanstar, holding approximately 38% and
5% respectively (or an aggregate of approximately 43%) of the outstanding voting
power of Vanstar common stock have entered into voting agreements. Under those
agreements, the stockholders have agreed to vote all of their Vanstar shares in
favor of the adoption of the merger agreement. In addition, as of the Vanstar
record date, each of the non-director executive officers of Vanstar and their
affiliates, who in the aggregate beneficially own less than 1% of the
outstanding shares of Vanstar common stock, has advised Vanstar that he or she
intends to vote or direct the vote of all shares of Vanstar common stock over
which he or she has or shares voting control for the adoption of the merger
agreement. Accordingly, approval of the merger agreement by Vanstar stockholders
is virtually assured. See "Voting Agreements."
VOTING OF PROXIES
All shares of Vanstar common stock which are entitled to vote and are
represented at the Vanstar special meeting by properly executed proxies received
prior to or at the Vanstar special meeting, and not revoked, will be voted at
the Vanstar special meeting in accordance with the instructions indicated on
such proxies. If no instructions are indicated, shares will be voted for the
adoption of the merger agreement.
If a stockholder is a participant in the Vanstar Employee Stock Purchase
Plan, a proxy card representing the number of shares of Vanstar common stock in
such participant's plan account and voting instructions for such shares will be
sent separately to such stockholder. Shares of Vanstar common stock in the
Vanstar Employee Stock Purchase Plan cannot be voted unless such proxy cards are
signed and returned.
If any other matters are properly presented at the Vanstar special meeting
for consideration, including, among other things, consideration of a motion to
adjourn the Vanstar special meeting to another time or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the merger), the persons
named in the enclosed form of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment. Shares voted
against the adoption of the merger agreement will not be voted in favor of
adjournment for the purpose of the continued solicitation of proxies.
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REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of Vanstar, at or before the taking of the vote
at the Vanstar special meeting, a written notice of revocation bearing a
later date than the proxy;
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Vanstar before the taking of the vote at
the Vanstar special meeting; or
- attending the Vanstar special meeting and voting in person (although
attendance at the meeting will not in and of itself constitute a
revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent to
Vanstar Corporation, 2001 Westside Parkway, Suite 260, Alpharetta, Georgia
30004, Attention: H. Christopher Covington, Secretary, or hand delivered to the
Secretary of Vanstar at or before the taking of the vote at the Vanstar special
meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
The Vanstar board has fixed the close of business on December 28, 1998 as
the record date for the determination of the Vanstar stockholders entitled to
notice of and to vote at the Vanstar special meeting. Accordingly, only Vanstar
stockholders of record as of the record date will be entitled to notice of and
to vote at the Vanstar special meeting. As of the record date, there were
outstanding and entitled to vote 43,791,900 shares of Vanstar common stock
(constituting all of the voting stock of Vanstar), which shares were held by
approximately 332 holders of record. Each holder of record of shares of Vanstar
common stock as of the record date is entitled to cast one vote per share, which
may be cast either in person or by properly executed proxy, at the Vanstar
special meeting.
The presence, in person, or by properly executed proxy, of the holders of a
majority of the outstanding shares of Vanstar common stock entitled to vote at
the Vanstar special meeting is necessary to constitute a quorum. Shares of
Vanstar common stock represented in person or by proxy will be counted for the
purpose of determining whether a quorum is present at the Vanstar special
meeting. Broker nonvotes and shares that are present and entitled to vote which
abstain from voting as to a particular matter will be treated as shares that are
present and entitled to vote at the Vanstar special meeting for purposes of
determining whether a quorum exists.
SOLICITATION OF PROXIES
All expenses of Vanstar's solicitation of proxies, including the cost of
mailing this document to Vanstar stockholders, will be borne by Vanstar. In
addition to solicitation by use of the mails, proxies may be solicited from
Vanstar stockholders by directors, officers and employees of Vanstar in person
or by telephone or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Arrangements will also be made with the brokerage houses, custodians, nominees
and fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such brokerage houses, custodians, nominees
and fiduciaries, and Vanstar will reimburse such brokerage houses, custodians,
nominees and fiduciaries for their reasonable expenses incurred in connection
therewith.
1999 ANNUAL MEETING OF STOCKHOLDERS OF VANSTAR
Vanstar will hold the 1999 annual meeting of stockholders only if the merger
is not consummated prior to the date thereof. In the event of such a meeting,
any stockholder proposals intended to be presented at the meeting must be
received at Vanstar's principal executive offices on or before April 9, 1999 in
order to be included in Vanstar's proxy materials relating to that meeting.
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THE MERGER
The description of the merger and the merger agreement contained in this
document sets forth the material terms of the merger agreement, a copy of which
is attached hereto as Annex A and incorporated herein by reference.
GENERAL
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of Delaware unless the certificate of merger
provides for a later date of effectiveness. The filing of a certificate of
merger will occur as soon as practicable following the satisfaction or waiver of
the conditions set forth in the merger agreement.
At the effective time of the merger, InaCom Acquisition, Inc., a
wholly-owned subsidiary of InaCom will be merged with and into Vanstar with
Vanstar continuing as the surviving corporation and a wholly-owned subsidiary of
InaCom. At the effective time of the merger, each share of Vanstar common stock
outstanding immediately prior to the effective time (other than shares, if any,
owned by InaCom or InaCom Acquisition, Inc., which will be cancelled) will be
converted into the right to receive .64 shares of InaCom common stock. Cash will
be paid with respect to any fractional shares of InaCom common stock to which a
Vanstar stockholder would otherwise be entitled based on the average closing
price of the InaCom common stock for the ten trading days ending on the fifth
trading day prior to the effective time.
BACKGROUND OF THE MERGER
During the latter part of 1997, Vanstar's management began considering a
variety of strategic alternatives to enhance stockholder value. In connection
therewith, Vanstar engaged in preliminary discussions regarding a number of
these alternatives with representatives of other technology services companies,
financial investors and Vanstar's advisors generally. Such alternatives involved
a broad range of possible transactions, including the sale, "spin-off" or
outsourcing by Vanstar of one or more identifiable business segments; the
creation of one or more series of publicly-traded "tracking stock;" and various
other business combinations and corporate recapitalizations. However, these
discussions did not give rise to any agreements providing for any material
transaction.
During April 1998, as part of its efforts to fully explore all of the
strategic alternatives then available to enhance stockholder value, the Vanstar
board established a Strategic Planning Committee consisting of three outside
directors. This committee was empowered by the Vanstar board to review the
various businesses, assets and affairs of Vanstar for purposes of considering
the potential strategic business transactions available to Vanstar and to
provide general guidance in this regard to the Vanstar board. The Strategic
Planning Committee then selected legal counsel and, with the assistance of such
counsel, retained Deutsche Morgan Grenfell ("DMG") on April 13, 1998 to, among
other things, assist and advise it and the Vanstar board concerning possible
sales, mergers or other business combinations involving Vanstar. Prior to such
formal engagement, DMG previously consulted with Vanstar regarding the various
strategic alternatives being considered by Vanstar's management. During July
1998, a large portion of DMG's technology group, including all of the
representatives responsible for the work being performed on behalf of Vanstar,
left DMG to join CSFB. In order to maintain continuity throughout this process,
DMG, CSFB and the Strategic Planning Committee agreed that the advisory
relationship with DMG should be transferred to CSFB and, as a result, Vanstar
terminated its engagement with DMG and retained CSFB on July 17, 1998.
In April and May 1998, the Strategic Planning Committee, CSFB and Vanstar
management identified a list of leading candidates which included companies with
current operations in, as well as firms with the financial wherewithal and
interest to invest in, the technology product and services industry to determine
if any of these companies might have an interest in engaging in one or more of
the strategic alternatives being considered by Vanstar. During this same time
frame, Vanstar management and CSFB compiled a
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confidential descriptive memorandum regarding Vanstar, its current business and
prospects. Thereafter, Vanstar management and CSFB representatives held a number
of informal discussions and meetings with the identified parties to assess the
feasibility of effecting the various strategic alternatives under consideration
and to ascertain the potential level of interest of such parties in pursuing one
or more of these alternatives. In addition, CSFB and Vanstar management pursued
discussions with certain other parties not previously identified to the extent
that such parties subsequently made it known to CSFB or Vanstar management that
they had an interest in pursuing one or more of the alternatives under
consideration. In each case, the interested parties executed a customary form of
confidentiality agreement, including customary "standstill" arrangements, and
were provided with public and non-public information from which to commence
their due diligence review. In a number of cases, the potential acquiror sent
representatives to Vanstar's executive offices in Atlanta, Georgia, to meet with
Vanstar management and review supplemental information concerning Vanstar and
its businesses.
InaCom's strategy has included the acquisition of businesses which enhance
its service capabilities. This strategy resulted in the acquisition of ten
businesses during the two years prior to June 1998. InaCom's management publicly
stated its belief that industry trends, including the build-to-order
distribution model, would result in further consolidation in the highly
fragmented technology management services industry. The InaCom strategy included
the use of its experience in integrating acquired businesses to take advantage
of strategic acquisition opportunities.
Pursuant to this strategy, InaCom in June 1998 engaged the services of
Gregory & Hoenemeyer, Inc. ("G&H") to assist InaCom in seeking strategic
acquisitions in the technology services industry. W. Grant Gregory, a director
of InaCom, is a principal of G&H. On July 15, 1998, Vanstar issued a press
release which stated in part that Vanstar "has been working closely with its
investment bankers to evaluate the full range of options available to the
company for increasing shareholder value . . .[which] could include the
realignment or separation of the company's business units, the merger or sale of
the company, or the disposition of certain of its assets." Following discussions
with Bill L. Fairfield, InaCom's Chief Executive Officer, on July 16, 1998 G&H
sent a letter to William Janeway, a Managing Director of Warburg and a member of
the Vanstar board. The letter expressed InaCom's interest in exploring
alternatives to maximize InaCom and Vanstar stockholder value.
Following discussions among Mr. Fairfield, Mr. Tauscher (Vanstar's Chief
Executive Officer), Mr. Janeway and Mr. Gregory of G&H, InaCom and Vanstar
entered into a confidentiality agreement on July 24, 1998 which provided for a
mutual exchange of certain confidential information regarding InaCom and
Vanstar. Following the execution of the confidentiality agreement, Vanstar
provided InaCom with the same preliminary information provided to certain other
interested parties and InaCom provided Vanstar with similar materials.
Additionally, at this time, InaCom and Vanstar began to discuss the possibility
that InaCom would acquire Vanstar through a stock-for-stock merger between
Vanstar and a wholly owned subsidiary of InaCom.
At a series of meetings occurring throughout July and August, 1998, the
Vanstar Strategic Planning Committee met to discus the strategic alternatives
then available to Vanstar, the benefits and risks associated with each
alternative and the status of the due diligence investigations being conducted
by multiple interested parties. In addition, the full Vanstar board also met
periodically to discuss each of these matters and to assess Vanstar's prospects
for growth as an independent company. Detailed presentations were made by CSFB
concerning Vanstar's strategic options, by Vanstar's legal advisors regarding
relevant legal considerations and by Vanstar's independent auditors as to
specific tax and accounting issues deemed relevant by the Vanstar board. By
early August 1998, a number of companies, including InaCom, had expressed an
interest in conducting further due diligence on Vanstar. In order to facilitate
the process, the Strategic Planning Committee then authorized CSFB to solicit
from the remaining interested parties written indications of interest to
ascertain the degree and level of interest held by such parties with respect to
pursuing one or more of the alternatives available to Vanstar.
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Between August 17 and August 24, 1998, Vanstar received preliminary
indications of interest in writing from InaCom and six other interested parties.
Subsequently, in the middle of September 1998, Vanstar received an eighth
indication of interest (together with the other parties that expressed an
interest, other than InaCom, the "Other Bidders") which Vanstar also agreed to
consider. Certain of these proposals involved the purchase of less than all of
the assets of Vanstar or were dependent upon a tri-party transaction to be
effective, or involved multiple parties with one or more steps. More
importantly, each of the proposals made by the Other Bidders contained
significant contingencies and/or other terms that Vanstar and its advisors
believed to constitute significant obstacles to the consummation of a favorable
transaction. The Vanstar board was briefed on the terms of each proposal made by
the Other Bidders and authorized management to continue discussions with each of
the Other Bidders and InaCom on parallel tracks.
On August 11, 1998, the InaCom board met to review information received with
respect to a proposed transaction with Vanstar and to hear reports from
management on the matter. The InaCom board authorized management to submit a
nonbinding indication of interest to the Vanstar board. InaCom sent letters to
the Vanstar board on August 17, 1998 and August 23, 1998 expressing InaCom's
interest in a tax-free merger of the two companies to be accounted for as a
pooling of interests. The August 23, 1998 letter expressed InaCom's view that
"the combination of our two companies would create a clear leadership position
in our industry and that our proposal combined with a well managed business plan
will deliver the maximum value to Vanstar stockholders."
At a Vanstar board meeting held on August 24, 1998 at Warburg's offices in
New York, Mr. Fairfield and certain other senior managers of InaCom made a
presentation to the Vanstar board in which InaCom management presented a
preliminary proposal for the merger of Vanstar and InaCom and a preliminary
analysis of the integration and corporate governance issues resulting therefrom.
CSFB also attended this meeting. After the meeting with InaCom's management, the
Vanstar board held a private meeting to discuss again the various alternatives
available to Vanstar. During this meeting, CSFB outlined the basic terms of the
proposed transaction for the Vanstar board. At the conclusion of this meeting,
the Vanstar board determined that management should continue to engage in
discussions with the Other Bidders considered to have the most favorable overall
proposals despite the board's belief that significant questions existed with
respect to each such proposal. At the same time, the Vanstar board determined
that management should focus more effort on negotiating the terms and defining
the parameters of a transaction with InaCom. As a result, the respective due
diligence efforts of each of InaCom and Vanstar began in earnest after this
meeting. The Vanstar board and the Strategic Planning Committee held a number of
meetings, separately and together, during September 1998 to review the progress
of the various parties, including, specifically, InaCom.
On August 27, 1998, the InaCom board met and received a report from
management on the status of negotiations. The InaCom board also received a
report from J.P. Morgan, which firm InaCom engaged to assist in connection with
the merger negotiations and to render a fairness opinion to InaCom in connection
with any transaction with Vanstar. The J.P. Morgan report summarized price,
valuation and structure considerations for a potential transaction with Vanstar.
The InaCom board met again on September 8, 1998 and received reports from
management, together with InaCom's legal and accounting advisors, as well as its
investment bankers, concerning the status of the due diligence investigations
being conducted with both companies, the potential synergies achievable in
connection with a merger, and a description of the basic terms being negotiated
with respect to the merger.
Between August 27, 1998 and September 18, 1998, various officers of InaCom
and Vanstar, including their respective chief executive officers and chief
financial officers, as well as their respective legal, financial and investment
banking advisors, conducted due diligence reviews and entered into extensive
discussions at numerous meetings with respect to the form, accounting treatment
and appropriate exchange ratio for a potential business combination.
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On September 18, 1998, the InaCom board met and received extensive reports
from its legal, accounting and investment banking representatives concerning the
terms and structure of a proposed merger with Vanstar. The board reviewed a
draft of a proposed merger agreement, received a valuation summary from J.P.
Morgan, and discussed amendments which would be necessary in InaCom's
certificate of incorporation and 1997 InaCom Stock Plan in connection with the
proposed transaction. The InaCom board was advised by management that the
parties had not been able to reach agreement with respect to the exchange ratio,
Vanstar's representation on InaCom's board, certain other terms of the merger
agreement, and certain provisions relating to Vanstar's employee benefit plans.
The InaCom board directed InaCom management to continue negotiations with
Vanstar.
Between September 18, 1998 and October 6, 1998, management and
representatives of InaCom and Vanstar continued due diligence reviews and
continued extensive discussions with respect to the terms of a merger agreement.
The InaCom board met on September 20 and September 23 to review the progress of
the negotiations and to discuss the terms of the proposed transaction on which
the parties had not reached agreement.
On October 2, 4 and 6, 1998, the Vanstar board met telephonically to discuss
the status of the proposed transaction with InaCom. Throughout this series of
meetings, Vanstar's senior management, the Strategic Planning Committee and its
counsel, CSFB and Arter & Hadden LLP, counsel to Vanstar, each discussed various
key issues concerning the proposed transaction with the Vanstar board.
Specifically, the Strategic Planning Committee discussed the possible
alternatives to the proposed InaCom transaction, representatives of CSFB
presented an analysis of the financial terms of the proposed transaction, and
representatives from Vanstar's legal advisors outlined the terms of the merger
agreement and the Vanstar board's legal duties and responsibilities. Ernst &
Young LLP, Vanstar's independent auditors, also participated in portions of
these meetings. The Vanstar board reviewed and considered, among other things,
the following matters:
- a tentative fixed exchange ratio;
- the synergistic benefits expected to be derived from the merger and the
business reasons in support of those benefits;
- industry trends and marketplace expectations involving technology services
companies;
- the regulatory review process and its anticipated requirements and timing;
- the principal terms of the draft merger agreement; and
- the likelihood of receiving a proposal from one or more of the Other
Bidders or another third party that would be superior to the merger
agreement then being negotiated.
The Vanstar board also reviewed Vanstar's own prospects for growth as an
independent company. At the conclusion of the meeting on October 6, 1998, the
Vanstar board tentatively approved the transaction as then proposed by InaCom,
provided that certain open matters be resolved to the satisfaction of management
and the Vanstar board. Accordingly, the Vanstar board authorized management to
continue negotiating with InaCom and determined that the board would convene
again upon resolution of such matters to consider further the possible
transaction with InaCom. The parties continued to negotiate and on October 8,
the negotiators for each company reached an agreement which they were prepared
to present to their respective boards of directors. As of close of business on
October 8, 1998, Vanstar was still considering proposals from two Other Bidders,
each of which Vanstar believed to constitute a serious proposal. However,
neither of such Other Bidders had submitted a firm written offer by such date
and neither Vanstar's management nor CSFB believed, based on their continuing
discussions with such parties, that any offer likely to be made by either of the
Other Bidders would be sufficiently firm or attractive to the stockholders of
Vanstar to forego or jeopardize the transaction with InaCom.
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On October 6, 1998, the InaCom board met to consider and formally act upon
the proposed merger transaction with Vanstar. At this meeting, J.P. Morgan and
InaCom's legal counsel provided an update on the status of negotiations with
Vanstar with respect to the merger agreement and related transactions. The
proposed transaction with Vanstar was reviewed in detail. The presentations and
discussions at the meeting were wide-ranging and detailed and included, among
other things:
- a presentation by InaCom management regarding events since the September
18 meeting of the InaCom board;
- a description by InaCom's legal counsel of the material terms of the
merger agreement, reciprocal stock option agreements, voting agreements,
registration rights agreements, and certain Vanstar employee benefit
agreements;
- a presentation by InaCom's legal counsel regarding the fiduciary duties of
InaCom directors; and
- a presentation by J.P. Morgan regarding the fairness, from a financial
point of view, to InaCom of the consideration to be paid by InaCom in the
merger.
Following further discussions by the InaCom board and senior management, the
InaCom board unanimously approved (and, with respect to the proposed amendment
of InaCom's certificate of incorporation, declared advisable):
- the merger agreement and the merger;
- the voting agreements, the stock option agreements and the registration
rights agreement;
- an amendment to InaCom's certificate of incorporation increasing InaCom's
authorized common stock to 100,000,000 shares;
- an increase of an additional 10,000,000 shares of InaCom common stock
authorized under InaCom's 1997 Stock Plan; and
- documents and transactions in connection with such matters.
The InaCom board further expressed its intention to meet via teleconference
if the merger terms approved by the board were not accepted by Vanstar and
substantive changes to such terms were proposed by Vanstar.
Senior management of InaCom and Vanstar and the legal, accounting and
investment banking representatives of InaCom and Vanstar conducted further
discussions concerning the merger agreement on October 7 and 8, 1998. Those
discussions resulted in agreement on all of the material terms of the merger as
previously approved by InaCom's board, with the exception that Vanstar's
representation on InaCom's board would be increased from three members to four
members. InaCom's board acted by written consent on October 8, 1998 to approve,
upon consummation of the merger, an increase in the size of the InaCom board to
13.
On October 8, 1998, the board of directors of Vanstar met to review the
proposed transaction with InaCom and the final terms of the merger agreement.
Copies of the merger agreement had been provided to each of the members of the
board of directors prior to the meeting. During this meeting, CSFB delivered its
opinion that, as of such date and based upon the assumptions made, matters
considered and limits of review as set forth in such opinion, the exchange ratio
pursuant to the merger agreement was fair to the stockholders of Vanstar, other
than InaCom and InaCom Acquisition, Inc., from a financial point of view. After
discussing and considering the terms of the proposed transaction, the Vanstar
board unanimously voted to approve the merger and adopt the merger agreement.
See "--Vanstar's Reasons for the Merger" and "--Opinion of Credit Suisse First
Boston" below.
The merger agreement and related documents were executed and delivered by
the parties during the evening of October 8, 1998. On October 9, 1998, InaCom
and Vanstar issued a joint press release publicly announcing the merger.
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INACOM'S REASONS FOR THE MERGER
InaCom believes that the strategic fit and strengths of InaCom and Vanstar
will enhance InaCom's competitive position as a leading technology services
company, offer potential cost savings and opportunities for other synergies and
provide a platform for continued growth, both internally and through further
acquisitions. In reaching its determination, the InaCom board consulted with
management, as well as its advisors, and considered various factors, including:
(1) the business, assets, management, competitive position and prospects
of InaCom and Vanstar, including the analysis, judgment and advice of
InaCom's management with respect thereto, the possible synergies available
through a combination of InaCom and Vanstar, and the likely strong
competitive position of the combined entity;
(2) the financial condition, cash flows and results of operations of
InaCom and Vanstar, both on a historical and a prospective basis, and the
expectation that the merger would be accretive to earnings per share by the
end of 1999;
(3) Vanstar's strong position in the information technology services
business and the benefits to InaCom in acquiring such services expertise to
complement its own significant services business;
(4) the significant potential enhancement of the strategic and market
position of the combined entity beyond that achievable by InaCom alone;
(5) the opportunity to achieve a larger and more stable platform to
continue to make strategic acquisitions;
(6) historical market prices and trading information with respect to
InaCom common stock and Vanstar common stock and the exchange ratio to be
used as a basis for converting Vanstar common stock into the right to
receive InaCom common stock, which suggested that a combination of InaCom
and Vanstar had the potential to provide higher stock trading multiples than
would be applicable to InaCom alone;
(7) the terms and conditions of the merger agreement, including the form
and amount of consideration and that the number of shares of InaCom common
stock to be issued was based on a fixed per share ratio;
(8) detailed financial analyses and presentations of J.P. Morgan,
InaCom's financial advisor, in connection with the merger, and its opinion
to the InaCom board that, subject to the various considerations set forth
therein, the consideration to be paid by InaCom in the merger is fair, from
a financial point of view, to InaCom;
(9) the intended treatment of the merger as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended (the "Code") and the
condition to InaCom's obligation under the merger agreement that InaCom
receive a legal opinion as to the tax-free nature of the merger; and
(10) the intended treatment of the merger as a "pooling of interests"
for financial reporting and accounting purposes and the condition to
InaCom's obligation under the merger agreement that InaCom receive a letter
from its independent auditor stating that the merger will qualify as a
"pooling of interests" transaction under Accounting Principles Board Opinion
No. 16.
The foregoing discussion of the factors considered by the InaCom board is
not intended to be exhaustive. In view of the wide variety of factors considered
in connection with its evaluation of the merger, the InaCom board did not
quantify or assign any relative weights to the factors considered in reaching
its determination, although its individual members may have given different
weights to different factors.
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The InaCom board also considered the following potentially negative factors
in its deliberations concerning the merger:
(1) the risk in successfully integrating a company of Vanstar's size and
achieving the expected synergies so that the merger will be accretive to
earnings per share by the end of 1999;
(2) the amount of debt assumed by InaCom in the merger and the potential
negative impact on InaCom's current sources of working capital;
(3) the triggering of the change in control provisions of the 4.50%
debentures, 6% debentures and other debt agreements, which if exercised by
the holders, would require InaCom to repay such debt;
(4) the significant costs involved in connection with consummating the
merger, the substantial management time and effort required to effectuate
the merger and integrate the businesses of Vanstar and InaCom and the
potential disruption to InaCom's operations; and
(5) the potential obligation of InaCom to pay a termination fee and
reimburse certain expenses to Vanstar under certain circumstances if the
merger is not consummated.
The InaCom board did not believe that the negative factors were sufficient,
either individually or collectively, to outweigh the potential advantages of the
merger.
VANSTAR'S REASONS FOR THE MERGER
The Vanstar board believes that the merger offers Vanstar and its
stockholders an opportunity to create a combined organization that will be a
leader in the technology services industry. The Vanstar board has unanimously
approved and declared advisable the merger and the merger agreement, has
unanimously determined that the merger is fair to and in the best interests of
Vanstar and its stockholders and unanimously recommends that holders of shares
of Vanstar common stock vote FOR approval and adoption of the merger agreement.
At the meetings held on October 2, 4, 6 and 8, 1998, the Vanstar board, with
the assistance of CSFB and its legal advisors, considered and discussed the
terms of the merger and reviewed various business, financial and legal
considerations relating thereto. In reaching its decision to approve and declare
advisable the merger and the merger agreement and to recommend that Vanstar
stockholders vote to adopt the merger agreement, the Vanstar board considered,
among other things, the following factors:
(1) the opportunity to create a significantly larger technology services
company, which the Vanstar board believes better positions the combined
company to deal with vendors and customers, secure product and otherwise
adapt to changing market conditions;
(2) the opportunity for Vanstar stockholders to receive InaCom common
stock for shares of Vanstar common stock in a tax-free exchange valued at a
premium of 25.1% and 80.1% over the ratio of the price of Vanstar common
stock and InaCom common stock on September 9 and September 29, 1998,
respectively;
(3) information with respect to the financial condition, results of
operations, business and growth prospects of Vanstar and InaCom, on both a
historical and an estimated prospective basis, and current industry,
economic and market conditions, including the financial analyses and
presentations of CSFB, all of which tended to suggest that the combined
company could compete more effectively than could Vanstar individually;
(4) the challenges facing the industry as manufacturers, resellers and
distributors make sweeping changes in distribution to compete more
effectively with direct sellers;
30
<PAGE>
(5) the historical market prices and recent trading patterns of Vanstar
common stock and InaCom common stock which suggested that a combination of
InaCom and Vanstar had the potential to provide higher stock trading
multiples than would be applicable to Vanstar alone;
(6) the opportunity for Vanstar stockholders to participate, as holders
of InaCom common stock, in a combined enterprise which will have greater
financial, technical and marketing resources and is expected to produce a
stronger competitor in the technology services industry than would Vanstar
on a stand-alone basis;
(7) the compatibility of the businesses of InaCom and Vanstar, which
would provide the holders of Vanstar common stock with a significant
continuing interest in the technology services industry and would continue
to provide career opportunities and employment for many of the employees of
Vanstar;
(8) the potential for operational and financial synergies as a result of
the integration of the resources of the two companies;
(9) the opinion of CSFB to the Vanstar board on October 8, 1998 to the
effect that, as of such date, the exchange ratio pursuant to the merger
agreement was fair to the stockholders of Vanstar, other than InaCom and
InaCom Acquisition, Inc. from a financial point of view;
(10) the structure of the transaction and the terms of the merger
agreement, including the terms of the merger agreement that permit the
Vanstar board, in the exercise of its fiduciary duties and subject to
certain conditions, to respond to inquiries from, to provide information to
and to negotiate with, a third party making an unsolicited proposal to
acquire Vanstar and to terminate the merger agreement if the Vanstar board
determines to recommend an alternative business combination transaction;
(11) the improbability that an alternative proposal made by the
remaining Other Bidders would yield a superior value to Vanstar
stockholders; and
(12) the anticipated prospects for Vanstar as an independent company.
The foregoing discussion of the information and factors considered and given
weight by the Vanstar board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the merger,
the Vanstar board found that each of the foregoing factors supported its
recommendation and conclusions and the board did not find it practicable to and
did not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Vanstar board may have given different weights to different factors. For a
discussion of the interests of certain members of Vanstar's management and
Vanstar's board of directors in the merger, see "--Interests of Certain Persons
in the Merger."
RECOMMENDATION OF THE INACOM BOARD OF DIRECTORS
The InaCom board has unanimously approved the InaCom proposals, has declared
that the amendment of InaCom's certificate of incorporation is advisable and
unanimously recommends that the InaCom stockholders vote FOR the approval of the
InaCom proposals. The InaCom board believes that the merger and the transactions
proposed in order to effectuate the merger are in the best interests of the
InaCom stockholders.
RECOMMENDATION OF THE VANSTAR BOARD OF DIRECTORS
The Vanstar board has unanimously approved and adopted the merger and the
merger agreement, has declared that the merger agreement is advisable and
unanimously recommends that the Vanstar stockholders vote FOR the adoption of
the merger agreement. The Vanstar board believes that the merger is in the best
interests of the Vanstar stockholders.
31
<PAGE>
OPINION OF J.P. MORGAN
Pursuant to an engagement letter dated September 18, 1998, InaCom retained
J.P. Morgan as its financial advisor and to deliver a fairness opinion in
connection with the merger.
At the meeting of the InaCom board on October 6, 1998, J.P. Morgan rendered
its oral opinion to the board of directors of InaCom that, as of such date, the
consideration to be paid by InaCom in the merger was fair from a financial point
of view to InaCom. J.P. Morgan has also delivered a written opinion to InaCom's
board, dated October 8, 1998, confirming its oral opinion. No limitations were
imposed by the InaCom board upon J.P. Morgan with respect to the investigations
made or procedures followed by it in rendering its opinions.
THE FULL TEXT OF THE WRITTEN OPINION OF J.P. MORGAN DATED OCTOBER 8, 1998,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS DOCUMENT AND IS INCORPORATED
HEREIN BY REFERENCE. THE INACOM STOCKHOLDERS ARE URGED TO READ THE OPINION IN
ITS ENTIRETY. J.P. MORGAN'S WRITTEN OPINION IS ADDRESSED TO THE BOARD OF
DIRECTORS OF INACOM, IS DIRECTED ONLY TO THE CONSIDERATION TO BE PAID IN THE
MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF INACOM AS
TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE INACOM SPECIAL MEETING. THE SUMMARY
OF THE OPINION OF J.P. MORGAN SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, J.P. Morgan reviewed, among other things:
(1) the merger agreement;
(2) the audited financial statements of InaCom for the fiscal year ended
December 27, 1997 and of Vanstar for the fiscal year ended April 30, 1998;
(3) the unaudited financial statements of InaCom for the period ended June 27,
1998 and of Vanstar for the period ended July 31, 1998;
(4) current and historical market prices of InaCom's common stock and Vanstar's
common stock;
(5) certain publicly available information concerning the business of Vanstar
and of certain other companies engaged in businesses comparable to those of
Vanstar;
(6) the reported market prices for certain other companies' securities deemed
comparable;
(7) publicly available terms of certain transactions involving companies
comparable to Vanstar and the consideration paid for such companies;
(8) the terms of other business combinations deemed relevant by J.P. Morgan;
(9) certain internal financial analyses and forecasts prepared by InaCom and
Vanstar and their respective managements; and
(10) certain agreements with respect to outstanding indebtedness or obligations
of InaCom and Vanstar.
J.P. Morgan also held discussions with certain members of the management of
InaCom and Vanstar with respect to certain aspects of the merger, the past and
current business operations of InaCom and Vanstar, the financial condition and
future prospects and operations of InaCom and Vanstar, and certain other matters
believed necessary or appropriate to J.P. Morgan's inquiry. In addition, J.P.
Morgan reviewed such other financial studies and analyses and considered such
other information as it deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by InaCom and Vanstar or otherwise reviewed by J.P. Morgan,
and J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any
32
<PAGE>
valuations or appraisals been provided to J.P. Morgan. In relying on financial
analyses and forecasts provided to J.P. Morgan, J.P. Morgan has assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of InaCom and Vanstar to
which such analyses or forecasts relate. J.P. Morgan has also assumed that the
merger will have the tax consequences described in this document, and that the
other transactions contemplated by the merger agreement will be consummated as
described in the merger agreement and this document.
The projections furnished to J.P. Morgan for InaCom and Vanstar were
prepared by the respective managements of each company. Neither InaCom nor
Vanstar publicly discloses internal management projections of the type provided
to J.P. Morgan in connection with J.P. Morgan's analysis of the merger, and such
projections were not prepared with a view toward public disclosure. These
projections were based on numerous variables and assumptions that are inherently
uncertain and may be beyond the control of management, including, without
limitation, factors related to general economic and competitive conditions and
prevailing interest rates. Accordingly, actual results could vary significantly
from those set forth in such projections.
J.P. Morgan's opinion is based on economic, market and other conditions as
in effect on, and the information made available to J.P. Morgan as of, the date
of such opinion. Subsequent developments may affect the written opinion dated
October 8, 1998, and J.P. Morgan does not have any obligation to update, revise
or reaffirm such opinion. J.P. Morgan expressed no opinion as to the price at
which InaCom's common stock will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
PUBLIC TRADING MULTIPLES. Using publicly available information, J.P. Morgan
compared selected financial data of Vanstar with similar data for selected
publicly traded companies engaged in businesses which J.P. Morgan judged to be
analogous to Vanstar. The companies selected by J.P. Morgan were:
- CHS Electronics, Inc.
- CompuCom Systems, Inc.
- InaCom Corp.
- Ingram Micro, Inc.
- Merisel, Inc.
- MicroAge, Inc.
- Tech Data Corp.
These companies were selected, among other reasons, because each serves
principally the market for computer products and services. For each comparable
company, publicly available financial performance through the twelve months
ended June 30, 1998 (except for Tech Data Corp. and Microage, Inc., whose
financial performance was publicly available through July 31, 1998) was
measured. J.P. Morgan divided the selected public companies into two subsets:
"Mid-cap peers" (Ingram Micro, Inc. and Tech Data Corp.) and "Small-cap peers"
(CHS Electronics, Inc. CompuCom Systems, Inc., InaCom, Merisel, Inc. and
MicroAge, Inc.). J.P. Morgan selected the median value among the Mid-cap peers
for each of the following as a multiple of aggregate firm value (equity plus net
debt): sales; earnings before interest and taxes ("EBIT"); earnings before
interest, taxes, depreciation and amortization ("EBITDA") and consensus research
analysts' calendar year 1999 earnings-per-share estimates, as reported by First
Call. These multiples were then applied to Vanstar's sales, EBIT, EBITDA,
consensus research analysts' calendar year 1999 estimates, and "internal"
calendar year 1999 estimates, yielding implied trading values for Vanstar's
33
<PAGE>
common stock of approximately $6 to $19 per share. J.P. Morgan selected the
median value among the Small-cap peers for each of the following as a multiple
of aggregate firm value (equity plus net debt): EBIT and consensus research
analysts' calendar year 1999 earnings-per-share estimates, as reported by First
Call. Sales and EBITDA were not used because the implied values were not
meaningful based on Vanstar's financial performance for the twelve months ended
July 31, 1998. These multiples were then applied to Vanstar's EBIT, consensus
research analysts' calendar year 1999 estimates, and "internal" calendar year
1999 estimates, yielding implied trading values for Vanstar's common stock of
approximately $5 to $7 per share. First Call is a financial data service that
monitors and publishes a compilation of earnings estimates produced by selected
research analysts regarding companies of interest to institutional investors.
SELECTED TRANSACTION ANALYSIS. Using publicly available information, J.P.
Morgan examined selected transactions with respect to the computer
distributor/reseller and the computer services industries. Specifically, J.P.
Morgan reviewed the following transactions in the computer distributor/reseller
industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- ------------------------------------------------------- ---------------------------------------------------------
<S> <C>
Tech Data Corp......................................... Computer 2000 AG
Tech Data Corp......................................... Macrotron AG
CompuCom Systems Inc................................... Computer Integration Corporation
CHS Electronics, Inc................................... Santech Micro Group ASA
CHS Electronics, Inc................................... Karma International SA
CHS Electronics, Inc................................... Frank & Walter GmbH
CHS Electronics, Inc................................... Merisel Inc.'s European and Latin American assets
GE Capital Services.................................... Ameridata Technologies
</TABLE>
J.P. Morgan also reviewed the following transactions in the computer services
industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- ------------------------------------------------------- ---------------------------------------------------------
<S> <C>
Keane Inc.............................................. Bricker & Associates
Complete Business Solutions Inc........................ Claremont Technology Group
Cambridge Technology Partners Inc...................... Peter Chadwick Holdings Ltd.
TRW Inc................................................ BDM International
Affiliated Computer Services Inc....................... Computer Data Systems Inc.
Registry Inc........................................... Renaissance Solutions Inc.
Northrop Grumman Corp.................................. Logicon Inc.
Axime SA............................................... Sligos SA
Great Universal Stores PLC............................. Experian Inc.
Computer Services Corp................................. The Continuum Company, Inc.
Amdahl Corp............................................ TRECOM Business Systems
Amdahl Corp............................................ DMR Group Inc.
Medaphis Corp.......................................... BSG Corp.
The Continuum Company, Inc............................. Hogan Systems
Electronic Data Systems Corp........................... A.T. Kearney
MCI Communications Corp................................ SHL Systemhouse Inc.
</TABLE>
J.P. Morgan applied a range of multiples derived from such computer
distributor/reseller transactions and computer services transactions to
Vanstar's Product Services' EBIT and EBITDA and Professional Services' EBIT and
EBITDA, respectively, and arrived at an estimated range of equity values for
Vanstar's common stock of between $10 and $11 per share.
DISCOUNTED CASH FLOW ANALYSIS. J.P. Morgan conducted a discounted cash flow
analysis for the purpose of determining the fully diluted equity value per share
for Vanstar's common stock. J.P. Morgan calculated the unlevered free cash flows
that Vanstar is expected to generate during fiscal years 1999 through 2001 based
upon financial projections prepared by the management of Vanstar through the
years
34
<PAGE>
ended 2001 and upon management projections adjusted by InaCom and J.P. Morgan to
reflect loss of revenues during the 3-year period. J.P. Morgan also calculated a
range of terminal asset values of Vanstar at the end of the 3-year period ending
April 2001 by applying an EBITDA multiple ranging from 7.5x to 8.5x to the
EBITDA of Vanstar during the final year of the 3-year period. The unlevered free
cash flows and the range of terminal asset values were then discounted to
present values using a range of discount rates from 11% to 12%, which were
chosen by J.P. Morgan based upon an analysis of the weighted average cost of
capital of Vanstar. The present value of the unlevered free cash flows and the
range of terminal asset values were then adjusted for Vanstar's estimated
calendar year 1998 year-end excess cash and total debt. Based on the adjusted
management projections and a range of discount rates from 11% to 12%, the
discounted cash flow analysis indicated a range of equity values of between $18
and $22 per share for Vanstar common stock on a stand-alone basis (I.E., without
synergies).
J.P. Morgan compared the implied ranges of equity values derived from its
public trading multiples analysis, selected transaction analysis, and discounted
cash flow analysis of Vanstar against the $10.76 share consideration to be paid
by InaCom based on the exchange ratio as of October 8, 1998.
<TABLE>
<CAPTION>
CONSIDERATION
TO BE PAID BY
INACOM
IMPLIED TRADING BASED ON THE
VALUE FOR EXCHANGE RATIO
VANSTAR AS OF OCTOBER 8,
VALUATION METHOD COMMON STOCK 1998
- -------------------------------------------------------------------------- ---------------- -------------------
<S> <C> <C>
PUBLIC TRADING MULTIPLES ANALYSIS
Small-cap peers
EBIT.................................................................... $5.01 $ 10.76
Calendar Year 1999 consensus EPS estimates.............................. 5.91 10.76
Calendar Year 1999 "internal" EPS estimates............................. 6.59 10.76
Mid-cap peers
Sales................................................................... $5.99 $ 10.76
EBIT.................................................................... 12.77 10.76
EBITDA.................................................................. 19.04 10.76
Calendar Year 1999 consensus EPS estimates.............................. 17.07 10.76
Calendar Year 1999 "internal" EPS estimates............................. 19.04 10.76
SELECTED TRANSACTION ANALYSIS
EBIT.................................................................... $10.20 $ 10.76
EBITDA.................................................................. 11.18 10.76
DISCOUNTED CASH FLOW ANALYSIS $ 18 - $22 $ 10.76
</TABLE>
COMPARATIVE STOCK PRICE PERFORMANCE. J.P. Morgan reviewed the recent stock
market performance of InaCom and Vanstar, reviewed the ratios of Vanstar's
common stock prices to InaCom's common stock prices over various periods ending
September 16, 1998, and computed the premium of the exchange ratio in relation
to these ratios.
<TABLE>
<CAPTION>
RATIO OF VANSTAR PREMIUM OF
TO INACOM EXCHANGE RATIO
PERIOD ENDING SEPTEMBER 16, 1998 STOCK PRICES OVER STOCK PRICE RATIO
- -------------------------------------------------------------------------- ------------------- -----------------------
<S> <C> <C>
Since March 11, 1996 (Vanstar's IPO)...................................... 0.52 23%
Prior 2 years............................................................. 0.43 50
Prior 12 months........................................................... 0.43 50
Prior 6 months............................................................ 0.41 54
Prior 30 trading days..................................................... 0.37 72
At September 16, 1998..................................................... 0.54 19
</TABLE>
The summary set forth above does not purport to be a complete description of
the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily
35
<PAGE>
susceptible to partial analysis or summary description. J.P. Morgan believes
that the summary set forth above and their analyses must be considered as a
whole and that selecting portions thereof, without considering all of its
analyses, could create an incomplete view of the processes underlying its
analyses and opinion. J.P. Morgan based its analyses on assumptions that it
deemed reasonable, including assumptions concerning general business and
economic conditions and industry-specific factors. The other principal
assumptions upon which J.P. Morgan based its analyses are set forth above under
the description of each such analysis. J.P. Morgan's analyses are not
necessarily indicative of actual values or actual future results that might be
achieved, which values may be higher or lower than those indicated. Moreover,
J.P. Morgan's analyses are not and do not purport to be appraisals or otherwise
reflective of the prices at which businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. J.P. Morgan was selected to advise InaCom with respect to
the merger and deliver a fairness opinion on the basis of such experience and
its familiarity with InaCom.
For services rendered in connection with the merger and the delivery of its
opinion, InaCom has agreed to pay J.P. Morgan fees of (1) $500,000, payable upon
announcement of the merger, (2) .15% of the anticipated Transaction Value (as
defined below), payable upon delivery of its opinion, and (3) .48% of the
Transaction Value, payable upon consummation of the merger. Transaction Value is
defined as the aggregate amount of consideration received by Vanstar and/or its
stockholders in the merger. In addition, InaCom has agreed to reimburse J.P.
Morgan for its reasonable expenses incurred in connection with its services,
including the fees and disbursements of counsel, and will indemnify J.P. Morgan
against certain liabilities.
J.P. Morgan and its affiliates maintain banking and other business
relationships with InaCom and its affiliates, for which it receives customary
fees. In the ordinary course of their businesses, affiliates of J.P. Morgan may
actively trade the debt and equity securities of InaCom or Vanstar for their own
accounts or for the accounts of customers and, accordingly, they may at any time
hold long or short positions in such securities.
J.P. Morgan consented to the use of its opinion letter dated October 8, 1998
attached as Annex B to this document and the references to such opinion in this
document. In giving such consent, J.P. Morgan did not admit that it came within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder, nor did J.P. Morgan admit that it is an expert
with respect to any part of this registration statement within the meaning of
the term "experts" as used in the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
OPINION OF CREDIT SUISSE FIRST BOSTON
Vanstar retained CSFB to act as its exclusive financial advisor in
connection with the merger. CSFB was selected by Vanstar's board of directors to
act as Vanstar's financial advisor based on CSFB's qualifications, expertise and
reputation, as well as CSFB's investment banking relationship and familiarity
with Vanstar.
On October 8, 1998, the board of directors of Vanstar met to review the
proposed transaction with InaCom and the final terms of the merger agreement.
During this meeting, CSFB rendered its oral opinion, subsequently confirmed in
writing on October 8, 1998 (the "CSFB Opinion"), that, as of that date, based
upon and subject to the various considerations set forth in the CSFB Opinion,
the exchange ratio pursuant to the merger agreement was fair to Vanstar
stockholders, other than InaCom and InaCom
36
<PAGE>
Acquisition, Inc., from a financial point of view. After discussing and
considering the terms of the proposed transaction, the Vanstar board unanimously
voted to approve the merger and adopt the merger agreement.
THE FULL TEXT OF THE CSFB OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY CSFB IN RENDERING THE CSFB OPINION, IS
ATTACHED AS ANNEX C TO THIS DOCUMENT AND INCORPORATED HEREIN BY REFERENCE.
VANSTAR STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE CSFB OPINION CAREFULLY
AND IN ITS ENTIRETY. THE CSFB OPINION ADDRESSES ONLY THE FAIRNESS OF THE
EXCHANGE RATIO TO THE VANSTAR STOCKHOLDERS, OTHER THAN INACOM AND INACOM
ACQUISITION, INC., FROM A FINANCIAL POINT OF VIEW AS OF THE DATE OF THE CSFB
OPINION, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW
SUCH STOCKHOLDER SHOULD VOTE AT THE VANSTAR SPECIAL MEETING. THE SUMMARY OF THE
CSFB OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE CSFB OPINION.
In arriving at its opinion, CSFB reviewed certain publicly available
business and financial information relating to Vanstar and InaCom. CSFB also
reviewed certain other information, including internal financial statements,
financial forecasts and other financial and operating data, provided to it by
Vanstar and InaCom and met with Vanstar's and InaCom's managements to discuss
the business and prospects of Vanstar and InaCom. CSFB also relied upon the
views of Vanstar's and InaCom's managements concerning the business, operational
and strategic benefits and implications of the merger, including financial
forecasts provided to CSFB by Vanstar and InaCom relating to the synergistic
values and operating cost savings to be achieved, as well as potential revenue
loss and associated profit loss which may be incurred, through the combination
of operations of Vanstar and InaCom.
CSFB also considered certain financial and stock market data of Vanstar and
InaCom, and CSFB compared such financial and stock market data with similar data
for other publicly held companies in businesses it deemed similar to those of
Vanstar and InaCom, respectively. CSFB considered the financial terms, to the
extent publicly available, of certain other business combinations and other
transactions which had recently been effected. CSFB also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as it deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the foregoing information and relied on its
being complete and accurate in all material respects. With respect to the
financial forecasts, CSFB assumed that they had been reasonably prepared on
bases reflecting the best available estimates at such time and judgments of
Vanstar's and InaCom's managements as to the future financial performance of
Vanstar and InaCom. Specifically, for purposes of its opinion, CSFB relied upon,
without independent verification, the assessment by Vanstar's and InaCom's
managements of the cost savings, synergies, and other strategic benefits or
issues expected to be derived or to result from the merger. In addition, CSFB
did not make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Vanstar or InaCom, nor was CSFB furnished with any
such evaluations or appraisals. The CSFB Opinion is necessarily based upon
financial, economic, market and other conditions as they existed and could be
evaluated on the date of the CSFB Opinion.
In preparing its opinion, CSFB performed a variety of financial and
comparative analyses. The following is a summary of the material analyses
performed by CSFB in connection with the preparation of the CSFB Opinion and
reviewed with the Vanstar board at a series of meetings culminating in a meeting
held on October 8, 1998. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or summary
description. CSFB believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create a misleading view of
the processes underlying the CSFB Opinion. In addition, CSFB may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
range of valuation resulting from any particular analysis described below should
not be taken to be CSFB's view of the actual value of Vanstar or InaCom. In
performing its analyses, CSFB made numerous assumptions with
37
<PAGE>
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Vanstar or InaCom. The
analyses performed by CSFB are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of
businesses or assets do not purport to be appraisals or to necessarily reflect
the prices at which businesses or assets may actually be sold. The analyses
performed were prepared solely as part of CSFB's analysis of the fairness of the
exchange ratio to Vanstar stockholders, other than InaCom or InaCom Acquisition,
Inc., from a financial point of view and were provided to the Vanstar board in
connection with the delivery of the CSFB Opinion.
COMPARATIVE STOCK PRICE PERFORMANCE. As part of its analyses, CSFB reviewed
the recent stock price performance of InaCom and Vanstar and compared such
performance with that of other companies involved in the computer product
distribution industry including Tech Data Corp., Ingram Micro Inc., CHS
Electronics, Inc. and Merisel, Inc. (collectively, the "Distributors") and the
computer product resale/ aggregation industry including MicroAge, Inc., Pomeroy
Computer Resources, Inc., and CompuCom Systems, Inc. (collectively, the
"Resellers/Aggregators"). CSFB observed that during the period from January 2,
1997 to September 29, 1998, the market price of Vanstar common stock decreased
60.7%, compared with a decrease of 50.8% for InaCom, a decrease of 50.1% for the
Resellers/Aggregators and an increase of 89.3% for the Distributors. CSFB noted
that over that period, Vanstar common stock underperformed relative to the
common stock of InaCom, the Distributors and the Resellers/Aggregators.
HISTORICAL EXCHANGE RATIO ANALYSIS. CSFB reviewed the historical trading
prices for Vanstar common stock and InaCom common stock, separately, and in
comparison to each other. CSFB also reviewed the ratios of the daily closing
stock prices of Vanstar common stock to InaCom common stock for each day over
various periods, starting as far back as January 2, 1997 and ending September
29, 1998, and computed the premiums represented by the exchange ratio used in
the InaCom/Vanstar merger (.64) over the average of these ratios.
The following table sets forth information concerning the average of the
ratios of the daily closing stock prices of Vanstar common stock to InaCom
common stock for the indicated periods (the "Historical Exchange Ratios") as
well as the premium that the exchange ratio used in the InaCom/Vanstar merger
represents over such Historical Exchange Ratios.
<TABLE>
<CAPTION>
PERCENTAGE PREMIUM
REPRESENTED BY
AVERAGE EXCHANGE RATIO
EXCHANGE RATIO IN MERGER OVER
PERIOD (TRADING DAYS) OVER PERIOD HISTORICAL EXCHANGE RATIOS
- ----------------------------------------------------------------------- ----------------- ---------------------------
<S> <C> <C>
January 2, 1997 -- September 29, 1998 (440)............................ 0.427x 49.9%
January 13, 1998 -- September 29, 1998 (180)........................... 0.434 47.5
May 22, 1998 -- September 29, 1998 (90)................................ 0.425 50.5
July 7, 1998 -- September 29, 1998 (60)................................ 0.410 56.3
August 18, 1998 -- September 29, 1998 (30)............................. 0.454 41.0
September 16, 1998 -- September 29, 1998 (10).......................... 0.568 12.7
September 9, 1998 (the "Unaffected Date")*............................. 0.355 80.1
September 29, 1998..................................................... 0.512 25.1
</TABLE>
- ------------------------
* September 9, 1998 (the "Unaffected Date") was selected by CSFB for inclusion
in this analysis because it was the day prior to press coverage highlighting
InaCom as the front-runner to acquire Vanstar.
SELECTED PRECEDENT TRANSACTIONS. CSFB reviewed the publicly available
financial terms of nine precedent transactions in the computer distributor and
reseller sector (the "Distributor/Reseller Transactions").
38
<PAGE>
The following table sets forth information concerning the average multiples
of selected financial metrics paid in the Distributor/Reseller Transactions and
the multiples of the same financial metrics for Vanstar implied by the exchange
ratio used in the InaCom/Vanstar merger.
<TABLE>
<CAPTION>
AVERAGE MULTIPLE PAID IN MULTIPLE OF VANSTAR
DISTRIBUTOR/RESELLER METRIC IMPLIED BY THE
METRIC TRANSACTIONS EXCHANGE RATIO IN MERGER
- --------------------------------------------------------------- ------------------------- ---------------------------
<S> <C> <C>
Aggregate Transaction Value/Latest twelve months revenue....... 0.15x 0.39x
Aggregate Transaction Value/Latest twelve months earnings
before interest and taxes..................................... 8.6x 13.6x
Share Price/Book value per share............................... 4.2x 3.4x
</TABLE>
PEER GROUP COMPARISON. CSFB compared certain information relating to
Vanstar and InaCom with the Distributors and the Resellers/Aggregators. Such
information included, among other things, market valuation, share price as a
multiple of earnings per share and aggregate market capitalization as a multiple
of revenues. The multiples are based on a compilation of publicly-available
information and consensus forecasts by securities research analysts. In
particular, such comparison showed:
<TABLE>
<CAPTION>
MULTIPLE OF SELECTED VALUATION METRIC AS OF SEPTEMBER
29, 1998
--------------------------------------------------------
RESELLERS/
VALUATION METRIC VANSTAR INACOM DISTRIBUTORS AGGREGATORS
- -------------------------------------------------------------------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Aggregate Value/Latest twelve months revenue........................ 0.35x 0.17x 0.18x 0.19x
Share Price/Latest twelve months' EPS............................... 22.4x 8.1x 19.8x 8.2x
Share Price/Projected calendar year 1999 EPS........................ 10.6x 6.3x 14.5x 8.5x
</TABLE>
PREMIUM ANALYSIS. CSFB reviewed 90 stock-for-stock acquisition transactions
involving companies in the technology sector since 1987 ("Technology
Transactions"), none of which were deemed directly comparable to the merger.
Such analysis compared transaction exchange ratios over the average of the
ratios of the closing stock prices of the companies involved in each of the
Technology Transactions over the one-year, 90-day, 60-day, 30-day, 10-day and
one-day periods ending the day preceding the public announcement of these
transactions. CSFB also noted the premium that the exchange ratio used in the
InaCom/Vanstar merger represented over the average of the ratios of the daily
closing stock prices of Vanstar common stock to InaCom common stock for the
respective comparable periods ending on September 29, 1998. In particular, such
analysis showed:
<TABLE>
<CAPTION>
PREMIUM OF EXCHANGE RATIO IN TRANSACTION OR
INACOM/VANSTAR MERGER TO AVERAGE EXCHANGE RATIOS
OVER VARIOUS PERIODS
----------------------------------------------------
PERIOD PRECEDING ANNOUNCEMENT* TECHNOLOGY TRANSACTIONS INACOM/VANSTAR MERGER
- ------------------------------------------------------------------ ------------------------- -------------------------
<S> <C> <C>
One Year.......................................................... 15.8% 47.8%
90 Trading Days................................................... 29.8 50.5
60 Trading Days................................................... 33.9 56.3
30 Trading Days................................................... 36.6 41.0
10 Trading Days................................................... 35.1 12.7
1 Trading Day..................................................... 28.4 25.1
</TABLE>
- ------------------------
* For the InaCom/Vanstar merger, represents periods prior to September 29,
1998.
CSFB reviewed 44 stock-for-stock "merger-of-equals" transactions involving
companies both within and outside of the technology sector (the "MOE
Transactions"), none of which were deemed directly comparable to the merger.
CSFB also reviewed selected subsets of the MOE Transactions including eight
selected "merger-of-equals" transactions where one company controlled both the
pro forma senior management and the board of directors ("Clear Control MOE
Transactions"); ten selected "merger-of-
39
<PAGE>
equals" transactions where the company receiving stock received a premium in
excess of 30% to the ratio of its closing stock price to that of the company
issuing stock for the trading day 30 days prior to the announcement of the
transaction ("High Premium MOE Transactions"); and 14 selected "merger-of-
equals" transactions where the company receiving stock received greater than 50%
pro forma ownership ("Greater than 50% Ownership MOE Transactions"). Such
analyses indicated that the mean premium received by the company receiving stock
over its unaffected market price was 12.2%, 26.1%, 45.3% and 15.0%,
respectively, compared to 80.1% for the merger based on the exchange ratio and
Vanstar's and InaCom's closing share price on the Unaffected Date and 25.1% on
September 29, 1998.
CONTRIBUTION ANALYSIS. CSFB analyzed the Vanstar stockholder pro forma
ownership level implied by the pro forma contribution by each of Vanstar and
InaCom to the revenue, gross profit, operating income and net income of the
combined company (adjusted to reflect the companies' respective net debt
balances) if the merger were to be consummated. The analysis was based on
management forecasts for each of InaCom and Vanstar.
The following table sets forth the Vanstar stockholder pro forma ownership
level suggested by the selected operating metrics.
<TABLE>
<CAPTION>
IMPLIED VANSTAR STOCKHOLDER PRO FORMA OWNERSHIP LEVEL
-------------------------------------------------------------------------
ACTUAL RESULTS ESTIMATED RESULTS
----------------------- ------------------------------------------------
TWELVE MONTHS ENDED CALENDAR YEAR ENDING CALENDAR YEAR ENDING
OPERATING METRIC JUNE/JULY 1998 DECEMBER 1998 DECEMBER 1999
- ----------------------------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Revenues....................................... 17.3% 11.2% 10.1%
Gross Profit................................... 48.1 38.0 33.1
Operating Income............................... 29.0 15.9 48.7
Net Income..................................... 33.7 26.1 55.9
</TABLE>
These figures compare to the pro forma fully diluted ownership of the Vanstar
stockholders in the combined company (assuming the merger were to be
consummated) of approximately 63% based on the exchange ratio used in the
InaCom/Vanstar merger.
PRO FORMA ANALYSIS OF THE MERGER. CSFB analyzed certain pro forma effects
of the merger on the earnings and capitalization of InaCom. Such analysis was
based on "Case 1" and "Case 3" estimates for the combined company, which were
prepared in coordination with InaCom and Vanstar managements, and compared to
"Vanstar Case" estimates prepared in coordination with Vanstar management and
"Street Case" estimates representing First Call consensus for Vanstar. Such
analysis was based on the exchange ratio and assumed that the merger was treated
as a pooling-of-interests business combination for accounting purposes before
taking into account any one-time restructuring charges. The following table sets
forth the earnings per share accretion/dilution to Vanstar stockholders under
the cases set forth above for calendar year 1999, 2000 and 2001 as a result of
the InaCom/Vanstar merger.
<TABLE>
<CAPTION>
EPS ACCRETION/(DILUTION) TO
VANSTAR STOCKHOLDERS
FOR VARIOUS CALENDAR YEAR
PERIODS
VANSTAR STAND-ALONE -------------------------------
COMBINED COMPANY CASE CASE 1999 2000 2001
- -------------------------------------- ----------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Case 1 Vanstar Case 32.2% 18.6% 4.6%
Street Case 151.4 154.4 147.6
Case 3 Vanstar Case (29.9)% (14.8)% (8.0)%
Street Case 33.4 82.8 117.6
</TABLE>
POTENTIAL FUTURE SHARE PRICE ANALYSIS. CSFB computed equivalent per share
values for Vanstar both on a stand-alone basis and assuming the merger with
InaCom were to be consummated. Such analysis for Vanstar on a stand-alone basis
was based on "Vanstar Case" earnings per share estimates prepared in
coordination with Vanstar management and "Street Case" earnings per share
estimates representing First Call consensus for Vanstar for the calendar year
ending December 31, 2000 ("CY00 EPS"). Such analysis
40
<PAGE>
for the combined company was based on "Case 1" and "Case 3" earnings per share
estimates for CY00 EPS, which were prepared in coordination with InaCom and
Vanstar managements. The analysis was also based on a range of one-year forward
price-earnings multiples of six, eight, ten and twelve times. Equivalent future
share prices were then computed for Vanstar one year from the date of the
analysis based on CY00 EPS estimates. Based on "Vanstar Case" and "Street Case"
stand-alone estimates for CY00 EPS, this analysis resulted in a value per share
to holders of Vanstar common stock one year from the date of the analysis
ranging from $6.50 to $27.89. Based on "Case 1" and "Case 3" combined company
estimates for CY00 EPS, this analysis resulted in a value per share to holders
of Vanstar common stock ranging from $11.88 to $33.06.
As described above, CSFB's opinion and presentation to the Vanstar board of
directors was one of many factors taken into consideration by the Vanstar board
of directors in making its determination to approve the merger agreement and the
transactions contemplated thereby. Consequently, the analyses described above
should not be viewed as determinative of the opinion of the Vanstar board of
directors or the management of Vanstar with respect to the value of Vanstar or
InaCom or whether the Vanstar board would have been willing to agree to a
different exchange ratio.
The Vanstar board retained CSFB to act as Vanstar's financial advisor in
connection with the merger. CSFB was selected by Vanstar's board of directors
based on CSFB's qualifications, expertise and reputation, as well as CSFB's
investment banking relationship and familiarity with Vanstar. CSFB is an
internationally recognized investment banking and advisory firm. CSFB, as part
of its investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the ordinary course of its business, CSFB may actively
trade the securities and loans of Vanstar and InaCom for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities and loans.
Vanstar has agreed to pay CSFB a fee for its financial advisory services in
connection with the merger, including, among other things, rendering the CSFB
Opinion and making the presentation referred to above. Pursuant to a letter
agreement between Vanstar and CSFB dated July 17, 1998, Vanstar has agreed to
pay CSFB (1) an advisory fee, principally based on the time spent by CSFB in
connection with its engagement by Vanstar, intended to compensate CFSB for its
time and effort expended in the event that a transaction (including the merger)
is not consummated and (2) in the event the merger is consummated, a transaction
fee of 0.55% to 1.25% of the aggregate value of the merger, against which the
amount referred to in clause (1) would be credited if previously paid. The
aggregate value of the merger will depend upon the closing share price of InaCom
common stock over the ten trading days up to and including the day preceding the
closing date of the merger. Assuming the closing share price of InaCom over the
ten trading days up to and including the day preceding the closing date of the
merger were to be $16.81 (the InaCom closing stock price on October 8, 1998),
the fee payable to CSFB would be approximately $5.5 million. In addition,
Vanstar has agreed to reimburse CSFB for its out-of-pocket expenses incurred in
connection with its engagement, and to indemnify CSFB and certain related
persons against certain liabilities and expenses arising out of or in
conjunction with its rendering of services under its engagement, including
liabilities arising under the federal securities laws.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER ON VANSTAR STOCKHOLDERS
The following discussion is a summary of the material U.S. federal income
tax consequences of the merger to the Vanstar stockholders. The discussion which
follows is based on the Code, Treasury regulations thereunder, administrative
rulings and pronouncements and judicial decisions as of the date hereof, all of
which are subject to change, possibly with retroactive effect. The discussion
below does not address the effects of any state, local or foreign tax laws on
the merger. The tax treatment for a Vanstar stockholder may vary depending upon
his or her particular situation, and certain Vanstar stockholders
41
<PAGE>
(including insurance companies, tax-exempt organizations, financial institutions
and broker-dealers, persons who do not hold Vanstar common stock as capital
assets, individuals who received Vanstar common stock pursuant to the exercise
of employee stock options or otherwise as compensation, and non-U.S. persons)
may be subject to special rules not discussed below. Each Vanstar stockholder is
urged to consult his or her tax advisor with respect to the tax consequences to
him or her of the merger, including the effect of U.S. federal, state and local,
and foreign and other tax rules, and the effect of possible changes in tax laws.
Consummation of the merger is conditioned upon the receipt of opinions to
InaCom from McGrath, North, Mullin & Kratz, P.C. and to Vanstar from Arter &
Hadden LLP, respective counsel to InaCom and Vanstar, at the effective time,
that the merger will qualify under Section 368(a) of the Code as a
"reorganization" for U.S. federal income tax purposes. Such opinions of counsel
will be based on certain representations as to factual matters made by InaCom
and Vanstar. Such representations, if incorrect in certain material respects,
could jeopardize the conclusions reached in the opinions. Neither InaCom nor
Vanstar is currently aware of any facts or circumstances which would cause any
such representations made to counsel to be untrue or incorrect in any material
respect. See "Risk Factors--Receipt of InaCom common stock may be taxable if
expected tax treatment does not occur." Any opinion of counsel is not binding on
the Internal Revenue Service or the courts. The parties do not intend to request
a ruling from the IRS with respect to the merger. Accordingly, there can be no
assurance that the IRS will not challenge the conclusions of the anticipated
opinions or that a court will not sustain such a challenge. Like each of the
other conditions to the closing of the merger, delivery of the tax opinions may
be waived by the party entitled to receive it. To the extent that either InaCom
or Vanstar elects to waive its right to receive a tax opinion under the terms of
the merger agreement, InaCom and Vanstar will recirculate a new joint proxy
statement relating to the special meetings and in doing so will resolicit your
vote with respect to the proposals to be made at such meetings.
Based on the anticipated opinions discussed above, subject to the
assumptions and limitations described in the preceding paragraphs, the material
U.S. federal income tax consequences that will result from the merger are as
follows:
(1) no income, gain or loss will be recognized by InaCom or Vanstar as a
result of the merger;
(2) a Vanstar stockholder will not recognize any income, gain or loss
upon the receipt of InaCom common stock solely in exchange for such
stockholder's shares of Vanstar common stock pursuant to the merger (except
as described below with respect to cash that is received in lieu of
fractional shares);
(3) a Vanstar stockholder's tax basis for the InaCom common stock
received pursuant to the merger will equal such Vanstar stockholder's tax
basis in the Vanstar common stock exchanged therefor (adjusted with respect
to fractional shares); and
(4) a Vanstar stockholder's holding period for the InaCom common stock
received pursuant to the merger will include the holding period of the
Vanstar common stock surrendered in exchange therefor, provided that the
Vanstar common stock was held as a capital asset at the effective time.
A Vanstar stockholder who receives cash in lieu of fractional shares will be
treated as having received such fractional shares pursuant to the merger and
then as having exchanged such fractional shares for cash in a transaction
generally giving rise to capital gain or loss. The amount of any capital gain or
loss attributable to such deemed exchange of fractional shares will be equal to
the difference between the cash received in lieu of fractional shares and the
ratable portion of the tax basis of the Vanstar common stock surrendered that is
allocated to such fractional shares. Such gain or loss for individuals and other
noncorporate taxpayers who held Vanstar common stock at the effective time of
the merger for (1) one year or less will be treated as short term capital gain
or loss and taxed at ordinary income tax rates and (2) more than one year will
be treated as long term capital gain or loss and taxed generally at a statutory
maximum rate of 20%.
42
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Vanstar board with respect to the
merger agreement, stockholders should be aware that certain members of Vanstar's
management and the Vanstar board have interests in the merger that are different
from, and in addition to, the interests of stockholders of Vanstar.
SEVERANCE AGREEMENTS. Vanstar has executed severance agreements with 30
employees that entitle the employee to severance pay in the event that his or
her employment is terminated after the merger under certain circumstances. These
employees will not receive severance pay if their employment is terminated for
"cause" (as defined in the agreements). However, if Vanstar terminates an
employee without cause, or if the employee voluntarily terminates employment for
"good reason," within two years after the merger, the employee will receive a
multiple of the employee's compensation. The multiples range from 1.0 to 1.5 for
vice presidents and from 1.5 to 2.5 for senior vice presidents (approximately
$12.5 million for all employees in the aggregate). The employee generally also
is entitled to continue to participate in certain employee welfare benefit plans
for two years after termination of his or her employment following the merger
under the circumstances described above. In addition, Vanstar is obligated to
make an additional payment, to the extent necessary, to make the employee whole
for any excise tax on excess parachute payments. See "Additional Information"
with respect to Vanstar's reports under the Securities Exchange Act of 1934 that
provide additional details with respect to these agreements.
TAUSCHER CONSULTING AGREEMENT. InaCom has entered into an agreement with
William Y. Tauscher, Chairman of the Board, Chief Executive Officer and
President of Vanstar. Under the agreement, Mr. Tauscher will:
- continue to provide certain services to InaCom and Vanstar for one year
following the merger;
- receive base compensation of $1,000,000 annually;
- be eligible for an incentive bonus of up to $3,000,000 if certain
employee, client and integration objectives are met;
- not compete with InaCom for one year; and
- assist InaCom in the merger and related transition.
AMATO CONSULTING AGREEMENT. Vanstar is a party to an agreement with Jay
Amato, former President and Chief Operating Officer of Vanstar and a former
member of the Vanstar board. Mr. Amato is currently a consultant to Vanstar. The
agreement provides that, in the event of a "change of control" of Vanstar (which
would include the merger), Mr. Amato is entitled to a payment of approximately
$740,000. In addition, certain payments that otherwise would be payable to Mr.
Amato over time will be accelerated by the merger. Under the agreement, Mr.
Amato's service as a consultant will end, and any unvested options to purchase
Vanstar common stock held by Mr. Amato will vest, at the effective time of the
merger. Vanstar also is obligated to make an additional payment to the extent
necessary to make Mr. Amato whole for any excise tax on excess parachute
payments.
EXECUTIVE EMPLOYMENT ARRANGEMENTS. InaCom is currently negotiating the
terms of continuing employment of certain senior officers of Vanstar. However,
no such arrangements have been finalized as of the date of this document with
any executive officers of Vanstar. No assurances can be given that InaCom will
be able to finalize any of these arrangements.
APPOINTMENT OF DIRECTORS. InaCom has agreed that, immediately following the
merger, it will cause the following four persons, each formerly affiliated with
Vanstar, to be appointed as members of the InaCom board thereby increasing the
total number of board members from 9 to 13 members:
- William Y. Tauscher (Chairman of the Board, Chief Executive Officer and
President of Vanstar);
- Richard H. Bard (director of Vanstar);
43
<PAGE>
- William H. Janeway (director of Vanstar and Warburg designee); and
- John R. Oltman (director of Vanstar).
See "The Merger Agreement--InaCom's Board of Directors." For biographical
information concerning these persons, see "Vanstar--Board of Directors."
INDEMNIFICATION. Following the merger, InaCom will continue for six years
all rights to indemnification now existing in favor of any employee, agent,
director or officer of Vanstar and its subsidiaries as provided in their
respective certificates of incorporation, by-laws or certain agreements. Subject
to certain limitations, Vanstar will also obtain directors' and officers'
liability insurance coverage with respect to any claims made during such six
year period of a type substantially equivalent to levels of coverage currently
in effect under Vanstar's existing directors' and officers' liability insurance.
See "The Merger Agreement-- Indemnification and Insurance."
WARBURG AGREEMENTS. Warburg is the largest single stockholder of Vanstar
and holds approximately 38% of the outstanding Vanstar common stock. Warburg has
agreed to vote its shares of Vanstar common stock for adoption of the merger
agreement. See "Voting Agreements--Warburg Voting Agreement."
REGISTRATION RIGHTS AGREEMENT. Warburg and Mr. Tauscher have entered into
an agreement with InaCom covering the shares of InaCom common stock that each
will receive in the merger. Such shares will be subject to the resale
restrictions of Rule 145 of the Securities Act of 1933 and, in order to partly
address these restrictions, the agreement grants certain rights to Warburg to
cause InaCom to register Warburg's shares of InaCom common stock under the
Securities Act of 1933, thereby permitting public resale free of such
restrictions. Warburg is entitled to make up to two demands that InaCom register
shares of InaCom common stock held by Warburg, representing at least 18% of the
shares received by Warburg in connection with the merger on each occasion. Mr.
Tauscher may elect to include not less than 50% of the shares received by him in
the merger in any demand registration by Warburg if the resales of the InaCom
common stock are made in an underwritten offering. Subject to certain
limitations, if InaCom proposes to register InaCom common stock under the
Securities Act of 1933 (other than certain registrations for business
acquisitions or employee stock benefit plans), Warburg and Mr. Tauscher will
have certain rights to include shares received by them in the merger in the
registration. If Warburg distributes its shares of InaCom common stock received
in the merger to its limited partners and general partner, Warburg may require
InaCom to file a registration statement under the Securities Act of 1933
providing for resales by the limited partners and the general partner of
Warburg; however, InaCom is not required to maintain the effectiveness of such
registration statement beyond the first anniversary of the merger. The
registration rights of Warburg and Mr. Tauscher terminate when Warburg is
permitted to sell all of its shares of InaCom common stock received in the
merger under Rule 144 of the Securities Act of 1933 during any 90-day period.
STOCK OPTIONS. As described below under "--Treatment of Existing Vanstar
Stock Options," the merger agreement provides that, at the effective time of the
merger, each option to purchase Vanstar common stock granted by Vanstar under
its stock option plans that is outstanding and unexercised will be assumed by
InaCom and converted into an option to purchase InaCom common stock. The option
to purchase InaCom common stock will have material terms and provisions at least
as favorable to the option holder as those in effect immediately prior to the
effective time of the merger. The Vanstar stock option plans provide that each
option will become fully exercisable if the plan participant ceases to be an
employee or director within six months of the effective time. However, the
option must be exercised within 180 days of terminating his or her employment or
director relationship.
The Vanstar board was aware of each of these interests and considered them
along with the other matters described above under "--Background of the Merger."
44
<PAGE>
GREGORY & HOENEMEYER, INC. W. Grant Gregory, a member of the InaCom board,
is Chairman of G&H, which firm rendered advisory services to InaCom in
connection with the merger. InaCom and G&H entered into a letter agreement dated
September 18, 1998. The letter agreement provides that if the merger occurs
InaCom will pay G&H a success fee in an amount equal to .48 percent of the
aggregate amount of consideration received by Vanstar and/or its stockholders in
connection with the merger. The approximate amount of the success fee is $2.25
million, based on the closing price per share of InaCom common stock on October
8, 1998, the date of the merger agreement.
OWNERSHIP INTEREST OF VANSTAR STOCKHOLDERS AFTER THE MERGER
Based on 43,791,900 shares of Vanstar common stock outstanding as of
December 28, 1998 there will be approximately 44.8 million shares of InaCom
common stock outstanding upon consummation of the merger, of which the former
Vanstar stockholders will own an aggregate of approximately 62.6%.
TREATMENT OF EXISTING VANSTAR STOCK OPTIONS
The merger agreement provides that Vanstar stock options issued under
Vanstar's 1988 Stock Option Plan, as amended, 1993 Stock Option/Stock Issuance
Plan, as amended, or 1996 Stock Option/Stock Issuance Plan, as amended, that
remain outstanding immediately prior to the effective time, whether or not then
exercisable, will, by virtue of the merger and without any action on the part of
the holder thereof, be assumed by InaCom and will entitle the holder thereof to
purchase from InaCom the number of shares of InaCom common stock that equals the
product of the exchange ratio of .64 multiplied by the number of shares of
Vanstar common stock subject to the options immediately prior to the effective
time of the merger(rounded to the nearest whole share), at an exercise price per
share of InaCom common stock equal to the exercise price per share then
specified with respect to such option divided by the exchange ratio (rounded to
the nearest whole cent). The following chart provides an example of the manner
in which Vanstar stock options will be treated in the merger:
<TABLE>
<CAPTION>
FORMER VANSTAR
STOCK OPTION POST-MERGER OPTION
------------------------- --------------------------
<S> <C> <C>
Number of shares...................... 220 141
Exercise price........................ $ 7.50 per share $ 11.72 per share
Exercisable for....................... Vanstar common stock InaCom common stock
Vesting provisions.................... various unchanged
</TABLE>
At December 28, 1998, there were outstanding options to acquire an aggregate
of approximately 5,958,357 shares of Vanstar common stock.
STOCK EXCHANGE LISTING
InaCom has agreed to cause the shares of InaCom common stock issued in
connection with the merger and upon exercise of the options to purchase Vanstar
common stock to be listed on the New York Stock Exchange. It is also a condition
to the obligations of both InaCom and Vanstar to consummate the merger that such
New York Stock Exchange listing shall have been obtained. See "The Merger
Agreement--Conditions to Consummate the Merger."
DELISTING AND DEREGISTRATION OF VANSTAR COMMON STOCK
If the merger is consummated, the shares of Vanstar common stock will be
delisted from the New York Stock Exchange and will be deregistered under the
Securities Exchange Act of 1934.
ACCOUNTING TREATMENT
The merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Accounting Principles Board Opinion 16 ("APB
16") and related interpretations specify the
45
<PAGE>
conditions under which the pooling of interests accounting method is available.
APB 16 also defines the manner in which the pooling of interests accounting
method is applied. Under this method, the recorded assets and liabilities of the
combining companies are carried forward at their historical recorded amounts and
the reported incomes of the companies are combined as income of the combined
company. InaCom's and Vanstar's obligation to consummate the merger is
conditioned on each receiving letters from its independent auditor that the
transactions contemplated in the merger agreement qualify for accounting
treatment as a pooling of interests. See "The Merger Agreement--Conditions to
Consummate the Merger."
ABSENCE OF APPRAISAL RIGHTS
The holders of Vanstar common stock are not entitled to any appraisal rights
with respect to the merger.
GOVERNMENTAL AND REGULATORY APPROVALS
The consummation of the merger is conditioned upon the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. Under the act and the regulations
thereunder, the merger may not be consummated until notifications have been
given and certain information has been furnished to the Federal Trade Commission
("FTC") and the Antitrust Division of the U.S. Department of Justice (the
"Antitrust Division") and the applicable waiting period has expired or been
terminated. InaCom and Vanstar filed notifications and report forms under the
act with the FTC and the Antitrust Division and the waiting period expired on
November 29, 1998. Although the waiting period has expired, the FTC, the
Antitrust Division or others could, either before or after the consummation of
the merger, take action under the antitrust laws with respect to the merger,
including seeking to enjoin the consummation of the merger or seeking the
divestiture by InaCom of all or part of the stock or assets of Vanstar, or other
businesses conducted by InaCom. InaCom and Vanstar do not believe that
consummation of the merger will result in a violation of any applicable
antitrust laws. However, there can be no assurance that a challenge to the
merger on antitrust grounds will not be made or, if such a challenge is made, of
the result.
The respective obligations of InaCom and Vanstar to consummate the merger
are subject to the condition that no court or other governmental entity having
jurisdiction over InaCom or Vanstar, or any of their respective subsidiaries,
shall have entered any injunction or other order (whether temporary, preliminary
or permanent) which is then in force and has the effect of making the merger or
any of the transactions contemplated by the merger agreement illegal. See "The
Merger Agreement--Conditions to Consummate the Merger."
PROCEDURES FOR EXCHANGE OF VANSTAR COMMON STOCK CERTIFICATES
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
VANSTAR STOCKHOLDERS PROMPTLY FOLLOWING THE MERGER AS TO THE METHOD OF
EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF VANSTAR COMMON STOCK.
VANSTAR STOCKHOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR SHARES TO
ANYONE PRIOR TO THE RECEIPT OF THE TRANSMITTAL LETTER.
InaCom has designated First Chicago Trust Company to act as exchange agent
under the merger agreement. Immediately following the merger, InaCom will
deliver, in trust, to First Chicago Trust Company, certificates evidencing the
shares of InaCom common stock issuable pursuant to the merger agreement (as well
as the cash to be paid in lieu of fractional InaCom shares).
At the effective time of the merger, all shares of Vanstar common stock will
be cancelled and will cease to exist. At the effective time, the stock transfer
books of Vanstar will be closed and no transfer of shares of Vanstar common
stock will thereafter be made. As soon as practicable thereafter, InaCom will
cause First Chicago Trust Company to mail to each holder of record of Vanstar
certificates:
46
<PAGE>
- a letter of transmittal specifying that delivery will be effected, and
risk of loss and title to the Vanstar certificates will pass, only upon
proper delivery of the Vanstar certificates to First Chicago Trust
Company; and
- instructions for use in surrendering such Vanstar certificates in exchange
for the InaCom common stock.
Upon surrender of a Vanstar certificate for cancellation to First Chicago
Trust Company, together with a completed letter of transmittal, the holder of a
Vanstar certificate will be entitled to receive in exchange therefor the number
of shares of InaCom common stock equal to the product of the exchange ratio of
.64 multiplied by the number of shares of Vanstar common stock formerly
represented by the surrendered Vanstar certificate. Cash will be paid with
respect to any fractional shares of InaCom common stock to which a Vanstar
stockholder would otherwise be entitled, based on the average closing price of
the InaCom common stock for the ten full trading days ending on the fifth full
trading day prior to the effective time of the merger.
No dividends or other distributions, if any, payable to holders of InaCom
common stock, shall be payable to any person who has not converted his or her
Vanstar certificates. Subject to applicable law, if InaCom declares a dividend
or other distribution after the effective time, former Vanstar stockholders will
be entitled to receive such payment. In no event will the person entitled to
receive such dividends or other distributions be entitled to receive interest
thereon.
If any cash is to be paid to or InaCom certificate issued in a name other
than that in which the surrendered Vanstar certificate is registered, the
surrendered Vanstar certificate must be properly endorsed and otherwise in
proper form for transfer. The person requesting such exchange also must pay to
First Chicago Trust Company any applicable transfer or other taxes.
InaCom or First Chicago Trust Company will be entitled to deduct and
withhold from the consideration payable in the merger to any holder of Vanstar
common stock such amounts as are required under any tax law. Any such withheld
amounts will be treated for all purposes of the merger agreement as having been
paid to the holder of Vanstar common stock.
RESALES OF INACOM COMMON STOCK
All shares of InaCom common stock to be issued in connection with the merger
will be freely transferable, except that Securities and Exchange Commission
rules will restrict sales of shares received by any person who may be deemed to
be an "affiliate" of Vanstar prior to the merger and certain of their family
members and related interests. Vanstar has identified 22 individuals (including
its directors and executive officers) whom it believes may fall within the
definition of "affiliate." Under the Securities and Exchange Commission rules,
during the one year period following the merger, affiliates of Vanstar may
resell publicly the InaCom common stock received in connection with the merger
subject to certain volume and manner of sale restrictions. After one year, if
such person is not an affiliate of InaCom and InaCom is current in the filing of
its periodic securities law reports, a former affiliate of Vanstar may freely
resell the InaCom common stock received in connection with the merger without
limitation. After two years from the merger, if such person is not an affiliate
of InaCom at the time of sale or for at least three months prior to such sale,
such person may freely resell such InaCom common stock, without limitation.
Vanstar has delivered to InaCom the written agreement of each such person
providing that he or she will only dispose of any shares of InaCom common stock
issued to such person in connection with the merger:
- under an effective registration statement or in compliance with Rule 145
or another exemption from the registration requirements of the Securities
Act of 1933; and
- in compliance with requirements regarding qualifying for pooling of
interests accounting treatment. See "The Merger Agreement--Conditions to
Consummate the Merger."
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In addition, in order to account for the merger under the pooling of
interests method of accounting, the merger agreement requires that affiliates of
each of InaCom and Vanstar may not dispose of any shares of the corporation they
own or shares of InaCom received in connection with the merger during a specific
period. This period begins 30 days before consummation of the merger and ends
when financial results covering at least 30 days of post-merger combined
operations have been published.
INACOM PROPOSAL TO INCREASE THE AUTHORIZED NUMBER OF
SHARES OF INACOM COMMON STOCK
InaCom is presently authorized to issue 30,000,000 shares of InaCom common
stock and 1,000,000 shares of Class A Preferred Stock. As of December 31, 1998,
16,768,473 shares of InaCom common stock were issued and outstanding. If the
merger is consummated, approximately 27.8 million shares of InaCom common stock
will be issued. Accordingly, the authorized shares of InaCom must be increased
in order that a sufficient number of shares of InaCom common stock will be
available for issuance or reserved for issuance by InaCom in connection with the
merger.
The InaCom board adopted a resolution to amend, subject to InaCom
stockholder approval, InaCom's certificate of incorporation to increase to
100,000,000 shares the authorized number of shares of InaCom common stock.
InaCom has no present plans, proposals, agreements or understandings to
issue any of the newly authorized InaCom common stock, except in connection with
the merger. The InaCom board does not presently intend to secure any further
approval from the InaCom stockholders prior to authorizing or issuing such
InaCom common stock, except where such approval is required by law or applicable
stock exchange rules.
Although InaCom has no such intentions, the additional authorized but
unissued shares of InaCom common stock could also be used to make more difficult
a change in control of InaCom. Under certain circumstances, such shares could be
used to create voting impediments, or to discourage third parties seeking to
effect a takeover or otherwise gain control of InaCom. Such shares could also be
placed with purchasers who might support the InaCom board in opposing a hostile
takeover bid.
Adoption of the proposed amendment of the certificate of incorporation
requires the affirmative vote of the holders of a majority of the shares of
InaCom common stock outstanding as of the InaCom record date for the InaCom
special meeting.
THE INACOM BOARD OF DIRECTORS HAS DECLARED THE ADVISABILITY OF THE OTHER
INACOM PROPOSALS AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF INACOM COMMON
STOCK VOTE FOR THE APPROVAL OF THE AMENDMENT OF INACOM'S CERTIFICATE OF
INCORPORATION.
INACOM PROPOSAL TO INCREASE THE NUMBER OF SHARES
AUTHORIZED UNDER INACOM'S 1997
STOCK PLAN
In April 1997, InaCom stockholders approved the 1997 InaCom Stock Plan,
which authorizes the grant of stock options, stock appreciation rights,
restricted stock and stock bonuses to directors, officers and other employees of
InaCom and its subsidiaries. The 1997 InaCom Stock Plan currently authorizes the
issuance of 1,400,000 shares of InaCom common stock, of which approximately
770,000 shares remain available for issuance.
As of December 28, 1998, options to purchase an aggregate of approximately
5,958,357 shares of Vanstar common stock were outstanding under the Vanstar
option plans. At the exchange ratio of .64, such options will be exchanged in
the merger for options to purchase an aggregate of approximately 3,813,348
shares of InaCom common stock, which exceeds the number of shares of InaCom
common stock available under the 1997 InaCom Stock Plan. Therefore, the number
of shares of InaCom common stock available for grants of options under the 1997
InaCom Stock Plan must be increased to enable InaCom to satisfy its obligations
under the merger agreement.
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Consequently, the InaCom board has authorized, subject to InaCom stockholder
approval, an amendment to the 1997 InaCom Stock Plan, that would authorize an
additional 10,000,000 shares of InaCom common stock for issuance under the stock
plan. InaCom believes the amendment would provide an adequate number of shares
to satisfy its obligations under the merger agreement to exchange options
granted under Vanstar option plans for options to purchase InaCom common stock.
InaCom also believes the amendment will provide for future grants under the 1997
InaCom Stock Plan to employees of the combined companies through the year 2002.
GENERAL DESCRIPTION OF 1997 INACOM STOCK PLAN. The number of employees
currently eligible to participate in the 1997 InaCom Stock Plan is estimated to
be approximately 175. The number of employees eligible to participate in the
1997 InaCom Stock Plan upon consummation of the merger is estimated to be
approximately 350. The number of grantees may vary from year to year. The
compensation committee administers the plan and its determinations are binding
upon all persons participating in the 1997 InaCom Stock Plan.
Currently, the maximum number of shares of InaCom common stock that may be
issued under the 1997 InaCom Stock Plan is 1,400,000. Any shares of InaCom
common stock subject to an award which for any reason are cancelled, terminated
or otherwise settled without the issuance of any InaCom common stock are again
available for awards under the 1997 InaCom Stock Plan. The maximum number of
shares of InaCom common stock which may be issued under the plan to any one
employee cannot exceed 20% of the aggregate number of shares of InaCom common
stock that may be issued under the 1997 InaCom Stock Plan. The shares may be
unissued shares or treasury shares. If there is a stock split, stock dividend,
recapitalization or other relevant change affecting InaCom common stock,
appropriate adjustments may be made by the compensation committee in the number
of shares issuable in the future and in the number of shares and price under all
outstanding grants made before the event.
STOCK OPTIONS FOR EMPLOYEES. The compensation committee may grant employees
nonqualified options and options qualifying as incentive stock options. The
option price of either a nonqualified stock option or an incentive stock option
will be the fair market value of the InaCom common stock on the date of the
grant. Options qualifying as incentive stock options must meet certain
requirements of the Code, including the requirement that the aggregate fair
market value of the InaCom common stock (determined at the time of the grant of
the option) with respect to which such options are exercisable for the first
time by an employee during any calendar year may not exceed $100,000. To
exercise an option, an employee may pay the option price in cash, or if
permitted by the compensation committee, by withholding shares otherwise
issuable on exercise of the option or by delivering other shares of InaCom
common stock if such shares have been owned by the optionee for at least six
months. The term of each option will be fixed by the compensation committee but
may not exceed ten years from the date of grant. The compensation committee will
determine the time or times when each option is exercisable. Options may be made
exercisable in installments, and the exercisability of options may be
accelerated by the compensation committee. All outstanding options become
immediately exercisable in the event of a change-in-control (as defined in the
1997 InaCom Stock Plan) of InaCom.
STOCK APPRECIATION RIGHTS. The compensation committee may grant a stock
appreciation right (an "SAR") in conjunction with an option granted under the
1997 InaCom Stock Plan or separately from any option. Each SAR granted in tandem
with an option may be exercised only to the extent that the corresponding option
is exercised, and such SAR terminates upon termination or exercise of the
corresponding option. Upon the exercise of an SAR granted in tandem with an
option, the corresponding option will terminate. SAR's granted separately from
options may be granted on such terms and conditions as the compensation
committee establishes. If an employee exercises an SAR, the employee will
generally receive a payment equal to the excess of the fair market value at the
time of exercise of the shares with respect to which the SAR is being exercised
over the price of such shares as fixed by the compensation
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<PAGE>
committee at the time the SAR was granted. Payment may be made in cash, in
shares of InaCom common stock, or any combination of cash and shares as the
compensation committee determines.
RESTRICTED STOCK. The compensation committee may grant awards of restricted
InaCom common stock to employees under the 1997 InaCom Stock Plan. The
restrictions on such shares will be established by the compensation committee,
which may include restrictions relating to continued employment and InaCom
financial performance. The compensation committee may issue such restricted
stock awards without any cash payment by the employee, or with such cash payment
as the compensation committee may determine. The compensation committee has the
right to accelerate the vesting of restricted shares and to waive any
restrictions. All restrictions lapse in the event of a change-in-control (as
defined in the 1997 InaCom Stock Plan) of InaCom. The compensation committee
intends that all restricted stock grants have a restriction period of one year
on performance-based restricted stock and three years on tenure-based restricted
stock. The compensation committee also intends to grant acceleration or waiver
of restricted stock provisions only in the case of special circumstances.
STOCK BONUSES. The compensation committee may grant a bonus in shares of
InaCom common stock to employees under the 1997 InaCom Stock Plan. Such stock
bonuses may be in lieu of cash compensation otherwise payable to such employee,
or may be in addition to such cash compensation. The compensation committee
intends to grant stock bonuses only in lieu of salary or cash bonuses otherwise
payable to an employee.
DIRECTOR COMPENSATION. Under the 1997 InaCom Stock Plan each non-employee
director receives (1) an annual grant of 150 shares of InaCom common stock for
each board meeting attended by such director (other than meetings by written
consent or telephone communications) and (2) an annual grant of a nonstatutory
stock option to acquire 1,000 shares of InaCom common stock exercisable at the
fair market value of the InaCom common stock on the date of grant. In addition,
each new non-employee director receives a one-time grant of a nonstatutory stock
option to acquire 5,000 shares of InaCom common stock exercisable at the fair
market value on the date on which such person first becomes a director of
InaCom, with such option becoming exercisable in one-third increments beginning
on the first anniversary of the date of grant.
TAX WITHHOLDING. The compensation committee may permit an employee to
satisfy applicable federal, state and local income tax withholding requirements
through the delivery to InaCom of previously acquired shares of InaCom common
stock or by having shares otherwise issuable under the 1997 InaCom Stock Plan
withheld by InaCom.
FEDERAL INCOME TAX CONSEQUENCES. With respect to incentive stock options,
if the holder of an option does not dispose of the shares acquired upon exercise
of the option within one year from the transfer of such shares to such employee,
or within two years from the date the option to acquire such shares is granted,
for federal income tax purposes (1) the optionee will not recognize any income
at the time of the exercise of the option; (2) the excess of the fair market
value of the shares as of the date of exercise over the option price will
constitute an "item of adjustment" for purposes of the alternative minimum tax;
and (3) the difference between the option price and the amount realized upon the
sale of the shares by the optionee will be treated as a long-term capital gain
or loss. InaCom will not be allowed a deduction for federal income tax purposes
in connection with the granting of an incentive stock option or the issuance of
shares thereunder.
With respect to the grant of options which are not incentive stock options,
the person receiving an option will recognize no income on receipt thereof. Upon
the exercise of the option, the optionee will recognize ordinary income in the
amount of the difference between the option price and the fair market value of
the shares on the date the option is exercised. InaCom will receive an
equivalent deduction at that time.
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With respect to restricted stock awards and bonuses of InaCom common stock,
an amount equal to the fair market value of the InaCom shares distributed to the
employee (in excess of any purchase price paid by the employee) will be
includable in the employee's gross income at the time of receipt unless the
award is not transferable and subject to a substantial risk of forfeiture as
defined in Section 83 of the Code (a "Forfeiture Restriction"). If an employee
receives an award subject to a Forfeiture Restriction, the employee may elect to
include in gross income the fair market value of the award. In the absence of
such an election, the employee will include in gross income the fair market
value of the award subject to a Forfeiture Restriction on the earlier of the
date such restrictions lapse or the date the award becomes transferable. InaCom
is entitled to a deduction at the time and in the amount income is included in
the gross income of an employee.
With respect to stock appreciation rights, the amount of any cash (or the
fair market value of any InaCom common stock) received upon the exercise of a
stock appreciation right will be subject to ordinary income tax in the year of
receipt and InaCom will be entitled to a deduction for such amount.
OTHER INFORMATION. The InaCom board may terminate the 1997 InaCom Stock
Plan at any time but such termination will not affect any stock options, SAR's,
restricted stock or stock bonuses then outstanding under the 1997 InaCom Stock
Plan. Unless terminated by action of the InaCom board, the 1997 InaCom Stock
Plan will continue in effect until December 31, 2006, but awards granted prior
to that time will continue in effect until they expire in accordance with their
terms. The InaCom board may also amend the 1997 InaCom Stock Plan as it deems
advisable. Amendments which materially modify the requirements for participation
in the 1997 InaCom Stock Plan or increase the number of shares of InaCom common
stock subject to issuance under the 1997 InaCom Stock Plan, such as the
amendment to increase the number of shares of InaCom common stock issuable under
the plan, must be submitted to stockholders for approval.
Approval of the amendment to increase the number of shares of InaCom common
stock issuable under the plan requires the affirmative vote of a majority of
shares of InaCom common stock cast on the proposal, provided that the total
votes cast on the proposal represents more than 50% of all shares of InaCom
common stock that are entitled to vote thereon.
Approval of the amendment to increase the number of shares of InaCom common
stock issuable under the plan is conditioned upon stockholder approval of the
other InaCom proposals. If the amendment is not approved or the merger is not
consummated, the amendment to increase the number of shares of InaCom common
stock issuable under the plan will not become effective.
THE INACOM BOARD RECOMMENDS THAT THE HOLDERS OF INACOM COMMON STOCK VOTE FOR
THE APPROVAL OF THE AMENDMENT OF THE 1997 INACOM STOCK PLAN.
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THE MERGER AGREEMENT
The description of the merger and merger agreement contained in this
document sets forth the material terms of the merger agreement. The merger
agreement is attached hereto as Annex A and incorporated herein by reference.
Each InaCom and Vanstar stockholder is advised to read the merger agreement
carefully.
STRUCTURE OF THE MERGER
At the effective time of the merger, InaCom's subsidiary, InaCom
Acquisition, Inc., will be merged with and into Vanstar thereby resulting in
Vanstar becoming a wholly-owned subsidiary of InaCom.
CONVERSION OF VANSTAR COMMON STOCK
At the effective time of the merger, each share of Vanstar common stock
outstanding immediately prior to the effective time (other than shares, if any,
owned by InaCom and InaCom Acquisition, Inc., which will be cancelled) will be
converted into the right to receive .64 shares of validly issued, fully paid and
non-assessable shares of InaCom common stock. Cash will be paid with respect to
any fractional shares of InaCom common stock to which a Vanstar stockholder
would otherwise be entitled based on the average closing price of the InaCom
common stock for the ten trading days ending on the fifth trading day prior to
the effective time of the merger. See "The Merger--Procedures for Exchange of
Vanstar Common Stock Certificates" and "--Treatment of Existing Vanstar Stock
Options" for a description of the exchange of Vanstar common stock for InaCom
common stock and the assumption by InaCom of Vanstar stock options previously
granted by Vanstar under its option plans.
CERTAIN REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties of
Vanstar and InaCom including those concerning:
- corporate organization and good standing
- certificate of incorporation and by-laws
- capitalization
- subsidiaries
- corporate authority
- compliance with laws
- non-contravention of existing arrangements
- government approvals and required consents
- documents and other reports filed with the Securities and Exchange
Commission
- absence of certain changes or events
- actions and legal proceedings
- absence of undisclosed liabilities
- certain contracts and arrangements
- taxes
- patents, trademarks and similar rights
- disclosed information
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- employee benefit plans
- environmental matters
- labor matters
- affiliate transactions
- financial advisors
- brokers
- pooling of interests accounting treatment
- insurance and risk management
- year 2000 compliance matters
The merger agreement also contains a representation and warranty of InaCom
relating to the interim operations of InaCom Acquisition, Inc. The
representations and warranties do not survive the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Prior to the effective time, unless the other party otherwise agrees in
writing, InaCom and Vanstar are to conduct, and cause each of their subsidiaries
to conduct, their business only in the ordinary course consistent with past
practice. Specifically, the merger agreement precludes InaCom and Vanstar from a
multitude of specific corporate acts (without the consent of the other party),
including the issuance of stock or options, incurring debt not in the ordinary
course of business, entering into business combinations, selling material
assets, declaring dividends, making capital expenditures in excess of
$2,000,000, and entering into material contracts. In each case, the prohibitions
are designed to ensure that Vanstar and InaCom are in generally the same
condition at the time of the merger as they were at the time of execution of the
merger agreement. In addition, InaCom and Vanstar are to use their reasonable
best efforts to, and cause each of their officers, directors, and employees to,
preserve intact their present business organization, keep available the services
of their present officers and key employees and preserve their existing business
relationships.
CONDITIONS TO CONSUMMATE THE MERGER
The respective obligations of Vanstar and InaCom to consummate the merger
are subject to the satisfaction or waiver of the following conditions:
- the adoption of the merger agreement by the requisite vote of Vanstar
stockholders, and the approval of the InaCom proposals by the InaCom
stockholders;
- the receipt of all necessary governmental approvals and consents;
- the absence of any stop order suspending the effectiveness of the
registration statement of which this document forms a part and proceedings
initiated for that purpose by the Securities and Exchange Commission;
- the absence of any actions of any governmental entity that has the effect
of making the merger or certain voting agreements, executed in connection
with the merger (see "Voting Agreements"), illegal or otherwise
prohibiting consummation of the merger;
- the approval for listing on the New York Stock Exchange of the shares of
InaCom common stock to be issued in connection with the merger;
- the receipt of a standard "comfort letter" from the other's independent
public accountant; and
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- the receipt of letters by InaCom and Vanstar from KPMG Peat Marwick, LLP
and Ernst & Young, LLP, respectively, regarding their concurrence as to
the appropriateness of the pooling of interests accounting method.
The obligations of InaCom and InaCom Acquisition, Inc. on the one hand and
Vanstar on the other, to consummate the merger are also subject to the
satisfaction at or prior to the effective time of the following additional
conditions, unless waived in writing by such party:
- the representations and warranties of the other party being true and
correct in all material respects;
- the performance by the other party in all material respects of all
obligations required to be performed by it;
- the other party having obtained any necessary non-governmental consents
and approvals required to consummate the transactions contemplated by the
merger agreement; and
- the receipt of an opinion from its counsel to the effect that the merger
will qualify as a reorganization within the meaning of Section 368(a) of
the Code.
POOLING
InaCom and Vanstar have each agreed to use their best efforts to cause the
merger to be accounted for as a pooling of interests. Each has also agreed to
not voluntarily take any action that would cause such treatment not to be
obtained.
EMPLOYEE BENEFITS
The merger agreement provides that for a one-year period following the
effective time, the employees of Vanstar who remain employees of Vanstar after
the merger will continue to receive employee benefits substantially comparable
in the aggregate to those provided under Vanstar's employee benefit plans prior
to the effective time, provided that InaCom may terminate Vanstar's employee
stock purchase plan.
NO SOLICITATION
InaCom and Vanstar have agreed that prior to the effective time, they will
not, and they will use their best efforts to cause their respective affiliates,
directors, officers, employees, agents or representatives not to, directly or
indirectly:
- solicit any inquiries or the making of any proposal with respect to any
business combination involving either party or the acquisition of the
assets or capital stock of such party or any of its subsidiaries (an
"Acquisition Transaction");
- engage in discussions with any person with respect to any Acquisition
Transaction, or which may reasonably be expected to lead to a proposal for
an Acquisition Transaction; or
- enter into any agreement with respect to any Acquisition Transaction or
which would require it to abandon, terminate or fail to consummate the
merger.
Vanstar may prior to the adoption of the merger agreement by the Vanstar
stockholders, and InaCom may, prior to the approval of the InaCom proposals by
the InaCom stockholders, in response to an unsolicited written proposal from a
third party setting forth a Superior Proposal (as defined below), engage in
discussions with such third party, if its board of directors determines in good
faith, based upon the advice of outside counsel, that such action is reasonably
necessary for its board of directors to comply with its fiduciary duties under
applicable law.
A "Superior Proposal" means a bona fide, written and unsolicited proposal or
offer with respect to an Acquisition Transaction on terms which the board of
directors of the party receiving such proposal or offer
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determines in good faith (based on and consistent with the advice of independent
financial advisors and outside legal counsel), would, if consummated, be more
favorable over the long term from a financial point of view than the merger. In
making this determination the parties have agreed to take into consideration all
elements of the merger, including without limitation, the non-taxable elements
of the merger, the strategic benefits anticipated to be derived from the merger
and the long-term prospects of InaCom and Vanstar as a combined company.
InaCom and Vanstar have agreed that, as of the date of the merger agreement,
they, their subsidiaries and affiliates, and the respective directors, officers,
employees, agents and representatives of the foregoing, will immediately cease
and cause to be terminated any existing negotiations with any person conducted
prior to that date with respect to any Acquisition Transaction.
THIRD-PARTY STANDSTILL AGREEMENTS
During the period from the date of the merger agreement through the
effective time, Vanstar has agreed that it will not terminate, amend, modify, or
waive any provisions of any confidentiality or standstill agreement to which it
or any of its subsidiaries is a party that was entered into in contemplation of
discussions or negotiations regarding a possible Acquisition Transaction.
INDEMNIFICATION AND INSURANCE
InaCom and Vanstar have agreed that all rights to indemnification now
existing in favor of any employee, agent, director or officer of Vanstar and its
subsidiaries, as provided in their respective certificate of incorporation or
by-laws or pursuant to certain agreements, will survive the merger and will
continue in full force and effect for a period of six years thereafter. The
merger agreement further provides that in the event any claim or claims are
asserted or made within such six-year period, all rights to indemnification in
respect of any such claim will continue until final disposition of such claim.
InaCom has also agreed that, from and after the effective time, Vanstar will
obtain continuation coverage under Vanstar's existing directors and officers and
Vanstar liability insurance policy to provide coverage with respect to any
claims made during the six-year period following the effective time for events
occurring prior to the effective time or, if substantially equivalent insurance
coverage is unavailable, the best coverage available for a like premium.
AFFILIATE AGREEMENTS
Prior to the execution of the merger agreement, Vanstar and InaCom provided
each other with a list of those persons who are "affiliates" within the meaning
of Securities and Exchange Commission rules. Vanstar and InaCom have each
delivered to the other an executed affiliate agreement from each of its
affiliates. Under these agreements, each Vanstar affiliate has agreed not to
dispose of his or her shares of InaCom common stock received in the merger
except pursuant to an effective registration statement or in compliance with
Securities and Exchange Commission rules and each Vanstar and InaCom affiliate
agreed not to dispose of his or her shares of InaCom common stock and Vanstar
common stock in a manner that would preclude qualifying for pooling of interests
accounting treatment. InaCom will be entitled to place appropriate legends on
the certificates evidencing any InaCom common stock to be received by such
Vanstar affiliates pursuant to the terms of the merger agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the InaCom
common stock, consistent with the terms of the affiliate agreements.
INACOM'S BOARD OF DIRECTORS
At or immediately following the effective time, InaCom will take such action
as may be necessary to cause William Y. Tauscher, Chairman of the Board, Chief
Executive Officer and President of Vanstar, William H. Janeway, a Warburg,
Pincus Capital Company, L.P. representative and Vanstar board member, and
Richard H. Bard and John R. Oltman, two additional outside Vanstar board
members, to be appointed as members of the InaCom board. See "The
Merger--Interests of Certain Persons in the Merger."
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VANSTAR'S TRUST CONVERTIBLE PREFERRED SECURITIES
In October 1996, Vanstar Financing Trust (the "Issuer Trust"), a special
purpose financing trust formed by Vanstar, issued 4,025,000 6 3/4% trust
convertible preferred securities (having an aggregate liquidation value of
$201,250,000) in an offering exempt from the registration provisions of the
Securities Act of 1933. At that time, Vanstar acquired 124,484 6 3/4% trust
convertible common securities from the Issuer Trust (having an aggregate
liquidation value of $6,224,200). The preferred securities and the common
securities represent undivided beneficial interests in the assets of the Issuer
Trust, which consist solely of $207,474,200 aggregate principal amount of
Vanstar's 6 3/4% convertible subordinated debentures due 2016.
The Issuer Trust does not and will not have any independent operations. It
was created for the sole and limited purpose of issuing the preferred securities
and the common securities and investing the proceeds thereof in the Vanstar
debentures. In brief, Vanstar is obligated to make all payments of funds due
under the Vanstar debentures which, in turn, will be promptly remitted to the
holders of the preferred securities and the common securities in the form of a
quarterly dividend. To the extent that the Issuer Trust receives payments on the
Vanstar debentures, but does not, for whatever reason, pass the full amount on
to the holders of the preferred securities and common securities, Vanstar will
be fully bound to pay directly any amount not so passed on. The Issuer Trust and
the preferred securities exist simply to finance the operations of Vanstar and
its consolidated subsidiaries. At the date hereof, no preferred securities have
been converted into shares of Vanstar common stock.
As a result of the merger, InaCom will become obligated under the terms of
the Vanstar debentures and will thereafter ensure the quarterly dividend
payments of the preferred securities. In addition, after the merger, each of the
preferred securities will entitle the holders thereof to purchase from InaCom
that number of shares of InaCom common stock that equals the exchange ratio
multiplied by 1.739 (the conversion ratio previously applicable to the preferred
securities). The following chart demonstrates the manner in which preferred
securities will be treated in the merger:
<TABLE>
<CAPTION>
VANSTAR TRUST CONVERTIBLE PREFERRED SECURITIES
--------------------------------------------------------------------
PRE-MERGER POST-MERGER
--------------------------------- ---------------------------------
<S> <C> <C>
Dividend rate........................ 6 3/4%, payable quarterly 6 3/4%, payable quarterly
Exercisable for...................... Vanstar common stock InaCom common stock
Conversion ratio..................... 1.739 shares of common per 1.113 shares of common per
preferred security preferred security
Conversion price..................... $ 28.75 per preferred security $ 44.92 per preferred security
</TABLE>
Also as a result of the merger, InaCom and Vanstar will take all necessary
steps to ensure that substitute company trustees acceptable to InaCom are
appointed by Vanstar in replacement of current company trustees to the Issuer
Trust and that all additional actions are taken in order to ensure compliance
with the documents underlying the preferred securities and the Vanstar
debentures.
As indicated above under "Risk Factors--The merger may cause significant
debt obligations to become immediately payable," certain of the companies debt
obligations contain cross-default provisions and may become due and payable upon
the default of one or more other debt obligations. Vanstar's 6 3/4% convertible
subordinated debentures contain such a provision and could become due and
payable if Vanstar (or InaCom after the merger) defaults on any obligation for
borrowed money in excess of $20.0 million.
56
<PAGE>
TERMINATION
The merger agreement may be terminated, at any time in the following
situations:
- By mutual written consent of InaCom and Vanstar;
- By either InaCom or Vanstar, if (1) the merger is not consummated on or
before March 31, 1999; (2) the Vanstar stockholders do not adopt the
merger agreement or (3) the InaCom stockholders do not approve the InaCom
proposals;
- By either InaCom or Vanstar, if any permanent injunction, order, decree or
ruling by any governmental entity preventing the consummation of the
merger becomes final; provided, however, that the party seeking to
terminate the merger agreement must have used reasonable best efforts to
remove such injunction or overturn such action;
- By InaCom, if (1) there has been a material breach of the representations
or warranties, covenants or agreements of Vanstar set forth in the merger
agreement, which is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by InaCom to Vanstar, or
(2) the Vanstar board;
- fails to convene a meeting of the Vanstar stockholders to adopt the
merger agreement on or before March 15, 1999, or postpones the date
scheduled for the Vanstar special meeting beyond that date;
- fails to recommend the adoption of the merger agreement and the merger to
the Vanstar stockholders; or
- withdraws or amends or modifies in a manner adverse to InaCom its
recommendation or approval in respect of the merger agreement or the
merger or fails to reconfirm such recommendation within two business days
of a written request for such confirmation by InaCom;
- By Vanstar, if the Vanstar board reasonably determines that a proposal for
an Acquisition Transaction constitutes a Superior Proposal; provided,
however, that Vanstar may not terminate the merger agreement on this basis
unless (1) three business days shall have elapsed after delivery to InaCom
of a written notice of such determination by the Vanstar board and, during
such three business day period, Vanstar shall have informed InaCom of the
terms and conditions of such proposal for an Acquisition Transaction and
the identity of the person or group making such proposal for an
Acquisition Transaction, and (2) at the end of such three business day
period, the Vanstar board believes that such Superior Proposal is superior
to the transaction contemplated under the merger agreement;
- By Vanstar, if (1) there has been a material breach of any of the
representations or warranties, covenants or agreements of InaCom in the
merger agreement which is not curable or, if curable, is not cured within
30 days after written notice of such breach is given by Vanstar to InaCom,
or (2) the InaCom board;
- fails to convene the InaCom special meeting to approve the InaCom
proposals on or before March 15, 1999, or postpones the date scheduled
for the InaCom special meeting beyond that
date;
- fails to recommend the approval of the InaCom proposals; or
- withdraws or amends or modifies in a manner adverse to Vanstar its
recommendation of the InaCom proposal or fails to reconfirm such
recommendation within two business days of a written request for such
confirmation by Vanstar.
57
<PAGE>
FEES AND EXPENSES; EFFECT OF TERMINATION
Each of Vanstar and InaCom will bear its own costs and expenses in
connection with the merger agreement and the transactions contemplated thereby,
except that expenses incurred in connection with printing, filing and mailing
this document will be shared equally by InaCom and Vanstar.
The merger agreement also provides for the payment of the following amounts
upon termination of the merger agreement:
- If InaCom or Vanstar terminates the merger agreement as a result of the
InaCom stockholders failing to approve the InaCom proposals by the
requisite vote at an InaCom stockholders' meeting then, InaCom is
obligated to pay Vanstar a termination fee of $12 million; such fee shall
increase to $18 million, if within twelve months after the date of such
termination InaCom either consummates an Acquisition Transaction or enters
into an agreement with respect to an Acquisition Transaction that is
subsequently consummated;
- If Vanstar terminates the merger agreement as a result of the InaCom board
failing to convene an InaCom stockholders' meeting to approve the InaCom
proposals on or before March 15, 1999 or failing to recommend the InaCom
proposals or withdrawing or amending or modifying in a manner adverse to
Vanstar such recommendation or failing to reconfirm such recommendation
within two business days of the written request for such confirmation by
Vanstar, then InaCom is obligated to pay Vanstar a termination fee of $18
million;
- If InaCom or Vanstar terminates the merger agreement as a result of the
Vanstar stockholders failing to approve the merger agreement by the
requisite vote at a Vanstar stockholders' meeting then, Vanstar is
obligated to pay InaCom a termination fee of $12 million; such fee shall
increase to $18 million, if within twelve months after the date of such
termination Vanstar either consummates an Acquisition Transaction or
enters into an agreement with respect to an Acquisition Transaction that
is subsequently consummated;
- If InaCom terminates the merger agreement as a result of the Vanstar board
failing to convene a Vanstar stockholders' meeting to approve the merger
agreement on or before March 15, 1999 or failing to recommend the adoption
of the merger agreement and the merger to the Vanstar stockholders, or
withdrawing or amending or modifying in a manner adverse to InaCom its
recommendation or approval in respect of the merger agreement or the
merger or failing to reconfirm such recommendation within two business
days of the written request for such confirmation by InaCom, then Vanstar
is obligated to pay InaCom a termination fee of $18 million;
- If Vanstar terminates the merger agreement as the result of the Vanstar
board determining that a proposal for an Acquisition Transaction
constitutes a Superior Proposal and within twelve months of such
termination, Vanstar either consummates an Acquisition Transaction or
enters into an agreement with respect to an Acquisition Transaction that
is subsequently consummated, Vanstar will pay InaCom a termination fee of
$18 million; and
- If InaCom or Vanstar terminates the merger agreement as a result of the
occurrence of a material breach of any of the representations, warranties,
covenants, or agreements of the other party, which breach is not curable
or, if curable, is not cured within 30 days after written notice of such
breach is given by the terminating party to such other party, then, in any
such case, the non-terminating party shall reimburse the terminating party
the actual expenses incurred by the terminating party in connection with
the transaction contemplated by the merger agreement in an amount up to $7
million.
If an event occurs that would require a party to make payments in more than
one of the situations noted above, only the situation requiring the larger
payment will apply. Furthermore, in no event will either party be required to
make a payment to the extent such payment, together with cumulative net proceeds
from the sale or transfer of the other party's common stock received in
connection with the exercise of an option granted in connection with the
execution of the merger agreement (See "Stock Option Agreements"), exceeds $18
million.
58
<PAGE>
AMENDMENT AND MODIFICATION
The merger agreement may be amended, modified or supplemented at any time
prior to the effective time only by written agreement of InaCom, InaCom
Acquisition, Inc. and Vanstar. After adoption of the merger agreement by the
stockholders of Vanstar, however, no such amendment, modification or
supplementation will be made which under applicable law requires the approval of
such stockholders, without the further approval of such stockholders.
WAIVER
At any time prior to the effective time of the merger, InaCom or Vanstar
may:
- extend the time for the performance of any of the obligations or other
acts of the other;
- waive any inaccuracies in the representations and warranties of the other
contained in the merger agreement or in any documents delivered pursuant
thereto; and
- waive compliance by the other with any of the agreements or conditions
contained in the merger agreement which may legally be waived.
Any such extension or waiver will be valid only if set forth in a written
instrument specifically referring to the merger agreement and signed on behalf
of such party.
STOCK OPTION AGREEMENTS
In connection with the execution of the merger agreement, InaCom and Vanstar
entered into the InaCom stock option agreement and the Vanstar stock option
agreement each dated as of October 8, 1998, as described below.
Each of InaCom and Vanstar, as a grantor ("Grantor"), has granted to the
other as grantee ("Grantee"), an irrevocable option to purchase a number of
shares of the Grantor's common stock equal to 19.9% of the Grantor's common
stock outstanding on October 8, 1998 (the "Grantor Option") in connection with,
and as inducements to, the execution and delivery of the merger agreement. The
exercise price of the Grantor Option granted by Vanstar to InaCom is $9 1/8 per
share and the number of shares subject to such Grantor Option is 8,709,623
shares of Vanstar common stock. The exercise price of the Grantor Option granted
by InaCom to Vanstar is $17 3/8 per share and the number of shares subject to
such Grantor Option is 3,336,689 shares of InaCom common stock.
TRIGGER EVENTS
The options are exercisable only upon the occurrence of all of the following
events:
- the merger agreement is terminated and, as a result of such termination, a
fee is payable by Grantor to Grantee pursuant to the merger agreement;
- prior to such termination a proposal for an Acquisition Transaction is
made for Grantor by a third party; and
- either prior to, or within 12 months following such termination, the
stockholders of Grantor approve that Acquisition Transaction.
TERM OF THE OPTIONS
The options remain in effect until the earliest to occur of:
- the effective time;
59
<PAGE>
- the date on which the merger agreement is properly terminated except when
a termination fee is payable by Grantor to Grantee pursuant to the merger
agreement and prior to such termination, a proposal for an Acquisition
Transaction is made for Grantor by a third party; and
- 13 months after the merger agreement is terminated.
The exercise period of the option may be extended if the option is not
exercisable by reason of certain governmental judgments, decrees, orders, laws
or regulations.
FIRST REFUSAL RIGHTS OF THE GRANTOR
The stock option agreements give the Grantor the right of first refusal to
purchase shares of Grantor common stock acquired by the Grantee upon the
exercise of the Grantor Option at the price and on the terms offered by a third
party for such shares.
REPURCHASE RIGHTS OF THE GRANTOR AND GRANTEE
The Grantor may also at any time repurchase, or the Grantee may require the
repurchase of, the Grantor Option (during the time the Grantor Option is
exercisable) or the shares issued upon the exercise of the Grantor Option.
Subject to the profit limitations described below, the repurchase price of the
Grantor Option will equal the difference between the exercise price of the
Grantor Option and the market price of the underlying shares. Subject to the
profit limitations described below, the repurchase price of the shares acquired
upon the exercise of Grantor Options will be based on an average of sale prices
on the New York Stock Exchange, or, in the event of an acquisition proposal for
the Grantor, the highest price to be paid per share in the acquisition proposal.
PROFIT LIMITATION
The maximum aggregate amount of profit that can be realized by a Grantee
pursuant to the applicable stock option agreement upon a transfer of the Grantor
Option or the shares issued upon the exercise of a Grantor Option will not
exceed $18 million less the amount of termination fees paid by Grantor to
Grantee pursuant to the merger agreement.
ADJUSTMENT AND REGISTRATION PROVISIONS
The stock option agreements contain provisions governing the procedure for
exercise of the options and payment for the shares purchased upon such exercise
and other provisions that adjust the number of shares and the exercise price
upon the occurrence of certain events, such as stock dividends, stock splits,
reclassifications, mergers (other than the merger), combinations and
recapitalizations, exchange of shares or similar transactions.
The stock option agreements also contain provisions obligating the Grantor
to register the offering, sale and delivery by Grantee of shares of Grantor
common stock acquired by it pursuant to the exercise of the Grantor Option under
the Securities Act of 1933.
60
<PAGE>
VOTING AGREEMENTS
In connection with the execution of the merger agreement, InaCom and Vanstar
entered into separate voting agreements with certain of their stockholders, as
described below. As of the Vanstar record date, such Vanstar stockholders owned
18,800,039 shares of Vanstar common stock, representing approximately 43% of the
voting power of the outstanding Vanstar common stock. As of the InaCom record
date, such InaCom stockholders owned 351,244 shares of InaCom common stock,
representing approximately 2% of the voting power of the outstanding InaCom
common stock.
WARBURG VOTING AGREEMENT
Warburg, holder of approximately 38% of the outstanding Vanstar common
stock, entered into a voting agreement with InaCom and Vanstar and (1) agreed to
revoke any and all previous proxies with respect to its shares of Vanstar common
stock; (2) irrevocably agreed to vote and otherwise act, with respect to all of
its shares of Vanstar common stock, for the adoption of the merger agreement,
all agreements related to the merger and any actions related thereto, at any
meeting or meetings of the Vanstar stockholders at which the merger agreement
and other related agreements or such other actions are submitted for the
consideration and vote of the Vanstar stockholders; and (3) at InaCom's request
Warburg will deliver to InaCom an irrevocable proxy granting to InaCom or its
designee a proxy to vote the shares of Vanstar common stock in accordance with
the terms of the voting agreement. The voting agreement terminates on the
earlier of (1) the effective time or (2) the termination of the merger agreement
in accordance with its terms.
Under the voting agreement, Warburg executed an affiliate agreement and
agreed that it will not transfer any of its shares of Vanstar common stock or
enter into any contract or agreement with respect to such shares or take any
other action with respect thereto which would constitute a violation of the
voting agreement.
Warburg has further agreed, in its capacity as a Vanstar stockholder, that,
prior to the effective time, it will not directly or indirectly (1) solicit or
initiate any inquiries or the making of any proposal with respect to any
Acquisition Transaction involving Vanstar including the shares owned by Warburg
or (2) negotiate or otherwise engage in discussions with any person (other than
InaCom and its representatives) with respect to, or which may reasonably be
expected to lead to a proposal for, any Acquisition Transaction, or enter into
any agreement, arrangement or understanding with respect to any such Acquisition
Transaction or which would require InaCom to abandon, terminate or fail to
consummate the merger or require Warburg to abandon, terminate or fail to
perform its obligations under the voting agreement.
VOTING AGREEMENTS OF VANSTAR DIRECTORS
The directors of Vanstar, holders of approximately 5% of the outstanding
Vanstar common stock, entered into voting agreements with InaCom and Vanstar.
Similar to the voting agreement entered into by Warburg, each Vanstar director
agreed to vote all of his or her Vanstar common stock for the approval and
adoption of the merger agreement. At InaCom's request, the Vanstar directors
will deliver to InaCom an irrevocable proxy to vote the shares of Vanstar common
stock owned by them in accordance with the terms of the voting agreements. The
voting agreements will terminate on the earlier of (1) the effective time of the
merger or (2) the termination of the merger agreement in accordance with its
terms.
VOTING AGREEMENTS OF INACOM DIRECTORS
The directors of InaCom, holders of approximately 2% of the outstanding
InaCom common stock, entered into voting agreements with InaCom and Vanstar.
Under the voting agreements, each InaCom director agreed to vote all of his or
her InaCom common stock for the approval and adoption of the InaCom proposals.
At Vanstar's request, the InaCom directors will deliver to Vanstar an
irrevocable proxy to vote the shares of InaCom common stock owned by them in
accordance with the terms of the voting agreements. The voting agreements will
terminate on the earlier of (1) the effective time of the merger or (2) the
termination of the merger agreement in accordance with its terms.
61
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of InaCom and Vanstar and give
effect to the merger as a pooling of interests. The unaudited pro forma combined
statements of operations for the first nine months of fiscal years 1998 and 1997
and for fiscal years ended December 1997, 1996 and 1995 assume that the merger
had been consummated as of the beginning of the earliest period presented. The
unaudited pro forma combined balance sheet data assume that the merger had been
consummated on September 26, 1998 with respect to InaCom and October 31, 1998
with respect to Vanstar. InaCom's fiscal years ended on December 27, 1997,
December 28, 1996 and December 30, 1995; Vanstar's fiscal years ended on April
30, 1998, 1997 and 1996. InaCom's financial reporting period will be adopted by
the combined entity. For purposes of the Unaudited Pro Forma Combined Statements
of Operations, Vanstar's fiscal year end has been adjusted to conform with
Regulation S-X of the Securities and Exchange Commission. For purposes of
presenting unaudited pro forma combined financial statements, Vanstar's fiscal
year end has been adjusted to January 31 by including the reported financial
statements for the quarter ended January 31 and the three previous quarters
ended October 31, July 31 and April 30. Vanstar's nine month financial
statements have been adjusted to include reported financial data for quarters
ended October 31, July 31 and April 30. The unaudited pro forma adjustments
described in the accompanying notes are based upon preliminary estimates and
certain assumptions that the managements of InaCom and Vanstar believe are
reasonable.
InaCom and Vanstar have significant debt obligations that will be affected
by the merger. Holders of the debentures issued by InaCom can require InaCom to
repurchase the debentures. All amounts outstanding under InaCom's and Vanstar's
credit facilities and trade receivables financing facilities will be accelerated
and immediately due, unless Vanstar or InaCom receive written waivers from the
parties to those agreements. InaCom intends to seek consents from the holders of
such debt obligations and in the event consents are not available or not
obtained, InaCom intends to refinance these obligations if necessary. If InaCom
is able to refinance these obligations, any new arrangements may carry higher
interest rates than the original obligations and could contain terms and
conditions less favorable to InaCom than those contained in the original
obligations. Any inability of InaCom to obtain any required refinancing could
result in defaults under one or more of its major debt obligations, which would
have a material adverse effect on InaCom.
The unaudited pro forma financial statements are not necessarily indicative
of actual or future financial position or results of operations that would have
or will occur upon consummation of the merger, and should be read in conjunction
with the audited and unaudited historical consolidated financial statements,
including the notes thereto, of InaCom and Vanstar incorporated by reference in
this document. See "Additional Information."
62
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INACOM VANSTAR PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED -------------------------
SEPTEMBER 26, 1998 OCTOBER 31, 1998 ADJUSTMENTS COMBINED
------------------ ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products........................ $ 2,850,513 $ 1,604,557 $ -- $ 4,455,070
Computer services........................ 254,840 367,055 -- 621,895
Communications products and services..... 96,057 -- -- 96,057
------------------ ------------------ ----------- ------------
3,201,410 1,971,612 -- 5,173,022
------------------ ------------------ ----------- ------------
Direct costs:
Computer products........................ 2,698,304 1,459,699 -- 4,158,003
Computer services........................ 151,985 221,218 -- 373,203
Communications products and services..... 78,291 -- -- 78,291
------------------ ------------------ ----------- ------------
2,928,580 1,680,917 -- 4,609,497
------------------ ------------------ ----------- ------------
Gross margin............................... 272,830 290,695 -- 563,525
Selling, general and administrative
expenses................................. 192,911 287,367 -- 480,278
Restructuring charges...................... -- 12,009 -- 12,009
------------------ ------------------ ----------- ------------
Operating income (loss).................... 79,919 (8,681) -- 71,238
Financing expense, net..................... 25,685 25,685 -- 51,370
------------------ ------------------ ----------- ------------
Earnings (loss) before income taxes........ 54,234 (34,366) -- 19,868
Income tax expense (benefit)............... 22,308 (2,370) -- 19,938
------------------ ------------------ ----------- ------------
Income (loss) before distributions on
preferred securities of Trust............ 31,926 (31,996) -- (70)
Distributions on convertible preferred
securities............................... -- 6,686 -- 6,686
------------------ ------------------ ----------- ------------
Net earnings (loss)........................ $ 31,926 $ (38,682) $ -- $ (6,756)
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Earnings (loss) per share:
Basic.................................... $ 2.02 $ (0.89) $ -- $ (0.15)
Diluted.................................. $ 1.71 $ (0.89) $ -- $ (0.15)
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Common shares and equivalents outstanding:
Basic.................................... 15,800 43,519 (15,619)(6) 43,700
Diluted.................................. 20,500 43,519 (20,319)(6) 43,700
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 69.
63
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INACOM VANSTAR PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED -------------------------
SEPTEMBER 27, 1997 OCTOBER 31, 1997 ADJUSTMENTS COMBINED
------------------ ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products........................ $ 2,579,066 $ 1,663,804 $ -- $ 4,242,870
Computer services........................ 173,872 306,780 -- 480,652
Communications products and services..... 74,300 -- -- 74,300
------------------ ------------------ ----------- ------------
2,827,238 1,970,584 -- 4,797,822
------------------ ------------------ ----------- ------------
Direct costs:
Computer products........................ 2,436,639 1,502,623 -- 3,939,262
Computer services........................ 96,783 191,836 -- 288,619
Communications products and services..... 57,819 -- -- 57,819
------------------ ------------------ ----------- ------------
2,591,241 1,694,459 -- 4,285,700
------------------ ------------------ ----------- ------------
Gross margin............................... 235,997 276,125 -- 512,122
Selling, general and administrative
expenses................................. 181,822 222,119 -- 403,941
------------------ ------------------ ----------- ------------
Operating income........................... 54,175 54,006 -- 108,181
Financing expense, net..................... 21,673 16,230 -- 37,903
------------------ ------------------ ----------- ------------
Earnings before income taxes............... 32,502 37,776 -- 70,278
Income tax expense......................... 13,319 13,600 -- 26,919
------------------ ------------------ ----------- ------------
Income before distributions on preferred
securities of Trust...................... 19,183 24,176 -- 43,359
Distribution on convertible preferred
securities............................... -- 6,684 -- 6,684
------------------ ------------------ ----------- ------------
Net earnings............................... $ 19,183 $ 17,492 $ -- $ 36,675
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Earnings per share:
Basic.................................... $ 1.68 $ 0.41 $ -- $ 0.94
Diluted.................................. $ 1.49 $ 0.40 $ -- $ 0.90
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Common shares and equivalents outstanding:
Basic.................................... 11,400 42,949 (15,449)(6) 38,900
Diluted.................................. 13,900 44,147 (15,847)(6) 42,200
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 69.
64
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INACOM VANSTAR
YEAR ENDED YEAR ENDED PRO FORMA
DEC. 27, JAN. 31, -------------------------
1997 1998 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products.................................... $3,547,732 $2,239,410 $ -- $ 5,787,142
Computer services.................................... 247,243 434,538 -- 681,781
Communications products and services................. 101,327 -- -- 101,327
------------ ------------ ----------- ------------
3,896,302 2,673,948 -- 6,570,250
------------ ------------ ----------- ------------
Direct costs:
Computer products.................................... 3,354,786 2,022,068 -- 5,376,854
Computer services.................................... 133,432 269,249 -- 402,681
Communications products and services................. 79,092 -- -- 79,092
------------ ------------ ----------- ------------
3,567,310 2,291,317 -- 5,858,627
------------ ------------ ----------- ------------
Gross margin........................................... 328,992 382,631 -- 711,623
Selling, general and administrative expenses........... 250,097 299,981 -- 550,078
------------ ------------ ----------- ------------
Operating income....................................... 78,895 82,650 -- 161,545
Financing expense, net................................. 29,024 25,053 -- 54,077
------------ ------------ ----------- ------------
Earnings before income taxes........................... 49,871 57,597 -- 107,468
Income tax expense..................................... 20,415 20,736 -- 41,151
------------ ------------ ----------- ------------
Income before distributions on preferred securities of
Trust................................................ 29,456 36,861 -- 66,317
Distributions on convertible preferred securities...... -- 8,912 -- 8,912
------------ ------------ ----------- ------------
Net earnings........................................... $ 29,456 $ 27,949 $ -- $ 57,405
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Earnings per share:
Basic................................................ $ 2.48 $ 0.65 $ -- $ 1.46
Diluted.............................................. $ 2.17 $ 0.63 $ -- $ 1.39
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Common shares and equivalents outstanding:
Basic................................................ 11,900 43,027 (15,527)(6) 39,400
Diluted.............................................. 14,600 44,240 (15,940)(6) 42,900
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 69.
65
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INACOM VANSTAR
YEAR ENDED YEAR ENDED PRO FORMA
DEC. 28, JAN. 31, -------------------------
1996 1997 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products................................... $2,885,019 $ 1,849,151 $ -- $ 4,734,170
Computer services................................... 136,888 329,426 -- 466,314
Communications products and services................ 80,148 -- -- 80,148
------------ ------------ ----------- ------------
3,102,055 2,178,577 -- 5,280,632
------------ ------------ ----------- ------------
Direct costs:
Computer products................................... 2,722,368 1,666,565 -- 4,388,933
Computer services................................... 76,243 196,606 -- 272,849
Communications products and services................ 62,668 -- -- 62,668
------------ ------------ ----------- ------------
2,861,279 1,863,171 -- 4,724,450
------------ ------------ ----------- ------------
Gross margin.......................................... 240,776 315,406 -- 556,182
Selling, general and administrative expenses.......... 188,652 223,807 -- 412,459
------------ ------------ ----------- ------------
Operating income...................................... 52,124 91,599 -- 143,723
Financing expense, net................................ 20,405 18,597 -- 39,002
------------ ------------ ----------- ------------
Earnings before income taxes.......................... 31,719 73,002 -- 104,721
Income tax expense.................................... 12,986 26,493 -- 39,479
------------ ------------ ----------- ------------
Income before distributions on preferred securities of
Trust............................................... 18,733 46,509 -- 65,242
Distributions on convertible preferred securities..... -- 2,916 -- 2,916
------------ ------------ ----------- ------------
Net earnings.......................................... $ 18,733 $ 43,593 $ -- $ 62,326
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Earnings per share:
Basic............................................... $ 1.80 $ 1.06 $ -- $ 1.70
Diluted............................................. $ 1.66 $ 1.02 $ -- $ 1.62
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Common shares and equivalents outstanding:
Basic............................................... 10,400 40,970 (14,770)(6) 36,600
Diluted............................................. 11,900 42,573 (15,373)(6) 39,100
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 69.
66
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INACOM VANSTAR
YEAR ENDED YEAR ENDED PRO FORMA
DEC. 30, JAN. 31, -------------------------
1995 1996 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Computer products................................... $2,047,215 $ 1,541,241 $ -- $ 3,588,456
Computer services................................... 95,476 237,371 -- 332,847
Communications products and services................ 57,653 -- -- 57,653
------------ ------------ ----------- ------------
2,200,344 1,778,612 -- 3,978,956
------------ ------------ ----------- ------------
Direct costs:
Computer products................................... 1,924,829 1,397,095 -- 3,321,924
Computer services................................... 27,877 131,830 -- 159,707
Communications products and services................ 43,832 -- -- 43,832
------------ ------------ ----------- ------------
1,996,538 1,528,925 -- 3,525,463
------------ ------------ ----------- ------------
Gross margin.......................................... 203,806 249,687 -- 453,493
Selling, general and administrative expenses.......... 169,338 230,105 -- 399,443
------------ ------------ ----------- ------------
Operating income...................................... 34,468 19,582 -- 54,050
Financing expense, net................................ 14,635 32,592 -- 47,227
------------ ------------ ----------- ------------
Earnings (loss) before income taxes................... 19,833 (13,010) -- 6,823
Income tax expense (benefit).......................... 8,126 (4,872) -- 3,254
------------ ------------ ----------- ------------
Income (loss) from continuing operations.............. 11,707 (8,138) -- 3,569
Gain on disposal of discontinued businesses........... -- 9,194 -- 9,194
------------ ------------ ----------- ------------
Net earnings.......................................... $ 11,707 $ 1,056 $ -- $ 12,763
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Earnings (loss) per share:
Basic
Continuing Operations............................. $ 1.17 $ (0.25) $ -- $ 0.12
Discontinued Operations........................... -- 0.28 -- 0.30
------------ ------------ ----------- ------------
Total........................................... $ 1.17 $ 0.03 $ -- $ 0.41
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Diluted
Continuing Operations............................. $ 1.16 $ (0.25) $ -- $ 0.11
Discontinued Operations........................... -- 0.28 -- 0.30
------------ ------------ ----------- ------------
Total........................................... $ 1.16 $ 0.03 $ -- $ 0.41
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Common shares and equivalents outstanding:
Basic............................................... 10,000 32,503 (11,703)(6) 30,800
Diluted............................................. 10,100 32,828 (11,828)(6) 31,100
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 69.
67
<PAGE>
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INACOM VANSTAR PRO FORMA
SEPT. 26, OCT. 31, -------------------------
1998 1998 ADJUSTMENTS COMBINED
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 30,271 $ 11,112 $ -- $ 41,383
Accounts receivable, net........................... 424,429 289,174 -- 713,603
Inventories........................................ 336,205 231,726 -- 567,931
Other current assets............................... 22,408 31,101 34,580(2) 88,089
------------- ------------ ----------- ------------
Total current assets............................. 813,313 563,113 34,580 1,411,006
------------- ------------ ----------- ------------
Other assets, net.................................... 36,492 63,010 (4,400)(2) 95,102
Cost in excess of net assets of businesses acquired,
net of accumulated amortization.................... 214,258 103,987 -- 318,245
Property and equipment, net.......................... 94,583 51,572 (8,000)(2) 138,155
------------- ------------ ----------- ------------
$ 1,158,646 $ 781,682 $ 22,180 $ 1,962,508
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 399,809 $ 165,476 $ -- $ 565,285
Short-term borrowings and current maturities of
long-term debt................................... 105,000 168,701 141,500(4) 415,201
Deferred revenue................................... -- 41,032 -- 41,032
Other current liabilities.......................... 94,150 50,399 117,000(2) 261,549
------------- ------------ ----------- ------------
Total current liabilities........................ 598,959 425,608 258,500 1,283,067
------------- ------------ ----------- ------------
Convertible subordinated debentures and
long-term debt, less current maturities............ 141,500 581 (141,500)(4) 581
Other long-term liabilities.......................... 3,986 1,230 -- 5,216
Vanstar-obligated mandatorily redeemable convertible
preferred securities of subsidiary Trust holding
solely convertible subordinated debt securities of
Vanstar............................................ -- 194,915 -- 194,915
Stockholders' equity:
Capital stock:
Class A preferred stock of $1 par value, Authorized
1,000,000 shares; none issued.................... -- -- -- --
Common Stock......................................... 1,677 44 -- 1,721
Additional paid-in capital........................... 274,866 134,939 -- 409,805
Retained earnings.................................... 138,989 27,027 (94,820)(2) 71,196
Accumulated other comprehensive loss................. -- (2,662) -- (2,662)
------------- ------------ ----------- ------------
415,532 159,348 (94,820) 480,060
Less unearned restricted stock....................... (1,331) -- -- (1,331)
------------- ------------ ----------- ------------
Total stockholders' equity....................... 414,201 159,348 (94,820) 478,729
------------- ------------ ----------- ------------
$ 1,158,646 $ 781,682 $ 22,180 $ 1,962,508
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined financial statements on page 69.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
On October 8, 1998, InaCom, Vanstar and a wholly-owned subsidiary of InaCom
entered into the agreement providing for the merger. As a result of the merger,
each of the then-outstanding shares of Vanstar common stock would be converted
into the right to receive .64 shares of InaCom common stock.
The unaudited pro forma combined financial statements have been prepared
assuming that the merger will be accounted for under the "pooling of interests"
method of accounting. Under this method of accounting, the assets and
liabilities of InaCom and Vanstar will be combined based on the respective
carrying values of the accounts in the historical financial statements of each
entity. Results of operations of the combined company will include income of
InaCom and Vanstar for the entire fiscal period in which the combination occurs
and the historical results of operations of the separate companies for fiscal
years prior to the merger will be combined and reported as the results of
operations of the combined company.
InaCom's fiscal years ended on December 27, 1997, December 28, 1996 and
December 30, 1995; Vanstar's fiscal years ended on April 30, 1998, 1997 and
1996. InaCom's financial reporting period will be adopted by the combined
entity. For purposes of the Unaudited Pro Forma Combined Condensed Statements of
Operations, Vanstar's fiscal year end has been adjusted to conform with
Regulation S-X. For purposes of presenting unaudited pro forma combined
financial data, Vanstar's fiscal year end has been adjusted to January 31 by
including the reported financial data for the quarter ending January 31 and the
three previous quarters ending October 31, July 31 and April 30. Vanstar's nine
month financial data has been adjusted to include reported financial data for
quarters ending October 31, July 31 and April 30. The Unaudited Pro Forma
Combined Condensed Balance Sheet assumes that the merger had been consummated as
of September 26, 1998 with respect to InaCom and October 31, 1998 with respect
to Vanstar.
NOTE 2--ADJUSTMENTS TO RECORD MERGER-RELATED CHARGES
InaCom expects to record a material pre-tax charge following consummation of
the merger to cover (1) the direct costs of the merger (including the fees of
financial advisors, legal counsel and independent auditors), (2) the cost of
integrating certain aspects of the businesses of InaCom and Vanstar, (3) the
cost of canceling certain purchase commitments, (4) the costs of employee
terminations and facility expenses to eliminate duplicative functions and
locations and (5) other merger-related items. This pre-tax charge is estimated
to be in the range of $120 to $155 million. The after-tax impact of this charge
is estimated to be in the range of $83 to $107 million, and the midpoint of this
range has been charged to Retained Earnings in the foregoing Unaudited Pro Forma
Combined Condensed Balance Sheet. The estimated charges and nature of the costs
included therein as well as the periods in which these costs are recorded are
subject to change as InaCom's integration plan is more fully developed and more
accurate estimates become available.
NOTE 3--COMBINED COMPANY ALIGNMENT AND RESTRUCTURING CHARGES
In connection with the implementation of the merger, InaCom expects to
continue an assessment and study of assets and resources required to carry out
business objectives and plans. In addition to the merger-related charges
described in Note 2, following the closing InaCom expects to incur costs to
align the combined company operations to meet the changing conditions of the
industry, principally the evolution of a "build-to-order" model. These actions
could lead to additional costs from the combined company's efforts to reduce
inventory levels due to changes in vendor and customer programs. The additional
costs related to the integration and alignment of the combined company are
preliminarily estimated to be from $40 to $80 million, on a pre-tax basis. These
amounts and the nature of the costs included therein, as well as the period in
which these costs are recorded, cannot be determined until InaCom's integration
plans are more fully developed and implemented and more accurate estimates
become available. These additional pre-tax charges are not reflected in the
unaudited pro forma financial statements included herein.
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<PAGE>
Not included in the merger-related charges described in Note 2 and the
preliminary estimate of costs related to the integration and alignment of the
combined company stated above, are the restructuring and unusual pre-tax charges
of $45.3 million that Vanstar included in its second quarter ended October 31,
1998. See "Vanstar--Recent Developments." These additional pre-tax charges are
included in the unaudited pro forma financial statements included herein.
NOTE 4--CHANGE IN CONTROL
Upon the consummation of the merger, InaCom will undergo a change in
control, the impact of which is reflected in the foregoing Unaudited Pro Forma
Combined Condensed Balance Sheet. The item impacted by this change in control is
the convertible subordinated debentures.
InaCom has outstanding $55,250,000 in aggregate principal amount of its 6%
convertible subordinated debentures due June 15, 2006 and $86,250,000 in
aggregate principal amount of its 4.5% convertible subordinated debentures due
November 1, 2004. Upon consummation of the merger, each holder of these
debentures can require InaCom to repurchase such holder's debentures at 100% of
the principal amount thereof, plus accrued and unpaid interest. Moreover, with
respect to the 4.5% debentures, unless InaCom has repaid all senior indebtedness
on or before the repurchase date, InaCom must pay the repurchase price in InaCom
common stock valued at 95% of the average of the closing prices of InaCom common
stock for the five consecutive trading days ending on the third trading day
preceding the repurchase date.
NOTE 5--INCOME TAXES
Estimated provision for income taxes related to pro forma adjustments are
based on an assumed combined federal and state income tax rate of approximately
38%, adjusted for certain nondeductible items.
NOTE 6--EARNINGS (LOSS) PER COMMON SHARE
The pro forma combined per common share data has been computed based on the
combined historical income from operations and on the combined historical
weighted average common shares and equivalents outstanding. For purposes of this
calculation, Vanstar's weighted average common shares and common equivalents
outstanding were multiplied by .64, the exchange ratio. See "The Merger
Agreement--Conversion of Vanstar Common Stock."
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<PAGE>
INACOM
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DISCUSSIONS SET FORTH IN INACOM'S PERIODIC REPORTS FILED UNDER THE SECURITIES
EXCHANGE ACT OF 1934 INCORPORATED HEREIN BY REFERENCE, INCLUDING THE DISCUSSIONS
THEREIN UNDER THE CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." SEE "ADDITIONAL
INFORMATION--WHERE YOU CAN FIND MORE INFORMATION."
BUSINESS
InaCom is a leading single-source provider of information technology
products and technology management services designed to enhance the productivity
of information systems primarily for Fortune 1000 clients. InaCom offers a
comprehensive range of integrated life cycle services to manage the entire
technology life cycle including: (1) technology planning, (2) technology
procurement, (3) technology integration, (4) technology support and (5)
technology management. InaCom's expertise includes the integration of voice and
data communications. InaCom sells its products and services through a marketing
network of company-owned business centers throughout the United States that
focus on serving large corporations. InaCom also has a network of value-added
resellers that typically have a regional, industry or specific product focus.
InaCom has international affiliations in Europe, Asia, Central and South
America, the Caribbean, the Middle East, Africa, Canada and Mexico to satisfy
the technology management needs of its multinational clients.
InaCom's headquarters are located at 10810 Farnam Drive, Omaha, Nebraska
68154, and its telephone number is (402) 758-3900. See "Additional Information"
with respect to InaCom's reports under the Securities Exchange Act of 1934 that
provide additional details with respect to InaCom's business.
RECENT DEVELOPMENTS
EXPECTED FOURTH QUARTER EARNINGS. On December 22, 1998, InaCom announced
that its earnings for the fourth quarter ended December 26, 1998 will be
impacted by a decline in vendor incentives, which are based on sales of vendor
products. InaCom expects fourth quarter fully diluted earnings per share will be
in the range of $.50 to $55 per share. InaCom expects to report growth from its
direct (company-owned) operations in the fourth quarter. InaCom also experienced
good demand and growth in its services business during the quarter. However,
continued softness in the indirect (reseller) operations will produce sales
below targeted levels, resulting in lower-than-expected vendor incentives based
on such sales.
VENDOR PROGRAM CHANGES. InaCom has previously disclosed changes announced
by major manufacturers in sales incentive programs and inventory management
programs. InaCom has responded to these vendor program changes primarily in two
ways. First, InaCom has increased its emphasis on computer services which are
not directly impacted by the vendor program changes. Second, InaCom has reduced
its inventory to minimize any adverse impact of such changes. Consequently, the
manufacturer program changes announced to date have not had a material adverse
effect on InaCom's financial position, results of operation or liquidity.
However, further changes by the manufacturers in these incentive programs could
have a material adverse effect on InaCom's operating results.
CERTAIN BOARD ACTIONS. The InaCom board on June 25, 1998 (1) established a
strategic planning committee of the board of directors consisting of Bill
Fairfield (Chairman), James Crowe and Mogens Bay, (2) formally approved an
engagement letter with Gregory & Hoenemeyer, Inc. by which such firm would
render financial advisory services to InaCom for a one-year period at a fee of
$20,000 per month, and (3) changed the composition of the compensation committee
to consist of Mogens Bay (Chairman), Joseph Auerbach and Gary Schwendiman.
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<PAGE>
CERTAIN POST-MERGER DEBT OBLIGATIONS. As noted in "Risk Factors--The merger
may cause significant debt obligations to become immediately payable," InaCom
and Vanstar have significant debt obligations that may be accelerated by the
merger. Specifically:
- InaCom has outstanding $55,250,000 in aggregate principal amount of its 6%
convertible subordinated debentures due June 15, 2006 and $86,250,000 in
aggregate principal amount of its 4.5% convertible subordinated debentures
due November 1, 2004. Upon consummation of the merger, each holder of
these debentures can require InaCom to repurchase such holder's debentures
at 100% of the principal amount thereof, plus accrued and unpaid interest.
Moreover, with respect to the 4.5% debentures, unless InaCom has repaid
all senior indebtedness on or before the repurchase date, InaCom must pay
the repurchase price in InaCom common stock valued at 95% of the average
of the closing prices of InaCom common stock preceding the repurchase
date.
- As a result of the merger, all amounts outstanding under InaCom's
$250,000,000 revolving credit facility, its $400,000,000 inventory
financing agreement with IBM Credit Corporation ("IBM Credit") and its
agreement to sell $250,000,000 of trade accounts receivable to an
unrelated financial institution will be accelerated and immediately due,
unless InaCom receives written waivers from the parties to those
agreements.
- As a result of the merger, all amounts outstanding under Vanstar's
$350,000,000 Financing Program Agreement with IBM Credit will be
accelerated and immediately due, unless Vanstar receives a written waiver
from, or renegotiates such arrangement with, IBM Credit.
- As a result of the merger, all amounts outstanding under Vanstar's
$175,000,000 revolving funding trade receivable securitization facility
will be accelerated and immediately due, unless Vanstar receives a written
consent from Nesbitt Burns Securities, as agent and Pooled Accounts
Receivable, as purchaser.
YEAR 2000. InaCom began in 1996 preparing its computer-based systems for
year 2000 ("Y2K") computer software compliance issues. Historically, certain
computer programs were written using two digits rather than four to define the
applicable year. As a result, software may recognize a date using the two digits
"00" as 1900 rather than the year 2000. Computer programs that do not recognize
the proper date could generate erroneous data or cause systems to fail. InaCom's
Y2K project covers both traditional computer systems and infrastructure ("IT
Systems") and computer-based hardware and software, facilities and equipment
("Non-IT Systems"). InaCom's Y2K project has six phases: inventory, assessment,
renovation, testing, implementation and contingency planning.
InaCom has completed an inventory and assessment of its IT Systems which are
currently between 80% and 90% Y2K compliant. InaCom expects to replace any
non-compliant IT Systems by the end of the first quarter of 1999, with testing
and implementation completed by the end of the second quarter of 1999. InaCom
has also completed an inventory and assessment of its Non-IT Systems, which are
primarily located at its distribution centers and office locations. InaCom
expects to replace any non-compliant systems by the end of the first quarter of
1999, with testing and implementation completed by the end of the second quarter
of 1999.
InaCom's Y2K project also considers the readiness of significant customers
and vendors. Such significant vendors have indicated to InaCom an expectation to
be Y2K compliant. However, the non-compliance of such vendors could impair the
ability of InaCom to obtain necessary products or to sell or provide services to
its customers. Disruptions of the computer systems of InaCom's vendors could
have a material adverse effect on InaCom's financial conditions and results of
operations for the period of such disruption.
InaCom believes that the most reasonably likely worst case Y2K scenario is
that a small number of vendors will be unable to supply components for a short
time after January 1, 2000, with a resulting disruption of product shipments and
services to InaCom's customers. As part of its Y2K process, InaCom
72
<PAGE>
plans to develop contingency plans with respect to such scenario and the vendors
who are either unable or unwilling to develop remediation plans to become Y2K
compliant. Although these plans are yet to be developed, InaCom expects that
these plans may include a combination of actions including stockpiling of
products and components and selective resourcing of business to Y2K compliant
vendors.
InaCom had incurred approximately $2.3 million of Y2K project expenses as of
September 26, 1998. Future expenses are estimated to include approximately $2.2
million of additional costs. Such cost estimates are based upon presently
available information and may change as InaCom continues with its Y2K project.
MANAGEMENT
InaCom's executive officers and directors are listed below, together with
their ages and offices held by them. Currently, the InaCom board consists of
nine members elected annually. Unless otherwise indicated, each person has held
the position indicated for more than five years. The InaCom board will increase
to 13 members upon completion of the merger. The four additional members will
consist of William Tauscher, William Janeway, Richard Bard and John Oltman. See
"The Merger--Interests of Certain Persons in the Merger" and "Vanstar--Board of
Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Bill L. Fairfield......................... 52 Director, President and Chief Executive Officer
David C. Guenthner........................ 48 Executive Vice President and Chief Financial Officer
Michael A. Steffan........................ 47 President, Distribution and Operations, and Secretary
Cris Freiwald............................. 44 President, International Division
Robert A. Schultz......................... 56 Group Executive, Information Systems Group
George DeSola............................. 52 Group Executive, Technology Service Group
Larry Fazzini............................. 51 Senior Vice President of Corporate Resources
Jeffrey A. Hartigan....................... 56 Vice President and Chief Information Officer
Leon Kerkman.............................. 39 Vice President and Assistant General Manager of Distribution
and Operations
Paul Kellenberger......................... 38 Vice President of Planning and Business Development
Len Smith................................. 46 Chief Technology Officer
Richard Oshlo............................. 51 Treasurer
Dennis Strittmatter....................... 52 Vice President of Centralized Services
Joseph Auerbach........................... 82 Director
Mogens C. Bay............................. 50 Director
James Q. Crowe............................ 49 Director
W. Grant Gregory.......................... 58 Director
Rick Inatome.............................. 45 Director and Chairman of the Board
Joseph Inatome............................ 73 Director
Gary Schwendiman.......................... 58 Director
Linda S. Wilson........................... 63 Director
</TABLE>
Bill L. Fairfield has been President and a director of InaCom since March
1985. He was named Chief Executive Officer in September 1987. Mr. Fairfield
serves as a director of Buckle, Inc., Sitel Corp. and International Computer
Group (ICG) Paris.
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<PAGE>
David C. Guenthner was named Executive Vice President and Chief Financial
Officer in November 1991. Prior to November 1991, Mr. Guenthner was Senior Vice
President of Finance and Chief Financial Officer for InaCom.
Michael A. Steffan was named President of Distribution and Operations in
December 1995. Mr. Steffan was responsible for the Reseller Division from
December 1994 to December 1995 in addition to his position as President of
Distribution and Operations, a position he had held since May 1993. Prior to May
1993, Mr. Steffan was Vice President of Corporate Development. Mr. Steffan has
served as Secretary for InaCom since March 1985.
Cris Freiwald was named President of the International Division in November
1994. Mr. Freiwald was Vice President of Corporate Development from May 1993 to
November 1994. Prior to May 1993, Mr. Freiwald was Director of Business
Development.
Robert A. Schultz was named Group Executive of the Information Systems Group
in December 1996. Prior to December 1996, Mr. Schultz was the President and
General Manager of Direct Operations, a position he had held since April 1994,
and the President and General Manager of Client Services Division, a position he
had held from January 1993 to December 1996.
George DeSola was named Group Executive of the Technology Services Group in
December 1996 in addition to his position as President of InaCom Communications,
a position he held from March 1994 to June 1998. Mr. DeSola was responsible for
Corporate Marketing from December 1994 to December 1996. Prior to March 1994,
Mr. DeSola was the Vice President of Marketing and Customer Service for MCI
Communications Corp., a telecommunications company.
Larry Fazzini was named Senior Vice President of Corporate Resources in
August 1997. Prior to August 1997, Mr. Fazzini was Vice President of Corporate
Resources, a position he had held since he joined InaCom in February 1993.
Jeffrey A. Hartigan was named Vice President and Chief Information Officer
in May 1995 when he joined InaCom. Prior to May 1995, Mr. Hartigan was Vice
President of Information Services at Northern Telecommunications Inc. (NORTEL),
a telecommunications company.
Leon Kerkman was promoted to Vice President and Assistant General Manager of
Distribution and Operations in March 1998. Prior to March 1998, Mr. Kerkman was
Vice President and Corporate Controller, a position he had held since June 1993.
Paul Kellenberger was named Vice President of Planning and Business
Development in March 1997 when he joined InaCom. Mr. Kellenberger was the Vice
President of Worldwide Channels, Computer Group from January 1995 to February
1997 and the General Manager, Canada from February 1994 to December 1994 at
Motorola Inc. Prior to February 1994, Mr. Kellenberger was the Director of
Marketing, Canada for Digital Equipment Corporation, an information technology
products company.
Len Smith was named Chief Technology Officer in 1996 when he joined InaCom.
Prior to joining InaCom, Mr. Smith was President and Chief Executive Officer of
Iceberg Software, L.L.C. from 1995 to 1996. Mr. Smith was Vice President of
Product Development and Data Products at EON Corporation from 1991 to 1995.
Richard Oshlo became Treasurer of InaCom in 1998 after joining InaCom as
Assistant Treasurer in 1997. Previously he was Senior Vice President of
Investment Banking at GWR Investments, Inc. from 1993 to 1996.
Dennis Strittmatter was promoted to Vice President of Centralized Services
in 1998. He was previously Vice President of Distribution Management from 1996
to 1998, and Vice President and Assistant General Manager from 1993 to 1996.
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<PAGE>
Joseph Auerbach is Professor of Business Administration, Emeritus, at the
Harvard Business School. He is Counsel to the firm of Sullivan & Worcester,
Boston, Massachusetts, and a director of National Benefit Life.
Mogens C. Bay is a Director and Chief Executive Officer of Valmont
Industries, Inc. and a director of ConAgra, Inc.
James Q. Crowe became the President and Chief Executive Officer of Level 3
Communications, Inc. in August 1997. Mr. Crowe was an executive officer of MFS
Communications from 1988 to 1997. He is a director of Peter Kiewit Sons' Inc.,
RCN Corporation and Commonwealth Telephone Enterprises, Inc.
W. Grant Gregory is Chairman of Gregory & Hoenemeyer, Inc., New York and
serves as a director of AMBAC, Inc., AMBAC Indemnity Group, True North
Communications, DoubleClick, Inc. and HCIA Health Care Inc. Gregory &
Hoenemeyer, Inc. provided certain financial advisory services to InaCom in
connection with the merger. Pursuant to an engagement letter dated September 18,
1998, InaCom agreed to pay Gregory & Hoenemeyer, Inc. a success fee upon
consummation of the merger in an amount equal to .48 percent of the aggregate
amount of consideration received by Vanstar and/or its stockholders in
connection with the merger.
Rick Inatome is Chairman of the InaCom board and co-founder of Inacomp
Computer Centers, Inc. and its Chief Executive Officer from 1979 to August 1991.
He is Chairman of Liberty Business and Industrial Development Corp. and
co-Chairman of American Speedy Printing, Inc. He is a director of Atlantic
Premium Brands, Action Technologies, Inc., R.L. Polk, Saturn Electronic and
Engineering, Inc., AAA Michigan/Wisconsin, Sylvan Learning Systems, Inc. and
Henry Ford Health Systems.
Joseph Inatome is a co-founder, former executive officer and former director
of Inacomp Computer Centers, Inc. He is currently Chairman of the Board of
American Speedy Printing Centers, Inc. Mr. Inatome is the father of Rick
Inatome, InaCom's Chairman of the Board.
Gary Schwendiman is a Professor of Management in the College of Business
Administration at the University of Nebraska-Lincoln and was Dean of the College
of Business Administration for the University of Nebraska-Lincoln from 1977 to
1994. Mr. Schwendiman serves as a director of The Gallup Organization, Inc. and
Security Mutual Life Insurance Co.
Linda S. Wilson is the President of Radcliffe College. She is a director of
Citizens Financial Group, Value Line, Inc., and ICANN, Inc. and Trustee of
Massachusetts General Hospital Corporation.
VANSTAR
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DISCUSSIONS SET FORTH IN VANSTAR'S PERIODIC REPORTS FILED UNDER THE SECURITIES
EXCHANGE ACT OF 1934 INCORPORATED HEREIN BY REFERENCE, INCLUDING THE DISCUSSIONS
THEREIN UNDER THE CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." SEE "ADDITIONAL
INFORMATION--WHERE YOU CAN FIND MORE INFORMATION."
BUSINESS
Vanstar provides products and services to Fortune 1000 companies and other
large enterprises which enable such customers to build, manage and enhance their
personal computer network infrastructures. Vanstar provides customized
information technology and networking solutions for its customers by integrating
value-added professional services with its expertise in sourcing, distributing
and supporting PC hardware, network products, computer peripherals and software
from many vendors.
Vanstar's "Life Cycle Management" program offers an all-encompassing
approach to computer network management. Providing services to support every
phase of the customer's personal computer
75
<PAGE>
network, Life Cycle Management offers solutions for design and consulting,
acquisition and deployment, operation and support, and enhancement and
migration.
Vanstar is a Delaware corporation with principal executive offices located
at 2001 Westside Parkway, Suite 260, Alpharetta, Georgia 30004, telephone (770)
619-6000.
RECENT DEVELOPMENTS
EFFECT OF INDUSTRY CHANGES. The challenges posed to the major vendors of
Vanstar from the intense competition in the industry generally and from lower
costs associated with direct selling specifically have resulted in a series of
responses from such vendors to meet these challenges. Build-to-order sales
programs and direct selling initiatives being undertaken by certain major
vendors are indicative of the magnitude of the changes affecting the industry.
The trend toward build-to-order sales will require Vanstar to balance the need
to maintain sufficient inventory to provide adequate customer service with the
risks associated with decreased inventory price protection being afforded in
connection with build-to-order programs. In addition, since vendor rebate and
similar marketing development funds, which historically have been material to
Vanstar, have depended directly or indirectly on the amount of products
purchased from vendors, a reduction in inventory levels may reduce the amount of
such funds paid to Vanstar in the future. Direct selling initiatives recently
announced by certain major vendors may result in such vendors becoming direct or
indirect competitors of Vanstar. Such competition did not previously exist
because such vendors traditionally have relied upon distribution through the
reselling channel.
The competitive responses from Vanstar's major vendors have directly
impacted Vanstar and have required Vanstar to make significant adjustments in
its business model. As part of such adjustments, Vanstar implemented a major
restructuring program during its fiscal quarter ended October 31, 1998 which
included items that qualify as restructuring costs as defined by Emerging Issues
Task Force 94-3 and other unusual charges. This program was designed to reduce
inventory levels and streamline operations to meet the changing industry
conditions. Vanstar anticipates that the challenges confronting the industry
will continue to evolve and that further adjustments to its business model may
be required to remain competitive, especially if direct selling provides a more
efficient distribution method than reselling. Such adjustments may involve
further streamlining, increased emphasis on computer services and greater
participation in build-to-order programs. Vanstar's success in meeting these
competitive challenges will depend upon its ability to recognize evolving trends
and implement appropriate responsive measures in a timely manner, which cannot
be assured. The failure by, or inability of, Vanstar to implement such
appropriate responsive measures in a timely manner could have a material adverse
effect on Vanstar's financial position, results of operations and liquidity in
future periods.
Restructuring charges of $12 million pretax include the cost of involuntary
employee separation benefits, facility closures and consolidations, and related
costs associated with business realignment and restructuring actions. Employee
separation benefits include severance, medical and other benefits for the
impacted employees. Facility closure costs include future lease payments, costs
to abandon or dispose of property and equipment and capitalized software, and
other related costs as the result of the business realignment and reduction in
workforce. Business realignment costs relate to the decision to exit the
discrete training business as Vanstar focuses on its core competencies as part
of the realignment of Vanstar into two distinct operating units and costs to
terminate unprofitable contracts.
Unusual charges of approximately $33.3 million pretax consist of the
write-off of certain equipment and capitalized software, costs to liquidate
excess spare parts, inventory adjustments and contract termination fees.
Capitalized software and lease costs include the write-off of systems associated
with the centralized dispatch and scheduling functions and obsolete hardware and
software due to the upgrade of call management technology implemented by
Vanstar. Vanstar also liquidated excess spare parts due to the centralization of
its spare parts management and the outsourcing of certain spare parts
procurement and repair to a single vendor. Inventory adjustments include costs
associated with the early return of certain
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inventory items to a major vendor. Other items consist primarily of termination
fees related to certain long-term contracts, the incentive pay to retain certain
employees during the restructuring activities and costs associated with the
termination of certain marketing commitments.
There can be no assurance that Vanstar's restructuring program will be
sufficient to respond to the adverse conditions experienced by Vanstar during
recent periods or that Vanstar may encounter in the future as a result of
changing industry conditions, whether or not the merger is consummated.
VENDOR CONTRACT. Vanstar is currently a party to a contract with one of its
major vendors that contemplates that Vanstar will acquire for resale or license
approximately $55 million of software products from such vendor over a five-year
period. At September 29, 1998 Vanstar had purchased approximately $12 million of
such products. On that date Vanstar notified its vendor that it would not make
the scheduled product purchase of $9 million on September 30, 1998 and that it
intended to enter into negotiations with such vendor to alter the terms and
conditions of their arrangement to more appropriately reflect market conditions
and to accommodate Vanstar for certain legal claims that Vanstar believes it has
against such vendor in connection with the arrangement.
Vanstar's management believes that, in the absence of the pending merger,
its long standing business relationship with its vendor, together with its
current business strategy, would likely provide the basis for the restructuring
of its relationship with this vendor on terms satisfactory to Vanstar. At this
point in the negotiations, however, Vanstar and InaCom are unable to predict
what effect, if any, the merger will have on the negotiations. In the event the
merger is consummated, the parties are considering the possibility of a
continuing relationship between the vendor and the combined company as well as
the possibility of terminating or phasing out the arrangement. There can be no
assurances that the parties will reach agreement on any proposal. In the event
that the parties are unable to successfully renegotiate the terms of this
arrangement with the vendor, a dispute may arise. If Vanstar or the combined
company were to be unsuccessful in establishing its claims in the dispute, the
financial position, results of operations and liquidity of the combined company
could be adversely affected in future periods.
YEAR 2000. Vanstar has implemented a comprehensive five-phase plan to
address the Y2K issue. As of the date of this document, Vanstar has completed
the first two phases of the plan (inventory/assessment and solution planning)
and has completed a significant portion of the third, fourth and fifth phases
(conversion, testing and implementation). Vanstar expects to complete the third,
fourth and fifth phases in mid-year 1999. Vanstar does not expect the costs
associated with the implementation of its plan to be material.
Vanstar's management believes that the most reasonably likely worst case
scenario is that a small number of vendors will be unable to supply component
parts for a short time after January 1, 2000, resulting in a disruption of
product shipments and related services to Vanstar's customers. Vanstar believes
that those problems could be addressed without any material adverse impact on
its operations and intends to develop, modify and implement appropriate
contingency plans as it becomes aware of any such vendors and the nature and
magnitude of their respective year 2000 compliance issues. To the extent that
any Y2K compliance problems beyond Vanstar's perceived worst case scenario
described above materialize and Vanstar is unable to timely develop an
appropriate contingency plan, those problems could have a material adverse
impact on Vanstar's operations.
BOARD OF DIRECTORS
The following persons are members of the Vanstar board:
John W. Amerman, age 66, became a director of Vanstar in June 1996. He has
served as Senior Advisor to the CEO of Mattel, Inc., a leading toy manufacturer
("Mattel"), since 1997. Mr. Amerman served as Chairman and Chief Executive
Officer of Mattel from 1987 to October 1997. Mr. Amerman is also a director of
Unocal Corporation, a worldwide energy resources company; Knoll, Inc., a global
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manufacturer of office furnishings; and Aegis Group, plc, a media buying
company. He is also a member of the Board of Governors of the Hugh O'Brian Youth
Foundation and the Board of Overseers of Dartmouth's Amos Tuck School.
Richard H. Bard, age 51, became a director of Vanstar in September 1987 and
served as Vice Chairman of the Board from July 1989 to December 1991. He has
been a director and Chief Executive Officer of Optical Security Group, Inc., a
technology company, since September 1993, and has served as Chairman of the
Board of that company since April 1995. Since 1991, Mr. Bard also has been Chief
Executive Officer of Bard & Co., Inc., a diversified investment management
company. He also serves as Chairman of the Board of Security Technologies Group,
Inc., a leading provider of commercial security access control systems.
Stewart K.P. Gross, age 39, became a director of Vanstar in June 1994. He is
a Managing Director of E.M. Warburg, Pincus & Co., LLC. Mr. Gross has been with
that firm since July 1987 and has been a Managing Director since January 1993.
He is also a director of BEA Systems, Inc., a software provider; TSI
International, Ltd., a provider of software and related services; and several
privately-held companies.
William H. Janeway, age 55, became a director of Vanstar in June 1994. He
has been a Managing Director and head of the Venture Capital High Technology
Team of E.M. Warburg, Pincus & Co., LLC since 1988. Mr. Janeway is also a
director of BEA Systems, Inc., Indus International, Inc., Industri-Matematik
International Corp., and VERITAS Software Corporation, software companies; and
several private companies.
John R. Oltman, age 53, became a director of Vanstar in June 1996. He was
Chairman and Chief Executive Officer of SHL Systemhouse, Inc., a provider of
client/server consulting, systems integration and technology outsourcing, from
1991 to 1995. Mr. Oltman was Managing Partner (system integration and
outsourcing) for Andersen Consulting, Inc. from 1988 to 1991. He is also a
director of IA Corporation, an application software company.
William Y. Tauscher, age 48, became Chairman of the Board of Vanstar in
September 1987, Chief Executive Officer in September 1988 and President in
September 1998. He was President from September 1988 to July 1995. Prior to
September 1988, Mr. Tauscher was Chairman of the Board, President and Chief
Executive Officer of FoxMeyer Corporation, a wholesale pharmaceutical
distributor and franchisor which he co-founded in 1978 and a subsidiary of
National Intergroup, Inc., a diversified holding corporation. He is also a
director of Safeway, Inc., a food and drug chain.
John L. Vogelstein, age 64, became a director of Vanstar in January, 1991.
He has been President of E.M. Warburg, Pincus & Co., LLC or its predecessor
since 1980 and Vice Chairman since 1982, and a Partner of Warburg, Pincus & Co.,
LLC since 1971. Mr. Vogelstein is also a director of ADVO, Inc., a direct mail
marketing company; Golden Books Family Entertainment Inc., a retailer and
publisher of children's books; Journal Register Company, a newspaper publisher;
Mattel; and several private companies.
Josh S. Weston, age 70, became a director of Vanstar in June 1996. He is
Honorary Chairman of Automatic Data Processing, Inc., a computer services
company ("ADP"). Mr. Weston served as Chairman of ADP from 1986 to 1998 and as
Chief Executive Officer from 1982 to 1996. Mr. Weston is also a director of
Public Service Enterprise Group Inc., an electric and gas utility company;
Olsten Corp., a provider of home health care and temporary staffing services;
and Shared Medical Systems, a provider of health information services.
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DESCRIPTION OF INACOM CAPITAL STOCK
GENERAL
The authorized capital stock of InaCom consists of 30,000,000 shares of
InaCom common stock, par value $.10 per share, and 1,000,000 shares of Class A
Preferred Stock, par value $1.00 per share. As of December 31, 1998, there were
16,768,473 shares of InaCom common stock outstanding and no shares of Class A
Preferred Stock outstanding. If the amendment to InaCom's certificate of
incorporation is approved by InaCom stockholders at the InaCom special meeting,
the authorized number of shares of InaCom common stock will be increased to
100,000,000 shares.
On June 15, 1996, InaCom issued $55,250,000 in aggregate principal amount of
its 6% convertible subordinated debentures due June 15, 2006. These debentures
are convertible at the option of the holder into InaCom common stock at a
conversion price of $24.00 per share.
On November 4, 1997 and November 20, 1997, InaCom completed the issuance and
sale of an aggregate of $86,250,000 of 4.50% convertible subordinated debentures
due November 1, 2004. These debentures are convertible at the option of the
holder into InaCom common stock at a conversion rate of 25.235 shares of InaCom
common stock for each $1,000 principal amount of the debentures (equivalent to a
conversion price of $39.63 per share). See "Risk Factors."
An aggregate of 4,478,603 shares of InaCom common stock would be issued if
the InaCom debentures were converted into InaCom common stock.
COMMON STOCK
Holders of outstanding InaCom common stock are entitled to such dividends as
may be declared by the InaCom board out of the assets legally available for that
purpose, and are entitled to cast one vote per share on all matters submitted to
a vote of the stockholders of InaCom. The holders of shares of InaCom common
stock do not have cumulative voting rights. Therefore, the holders of more than
50% of the outstanding shares of InaCom common stock voting for the election of
directors can elect all the directors, and the remaining holders will not be
able to elect any directors. The holders of InaCom common stock have no
pre-emptive or other subscription rights, and there are no conversion or
redemption or sinking fund provisions with respect to such shares.
All of the outstanding shares of InaCom common stock are, and when issued
upon conversion of the debentures will be, duly authorized, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
The InaCom board is authorized to issue up to 1,000,000 shares of Class A
Preferred Stock in one or more series, from time to time, with such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations and restrictions thereof, as may be
provided in a resolution or resolutions adopted by the InaCom board. The
authority of the InaCom board includes, but is not limited to, the determination
or fixing of the following with respect to shares of such class or any series
thereof: (1) the number of shares; (2) the dividend rate and the date from which
dividends are to be cumulative; (3) whether shares are to be redeemable and, if
so, the terms and amount of any sinking fund providing for the purchase or
redemption of such shares; (4) whether shares will be convertible, and, if so,
the terms and provisions thereof; (5) what restrictions are to apply, if any, on
the issue or reissue of any additional Class A Preferred Stock; and (6) whether
shares have voting rights. Shares of Class A Preferred Stock may be issued with
a preference over the InaCom common stock as to the payment of dividends. No
shares of Class A Preferred Stock have been issued.
Classes of stock such as the Class A Preferred Stock may be used, in certain
circumstances, to create voting impediments on extraordinary corporate
transactions or to frustrate persons seeking to effect a
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merger or otherwise to gain control of InaCom. For the foregoing reasons, any
shares of Class A Preferred Stock issued by InaCom could have an adverse effect
on the rights of the holders of the InaCom common stock. InaCom has no present
plans to issue any shares of Class A Preferred Stock.
LIQUIDATION AND OTHER RIGHTS
Upon liquidation, the holders of InaCom common stock are entitled to share
ratably in assets available for distribution to stockholders after satisfaction
of any liquidation preferences of any outstanding preferred stock. The issuance
of any shares of series of Class A Preferred Stock in future financings,
acquisitions or otherwise may result in dilution of voting power and relative
equity interest of the holders of shares of InaCom common stock and will subject
the InaCom common stock to the prior dividend and liquidation rights of the
outstanding shares of the series of preferred stock.
ADVANCE NOTICE REQUIREMENTS IN CONNECTION WITH STOCKHOLDER MEETINGS
InaCom's by-laws establish an advance notice procedure for bringing business
(other than by or at the direction of the InaCom board) before an annual meeting
of stockholders and for nominating (other than by or at the direction of the
InaCom board) candidates for election as directors at a meeting of stockholders.
See "Comparison Of The Rights Of Holders Of Vanstar Common Stock and InaCom
Common Stock--Advance Notice for Raising Business or Making Nominations at
Annual Meetings."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for three years after the stockholder becomes
an interested stockholder, unless (1) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares), (2) prior to the
stockholder becoming an interested stockholder, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, or (3) at or
subsequent to the time that the stockholder became an interested stockholder,
the business combination is approved by the board of directors and authorized at
a meeting of stockholders, and not by written consent, by the affirmative vote
of at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" generally includes a merger, a
sale of 10% or more of the corporation's assets and any other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is generally defined as a person who, together with affiliates and
associates, owns 15% or more of the corporation's voting stock.
The InaCom board and the Vanstar board have each approved the merger
agreement and, accordingly, Section 203 of the Delaware General Corporation Law
will not be applicable to the merger.
TRANSFER AGENT
The transfer agent for the InaCom common stock is First Chicago Trust
Company of New York.
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COMPARISON OF THE RIGHTS OF HOLDERS OF VANSTAR
COMMON STOCK AND INACOM COMMON STOCK
INTRODUCTION
Vanstar and InaCom are each incorporated under the laws of the State of
Delaware. The holders of shares of Vanstar common stock, whose rights as
stockholders are currently governed by Delaware law, the restated certificate of
incorporation of Vanstar and the by-laws of Vanstar, as amended, will, upon the
exchange of their shares pursuant to the merger, become holders of shares of
InaCom common stock, and their rights as such will be governed by Delaware law,
the restated certificate of incorporation of InaCom, as amended, and the by-laws
of InaCom, as amended. The material differences between the rights of holders of
shares of InaCom common stock and the rights of holders of shares of Vanstar
common stock result from differences in their governing corporate documents and
are summarized below.
The following summary is not a complete statement of the rights of holders
of shares of InaCom common stock under applicable Delaware law, the InaCom
certificate of incorporation and by-laws or a comprehensive comparison with the
rights of the holders of shares of Vanstar common stock under applicable
Delaware law, the Vanstar certificate of incorporation and by-laws or a complete
description of the specific provisions referred to herein. This summary is
qualified in its entirety by reference to the Delaware General Corporation Law
and the governing corporate documents of InaCom and Vanstar, to which holders of
shares of Vanstar common stock are referred. See "Additional Information."
AUTHORIZED CAPITAL STOCK
Delaware General Corporation Law requires that a corporation's certificate
of incorporation set forth the total number of shares of all classes of stock
which the corporation has authority to issue and a statement of the designations
and the powers, preferences and rights and qualifications, limitations or
restrictions thereof.
InaCom
The InaCom certificate of incorporation provides that InaCom has authority to
issue (1) 30,000,000 shares of InaCom common stock, par value $.10 per share and
(2) 1,000,000 shares of Class A Preferred Stock, par value $1.00 per share.
InaCom is requesting InaCom stockholder approval of an amendment to the InaCom
certificate of incorporation, which will increase the authorized number of
shares of InaCom common stock to 100,000,000 shares. See "InaCom Proposal To
Increase The Authorized Number Of Shares Of InaCom Common Stock."
Vanstar
The Vanstar certificate of incorporation provides that Vanstar has the authority
to issue (1) 100,000,000 shares of Vanstar common stock, par value $.001 per
share and (2) 15,000,000 shares of preferred stock, par value $.01 per share.
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BOARD OR STOCKHOLDER APPROVED PREFERRED STOCK
Delaware General Corporation Law permits a corporation's certificate of
incorporation to vest the corporation's board of directors with the authority to
issue, in one or more series, shares of the corporation's preferred stock
without stockholder approval and to fix the number of shares constituting each
such series and the rights, powers and preferences and qualifications,
limitations and restrictions thereof.
InaCom
The InaCom certificate of incorporation grants such power to the InaCom board.
No shares of such preferred stock of InaCom are currently outstanding. The
InaCom board has not designated any series of Class A Preferred Stock.
Vanstar
The Vanstar certificate of incorporation also grants such power to the Vanstar
board. The Vanstar board has not designated any series of preferred stock. No
shares of Vanstar preferred stock are currently outstanding.
NUMBER OF DIRECTORS
Under Delaware General Corporation Law, unless a corporation's certificate
of incorporation specifies the number of directors, such number shall be fixed
by, or in the manner provided in, its by-laws. If a corporation's certificate of
incorporation expressly authorizes its board of directors to amend its by-laws,
its board of directors may change the authorized number of directors by an
amendment to the corporation's by-laws, if fixed therein, or in such manner as
is provided therein. If such certificate of incorporation specifies the number
of directors, the number of directors can only be changed by amending the
certificate of incorporation.
InaCom
The InaCom by-laws provide that the number of members on the InaCom board shall
be fixed by resolution of the board of directors. The number of directors on the
InaCom board is currently nine. The InaCom board will increase the number of
members of the InaCom board to thirteen in connection with the merger.
Vanstar
The Vanstar by-laws specify that the number of directors shall be fixed from
time to time by the Vanstar board. The number of directors on the Vanstar board
is currently eight.
SPECIAL MEETINGS OF STOCKHOLDERS
InaCom
Under the InaCom by-laws, special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute, may be called by the InaCom
board.
Vanstar
The Vanstar by-laws provide that special meetings of stockholders may be called
by the Vanstar board, the Chairman, the President or the record holders of at
least a majority of the issued and outstanding shares of Vanstar common stock.
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AMENDMENT OF BY-LAWS
Under the Delaware General Corporation Law, the power to adopt, amend or
repeal a corporation's by-laws resides with the stockholders entitled to vote
thereon, and with the directors of such corporation if such power is conferred
upon the board of directors by the certificate of incorporation. Both the InaCom
certificate of incorporation and the Vanstar certificate of incorporation
authorize the board of directors to make, alter or amend the by-laws.
InaCom
The InaCom by-laws provide that the InaCom board may alter, amend or repeal the
InaCom by-laws at any regular or special meeting of the InaCom board.
Vanstar
The Vanstar by-laws provide that any by-law may be adopted, amended or repealed
by the vote of the holders of a majority of the shares then entitled to vote, by
the written consent of the stockholders, by the Vanstar board written consent or
by a vote of the Vanstar board.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT ANNUAL MEETINGS
InaCom
Stockholders who want to nominate a person as a candidate for election to the
InaCom board must submit the nomination in writing to the Secretary of InaCom no
later than 60 nor more than 90 days prior to the anniversary of the immediately
preceding annual meeting of stockholders, together with certain biographical
information about the candidate, the stockholder's name and shareholdings.
Similarly, a stockholder must notify the Secretary of InaCom in writing no less
than 60 nor more than 90 days prior to the anniversary of the immediately
preceding annual meeting of stockholders of the stockholders' intention to make
a proposal of consideration at the next annual meeting. The notice must contain
a brief description of the proposal and the stockholder's name and
shareholdings.
Vanstar
Vanstar's by-laws also establish an advance notice procedure for stockholder
proposals and nominations by stockholders of candidates for election as
directors of Vanstar. The advance notice procedure requires information in the
notice similar to the information required under InaCom's by-laws. However, the
notice must be delivered to the Secretary of Vanstar at least 90 days before any
annual meeting to be held on or after the second Wednesday in September, or by
the close of business on the 15th day following the giving of notice of the date
of the meeting, if the meeting is a special meeting or an annual meeting held
before the regular date.
APPRAISAL RIGHTS
Generally, no appraisal rights are available under Delaware General
Corporation Law for shares of any class of stock of a constituent corporation in
a merger which, at the record date fixed to determine the stockholders entitled
to receive notice of and to vote at the meeting of stockholders to act upon the
merger agreement, are, among other reasons, listed on a national securities
exchange.
InaCom
The holders of shares of InaCom common stock are not entitled to appraisal
rights in connection with the merger pursuant to Section 262 of the Delaware
General Corporation Law because InaCom is not a constituent corporation in the
merger.
Vanstar
The holders of shares of Vanstar common stock are not entitled to appraisal
rights in connection with the merger pursuant to Section 262 of the Delaware
General Corporation Law because the shares of Vanstar common stock and InaCom
common stock are listed on the New York Stock Exchange, a national securities
exchange.
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EXPERTS
The financial statements and the related financial statement schedules
incorporated in this document by reference from InaCom's Annual Report on Form
10-K for the year ended December 27, 1997 have been audited by KPMG Peat Marwick
LLP, independent auditors, as stated in their reports, which are incorporated
herein by reference and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Vanstar at April 30, 1998 and 1997,
and for each of the three years in the period ended April 30, 1998, incorporated
by reference in this Joint Proxy Statement/ Prospectus of InaCom and Vanstar,
which is referred to and made a part of this Joint Proxy Statement/ Prospectus
and Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report incorporated by reference herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
shares of InaCom common stock offered hereby will be passed upon for InaCom by
McGrath, North, Mullin & Kratz, P.C., Omaha, Nebraska.
Arter & Hadden LLP, counsel to Vanstar, and McGrath, North, Mullin & Kratz,
P.C., counsel to InaCom, have both given their opinions that the merger will be
a reorganization within the meaning of sections 368(a)(1)(A) and (a)(2)(E) of
the Code with the material United States federal income tax consequences
referred to under the caption "The Merger--Material Federal Income Tax
Consequences of the Merger on Vanstar Stockholders."
ADDITIONAL INFORMATION
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations, cost savings and
synergies of InaCom or Vanstar set forth under "Questions And Answers About The
Merger," "Risk Factors" and "The Merger--Background of the Merger" and those
preceded or, followed by or that otherwise include the words "believes,"
"expects," "anticipates," "intends," "estimates" or similar expressions. You
should understand that the following important factors, in addition to those
discussed elsewhere in this document and in the documents which are incorporated
by reference, and in our other public filings and press releases, could affect
the future results of InaCom and Vanstar, and could cause actual results to
differ materially from those expressed in our forward-looking statements:
dependence upon key vendors, impact if vendor incentive funds decrease,
inventory management risks, build-to-order delivery model risks, dependence upon
key management and technical personnel, funding requirements and interest rate
sensitivity, InaCom's ability to manage growth, risks of financial leverage,
competition, risks associated with acquisitions and strategic alliances,
dependence upon information systems, and risks associated with Year 2000
compliance. Neither InaCom nor Vanstar intends to update these forward-looking
statements.
WHERE YOU CAN FIND MORE INFORMATION
InaCom and Vanstar file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that we file
at the Securities and Exchange Commission's public reference room at 450 Fifth
Street, N.W., Washington D.C. 20549 Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our Securities and Exchange
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Commission filings are also available to the public from commercial document
retrieval services and at the Internet web site maintained by the Securities and
Exchange Commission at "http://www.sec.gov." Reports, proxy statements and other
information should also be available for inspection at the offices of the New
York Stock Exchange.
InaCom filed a Registration Statement on Form S-4 to register with the
Securities and Exchange Commission the InaCom common stock to be issued to
Vanstar stockholders in connection with the merger. This document is a part of
that Registration Statement and constitutes a prospectus of InaCom in addition
to being a proxy statement of InaCom and Vanstar for their special meetings. As
allowed by Securities and Exchange Commission rules, this document does not
contain all the information you can find in the Registration Statement or the
exhibits to the Registration Statement.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this document, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in, or incorporated by reference in, this
document. This document incorporates by reference the documents set forth below
that we have previously filed with the Securities and Exchange Commission. These
documents contain important information about our companies and their finances.
<TABLE>
<CAPTION>
InaCom SEC Filings (File No. 0-16114) Period
- --------------------------------------------- ---------------------------------------------
<S> <C>
Annual Report on Form 10-K, as amended Fiscal Year ended December 27, 1997
Quarterly Reports on Form 10-Q Quarters ended March 28, 1998, June 27, 1998,
and September 26, 1998
Proxy Statement Annual Stockholders Meeting held April 23,
1998
Current Report on Form 8-K Filed on October 9, 1998
Registration Statement on Form 8-A Filed on August 10, 1987
</TABLE>
<TABLE>
<CAPTION>
Vanstar SEC Filings (File No. 1-14192) Period
- --------------------------------------------- ---------------------------------------------
<S> <C>
Annual Report on Form 10-K, as amended Fiscal Year ended April 30, 1998
Quarterly Reports on Form 10-Q Quarters ended July 31, 1998 and October 31,
1998
Current Report on Form 8-K Filed on October 9, 1998
</TABLE>
We are also incorporating by reference additional documents that we file
with the Securities and Exchange Commission between the date of this document
and the date of the InaCom special meeting and Vanstar special meeting.
InaCom has supplied all information contained or incorporated by reference
in this document relating to InaCom, and Vanstar has supplied all such
information relating to Vanstar.
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If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
Securities and Exchange Commission. Documents incorporated by reference are
available from us without charge, excluding all exhibits unless we have
specifically incorporated by reference an exhibit in this document. Stockholders
may obtain documents incorporated by reference in this document by requesting
them in writing or by telephone from the appropriate party at the following
address:
<TABLE>
<S> <C>
InaCom Corp. Vanstar Corporation
Investor Relations Department Investor Relations Department
10810 Farnam Drive 2001 Westside Parkway
Omaha, Nebraska 68154 Suite 260
Tel: (402) 758-3900 Alpharetta, Georgia 30004
Tel: (770) 619-6284
</TABLE>
If you would like to request documents from us, please do so by February 10,
1999 to receive them before the InaCom special meeting and the Vanstar special
meeting.
You should rely only on the information contained or incorporated by
reference in this document to vote on the matter or matters presented at your
special meeting of stockholders. We have not authorized anyone to provide you
with information that is different from what is contained in this document. This
document is dated January 15, 1999. You should not assume that the information
contained in the document is accurate as of any date other than such date, and
neither the mailing of this document to InaCom stockholders and Vanstar
stockholders nor the issuance of InaCom common stock in connection with the
merger shall create any implication to the contrary.
86
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
INACOM CORP.,
INACOM ACQUISITION, INC.
AND
VANSTAR CORPORATION
DATED AS OF OCTOBER 8, 1998
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER.......................................................................... A-9
Section 1.1
The Merger.......................................................................... A-9
Section 1.2
Closing............................................................................. A-9
Section 1.3
Effective time...................................................................... A-9
Section 1.4
Certificate of Incorporation and By-Laws............................................ A-9
Section 1.5
Directors and Officers.............................................................. A-9
ARTICLE II
CONVERSION OF SHARES................................................................ A-10
Section 2.1
Conversion of Shares................................................................ A-10
Section 2.2
Exchange Procedures................................................................. A-10
Section 2.3
Dividends; Transfer Taxes; Withholding.............................................. A-11
Section 2.4
Fractional Shares................................................................... A-11
Section 2.5
Undistributed Parent Common Stock................................................... A-11
Section 2.6
Options............................................................................. A-12
Section 2.7
Closing of Transfer Books........................................................... A-12
Section 2.8
Further Assurances.................................................................. A-12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................... A-13
Section 3.1
Organization and Good Standing...................................................... A-13
Section 3.2
Certificate of Incorporation and By-Laws............................................ A-14
Section 3.3
Capitalization...................................................................... A-14
Section 3.4
Company Subsidiaries................................................................ A-14
Section 3.5
Corporate Authority................................................................. A-15
Section 3.6
Compliance with Applicable Law...................................................... A-16
Section 3.7
Non-Contravention................................................................... A-16
Section 3.8
Government Approvals; Required Consents............................................. A-16
Section 3.9
SEC Documents and Other Reports..................................................... A-17
Section 3.10
Absence of Certain Changes or Events................................................ A-17
Section 3.11
Actions and Proceedings............................................................. A-18
Section 3.12
Absence of Undisclosed Liabilities.................................................. A-18
Section 3.13
Certain Contracts and Arrangements.................................................. A-18
Section 3.14
Taxes............................................................................... A-19
Section 3.15
Patents, Trademarks and Similar Rights.............................................. A-20
Section 3.16
Information in Disclosure Documents and Registration Statement...................... A-21
Section 3.17
Employee Benefit Plans; ERISA....................................................... A-21
Section 3.18
Environmental Matters............................................................... A-22
Section 3.19
Labor Matters....................................................................... A-23
Section 3.20
Affiliate Transactions.............................................................. A-23
Section 3.21
Opinion of Financial Advisor........................................................ A-23
Section 3.22
Brokers............................................................................. A-23
Section 3.23
Pooling............................................................................. A-23
Section 3.24
Insurance; Risk Management.......................................................... A-23
Section 3.25
Year 2000........................................................................... A-24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............................. A-24
Section 4.1
Organization and Good Standing...................................................... A-24
Section 4.2
Certificate of Incorporation and By-Laws............................................ A-25
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Section 4.3
Capitalization...................................................................... A-25
Section 4.4
Parent Subsidiaries................................................................. A-26
Section 4.5
Corporate Authority................................................................. A-26
Section 4.6
Compliance with Applicable Law...................................................... A-27
Section 4.7
Non-contravention................................................................... A-27
Section 4.8
Government Appraisals; Required Consents............................................ A-27
Section 4.9
SFC Documents and Other Reports..................................................... A-28
Section 4.10
Absence of Certain Changes or Events................................................ A-28
Section 4.11
Actions and Proceedings............................................................. A-28
Section 4.12
Absence of Undisclosed Liabilities.................................................. A-29
Section 4.13
Certain Contracts and Arrangements.................................................. A-29
Section 4.14
Taxes............................................................................... A-30
Section 4.15
Patents, Trademarks and Similar Rights.............................................. A-31
Section 4.16
Information in Disclosure Documents and Registration Statement...................... A-31
Section 4.17
Employee Benefit Plans; ERISA....................................................... A-32
Section 4.18
Environmental Matters............................................................... A-33
Section 4.19
Labor Matters....................................................................... A-33
Section 4.20
Affiliate Transactions.............................................................. A-33
Section 4.21
Opinion of Financial Advisor........................................................ A-33
Section 4.22
Brokers............................................................................. A-34
Section 4.23
Pooling............................................................................. A-34
Section 4.24
Insurance, Risk Management.......................................................... A-34
Section 4.25
Year 2000........................................................................... A-34
Section 4.26
Interim Operations of Sub........................................................... A-34
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER.............................................. A-34
Section 5.1
Conduct of Business by the Company Pending the Merger............................... A-34
ARTICLE VI
ADDITIONAL AGREEMENTS............................................................... A-37
Section 6.1
Access and Information.............................................................. A-37
Section 6.2
No Solicitation..................................................................... A-37
Section 6.3
Third-Party Standstill Agreements................................................... A-38
Section 6.4
Joint Proxy Statements; Shareholder Approval........................................ A-38
Section 6.5
Affiliate Agreements................................................................ A-39
Section 6.6
Reasonable Best Efforts............................................................. A-40
Section 6.7
Public Announcements................................................................ A-41
Section 6.8
Directors' and Officers' Indemnification and Insurance.............................. A-41
Section 6.9
Expenses............................................................................ A-41
Section 6.10
Listing Application................................................................. A-42
Section 6.11
[THIS SECTION INTENTIONALLY LEFT BLANK]............................................. A-42
Section 6.12
Pooling of Interests................................................................ A-42
Section 6.13
Parent Board of Directors........................................................... A-42
Section 6.14
Letter of the Company's Accountants................................................. A-42
Section 6.15
Letter of Parent's Accountants...................................................... A-42
Section 6.16
Treatment of Trust Convertible Preferred Securities and Convertible Debentures...... A-42
Section 6.17
Notification of Certain Matters..................................................... A-42
Section 6.18
Tax-Free Reorganization Treatment................................................... A-43
Section 6.19
Company Employee Benefits........................................................... A-43
Section 6.20
Schedules........................................................................... A-43
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ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER............................................ A-44
Section 7.1
Conditions to Each Party's Obligation to Effect the Merger.......................... A-44
Section 7.2
Conditions to Obligations of Parent and Merger Sub to Effect the Merger............. A-45
Section 7.3
Conditions to Obligation of the Company to Effect the Merger........................ A-45
ARTICLE VIII
TERMINATION......................................................................... A-46
Section 8.1
Termination......................................................................... A-46
Section 8.2
Effect of Termination............................................................... A-47
ARTICLE IX
GENERAL PROVISIONS.................................................................. A-48
Section 9.1
Amendment and Modifications......................................................... A-48
Section 9.2
Waiver.............................................................................. A-48
Section 9.3
Survivability; Investigations....................................................... A-49
Section 9.4
Notices............................................................................. A-49
Section 9.5
Descriptive Headings; Interpretations............................................... A-49
Section 9.6
Entire Agreement.................................................................... A-50
Section 9.7
Governing Law....................................................................... A-50
Section 9.8
Enforcement......................................................................... A-50
Section 9.9
Counterparts........................................................................ A-50
Section 9.10
Assignment.......................................................................... A-50
Exhibit "A"
Parent Stock Voting Agreement
Exhibit "B"
Company Stock Voting Agreement
Exhibit "C-1"
Stock Opinion Agreement
Exhibit "C-2"
Company Stock Option Agreement
Exhibit "D"
Form of Company Affiliate Letter
Exhibit "E"
Form of Parent Affiliate Letter
</TABLE>
A-4
<PAGE>
INDEX OF DEFINED TERMS
"ACCUMULATED FUNDING DEFICIENCY" has the meaning specified in Sections
3.17(a) and 4.17(a).
"ACQUISITION PROPOSAL" has the meaning specified in Section 6.2(c).
"ACQUISITION TRANSACTION" has the meaning specified in Section 6.2(a)(i).
"AFFILIATE" has the meaning specified in Section 6.5.
"AFFILIATE AGREEMENT" has the meaning specified in Section 6.5.
"AGREEMENT" shall mean this Agreement and Plan of Merger.
"APPLICABLE LAW" has the meaning specified in Section 3.6.
"BENEFIT PLANS" has the meaning specified in Section 3.17(a) and 4.17(a).
"CERTIFICATE OF MERGER" has the meaning specified in Section 1.3.
"CERTIFICATE AMENDMENT" has the meaning specified in Recital (b).
"CERTIFICATES" has the meaning specified in Section 2.1(d).
"CLASS A PREFERRED STOCK" has the meaning specified in Section 4.3(a).
"CLOSING" has the meaning specified in Section 1.2.
"CLOSING DATE" has the meaning specified in Section 1.2.
"COBRA" has the meaning specified in Section 3.17(c).
"CODE" shall have the meaning set forth in the Recitals.
"COMPANY" shall mean Vanstar Corporation.
"COMPANY 10-K" has the meaning specified in Section 3.12.
"COMPANY AFFILIATE GROUP" has the meaning specified in Section 3.14(b).
"COMPANY AFFILIATE PERIOD" has the meaning specified in Section 3.14(b).
"COMPANY'S ASSETS" has the meaning specified in Section 3.18.
"COMPANY BALANCE SHEET" has the meaning specified in Section 3.14(b).
"COMPANY COMMON STOCK" has the meaning specified in Section 2.1(a).
"COMPANY DISCLOSURE SCHEDULE" has the meaning specified in Article III.
"COMPANY INTELLECTUAL PROPERTY RIGHTS" has the meaning specified in Section
3.15(a).
"COMPANY MATERIAL ADVERSE EFFECT" has the meaning specified in Section 3.1.
"COMPANY PERMITS" has the meaning specified in Section 3.6.
"COMPANY PLAN" has the meaning specified in Section 3.17(a).
"COMPANY PROXY STATEMENT" has the meaning specified in Section 6.4(b)(iii).
"COMPANY SEC DOCUMENTS" has the meaning specified in Section 3.9(a).
"COMPANY SHAREHOLDER MEETING" has the meaning specified in Section
6.4(b)(i).
"COMPANY STOCK VOTING AGREEMENT" has the meaning specified in the Recitals.
"COMPANY THIRD PARTY INTELLECTUAL PROPERTY RIGHTS" has the meaning specified
in Section 3.15(b).
A-5
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"CONFIDENTIALITY AGREEMENT" has the meaning specified in Section 6.2(a).
"CONSENT" has the meaning specified in Section 6.6(b).
"CONVERTIBLE DEBENTURES" has the meaning specified in Section 6.16.
"CONTRACT" has the meaning specified in Section 3.7
"CSFB" shall mean Credit Suisse First Boston Corporation.
"D&O INSURANCE" has the meaning specified in Section 6.8(b).
"DGCL" has the meaning set forth in the Recitals.
"DOJ" has the meaning specified in Section 6.6(d).
"EFFECTIVE TIME" has the meaning specified in Section 1.3.
"ERISA" has the meaning specified in Section 3.17(a).
"EXCHANGE ACT" has the meaning specified in Section 3.8.
"EXCHANGE AGENT" has the meaning specified in Section 2.2(a).
"EXCHANGE RATIO" has the meaning specified in Section 2.1(a).
"FTC" has the meaning specified in Section 6.6(d).
"G&H" shall mean Gregory & Hoenemeyer.
"GAAP" has the meaning specified in Section 3.9(a).
"GOVERNMENTAL ENTITY" has the meaning specified in Section 3.6.
"HSR ACT" has the meaning specified in Section 3.8.
"INDEMNIFIED PARTIES" has the meaning specified in Section 6.8(a).
"INDENTURE" has the meaning specified in Section 6.16.
"JOINT PROXY STATEMENT" has the meaning specified in Section 6.4(c).
"JPM" shall mean JP Morgan Securities, Inc.
"LIENS" has the meaning specified in Section 3.4.
"MEETING DATE" has the meaning specified in Section 8.1(d).
"MERGER" shall have the meaning set forth in the Recitals.
"MERGER SUB" shall mean InaCom Acquisition, Inc.
"MERGER SUB COMMON STOCK" has the meaning specified in Section 2.1(b).
"MULTIEMPLOYER PLAN" has the meaning specified in Section 3.17(b).
"OPTION AGREEMENT" has the meaning specified in the Recitals.
"OPTION AMENDMENT" has the meaning specified in Section 4.5(b).
"OPTION PLANS" has the meaning specified in Section 2.6(a).
"OPTIONS" has the meaning specified in Section 2.6(a).
"PARENT" shall mean InaCom Corp.
"PARENT 10-K" has the meaning specified in Section 4.12.
A-6
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"PARENT AFFILIATE GROUP" has the meaning specified in Section 4.14(a).
"PARENT AFFILIATE PERIOD" has the meaning specified in Section 4.14(a).
"PARENT ASSETS" has the meaning specified in Section 4.18(a).
"PARENT BALANCE SHEET" has the meaning specified in Section 4.14(a).
"PARENT COMMON STOCK" has the meaning specified in Section 2.1(a).
"PARENT DISCLOSURE SCHEDULE" has the meaning specified in Article IV.
"PARENT INTELLECTUAL PROPERTY RIGHTS" has the meaning specified in Section
4.15(a).
"PARENT MATERIAL ADVERSE EFFECT" has the meaning specified in Section 4.1.
"PARENT PERMITS" has the meaning specified in Section 4.6.
"PARENT PLAN" has the meaning specified in Section 4.17(a).
"PARENT PROXY STATEMENT" has the meaning specified in Section 6.4(iii).
"PARENT SEC DOCUMENTS" has the meaning specified in Section 4.9.
"PARENT SHAREHOLDER MEETING" has the meaning specified in Section 6.4(i).
"PARENT STOCK VOTING AGREEMENT" has the meaning specified in the Recitals.
"PARENT THIRD PARTY INTELLECTUAL PROPERTY RIGHTS" has the meaning specified
in Section 4.15(b).
"PAYMENT PARTY" has the meaning specified in Section 8.2(j).
"PENSION PLAN" has the meaning specified in Sections 3.17(a) and 4.17(a).
"PERSON" has the meaning specified in Section 9.5.
"REGISTRATION STATEMENT" has the meaning specified in Section 3.16.
"REPORTABLE EVENT" has the meaning specified in Sections 3.17(a) and
4.17(a).
"RESTRAINTS" has the meaning specified in Section 7.1(e).
"RULE 145" has the meaning specified in Section 6.5.
"SEC" has the meaning specified in Section 3.8.
"SECURITIES ACT" has the meaning specified in Section 2.6(b).
"SHARES" has the meaning specified in Section 2.1(a).
"SUBSEQUENT COMPANY SEC DOCUMENTS" has the meaning specified in Section
3.9(a).
"SUBSEQUENT PARENT SEC DOCUMENTS" has the meaning specified in Section 4.7.
"SUBSIDIARY" has the meaning specified in Section 3.1.
"SUPERIOR PROPOSAL" has the meaning specified in Section 6.2(b).
"SURVIVING CORPORATION" has the meaning specified in Section 1.1.
"TAX RETURNS" has the meaning specified in Section 3.14.
"TAXES" has the meaning specified in Section 3.14.
"WELFARE PLAN" has the meaning specified in Sections 3.17(a) and 4.17(a).
"YEAR 2000 COMPLIANT" has the meaning specified in Section 3.25(a).
A-7
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 8, 1998 (the "Agreement"),
by and among INACOM CORP., a Delaware corporation ("Parent"), INACOM
ACQUISITION, INC., a Delaware corporation and newly formed, wholly owned
subsidiary of Parent (the "Merger Sub"), and VANSTAR CORPORATION, a Delaware
corporation (the "Company").
RECITALS:
(a) The parties hereto desire to effect a reorganization pursuant to which
Merger Sub will merge into the Company, with the Company continuing as the
surviving corporation (the "Merger");
(b) The Board of Directors of Parent, Merger Sub and the Company have each
approved this Agreement and the transactions contemplated by this Agreement in
accordance with the provisions of the Delaware General Corporation Law (the
"DGCL"), each of Merger Sub and the Company has resolved, subject to the terms
of this Agreement, to recommend the adoption of this Agreement and approval of
the transactions contemplated herein by its shareholders in accordance with the
DGCL and Parent has resolved, subject to the terms of this Agreement, to
recommend approval of the amendment to its Certificate of Incorporation to
increase the number of authorized shares of Parent Common Stock (the
"Certificate Amendment") and the issuance of the shares of Parent Common Stock
in connection with the Merger in accordance with the DGCL and the rules and
regulations of the New York Stock Exchange;
(c) The parties hereto intend that the Merger will qualify as a nontaxable
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereto, and that this
Agreement shall be, and is hereby, adopted as a plan of reorganization for
purposes of Section 368 of the Code;
(d) As condition and an inducement to Parent and Merger Sub entering into
this Agreement and incurring the obligations set forth herein, concurrently with
the execution and delivery of this Agreement, Parent is entering into a Stock
Voting Agreement with certain shareholders of the Company, who own an aggregate
of approximately 45% of the outstanding shares of Company Common Stock (as
hereinafter defined), in the form of EXHIBIT "A" hereto (the "Parent Stock
Voting Agreement");
(e) As condition and an inducement to the Company entering into this
Agreement and incurring the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, the Company is entering into a Stock
Voting Agreement with certain shareholders of Parent, who own an aggregate of
approximately 2% of the outstanding shares of Parent Common Stock (as hereunder
defined), in the form of EXHIBIT "B" hereto (the "Company Stock Voting
Agreement");
(f) Concurrently with the execution and delivery of this Agreement and as a
condition and inducement to each of Parent's and the Company's willingness to
enter into this Agreement, Parent and the Company are entering into (a) a Stock
Option Agreement dated as of the date of this Agreement and in the form attached
hereto as EXHIBIT "C-1", pursuant to which the Company grants to Parent an
option to purchase shares of common stock of the Company under certain
circumstances and (b) a Stock Option Agreement dated as of the date of this
Agreement and in the form attached hereto as EXHIBIT "C-2", pursuant to which
Parent grants the Company an option to purchase shares of common stock of Parent
under certain circumstances (collectively, the "Option Agreement"); and
(g) The parties intend that the transactions contemplated herein qualify for
treatment as a pooling of interests pursuant to APB Opinion No. 16.
A-8
<PAGE>
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions
contained in this Agreement, and in accordance with the DGCL, at the Effective
Time (as hereinafter defined), Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall thereupon cease,
and the Company shall continue as the surviving corporation (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of Delaware, and in accordance
with Section 259 of the DGCL, all of the rights, privileges, powers, immunities,
purposes and franchises of Merger Sub and the Company shall vest in the
Surviving Corporation and all of the debts, liabilities, obligations and duties
of Merger Sub and the Company shall become the debts, liabilities, obligations
and duties of the Surviving Corporation.
Section 1.2 CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of McGrath, North, Mullin & Kratz,
P.C., 222 South Fifteenth Street, One Central Park Plaza, Suite 1400, Omaha,
Nebraska, at 10:00 a.m., local time, as promptly as practicable after all of the
conditions set forth in Article VII are satisfied or waived or on such other
date and at such other time and place as Parent and the Company shall agree (the
date on which the Closing actually occurs being referred to herein as the
"Closing Date").
Section 1.3 EFFECTIVE TIME. The Merger shall become effective at the time
of filing of, or at such later time as is agreed to by the parties and specified
in, a properly executed certificate of merger (the "Certificate of Merger"), in
the form required by and executed in accordance with the DGCL, filed with the
Secretary of State of the State of Delaware, in accordance with the provisions
of the DGCL. Such filing shall be made contemporaneously with, or immediately
after, the Closing. When used in this Agreement, the term "Effective Time" shall
mean the date and time at which the Merger shall become effective.
Section 1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. From and after the
Effective Time, the Certificate of Incorporation of the Company as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with Applicable Law (as hereinafter defined). From and after the
Effective Time, the By-Laws of the Company in effect immediately prior to the
Effective Time shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with Applicable Law.
Section 1.5 DIRECTORS AND OFFICERS. From and after the Effective Time, the
directors of Merger Sub immediately prior to the Effective Time shall become the
directors of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the Certificate of Incorporation or By-Laws
of the Surviving Corporation or as otherwise provided by law. The officers of
the Company at the Effective Time shall become the officers of the Surviving
Corporation and shall hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Certificate of Incorporation or By-Laws of the Surviving Corporation or as
otherwise provided by law.
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ARTICLE II
CONVERSION OF SHARES
Section 2.1 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any shares of Company
Common Stock (as defined herein) or any shares of capital stock of Merger Sub:
(a) Each share of Common Stock, par value $0.001 per share of the Company
("Company Common Stock" or "Shares") issued and outstanding immediately prior to
the Effective Time (other than Shares to be cancelled pursuant to Section 2.1(c)
hereof) shall be converted into the right to receive .64 shares of validly
issued, fully paid and nonassessable shares of Common Stock, par value $0.10 per
share of Parent ("Parent Common Stock") (the "Exchange Ratio").
(b) Each share of common stock, par value $1.00, of Merger Sub ("Merger Sub
Common Stock") issued and outstanding immediately prior to the Effective Time
shall be converted into one duly issued, validly authorized, fully paid and
nonassessable share of common stock, par value $1.00 per share, of the Surviving
Corporation.
(c) All Shares that are owned by the Company as treasury stock and any
Shares that are owned by Parent or Merger Sub shall automatically be cancelled
and shall cease to exist and no consideration shall be delivered or deliverable
in exchange therefor.
(d) All Shares converted pursuant to Section 2.1(a) shall no longer be
outstanding and shall automatically be cancelled and shall cease to exist and
each holder of a certificate which immediately prior to the Effective Time
represented such outstanding shares (the "Certificates") shall cease to have any
rights as shareholders of the Company, except the right to receive the
consideration set forth in Section 2.1(a) for each such Share.
Section 2.2 EXCHANGE PROCEDURES.
(a) Parent shall designate a bank or trust company to act as Exchange Agent
hereunder (the "Exchange Agent"). Immediately following the Effective Time,
Parent shall deliver, in trust, to the Exchange Agent, for the benefit of the
holders of Certificates, for exchange in accordance with this Article II through
the Exchange Agent, certificates evidencing the shares of Parent Common Stock
issuable pursuant to Section 2.1(a) in exchange for outstanding Shares and cash
to be paid in lieu of fractional shares pursuant to Section 2.4.
(b) As soon as practicable after the Effective Time, Parent shall cause the
Exchange Agent to mail to each holder of record of Certificates (i) a form of
letter of transmittal (in customary form) specifying that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent and (ii) instructions
for use in surrendering such Certificates in exchange for the Parent Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor (A) that number of
shares of Parent Common Stock equal to the product of the Exchange Ratio
multiplied by the number of Shares formerly represented by the surrendered
Certificate, (B) cash in lieu of fractional shares, and (C) any amounts to which
the holder is entitled pursuant to Section 2.3 hereof after giving effect to any
required tax withholdings and the Certificate so surrendered shall forthwith be
cancelled. Until surrendered as contemplated by this Section 2.2(b), each
Certificate (other than certificates representing shares to be cancelled
pursuant to Section 2.1(c) hereof) shall be deemed from and after the Effective
Time to represent only the right to receive upon such surrender the Parent
Common Stock issuable pursuant to the Merger (and cash in lieu of fractional
shares thereof) contemplated by this Agreement. In no event shall the holder of
any such surrendered Certificate be entitled to receive interest on any cash to
be received in connection with the Merger. Neither the
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<PAGE>
Exchange Agent nor any party hereto shall be liable to a holder of Shares for
any amount paid to a public official as required by any applicable abandoned
property, escheat or similar law.
(c) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by Parent, the posting by such
person of a bond, in such reasonable and customary amount as Parent may direct,
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the number of shares of Parent Common Stock issuable
pursuant to the Merger (and cash in lieu of fractional shares thereof)
contemplated by this Agreement.
Section 2.3 DIVIDENDS; TRANSFER TAXES; WITHHOLDING. No dividends or other
distributions that are payable to holders of record of Parent Common Stock on or
after the Effective Time, shall be paid to any person entitled by reason of the
Merger to receive certificates representing shares of Parent Common Stock (and
no such person shall be paid cash in lieu of a fractional share of Parent Common
Stock), until such person shall have surrendered its Certificate(s) as provided
in Section 2.2 hereof. Subject to applicable law, there shall be paid to each
person receiving a certificate representing such shares of Parent Common Stock,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.4 and the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Stock, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Parent Common Stock. In no event
shall the person entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions. If any
cash or certificate representing shares of Parent Common Stock is to be paid to
or issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange shall pay
to the Exchange Agent any transfer or other taxes required by reason of the
issuance of such certificate representing shares of Parent Common Stock and the
distribution of such cash payment in a name other than that of the registered
holder of the Certificate so surrendered, or shall establish to the reasonable
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Parent or the Exchange Agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of Company Common Stock such amounts as Parent or the Exchange Agent
are required to deduct and withhold under the Code or any provision of state,
local or foreign tax law, with respect to the making of such payment. To the
extent that amounts are so withheld by Parent or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the Company Common Stock in respect of whom such
deduction and withholding were made by Parent or the Exchange Agent.
Section 2.4 FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution with respect to shares
shall be payable on or with respect to any fractional share and such fractional
share interests shall not entitle the owner thereof to vote or to any other
rights of a stockholder of Parent. In lieu thereof each holder of Shares
otherwise entitled to a fraction of a share of Parent Common Stock shall, upon
surrender of his or her Certificate or Certificates, be entitled to receive an
amount of cash (without interest) determined by multiplying the average of the
closing price per share on the NYSE Composite Transactions List (as reprinted by
THE WALL STREET JOURNAL) for the ten (10) full trading days ending on the fifth
(5th) full trading day preceding the Effective Time by the fractional share
interest to which such holder would otherwise be entitled.
Section 2.5 UNDISTRIBUTED PARENT COMMON STOCK. Any portion of the
certificates representing shares of Parent Common Stock issuable upon conversion
of Company Common Stock pursuant to
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Section 2.1(a) hereof, together with any dividends or distributions payable in
respect thereof pursuant to Section 2.3 hereof and any cash payable in lieu of
fractional shares pursuant to Section 2.4 hereof, which remains undistributed to
the former holders of Company Common Stock for six months after the Effective
Time shall be delivered to Parent, upon its request, and any such former holders
who have not theretofore surrendered to the Exchange Agent their certificates in
compliance with this Article II shall thereafter look only to Parent for payment
of their claim for such shares of Parent Common Stock and any dividends or
distributions with respect to such shares of Parent Common Stock or cash in lieu
of fractional shares (in each case, without interest thereon).
Section 2.6 OPTIONS.
(a) Options to purchase Shares (collectively "Options") granted by the
Company under the Company's 1988 Stock Option Plan, as amended, 1993 Stock
Option/Stock Issuance Plan, as amended, or 1996 Stock Option/Stock Issuance
Plan, as amended (collectively, the "Option Plans"), that remain outstanding
immediately prior to the Effective Time, whether or not then exercisable, shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be assumed by Parent and converted so as to entitle the holder thereof
to subscribe to, purchase or acquire from Parent the number of shares of Parent
Common Stock which equals the product of the Exchange Ratio times the number of
shares of Company Common Stock subject to the Options immediately prior to the
Effective Time (rounded to the nearest whole share), at an exercise price per
share of Parent Common Stock equal to the exercise price per share of Company
Common Stock then specified with respect to such Option divided by the Exchange
Ratio (rounded to the nearest whole cent); provided, however, in the event of
any Option Plan which is an incentive stock option as defined in Section 422 of
the Code the aggregate adjusted exercise price of such Option and the number of
shares to which such Option is exercisable shall be computed in compliance in
all respects with the requirements of Section 424(a) of the Code, including the
requirements that such adjustments not confer on the holder of any Option any
additional benefits not currently provided under the Option Plans. Material
terms and provisions of each Option as assumed and converted by Parent shall be
at least as favorable to the holder thereof as the terms and conditions of the
Option existing immediately prior to the Effective Time, except that there shall
be substituted the appropriate number of shares of Parent Common Stock for
Company Common Stock at the appropriate exercise prices described above,
effective as of the Effective Time. As promptly as practicable after the
Effective Time, Parent shall issue to each holder of an Option a written
instrument evidencing its assumption by Parent.
(b) The Parent and the Company shall take all corporate action necessary to
effectuate the assumption and conversion of the Options as set forth in subpart
(a) above, and the Parent shall take all corporate actions necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for delivery
thereunder, assumed in accordance with this Section 2.6. Within fifteen (15)
days after the Effective Time, the Parent shall file a Registration Statement on
Form S-8 (or any successor form) under the Securities Act of 1933, as amended
(the "Securities Act") with respect to all shares of Parent Common Stock subject
to Options that may be registered on a Form S-8, and shall use commercially
reasonable efforts to maintain the effectiveness of such Registration Statement
for so long as such Options remain outstanding.
(c) The provisions of this Section 2.6 are intended to be for the benefit
of, and shall be enforceable by, each holder of Options, and such holder's heirs
and personal representatives and shall be binding upon all successors and
assigns of the Surviving Corporation and Parent.
Section 2.7 CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made. If, after the Effective Time,
Certificates are presented to Parent, they shall be cancelled and exchanged as
provided in this Article II.
Section 2.8 FURTHER ASSURANCES. If, at any time after the Effective Time,
Parent shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary
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or desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of the Company or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to or under
such rights, properties or assets in the Surviving Corporation or otherwise to
carry out the purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as set forth
below. Such representations and warranties are made subject to certain
exceptions and qualifications set forth in the Company Disclosure Schedule dated
as of the date hereof and delivered as a separate document and incorporated in
this Agreement by reference (the "Company Disclosure Schedule"). The
representation(s) and warranty(ies) to which each such exception or
qualification relates is (are) specifically identified (by cross-reference or
otherwise) in the Company Disclosure Schedule unless the applicability of such
exception is reasonably apparent on its face.
Section 3.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to carry on its
business as it is now being conducted. The Company is duly qualified as a
foreign corporation to do business, and is in good standing in each jurisdiction
where the character of its properties owned or held under lease or the nature of
its activities makes such qualification necessary, except where the failure to
be so qualified or in good standing would not have a material adverse effect,
individually or in the aggregate, on the assets, liabilities, financial
condition, or results of operations of the Company and its Subsidiaries taken as
a whole, or the ability of the Company to consummate the Merger and the other
transactions contemplated by this Agreement (a "Company Material Adverse
Effect") provided, however, that (i) any adverse change, event or effect that is
demonstrated to be primarily caused by conditions affecting the United States
economy generally that is material to the business of the Company and its
Subsidiaries, taken as a whole, shall not be taken into account in determining
whether there has been or would be a "Company Material Adverse Effect" on or
with respect to the Company and its Subsidiaries, taken as a whole, (ii) any
adverse change, event or effect that is demonstrated to be primarily caused by
conditions generally affecting the computer products or services industry shall
not be taken into account in determining whether there has been or would be a
"Company Material Adverse Effect" on or with respect to the Company and its
Subsidiaries, taken as a whole, (iii) any adverse change in the stock price or
trading volume of the Company Common Stock as quoted on the New York Stock
Exchange, in and of itself, shall not be taken into account in determining
whether there has been or would be a "Company Material Adverse Effect" on or
with respect to the Company and its Subsidiaries, taken as a whole, (iv) any
failure by the Company to meet the revenue or earnings predictions of equity
analysts or any other revenue or earnings predictions or expectations, for any
period ending (or for which earnings are released) on or after the date of this
Agreement and prior to the Closing Date, in and of itself, shall not be taken
into account in determining whether there has been or would be a "Company
Material Adverse Effect" on or with respect to the Company and its Subsidiaries
taken as a whole, (v) any adverse change arising primarily out of or resulting
primarily from actions taken by the Company or any of its Subsidiaries in
connection with (but not in breach of) this Agreement and the transactions
contemplated hereunder, or which is primarily attributable to the announcement
of this Agreement and the transactions contemplated hereby (including, without
limitation, employee attrition or any loss of business resulting from
termination or modification of any vendor, customer or other business
relationships, or otherwise) shall not, other than to the extent such adverse
changes result from the breach by the Company of its obligations under
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Section 5.1, be taken into account in determining whether there has been or
would be a "Company Material Adverse Effect" on or with respect to the Company
and its Subsidiaries, taken as whole, and (vi) any litigation or threat of
litigation challenging any of the transactions contemplated herein or any
shareholder litigation or threat of shareholder litigation resulting from the
Agreement or the transactions contemplated herein shall not be a "Company
Material Adverse Effect" on or with respect to the Company and its subsidiaries,
taken as a whole. As used in this Agreement, a "Subsidiary" of any person means
another person owned directly or indirectly by such person by reason of such
person owning or controlling an amount of the voting securities, other voting
ownership or voting partnership interests of another person which is sufficient
to elect at least a majority of its Board of Directors or other governing body
of another person or, if there are no such voting interests, at least a majority
of the equity interests of another person.
Section 3.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. True, correct and
complete copies of the Certificate of Incorporation and By-laws or equivalent
organizational documents, each as amended to date, of the Company have been
delivered to Parent. The Certificate of Incorporation, By-laws and equivalent
organizational documents of the Company and each of its Subsidiaries are in full
force and effect. Neither the Company nor any of its Subsidiaries is in
violation of any provision of its Certificate of Incorporation, By-laws or
equivalent organizational documents.
Section 3.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock $0.001 par value. As of August 31, 1998 43,563,243 shares
of Company Common Stock were issued and outstanding and no shares were held in
the treasury of the Company. Since August 31, 1998, the Company has not, except
as set forth in SECTION 3.3 of the Company Disclosure Schedule, issued any
shares of capital stock, any security convertible into or exchangeable for
shares of such capital stock, including any Option, other than the issuance of
shares of Company Common Stock upon the exercise of Options. All of the issued
and outstanding Shares have been validly issued, and are fully paid and
nonassessable, and are not subject to preemptive rights. As of August 31, 1998,
the Company did not have any outstanding stock appreciation rights, and since
such date, the Company has not issued any stock appreciation rights. As of
August 31, 1998, the Company had granted and there were outstanding Options
entitling the holders thereof to purchase, acquire or receive an aggregate of
6,095,134 shares of the Company Common Stock.
(b) Except as described in Section 3.3(a) hereof, and except as set forth in
SECTION 3.3 of the Company Disclosure Schedule: (i) there are no options,
warrants or other rights (including registration rights), agreements,
arrangements or commitments of any character to which the Company or any of its
Subsidiaries is a party relating to the issued or unissued capital stock or
other equity interests of the Company or any of its Subsidiaries, requiring the
Company or any of its Subsidiaries to grant, issue or sell any shares of the
capital stock or other equity interests of the Company or any of its
Subsidiaries; (ii) neither the Company nor its Subsidiaries has any obligation,
contingent or otherwise, to repurchase, redeem or otherwise acquire any shares
of the capital stock or other equity interests of the Company or its
Subsidiaries or to provide funds to or make any material investment (in the form
of a loan, capital contribution or otherwise) in any such Subsidiary or any
other entity other than guarantees of bank obligations entered into in the
ordinary course of business; (iii) neither the Company nor any of its
Subsidiaries, directly or indirectly, owns, or has agreed to purchase or
otherwise acquire, the capital stock or other equity interests of, or any
interest convertible into or exchangeable or exercisable for such capital stock
or such equity interests, of any corporation, partnership, joint venture or
other entity which would be material in value to the Company; and (iv) there are
no voting trusts, proxies or other agreements or understandings to or by which
the Company or any of its Subsidiaries is a party or is bound with respect to
the voting of any shares of capital stock or other equity interests of the
Company or any of its Subsidiaries.
Section 3.4 COMPANY SUBSIDIARIES. SECTION 3.4 of the Company Disclosure
Schedule sets forth a list of each Subsidiary of the Company. Each Subsidiary of
the Company is a corporation, partnership or
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other entity duly organized, validly existing and in good standing (to the
extent such concept is recognized in such jurisdiction) under the laws of its
jurisdiction of incorporation or organization. Each Subsidiary of the Company
has the corporate power and authority to carry on its business as it is now
being conducted. Each Subsidiary of the Company is duly qualified as a foreign
corporation or organization authorized to do business, and is in good standing
(to the extent such concept is recognized in such jurisdiction), in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified or in good standing would not, individually or in
the aggregate, have a Company Material Adverse Effect. Except as set forth in
SECTION 3.4 of the Company Disclosure Schedule, all of the outstanding shares of
capital stock or other equity interests in each of the Company's Subsidiaries
have been validly issued, and are fully paid, nonassessable and are owned by the
Company or another Subsidiary of the Company free and clear of all pledges,
claims, options, liens, charges, encumbrances and security interests of any kind
or nature whatsoever (collectively, "Liens"), and are not subject to preemptive
rights. Other than the Subsidiaries, neither the Company nor any Subsidiary has
any material (individually or in the aggregate) investment in any other entity
or any material (individually or in the aggregate) investment in any
partnership, joint venture or similar entity, except as disclosed in SECTION 3.4
of the Company Disclosure Schedule, all of which investments are owned free and
clear of all Liens. SECTION 3.4 of the Company Disclosure Schedule sets forth a
list of all individuals and entities (other than the Company) that own shares or
interests in any Subsidiary or in any entity, partnership, joint venture or
similar entity in which the Company owns shares or has an investment.
Section 3.5 CORPORATE AUTHORITY.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement, the Company Stock Voting Agreement and the Option
Agreement and, in the case of this Agreement, subject to the adoption of the
Agreement by the Company's shareholders, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the Company
Stock Voting Agreement and the Option Agreement by the Company, and the
consummation by the Company of the transactions contemplated hereby and thereby,
have been duly authorized by its Board of Directors and, in the case of this
Agreement, subject to the adoption of the Agreement by the Company's
shareholders, no other corporate action on the part of the Company is necessary
to authorize the execution and delivery by the Company of this Agreement, the
Company Stock Voting Agreement and the Option Agreement and the consummation by
it of the transactions contemplated hereby and thereby. This Agreement, the
Company Stock Voting Agreement and the Option Agreement have been duly executed
and delivered by the Company and constitute valid and binding agreements of the
Company and each is enforceable against the Company in accordance with its
terms.
(b) Prior to execution and delivery of this Agreement, the Board of
Directors of the Company (at a meeting duly called and held) has (i) approved
and declared advisable this Agreement, the Merger and the transactions
contemplated hereby, and the Company Stock Voting Agreement and Option Agreement
and the transactions contemplated thereby, (ii) determined that the transactions
contemplated hereby and thereby are fair to, and in the best interests of, the
holders of Company Common Stock as of such date and (iii) subject to the
provisions hereof, determined to recommend this Agreement, the Merger and the
other transactions contemplated hereby to the Company's shareholders for
approval and adoption at the shareholders meeting contemplated by Section 6.4(a)
hereof. The affirmative vote of the holders of a majority of the shares of
Company Common Stock outstanding on the record date for the Company Shareholder
Meeting, voting together as a single class, is the only vote of the holders of
any class or series of the Company's capital stock necessary for the due
adoption of this Agreement by the Company's stockholders. The Company has taken
all steps necessary to approve and exempt this Agreement, the Company Stock
Voting Agreement and the Option Agreement and the transactions contemplated
hereby and thereby from the restrictions on "business combinations" set forth in
Section 203 of the DGCL, from any other applicable takeover statute and from any
applicable charter or organizational document of the Company containing any
change of control, "anti-takeover" or similar provision.
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Section 3.6 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in SECTION
3.6 of the Company Disclosure Schedule, (i) each of the Company and its
Subsidiaries holds, and is in compliance with the terms of, all permits,
licenses, exemptions, orders and approvals of all Governmental Entities (as
hereinafter defined) necessary for the conduct of their respective businesses as
currently conducted ("Company Permits"), except for failures to hold or to
comply with such Company Permits which would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect;
(ii) with respect to the Company Permits, no action or proceeding is pending or,
to the knowledge of the Company, threatened, and, to the knowledge of the
Company, no fact exists or event has occurred that would, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect;
(iii) the business of the Company and its Subsidiaries is being conducted and
has been conducted in compliance with all applicable laws, ordinances,
regulations, judgments, decrees or orders ("Applicable Law") of any federal,
state, local, foreign or multinational court, arbitral tribunal, administrative
agency or commission or other governmental or regulatory authority or
administrative agency or commission (a "Governmental Entity"), except for
violations or failures to so comply that would not, individually, or in the
aggregate, have a Company Material Adverse Effect; and (iv) no investigation or
review by any Governmental Entity with respect to the Company or its
Subsidiaries is pending or, to the knowledge of the Company, threatened that,
individually or in the aggregate are reasonably likely to have a Company
Material Adverse Effect.
Section 3.7 NON-CONTRAVENTION. Except as set forth in SECTION 3.7 of the
Company Disclosure Schedule, the execution and delivery by the Company of this
Agreement, the Company Stock Voting Agreement and the Option Agreement do not,
and the consummation of the transactions contemplated hereby and thereby and
compliance with the provisions hereof and thereof will not, (i) result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under any loan, guarantee of
indebtedness or credit agreement, note, bond, mortgage, indenture, lease,
agreement, contract, instrument, permit, concession, franchise, right or license
(any of the foregoing, a "Contract") binding upon the Company or any of its
Subsidiaries, or result in the creation of any Lien upon any of the properties
or assets of the Company or any of its Subsidiaries, (ii) conflict with or
result in any violation of any provision of the Certificate of Incorporation or
By-Laws or other equivalent organizational document, in each case as amended, of
the Company or any of its Subsidiaries, or (iii) conflict with or violate any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its Subsidiaries or any of their respective properties
or assets, other than, in the case of clauses (i) and (iii), any such violation,
conflict, default, right, loss or Lien that, individually or in the aggregate,
would not have a Company Material Adverse Effect.
Section 3.8 GOVERNMENT APPROVALS; REQUIRED CONSENTS. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to the Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement, the Company
Stock Voting Agreement or the Option Agreement by the Company or is necessary
for the consummation of the transactions contemplated hereby and thereby
(including, without limitation, the Merger) except: (i) the filing with (and
declaration of effectiveness by) the Securities and Exchange Commission ("SEC")
of the Joint Proxy Statement under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and any applicable state securities or "blue sky"
law as may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (ii) the filing of a notification under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
(and all approvals or termination of applicable waiting periods contemplated
thereby), (iii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, and (iv) such other consents, orders,
authorizations, registrations, declarations and filings the failure of which to
obtain or make would not, individually or in the aggregate, have a Company
Material Adverse Effect.
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Section 3.9 SEC DOCUMENTS AND OTHER REPORTS.
(a) The Company has filed all documents required to be filed prior to the
date hereof by it and its Subsidiaries with the SEC since March 1, 1996 (the
"Company SEC Documents"). As of their respective dates, or if amended, as of the
date of the last such amendment, the Company SEC Documents complied, and all
documents required to be filed by the Company with the SEC after the date hereof
and prior to the Effective Time (the "Subsequent Company SEC Documents") will
comply, in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the applicable rules and regulations
promulgated thereunder and none of the Company SEC Documents contained when
filed, and the Subsequent Company SEC Documents will not contain, any untrue
statement of a material fact or omitted, or will omit, to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, or are to be made, not
misleading. The consolidated financial statements of the Company included in the
Company SEC Documents when filed fairly presented, and included in the
Subsequent Company SEC Documents will fairly present, the consolidated financial
position of the Company and its consolidated Subsidiaries, as at the respective
dates thereof and the consolidated results of their operations and their
consolidated cash flows for the respective periods then ended (subject, in the
case of the unaudited statements, to normal year-end audit adjustments) in
conformity with United States generally accepted accounting principles ("GAAP")
(except, in the case of the unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto). Since April 30, 1998, the
Company has not made any change in the accounting practices or policies applied
in the preparation of its financial statements, except as may be required by
GAAP. All restructuring charges and expenses taken by the Company since April
30, 1998, are properly chargeable to the Company's current fiscal year and are
not required by GAAP to be charged to any other accounting period.
Section 3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for entering
into this Agreement and consummation of the transactions contemplated hereby and
except as set forth in SECTION 3.10 of the Company Disclosure Schedule and the
Company's previously announced restructuring plan, since April 30, 1998, the
Company and its Subsidiaries have conducted their respective businesses and
operations only in the ordinary and usual course consistent with past practice
and, except as set forth in SECTION 3.10 of the Company Disclosure Schedule,
there has not occurred (i) through the date of this Agreement, any change in the
assets, liabilities, financial condition or the results of the Company and the
Subsidiaries having a Company Material Adverse Effect; (ii) any damage,
destruction or loss (whether or not covered by insurance) having a Company
Material Adverse Effect; (iii) any declaration, setting aside or payment of any
dividend or distribution of any kind by the Company on any class of its capital
stock; (iv) any material increase in the compensation payable or to become
payable by the Company or any Subsidiary to its directors, officers or key
employees or any material increase in any bonus, insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with such
directors, officers or key employees, other than in the ordinary course of
business; (v) any labor dispute, other than routine matters none of which has,
or would be reasonably expected to have, a Company Material Adverse Effect; (vi)
any entry by the Company or the Subsidiaries into any commitment or transaction
(including, without limitation, any borrowing or capital expenditure) material
(individually or in the aggregate) to the Company or its Subsidiaries other than
in the ordinary course of business; (vii) any material change by the Company or
its Subsidiaries in accounting methods, principles or practices except as
required by concurrent changes in GAAP or concurred with by the Company's
independent public accountants; (viii) any material agreement, whether in
writing or otherwise, to take any action described in this Section 3.10; or (ix)
any event or action that, if occurring or taken during the period from the date
of this Agreement through the Effective Time, would constitute a breach of
Section 5.1 hereof and would constitute a Company Material Adverse Effect.
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Section 3.11 ACTIONS AND PROCEEDINGS. Except as set forth in the Company
SEC Documents or SECTION 3.11 or SECTION 3.14 of the Company Disclosure
Schedule, (a) there are no outstanding orders, judgments, injunctions, awards or
decrees of any Governmental Entity against the Company or any of its
Subsidiaries, any of their properties, assets or business, or, to the knowledge
of the Company, any of the Company's or its Subsidiaries' current or former
directors or officers (during the period served as such) or any other person
whom the Company or any of its Subsidiaries has agreed to indemnify, as such,
that, individually or in the aggregate have a Company Material Adverse Effect,
and (b) there are no actions, suits or legal, administrative, regulatory or
arbitration proceedings pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries, any of their properties, assets
or business, or, to the knowledge of the Company, any of the Company's or its
Subsidiaries' current or former directors or officers or any other person whom
the Company or any of its Subsidiaries has agreed to indemnify that are,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect.
Section 3.12 ABSENCE OF UNDISCLOSED LIABILITIES. Except (a) as set forth
SECTION 3.12 or SECTION 3.14 of the Company Disclosure Schedule, (b) for
liabilities or obligations which are accrued or reserved against on the balance
sheet (or reflected in the notes thereto) included in the Company's Annual
Report on Form 10-K for the year ended April 30, 1998 (the "Company 10-K"), (c)
for liabilities arising out of the Company's previously announced restructuring
plan, and (d) for normal and recurring liabilities since April 30, 1998, neither
the Company nor any of its Subsidiaries has any liabilities or obligations
(including, without limitation, Tax (as hereinafter defined) liabilities)
(whether absolute, accrued, contingent or otherwise), and whether due or to
become due, which individually or in the aggregate are reasonably likely to have
a Company Material Adverse Effect.
Section 3.13 CERTAIN CONTRACTS AND ARRANGEMENTS. The Company has not
breached or defaulted (nor has any event occurred which, with passage of time or
giving of notice would constitute a default), or received in writing any claim
or notice that it has breached or defaulted under, any of the terms or
conditions of any agreement, contract or commitment in such a manner as,
individually or in the aggregate, are reasonably likely to have a Company
Material Adverse Effect. In addition, the Company has used reasonable best
efforts to identify and disclose on SECTION 3.13 of the Company Disclosure
Schedule all of the following to which the Company or any of its Subsidiaries is
a party (and which are not listed as exhibits to the Company's 10-K): (a)
material employment, consulting, noncompete, severance or similar agreement with
any director, officer or salaried employee; (b) collective bargaining agreement;
(c) material indenture, mortgage, note, installment obligation, agreement or
other instrument relating to the borrowing of money by the Company or any
Subsidiary or the guaranty by the Company or any Subsidiary of any material
obligation for the borrowing of money; (d) real property lease in excess of
20,000 square feet and any other material lease (i.e., a lease (other than
leases that have been properly capitalized by the Company in accordance with
GAAP) with future yearly rental payments in excess of $150,000 or aggregate
future rental payments in excess of $500,000 over the term thereof); (e) any
non-competition agreement or any other agreement or obligation which purports to
limit in any material respect the manner in which, or the localities in which,
the Company or any of its Subsidiaries is entitled to conduct all or any
material portion of the business of the Company and its Subsidiaries taken as a
whole; (f) any joint venture, partnership or similar arrangement extending
beyond six (6) months or involving a commitment for future equity or investment
of more than $500,000; (g) a listing of the top fifty (50) customers based on
estimated annual revenue, including a listing of the contracts in place with the
top ten (10) customers; (h) a listing of the vendors with whom the Company has
contracts involving purchases in excess of $500,000 on an annualized basis,
including a listing of the contracts in place with the top ten (10) vendors; (i)
any material agreement the benefits of which are contingent or increased, or the
terms of which are materially altered, or the vesting of benefits of which will
be accelerated, upon the occurrence of a transaction of the nature contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement; (j) any material agreement of indemnification or guaranty not entered
into in the ordinary course of business; (k) any agreement, capitalized lease,
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contract or commitment relating to capital expenditures and involving future
obligations in excess of $1,500,000, and not cancelable without penalty; (l) any
agreement, contract or commitment currently in force relating to any ownership
interest in any corporation, partnership, joint venture or other business
enterprise that is material in value to the Company; or (m) any other contract
or agreement that is otherwise material to the Company or the Subsidiaries taken
as a whole, except for purchase and sales orders and similar contracts entered
into in the ordinary course of business.
Section 3.14 TAXES.
(a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes"
means any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including, without
limitation, taxes based upon or measured by gross receipts, income, profits,
sales, use or occupation, and value added, ad valorem, transfer, gains,
franchise, withholding, payroll, recapture, employment, excise, unemployment
insurance, social security, business license, occupation, business organization,
stamp, environmental and property taxes, together with all interest, penalties
and additions imposed with respect to such amounts and any obligations under any
law or any agreements or arrangements with any other person with respect to such
amounts and including, without limitation, any primary, contingent, transferee
or successor liability for taxes of another person, a predecessor entity or
former affiliate. "Tax Returns" means all reporting, returns, declarations,
statements or other information required to be supplied to a taxing authority in
connection with Taxes.
(b) Except as disclosed in SECTION 3.14 of the Company Disclosure Schedule,
each of the Company and its Subsidiaries has filed all Tax Returns that it was
required to file, and, except to the extent that a reserve for Taxes was
reflected on the Company's balance sheet included in the Company's 10-K (the
"Company Balance Sheet") (exclusive of any accruals for "deferred taxes" or
similar items that reflect timing differences between Tax and financial
accounting principles), all such Tax Returns were correct and complete. Except
as disclosed in SECTION 3.14 of the Company Disclosure Schedule, each group of
corporations with which the Company or any Subsidiary has filed (or was required
to file) consolidated, combined, unitary or similar Tax Returns (a "Company
Affiliated Group") has filed all such Tax Returns that it was required to file
with respect to any period in which the Company or a Subsidiary was a member of
such Company Affiliated Group (a "Company Affiliated Period"), and, except to
the extent that a reserve for Taxes was reflected on the Company Balance Sheet
(exclusive of any accruals for "deferred taxes" or similar items that reflect
timing differences between Tax and financial accounting principles), all such
Tax Returns were correct and complete. Except as disclosed in SECTION 3.14 of
the Company Disclosure Schedule, and except to the extent that a reserve for
Taxes was reflected on the Company Balance Sheet (exclusive of any accruals for
"deferred taxes" or similar items that reflect timing differences between Tax
and financial accounting principles), each of the Company and its Subsidiaries
has paid all Taxes (whether or not shown on such Tax Returns) that were due and
payable, and each Company Affiliated Group has paid all Taxes (whether or not
shown on such Tax Returns) that were due and payable with respect to all Company
Affiliated Periods and with respect to which the Company or any of its
Subsidiaries may be liable by operation of law or otherwise. Except as disclosed
in SECTION 3.14 of the Company Disclosure Schedule, the unpaid Taxes of the
Company and the Subsidiaries for Tax periods through the date of the Company
Balance Sheet do not exceed the accruals and reserves for Taxes set forth on the
Company Balance Sheet (exclusive of any accruals for "deferred taxes" or similar
items that reflect timing differences between Tax and financial accounting
principles). The unpaid Taxes of the Company and the Subsidiaries for Tax
periods from the date of the Company Balance Sheet through the Closing Date are
normal recurring taxes attributable solely to the conduct of their businesses in
the ordinary course and in a manner consistent with past practices. All Taxes
that the Company or any Subsidiary is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity. Each of the representations
contained in the this Section 3.14(b) shall be (i) limited in its application to
items which are reasonably likely, individually or in the aggregate, to have
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a Company Material Adverse Effect, and (ii) qualified to the extent of any
adverse determination of matters set forth in SECTION 3.14 of the Company
Disclosure Schedule.
(c) The Company is not and never has been a party to or bound by any Tax
indemnity, Tax sharing or Tax allocation agreement (whether written or unwritten
or arising under operation of federal law as a result of being a member of a
group filing consolidated Tax Returns, under operation of certain state laws as
a result of being a member of a unitary group, or under comparable laws of other
states or foreign jurisdictions) which includes a party other than the Company
nor does the Company owe any amount under any such agreement. Except as set
forth in SECTION 3.14 of the Company Disclosure Schedule, no examination or
audit by any Governmental Entity of any Tax Return of the Company, any of its
Subsidiaries or any Company Affiliated Group with respect to a Company
Affiliated Period is currently in progress or, to the knowledge of the Company
and its Subsidiaries, threatened or contemplated, in each case, which involve
claims that individually or in the aggregate are reasonably likely to have a
Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries
has been informed by any jurisdiction that the jurisdiction believes that the
Company or any of its Subsidiaries was required to file any Tax Return that was
not filed which failure or failures individually, or in the aggregate, are
reasonably likely to have a Company Material Adverse Effect.
(d) Neither the Company nor any of its Subsidiaries is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Company or its Subsidiaries are subject to an election under
Section 341(f) of the Code.
(e) Neither the Company nor any of its Subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(f) Except as set forth in SECTION 3.14 of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that will not be deductible under either Code
Section 162(m) or Code Section 280G (or cause the Company or any of its
Subsidiaries to incur an obligation to reimburse a person for a tax imposed
under Code Section 4999).
(g) The interest paid or payable by the Company to Vanstar Financing Trust
pursuant to the Company's 6 3/4% Convertible Subordinated Debentures due 2016 is
deductible as interest payments under Code Section 163.
(h) Except as set forth in SECTION 3.14 of the Company Disclosure Schedule,
to the knowledge of the Company, no state of facts or circumstances exist which
are reasonably likely to constitute grounds for the assessment of Taxes against
the Company or any Subsidiary where such assessment, individually or in the
aggregate, would have a Company Material Adverse Effect.
Section 3.15 PATENTS, TRADEMARKS AND SIMILAR RIGHTS.
(a) The Company and its Subsidiaries own, or are licensed or otherwise
possess and, after the Effective Time, will continue to own, license or
otherwise possess, legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights and mask works, and all processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of the Company and its Subsidiaries
as currently conducted, the absence of which would be reasonably likely to have
a Company Material Adverse Effect (the "Company Intellectual Property Rights").
(b) Neither the Company nor any of its Subsidiaries is, or will as a result
of the execution and delivery of this Agreement or the performance of the
Company's obligations under this Agreement or otherwise be, in breach of any
license, sublicense or other agreement relating to the Company Intellectual
Property Rights, or any material licenses, sublicenses and other agreements as
to which the Company or
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any of its Subsidiaries is a party and pursuant to which the Company or any of
its Subsidiaries is authorized to use any third party patents, trademarks or
copyrights ("Company Third Party Intellectual Property Rights"), including
software that is used in the manufacture of, incorporated in, or forms a part of
any product sold by or expected to be sold by the Company or any of its
Subsidiaries, the breach of which would be reasonably likely to have a Company
Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by the Company or any of its Subsidiaries and which are material to the
business of the Company and its Subsidiaries, taken as a whole, are valid and
subsisting. The Company (i) has not been sued in any suit, action or proceeding,
or received in writing any claim or notice, which involves a claim of
infringement of any patent, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party which, if
adversely determined, would be reasonably likely to have a Company Material
Adverse Effect; and (ii) has no knowledge that the manufacturing, marketing,
licensing or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
infringement would reasonably be expected to have a Company Material Adverse
Effect.
Section 3.16 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the information supplied or to be supplied by the Company
specifically for inclusion in (i) the Registration Statement on Form S-4 to be
filed with the SEC under the Securities Act for the purpose of registering the
shares of Parent Common Stock to be issued in connection with the Merger (the
"Registration Statement") or (ii) the Joint Proxy Statement will, in the case of
the Registration Statement, at the time it becomes effective or, in the case of
the Proxy Statement or any amendments thereof or supplements thereto, at the
time of the initial mailing of the Proxy Statement and any amendments or
supplements thereto, and at the time of the Company Shareholder Meeting and the
Parent Shareholder Meeting contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. As of the date of its initial mailing and as of
the date of the Company Shareholder Meeting and the Parent Shareholder Meeting,
the Joint Proxy Statement will comply (with respect to information relating to
the Company) as to form in all material respects with the applicable
requirements of the Exchange Act, and the rules and regulations promulgated
thereunder. Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any statement made or incorporated by reference in
the foregoing documents based upon information supplied by or on behalf of
Parent or Merger Sub for inclusion or incorporation by reference therein.
Section 3.17 EMPLOYEE BENEFIT PLANS; ERISA.
(a) SECTION 3.17 of the Company Disclosure Schedule sets forth the name of
each Company Plan (as defined below) and of each bonus, deferred compensation,
incentive compensation, profit sharing, salary continuation, employee benefit
plan, stock purchase, stock option, employment, severance, termination, golden
parachute, consulting or supplemental retirement plan or agreement to which the
Company or any Subsidiary is a party to or contributes to or pursuant to which
any employee of the Company or any Subsidiary is entitled to benefits
(collectively, the "Benefit Plans"), true copies of which have heretofore been
delivered to Parent. Except as set forth in SECTION 3.17 of the Company
Disclosure Schedule, each Company Plan and Benefit Plan complies with the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Code
and all other applicable laws and administrative or governmental rules and
regulations except for any such noncompliance that, individually or in the
aggregate, is not reasonably likely to have a Company Material Adverse Effect.
No "reportable event" (within the meaning of Section 4043 of ERISA) has occurred
and no notice of such event is pending with respect to any Company Plan; neither
the Company nor any of its ERISA Affiliates has withdrawn from any Company Plan
under Section 4063 of ERISA or has taken, or is currently considering taking,
any action to do so; and no action has been taken, or is currently being
considered, to terminate any Company Plan subject to Title IV of ERISA, in any
such case, where such event, withdrawal or action, individually or in the
aggregate, is reasonably likely to have a Company Material Adverse Effect. No
Company Plan, nor any trust created
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thereunder, has incurred any material "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived. Except as set forth in
SECTION 3.17 of the Company Disclosure Schedule, there are no (individually or
in the aggregate) actions, suits or claims pending or, to the knowledge of the
Company, threatened (other than routine claims for benefits) with respect to any
Company Plan or Benefit Plan and that is, individually, or in the aggregate,
reasonably likely to result in a Company Material Adverse Effect. Neither the
Company nor any of its ERISA Affiliates has incurred or would reasonably be
expected to incur any liability under or pursuant to Title IV of ERISA that has
not been satisfied in full and that are, individually, or in the aggregate,
reasonably likely to result in a Company Material Adverse Effect. To the
knowledge of the Company, no non-exempt prohibited transactions described in
Section 406 of ERISA or Section 4975 of the Code have occurred. Except as set
forth in SECTION 3.17 of the Company Disclosure Schedule, all Company Plans and
Benefit Plans that are intended to be qualified under Section 401(a) of the Code
have received a favorable determination letter as to such qualification from the
Internal Revenue Service, and no event has occurred, either by reason of any
action or failure to act, which could be expected to cause the loss of any such
qualification, and the Company is not aware of any reason why any Company Plan
and Benefit Plan is not so qualified in operation. As used herein: "Company
Plan" means a "pension plan" (as defined in Section 3(2) of ERISA), or a
"welfare plan" (as defined in Section 3(l) of ERISA) established or maintained
by the Company or any of its ERISA Affiliates or to which the Company or any of
its ERISA Affiliates has contributed in the last six years or otherwise may have
any liability.
(b) None of the Benefit Plans is (i) a plan subject to Title IV of ERISA or
(ii) a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) (herein
a "Multiemployer Plan"). Neither the Company or its ERISA Affiliates has ever
contributed to or had an obligation to contribute to any Multiemployer Plan.
(c) Except as set forth on SECTION 3.17(C) of the Company Disclosure
Schedule, no Benefit Plan which is a "welfare plan" (as defined in Section 3(1)
of ERISA) provides for continuing benefits or coverage for any participant or
any beneficiary of a participant after such participant's termination of
employment except as may be required by the Consolidated Omnibus Budget
Reconciliation Action of 1985, as amended ("COBRA"), and the regulations
thereunder at the expense of the participant or the beneficiary of the
participant.
(d) Except as disclosed in SECTION 3.17(D) of the Company Disclosure
Schedule, (i) no amount payable under any Company Plan will fail to be
deductible for federal income tax purposes by virtue of Section 280G of the
Code; and (ii) the consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with any other event that is
reasonably likely to occur, (A) entitle any current or former director, officer
or employee of the Company or any of its ERISA Affiliates to severance pay,
golden parachute payments, unemployment compensation or any other payment,
except as expressly provided in this Agreement, or (B) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
director, officer or employee.
Section 3.18 ENVIRONMENTAL MATTERS. Except as set forth in the Company SEC
Documents, (i) no person, entity or governmental agency has asserted against the
Company or any of its Subsidiaries any requests, claims or demands for damages,
costs, expenses or causes of action arising out of or due to the emission,
disposal, discharge or other release or threatened release of any Hazardous
Substances or Pollutants or Contaminants (in each case, as defined in or
governed by any applicable federal, state or local statute, law or regulation)
in connection with or related to any past or present facilities, properties or
assets, owned, leased or operated by the Company or any of its Subsidiaries
(collectively, the "Company's Assets"), arising out of or due to any injury to
human health or the environment by reason of the current condition or operation
of the Company's Assets, or past conditions and operations or activities on the
Company's Assets; (ii) neither the Company nor any Subsidiary is a party to any
pending, or to the knowledge of the Company, threatened actions for damages,
costs, expenses, demands, causes of action, claims, losses, administrative
proceedings, enforcement actions, or investigations relating to the emission,
disposal, discharge or release of Hazardous Substances or Pollutants or
Contaminants associated with the
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Company's Assets or operations; (iii) there is no environmental condition,
situation or incident on, at or concerning the Company's Assets that could give
rise to a action or liability under applicable environmental law, rule,
ordinance or common law theory relating to Hazardous Substances, Pollutants or
Contaminants; and (iv) there is no liability associated with the Company's
Assets under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Resource Conservation and Recovery Act or
the Toxic Substances and Control Act, or any other similar state or local law,
in any such case where such event, individually or in the aggregate, is
reasonably likely to have a Company Material Adverse Effect.
Section 3.19 LABOR MATTERS. Neither the Company nor any of its
Subsidiaries has any labor contracts or collective bargaining agreements.. There
is no material unfair labor practice complaint pending or, to the knowledge of
the Company, threatened, against the Company or any of its Subsidiaries with
respect to the Company Business. Since April 30, 1998, there has not been any
labor strike, dispute, slowdown or stoppage pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, and neither
the Company nor any of its Subsidiaries has experienced any primary work
stoppage or other labor difficulty involving its employees, in either such case,
which has had or would reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 3.20 AFFILIATE TRANSACTIONS. Except as set forth in SECTION 3.20
of the Company Disclosure Schedule, to the knowledge of Company, no director,
officer, executive employee or shareholder beneficially owning 5% or more of the
total number of issued and outstanding shares of Common Stock: (i) has any
material contractual relationship with the Company, other than employment
contracts and contracts made on an arm's-length basis in the ordinary course of
business; or (ii) has any direct or indirect interest in any material right,
property or asset which is used by the Company or any of its Subsidiaries in the
conduct of its or their business.
Section 3.21 OPINION OF FINANCIAL ADVISOR. The Company has received the
written opinion of Credit Suisse First Boston Corporation ("CSFB") to the effect
that as of the date of this Agreement, the Exchange Ratio is fair to the holders
of Company Common Stock, other than Parent or Merger Sub, from a financial point
of view. A true, correct and complete copy of the written opinion delivered by
CSFB, which opinion shall be included in the Joint Proxy Statement in its
entirety, as well as a true and correct copy of the Company's engagement of
CSFB, have been delivered to Parent by the Company.
Section 3.22 BROKERS. Other than CSFB, no broker, finder or financial
advisor retained by the Company is entitled to any brokerage, finder's or other
fee or commission from the Company in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. A true and correct copy of the Company's engagement letter with
CSFB has been delivered to Parent by the Company.
Section 3.23 POOLING. The Company does not know of any reason why the
Merger will not qualify as a pooling of interests transaction under APB 16, and
neither the Company nor any of its Subsidiaries has, to its knowledge after
consultation with its independent accountants, taken any action that will
prevent the Merger from qualifying as a pooling of interests transaction under
APB 16.
Section 3.24 INSURANCE; RISK MANAGEMENT. All material fire and casualty,
general liability, business interruption, product liability, and sprinkler and
water damage insurance policies maintained by the Company or any of its
Subsidiaries are with reputable insurance carriers, provide full and adequate
coverage for all normal risks incident to the business of the Company and its
Subsidiaries and their respective properties and assets, and are in character
and amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards, except for any
such failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect.
The steps taken by the Company to manage the various risks incident to the
business and operations of the Company and its Subsidiaries and their respective
properties and assets are at least equivalent to those taken by persons engaged
in similar businesses, except for any failures to take such steps that,
individually or in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect.
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Section 3.25 YEAR 2000.
(a) The term "Year 2000 Compliant", as used herein, shall mean that the
applicable systems, processes, software, hardware and/or equipment is able to
perform the following functions without human intervention:
handle date information before, during and after January 1, 2000, including
but not limited to accepting date input, providing date output, and
performing calculations on dates or portions of dates
function accurately and without interruption before, during and after
January 1, 2000, without any change in operations associated with the advent
of the new century
respond to two-digit year-date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner
store and provide output of date information in ways that are unambiguous as
to century.
(b) The Company has conducted an assessment of its and its Subsidiaries'
internal operating systems, processes, software, hardware and equipment and
based upon this assessment has developed a plan designed to ensure that the same
are Year 2000 Compliant on or before December 31, 1999. To the knowledge of the
Company, such plan will be implemented and successfully completely on or before
December 31, 1999, and the implementation and completion of such plan will not
have a Company Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent represents and warrants to the Company as set forth below. Such
representations and warranties are made subject to certain exceptions and
qualifications set forth in the Parent Disclosure Schedule dated as of the date
hereof and delivered as a separate document and incorporated in this Agreement
by reference (the "Parent Disclosure Schedule"). The representation(s) and
warranty(ies) to which each such exception or qualification relates is (are)
specifically identified (by cross-reference or otherwise) in the Parent
Disclosure Schedule unless the applicability of such exception is reasonably
apparent on its face.
Section 4.1 ORGANIZATION AND GOOD STANDING. Each of Parent and Merger Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the States of Delaware, and each has the corporate power and authority
to carry on its business as it is now being conducted. Parent is duly qualified
as a foreign corporation to do business, and is in good standing in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have a material
adverse effect, individually or in the aggregate, on the assets, liabilities,
financial condition or results of operations of Parent and its Subsidiaries
taken as a whole, or the ability of Parent or Merger Sub to consummate the
Merger and the other transactions contemplated by this Agreement (a "Parent
Material Adverse Effect"); provided, however, that (i) any adverse change, event
or effect that is demonstrated to be primarily caused by conditions affecting
the United States economy generally that is material to the business of Parent
and its Subsidiaries, taken as a whole, shall not be taken into account in
determining whether there has been or would be a "Parent Material Adverse
Effect" on or with respect to the Parent and its Subsidiaries, taken as a whole,
(ii) any adverse change, event or effect that is demonstrated to be primarily
caused by conditions generally affecting the computer products or services
industry shall not be taken into account in determining whether there has been
or would be a "Parent Material Adverse Effect" on or with respect to Parent and
its Subsidiaries, taken as a whole, (iii) any adverse change in the stock price
or trading volume of the Parent Common Stock as quoted on the New York Stock
Exchange, in and of itself, shall not be taken into account in determining
whether there has been or would be a "Parent
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Material Adverse Effect" on or with respect to Parent and its Subsidiaries,
taken as a whole, (iv) any failure by Parent to meet the revenue or earnings
predictions of equity analysts or any other revenue or earnings predictions or
expectations for any period ending (or for which earnings are released) on or
after the date of this Agreement and prior to the Closing Date, in and of
itself, shall not be taken into account in determining whether there has been or
would be a "Parent Material Adverse Effect" on or with respect to Parent and its
Subsidiaries taken as a whole, (v) any adverse change arising primarily out of
or resulting primarily from actions taken by Parent or any of its Subsidiaries
in connection with (but not in breach of) this Agreement and the transactions
contemplated hereunder, or which is primarily attributable to the announcement
of this Agreement and the transactions contemplated hereby (including, without
limitation, employee attrition or any loss of business resulting from
termination or modification of any vendor, customer or other business
relationships, or otherwise) shall not, other than to the extent such adverse
changes result from the breach by Parent of its obligations under Section 5.1,
be taken into account in determining whether there has been or would be a
"Parent Material Adverse Effect" on or with respect to Parent and its
Subsidiaries, taken as a whole, and (vi) any litigation or threat of litigation
challenging any of the transactions contemplated herein shall not be a "Parent
Material Adverse Effect" on or with respect to Parent and its subsidiaries,
taken as a whole.
Section 4.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. True, correct and
complete copies of the Certificates of Incorporation and By-laws, each as
amended to date, of Parent and Merger Sub have been delivered to the Company.
The Certificates of Incorporation and By-laws of and equivalent documents of
Parent and each of its Subsidiaries are in full force and effect. Neither Parent
nor any of its Subsidiaries is in violation of any provision of its Certificate
of Incorporation, By-laws or equivalent documents.
Section 4.3 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of (i) 30,000,000 shares
of Parent Common Stock, and (ii) 1,000,000 shares of Parent Class A Preferred
Stock, $1.00 par value ("Class A Preferred Stock"). As of August 7, 1998, (i)
16,740,261 shares of Parent Common Stock were issued and outstanding. Currently,
there are no shares of Class A Preferred Stock issued and outstanding. Since
August 7, 1998 through the date hereof, Parent has not, except as set forth in
SECTION 4.3 of the Parent Disclosure Schedule, issued any shares of its capital
stock, or any security convertible into or exchangeable for shares of such
capital stock, other than the issuance of options and restricted stock pursuant
to the plans and arrangements described in the Parent SEC Documents and other
than upon the exercise of stock options. The authorized capital stock of Merger
Sub consists of 10,000 shares of Common Stock, par value $1.00 per share,
constituting the Merger Sub Common Stock. As of the date hereof, 1,000 shares of
Merger Sub Common Stock are issued and outstanding, all of which are owned by
Parent, and no shares of Merger Sub Common Stock are held in the treasury of
Merger Sub. All of the issued and outstanding shares of Parent Common Stock and
Merger Sub Common Stock have been validly issued, and are fully paid and
nonassessable, and are not subject to preemptive rights.
(b) Except as described in Section 4.3(a) hereof, and except as set forth in
SECTION 4.3 of the Parent Disclosure Schedule, (i) there are no options,
warrants or other rights (including registration rights), agreements,
arrangements or commitments of any character to which Parent or Merger Sub or
any of their respective Subsidiaries is a party relating to the issued or
unissued capital stock or other equity interests of Parent and any of its
Subsidiaries, requiring Parent or Merger Sub or any of its Subsidiaries to
grant, issue or sell any shares of the capital stock or other equity interests
of Parent or any of its Subsidiaries; (ii) neither Parent nor any of its
Subsidiaries have any obligation, contingent or otherwise, to repurchase, redeem
or otherwise acquire any shares of the capital stock or other equity interests
of Parent or its Subsidiaries, or to provide funds to or make any material
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary or any other entity other than guarantees of bank obligations
entered into in the ordinary course of business; (iii) neither Parent nor any of
its Subsidiaries, directly or indirectly, owns, or has agreed to purchase or
otherwise acquire, the capital stock or other equity interests of, or any
interest convertible into or exchangeable or exercisable for such capital stock
or
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such equity interests, of any corporation, partnership, joint venture or other
entity which would be material in value to Parent; and (iv) there are no voting
trusts, proxies or other agreements or understandings to or by which Parent or
Merger Sub or any of their respective Subsidiaries is a party or is bound with
respect to the voting of any shares of capital stock or other equity interests
of Parent or Merger Sub.
Section 4.4 PARENT SUBSIDIARIES. SECTION 4.4 of the Parent Disclosure
Schedule sets forth a list of each Subsidiary of Parent. Each Subsidiary of
Parent is a corporation, partnership or other entity duly organized, validly
existing and in good standing (to the extent such concept is recognized in such
jurisdiction) under the laws of its jurisdiction of incorporation or
organization. Each Subsidiary of Parent has the corporate power and authority to
carry on its business as it is now being conducted. Each Subsidiary of Parent is
duly qualified as a foreign corporation or organization authorized to do
business, and is in good standing (to the extent such concept is recognized in
such jurisdiction), in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not, individually or in the aggregate, have a Parent Material
Adverse Effect. Except as set forth in SECTION 4.4 of the Parent Disclosure
Schedule, all of the outstanding shares of capital stock or other equity
interests in each of Parent's Subsidiaries have been validly issued, and are
fully paid, nonassessable and are owned by Parent or another Subsidiary of
Parent free and clear of all Liens, and are not subject to preemptive rights.
Other than the Subsidiaries, neither Parent nor any Subsidiary has any material
(individually or in the aggregate) investment in any other entity or any
material (individually or in the aggregate) investment in any partnership, joint
venture or similar entity, except as disclosed in SECTION 4.4 of the Parent
Disclosure Schedule, all of which investments are owned free and clear of all
Liens. SECTION 4.4 of the Parent Disclosure Schedule sets forth a list of all
individuals and entities (other than Parent) that own shares or interests in any
Subsidiary or in any entity, partnership, joint venture or similar entity in
which Parent owns shares or has an investment.
Section 4.5 CORPORATE AUTHORITY.
(a) Each of Parent and Merger Sub has the requisite corporate power and
authority to execute and deliver this Agreement, the Parent Stock Voting
Agreement and the Option Agreement and to consummate the transactions
contemplated hereby and thereby . The execution and delivery of this Agreement,
the Parent Stock Voting Agreement and the Option Agreement by Parent and Merger
Sub and the consummation by Parent and Merger Sub of the transactions
contemplated hereby have been duly authorized by its respective Board of
Directors and, in the case of this Agreement, subject to the approval of the
Certificate Amendment and the issuance of the Parent Common Stock pursuant to
the Merger by Parent's shareholders, no other corporate action on the part of
Parent or Merger Sub is necessary to authorize the execution and delivery by
Parent and Merger Sub of this Agreement and the consummation by it of the
transactions contemplated hereby and thereby. This Agreement, the Parent Stock
Voting Agreement and the Option Agreement have been duly executed and delivered
by Parent and Merger Sub constitute valid and binding agreements of Parent and
Merger Sub and each is enforceable against Parent and Merger Sub in accordance
with its terms.
(b) Prior to the execution and delivery of this Agreement, the Board of
Directors of each of Parent and Merger Sub (at a meeting duly called and held)
has (i) approved and declared advisable this Agreement, the Merger and the other
transactions contemplated hereby and the Parent Stock Voting Agreement and the
Option Agreement and the transactions contemplated thereby as of such date, and
(ii) subject to the provisions hereof, determined to recommend the issuance of
the Parent Common Stock pursuant to the Merger, the amendment of Parent's option
plan in connection with Section 2.6 ("Option Amendment") and the Certificate
Amendment to the Parent's shareholders for approval at the shareholders meeting
contemplated by Section 6.4 hereof. Pursuant to the DGCL, the affirmative vote
of the holders of a majority of the shares of the Parent Common Stock
outstanding on the record date for the Parent Shareholder Meeting, voting
together as a single class is necessary to approve the Certificate Amendment.
Pursuant to the rules of the New York Stock Exchange, the issuance of the shares
of Parent Common Stock
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in connection with the Merger and the Option Agreement must be approved by a
majority of the votes cast on the proposal, provided that the total number of
votes cast on the proposal represents a majority of the shares of Parent Common
Stock entitled to vote on the proposal. The foregoing is the only vote of
holders of any series of Parent Common Stock required to approve the
transactions contemplated hereby. Parent has taken all steps necessary to
approve and exempt this Agreement, the Parent Stock Voting Agreement and the
Option Agreement and the transactions contemplated hereby and thereby from the
restrictions on "business combinations" set forth in Section 203 of the DGCL,
from any other applicable takeover statute and from any applicable charter, or
organizational document of Parent containing any change of control,
"anti-takeover" or similar provision.
Section 4.6 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in SECTION
4.6 of the Parent Disclosure Schedule, (i) each of Parent and its Subsidiaries
holds, and is in compliance with the terms of, all permits, licenses,
exemptions, orders and approvals of all Governmental Entities (as hereinafter
defined) necessary for the conduct of their respective businesses as currently
conducted ("Parent Permits"), except for failures to hold or to comply with such
Parent Permits which would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect; (ii) with respect to the
Parent Permits, no action or proceeding is pending or, to the knowledge of
Parent, threatened, and, to the knowledge of Parent, no fact exists or event has
occurred that would, individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect; (iii) the business of Parent and its
Subsidiaries is being conducted and has been conducted in compliance with all
Applicable Laws, except for violations or failures to so comply that would not,
individually, or in the aggregate, have a Parent Material Adverse Effect; and
(iv) no investigation or review by any Governmental Entity with respect to
Parent or its Subsidiaries is pending or, to the knowledge of Parent, threatened
that, individually or in the aggregate are reasonably likely to have a Parent
Material Adverse Effect.
Section 4.7 NON-CONTRAVENTION. Except as set forth in SECTION 4.7 of the
Parent Disclosure Schedule, the execution and delivery by Parent and Merger Sub
of this Agreement, the Company Stock Voting Agreement and the Option Agreement
do not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the provisions hereof and thereof will not, (i) result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under any Contract binding
upon Parent or any of its Subsidiaries, or result in the creation of any Lien
upon any of the properties or assets of Parent or any of its Subsidiaries, (ii)
conflict with or result in any violation of any provision of the Certificate of
Incorporation or By-Laws or other equivalent organizational document, in each
case as amended, of Parent or any of its Subsidiaries, or (iii) conflict with or
violate any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of clauses (i) and (iii), any such
violation, conflict, default, right, loss or Lien that, individually or in the
aggregate, would not have a Parent Material Adverse Effect.
Section 4.8 GOVERNMENT APPROVALS; REQUIRED CONSENTS. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Parent or is
necessary for the consummation of the transactions contemplated hereby
(including, without limitation, the Merger) except: (i) the filing with (and
declaration of effectiveness by) the SEC of the Registration Statement under the
Securities Act and the filing with the SEC of the Joint Proxy Statement under
the Exchange Act, and any applicable state securities or "blue sky" law as may
be required in connection with this Agreement and the transactions contemplated
by this Agreement, (ii) the filing of a notification under the HSR Act (and all
approvals or termination of applicable waiting periods contemplated thereby),
(iii) the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, and (iv) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to obtain or make
would not, individually or in the aggregate, have a Parent Material Adverse
Effect.
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Section 4.9 SEC DOCUMENTS AND OTHER REPORTS. Parent has filed all
documents required to be filed by it and its Subsidiaries with the SEC since
January 1, 1996 (the "Parent SEC Documents"). As of their respective dates, or
if amended as of the date of the last such amendment, the Parent SEC Documents
complied, and all documents required to be filed by Parent with the SEC after
the date hereof and prior to the Effective Time ("Subsequent Parent SEC
Documents") will comply, in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the applicable rules
and regulations promulgated thereunder and none of the Parent SEC Documents
contained when filed, and the Subsequent Parent SEC Documents will not contain,
any untrue statement of a material fact or omitted, or will omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, or are to be
made, not misleading. Except as disclosed in SECTION 4.9 of the Parent
Disclosure Schedule, the consolidated financial statements of Parent included in
the Parent SEC Documents when filed fairly present, and included in the
Subsequent Parent SEC Documents will fairly present, the consolidated financial
position of Parent and its consolidated Subsidiaries, as at the respective dates
thereof and the consolidated results of their operations and their consolidated
cash flows for the respective periods then ended (subject, in the case of the
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein) in conformity with GAAP (except, in the case of
the unaudited statements as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto). Except as disclosed in SECTION 4.9 of the Parent
Disclosure Schedule, since December 27, 1997, Parent has not made any change in
the accounting practices or policies applied in the preparation of its financial
statements, except as may be required by GAAP.
Section 4.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for entering
into this Agreement and consummation of the transactions contemplated hereby,
and except as set forth in SECTION 4.10 of the Parent Disclosure Schedule, since
December 27, 1997, Parent and its Subsidiaries have conducted their respective
businesses and operations in the ordinary and usual course consistent with past
practice, and, except as set forth in SECTION 4.10 of the Parent Disclosure
Schedule, there has not occurred (i) through the date of this Agreement, any
change in the assets, liabilities, financial condition or the results of Parent
and the Subsidiaries having a Parent Material Adverse Effect; (ii) any damage,
destruction or loss (whether or not covered by insurance) having a Parent
Material Adverse Effect; (iii) any declaration, setting aside or payment of any
dividend or distribution of any kind by Parent on any class of its capital
stock; (iv) any material increase in the compensation payable or to become
payable by Parent or any Subsidiary to its directors, officers or key employees
or any material increase in any bonus, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with such directors,
officers or key employees, other than in the ordinary course of business; (v)
any labor dispute, other than routine matters none of which has, or would be
reasonably expected to have, a Parent Material Adverse Effect; (vi) any entry by
Parent or the Subsidiaries into any commitment or transaction (including,
without limitation, any borrowing or capital expenditure) material (individually
or in the aggregate) to Parent or its Subsidiaries other than in the ordinary
course of business; (vii) any material change by Parent or its Subsidiaries in
accounting methods, principles or practices except as required by concurrent
changes in GAAP or concurred with by Parent's independent public accountants;
(viii) any material agreement, whether in writing or otherwise, to take any
action described in this Section 4.10; or (ix) any event or action that, if
occurring or taken during the period from the date of this Agreement through the
Effective Time, would constitute a breach of Section 5.1 hereof and would
constitute a Parent Material Adverse Effect.
Section 4.11 ACTIONS AND PROCEEDINGS. Except as set forth in the Parent
SEC Documents or SECTION 4.11 or SECTION 4.14 of the Parent Disclosure Schedule,
(a) there are no outstanding orders, judgments, injunctions, awards or decrees
of any Governmental Entity against Parent or any of its Subsidiaries, any of
their properties, assets or business, or, to the knowledge of Parent, any of
Parent's or its Subsidiaries' current or former directors or officers (during
the period served as such) or any other person whom Parent or any of its
Subsidiaries has agreed to indemnify, as such, that, individually or in the
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aggregate have a Parent Material Adverse Effect, and (b) there are no actions,
suits or legal, administrative, regulatory or arbitration proceedings pending
or, to the knowledge of Parent, threatened against Parent or any of its
Subsidiaries, any of their properties, assets or business, or, to the knowledge
of Parent, any of Parent's or its Subsidiaries' current or former directors or
officers or any other person whom Parent or any of its Subsidiaries has agreed
to indemnify that are, individually or in the aggregate, reasonably likely to
have a Parent Material Adverse Effect.
Section 4.12 ABSENCE OF UNDISCLOSED LIABILITIES. Except (a) as set forth
SECTION 4.12 or SECTION 4.14 of the Parent Disclosure Schedule, (b) for
liabilities or obligations which are accrued or reserved against on the balance
sheet (or reflected in the notes thereto) included in the Parent's Annual Report
on Form 10-K for the year ended December 27, 1997 (the "Parent 10-K"), and (c)
for normal and recurring liabilities since April 30, 1998, neither Parent nor
any of its Subsidiaries has any liabilities or obligations (including, without
limitation, Tax liabilities) (whether absolute, accrued, contingent or
otherwise), and whether due or to become due, which individually or in the
aggregate are reasonably likely to have a Parent Material Adverse Effect.
Section 4.13 CERTAIN CONTRACTS AND ARRANGEMENTS. Parent has not breached
or defaulted (nor has any event occurred which, with passage of time or giving
of notice would constitute a default), or received in writing any claim or
notice that it has breached or defaulted under, any of the terms or conditions
of any agreement, contract or commitment in such manner as, individually or in
the aggregate, are reasonably likely to have a Parent Material Adverse Effect.
In addition, Parent has used reasonable best efforts to identify and disclose on
SECTION 4.13 of the Parent Disclosure Schedule all of the following to which
Parent or any of its Subsidiaries is a party (and which are not listed as
exhibits to the Parent's 10-K): (a) material employment, consulting,
non-compete, severance or similar agreement with any director, officer or
salaried employee; (b) collective bargaining agreement; (c) material indenture,
mortgage, note, installment obligation, agreement or other instrument relating
to the borrowing of money by Parent or any Subsidiary or the guaranty by Parent
or any Subsidiary of any material obligation for the borrowing of money; (d)
real property lease in excess of 20,000 square feet and any other material lease
(i.e., a lease (other than leases that have been properly capitalized by Parent
in accordance with GAAP) with future yearly rental payments in excess of
$150,000 or aggregate future rental payments in excess of $500,000 over the term
thereof); (e) any non-competition agreement or any other agreement or obligation
which purports to limit in any material respect the manner in which, or the
localities in which, Parent or any of its Subsidiaries is entitled to conduct
all or any material portion of the business of the Company and its Subsidiaries
taken as a whole; (f) any joint venture, partnership or similar arrangement
extending beyond six (6) months or involving a commitment for future equity or
investment of more than $500,000; (g) a listing of the top fifty (50)
customers/franchisees based on sales during the six (6) months ended June 30,
1998, including a listing of the contracts in place with the top ten (10) end
user clients; (h) a listing of the vendors with whom Parent has contracts
involving purchases in excess of $500,000 on an annualized basis, including a
listing of the contracts in place with the top ten (10) vendors; (i) any
material agreement the benefits of which are contingent or increased, or the
terms of which are materially altered, or the vesting of benefits of which will
be accelerated, upon the occurrence of a transaction of the nature contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement; (j) any material agreement of indemnification or guaranty not entered
into in the ordinary course of business; (k) any agreement, capitalized lease,
contract or commitment relating to capital expenditures and involving future
obligations in excess of $1,500,000, and not cancelable without penalty; (l) any
agreement, contract or commitment currently in force relating to any ownership
interest in any corporation, partnership, joint venture or other business
enterprise that is material in value to Parent; or (m) any other contract or
agreement that is otherwise material to Parent or the Subsidiaries taken as a
whole, except for purchase and sales orders and similar contracts entered into
in the ordinary course of business.
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Section 4.14 TAXES.
(a) Except as disclosed in SECTION 4.14 of the Parent Disclosure Schedule,
each of Parent and its Subsidiaries has filed all Tax Returns that it was
required to file, and, except to the extent that a reserve for Taxes was
reflected on Parent's balance sheet included in Parent's 10-K (the "Parent
Balance Sheet") (exclusive of any accruals for "deferred taxes" or similar items
that reflect timing differences between Tax and financial accounting
principles), all such Tax Returns were correct and complete. Except as disclosed
in SECTION 4.14 of the Parent Disclosure Schedule, each group of corporations
with which Parent or any Subsidiary has filed (or was required to file)
consolidated, combined, unitary or similar Tax Returns (a "Parent Affiliated
Group") has filed all such Tax Returns that it was required to file with respect
to any period in which Parent or a Subsidiary was a member of such Parent
Affiliated Group (a "Parent Affiliated Period"), and, except to the extent that
a reserve for Taxes was reflected on the Parent Balance Sheet (exclusive of any
accruals for "deferred taxes" or similar items that reflect timing differences
between Tax and financial accounting principles), all such Tax Returns were
correct and complete. Except as disclosed in SECTION 4.14 of the Parent
Disclosure Schedule, except to the extent that a reserve for Taxes was reflected
on the Parent Balance Sheet (exclusive of any accruals for "deferred taxes" or
similar items that reflect timing differences between Tax and financial
accounting principles), each of Parent and its Subsidiaries has paid all Taxes
(whether or not shown on such Tax Returns) that were due and payable, and each
Parent Affiliated Group has paid all Taxes (whether or not shown on such Tax
Returns) that were due and payable with respect to all Parent Affiliated Periods
and with respect to which Parent or any of its Subsidiaries may be liable by
operation of law or otherwise. Except as disclosed in SECTION 4.14 of the Parent
Disclosure Schedule, the unpaid Taxes of Parent and the Subsidiaries for Tax
periods through the date of the Parent Balance Sheet do not exceed the accruals
and reserves for Taxes set forth on the Parent Balance Sheet (exclusive of any
accruals for "deferred taxes" or similar items that reflect timing differences
between Tax and financial accounting principles). The unpaid Taxes of Parent and
the Subsidiaries for Tax periods from the date of the Parent Balance Sheet
through the Closing Date are normal recurring taxes attributable solely to the
conduct of their businesses in the ordinary course and in a manner consistent
with past practices. All Taxes that Parent or any Subsidiary is or was required
by law to withhold or collect have been duly withheld or collected and, to the
extent required, have been paid to the proper Governmental Entity. Each of the
representations contained in the this Section 4.14(a) shall be (i) limited in
its application to items which are reasonably likely, individually or in the
aggregate, to have a Parent Material Adverse Effect, and (ii) qualified to the
extent of any adverse determination of matters set forth in SECTION 4.14 of the
Parent Disclosure Schedule.
(b) Except as disclosed in SECTION 4.14 of the Parent Disclosure Schedule,
Parent is not and never has been a party to or bound by any Tax indemnity, Tax
sharing or Tax allocation agreement (whether written or unwritten or arising
under operation of federal law as a result of being a member of a group filing
consolidated Tax Returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than Parent nor does Parent
owe any amount under any such agreement. Except as disclosed in SECTION 4.14 of
the Parent Disclosure Schedule, no examination or audit by any Governmental
Entity of any Tax Return of Parent, any of its Subsidiaries or any Parent
Affiliated Group with respect to a Parent Affiliated Period is currently in
progress or, to the knowledge of Parent and its Subsidiaries, threatened or
contemplated, in each case, which involve claims that individually or in the
aggregate are reasonably likely to have a Parent Material Adverse Effect.
Neither Parent nor any of its Subsidiaries has been informed by any jurisdiction
that the jurisdiction believes that Parent or any of its Subsidiaries was
required to file any Tax Return that was not filed which failure or failures
individually, or in the aggregate, are reasonably likely to have a Parent
Material Adverse Effect.
(c) Neither Parent nor any of its Subsidiaries is a "consent corporation"
within the meaning of Section 341(f) of the Code, and none of the assets of
Parent or the Subsidiaries are subject to an election under Section 341(f) of
the Code.
(d) Neither Parent nor any of its Subsidiaries has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
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(e) Except as set forth in SECTION 4.14 of the Parent Disclosure Schedule,
neither Parent nor any of its Subsidiaries has made any payments, is obligated
to make any payments, or is a party to any agreement that could obligate it to
make any payments that will not be deductible under either Code Section 162(m)
or Code Section 280G (or cause Parent or any of its Subsidiaries to incur an
obligation to reimburse a person for a tax imposed under Code Section 4999).
(f) Except as set forth in SECTION 4.14 of the Parent Disclosure Schedule,
to the knowledge of Parent, no state of facts or circumstances exist which are
reasonably likely to constitute grounds for the assessment of taxes against
Parent or any subsidiary where such assessment would, individually or in the
aggregate, have a Parent Material Adverse Effect.
Section 4.15 PATENTS, TRADEMARKS AND SIMILAR RIGHTS.
(a) Parent and its Subsidiaries own, or are licensed or otherwise possess
and, after the Effective Time, will continue to own, license or otherwise
possess, legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights and mask works, and all processes, formulae,
methods, schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material that
are necessary to conduct the business of Parent and its Subsidiaries as
currently conducted, the absence of which would be reasonably likely to have a
Parent Material Adverse Effect (the "Parent Intellectual Property Rights").
(b) Neither Parent nor any of its Subsidiaries is, or will as a result of
the execution and delivery of this Agreement or the performance of Parent's
obligations under this Agreement or otherwise be, in breach of any license,
sublicense or other agreement relating to Parent Intellectual Property Rights,
or any material licenses, sublicenses and other agreements as to which Parent or
any of its Subsidiaries is a party and pursuant to which Parent or any of its
Subsidiaries is authorized to use any third party patents, trademarks or
copyrights ("Parent Third Party Intellectual Property Rights"), including
software that is used in the manufacture of, incorporated in, or forms a part of
any product sold by or expected to be sold by Parent or any of its Subsidiaries,
the breach of which would be reasonably likely to have a Parent Material Adverse
Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by Parent or any of its Subsidiaries and which are material to the
business of Parent and its Subsidiaries, taken as a whole, are valid and
subsisting. Parent (i) has not been sued in any suit, action or proceeding, or
received in writing any claim or notice, which involves a claim of infringement
of any patent, trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party which, if adversely
determined, would be reasonably likely to have a Company Material Adverse
Effect; and (ii) has no knowledge that the manufacturing, marketing, licensing
or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
infringement would reasonably be expected to have a Parent Material Adverse
Effect.
Section 4.16 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the information supplied or to be supplied by Parent or
Merger Sub specifically for inclusion in (i) the Registration Statement or (ii)
the Joint Proxy Statement will, in the case of the Registration Statement, at
the time it becomes effective or, in the case of the Joint Proxy Statement or
any amendments thereof or supplements thereto, at the time of the initial
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the Company Shareholder Meeting and the Parent Shareholder Meeting
to be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement, as of its effective date, will comply (with respect to information
relating to Parent and Merger Sub) as to form in all material respects with the
requirements of the Securities Act, and the rules and regulations promulgated
thereunder. As of the date of its initial mailing and as of the date of the
Company Shareholder Meeting and the Parent Shareholder Meeting, the Joint Proxy
Statement will comply (with
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respect to information relating to the Parent) as to form in all material
respects with the applicable requirements of the Exchange Act, and the rules and
regulations promulgated thereunder. Notwithstanding the foregoing, neither
Parent nor Merger Sub makes any representation or warranty with respect to any
statement made or incorporated by reference in the foregoing documents based
upon information supplied by or on behalf of the Company for inclusion or
incorporation by reference therein.
Section 4.17 EMPLOYEE BENEFIT PLANS; ERISA.
(a) SECTION 4.17 of the Parent Disclosure Schedule sets forth the name of
each Parent Plan (as defined below) and of each bonus, deferred compensation,
incentive compensation, profit sharing, salary continuation, employee benefit
plan, stock purchase, stock option, employment, severance, termination, golden
parachute, consulting or supplemental retirement plan or agreement to which
Parent or any Subsidiary is a party to or contributes to or pursuant to which
any employee of Parent or any Subsidiary is entitled to benefits (collectively,
the "Benefit Plans"), true copies of which have heretofore been delivered to the
Company. Except as set forth in SECTION 4.17 of the Parent Disclosure Schedule,
each Parent Plan and Benefit Plan complies with ERISA, the Code and all other
applicable laws and administrative or governmental rules and regulations except
for any such noncompliance that, individually or in the aggregate, is not
reasonably likely to have a Parent Material Adverse Effect. No "reportable
event" (within the meaning of Section 4043 of ERISA) has occurred and no notice
of such event is pending with respect to any Parent Plan; neither Parent nor any
of its ERISA Affiliates has withdrawn from any Parent Plan under Section 4063 of
ERISA or has taken, or is currently considering taking, any action to do so; and
no action has been taken, or is currently being considered, to terminate any
Parent Plan subject to Title IV of ERISA, in any such case, where such event,
withdrawal or action, individually or in the aggregate, is reasonably likely to
have a Parent Material Adverse Effect. No Parent Plan, nor any trust created
thereunder, has incurred any material "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived. Except as set forth in
SECTION 4.17 of the Parent Disclosure Schedule, there are no (individually or in
the aggregate) actions, suits or claims pending or, to the knowledge of Parent,
threatened (other than routine claims for benefits) with respect to any Parent
Plan or Benefit Plan and that is, individually, or in the aggregate, reasonably
likely to result in a Parent Material Adverse Effect. Neither Parent nor any of
its ERISA Affiliates has incurred or would reasonably be expected to incur any
liability under or pursuant to Title IV of ERISA that has not been satisfied in
full and that are, individually, or in the aggregate, reasonably likely to
result in a Parent Material Adverse Effect. To the knowledge of Parent, no
non-exempt prohibited transactions described in Section 406 of ERISA or Section
4975 of the Code have occurred. Except as set forth in SECTION 4.17 of the
Parent Disclosure Schedule, all Parent Plans and Benefit Plans that are intended
to be qualified under Section 401(a) of the Code have received a favorable
determination letter as to such qualification from the Internal Revenue Service,
and no event has occurred, either by reason of any action or failure to act,
which could be expected to cause the loss of any such qualification, and Parent
is not aware of any reason why any Parent Plan and Benefit Plan is not so
qualified in operation. As used herein: "Parent Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA), or a "welfare plan" (as defined in Section
3(l) of ERISA) established or maintained by Parent or any of its ERISA
Affiliates or to which Parent or any of its ERISA Affiliates has contributed in
the last six years or otherwise may have any liability.
(b) None of the Benefit Plans is (i) a plan subject to Title IV of ERISA or
(ii) a Multiemployer Plan. Neither Parent or its ERISA Affiliates has ever
contributed to or had an obligation to contribute to any Multiemployer Plan.
(c) Except as set forth on SECTION 4.17 of the Parent Disclosure Schedule,
no Benefit Plan which is a "welfare plan" (as defined in Section 3(1) of ERISA)
provides for continuing benefits or coverage for any participant or any
beneficiary of a participant after such participant's termination of employment
except as may be required by the Consolidated Omnibus Budget Reconciliation
Action of 1985, as amended ("COBRA"), and the regulations thereunder at the
expense of the participant or the beneficiary of the participant.
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(d) Except as disclosed in SECTION 4.17 of the Parent Disclosure Schedule,
(i) no amount payable under any Parent Plan will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code; and (ii) the
consummation of the transactions contemplated by this Agreement will not, either
alone or in combination with any other event that is reasonably likely to occur,
(A) entitle any current or former director, officer or employee of Parent or any
of its ERISA Affiliates to severance pay, golden parachute payments,
unemployment compensation or any other payment, except as expressly provided in
this Agreement, or (B) accelerate the time of payment or vesting, or increase
the amount of compensation due any such director, officer or employee.
Section 4.18 ENVIRONMENTAL MATTERS. Except as set forth in the Parent SEC
Documents, (i) no person, entity or governmental agency has asserted against
Parent or any of its Subsidiaries any requests, claims or demands for damages,
costs, expenses or causes of action arising out of or due to the emission,
disposal, discharge or other release or threatened release of any Hazardous
Substances or Pollutants or Contaminants (in each case, as defined in or
governed by any applicable federal, state or local statute, law or regulation)
in connection with or related to any past or present facilities, properties or
assets, owned, leased or operated by Parent or any of its Subsidiaries
(collectively, "Parent's Assets"), arising out of or due to any injury to human
health or the environment by reason of the current condition or operation of
Parent's Assets, or past conditions and operations or activities on Parent's
Assets; (ii) neither Parent nor any Subsidiary is a party to any pending, or to
the knowledge of Parent, threatened actions for damages, costs, expenses,
demands, causes of action, claims, losses, administrative proceedings,
enforcement actions, or investigations relating to the emission, disposal,
discharge or release of Hazardous Substances or Pollutants or Contaminants
associated with Parent's Assets or operations; (iii) there is no environmental
condition, situation or incident on, at or concerning Parent's Assets that could
give rise to an action or liability under applicable environmental law, rule,
ordinance or common law theory relating to Hazardous Substances, Pollutants or
Contaminants; and (iv) there is no liability associated with Parent's Assets
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, the Resource Conservation and Recovery Act or the Toxic
Substances and Control Act, or any other similar state or local law, in any such
case where such event, individually or in the aggregate, is reasonably likely to
have a Parent Material Adverse Effect.
Section 4.19 LABOR MATTERS. Neither Parent nor any of its Subsidiaries has
any labor contracts or collective bargaining agreements. There is no material
unfair labor practice complaint pending or, to the knowledge of Parent,
threatened, against Parent or any of its Subsidiaries with respect to the Parent
Business. Since April 30, 1998, there has not been any labor strike, dispute,
slowdown or stoppage pending or, to the knowledge of Parent, threatened against
Parent or any of its Subsidiaries, and neither Parent nor any of its
Subsidiaries has experienced any primary work stoppage or other labor difficulty
involving its employees, in either such case, which has had or would reasonably
be expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
Section 4.20 AFFILIATE TRANSACTIONS. Except as set forth in SECTION 4.20
of the Parent Disclosure Schedule, to the knowledge of Parent, no director,
officer, executive employee or shareholder beneficially owning 5% or more of the
total number of issued and outstanding shares of Common Stock: (i) has any
material contractual relationship with Parent, other than employment contracts
and contracts made on an arm's-length basis in the ordinary course of business;
or (ii) has any direct or indirect interest in any material right, property or
asset which is used by Parent or any of its Subsidiaries in the conduct of its
or their business.
Section 4.21 OPINION OF FINANCIAL ADVISOR. Parent has received the written
opinion of J.P. Morgan Securities, Inc. ("JPM") to the effect that as of the
date of this Agreement, the consideration to be paid by the Company in the
Merger is fair, from a financial point of view. A true, correct and complete
copy of the written opinion delivered by JPM, which opinion shall be included in
the Joint Proxy Statement, as well as a true and correct copy of the Parent's
engagement of JPM, have been delivered to the Company by Parent.
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Section 4.22 BROKERS. Other than JPM and Gregory & Hoenemeyer ("G&H"), no
broker, finder or financial advisor retained by Parent is entitled to any
brokerage, finder's or other fee or commission from Parent in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent. A true and correct copy of Parent's engagement letters
with JPM and G&H has been delivered to the Company by Parent.
Section 4.23 POOLING. Parent does not know of any reason why the Merger
will not qualify as a pooling of interests transaction under APB 16, and neither
Parent nor any of its Subsidiaries has, to its knowledge after consultation with
its independent accountants, taken any action that will prevent the Merger from
qualifying as a pooling of interests transaction under APB 16.
Section 4.24 INSURANCE; RISK MANAGEMENT. All material fire and casualty,
general liability, business interruption, product liability, and sprinkler and
water damage insurance policies maintained by Parent or any of its Subsidiaries
are with reputable insurance carriers, provide full and adequate coverage for
all normal risks incident to the business of Parent and its Subsidiaries and
their respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Parent Material Adverse Effect. The steps taken by
Parent to manage the various risks incident to the business and operations of
Parent and its Subsidiaries and their respective properties and assets are at
least equivalent to those taken by persons engaged in similar businesses, except
for any failures to take such steps that, individually or in the aggregate, are
not reasonably likely to have a Parent Material Adverse Effect.
Section 4.25 YEAR 2000. The Parent has conducted an assessment of its and
its Subsidiaries' internal operating systems, processes, software, hardware and
equipment and based upon this assessment has developed a plan designed to ensure
that the same are Year 2000 Compliant on or before December 31, 1999. To the
knowledge of Parent, such plan will be implemented and successfully completely
on or before December 31, 1999, and the implementation and completion of such
plan will not have a Parent Material Adverse Effect.
Section 4.26 INTERIM OPERATIONS OF SUB. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 CONDUCT OF BUSINESS PENDING THE MERGER. Prior to the Effective
Time, Parent and the Company each agree as to itself and its respective
Subsidiaries (except to the extent expressly contemplated by this Agreement or
the Disclosure Schedules or that the other party shall otherwise consent in
writing) to conduct its and its Subsidiaries business only in the ordinary and
usual course consistent with the manner as heretofore conducted. In addition,
during such time, Parent, the Company and their respective Subsidiaries shall
use their reasonable best efforts to, and shall use their reasonable best
efforts to cause their officers, directors and employees to, (i) preserve intact
its present business organization, (ii) keep available the services of its
present officers and key employees, (iii) preserve its business relationships
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees and others having business dealings with it or its
Subsidiaries, all to the end that its and its Subsidiaries' goodwill and ongoing
business shall be unimpaired at the Effective Time. Without limiting the
foregoing, during such time, Parent and its Subsidiaries , on one hand, and the
Company and its Subsidiaries , on the other hand, shall use their best efforts,
not to, and shall use their reasonable best efforts to cause their respective
officers, directors and employees not to, take any action that interferes with,
or impedes, such party's ongoing relationships (including such relationships
after the Effective Time) with such party's
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employees, customers or suppliers. Parent and the Company each shall promptly
notify the other party of any material event or occurrence not in the ordinary
course of business. Except as expressly contemplated by this Agreement, Parent
and the Company each shall not (and shall not permit any of its respective
Subsidiaries to), without the written consent of the other party:
(a) accelerate, amend or change the period of exercisability of options or
restricted stock granted under any employee stock plan of such party or
authorize cash payments in exchange for any options granted under any of such
plans except as required by the terms of such plans or any related agreements in
effect as of the date of this Agreement and except as contemplated by this
Agreement;
(b) (i) amend its Certificate of Incorporation, as amended, By-Laws or other
organizational documents, (ii) split, combine or reclassify any shares of its
outstanding capital stock, (iii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property, other than dividends and
distributions by a wholly-owned Subsidiary to its parent entity, or (iv)
directly or indirectly purchase, redeem or otherwise acquire any shares of its
capital stock or shares of the capital stock of any of its Subsidiaries;
(c) authorize for issuance, issue (except upon the exercise of outstanding
stock options, or warrants or upon the conversion of convertible securities) or
sell or agree to issue or sell any shares of, or rights or options to acquire or
convertible into any shares of, its capital stock or shares of the capital stock
of any of its Subsidiaries (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) or any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock;
(d) subject to Sections 6.2 and 6.4 hereof, (i) merge, combine or
consolidate with another entity, (ii) acquire or purchase an equity interest in
or a substantial portion of the assets of another corporation, partnership or
other business organization or otherwise acquire any material assets outside the
ordinary course of business and consistent with past practice or (iii) sell,
lease, license, waive, release, transfer, encumber or otherwise dispose of any
of its material (individually or in the aggregate) assets outside the ordinary
course of business and consistent with past practice; provided that,
acquisitions which do not involve, individually or in the aggregate,
consideration (including assumed indebtedness) of not more than $10,000,000 that
are otherwise permitted pursuant to this Agreement, shall not require any such
consent;
(e) (i) incur, assume or prepay any indebtedness for borrowed money other
than in each case pursuant to credit agreements in effect as of the date hereof
in the ordinary course of business and consistent with past practice, (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any person other
than a Subsidiary, in each case other than (A) in the ordinary course of
business and consistent with past practice, (B) existing indebtedness of a
Subsidiary, (C) short-term borrowings incurred in the ordinary course of
business consistent with the manner as heretofore conducted and (D) borrowings
pursuant to existing credit facilities in the ordinary course of business or any
modifications, renewals or replacements of such credit facilities, or (iii) make
any loans, advances or capital contributions to, or investments in, any other
person, other than to any Subsidiary;
(f) pay, satisfy, discharge or settle any material claim, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than in the
ordinary course of business and consistent with past practice or pursuant to
mandatory terms of any contract in effect on the date hereof and other than any
settlement that does not require the payment of any material sum, or the
performance of any material obligation;
(g) modify or amend, or waive any benefit of, any material non-competition
agreement to which it or any of its Subsidiaries is a party;
(h) authorize or make capital expenditures in excess of $2,000,000 in the
aggregate except for those projects set forth in SECTION 5.1 of the Company
Disclosure Schedule or SECTION 5.1 of the Parent Disclosure Schedule, as the
case may be;
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(i) (i) adopt, enter into, terminate, make or agree to make any new grants
or awards under or amend (except as may be required by Applicable Law) any
employee plan, agreement, bonus, contract, arrangement or other Company Plan or
Parent Plan, or pay, or agree to pay, any bonus, stay bonus, or other similar
payment, as the case may be, to or for the current or future benefit or welfare
of any director, officer or employee or take any action which would result in
the acceleration or early vesting of any Options, other than paying or making
grants, awards or other payments required to be made pursuant to plans and
agreements disclosed in the Company Disclosure Schedule or Parent Disclosure
Schedule as the case may be; (ii) except in the ordinary course of business
consistent with past practice, increase in any manner the compensation or fringe
benefits of, or pay any bonus to, any director, officer or employee; or (iii)
take any action to fund or in any other way secure, or to accelerate or
otherwise remove restrictions with respect to, the payment of compensation or
benefits under any employee plan, agreement, contract, arrangement or other
Company Plan or Parent Plan, as the case may be;
(j) make any material change in its accounting or tax policies or
procedures, except as required by Applicable Law or to comply with GAAP;
(k) enter into any material contract or material agreement other than in the
ordinary course of business or modify, amend or terminate any material contract
or material agreement except in the ordinary course of business;
(l) reclassify, combine, split, subdivide, purchase or otherwise acquire,
directly or indirectly, any of its capital stock;
(m) grant any severance or termination pay to, or enter into any employment
or severance agreement with, any of its, or any of its Subsidiary's directors,
officers or employees except in connection with the termination (voluntary or
involuntary) or resignation of such person on terms that are consistent with
past practice
(n) commit a breach of, or default under, any contract, agreement, license
or instrument to which it is a party or to which any of its assets may be
subject, or violate any applicable law, regulation, ordinance, order, injunction
or decree or any other requirement of any governmental body or court, relating
to its assets or business if such breach, default or violation is reasonably
likely to result in a Company Material Adverse Effect or Parent Material Adverse
Effect, as the case may be;
(o) fail to file all reports and returns required to be filed with federal,
state, local and foreign authorities, where such failure is reasonably likely to
result in a Company Material Adverse Effect or Parent Material Adverse Effect,
as the case may be;
(p) except those being contested for which adequate reserves have been
established, fail to (i) promptly pay all Taxes of any nature lawfully levied or
assessed upon it or any of its or its Subsidiaries' properties or (ii) withhold
or collect and pay to the proper governmental authorities or hold in separate
bank accounts for such payment all Taxes and other assessments that are required
by law to be so withheld or collected;
(q) pay, loan or advance any material amount to, or sell, transfer or lease
any material property or asset to, or enter into any material agreement or
arrangement with, any of its affiliates, officers, employees or directors,
except for its directors' fees and compensation to officers and employees
consistent with past practices;
(r) except as expressly permitted by this Agreement, take any action that
would or is reasonably likely to result in any of its representations and
warranties set forth in this Agreement being untrue in any material respect, or
in any of the conditions to the Merger set forth in Article VII not being
satisfied; or
(s) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
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ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 ACCESS AND INFORMATION. Each party hereto shall (and shall
cause its Subsidiaries and its and their respective officers, directors,
employees, auditors and agents to) afford to the other party and to such other
party's officers, employees, financial advisors, legal counsel, accountants,
consultants and other representatives (except to the extent not permitted under
Applicable Law as advised by counsel) reasonable access during normal business
hours throughout the period prior to the Effective Time to all of its books and
records and its properties, plants and personnel and, during such period, shall
furnish promptly to the other party a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal
securities laws. Unless otherwise required by Applicable Law, each party hereto
agrees that it shall, and it shall cause its Subsidiaries and its and their
respective officers, directors, employees, auditors and agents to, hold and use
all information confidential pursuant to the Confidentiality Agreement.
Section 6.2 NO SOLICITATION.
(a) Prior to the Effective Time, the Company and Parent each agree that it
and its respective Subsidiaries shall not, and each shall use its best efforts
to cause its respective affiliates, directors, officers, employees, agents or
representatives not to, directly or indirectly, (i) encourage, solicit or
initiate, directly or indirectly, (including by way of furnishing or disclosing
non-public information) any inquiries or the making of any proposal with respect
to any merger, tender offer, consolidation or other business combination
involving such party or the acquisition (directly or indirectly) of all or any
significant part of the assets or capital stock of such party or any of its
Subsidiaries (other than pursuant to this Agreement) (an "Acquisition
Transaction") (ii) negotiate, explore or otherwise engage in discussions with,
or provide confidential information or data to, any person (other than each
other and each other's representatives, Subsidiaries and affiliates) with
respect to any Acquisition Transaction, or which may reasonably be expected to
lead to a proposal for an Acquisition Transaction or (iii) enter into any
agreement, arrangement or understanding with respect to any Acquisition
Transaction or which would require it to abandon, terminate or fail to
consummate the Merger or any other transaction contemplated by this Agreement;
provided, however, that, at any time prior to the adoption of this Agreement by
the stockholders of the Company, the Company may, and at any time prior to the
approval of the issuance of Parent Common Stock in connection with the Merger by
the Parent stockholders, Parent may, in each case, acting through its board of
directors, in response to an unsolicited written proposal from a third party
setting forth a Superior Proposal (as hereinafter defined), furnish information
to, negotiate or otherwise engage in discussions with such third party, if its
Board of Directors determines in good faith, based upon the advice of outside
counsel, that such action is reasonably necessary for the Board of Directors to
comply with its fiduciary duties under Applicable Law, including, without
limitation the DGCL; provided, however, prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such person
or entity, such Board of Directors receives from such person or entity an
executed confidentiality agreement with terms no less favorable to such party
than those contained in the Non-Disclosure Agreement dated July 24, 1998 between
the Company and Parent (the "Confidentiality Agreement"), and such non-public
information has been previously delivered to the Board of Directors of the other
party hereto. The Company and Parent each agree to promptly advise in writing
the other of any inquiries or proposals received by, any such information
requested from, and any requests for negotiations or discussions sought to be
initiated or continued with it, its Subsidiaries or affiliates, or any of the
respective directors, officers, employees, agents or representatives of the
foregoing, in each case from a person with respect to an Acquisition
Transaction. In addition, the Company and Parent shall promptly advise in
writing the other of the substance and content of any such inquiry, proposal,
information request, negotiations or discussions. As used herein, "Superior
Proposal" means a bona fide, written and unsolicited proposal or offer with
respect to an Acquisition Transaction on terms which the Board of Directors of
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the party receiving such proposal or offer determines in good faith (based on
and consistent with the advice of independent financial advisors and outside
legal counsel), would, if consummated, be more favorable over the long-term from
a financial point of view than the transactions contemplated hereby, taking into
consideration all elements of the transactions contemplated hereby including,
without limitation, the non-taxable element of said transaction and strategic
benefits anticipated to be derived from the Merger and the long-term prospects
of Parent and the Company as a combined company, and for which financing, to the
extent required, is then committed or which, in the good faith judgment of the
Board of Directors of such party is reasonably capable of being obtained by such
third party.
(b) The Company and Parent each agree that, as of the date hereof, it, its
Subsidiaries and affiliates, and the respective directors, officers, employees,
agents and representatives of the foregoing, shall immediately cease and cause
to be terminated any existing activities, discussions and negotiations with any
person (other than Parent and its representatives) conducted heretofore with
respect to any Acquisition Transaction.
(c) The Company and Parent shall each notify the other party immediately
after receipt by the Company and Parent (or their advisors), respectively, of
any inquiry or proposal involving an Acquisition Transaction ("Acquisition
Proposal") or any request for non-public information in connection with an
Acquisition Proposal or for access to the properties, books or records of such
party or any of its Subsidiaries by any person or entity that informs such party
that it is considering making, or has made, an Acquisition Proposal. Such notice
shall be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact, and shall describe, if applicable, any material disclosed or
provided to the party making the Acquisition Proposal which had not previously
been disclosed or provided to the Company or Parent as applicable. Such party
shall continue to keep the other party hereto informed, on a current basis, of
the status of any such discussions or negotiations and the terms being discussed
or negotiated.
(d) Nothing contained in this Section 6.2 or elsewhere in this Agreement
shall prohibit either party from (i) filing with the SEC a report on Form 8-K
with respect to this Agreement, including a copy of this Agreement and any
related agreements as an exhibit to such report, (ii) taking and disclosing to
its shareholders a position contemplated by Rule 14d-9 or 14e-2 promulgated
under the Exchange Act, or (iii) making any disclosure to its shareholders if,
in the good faith judgment of the Board of Directors upon the advice of outside
counsel, failure to so disclose would be inconsistent with any Applicable Law or
the fiduciary duties of the Board of Directors. The Company and Parent shall be
entitled to provide copies of this Section 6.2 to third parties who, on an
unsolicited basis after the date of this Agreement, contact such party regarding
an Acquisition Transaction.
Section 6.3 THIRD-PARTY STANDSTILL AGREEMENTS. During the period from the
date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it or any of its Subsidiaries is a party that was
entered into in contemplation of discussions or negotiations regarding a
possible Acquisition Transaction.
Section 6.4 JOINT PROXY STATEMENT; STOCKHOLDER'S MEETINGS. (a) In order to
consummate the Merger, Parent, acting through the Parent Board of Directors,
shall, in accordance with its Certificate of Incorporation and By-Laws and
Applicable Law:
(i) subject to its fiduciary duties under Applicable Laws as determined,
in good faith, by the Parent Board of Directors, following consultation with
outside counsel, duly call, give notice of, convene and hold a special
meeting (the "Parent Shareholder Meeting") of its stockholders and a special
meeting (or a consent in lieu thereof) of the stockholders of Merger Sub (at
which latter meeting Parent shall vote all of its shares of Merger Sub in
favor of the adoption and approval of this Agreement) as soon as practicable
following the date hereof for the purposes of adopting this Agreement or, in
the case of the Parent, approving the Certificate Amendment, the Option
Amendment and the issuance of Parent Common Stock pursuant to the Merger;
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(ii) subject to its fiduciary duties under Applicable Law as determined,
in good faith, by the Parent Board of Directors, following consultation with
outside counsel, include in the Joint Proxy Statement the recommendation of
the Parent Board of Directors that stockholders of the Parent vote in favor
of the Certificate Amendment, the Option Amendment and the issuance of
Parent Company Stock pursuant to the Merger and use its reasonable best
efforts to solicit votes and proxies in favor of the matters set forth in
(i) above; and
(iii) obtain and furnish any information required to be included in the
proxy or information statement (together with any related letter to
stockholders, notice of meeting and form of proxy, the "Parent Proxy
Statement") to be included in the Joint Proxy Statement, and cause the Joint
Proxy Statement to be mailed to the Parent's stockholders at the earliest
practicable date.
(b) In order to consummate the Merger, the Company, acting through its Board
of Directors, shall in accordance with its Certificate of Incorporation and
By-Laws and applicable law:
(i) subject to its fiduciary duties under Applicable Law as determined,
in good faith, by the Company Board of Directors, following consultation
with outside counsel, duly call, give notice of, convene and hold a special
meeting (the "Company Shareholder Meeting") of its stockholders as soon as
practicable following the date hereof for the purpose of adopting this
Agreement;
(ii) subject to its fiduciary duties under applicable law as determined,
in good faith, by the Company's Board of Directors, following consultation
with outside counsel, include in the Joint Proxy Statement the
recommendation of its board of directors that stockholders of the Company
vote in favor of, and use its reasonable best efforts to solicit votes and
proxies in favor of, the adoption and approval of this Agreement; and
(iii) obtain and furnish any information required to be included in the
proxy or information statement (together with any related letters to
stockholders, notice of meeting and form of proxy, the "Company Proxy
Statement") to be included in the Joint Proxy Statement, and cause the Joint
Proxy Statement to be mailed to the Company's stockholders at the earliest
practicable date.
(c) As promptly as reasonably practicable following the date hereof, the
Parent, the Merger Sub and the Company will prepare and file with the SEC the
Registration Statement under the Securities Act and the rules and regulations
promulgated thereunder with respect to the Parent Shares to be issued in
connection with the Merger which shall include as a part thereof the Parent
Proxy Statement with respect to the Parent Shareholder Meeting and the Company's
Proxy Statement with respect to the Company Shareholder Meeting (the "Joint
Proxy Statement"). The Parent, Merger Sub and the Company shall cooperate and
use all reasonable efforts in the preparation and filing of the Registration
Statement and Joint Proxy Statement and to have the Registration Statement
declared effective by the SEC. The Parent, Merger Sub, and the Company shall
also take any reasonable action required to be taken under the state "blue sky"
laws or other securities laws in connection with the Merger.
(d) Subject to the provisions of this Article VI, Parent and the Company
shall use their best efforts to hold such meetings on the same day and as soon
as practicable after the date hereof and shall not postpone or adjourn (other
than for the absence of a quorum) their respective stockholders' meetings
without the consent of the other party. Subject to Sections 6.2, 6.4(a) and
6.4(b), each party shall use all reasonable efforts to solicit from stockholders
of such party proxies in favor of such matters.
Section 6.5 AFFILIATE AGREEMENTS. Prior to the execution of this
Agreement, the Company and Parent have provided each other with a list of those
persons who are, in the Company's and Parent's respective reasonable judgment,
"affiliates" of the Company or Parent, respectively, within the meaning of Rule
145 promulgated under the Securities Act ("Rule 145") (each such person who is
an "affiliate" of the Company or Parent within the meaning of Rule 145 is
referred to as an "Affiliate"). The Company and Parent shall provide each other
with such information and documents as Parent or the Company shall reasonably
request for purposes of reviewing such list and shall notify the other party in
writing regarding
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any change in the identity of its Affiliates prior to the Closing Date. The
Company and Parent have delivered to the other, or shall each cause to be
delivered to the other at least thirty (30) days prior to the Effective Time,
from each of its Affiliates, an executed Affiliate Agreement, in form attached
hereto as EXHIBIT "D", in the case of Affiliates of the Company, and in the form
attached hereto as EXHIBIT "E", in the case of Affiliates of Parent (each, an
"Affiliate Agreement"). Parent shall be entitled to place appropriate legends on
the certificates evidencing any Parent Common Stock to be received by such
Affiliates of the Company pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Parent
Common Stock, consistent with the terms of the Affiliate Agreements (provided
that such legends or stop transfer instructions shall be removed, two years
after the Effective Date, upon the request of any stockholder that is not then
an Affiliate of Parent.
Section 6.6 REASONABLE BEST EFFORTS.
(a) Subject to the terms and conditions herein provided and applicable legal
requirements, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, and to assist and cooperate with the other parties hereto in doing, as
promptly as practicable, all things necessary, proper or advisable under
applicable laws and regulations to ensure that the conditions set forth in
Article VII are satisfied and to consummate and make effective the transactions
contemplated by this Agreement; provided, however, that the Company shall not,
without Parent's prior written consent, and Parent shall not be required to,
divest or hold separate or otherwise take or commit to take any other similar
action with respect to any assets, businesses or product lines of Parent, the
Company or any of their respective Subsidiaries or otherwise take action that
could reasonably be expected to have a Company Material Adverse Effect, a Parent
Material Adverse Effect or an effect to Parent combined with the Surviving
Corporation comparable to either a Parent Material Adverse Effect or Company
Material Adverse Effect.
(b) Subject to Section 6.6(a) hereof, each of the parties shall use its
reasonable best efforts to obtain as promptly as practicable all consents,
waivers, approvals, authorizations or permits of, or registration or filing with
or notification to (any of the foregoing being a "Consent"), of any Governmental
Entity or any other person required in connection with, and waivers of any
violations, defaults or breaches that may be caused by, the consummation of the
transactions contemplated by this Agreement.
(c) Each party hereto shall promptly inform the other of any material
communication from the SEC, the United States Federal Trade Commission, the
United States Department of Justice or any other Governmental Entity regarding
any of the transactions contemplated by this Agreement. If any party hereto or
any affiliate thereof receives a request for additional information or
documentary material from any such Governmental Entity with respect to the
transactions contemplated by this Agreement, then such party shall use
commercially reasonable efforts to cause to be made, as soon as reasonably
practicable and after consultation with the other party, an appropriate response
in compliance with such request.
(d) Without limiting the generality of the foregoing and subject to the
proviso to Section 6.6(a) hereof, Parent and the Company will use their
respective reasonable best efforts to obtain all authorizations or waivers
required under the HSR Act to consummate the transactions contemplated hereby,
including, without limitation, making all filings with the Antitrust Division of
the Department of Justice ("DOJ") and the Federal Trade Commission ("FTC")
required in connection therewith (the initial filing to occur no later than ten
business days following the execution and delivery of this Agreement) and
responding as promptly as practicable to all inquiries received from the DOJ or
FTC for additional information or documentation. Each of Parent and the Company
shall furnish to the other such necessary information and reasonable assistance
as the other may request in connection with its preparation of any filing or
submission which is necessary under the HSR Act. Parent and the Company shall
keep each other apprised of the status of any communications with, and any
inquiries or requests for additional information from, the FTC and the DOJ.
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(e) The parties hereto intend the Merger to qualify as a reorganization
under Section 368(a) of the Code. Each of the parties hereto shall, and shall
cause its respective Subsidiaries to, and shall use its reasonable best efforts
to cause its respective affiliates to, use its and their respective reasonable
best efforts to cause the Merger to so qualify. No party hereto shall take any
action prior to or after the Effective Time that would cause the Merger not to
qualify under these Sections of the Code (and each party shall use their
reasonable best efforts to ensure that their respective affiliates not take any
such action), and the parties hereto shall report and take the position for all
purposes that the Merger qualifies as a reorganization under such Sections of
the Code.
Section 6.7 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press releases with respect to the
transactions by this Agreement and shall not issue any such press release prior
to such consultation and without the approval of the other (which approval shall
not unreasonably be withheld), except as may be required by applicable law or
obligations pursuant to any listing agreement with any national securities
exchange. The parties shall cooperate to the extent practicable with respect to
other public statements (including employee announcements) made in connection
with the transactions contemplated herein, including the timing and contents
thereof.
Section 6.8 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) Parent and the Company agree that all rights to indemnification now
existing in favor of any employee, agent, director or officer of the Company and
its Subsidiaries (the "Indemnified Parties"), as provided in their respective
Certificate of Incorporation or By-Laws or other agreements existing as of the
date hereof and listed in SECTION 3.13 of the Company Disclosure Schedule, shall
survive the Merger and shall continue in full force and effect for a period of
six (6) years after the Effective Time; provided that in the event any claim or
claims are asserted or made within such six (6) year period, all rights to
indemnification in respect of any such claim shall continue until final
disposition of such claim.
(b) The Company shall obtain continuation coverage under the Company's
existing Directors and Officers and Company Liability Insurance Policy to
provide coverage with respect to any claims made during the six (6) years period
following the Effective Time for events occurring prior to the Effective Time
(the "D&O Insurance") or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; provided, however, that the one time
premium for the D&O Insurance shall not exceed 150% of the annual premiums
currently paid by the Company for such coverage, but if such premium would but
for this proviso exceed such amount, the Company may purchase as much coverage
as possible for such amount.
(c) In the event the Parent or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger, or (ii) transfers or conveys all or substantially
all of its properties and assets to any person, then, and in each such case, to
the extent necessary to effectuate the purposes of this Section 6.8, Parent
shall cause proper provision to be made so that the successors and assigns of
the Surviving Corporation and/or Parent, as the case may be, assume the
obligations set forth in this Section 6.8 and none of the actions described in
clauses (i) or (ii) shall be taken until such provision is made.
(d) The provisions of this Section 6.8 are intended to be for the benefit
of, and shall be enforceable by, each such Indemnified Party, and such
Indemnified Party's heirs and personal representatives and shall be binding on
all successors and assigns of the Surviving Corporation and Parent.
Section 6.9 EXPENSES. Except as otherwise set forth in Sections 8.2(b),
(c) and (d), the Company and Parent shall share equally all fees and expenses,
other than attorneys' fees, incurred in connection with the printing, filing and
mailing of the Joint Proxy Statement and Registration Statement (including
financial statements and exhibits) and any amendments or supplements, and each
party hereto shall
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otherwise bear its own costs and expenses in connection with this Agreement and
the transactions contemplated hereby.
Section 6.10 LISTING APPLICATION. Parent shall use its reasonable best
efforts to cause the shares of Parent Common Stock to be issued pursuant to this
Agreement in the Merger to be listed for trading on the New York Stock Exchange
or on any securities exchange on which shares of Parent Common Stock shall be
listed at the Effective Time so that appraisal rights are not available to
stockholders of the Company under Section 262 of the DGCL.
Section 6.11 [THIS SECTION HAS BEEN INTENTIONALLY LEFT BLANK.]
Section 6.12 POOLING OF INTERESTS. Each of the Company and Parent will use
best efforts to cause the transactions contemplated by this Agreement, including
the Merger, to be accounted for as a pooling of interests under Opinion 16 of
the Accounting Principles Board and applicable SEC rules and regulations, and
such accounting treatment to be accepted by each of the Company's and Parent's
independent public accountants, and by the SEC, respectively, and each of the
Company and Parent agrees that it will not voluntarily take any action that
would cause such accounting treatment not to be obtained. Each of the Company
and Parent shall use their best efforts to cause its respective affiliates not
to take any action that would adversely affect Parent's ability to account for
the Merger as a pooling of interests.
Section 6.13 PARENT BOARD OF DIRECTORS. At or immediately following the
Effective Time, Parent shall take such action as may be necessary to cause (i)
two persons designated by the Company prior to Closing and reasonably acceptable
to Parent, which persons shall, unless Parent agrees otherwise, be two of the
Company's current outside directors, together with William Tauscher, to be
elected to Parent's Board of Directors, and (ii) one person designated by
Warburg, Pincus Capital Company, L.P. prior to Closing and reasonably acceptable
to Parent to be elected to Parent's Board of Directors.
Section 6.14 LETTER OF THE COMPANY'S ACCOUNTANTS. The Company shall use
all reasonable efforts to cause to be delivered to Parent and the Company a
letter from Ernst & Young, LLP, the Company's independent auditors, dated a date
within two (2) business days before the date on which the Registration Statement
shall become effective and addressed to Parent, in form reasonably satisfactory
to Parent and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
Section 6.15 LETTER OF PARENT'S ACCOUNTANTS. Parent shall use all
reasonable efforts to cause to be delivered to Parent and the Company a letter
of KPMG Peat Marwick, LLP, Parent's independent auditors, dated a date within
two (2) business days before the date on which the Registration Statement shall
become effective and addressed to Purchaser, in form reasonably satisfactory to
Purchaser and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
Section 6.16 TREATMENT OF TRUST CONVERTIBLE PREFERRED SECURITIES AND
CONVERTIBLE DEBENTURES. Prior to or concurrently with the Closing, Parent and
the Company shall take such steps as are necessary to ensure the resignation of
the as regular Trustee of Vanstar Financing Trust and the substitution therefor
of a person as regular trustee reasonably satisfactory to Parent. In addition,
Parent and the Company shall take such actions as may be necessary to ensure
compliance by the Parent and the Company with the Indenture dated as of October
2, 1996 (the "Indenture") (including without limitation, Section 1304 thereof),
relating to $207,474,200 of 6 3/4% Convertible Subordinated Debentures due 2016
(the "Convertible Debentures"), and, without limitation thereof, shall take such
steps as are necessary to ensure that holders of the Convertible Debentures
shall, after the Effective Time of the Merger, have the right to convert such
securities into (or exchange such securities for) shares of Parent Common Stock
on the terms and conditions set forth in the Indenture.
Section 6.17 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent and Merger Sub, and Parent and Merger Sub shall give
prompt notice to the Company of (i) the occurrence or
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nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Effective time,
(ii) any material failure of the Company, Parent or Merger Sub, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, (iii) any notice of, or other
communication relating to a default or event which, with notice or lapse of time
or both, would become a default, receive by it or any of its Subsidiaries
subsequent to the date of this Agreement and prior to the Effective time, under
any contract or agreement material to the financial condition, properties,
businesses or results of operations of it and its Subsidiaries taken as a whole
or which it or any of its Subsidiaries is a party or is subject, and (iv) the
occurrence of any Company Material Adverse Effect or Parent Material Adverse
Effect, provided, however, that the delivery of any notice pursuant to this
Section 6.17 shall not cure such breach or noncompliance or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 6.18 TAX-FREE REORGANIZATION TREATMENT. The Company, Parent and
Merger Sub shall execute and deliver to Arter & Hadden LLP, counsel to the
Company, and McGrath, North, Mullin & Kratz, P.C., counsel to Parent,
certificates containing customary representations substantially in the form
agreed to by the parties on or prior to the date hereof (with such changes as
may be reasonably requested by such law firms) at such time or times as may be
reasonably requested by such law firms in connection with their respective
deliveries of opinions, pursuant to Sections 7.2(e) and 7.3(c) hereof, with
respect to the tax-free reorganization treatment of the Merger. Prior to the
Effective time, none of the Company, Parent or Merger Sub shall take or cause to
be taken any action which would cause to be untrue (or fail to take or cause not
to be taken any action which would cause to be untrue) any of the
representations in such previously agreed upon certificates.
Section 6.19 COMPANY EMPLOYEE BENEFITS. For one (1) year following the
Effective Time, the employees of the Company who remain employees of the Company
shall continue to receive employee benefits substantially comparable in the
aggregate to those provided for under Company Employee Plans provided by the
Company on the date prior to the Effective Time provided, however, Parent may,
at its option, terminate the Company's Employee Stock Purchase Plans, provided,
however, (i) until such plan is terminated, Parent shall cause to be performed
all of the Company's obligations under such plan, and (ii) such termination
shall not affect, and Parent shall cause to be performed, the Company's
obligations existing under such plan at the time of such termination. The
provisions of this Section 6.19 are intended to be for the benefit of, and shall
be enforceable by, the employees of the Company and shall be binding upon all
successors and assigns of the Surviving Corporation and Parent.
Section 6.20 SCHEDULES. From time to time prior to the Closing Date, each
of the Company and Parent will promptly supplement or amend the Company or
Parent Disclosure Schedules, as the case may be, with respect to any matter
hereafter arising that, if existing or occurring at or prior to the date of this
Agreement, would have been required to be set forth or described in the Company
or Parent Disclosure Schedules, as the case may be, or that is necessary to
correct any information in the Company or Parent Disclosure Schedules, as the
case may be, or in any representation and warranty of each of the Company and
Parent that has been rendered inaccurate thereby. For purposes of determining
the accuracy of the respective representations and warranties contained in
Articles III and IV, and in order to determine the fulfillment of the conditions
set forth in Article VII, the Company or Parent Disclosure Schedules, as the
case may be, shall be deemed to include only that information contained therein
on the date of this Agreement and shall be deemed to exclude any information
contained in any subsequent supplement or amendment thereto unless such changes
reflect actions taken in compliance with the provisions of Articles V and VI
hereof.
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ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Closing Date of the
following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the transactions contemplated
hereby shall have been approved and adopted by the requisite vote (as described
in Section 3.5(b)) of the Company's shareholders in accordance with Applicable
Law, and the Certificate Amendment, Option Amendment and the issuance of Parent
Common Stock pursuant to the Merger shall have been approved by the requisite
vote of Parent shareholders in accordance with Applicable Law and applicable
rules of the New York Stock Exchange.
(b) GOVERNMENTAL APPROVALS. All authorizations, consents, orders,
declarations or approvals of, or filings with, or terminations or expirations of
waiting periods imposed by, any Governmental Entity, which the failure to
obtain, make or occur would have the effect of making the Merger or any of the
transactions contemplated hereby illegal or would have a Material Adverse Effect
on Parent or the Company (as the Surviving Corporation) or would materially
impair the operations of the Surviving Corporation, assuming the Merger had
taken place, shall have been obtained, shall have been made or shall have
occurred.
(c) HSR ACT. The waiting period under the HSR Act shall have expired or been
terminated.
(d) REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect and no proceedings for that purpose shall
have been initiated and continuing by the SEC, and no similar proceedings in
respect of the Joint Proxy Statement shall have been initiated and continuing by
the SEC.
(e) NO INJUNCTION. No Governmental Entity having jurisdiction over the
Company or Parent, or any of their respective Subsidiaries, shall have enacted,
issued, promulgated, enforced or entered any law, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) (collectively, the "Restraints") which is then in effect and has the
effect of making the Merger or the Stock Voting Agreement illegal or otherwise
prohibiting consummation of the Merger; provided, however, that each of the
parties hereto shall have used their respective reasonable efforts to prevent
the entry of any such Restraints and to appeal as promptly as possible any such
Restraints that may be entered.
(f) NYSE. The Parent Company Stock to be issued in connection with the
Merger shall have been approved for listing on the NYSE, subject to official
notice of issuance.
(g) ACCOUNTANT'S LETTERS. Each of the Company and the Parent shall have
received from the other's independent public accountants, a letter dated the
Closing Date in form and substance reasonably acceptable to the receiving party
with statements and information of the type ordinarily included in accountant's
letter with respect to unaudited financial quarterly information for fiscal
quarters and subsequent periods ended following its last fiscal year end.
(h) POOLING LETTERS. The Company shall have received a letter from Ernst &
Young, LLP, addressed to the Company, and Parent shall have received a letter
from KPMG Peat Marwick, LLP, addressed to Parent, each regarding its concurrence
with management's conclusions, as to the appropriateness of the pooling of
interests accounting, under Accounting Principles Board Opinion No. 16 for the
Merger, if closed and consummated in accordance with this Agreement, it being
agreed that the Company and Parent shall each provide reasonable cooperation to
Ernst & Young, LLP and KPMG Peat Marwick, LLP and to enable them to issue such
letters.
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Section 7.2 CONDITIONS TO OBLIGATION OF PARENT AND MERGER SUB TO EFFECT THE
MERGER. The obligation of Parent and Merger Sub to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
additional conditions, unless waived in writing by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company that are qualified with reference to materiality shall be true and
correct, and the representations and warranties that are not so qualified shall
be true and correct in all material respects, in each case as of the date
hereof, and, except to the extent such representations and warranties speak as
of an earlier date, as of the Effective Time as though made at and as of the
Effective Time, and Parent shall have received a certificate signed on behalf of
the Company by the Chief Executive Officer and the Chief Financial Officer of
the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and Parent shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to such effect.
(c) COMPANY AFFILIATE AGREEMENTS. Parent shall have received an Affiliate
Agreement from Affiliates of the Company in accordance with Section 6.5 of this
Agreement and each such Affiliate Agreement shall remain valid and in force and
effect.
(d) CONSENTS UNDER AGREEMENTS. The Company shall have obtained the consent
or approval of each person (other than the Governmental Entities referred to in
Section 7.1(b)) whose consent or approval shall be required in connection with
the transactions contemplated hereby under any indenture, mortgage, evidence of
indebtedness, lease or other agreement or instrument, except where the failure
to obtain the same would not reasonably be expected, individually or in the
aggregate, to have a Parent Material Adverse Effect or Company Material Adverse
Effect (as the Surviving Corporation).
(e) TAX OPINION. Parent shall have received an opinion of McGrath, North,
Mullin & Kratz, P.C. to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code, and such
opinion shall not have been withdrawn.
Section 7.3 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
conditions, unless waived in writing by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Parent and Merger Sub that are qualified with reference to materiality shall be
true and correct, and the representations and warranties that are not so
qualified shall be true and correct in all material respects, in each case as of
the date hereof, and, except to the extent such representations and warranties
speak as of an earlier date, as of the Effective Time as though made on and as
of the Effective Time, and the Company shall have received a certificate signed
on behalf of Parent by the Chief Executive Officer and Chief Financial Officer
of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUB. Each of Parent and
Merger Sub shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Effective
Time, and the Company shall have received a certificate signed on behalf of
Parent by the Chief Executive Officer and the Chief Financial Officer of Parent
to such effect.
(c) TAX OPINION. The Company shall have received an opinion of Arter &
Hadden, L.L.P., counsel to the Company, to the effect that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Code,
and such opinion shall not have been withdrawn.
(e) PARENT AFFILIATE AGREEMENTS. The Company shall have received an
Affiliate Agreement from Affiliates of Parent in accordance with Section 6.5 of
this Agreement and each such Agreement shall remain valid and in force and
effect.
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(f) CONSENTS UNDER AGREEMENTS. Parent shall have obtained the consent or
approval of each person (other than the Governmental Entities referred to in
Section 7.1(b)) whose consent or approval shall be required in connection with
the transactions contemplated hereby under any indenture, mortgage, evidence of
indebtedness, lease or other agreement or instrument, except where the failure
to obtain the same would not reasonably be expected, individually or in the
aggregate, to have a Parent Material Adverse Effect or Company Material Adverse
Effect (as the Surviving Corporation).
ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION. This Agreement may be terminated, and the Merger
and the other transactions contemplated hereby may be abandoned, at any time
prior to the Effective Time, whether before or after approval by the
shareholders of the Company or Parent:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company, if (i) the Merger shall not have been
consummated on or before March 31, 1999, provided that the right to terminate
this Agreement under this Section 8.1(b)(i) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date,
(ii) the shareholders of the Company do not approve this Agreement by the
requisite vote at a meeting duly convened therefor or any adjournment thereof or
(iii) the shareholders of Parent do not approve the Certificate Amendment,
Option Amendment and the issuance of Company Common Stock pursuant to the Merger
by the requisite vote at a meeting duly convened therefor or any adjournment
thereof;
(c) by either Parent or the Company, if any permanent injunction, order,
decree or ruling by any Governmental Entity of competent jurisdiction preventing
the consummation of the Merger shall have become final and nonappealable;
provided, however, subject to the proviso to Section 6.6(a) hereof, that the
party seeking to terminate this Agreement pursuant to this Section 8.1(c) shall
have used reasonable best efforts to remove such injunction or overturn such
action;
(d) by Parent, if (i) there has been a material breach of the
representations or warranties, covenants or agreements of the Company set forth
in this Agreement, which breach is not curable or, if curable, is not cured
within thirty (30) days after written notice of such breach is given by Parent
to the Company, or (ii) the Board of Directors of the Company (x) fails to
convene a meeting of the Company's shareholders to adopt this Agreement on or
before March 15, 1999 (the "Meeting Date"), or postpones the date scheduled for
the meeting of the shareholders of the Company to adopt this Agreement beyond
the Meeting Date, except with the written consent of Parent, (y) fails to
recommend the adoption of this Agreement and approval of the Merger to the
Company's shareholders in accordance with Section 6.4(b) hereof, or (z)
withdraws or amends or modifies in a manner adverse to Parent its recommendation
or approval in respect of this Agreement or the Merger or fails to reconfirm
such recommendation within two business days of a written request for such
confirmation by Parent;
(e) by the Company if the Board of Directors of the Company shall reasonably
determine that a proposal for an Acquisition Transaction constitutes a Superior
Proposal; provided, however, that the Company may not terminate this Agreement
pursuant to this subSection (e) unless (i) three business days shall have
elapsed after delivery to Parent of a written notice of such determination by
such Board of Directors and, during such three day period, the Company shall
have informed Parent of the terms and conditions of such proposal for an
Acquisition Transaction and the identity of the person or group making such
proposal for an Acquisition Transaction, and (ii) at the end of such three day
period, the Board of Directors of the Company believes that such proposal for
Superior Proposal is superior to the transaction contemplated under this
Agreement; and
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(f) by the Company, if (i) there has been a material breach of the
representations or warranties, covenants or agreements of Parent or Merger Sub
set forth in this Agreement, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by the Company
to Parent, or (ii) the Board of Directors of Parent (x) fails to convene a
meeting of the Parent's shareholders to approve the Certificate Amendment, the
Option Amendment and the issuance of Parent Common Stock pursuant to the Merger
on or before the Meeting Date, or postpones the date schedule for the meeting of
the shareholders of the Parent to approve such matters beyond the Meeting Date,
except with the written consent of the Company, (y) fails to recommend the
approval of the Certificate Amendment, Option Amendment and issuance of Company
Common Stock pursuant to the Merger in accordance with Section 6.4(a) hereof, or
(z) withdraws or amends or modifies in a manner adverse to the Company such
recommendation or fails to reconfirm such recommendation within two (2) business
days of a written request for such confirmation by the Company.
Section 8.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement pursuant to this Article
VIII, the Merger shall be deemed abandoned and this Agreement shall forthwith
become void, and there shall be no liability or obligations on the part of
Parent, Merger Sub, the Company or their respective officers, directors or
Affiliates except that the provisions of the last sentence of Section 6.1,
Section 6.7, Section 6.9 and this Section 8.2 shall survive any termination of
this Agreement; provided, that any such termination and any payment pursuant to
this Section 8.2 shall not limit liability for any willful breach of this
Agreement; and provided further, that the Confidentiality Agreement shall remain
in full force and effect and survive any termination of this Agreement.
(b) Parent shall pay the Company a termination fee of $12,000,000 upon the
termination of this Agreement by the Company or Parent pursuant to Section
8.1(b)(iii); provided that, as set forth in Section 8.2(g) below, such fee shall
be increased to $18,000,000 under the circumstances as set forth in Section
8.2(g) below.
(c) Parent shall pay the Company a termination fee of $18,000,000 upon the
termination of this Agreement by the Company pursuant to Section 8.1(f)(ii).
(d) The Company shall pay Parent a termination fee of $12,000,000 upon the
termination of this Agreement by the Company or Parent pursuant to Section
8.1(b)(ii); provided that, as set forth in Section 8.2(f)(ii) below, such fee
shall be increased to $18,000,000 under the circumstances set forth in Section
8.2(f)(ii) below.
(e) The Company shall pay Parent a termination fee of $18,000,000 upon the
termination of this Agreement by Parent pursuant to Section 8.1(d)(ii).
(f) The Company shall pay Parent a termination fee of $18,000,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by the Company pursuant to Section
8.1(e); or
(ii) the termination of this Agreement by Parent or the Company pursuant
to Section 8.1(b)(ii), and, in such event, either before such termination or
within twelve (12) months after the date of such termination the Company (i)
consummates an Acquisition Transaction, or (ii) enters into an agreement
with respect to an Acquisition Transaction, or a tender offer or similar
transaction with respect thereto is commenced, that is subsequently
consummated.
(g) The Parent shall pay the Company a termination fee of $18,000,000 upon
termination of this Agreement by the Company or Parent pursuant to Section
8.1(b)(iii) and, in such event, either before such termination or within twelve
(12) months after the date of such termination Parent (i) consummates an
Acquisition Transaction, or (ii) enters into an agreement with respect to an
Acquisition Transaction, or a tender offer or similar transaction with respect
thereto is commenced, that is subsequently consummated.
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(h) If the Company shall have terminated this Agreement pursuant to Section
8.1(f)(i), or if Parent shall have termination this Agreement pursuant to
Section 8.1(d)(i), the non-terminating party shall reimburse the terminating
party, the actual expenses incurred by the terminating party in connection with
the transaction contemplated by this Agreement (including, without limitation,
attorneys' fees, accountants' fees and fees of financial advisors) in an amount
up to $7,000,000.
(i) If a party has paid to the other party the amount required to be paid
under any of Sections 8.2(b), 8.2(c), 8.2(d), 8.2(e), 8.2(f), 8.2(g) or 8.2(h),
such paying party shall not be required to make any payment required under any
of such other Sections, other than to the extent a $12,000,000 payment made
pursuant to Section 8.2(b) or 8.2(d) is increased to $18,000,000 pursuant to
Section 8.2(g) and 8.2(f)(ii), respectively. If an event occurs that would
require a party to make payments under more than one of Sections 8.2(b), 8.2(c),
8.2(d), 8.2(e), 8.2(f), 8.2(g) and 8.2(h), only the Section requiring the higher
payment shall apply.
(j) In no event shall either party (the "Paying Party") be required to make
a payment pursuant to Sections 8.2(b), 8.2(c), 8.2(d), 8.2(e), 8.2(f) or 8.2(g)
to the extent that such payment, together with Net Proceeds (as defined in the
Option Agreement) received by the other party, and together with payments made
by the Paying Party (other than payments of the Exercise Price, as defined in
the Option Agreement) pursuant to Sections 7(a)(i)(y), 7(a)(ii), 7(b)(ii), 8(c)
and/or 9(c) of the Option Agreement, exceeds $18,000,000.
(k) The expenses and fees, if applicable, payable pursuant to Section
8.2(b), 8.2(c), 8.2(d), 8.2(e), 8.2(f) and 8.2(g) shall be paid within two (2)
business days after the first to occur of the events described in Section
8.2(b), 8.2(c), 8.2(d), 8.2(e), 8.2(f)(i), 8.2(f)(ii) or 8.2(g); provided that
in no event shall the Company or Parent, as the case may be, be required to pay
the expenses and fees, if applicable, to the other, if, immediately prior to the
termination of this Agreement, the party to receive the expenses and fees, if
applicable, was in material breach of its obligations under this Agreement.
(l) The parties hereto acknowledge that the agreements contained in this
Section 8.2 are an integral part of the transactions contemplated in this
Agreement, and that, without these agreements, the Parent and the Company would
not enter into this Agreement; accordingly, if the Parent or the Company, as the
case may be, fails promptly to pay the amount due pursuant to this Section 8.2,
and, in order to obtain such payment, the other party commences a suit which
results in a judgment for the fee and expenses set forth in this Section 8.2,
the party required to pay the fee shall pay to the other party its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest on such amount of the fee and expenses at the base rate publicly
announced by Citibank, N.A., on the date such payment was required to be made.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 AMENDMENT AND MODIFICATION. At any time prior to the Effective
Time, this Agreement may be amended, modified or supplemented only by written
agreement (referring specifically to this Agreement) of Parent, Merger Sub and
the Company with respect to any of the terms contained herein; provided,
however, that after any approval and adoption of this Agreement by the
shareholders of the Company, no such amendment, modification or supplementation
shall be made which under Applicable Law requires the approval of such
shareholders, without the further approval of such shareholders.
Section 9.2 WAIVER. At any time prior to the Effective Time, Parent, on
the one hand, and the Company, on the other hand, may (i) extend the time for
the performance of any of the obligations or other acts of the other, (ii) waive
any inaccuracies in the representations and warranties of the other contained
herein or in any documents delivered pursuant hereto and (iii) subject to the
provisions of Section 9.1, waive compliance by the other with any of the
agreements or conditions contained herein which may legally be waived. Any such
extension or waiver shall be valid only if set forth in an instrument
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<PAGE>
in writing specifically referring to this Agreement and signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
Section 9.3 SURVIVABILITY; INVESTIGATIONS. The respective representations
and warranties of Parent and Merger Sub, on the one hand, and the Company, on
the other hand, contained herein or in any certificates or other documents
delivered prior to or as of the Effective Time (i) shall not be deemed waived or
otherwise affected by any investigation made by any party hereto and (ii) shall
not survive beyond the Effective Time. The covenants and agreements of the
parties hereto (including the Surviving Corporation after the Merger) shall
survive the Effective Time, without limitation (except for those which, by their
terms, contemplate a shorter survival period).
Section 9.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof). Any such notice shall be effective upon receipt, if
personally delivered or telecopied, or one day after delivery to a courier for
next-day delivery.
IF TO PARENT OR MERGER SUB TO:
InaCom Corp.
10810 Farnam Drive
Omaha, NE 68102
Attention: Bill L. Fairfield
Telecopier: 402-758-3602
WITH A COPY TO:
McGrath, North, Mullin & Kratz, P.C.
One Central Park Plaza, Suite 1400
222 South Fifteenth Street
Attention: David L. Hefflinger
Telecopier: 402-341-0216
IF TO THE COMPANY,:
Vanstar Corporation
1100 Abernathy Road
Building 500, Suite 1200
Atlanta, GA 30328
Attention: General Counsel
Telecopier: 770-522-4587
WITH A COPY TO:
Arter & Hadden, LLP
1717 Main Street
Suite 4100
Dallas, TX 75201
Attention: Mr. Stan Huller
Telecopier: 214-741-7139
Section 9.5 DESCRIPTIVE HEADINGS; INTERPRETATION. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. References in this
Agreement to Sections, Exhibits or Articles mean a Section, Exhibit or
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<PAGE>
Article of this Agreement unless otherwise indicated. References to this
Agreement shall be deemed to include the Exhibits hereto, the Company Disclosure
Schedule and the Parent Disclosure Schedule, unless the context otherwise
requires. The term "person" shall mean and include an individual, a partnership,
a limited liability company, a joint venture, a corporation, a trust, a
Governmental Entity or an unincorporated organization.
Section 9.6 ENTIRE AGREEMENT. This Agreement (including the Exhibits, the
Company Disclosure Schedule, the Parent Disclosure Schedule and the
Confidentiality Agreement between the parties) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them, with respect to the subject matter
hereof and except for Article II and Sections 2.6, 6.8, 6.19 and 9.10, are not
intended to confer upon any person other than the parties hereto any rights or
remedies.
Section 9.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to the provisions thereof relating to conflicts of law.
Section 9.8 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal or state court sitting in the
State of Delaware.
Section 9.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.
Section 9.10 ASSIGNMENT. This Agreement and the rights, interests and
obligations hereunder shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns; provided, however, that no party hereto may assign or otherwise
transfer its rights, interests or obligations hereunder without the prior
written consent of the other parties hereto.
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IN WITNESS WHEREFORE, Parent, Merger Sub and the Company have caused this
Agreement and Plan of Merger to be executed on its behalf by their respective
officers thereunto duly authorized, all as of the date first above written.
<TABLE>
<S> <C> <C> <C>
INACOM CORP. VANSTAR CORPORATION
By: /s/ BILL L. FAIRFIELD By: /s/ WILLIAM Y. TAUSCHER
---------------------------------------- ----------------------------------------
Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER Its: CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER
INACOM ACQUISITION, INC.
By: /s/ BILL L. FAIRFIELD
----------------------------------------
Its: PRESIDENT
</TABLE>
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<PAGE>
ANNEX B
OPINION OF J.P. MORGAN SECURITIES INC.
<PAGE>
[LOGO]
October 8, 1998
The Board of Directors
[LOGO]
InaCom Corp.
10810 Farnam, Suite 200
Omaha, Nebraska 68154
Attention: Bill Fairfield
President, Chief Executive Officer and Director
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to InaCom Corp. (the "Company") of the consideration
proposed to be paid by the Company in connection with the proposed merger
(the "Merger") of InaCom Acquisition, Inc., a wholly-owned subsidiary of
the Company ("Merger Sub"), into Vanstar Corporation (the "Seller").
Pursuant to the Agreement and Plan of Merger, dated as of October 8, 1998
(the "Agreement"), by and among the Company, Merger Sub and the Seller,
Merger Sub shall be merged with and into the Seller and each share of
Common Stock, par value $0.001 per share (the "Shares"), of the Seller
issued and outstanding immediately prior to the effective time of the
Merger (other than Shares to be cancelled pursuant to the Agreement)
shall be converted into the right to receive 0.64 shares of Common Stock,
par value $0.10 per share, of the Company (the "Company Stock").
In arriving at out opinion, we have reviewed (i) the Agreement; (ii)
certain publicly available information concerning the business of the
Seller and of certain other companies engaged in businesses comparable to
those of the Seller, and the reported market prices for certain other
companies' securities deemed comparable; (iii) publicly available terms
of certain transactions involving companies comparable to the Seller and
the consideration received for such companies; (iv) current and
historical market prices of the common stock of the Seller and the
Company; (v) the audited financial statements of the Company for the
fiscal year ended December 27, 1998, the audited financial statements of
the Seller for the fiscal year ended April 30, 1998, the unaudited
financial statements of the Company for the period ended June 27, 1998;
and the unaudited financial statements of the Seller for the period ended
July 31, 1998; (vi) certain agreements with respect to outstanding
indebtedness or obligations of the Company and the Seller; (vii) certain
internal financial analyses and forecasts prepared by the Company and the
Seller and their respective managements; and (viii) the terms of other
business combinations that we deemed relevant.
In addition, we have held discussions with certain members of the
management of the Company and the Seller with respect to certain aspects
of the Merger, the past and current business operations of the Company
and the Seller, the financial condition and future prospects and
operations of the Company and the Seller, the effects of the Merger on
the financial condition and future prospects of the Company and the
Seller, and certain other matters we believed necessary or appropriate to
our inquiry. We have visited certain representative facilities of the
Company and the Seller, and reviewed such other financial studies and
analyses and considered such other information as we deemed appropriate
for the purposes of this opinion.
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<PAGE>
[LOGO]
In giving out opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Seller or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company and the
Seller to which such analyses or forecasts relate. We have also assumed that the
Merger will have the tax consequences described in discussions with, and
materials furnished to us by, representatives of the Company, and that the other
transactions contemplated by the Agreement will be consummated as described in
the Agreement. We have relied as to all legal matters relevant to rendering our
opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the price at which the Company Stock
will trade at any future time.
We have acted as financial advisor to the Company with respect to the
proposed Merger and will receive a fee from the Company for our services. We
will also receive an additional fee if the proposed Merger is consummated. As
you are aware, we or our affiliates have provided financial advisory, capital
markets and lending services to the Company, and have executed a derivatives
transaction with the Company. In the ordinary course of their businesses, our
affiliates may actively trade the debt and equity securities of the Company or
the Seller for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be paid by the Company in the proposed
Merger is fair, from a financial point of view, to the Company.
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Merger. This
opinion does not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote with respect to the Merger.
<TABLE>
<S> <C> <C>
Very truly yours,
J.P. MORGAN SECURITIES, INC.
By: /s/ TODD R. MARIN
-----------------------------------------
Name: Todd R. Marin
Title: Managing Director
</TABLE>
B-2
<PAGE>
ANNEX C
OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
<PAGE>
[LOGO]
[ADDRESS]
October 8, 1998
Board of Directors
Vanstar Corporation
1110 Abernathy Road
Building 500, Suite 1200
Atlanta, Georgia 30328
Dear Sirs:
You have asked us to advise you with respect to the fairness to the
stockholders of Vanstar Corporation (the "Company"), other than InaCom
Corporation ("Parent") and InaCom Acquisitions, Inc. ("Merger Sub"), from a
financial point of view of the Exchange Ratio (as defined below) to be received
by such stockholders pursuant to the terms of the Agreement and Plan of Merger,
dated as of October 8, 1998 (the "Merger Agreement"), among the Company, Parent
and Merger Sub. The Merger Agreement provides, among other things, for the
merger (the "Merger") of Merger Sub with and into the Company, pursuant to which
the Company will become a wholly owned subsidiary of Parent and each outstanding
share of common stock, par value $0.001 per share ("Company Common Stock"), of
the Company, other than such shares of Company Common Stock owned by the Company
as treasury shares or by Parent or Merger Sub, will be converted into the right
to receive 0.64 of a share of common stock, par value $0.10 per share ("Parent
Common Stock"), of Parent (the "Exchange Ratio").
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and Parent. We have
also reviewed certain other information, including internal financial
statements, financial forecasts and other financial and operating data, provided
to us by the Company and Parent and have met with the Company's and Parent's
managements to discuss the business and prospects of the Company and Parent. We
have also relied upon the views of the Company's and Parent's managements
concerning the business, operational and strategic benefits and implications of
the Merger, including financial forecasts provided to us by the Company and
Parent relating to the synergistic values and operating costs savings to be
achieved, as well as potential revenue loss and associated profit loss which may
be incurred, through the combination of operations of the Company and Parent.
We have also considered certain financial and stock market data of the
Company and Parent, and we compared that data with similar data for other
publicly held companies in businesses we deemed similar to those of the Company
and Parent, respectively. We have considered the financial terms, to the extent
publicly available, of certain other business combinations and other
transactions which have recently been effected. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's and Parent's managements as to the future financial performance of the
Company and Parent. Specifically, for purposes of this opinion, we have relied
upon, without independent verification, the assessment by the Company's
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and Parent's managements of the cost savings, synergies, and other strategic
benefits or issues expected to be derived or result from the Merger. In
addition, we have not made an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company or Parent, nor have we
been furnished with any such evaluations or appraisals. Our opinion is
necessarily based upon financial, economic, market and other conditions as they
exist and can be evaluated on the date hereof.
We have assumed that the Merger will be consummated in accordance with the
terms set forth in the Merger Agreement, including, among other things, that the
Merger will be accounted for as a "pooling of interests" business combination in
accordance with U.S. generally accepted accounting principles, and the Merger
will be treated as a tax-free reorganization pursuant to the Internal Revenue
Code of 1986, as amended.
We are not expressing any opinion as to what the value of the Parent Common
Stock actually will be when issued to the Company's stockholders pursuant to the
Merger or the prices at which such Parent Common Stock will trade subsequent to
Merger. In connection with our engagement, we approached third parties to
solicit indications of interest in a possible acquisition of the Company and
held preliminary discussions with certain of these parties prior to the date
hereof.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger.
In the ordinary course of our business, Credit Suisse First Boston and its
affiliates may actively trade the debt and equity securities of both the Company
and Parent for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Merger,
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed Merger, and is not to be quoted or
referred to, in whole or in part, in any registration statement, prospectus or
proxy statement, or in any other document used in connection with the offering
of sale of securities, nor shall this letter be used for any other purposes,
without Credit Suisse First Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the stockholders of the Company,
other than the Parent or Merger Sub, from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
<TABLE>
<S> <C>
By: /s/ ETHAN M. TOPPER
------------------------------------------
Ethan M. Topper
Managing Director
</TABLE>
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Article VII of the Restated Certificate of Incorporation of
InaCom, InaCom shall, to the extent required, and may, to the extent permitted,
by Section 102 and Section 145 of the Delaware General Corporation Law, as
amended from time to time, indemnify and reimburse all persons whom it may
indemnity and reimburse pursuant thereto. No InaCom director shall be liable to
InaCom or its stockholders for monetary damages for breach of fiduciary duty as
a director with respect to acts or omissions occurring on or after May 27, 1987;
provided, however, an InaCom director shall continue to be liable (i) for any
breach of a director's duty of loyalty to InaCom or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for paying a dividend or approving a stock
repurchase which would violate Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the director derived an improper
personal benefit.
The by-laws of InaCom provide for indemnification of, among other persons,
InaCom officers and directors against all expenses, liabilities or losses
reasonably incurred or suffered by the officer or director, including liability
arising under the Securities Act of 1933, to the extent legally permissible
under Section 145 of the Delaware General Corporation Law where any such person
was, is, or is threatened to be made a party to or is involved in any action,
suit or proceeding whether civil, criminal, administrative or investigative, by
reason of the fact such person was serving InaCom in such capacity. Generally,
under the Delaware General Corporation Law, indemnification will only be
available to an officer or director where the officer or director can establish
that (i) such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of InaCom and (ii) with respect to
any criminal action or proceeding, such person had no reasonable cause to
believe such person's conduct was unlawful. Under the Delaware General
Corporation Law, however, no indemnification shall be made in connection with a
derivative action in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the Delaware Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger among InaCom, InaCom Acquisition, Inc. and Vanstar dated as of October 8,
1998 (included as Annex A to the Joint Proxy Statement/Prospectus included in this Registration
Statement). Certain schedules and exhibits relating to the Agreement and Plan of Merger have been
omitted. InaCom will furnish supplementally to the Commission such schedules or exhibits upon request.
2.2 Voting Agreement between InaCom and Warburg dated as of October 8, 1998 incorporated by reference from
InaCom's Current Report on Form 8-K dated October 8, 1998.
2.3 Registration Rights Agreement between InaCom and Warburg dated as of October 8, 1998 incorporated by
reference from Amendment No. 1 to Schedule 13D dated October 8, 1998 filed by InaCom.
2.4 Form of Stock Voting Agreement dated October 8, 1998 entered into by the directors of InaCom
incorporated by reference from Schedule 13D dated October 8, 1998 filed by InaCom.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.5 Form of Stock Voting Agreements dated October 8, 1998 entered into by the directors of Vanstar
incorporated by reference from Schedule 13D dated October 8, 1998 filed by Vanstar.
2.6 Vanstar Stock Option Agreement between InaCom and Vanstar dated as of October 8, 1998 incorporated by
reference from InaCom's Current Report on Form 8-K dated October 8, 1998.
2.7 InaCom Stock Option Agreement between InaCom and Vanstar dated as of October 8, 1998 incorporated by
reference from InaCom's Current Report on Form 8-K dated October 8, 1998.
2.8 Separation, Consulting and Noncompetition Agreement dated October 8, 1998 between InaCom and William Y.
Tauscher.
3.1 InaCom's Restated Certificate of Incorporation, as amended, incorporated herein by reference to InaCom's
annual report on Form 10-K for the fiscal year ended December 27, 1997.
3.2 InaCom's By-Laws, as amended, incorporated herein by reference to InaCom's quarterly report on Form 10-Q
for the quarter ended September 28, 1996.
3.3 Vanstar's Restated Certificate of Incorporation, incorporated herein by reference to the registration
statement of Vanstar on Form S-1 (033-80297) dated March 8, 1996.
3.4 Vanstar's Amended and Restated By-laws, as amended, incorporated herein by reference to Vanstar's annual
report on Form 10-K for the fiscal year ended April 30, 1998.
4.1 Specimen of Common Stock Certificate of InaCom incorporated by reference from Exhibit 4.1 of InaCom's
registration statement on Form S-3 (333-11687).
5.1 Opinion of McGrath, North, Mullin & Kratz, P.C. regarding the legality of the securities to be issued.
8.1 Opinion of Arter & Hadden LLP regarding certain tax matters.
8.2 Opinion of McGrath, North, Mullin & Kratz, P.C. regarding certain tax matters.
23.1 Consents of McGrath, North, Mullin & Kratz, P.C. (included in Exhibits 5.1 and 8.1)
23.2 Consent of Arter & Hadden LLP (included in Exhibit 8.1)
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Ernst & Young LLP.
23.5 Consent of Credit Suisse First Boston.
23.6 Consent of J.P. Morgan.
24.1 Powers of Attorney.
99.1 Opinion of Credit Suisse First Boston (included as Annex C to the Joint Proxy Statement/ Prospectus
included in this Registration Statement).
99.2 Opinion of J.P. Morgan Securities Inc. (included in Annex B to the joint Proxy Statement/ Prospectus
included in this Registration Statement).
99.3 Form of InaCom Proxy.
99.4 Form of Vanstar Proxy.
(b) FINANCIAL STATEMENT SCHEDULES.
None.
(c) ITEM 4(B) INFORMATION.
The opinions of Credit Suisse First Boston and J.P. Morgan are included as Annex C and Annex B,
respectively, to the Joint Proxy Statement/Prospectus included in this Registration Statement.
</TABLE>
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<PAGE>
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended (the "Securities Act"), each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering
of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial BONA FIDE offering thereof.
(3) The registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(4) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial BONA FIDE
offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
registrant, or otherwise, the registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of
such issue.
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<PAGE>
(6) The registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4,
10(b), 11, or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(7) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
InaCom Corp, a Delaware corporation, has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on the 15th day of January, 1999.
<TABLE>
<S> <C> <C>
INACOM CORP.
By: /s/ BILL FAIRFIELD
------------------------------------------
Bill Fairfield
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 15th day of January, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
President (Principal
/s/ BILL FAIRFIELD Executive Officer),
- ------------------------------ Chief Executive Officer
Bill Fairfield and Director
Executive Vice President
/s/ DAVID GUENTHNER and Chief Financial
- ------------------------------ Officer (Principal
David Guenthner Financial and Accounting
Officer)
</TABLE>
<TABLE>
<S> <C>
Joseph Auerbach* Director
Mogens C. Bay* Director
James Q. Crowe* Director
W. Grant Gregory* Director
Joseph Inatome* Director
Rick Inatome* Director
Gary Schwendiman* Director
Linda Wilson* Director
</TABLE>
* Bill Fairfield, by signing his name hereto, signs the Registration Statement
on behalf of each of the persons indicated. A Power-of-Attorney authorizing
Bill Fairfield to sign this Registration Statement on behalf of each of the
indicated Directors of InaCom Corp is filed herewith as Exhibit 24.1.
<TABLE>
<S> <C> <C>
By: /s/ BILL FAIRFIELD
------------------------------------------
Bill Fairfield
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
INDEX OF EXHIBITS
(a) EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger among InaCom, InaCom Acquisition, Inc. and Vanstar dated as of October 8,
1998 (included as Annex A to the Joint Proxy Statement/Prospectus included in this Registration
Statement). Certain schedules and exhibits relating to the Agreement and Plan of Merger have been
omitted. InaCom will furnish supplementally to the Commission such schedules or exhibits upon request.
2.2 Voting Agreement between InaCom and Warburg dated as of October 8, 1998 incorporated by reference from
InaCom's Current Report on Form 8-K dated October 8, 1998.
2.3 Registration Rights Agreement between InaCom and Warburg dated as of October 8, 1998 incorporated by
reference from Amendment No. 1 to Schedule 13D dated October 8, 1998 filed by InaCom.
2.4 Form of Stock Voting Agreement dated October 8, 1998 entered into by the directors of InaCom
incorporated by reference from Schedule 13D dated October 8, 1998 filed by InaCom.
2.5 Form of Stock Voting Agreements dated October 8, 1998 entered into by the directors of Vanstar
incorporated by reference from Schedule 13D dated October 8, 1998 filed by Vanstar.
2.6 Vanstar Stock Option Agreement between InaCom and Vanstar dated as of October 8, 1998 incorporated by
reference from InaCom's Current Report on Form 8-K dated October 8, 1998.
2.7 InaCom Stock Option Agreement between InaCom and Vanstar dated as of October 8, 1998 incorporated by
reference from InaCom's Current Report on Form 8-K dated October 8, 1998.
2.8 Separation, Consulting and Noncompetition Agreement dated October 8, 1998 between InaCom and William Y.
Tauscher.
3.1 InaCom's Restated Certificate of Incorporation, as amended, incorporated herein by reference to InaCom's
annual report on Form 10-K for the fiscal year ended December 27, 1997.
3.2 InaCom's By-Laws, as amended, incorporated herein by reference to InaCom's quarterly report on Form 10-Q
for the quarter ended September 28, 1996.
3.3 Vanstar's Restated Certificate of Incorporation, incorporated herein by reference to the registration
statement of Vanstar on Form S-1 (033-80297) dated March 8, 1996.
3.4 Vanstar's Amended and Restated By-laws, as amended, incorporated herein by reference to Vanstar's annual
report on Form 10-K for the fiscal year ended April 30, 1998.
4.1 Specimen of Common Stock Certificate of InaCom incorporated by reference from Exhibit 4.1 of InaCom's
registration statement on Form S-3 (333-11687).
5.1 Opinion of McGrath, North, Mullin & Kratz, P.C. regarding the legality of the securities to be issued.
8.1 Opinion of Arter & Hadden LLP regarding certain tax matters.
8.2 Opinion of McGrath, North, Mullin & Kratz, P.C. regarding certain tax matters.
23.1 Consents of McGrath, North, Mullin & Kratz, P.C. (included in Exhibits 5.1 and 8.1)
23.2 Consent of Arter & Hadden LLP (included in Exhibit 8.1)
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Ernst & Young LLP.
23.5 Consent of Credit Suisse First Boston.
23.6 Consent of J.P. Morgan.
24.1 Powers of Attorney.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
99.1 Opinion of Credit Suisse First Boston (included as Annex C to the Joint Proxy Statement/ Prospectus
included in this Registration Statement).
99.2 Opinion of J.P. Morgan Securities Inc. (included in Annex B to the joint Proxy Statement/ Prospectus
included in this Registration Statement).
99.3 Form of InaCom Proxy.
99.4 Form of Vanstar Proxy.
(b) FINANCIAL STATEMENT SCHEDULES.
None.
(c) ITEM 4(B) INFORMATION.
The opinions of Credit Suisse First Boston and J.P. Morgan are included as Annex C and Annex B,
respectively, to the Joint Proxy Statement/Prospectus included in this Registration Statement.
</TABLE>
<PAGE>
SEPARATION, CONSULTING AND NONCOMPETITION AGREEMENT
AGREEMENT, dated October 8, 1998, between INACOM CORP. ("Parent") and
WILLIAM Y. TAUSCHER ("Tauscher").
RECITALS:
(a) The Parent has entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which the Parent or its subsidiary
will merge with Bulldog, Inc. ("the Company").
(b) Tauscher is a shareholder and long time employee of the Company and
has been instrumental in the successful establishment, growth and
development of the Company.
(c) The Parent desires to retain the services of Tauscher to assist the
Company in the transition and integration of the Company following the
closing of the merger.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties hereto agree as follows:
1. TERMINATION OF EMPLOYMENT. Effective on the Closing Date under the
Merger Agreement (the "Closing Date"), Tauscher hereby resigns as an officer
and/or director of Company and its subsidiaries and affiliates. Notwithstanding
such resignation, Tauscher shall remain an employee of the Company for the term
of this Agreement performing the services set forth herein. During such time,
the parties agree that Tauscher shall be treated as an employee for purposes of
his outstanding stock options. At Tauscher's option, Tauscher, at any time, may
elect to resign as an employee and upon such resignation become a consultant as
set forth in Section 2.
2. TAUSCHER. Effective upon Tauscher's resignation as an employee,
Parent shall retain Tauscher as a consultant and Tauscher shall act as a
consultant to Parent upon the terms and conditions herein. At such time,
Tauscher's services shall be those of an independent contractor, not an
employee, and, as such, Tauscher shall not be nor hold himself out as an
officer, partner, employee, or agent of the Parent or any of its subsidiaries or
affiliates.
3. SERVICES. Effective as of the Closing Date Tauscher shall be a
general advisor and consultant to the Company and Parent in connection with the
transition and integration that will occur after closing. Tauscher shall report
solely to the Chief Executive Officer of Parent ("CEO"). These services will
include assisting Parent in its efforts to retain key personnel and customer
<PAGE>
accounts, and achievement of post closing synergies. The time spent by Tauscher
performing duties hereunder shall be reasonably determined by Tauscher in good
faith in consultation with CEO. Tauscher shall be provided secretarial and
office services as reasonably necessary to provide the services contemplated by
this Agreement at a location designated in good faith by Tauscher.
4. FEES. Effective as of the Closing Date, in consideration for his
services to be rendered under this Agreement and for agreement to and
compliance with the terms of this Agreement, Parent shall, regardless of
Tauscher's inability to perform services as a result of sickness or
disability, pay a Base Fee to Tauscher of $1,000,000 per year payable
bi-weekly. Tauscher shall also be eligible to receive an incentive bonus
("Incentive Bonus") of up to $3,000,000 in accordance with the provisions set
forth on Addendum A, attached hereto and incorporated herein by this
reference. In the event of Tauscher's death prior to one year from the
Closing Date, Tauscher's estate (or beneficiary designated in writing to the
Parent) shall be paid the Base Fee less any portions of the Base Fee
previously paid and the Incentive Bonus to the extent the objectives are met
in accordance with Addendum A. Upon presenting receipts and other necessary
documentation to the Parent, the Parent shall also reimburse Tauscher for all
reasonable travel and business expenses incurred by Tauscher in providing
services to the Parent or the Company in accordance with Parent's normal
expense reimbursement practices. Tauscher shall be allowed to travel airline
first class on Parent duties and during the term hereof, shall be provided
continued use of the automobile he currently has with the Company in
accordance with the same terms and conditions as provided by the Company.
5. TERM. The term of Tauscher's services hereunder shall be for the
period commencing on the Closing Date and ending upon the earliest of the
following events:
(a) One year following the Closing Date; and
(b) Death of Tauscher.
6. CONFIDENTIAL INFORMATION AND TRADE SECRETS. Tauscher recognizes and
acknowledges that Parent and its affiliates have developed and continue to
develop and use commercially valuable proprietary technical and nontechnical
information which is vital to the success of Parent's business, and furthermore,
that Parent utilizes trade secrets in formulating, promoting, financing and
selling its products which are entitled to protection from disclosure. Tauscher
shall hold in strict confidence and shall not disclose to any third party,
except as required by law and except to authorized persons in the course of his
consulting with Parent, any information of a confidential nature not generally
available to the public which has become known to Tauscher during his employment
with the Company, or which becomes known to Tauscher in his course of
consulting with Parent, relating to the business operations of Parent, or its
affiliates or their customers.
7. NONCOMPETITION. Tauscher agrees that, from and after the Closing
Date, he shall not, in the United States of America, associate in any capacity
whatsoever, whether as a promoter, owner, officer, director, employee, partner,
lessee, lessor, lender, agent, consultant, broker, commission salesman or
otherwise, in any business engaged in the business conducted by the Parent or
its affiliates a type competitive, directly or indirectly, with the business of
the Parent or its
-2-
<PAGE>
affiliates for a period of time commencing on the Closing Date hereof and
continuing thereafter for one year, other than passive ownership of up to 5%
of the outstanding shares of a publicly traded company. If Tauscher fails to
keep and perform every covenant of Paragraphs 6 and 7 hereof, the Parent
shall be entitled to specifically enforce the same by injunction in equity in
addition to any other remedies which the Parent may have. If any portion of
this Paragraph 7 shall be invalid or unenforceable, such invalidity or
unenforceability shall in no way be deemed or construed to affect in any way
the enforceability of any other portion of this Paragraph. If any court in
which the Parent seeks to have the provision of this Paragraph specifically
enforced determines that the activities, time or geographic area hereinabove
specified are too broad, such court may determine a reasonable activity, time
or geographic area. The covenants on the part of Tauscher under this
Paragraph shall be construed as a agreement independent of any other
provision of this Agreement, and the existence of any claim or cause of
action by Tauscher against the Parent, whether predicted on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Parent of
said covenants.
8. NON-INTERFERENCE AGREEMENT. Tauscher covenants and agrees that for a
period of one year following the Closing Date, he will not, directly or
indirectly, for whatever reason, whether for his own account or for the account
of any other person, firm, corporation or other organization: (i) solicit, take
away, hire, employ or endeavor to employ any person who is an employee of the
Parent, the Company or any of their subsidiaries or affiliates, and shall
further refrain from providing, directly or indirectly, assistance to any third
party who seeks to solicit, take away, hire, employ or endeavor to employ any
such person, (ii) interfere with the continuance of inventory and supplies to
the Parent or the Company (or terms relating thereto), from any suppliers who
have been supplying goods, materials or services to the Parent or the Company
at any time during the one year preceding the date of this Agreement; (iii)
interfere with any of the Parent's or the Company's existing or potential
contracts or relationships with any independent contractor, customer, client or
consultant thereof; or (iv) interfere with any existing or proposed contract
between the Parent or the Company and any other party whatsoever.
Notwithstanding the preceding, the parties acknowledge that certain employees
("Transition Employees") of the Company will be retained by the Company for only
a short period following the Closing Date. Tauscher is free to contact and hire
the Transition Employees after their termination of employment with the Company.
9. RETURN OF INFORMATION/PROPERTY. Tauscher agrees that he will return
to the Company, not later than thirty days from the Closing Date, all copies of
all documents, computer disks, tapes or other tangible media of any sort which
he has in his possession or under his custody or control, whether developed by
him or others, that are property of the Company or that contain the confidential
or proprietary information of the Company or that relate in any manner to his
duties of the Company or his positions with the Company other than media
containing information otherwise available to the public, that relate to
Tauscher's contractual rights arising from his employment or that Tauscher must
retain in order to provide the services hereunder. Any media retained by
Tauscher as being necessary to perform the services hereunder together with all
copies thereof and any excerpts therefrom or analysis thereof, in whatever media
maintained, shall be returned to the Company within thirty days following the
termination of Tauscher's consulting period.
-3-
<PAGE>
10. COMMUNICATIONS. Tauscher agrees not to disparage or make any
disparaging remarks or send any disparaging communications concerning the
Parent, the Company, or any of their affiliates, or with respect to any existing
or future products, the business, the financial condition or the prospects of
the Parent, the Company, or any of their affiliates, or with respect to any
officer, director or employee of the Parent, the Company or any of their
affiliates, unless Tauscher is required to make such disclosure pursuant to
applicable law. Parent and the Company agree not to disparage or make any
disparaging remark or send any disparaging communications concerning Tauscher or
Tauscher's services on behalf of Parent or the Company or Tauscher's termination
of employment with the Parent or the Company, unless the Parent or Company is
required to make such disclosure pursuant to applicable law. Tauscher and the
Parent shall consult with each other in good faith before issuing any press
release or otherwise making any public statement with respect to this Agreement,
and neither party shall issue any such press release or make any such public
statement 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 by the National Association of Security Dealers, Inc.
11. COOPERATION. Tauscher agrees to cooperate fully with the Parent and
the Company as reasonably directed by the Parent or the Company by responding to
questions, attending meetings, depositions, administrative proceedings and court
hearings, executing documents, and cooperating with the Parent, the Company and
their accountants and legal counsel with respect to business issues and/or
claims and litigation of which he has personal or corporate knowledge, provided
that Tauscher shall not be required to take any action that unreasonably
interferes with Tauscher's other activities. Tauscher further agrees to maintain
in strict confidence any information with respect to which he has knowledge
regarding current and/or future claims, administrating proceedings and
litigation. Tauscher agrees to communicate with any parties, their legal counsel
or other person, firm or entity adverse to the Parent or the Company in any such
claims, administrating proceedings or litigation solely through the Parent's
designated legal counsel. Tauscher shall be entitled to reimbursement (or
payment in advance) for reasonable out-of-pocket expenses for travel, meals and
lodging in connection with any cooperation services provided at the Parent's or
the Company's request pursuant to this paragraph.
12. ENFORCEMENT OF COVENANTS. The parties agree that violation of any
obligation imposed by this Agreement shall cause irreparable damage, and, if so,
that the injured party shall be entitled to obtain an injunction or decree of
specific performance from any court of competent jurisdiction restraining the
other from such violation, and directing performance according to the terms of
this Agreement. Such remedies shall be cumulative and nonexclusive of any other
remedies either party may have including, but not limited to, the recovery of
actual damages. The parties further agree that the injured party will be
entitled to indemnification in full for all costs and expenses, including
reasonable attorney fees, which may be incurred by any such party as a result of
the breach of any term, condition or covenant of this Agreement by the other.
Any amount payable hereunder that is not paid when due shall bear interest from
the date due until paid at an annual rate of 12%.
13. INTERIM PERIOD. During the period from the date hereof through the
earlier of the Closing Date, or the termination of the Merger Agreement,
Tauscher shall use his reasonable best
-4-
<PAGE>
efforts to (i) assist the Company and Parent to consummate the Merger,
subject, however, to the provisions of the Merger Agreement, (ii) preserve
intact the Company's present business organization, (iii) keep available to
the Company the services of its present officers and key employees, (iv)
preserve the Company's business relationships and preserve its relationships
with customers, suppliers, distributors, licensors, licensees and others
having business dealings with the Company or its subsidiaries, all to the end
that the Company and its subsidiaries' goodwill and ongoing business shall be
unimpaired at the Closing Date. Without limiting the foregoing, during such
time Tauscher shall use his reasonable best efforts to not take any action
that interferes with, or impedes, the Company's ongoing relationships with
the Company's employees, customers or suppliers.
14. EMPLOYEE BENEFITS. Tauscher shall not be entitled to any fringe
benefits provided by Parent or its affiliates other than medical benefits which
shall be provided.
15. TAXES. Except as provided hereafter, the Parent shall not be
obligated to reimburse Tauscher for Tauscher's liability to pay any
applicable Federal, state or local income or employment taxes which result
from any payments made pursuant to this Agreement. Notwithstanding the
forgoing, in the event that any payment by the Parent to or for the benefit
of Tauscher (whether paid or payable) pursuant to the terms of this
Agreement, but determined without regard to any additional payments required
by this Paragraph 15 ("Payment") is subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by
Tauscher with respect to such excise tax, or any similar excise tax levyed by
any state or local government (such excise tax and any such interest and
penalties are hereinafter collectively referred to as the "Excise Tax"), then
Tauscher shall receive an additional payment ("Gross-up Payment") in an
amount such that after payment by Tauscher of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and the Excise Tax imposed on the Gross-up Payment, Tauscher
retains an amount of the Gross-up Payment equal to the Excise Tax imposed
upon the Payments. The determination of the amount of the Gross-up Payment,
if any, and the assumptions to be utilized in arriving at such determination,
shall be made by the Parent's outside auditors and shall be reasonable and
based upon the actual circumstances of Tauscher and the Parent.
16. APPOINTMENT. At or immediately following the Closing Date, Parent
shall take such action as may be necessary to cause Tauscher to be elected to
the Parent's Board of Directors. Thereafter, the Parent shall nominate and
solicit proxies in good faith to elect Tauscher as a Director of the Parent at
each annual meeting of the Parent's stockholders, at which Tauscher's term
expires, held after the Closing Date and during the term of this Agreement.
Tauscher agrees that at the end of the term of this Agreement, Tauscher shall
resign as a Director of the Parent.
17. KNOWING AND VOLUNTARY. Tauscher acknowledges that he has carefully
read this Agreement, understands its meaning and intent, has had an opportunity
to discuss this Agreement with legal counsel and other advisors in its entirety
to the extent necessary to evaluate the benefits and the terms of this Agreement
and that he has signed this Agreement freely and voluntarily and without undue
influence.
-5-
<PAGE>
18. NON-WAIVER. The failure of either party to insist in any one or more
instances upon performance of any of the terms or conditions of this Agreement
shall not be construed as a waiver or a relinquishment of any right granted
hereunder, or of the future performance of any such term, covenant or condition,
but the obligations of either party with respect thereto shall continue in full
force and effect.
19. ASSIGNMENT. This Agreement and all rights hereunder are personal to
Tauscher and shall not be assignable and any purported assignment thereof shall
not be valid and binding on Parent. Parent may assign this Agreement and all of
its rights hereunder to any person, firm or corporation succeeding to
substantially all of the business of Parent.
20. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect to the subject matter hereof.
21. APPLICABLE LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Delaware.
22. ARBITRATION. Any controversy or claim arising out of, or relating
to, this Agreement, or its breach, shall be settled by arbitration in either
Atlanta, Washington D.C. or San Francisco (as determined by Tauscher) in
accordance with the then governing rules of the American Arbitration
Association. Judgement upon the award rendered may be entered in and enforced
in any court of competent jurisdiction.
23. ATTORNEY FEES. Parent shall pay up to $3,000 of Tauscher's documented
attorneys fees incurred in connection with the negotiation and execution of this
Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, this Separation, Consulting and Noncompetition
Agreement has been executed by the parties hereto on the date first forth above.
INACOM CORP.
/s/ William Y. Tauscher By: /s/ Bill L. Fairfield
- ------------------------ --------------------------------------
WILLIAM Y. TAUSCHER
Its: President and Chief Executive Officer
-7-
<PAGE>
ADDENDUM A
CONSULTING AND NONCOMPETITION AGREEMENT
INACOM CORP. AND WILLIAM Y. TAUSCHER
DATED OCTOBER 8, 1998
The potential incentive bonus of $3,000,000 shall be based upon the
following three objectives (i) retention of the employees listed herein
following the Closing Date ("Employee Objective"), (ii) retention of the
clients listed herein following the Closing Date ("Client Objective"), and
(iii) accomplishment of the synergies listed herein ("Synergies Objective").
The portion of the incentive bonus for each objective shall be $1,000,000 for
the Employee Objective, $1,000,000 for the Client Objective and $1,000,000
for the Synergies Objective. The objectives and payment terms are set forth
on the Bonus Schedule attached hereto.
-8-
<PAGE>
Exhibit 5.1
McGrath, North, Mullin & Kratz, P.C.
Suite 1400 One Central Park Plaza
222 South Fifteen Street
Omaha, Nebraska 68102
(402) 341-3070
January 15, 1999
InaCom Corp.
10810 Farnam Drive
Omaha, NE 68154
Ladies and Gentlemen:
We have acted as counsel for InaCom Corp., a Delaware corporation
("InaCom"), in connection with the proposed merger of a wholly-owned subsidiary
of InaCom with and into Vanstar Corporation, a Delaware corporation ("Vanstar")
with Vanstar being the surviving corporation and a wholly-owned subsidiary of
InaCom (the "Merger"), pursuant to an Agreement and Plan of Merger dated October
8, 1998 among InaCom, Vanstar and the InaCom subsidiary (the "Merger
Agreement").
We have examined such corporate records and other documents, including
the registration statement on Form S-4 (the "Registration Statement") to be
filed with the Securities and Exchange Commission relating to shares of
InaCom common stock (the "Common Stock") to be issued by InaCom in connection
with the Merger and have reviewed such matters of law as we have deemed
necessary for this opinion.
Based upon the foregoing, we are of the opinion that under the laws of the
State of Delaware, pursuant to which InaCom is incorporated, upon the issuance
of the shares of Common Stock in accordance with the terms of the Merger
Agreement after the Registration Statement becomes effective, such shares of
Common Stock will be duly authorized, validly issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Yours very truly,
McGrath, North, Mullin & Kratz, P.C.
By: /s/ David Hefflinger
------------------------------
For the Firm
<PAGE>
ARTER & HADDEN LLP
1717 MAIN STREET, SUITE 4100
DALLAS, TEXAS 75201
January 14, 1999
Vanstar Corporation
2001 Westside Parkway, Suite 260
Alpharetta, Georgia 30004
Ladies and Gentlemen:
We have acted as legal counsel to Vanstar Corporation, a Delaware
corporation ("Company"), in connection with the planned merger (the "Merger")
of InaCom Acquisition, Inc., a Delaware corporation, ("Merger Sub"), which is
a newly formed, wholly owned subsidiary of InaCom Corp., a Delaware
corporation ("Parent"), into Company, pursuant to an Agreement and Plan of
Merger dated as of October 8, 1998 by and among Company, Parent, and Merger
Sub (the "Merger Agreement").
For purposes of the opinion set forth below, we have reviewed and relied
upon (i) the Merger Agreement, (ii) the Joint Proxy Statement/Prospectus
included in the Registration Statement on Form S-4 (the "Registration
Statement"), as amended, filed by Parent with the Securities and Exchange
Commission (the "Proxy Statement/Prospectus"), and (iii) such other
documents, records, and instruments as we have deemed necessary or
appropriate as a basis for our opinion. In addition, in rendering our
opinion we have relied upon certain statements and representations made by
Company and Parent (the "Certified Representations"), copies of which are
attached hereto and upon certain statements and representations contained in
the Merger Agreement and the Proxy Statement/Prospectus. We have neither
investigated nor verified any such statements or representations. We have
assumed that such statements and representations are true, correct, complete,
and not breached, and that no actions that are inconsistent with such
statements and representations will be taken.
<PAGE>
Vanstar Corporation
January 14, 1999
Page 2
In addition, we have assumed that (i) the Merger will be consummated in
accordance with the Merger Agreement and as described in the Proxy
Statement/Prospectus (including satisfaction of all covenants and conditions
to the obligations of the parties without amendment or waiver thereof); (ii)
the Merger will qualify as a merger under the applicable laws of Delaware;
(iii) each of Company, Parent, and Merger Sub will comply with all reporting
obligations with respect to the Merger required under the Internal Revenue
Code of 1986, as amended (the "Code"), and the Treasury Regulations
promulgated thereunder; (iv) the Merger Agreement and all other documents and
instruments referred to therein or in the Proxy Statement/Prospectus are
valid and binding in accordance with their respective terms; and (v) there is
no plan or intention on the part of any stockholders of Company to sell,
exchange or otherwise dispose of, or otherwise reduce the risk of loss
relating to, a number of shares of Parent stock to be received in the Merger
that would reduce Company stockholders' ownership of, or risks incident to
the ownership of, Parent stock to a number of shares having a value, as of
the date of the Merger, of less than fifty percent of the value of all the
formerly outstanding stock of Company as of the same date. Any inaccuracy
in, or breach of, any of the aforementioned statements, representations, or
assumptions or any change after the date hereof in applicable law could
adversely affect our opinion. No ruling has been (or will be) sought from
the Internal Revenue Service by Company, Parent, or Merger Sub as to the
federal income tax consequences of any aspect of the Merger. The opinion
expressed herein is not binding on the Internal Revenue Service or any court,
and there can be no assurance that the Internal Revenue Service or a court of
competent jurisdiction will agree with such opinion.
Based upon and subject to the foregoing as well as the limitations set
forth below, it is our opinion, under presently applicable federal income tax
law, that the Merger of Merger Sub with and into Company will be a
reorganization within the meaning of sections 368(a)(1)(A) and (a)(2)(E) of
the Code with the following material U.S. federal income tax consequences:
(1) no income, gain or loss will be recognized by Parent or Company as
a result of the Merger;
(2) a Company stockholder will not recognize any income, gain or loss
upon the receipt of Parent Common Stock solely in exchange for such
stockholder's shares of Company Common Stock pursuant to the Merger
(except as described below with respect to cash that is received in
lieu of fractional shares);
(3) a Company stockholder's tax basis for the Parent Common Stock
received pursuant to the Merger will equal such Company
stockholder's tax basis
<PAGE>
Vanstar Corporation
January 14, 1999
Page 3
in the Company Common Stock surrendered in exchange therefor
(adjusted with respect to fractional shares); and
(4) a Company stockholder's holding period for the Parent Common Stock
received pursuant to the Merger will include the holding period of
the Company Common Stock surrendered in exchange therefor, provided
that the Company Common Stock is held as a capital asset at the
Effective Time.
A Company stockholder who receives cash in lieu of fractional shares
will be treated as having received such fractional shares pursuant to the
Merger and then as having exchanged such fractional shares for cash in a
transaction generally giving rise to capital gain or loss. The amount of any
capital gain or loss attributable to such deemed exchange of fractional
shares will be equal to the difference between the cash received in lieu of
fractional shares and the ratable portion of the tax basis of the Company
Common Stock surrendered that is allocated to such fractional shares. Such
gain or loss for individuals and other noncorporate taxpayers who have held
Company Common Stock at the Effective Time of the Merger for (1) one year or
less will be treated as short term capital gain or loss and taxed at ordinary
income rates and (2) more than one year will be treated as long-term capital
gain or loss and taxed generally at a statutory maximum rate of 20%.
Our opinion is based on the Code, applicable Treasury Regulations,
published judicial authority, and administrative rulings and practice, all as
of the date hereof. There can be no assurance that future legislative,
judicial or administrative changes or interpretations will not adversely
affect the accuracy of the conclusions set forth herein. We do not undertake
to advise you as to any such changes or interpretations after the Effective
Time unless we are specifically requested to do so.
No opinion is expressed as to any matter not specifically addressed
above, including, without limitation, the tax consequences of the Merger
under any foreign, state, or local tax law. Moreover, tax consequences which
are different from or in addition to those described herein may apply to
Company stockholders who are subject to special treatment under the U.S.
federal income tax laws, such as persons who acquired their shares in
compensatory transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this Firm under the captions
"Material Federal Income Tax Consequences of the Merger on Vanstar
Stockholders" and "Legal Matters" in the Registration Statement and the Proxy
Statement/Prospectus which is a part thereof.
<PAGE>
Vanstar Corporation
January 14, 1999
Page 4
We call your attention to the fact that the opinion set forth in this
letter is an expression of professional judgment and not a guarantee of a
result.
Very truly yours,
/s/ Arter & Hadden LLP
-------------------------
Arter & Hadden LLP
<PAGE>
Exhibit 8.2
McGrath, North, Mullin & Kratz, P.C.
Suite 1400 One Central Park Plaza
222 South Fifteen Street
Omaha, Nebraska 68102
(402) 341-3070
January 14, 1999
InaCom Corp.
10810 Farm Drive
Omaha, Nebraska 68154
Ladies and Gentlemen:
We have acted as legal counsel to InaCom Corp., a Delaware corporation
("Parent"), in connection with the planned merger (the "Merger") of InaCom
Acquisition, Inc., a Delaware corporation ("Merger Sub"), which is a newly
formed, wholly owned subsidiary of Parent, into Vanstar Corporation, a Delaware
corporation ("Company"), pursuant to an Agreement and Plan of Merger dated as of
October 8, 1998, by and among Company, Parent, and Merger Sub (the "Merger
Agreement").
For purposes of the opinion set forth below, we have reviewed and relied
upon (i) the Merger Agreement, (ii) the Joint Proxy Statement/ Prospectus
included in the Registration Statement on Form S-4 (the "Registration
Statement"), as amended, filed by Parent with the Securities and Exchange
Commission (the "Proxy Statement/ Prospectus"), and (iii) such other documents,
records, and instruments as we have deemed necessary or appropriate as a basis
for our opinion. In addition, in rendering our opinion we have relied upon
certain statements and representations made by Parent and Company (the
"Certified Representations"), copies of which are attached hereto and upon
certain statements and representations contained in the Merger Agreement and the
Proxy Statement/ Prospectus. We have neither investigated nor verified any such
statements or representations. We have assumed that such statements and
representations are true, correct, complete, and not breached, and that no
actions that are inconsistent with such statements and representations have been
or will be taken.
In addition, we have assumed that (i) the Merger will be consummated in
accordance with the Merger Agreement and as described in the Proxy Statement/
Prospectus (including satisfaction of all covenants and conditions to the
obligations of the parties without amendment or waiver thereof); (ii) the Merger
will qualify as a merger under the applicable laws of
<PAGE>
InaCom Corp.
January 14, 1999
Page 2
Delaware; (iii) each of Parent, Company, and Merger Sub will comply with all
reporting obligations with respect to the Merger required under the Internal
Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations
promulgated thereunder; (iv) the Merger Agreement and all other documents and
instruments referred to therein or in the Proxy Statement/ Prospectus are
valid and binding in accordance with their respective terms; and (v) there is
no plan or intention on the part of any stockholders of Company to sell,
exchange or otherwise dispose of, or otherwise reduce the risk of loss
relating to, a number of shares of Parent stock to be received in the Merger
that would reduce Company stockholders' ownership of, or risks incident to
the ownership of, Parent stock to a number of shares having a value, as of
the date of the Merger, of less than fifty percent of the value of all the
formerly outstanding stock of Company as of the same date. Any inaccuracy
in, or breach of, any of the aforementioned statements, representations, or
assumptions or any change after the date hereof in applicable law could
adversely affect our opinion. No ruling has been (or will be) sought from
the Internal Revenue Service by Parent, Company or Merger Sub as to the
federal income tax consequences of any aspect of the Merger. The opinion
expressed herein is not binding on the Internal Revenue Service or any court,
and there can be no assurance that the Internal Revenue Service or a court of
competent jurisdiction will agree with such opinion.
Based upon and subject to the foregoing as well as the limitations set
forth below, it is our opinion, under presently applicable federal income tax
law, that the Merger of Merger Sub with and into Company will be a
reorganization within the meaning of sections 368(a)(1)(A) and (a)(2)(E) of
the Code with the following material U.S. federal income tax consequences:
(1) no income, gain or loss will be recognized by Parent or Company as
a result of the Merger;
(2) a Company stockholder will not recognize any income, gain or loss
upon the receipt of Parent Common Stock solely in exchange for such
stockholder's shares of Company Common Stock pursuant to the Merger
(except as described below with respect to cash that is received
in lieu of fractional shares);
(3) a Company stockholder's tax basis for the Parent Common Stock
received pursuant to the Merger will equal such Company
stockholder's tax basis in the Company Common Stock surrendered in
exchange therefor (adjusted with respect to fractional shares); and
(4) a Company stockholder's holding period for the Parent Common Stock
received pursuant to the Merger will include the holding period of
the Company Common Stock surrendered in exchange therefor, provided
that the Company Common Stock is held as a capital asset at the
Effective Time.
A Company stockholder who receives cash in lieu of fractional shares
will be treated as having received such fractional shares pursuant to the
Merger and than as having exchanged such
<PAGE>
InaCom Corp.
January 14, 1999
Page 3
fractional shares for cash in a transaction generally giving rise to capital
gain or loss. The amount of any capital gain or loss attributable to such
deemed exchange of fractional shares will be equal to the difference between
the cash received in lieu of fractional shares and the ratable portion of the
tax basis of the Company Common Stock surrendered that is allocated to such
fractional shares. Such gain or loss for individuals and other noncorporate
taxpayers who have held Company Common Stock at the Effective Time of the
Merger for (1) one year or less will be treated as short term capital gain or
loss and taxed at ordinary income rates and (2) more than one year will be
treated as long-term capital gain or loss and taxed generally at a statutory
maximum rate of 20%.
Our opinion is based on the Code, applicable Treasury Regulations,
published judicial authority, and administrative rulings and practice, all as of
the date hereof. There can be no assurance that future legislative, judicial or
administrative changes or interpretations will not adversely affect the accuracy
of the conclusions set forth herein. We do no undertake to advise you as to any
such changes or interpretations after the Effective Time unless we are
specifically requested to do so.
No opinion is expressed as to any matter not specifically addressed above,
including, without limitation, the tax consequences of the Merger under any
foreign, state, or local tax law. Moreover, tax consequences which are
different from or in addition to those described herein may apply to Company
stockholders who are subject to special treatment under the U.S. federal income
tax laws, such as persons who acquired their shares in compensatory
transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this Firm under the captions
"Material Federal Income Tax Consequences of the Merger on Vanstar Stockholders"
and "Legal Matters" in the Registration Statement and the Proxy Statement/
Prospectus which is a part thereof.
We call your attention to the fact that the opinion set forth in this
letter is an expression of professional judgment and not a guarantee of a
result.
Yours very truly,
McGrath, North, Mullin & Kratz, P.C.
By: /s/ Jeffrey J. Pirruccello
-----------------------------
<PAGE>
EXHIBIT 23.3
ACCOUNTANT'S CONSENT
The Board of Directors
InaCom Corp.:
We consent to the use of our reports incorporated by reference herein, dated
February 20, 1998, with respect to the consolidated financial statements of
InaCom Corp. and subsidiaries as of December 27, 1997 and December 28, 1996,
and for each of the years in the three-year period ended December 27, 1997
and to the reference to our firm under the heading "Experts" in the
registration statement.
/s/ KPMG Peat Marwick LLP
Omaha, Nebraska
January 13, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report with respect to the consolidated financial statements
and schedule of Vanstar Corporation dated June 3, 1998 (except for Note 16,
as to which the date is December 30, 1998) incorporated by reference the
Registration Statement (Form S-4 No. 333- ) and the related
Prospectus of InaCom Corp. for the registration of 32,000,000 shares of its
common stock.
/s/ Ernst & Young LLP
Atlanta, Georgia
January 14, 1999
<PAGE>
CREDIT SUISSE FIRST BOSTON
2400 HANOVER STREET
PALO ALTO, CALIFORNIA 94304
We hereby consent to the inclusion of our opinion dated October 8, 1998
and addressed to the Board of Directors of Vanstar Corporation (the
"Company") in the Joint Proxy Statement/Prospectus which forms a part of that
Registration Statement on Form S-4 of InaCom Corp. (the "Registration
Statement") relating to the acquisition of the Company and the issuance of
securities of InaCom Corp. in connection therewith and any and all amendments
or supplements to said Registration Statement.
Date: October 14, 1998
CREDIT SUISSE FIRST BOSTON
By: /s/ Ethan M. Topper
---------------------------
Name: Ethan M. Topper
---------------------------
Title: Managing Director
--------------------------
<PAGE>
Exhibit 23.6
J.P. Morgan Securities Inc.
60 Wall Street
New York NY
10260-0060
CONSENT OF J.P. MORGAN SECURITIES INC.
We hereby consent to (i) the use of our opinion letter dated
October 8, 1998 to the Board of Directors of InaCom Corp. (the
"Company") included in Annex B to the Joint Proxy Statement/Prospectus
which forms a part of the Registration Statement on Form S-4 relating
to the proposed merger of InaCom Acquisition, Inc., a wholly-owned
subsidiary of the Company, with and into Vanstar Corporation, and (ii)
the references to such opinion in such Joint Proxy Statement/Prospectus.
In giving such consent, we do not admit that we come within the category
of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities
and Exchange Commission thereunder, nor do we hereby admit that we are
experts with respect to any part of such Registration Statement within
the meaning of the term "experts" as used in the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
J.P. MORGAN SECURITIES INC.
By: /s/ Todd R. Marin
--------------------------------
Name: Todd R. Marin
October 15, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom Corp.
constitutes and appoints each of Bill L. Fairfield and David C. Guenthner as his
true and lawful attorney-in-fact and agent, with each having full power of
substitution and resubstitution, with full power to act, together or each
without reason, for him and in his name, place and stead in any and all
capacities, to execute a registration statement on Form S-4 for the registration
under the Securities Act of 1933 of shares of common stock of InaCom Corp.
proposed to be issued in connection with the merger of InaCom Corp. and Vanstar
Corporation and any and all amendments and post-effective amendments and
supplements to the registration statement and any and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission, granting unto such attorney-in-fact and agent, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such director might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and each of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
13th day of October, 1998.
/s/ Joseph Auerbach
______________________________
Joseph Auerbach
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom Corp.
constitutes and appoints each of Bill L. Fairfield and David C. Guenthner as his
true and lawful attorney-in-fact and agent, with each having full power of
substitution and resubstitution, with full power to act, together or each
without reason, for him and in his name, place and stead in any and all
capacities, to execute a registration statement on Form S-4 for the registration
under the Securities Act of 1933 of shares of common stock of InaCom Corp.
proposed to be issued in connection with the merger of InaCom Corp. and Vanstar
Corporation and any and all amendments and post-effective amendments and
supplements to the registration statement and any and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission, granting unto such attorney-in-fact and agent, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such director might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and each of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
15th day of October, 1998.
/s/ Mogens C. Bay
______________________________
Mogens C. Bay
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom Corp.
constitutes and appoints each of Bill L. Fairfield and David C. Guenthner as his
true and lawful attorney-in-fact and agent, with each having full power of
substitution and resubstitution, with full power to act, together or each
without reason, for him and in his name, place and stead in any and all
capacities, to execute a registration statement on Form S-4 for the registration
under the Securities Act of 1933 of shares of common stock of InaCom Corp.
proposed to be issued in connection with the merger of InaCom Corp. and Vanstar
Corporation and any and all amendments and post-effective amendments and
supplements to the registration statement and any and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission, granting unto such attorney-in-fact and agent, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such director might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and each of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
15th day of October, 1998.
/s/ Bill L. Fairfield
______________________________
Bill L. Fairfield
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom Corp.
constitutes and appoints each of Bill L. Fairfield and David C. Guenthner as his
true and lawful attorney-in-fact and agent, with each having full power of
substitution and resubstitution, with full power to act, together or each
without reason, for him and in his name, place and stead in any and all
capacities, to execute a registration statement on Form S-4 for the registration
under the Securities Act of 1933 of shares of common stock of InaCom Corp.
proposed to be issued in connection with the merger of InaCom Corp. and Vanstar
Corporation and any and all amendments and post-effective amendments and
supplements to the registration statement and any and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission, granting unto such attorney-in-fact and agent, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such director might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and each of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
15th day of October, 1998.
/s/ James Q. Crowe
______________________________
James Q. Crowe
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom Corp.
constitutes and appoints each of Bill L. Fairfield and David C. Guenthner as his
true and lawful attorney-in-fact and agent, with each having full power of
substitution and resubstitution, with full power to act, together or each
without reason, for him and in his name, place and stead in any and all
capacities, to execute a registration statement on Form S-4 for the registration
under the Securities Act of 1933 of shares of common stock of InaCom Corp.
proposed to be issued in connection with the merger of InaCom Corp. and Vanstar
Corporation and any and all amendments and post-effective amendments and
supplements to the registration statement and any and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission, granting unto such attorney-in-fact and agent, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such director might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and each of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
15th day of October, 1998.
/s/ W. Grant Gregory
______________________________
W. Grant Gregory
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom Corp.
constitutes and appoints each of Bill L. Fairfield and David C. Guenthner as his
true and lawful attorney-in-fact and agent, with each having full power of
substitution and resubstitution, with full power to act, together or each
without reason, for him and in his name, place and stead in any and all
capacities, to execute a registration statement on Form S-4 for the registration
under the Securities Act of 1933 of shares of common stock of InaCom Corp.
proposed to be issued in connection with the merger of InaCom Corp. and Vanstar
Corporation and any and all amendments and post-effective amendments and
supplements to the registration statement and any and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission, granting unto such attorney-in-fact and agent, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such director might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and each of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
13th day of October, 1998.
/s/ Rick Inatome
______________________________
Rick Inatome
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom Corp.
constitutes and appoints each of Bill L. Fairfield and David C. Guenthner as his
true and lawful attorney-in-fact and agent, with each having full power of
substitution and resubstitution, with full power to act, together or each
without reason, for him and in his name, place and stead in any and all
capacities, to execute a registration statement on Form S-4 for the registration
under the Securities Act of 1933 of shares of common stock of InaCom Corp.
proposed to be issued in connection with the merger of InaCom Corp. and Vanstar
Corporation and any and all amendments and post-effective amendments and
supplements to the registration statement and any and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission, granting unto such attorney-in-fact and agent, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such director might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and each of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
13th day of October, 1998.
/s/ Joseph Inatome
_____________________________
Joseph Inatome
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom Corp.
constitutes and appoints each of Bill L. Fairfield and David C. Guenthner as his
true and lawful attorney-in-fact and agent, with each having full power of
substitution and resubstitution, with full power to act, together or each
without reason, for him and in his name, place and stead in any and all
capacities, to execute a registration statement on Form S-4 for the registration
under the Securities Act of 1933 of shares of common stock of InaCom Corp.
proposed to be issued in connection with the merger of InaCom Corp. and Vanstar
Corporation and any and all amendments and post-effective amendments and
supplements to the registration statement and any and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission, granting unto such attorney-in-fact and agent, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such director might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and each of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
15th day of October, 1998.
/s/ Gary Schwendiman
______________________________
Gary Schwendiman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned Director of InaCom Corp.
constitutes and appoints each of Bill L. Fairfield and David C. Guenthner as his
true and lawful attorney-in-fact and agent, with each having full power of
substitution and resubstitution, with full power to act, together or each
without reason, for him and in his name, place and stead in any and all
capacities, to execute a registration statement on Form S-4 for the registration
under the Securities Act of 1933 of shares of common stock of InaCom Corp.
proposed to be issued in connection with the merger of InaCom Corp. and Vanstar
Corporation and any and all amendments and post-effective amendments and
supplements to the registration statement and any and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission, granting unto such attorney-in-fact and agent, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such director might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and each of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
15th day of October, 1998.
/s/ Linda S. Wilson
______________________________
Linda S. Wilson
<PAGE>
PROXY INACOM CORP.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 17, 1999
The undersigned hereby constitutes and appoints Bill L. Fairfield and David
C. Guenthner, or either of them, with full power of substitution in each of
them, for and on behalf of the undersigned to vote as proxies, as directed and
permitted herein at the special meeting of stockholders of InaCom to be held at
10810 Farnam Drive, Omaha, Nebraska 68154, on February 17, 1999 at 10:00 a.m.
and at any adjournment or postponement thereof, upon the matters set forth in
the Joint Proxy Statement/Prospectus, and in their judgment and discretion,
upon such other business as may properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY,
WHEN PROPERTY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2 AND 3.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
<PAGE>
2320
THE BOARD OF DIRECTORS OF INACOM RECOMMENDS A VOTE FOR:
PLEASE MARK YOUR
/X/ VOTE AS IN THIS
EXAMPLE
Proposal 1: Approval of the issuance of shares of Common Stock, par value $.10
per share, of InaCom to stockholders of Vanstar Corporation,
a Delaware corporation ("Vanstar") pursuant to the Agreement and
Plan of Merger (the "Merger Agreement") dated as of October 8,
1998, among Vanstar, InaCom and InaCom Acquisition, Inc., a
Delaware corporation and wholly-owned subsidiary of InaCom, as
contemplated by the Merger Agreement. The Merger Agreement is
attached to the accompanying Joint Proxy Statement/Prospectus as
Annex A.
/ / FOR / / AGAINST / / ABSTAIN
Proposal 2: Approval of an amendment to the Certificate of Incorporation of
InaCom to increase the number of authorized shares of InaCom Common
Stock.
/ / FOR / / AGAINST / / ABSTAIN
Proposal 3: Approval of an increase in the shares of InaCom Common Stock
authorized for issuance under the 1997 InaCom Stock Plan.
/ / FOR / / AGAINST / / ABSTAIN
NOTE THAT APPROVAL OF EACH OF THE PROPOSALS IS CONDITIONED ON APPROVAL OF ALL OF
THE PROPOSALS.
Signatures______________________________________ Date __________________________
(When signing as attorney, executor, administrator, trustee, guardian or
conservator, designate full title. All joint tenants must sign.)
<PAGE>
PROXY
VANSTAR CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON FEBRUARY 17, 1999
The undersigned hereby appoints William Y. Tauscher, Kauko Aronaho, and
H. Christopher Covington, and any of them, with individual power of
substitution, proxies to vote all shares of Common Stock of Vanstar
Corporation ("Vanstar") that the undersigned may be entitled to vote at the
Special Meeting of Stockholders of Vanstar to be held at 2575 Westside
Parkway, Suite 500, Alpharetta, Georgia, 30004 on February 17, 1999 at 11:00
a.m. and any adjournment or postponement thereof.
SAID PROXIES WILL VOTE ON THE PROPOSAL SET FORTH IN THE JOINT PROXY
STATEMENT/PROSPECTUS AS SPECIFIED ON THE REVERSE SIDE OF THIS CARD AND ARE
AUTHORIZED TO VOTE IN THEIR DISCRETION AS TO ANY OTHER BUSINESS THAT MAY COME
PROPERLY BEFORE THE MEETING. IF A VOTE IS NOT SPECIFIED, SAID PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL.
PLEASE MARK, SIGN, AND DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN PROMPTLY IN THE ENVELOPE PROVIDED
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark your vote as indicated in this example /X/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL
Proposal: Adoption of the Agreement and Plan of Merger, dated as of
October 8, 1998, among InaCom Corp., a Delaware corporation ("InaCom"), InaCom
Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of
InaCom ("InaCom Sub"), and Vanstar, and providing for the merger (the
"Merger") pursuant to which InaCom Sub would be merged with and into Vanstar,
with Vanstar being the surviving corporation in the Merger and a wholly-owned
subsidiary of InaCom, as more fully described in the accompanying Joint Proxy
Statement/Prospectus.
FOR AGAINST ABSTAIN
/ / / / / /
Signature(s)_____________________________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
