SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
STERILE CONCEPTS HOLDINGS, INC.
..............................................................................
(Name of Registrant as Specified in Its Charter)
Kenneth W. Davidson
President and
Chief Executive Officer
Sterile Concepts Holdings, Inc.
..............................................................................
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2) of
Schedule 14A.
|_| $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
|X| Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and O-11.
1) Title of each class of securities to which transaction applies:
Common Stock, no par value
...............................................................................
2) Aggregate number of securities to which transaction applies:
88,325 (estimate of maximum number of shares that may be
cashed out in merger to which the proxy statement relates).
................................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $20.00
4) Proposed maximum aggregate value of transaction:
$1,766,500
................................................................................
<PAGE>
5) Total fee paid:
None due at present. At the time of the filing on June 16, 1996, of a
Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") by Maxxim
Acquisition Co. ("Purchaser") and Maxxim Medical, Inc., in connection with
Purchaser's offer to purchase all outstanding shares of common stock, no
par value (the "Shares"), of Sterile Concepts Holdings, Inc. (the
"Company"), a fee of $22,105.54 was paid, based on the total number of
outstanding shares of the Company. The fee attributable to the maximum
number of shares that may be cashed out in the merger to which the
preliminary proxy statement relates would be $353.30, which has been
previously paid as part of the Schedule 14D-1 filing and is therefore
entitled to be offset as set forth below.
.........................................................................
|X| Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $22,105.54
2) Form Schedule or Registration Statement No: Schedule 14D-1
3) Filing Party: Maxxim Acquisition Co. and Maxxim Medical, Inc
-------------------------------------------------------
4) Date Filed: June 16, 1996
----------------
<PAGE>
STERILE CONCEPTS HOLDINGS, INC.
5100 Commerce Road
Richmond, Virginia 23234
August 14, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Sterile Concepts Holdings, Inc. (the "Company") to be held on September 16,
1996, as set forth in the attached Notice of Special Meeting of Shareholders. At
this meeting you will be asked to consider and vote upon the approval and
adoption of an Agreement and Plan of Merger (the "Merger Agreement"), pursuant
to which Maxxim Acquisition Co. (the "Purchaser"), a Virginia corporation and a
wholly-owned subsidiary of Maxxim Medical, Inc., a Delaware corporation
("Maxxim"), will be merged with and into the Company (the "Merger"). Details of
the proposed Merger and other important information are contained in the
accompanying Proxy Statement.
The Merger is the second and final step in the acquisition of the
Company by Maxxim pursuant to the terms of the Merger Agreement. The first step
provided for in the Merger Agreement was a tender offer by the Purchaser for all
the outstanding shares of common stock of the Company (the "Shares"). Upon
expiration of the tender offer on July 26, 1996, the Purchaser purchased
5,438,059 Shares (approximately 98.4% of the outstanding Shares) for $20.00 in
cash per Share.
In the Merger, the Company's remaining shareholders (other than Maxxim
and its subsidiaries) will receive the same consideration paid in the tender
offer, $20.00 in cash, for each Share owned, and thereafter they will have no
equity interest in the Company.
Your Board of Directors and a special committee composed of independent
directors, after careful consideration, have unanimously approved the Merger
Agreement and determined that the tender offer and the Merger are fair to and in
the best interests of the Company and its shareholders. In addition, in
connection with its approval of the transaction with Maxxim, the Board of
Directors of the Company received an updated written opinion dated July 15, 1996
from the Company's financial advisor, Wheat, First Securities, Inc. ("Wheat"),
to the effect that, as of the date of such opinion, and based upon its review
and analysis and subject to the limitations set forth therein, the $20.00 per
Share price to be received by the holders of Shares (other than Maxxim and its
affiliates) in the tender offer and the Merger was fair, from a financial point
of view, to such holders. The full text of the written opinion of Wheat, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Exhibit B to the enclosed Proxy Statement and
should be read in its entirety.
<PAGE>
Your Board of Directors recommends that you vote FOR the approval and adoption
of the Merger Agreement.
Approval of the proposed Merger requires the affirmative vote of the
holders of more than two-thirds of the outstanding Shares. As a result of the
completion of the tender offer, the Purchaser beneficially owns and has the
right to vote at the Special Meeting sufficient Shares to cause the Merger
Agreement to be approved without the affirmative vote of any other shareholder.
We ask you to read the enclosed material carefully and request that you
complete and return the enclosed proxy as soon as possible. You may, of course,
attend the Special Meeting and vote in person, even if you have previously
returned your proxy card.
Sincerely,
Kenneth W. Davidson
President and Chief Executive Officer
<PAGE>
STERILE CONCEPTS HOLDINGS, INC.
Notice of Special Meeting of Shareholders
to be held on September 16, 1996
To the Shareholders of Sterile Concepts Holdings, Inc.:
A special meeting (the "Special Meeting") of shareholders of Sterile
Concepts Holdings, Inc. (the "Company") will be held at the Company's executive
offices at 5100 Commerce Road, Richmond, Virginia, on September 16, 1996 at
10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of June 10, 1996 (the "Merger
Agreement"), by and among the Company, Maxxim Medical, Inc., a Delaware
corporation ("Maxxim"), and Maxxim Acquisition Co., a Virginia corporation and a
wholly-owned subsidiary of Maxxim (the "Purchaser"), a copy of which is attached
hereto as Exhibit A, pursuant to which: (a) the Purchaser will be merged with
and into the Company (the "Merger"), with the Company as the surviving
corporation, and all of the common stock of the Company will be owned by Maxxim;
and (b) each outstanding share of the Company's common stock, no par value (the
"Shares"), other than Shares held by Maxxim or any of its subsidiaries, will be
converted into the right to receive $20.00 in cash, without interest; and
2. To consider and act upon any matters incidental to the foregoing and
to transact such other business as may properly come before the meeting or any
and all adjournments or postponements thereof.
Only holders of record of Shares at the close of business on July 31,
1996 are entitled to notice of and to vote at the Special Meeting or any
adjournment thereof.
Article 15 of the Virginia Stock Corporation Act provides that, because
the Shares were listed on the New York Stock Exchange as of the record date for
the Special Meeting and shareholders are receiving only cash for their Shares in
connection with the Merger, dissenters' or appraisal rights are not available
with respect to the Merger.
Your attention is respectfully directed to the accompanying Proxy
Statement. We ask you to read it carefully. Whether or not you expect to attend
the meeting in person, please complete and return the enclosed proxy in the
envelope provided. The proxy may be revoked at any time before it is exercised
in the manner described in the Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
Kenneth W. Davidson
President and Chief Executive Officer
Please complete and sign the accompanying form of proxy and return it promptly
in the enclosed envelope whether or not you intend to vote at the special
meeting. Please do not send in any certificates for your Shares at this time.
<PAGE>
STERILE CONCEPTS HOLDINGS, INC.
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of Sterile
Concepts Holdings, Inc., a Virginia corporation (the "Company"), of record on
July 31, 1996 (the "Record Date"), in connection with the solicitation of
proxies from holders of shares of common stock, no par value (the "Shares"), of
the Company by the Board of Directors of the Company for use at a special
meeting (the "Special Meeting") of shareholders of the Company to consider and
vote upon (i) approval and adoption of the Agreement and Plan of Merger, dated
as of June 10, 1996 (the "Merger Agreement") by and among the Company, Maxxim
Acquisition Co., a Virginia corporation (the "Purchaser") and a direct wholly
owned subsidiary of Maxxim Medical, Inc., a Delaware corporation ("Maxxim"), and
Maxxim, and the transactions contemplated thereby, including the merger (the
"Merger") of the Purchaser into the Company pursuant to the Merger Agreement,
and (ii) such other matters as may properly be brought before the Special
Meeting. It is anticipated that the Merger will become effective on September
17, 1996 or as soon thereafter as practicable.
The date of this Proxy Statement is August 14, 1996. This Proxy
Statement and the accompanying form of proxy are being furnished by the Company
and were first mailed on or about August 16, 1996 to shareholders of record on
the Record Date.
Pursuant to the Merger Agreement, the Purchaser commenced a cash tender
offer (the "Offer") on June 14, 1996 for all outstanding Shares of the Company
at a price of $20.00 per Share, net to the seller in cash. The Offer was made
pursuant to an Offer to Purchase dated June 14, 1996 (the "Offer to Purchase"),
the related Letter of Transmittal and the Merger Agreement. The Offer expired at
12:00 p.m. midnight, New York City time, on July 26, 1996. The Purchaser has
accepted for payment 5,438,059 Shares validly tendered pursuant to the Offer and
not withdrawn, representing approximately 98.4% of the total number of
outstanding Shares.
The Merger will be consummated on the terms and subject to the
conditions set forth in the Merger Agreement, as a result of which at the
effective time of the Merger (the "Effective Time") (i) the Company will
continue as the surviving corporation (the "Surviving Corporation") and will
become a direct wholly owned subsidiary of Maxxim and (ii) each Share issued and
outstanding (other than Shares held by the Purchaser or Maxxim, or any direct or
indirect subsidiary of any of them) will be converted into the right to receive
$20.00 net per Share in cash, without interest (the "Merger Consideration").
1
<PAGE>
The Special Meeting will be held at the Company's executive offices at
5100 Commerce Road, Richmond, Virginia, at 10:00 a.m., local time, on September
16, 1996, to consider approval and adoption of the Merger Agreement and the
Merger.
On June 10, 1996, the Board of Directors and a special committee of
independent directors (the "Special Committee") unanimously determined that the
offer and the Merger are fair to and in the best interests of the Company's
shareholders.
Wheat, First Securities, Inc., ("Wheat") has delivered to the Board of
Directors its updated written opinion, dated July 15, 1996, that, as of such
date, based on various analyses and subject to the limitations set forth in its
opinion, the consideration to be received by the shareholders of the Company
pursuant to the Merger Agreement is fair to such shareholders from a financial
point of view. See "The Merger -- Opinion of the Company's Financial Advisor."
Under the Virginia Stock Corporation Act (the "Virginia Act"), the
affirmative vote of more than two-thirds of the issued and outstanding Shares,
present in person or represented by proxy at the Special Meeting and entitled to
vote thereon, is required to adopt and approve the Merger Agreement and the
Merger. The Purchaser owns in the aggregate 5,438,059 shares, representing
approximately 98.4% of the shares outstanding as of the Record Date, and
therefore has sufficient voting power to adopt and approve the Merger Agreement
and the Merger without the vote of any other shareholder of the Company. Under
the Virginia Act and the Amended and Restated Articles of Incorporation of the
Company (the "Articles"), no action will be required by shareholders of the
Company (other than the Purchaser) to effect the Merger.
Holders of Shares do not have dissenters' or appraisal rights with respect
to the Merger. See "No Dissenters' Rights."
As of the Record Date, there were approximately 36 holders of record of
the Shares, with 5,526,384 Shares issued and outstanding. Holders of record at
the close of business on the Record Date are entitled to one vote per share held
on all matters submitted to a vote of shareholders. The Shares are currently
listed on the New York Stock Exchange (the "NYSE"). As a result of the
consummation of the Offer and the Merger, the registration of the Shares under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
listing of the Shares on the NYSE, will be terminated.
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INTRODUCTION.................................................................................1
THE SPECIAL MEETING..........................................................................5
Date, Time and Place.................................................................5
Purpose of the Meeting...............................................................5
Vote Required........................................................................5
Solicitation, Revocation and Use of Proxies..........................................5
CERTAIN INFORMATION CONCERNING THE COMPANY...................................................6
General..............................................................................6
Selected Financial Information.......................................................6
Certain Company Projections..........................................................7
CERTAIN INFORMATION CONCERNING THE PURCHASER AND MAXXIM......................................8
General..............................................................................8
Selected Financial Information.......................................................9
THE MERGER..................................................................................11
Background of the Merger............................................................11
Recommendation of the Board of Directors; Reasons for Recommendation................18
Opinion of the Company's Financial Advisor..........................................20
Interests of Certain Persons in the Merger..........................................22
Employment Agreements...............................................................23
Change in Control Protections.......................................................23
Retirement Benefits.................................................................24
Stock Incentive Plan................................................................25
Stock Options.......................................................................26
Stock Appreciation Rights...........................................................26
Restricted Share Awards.............................................................26
Financing of the Offer and Merger...................................................27
Certain Effects of the Merger.......................................................29
Payment of Merger Consideration.....................................................29
THE MERGER AGREEMENT........................................................................29
The Merger..........................................................................29
The Company's Board of Directors....................................................30
Interim Operations..................................................................31
3
<PAGE>
Directors' and Officers' Insurance and Indemnification..............................32
Compensation and Benefits...........................................................32
Options.............................................................................33
Representations and Warranties......................................................34
Conditions to the Merger............................................................34
Federal Income Tax Consequences.....................................................35
Accounting Treatment................................................................36
Regulatory Matters..................................................................36
NO DISSENTERS' RIGHTS.......................................................................36
MARKET PRICE OF SHARES AND DIVIDENDS........................................................36
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT....................................................37
INDEPENDENT PUBLIC ACCOUNTANTS..............................................................39
OTHER MATTERS TO COME BEFORE THE MEETING....................................................39
STOCKHOLDERS' PROPOSALS FOR 1997 ANNUAL MEETING.............................................39
AVAILABLE INFORMATION.......................................................................39
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................................40
Exhibits
Exhibit A Agreement and Plan of Merger
Exhibit B Opinion of Wheat, First Securities, Inc.
</TABLE>
4
<PAGE>
THE SPECIAL MEETING
Date, Time and Place. The Special Meeting will be held at the Company's
executive offices at 5100 Commerce Road, Richmond, Virginia, at 10:00 a.m.,
local time, on September 16, 1996.
Purpose of the Meeting. At the Special Meeting, shareholders of the
Company will be asked to consider and vote upon the approval and adoption of the
Merger Agreement and the Merger pursuant to which the Purchaser will be merged
into the Company, with the Company as the surviving corporation.
Vote Required. The Board of Directors has fixed the close of business on
the Record Date for the determination of shareholders entitled to notice of and
to vote at the Special Meeting or any adjournment thereof. Only shareholders of
record at the close of business on the Record Date are entitled to notice of and
to vote at the Special Meeting. Holders of record may cast one vote per Share
either in person or by proxy on each matter to be voted on at the Special
Meeting.
The presence at the Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding Shares will constitute a quorum for the
transaction of business. Approval and adoption of the Merger Agreement and the
Merger requires the affirmative vote of more than two-thirds of the issued and
outstanding Shares. The Purchaser owns in the aggregate 5,438,059 shares,
representing approximately 98.4% of the shares outstanding as of the Record
Date, and therefore has sufficient voting power to constitute a quorum at the
Special Meeting and to adopt and approve the Merger Agreement and the Merger
without the presence or vote of any other shareholder of the Company. In
determining whether the Merger Agreement and the Merger have received the
requisite number of affirmative votes, abstentions and broker non-votes will
have the same effect as a vote against the Merger Agreement and the Merger.
At the date of this Proxy Statement, the Board of Directors does not
know of any business to be presented at the Special Meeting other than as set
forth in the Notice of Special Meeting accompanying this Proxy Statement. If any
other matters should properly come before the Special Meeting, it is intended
that the Shares represented by proxies will be voted with respect to such
matters in accordance with the judgments of the persons voting such proxies.
Solicitation, Revocation and Use of Proxies. Shareholders should sign,
date and mail the enclosed Proxy in the postage-paid envelope provided, whether
or not they plan to attend the Special Meeting. All properly executed proxies
that are not revoked will be voted at the
5
<PAGE>
Special Meeting in accordance with the instructions contained therein. If a
shareholder executes and returns a proxy and does not specify otherwise, the
Shares represented by such proxy will be voted "for" approval and adoption of
the Merger Agreement and Merger in accordance with the recommendation of the
Board of Directors. A shareholder who has executed and returned a proxy may
revoke it at any time before it is voted at the Special Meeting by written
notice to the Company, by submitting a proxy bearing a later date or by
attending the Special Meeting and voting in person.
In addition to solicitation by mail, the directors, officers, employees
and agents of the Company may solicit proxies from the shareholders of the
Company by personal interview, telephone, telegram or otherwise. Arrangements
will also be made with brokerage firms and other custodians, nominees and
fiduciaries who hold of record Shares for the forwarding of solicitation
materials to the beneficial owners thereof. The Company will reimburse such
brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket
expenses incurred by them in connection therewith.
CERTAIN INFORMATION CONCERNING THE COMPANY
General. The Company is a Virginia corporation with its principal
executive offices located at 5100 Commerce Road, Richmond, Virginia 23234,
telephone (804) 275-0200. The Company is primarily engaged in the provision of
surgical and clinical custom procedure trays to hospitals and surgery centers in
the United States.
Selected Financial Information. The following table contains a summary
of certain selected financial information with respect to the Company and its
subsidiaries for the fiscal years ended September 30, 1995, September 30, 1994
and September 30, 1993 and for the six-month periods ended March 31, 1996 and
March 31, 1995, which has been excerpted and derived from the audited
consolidated financial statements contained in the Company's Annual Reports on
Form 10-K for the fiscal years ended September 30, 1995 and September 30, 1994,
and from unaudited consolidated financial statements contained in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. More
comprehensive financial information is included in such reports and other
documents filed by the Company with the Securities and Exchange Commission (the
"Commission"), and the following summary is qualified in its entirety by
reference to such documents and all of the financial statements and related
notes contained therein.
6
<PAGE>
STERILE CONCEPTS HOLDINGS, INC.
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months
Years Ended September 30, Ended March 31,
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(unaudited)
<S> <C>
Statement of Operations Data:
Net sales......................... $146,833 $132,098 $121,131 $94,929 $70,981
Operating income............... 13,506 8,872 11,865 5,347 6.683
Net earnings..................... 8,192 5,738 6,484 2,527 4,076
Earnings per share.............. 1.48 (1) (1) 0.46 0.74
Balance Sheet Data(2):
Working capital................. $29,195 $21,573 $29,479 $45,682 $27,684
Total assets...................... 57,638 52,214 50,266 89,772 47,298
Stockholders' equity........... 34,012 26,699 32,525 36,098 30,333
</TABLE>
- --------------
(1) Actual earnings per Share data for the years ended September 30, 1994
and 1993 is unavailable as the Company was not public prior to September
27, 1994.
(2) At period end.
Certain Company Projections. Prior to entering into the Merger
Agreement, Maxxim conducted a due diligence review of the Company and in
connection with such review, the Company provided Maxxim with certain non-public
projections of future operating performance, including the following, which
should be read together with the Company's selected consolidated financial
information referred to above and incorporated by reference herein:
STERILE CONCEPTS HOLDINGS, INC.
PROJECTED FINANCIAL INFORMATION
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Years Ending September 30,
-----------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C>
Net Sales.................. $196,981 $232,350 $266,715 $299,765 $331,040
Operating Income........ 13,556 18,680 22,540 25,543 28,377
Net earnings.............. 6,976 10,541 12,932 15,066 17,423
Earnings per Share...... 1.26 1.91 2.34 2.73 3.15
</TABLE>
7
<PAGE>
None of the assumptions which form the basis for the projected information give
effect to the Offer, the Merger or the financing thereof or the potential
combined operations of Maxxim and the Company after consummation of such
transactions.
The Company does not as a matter of course make public any projections
as to future performance or earnings. These projections were not prepared with a
view to public disclosure or compliance with published guidelines of the
Commission or the guidelines established by the American Institute of Certified
Public Accountants regarding projections, and are included in this Proxy
Statement only because they were provided to Maxxim. The Company's independent
auditors have not examined, complied with or applied any procedures with respect
to these projections and express no opinion or any kind of assurance thereon.
None of Maxxim, the Purchaser or the Company, or any of their respective
financial advisors assumes any responsibility for the validity, reasonableness,
accuracy or completeness of these projections and the Company has made no
representation or warranty, express or implied, to Maxxim or the Purchaser
regarding these projections. These projections are based upon a variety of
assumptions relating to the business of the Company which may not be realized
and are subject to significant uncertainties and contingencies, many of which
are beyond the control of the Company and, therefore, these projections are
inherently imprecise, and there can be no assurance that these projections will
be realized. It is expected that there will be a difference between the
Company's actual and estimated or projected results set forth above and actual
results may vary materially from those shown. The inclusion of these projections
should not be regarded as an indication that Maxxim, the Purchaser, the Company
or anyone who received these projections considered this information a reliable
prediction of future events, and this information should not be relied on as
such. The Company does not intend to update or otherwise revise these
projections prior to the consummation of the Merger.
CERTAIN INFORMATION CONCERNING THE PURCHASER AND MAXXIM
General. The Purchaser is a newly incorporated Virginia corporation and
a wholly owned subsidiary of Maxxim. To date, the Purchaser has engaged in no
activities other than those in connection with the Offer. The principal
executive offices of the Purchaser and Maxxim are located at 104 Industrial
Blvd., Sugar Land, Texas 77478, telephone (713) 240-5588.
Maxxim, a Delaware corporation, was formed in 1988. Maxxim, through its
wholly- owned subsidiaries, develops, manufactures and markets a diversified
range of specialty medical products, and supplies single use sterile procedure
trays to hospitals, clinics and outpatient surgery centers. Maxxim operates
three divisions: Case Management, Argon
8
<PAGE>
Medical, and MAXXIM Medical Europe. Maxxim's Case Management division
manufactures, assembles and sells custom procedure trays for a wide variety of
operating room procedures, infection control apparel for operating room
personnel, patient draping systems, electrosurgical generators and disposals,
and a complete line of surgical and hospital exam gloves. The Argon Medical
division manufactures and markets guide wires, needles, introducers, catheters,
manifolds, high pressure syringes and certain other sterilized, single use
medical and surgical specialty products, which are used in Maxxim's procedure
trays or are sold separately. This division also assembles and markets procedure
trays for use primarily in cardiology and radiology procedures. Many of the
products manufactured by Maxxim are included in the Argon and Case Management
procedure trays. MAXXIM Medical Europe serves as Maxxim's European distributor
of Case Management, Argon, and Medica products. Medica products consist of
various self-manufactured and assembled disposable hospital supply products and
custom procedure kits for transfusion, infusion and patient monitoring. Maxxim
is a wholly owned subsidiary of Maxxim Medical, Inc., a Texas corporation (the
"Parent") which is a holding corporation. The stock of the Parent is listed on
the NYSE and the sole asset of the Parent is the stock of Maxxim.
Until immediately prior to the time the Purchaser purchased the Shares
pursuant to the Offer, it did not have any significant assets or liabilities and
did not engage in activities other than those incident to its formation and
capitalization and the transactions contemplated by the Offer. Because the
Purchaser is a newly formed corporation and has minimal assets and
capitalization, no meaningful financial information regarding the Purchaser is
available.
The Parent is subject to the information and reporting requirements of
the Exchange Act and in accordance therewith is obligated to file reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Information, as of particular dates,
concerning the Parent's business, principal physical properties, capital
structure, material pending legal proceedings, operating results, financial
condition, directors and executive officers, their remuneration, stock options
granted to them, the principal holders of the Parent's securities and any
material interest of such persons in transactions with the Parent and other
matters is required to be disclosed in proxy statements and annual reports
distributed to the Parent's shareholders and filed with the Commission. Such
reports, proxy statements and other information may be examined, and copies may
be obtained from the Commission in the same manner set forth under "Available
Information" with respect to information concerning the Company. Such
information should also be available for inspection at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
Selected Financial Information. Set forth below is a summary of certain
selected financial information of the Parent and its subsidiaries for the fiscal
years ended October 29, 1995, October 30, 1994 and October 31, 1993 and for the
six-month periods ended May 5,
9
<PAGE>
1996 and April 30, 1995, which has been excerpted or derived from the audited
consolidated financial statements contained in the Parent's Annual Report on
Form 10-K for the fiscal years ended October 29, 1995 and October 30, 1994 and
from unaudited financial information contained in the Parent's Quarterly Report
on Form 10-Q for the quarter ended May 5, 1996. More comprehensive financial
information is included in such reports and other documents filed by the Parent
with the Commission, and the following summary is qualified in its entirety by
reference to such documents and all of the financial statements and related
notes contained therein.
MAXXIM MEDICAL, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
---------------------------------------- ---------------------
October 29, October 30, October 31, May 5, April 30,
1995 1994 1993 1996 1995
------------- ------------- ------------ ---------- ---------
(unaudited)
<S> <C>
Statement of Operations Data:
Net sales................................$265,726 $191,382 $129,740 $177,459 $116,878
Cost of sales........................... 186,495 129,569 85,247 126,714 80,508
------- ------- ------- ------- -------
Gross profit............................ 79,231 61,813 44,493 50,745 36,370
Operating expenses................... 59,493 48,349 35,606 37,553 27,894
Nonrecurring charges................ 10,845 ---- ---- ---- ----
------- ---------- ---------- ---------- -------
Income from operations............. 8,893 13,464 8,887 13,192 8,476
Interest expense and other, net.... 4,060 1,641 768 4,186 1,076
----- -------- -------- ------- --------
Income before income taxes....... 4,833 11,823 8,119 9,006 7,400
Income taxes.......................... 1,904 4,138 2,582 3,329 2,620
Change in accounting for income taxes.. --- 380 ---- ---- ----
---------- -------- ---------- ---------- -------
Net income............................ $ 2,929 $ 8,065 $ 5,537 $ 5,677 $ 4,780
========= ======== ======== ======== ========
Balance Sheet Data (1):
Working capital...................... $ 73,286 $ 82,886 $ 52,722 $ 66,505 $ 65,890
Total assets............................ 264,490 165,416 114,040 257,123 176,186
Long-term obligations (2):
Bank debt and other............ 67,412 1,267 2,086 58,588 2,122
6 3/4% Convertible subordinated 28,750
debentures................ 28,750 28,750 28,750 28,750
Shareholders' equity........... 116,351 111,470 68,458 119,077 117,116
</TABLE>
- -------------
(1) At period end.
(2) Excludes current maturities of long-term debt.
10
<PAGE>
THE MERGER
Background of the Merger
The Company became a publicly-held company on September 27, 1994 when an
affiliate of Carilion Health System ("Carilion"), the former parent of the
Company, sold all of the stock in the Company held by it in a public offering.
In July 1994, when Carilion was considering a private sale of the Company as an
alternative to a public offering, Maxxim had expressed interest in acquiring the
Company. These discussions were terminated by the parties without an agreement
of any kind being reached.
On February 2, 1996, Maxxim's financial advisor, Bear, Stearns & Co.,
Inc., attempted, without success, to contact the Company's financial advisor,
Wheat, First Securities, Inc. ("Wheat"), regarding Maxxim's interest in a
business combination with the Company. On February 5, 1996, Kenneth W. Davidson,
Chief Executive Officer of Maxxim ("Davidson"), telephoned Paul J. Woo, Jr.,
Chief Executive Officer of the Company ("Woo"), to advise Woo of Maxxim's
interest in acquiring the Company and that Maxxim's financial advisor planned to
contact Wheat about such interest. Davidson and Woo met on February 12, 1996 and
Davidson confirmed Maxxim's interest in acquiring the Company. Woo indicated
that while he would advise the Board of Directors of the Company (the "Board")
of Maxxim's interest, it was the Company's intention to remain independent and
to pursue its long-term strategy for building shareholder value.
On February 14, 1996, Davidson sent to Woo an offer by Maxxim to
purchase all of the outstanding shares of the Company's common stock for a
purchase price of $16.00 per share, payable in cash and/or shares of Maxxim
common stock. The letter indicated that Maxxim was prepared to present a fully
financed cash offer and that the offer was contingent upon negotiation and
approval of a definitive merger agreement, satisfactory due diligence review and
regulatory approvals. Neither Maxxim nor the Company made this proposal public
at the time. On February 15, 1996, all directors of the Company were informed of
the Maxxim offer. On February 16, 1996, Woo sent a letter to Davidson indicating
that the Board would consider Maxxim's proposal.
On February 23, 1996, the Board met to commence its consideration of the
Maxxim offer. At this meeting, the Board appointed a special committee of
outside directors (the "Special Committee"), comprised of Ms. Nina Novak and
Messrs. Thomas A. Allen and J. Hamilton Scherer, for the purpose of evaluating
and making recommendations to the Board with respect to the Maxxim offer as well
as any other potential transactions which would result in a change in control of
the Company. Wheat presented information regarding Maxxim and the terms of its
offer, and Wheat and the Company's legal counsel reviewed various
11
<PAGE>
considerations relevant to the Board's evaluation of the Maxxim offer. This
meeting was adjourned without the Board taking any action on the Maxxim offer.
On February 26, 1996, without prior notice to the Company, Maxxim made a
public announcement of its offer. At a Board meeting held on February 27, 1996,
Company management presented information concerning the Company's strategic
plan. Following this presentation, the Board retained Wheat to act as financial
advisor to the Company in connection with a potential change in control of the
Company. The Board also considered adoption of a shareholder rights plan. At a
Board meeting on March 5, 1996, Wheat presented an analysis of the Maxxim offer
and advised the Board that the consideration specified, namely, $16.00 per
share, was inadequate. The Board then rejected the Maxxim offer of $16.00 per
share, which the Board determined was not in the best interests of the Company
or its shareholders.
At the March 5 meeting, the Board gave further consideration to the
adoption of a shareholder rights plan. On March 6, 1996, the Board adopted a
shareholder rights plan, the terms of which are set forth in a Shareholder
Protections Rights Agreement dated as of March 6, 1996 between the Company and
First Union National Bank of North Carolina, as Rights Agent (the "Rights
Agreement"). The Rights Agreement provided all Company shareholders (other than
the person acquiring shares of Company common stock as described below) the
right to purchase additional shares of common stock at a substantial discount to
the existing market price in the event that (i) any person (other than the
Company and its subsidiaries and employee benefit plans) became the beneficial
owner of more than 15% of the outstanding common stock or (ii) any person who
was already a beneficial owner of more than 15% of the outstanding common stock
increased its beneficial ownership by more than an additional 2%, in each case
without the prior approval of the Board, as well as the right to acquire shares
of preferred stock in certain circumstances. On March 7, 1996, Woo sent a letter
to Davidson to the effect that the Board was not interested in pursuing Maxxim's
$16.00 per share offer.
On March 11, 1996, Maxxim increased its offer to $17.75 per share, with
all other terms of the offer remaining the same as the February 14 offer. The
Board met on March 13, 1996 to consider this revised offer and, after receiving
the advice of Wheat that the offer was inadequate, rejected the offer as not
being in the best interests of the Company and its shareholders. On March 14,
1996, Woo sent a letter to Davidson rejecting Maxxim's $17.75 per share offer.
On March 21, 1996, the chief executive officer of a company in the
industry (the "Other Company") delivered to Woo a letter of intent setting forth
proposed terms for an acquisition of all of the outstanding shares of Company
common stock at a price per share of $21.00, payable in shares of the Other
Company's common stock. The letter of intent placed "collars" on the market
value of the Other Company's stock of $14.50 and $18.50 per share
12
<PAGE>
(the Other Company's stock was trading at $16-5/8 per share on the date of the
letter) and was contingent upon negotiation and approval of a definitive merger
agreement, shareholder approval, satisfactory due diligence review and
regulatory approvals. The letter of intent contained an exclusive dealing
provision and provided for a "break up" fee payable by the Company to the Other
Company in the amount of $4 million in the event of an acquisition of the
Company by a third party. Immediately following receipt of the Other Company's
proposal, Woo called the chief executive officer of the Other Company and
indicated that he would apprise the Board of the offer. Neither the Other
Company nor the Company made this proposal public at the time.
On March 25, 1996, Maxxim increased its offer to $19.00 per share,
payable in cash or Maxxim stock. The Board met on March 25, 1996 to review the
Other Company's offer and the revised Maxxim offer and to consider the
alternatives available to the Board in light of the recent developments. The
Board determined that it would be in the best interests of the Company and its
shareholders for the Company to evaluate all of the strategic alternatives
currently available to the Company. The Board then directed Company management
and the Board's advisors to initiate a process which would afford all parties
interested in pursuing a potential change of control or strategic transaction
with the Company an opportunity to receive information concerning the Company
and to make proposals which would be in the best interests of the Company and
its shareholders. The Board announced its decision to consider strategic
alternatives in a press release on March 27, 1996.
After issuance of the press release, Wheat received a number of
inquiries regarding the Company and provided information packages to all
qualified parties. Qualified parties which continued to express interest in the
Company and which executed a confidentiality agreement were provided an
opportunity to review non-public due diligence materials and to meet with
Company management. These parties were requested to submit by May 17, 1996
written proposals setting forth the definitive terms and conditions of an offer
to acquire all of the outstanding shares of Common Stock of the Company and
comments on a proposed form of acquisition agreement. During the weeks leading
up to the May 17 deadline, Wheat discussed the terms of potential offers with
representatives of the qualified parties involved in the process, including the
management of and the financial advisors to the Other Company. During such
discussions, representatives of the Other Company expressed a willingness to
make a potential offer of $23.00 to $25.00 per share, payable in the Other
Company's stock. Wheat, Company management and legal counsel conducted due
diligence on and met with management of the Other Company for purposes of
evaluating such an offer.
On May 17, the deadline for submission of offers, Maxxim was the only
party to submit a definitive offer in accordance with the guidelines established
by Wheat. The letter submitted by Maxxim stated that it was prepared to purchase
all outstanding shares of Company common stock for $20.00 per share, payable in
cash (the "Offer"). The Offer also
13
<PAGE>
stated that it had been approved by the Maxxim Board of Directors and was not
subject to further due diligence. It was accompanied by a letter from Maxxim's
primary lender expressing confidence in its ability to provide financing for the
transaction. At that time, representatives of the Other Company continued to
express their interest in acquiring the Company for between $23.00 and $25.00
per share payable in the Other Company's stock, but indicated that, due to
another pending acquisition, the Other Company could not make a definitive
proposal.
The Board met on May 22, 1996 to review the alternatives available to
the Company as a result of the auction process. Wheat advised the Board that all
qualified parties expressing an interest in acquiring the Company had been
afforded an equal opportunity to evaluate the Company and submit a proposal.
Wheat further advised the Board that the informal interest expressed by the
Other Company did not represent a viable alternative to the Maxxim offer due to
the numerous contingencies involved, including without limitation, the fact that
the Other Company did not submit a definitive proposal, as well as uncertainties
relating to its pending acquisition, questions regarding the rate of penetration
of a significant new product in the marketplace, and a substantial drop in the
market price of its common stock, due to recent failures to achieve earnings
expectations highlighted in a recently released analyst report. At the
conclusion of the meeting, without taking any other action related to the Offer,
the Board authorized Woo to contact Davidson to indicate that the Board would be
willing to pursue a transaction with Maxxim at a price of $23.00 per share.
Woo conveyed this message to Davidson in a telephone call on May 22.
Over the next several days, there were a number of contacts between Wheat and
Maxxim's financial advisor concerning the purchase price and other aspects of
the Offer. On May 28, 1996, Davidson advised Woo by telephone that Maxxim would
not increase its offer. The Board met with its advisors on May 29 and June 1 in
order to review the status of the negotiations with Maxxim. The Board also
considered uncertainties relating to the Company's ability to pursue its
independent strategic plan successfully in the current market environment and
the lack of another viable candidate to acquire the Company. The Board once
again was advised by Wheat that the Other Company was not in a position at that
time to submit a definitive proposal to acquire the Company. At the conclusion
of this meeting, the Board directed its advisors to pursue the Offer, and on May
29, 1996, Woo contacted Davidson and indicated the Board's willingness to
proceed with negotiations with Maxxim.
On June 8, 1996 Maxxim provided to the Company a copy of the financing
commitment letter which had been issued by Maxxim's primary lender.
The Board met again on June 8, 1996 and considered the Offer. At the
meeting, representatives of Wheat reviewed the process and advised the Board,
based on various analyses, that the consideration proposed was fair to the
Company's shareholders from a
14
<PAGE>
financial point of view. Wheat subsequently confirmed its opinion in writing on
June 10, 1996. The Special Committee thereupon determined by unanimous vote that
the proposed acquisition of the Company by Maxxim was fair to and in the best
interests of the Company and its shareholders and recommended that the full
Board approve the Maxxim transaction. After receiving the recommendation of the
Special Committee, the Board, among other things, (i) determined by unanimous
vote that the proposed acquisition of the Company by Maxxim was fair to and in
the best interests of the Company and its shareholders, (ii) authorized and
approved the Merger Agreement and (iii) recommended by unanimous vote that the
shareholders of the Company accept the Offer and tender their shares pursuant to
the Offer.
On June 10, 1996, Maxxim and the Company executed the Merger Agreement.
On June 28, 1996, Wheat received from the Other Company's financial
advisors an unsolicited written proposal (the "Proposal") from the Other Company
contemplating the proposed acquisition of the Company in a merger transaction
involving an exchange of the Other Company's stock for stock of the Company on
the basis of an exchange ratio determined by dividing $25 by the average per
share closing price of the Other Company's stock as reported on The Nasdaq Stock
Market over a period of 20 trading days immediately preceding the fifth trading
day before the closing of the transaction, but subject to a pricing collar of
not less than $10 or more than $18 (the "Pricing Collar"). On the date of the
Proposal, the Other Company's stock closed at $12 per share. The Proposal was
subject to certain conditions, including the execution of a mutually acceptable
definitive acquisition agreement and the expiration of applicable
Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act") waiting periods.
The Proposal stated that it would automatically expire if a definitive agreement
had not been executed by the parties by 5:00 p.m. on July 3, 1996. Upon its
receipt of the Proposal, the Company promptly advised Maxxim and Maxxim's
attorneys and delivered to them a copy of the Proposal. Management of the
Company also advised the Board of Directors of the Company of the receipt of the
Proposal.
On June 29, 1996, the financial and legal advisors of the Company held a
telephone conference with the legal and financial advisors of the Other Company
to, among other things, acknowledge receipt of the Proposal, confirm that the
Proposal was unsolicited, advise the Other Company that a copy of the Proposal
had been delivered to Maxxim, and inform the Other Company that the Proposal,
together with any supplemental information they desired to provide, would be
presented to the Board of Directors of the Company as soon as practicable.
During the course of the conference, the advisors of the Other Company provided
assurance that the Proposal was unsolicited.
Thereafter on the same day, the Board of Directors of the Company and
its financial and legal advisors met to discuss the Proposal. At the meeting,
the advisors reviewed the terms of the Proposal and the pricing volatility and
certain other issues related to the Other
15
<PAGE>
Company's stock, including the status of the pending acquisition referred to
above. Without taking any action on the Proposal, the Board authorized the
Company's advisors to enter into discussions with the advisors of the Other
Company to better understand the Proposal.
On June 30, 1996, the financial and legal advisors of the Company held a
second telephone conference with the financial and legal advisors of the Other
Company to, among other things, inquire further into the specifics of the
Proposal, including whether the stated expiration date was negotiable or firm;
inquire into the status of the Other Company's pending acquisition; determine
the extent to which the Other Company may want to engage in additional due
diligence; and discuss whether the proposed timetable for completion of a
transaction was realistic under the circumstances. In addition, the advisors of
the Company communicated the Company's concern respecting the volatility of the
Other Company's stock and the potential effect it could have on the proposed
purchase price in view of the Pricing Collar. The advisors of the Other Company
acknowledged the Company's concern respecting the volatility of the Other
Company's stock and stated that they might consider ways to address it,
including the possible revision or elimination of the Pricing Collar and the
possible addition of a cash component to the proposed consideration; indicated
that they would furnish the Company shortly the details of additional due
diligence the Other Company would like to perform; indicated that the Other
Company's pending acquisition was at a stage where it had been renegotiated, a
new prospectus/proxy statement was being reviewed by the SEC and closing would
probably occur in late August 1996; indicated, without elaboration, that they
believed a transaction with the Company could proceed on a parallel path and be
completed at about the same time; and stated that, because of the pending
acquisition, the July 3 expiration date of the Proposal was relatively firm. At
the conclusion of the conference, the advisors of the Company asked those of the
Other Company promptly to submit in writing the details of the additional due
diligence desired by them, a detailed time schedule for completing the
acquisition taking into account the Other Company's pending acquisition, and a
proposed form of definitive acquisition agreement similar to that required of
Maxxim and the other participants in the auction process referred to above. The
advisors of the Company also advised those of the Other Company that the Company
would need to engage in due diligence with respect to both the Other Company and
its acquisition target if the Board of Directors of the Company decided to
pursue the Proposal.
Later on June 30, the legal advisors to the Other Company called those
of the Company and orally communicated the major due diligence items the Other
Company would like to review and indicated that a written due diligence list and
definitive time schedule would be forthcoming. The legal advisors to the Company
said that they would furnish a list of due diligence items relating to the Other
Company and its pending acquisition that they would like to review from a legal
standpoint. Wheat called the Other Company's financial advisors to begin to make
arrangements for the exchange of business-related due diligence matters
involving the Company, the Other Company and its acquisition target.
16
<PAGE>
On June 29 and 30 and the morning of July 1, the Company's legal
advisors had several telephone conversations with Maxxim's attorneys to keep
them informed about the status of the discussions with representatives of the
Other Company.
During the morning of July 1, the legal advisors of the Other Company
sent to the legal advisors of the Company a written list of due diligence items
to be reviewed by the Other Company and a brief written time schedule for
completing the transaction. The Board of Directors of the Company met later that
day to review the status of the discussions and the supplemental information
obtained in the various conferences among the advisors. The Company's legal and
financial advisors summarized the discussions held over the weekend with the
financial and legal advisors of the Other Company and the separate conversations
which had taken place over the weekend with the legal advisors of Maxxim about
the Proposal; indicated that there had been no response to the Company's concern
regarding the volatility of the Other Company's Stock and the potential effect
it could have on the proposed purchase price in view of the Pricing Collar;
reported that tentative arrangements had been made for several attorneys to
travel to the offices of the Other Company's legal counsel to commence legal due
diligence on the Other Company and its acquisition target; reported that a draft
of a definitive acquisition agreement had not yet been submitted by the Other
Company; reviewed the brief timetable proposed by the Other Company and
expressed doubt whether it was realistic under the circumstances; and reported
that Maxxim's advisors had given no indication of any willingness to improve the
terms of the pending tender offer. Wheat presented additional information about
the performance of the Other Company's stock and the potential adverse effect of
the Pricing Collar on the value to be received by the Company's shareholders.
The Board and its financial and legal advisors then held an extensive discussion
about the Proposal and whether it would be in the best interests of the
shareholders of the Company to pursue it. The Board did not, however, take any
action.
On July 2, 1996, the Other Company's financial advisors orally advised
Wheat that the Other Company was unwilling to change the Pricing Collar but that
it was willing to change the purchase price component of the Proposal to include
$20 in the Other Company's stock and $5 in cash, subject to approval of the
Other Company's Board of Directors. Wheat advised management of the Company and
its legal advisors of this conversation. The legal advisors of the Company
promptly advised those of Maxxim of the conversation.
On the afternoon of July 3, 1996, the Board of Directors of the Company
met to review the status of the discussions and to consider the Proposal. The
legal advisors of the Company reported that the Other Company had neither
submitted a draft acquisition agreement, as requested, for consideration by the
Board nor indicated a willingness to extend the stated expiration date (5:00
p.m. that day); reviewed the directors' duties with respect to the Proposal and
the Company's agreement with Maxxim; summarized the various calls to Maxxim's
attorneys to keep them apprised of the status of the Proposal; and reported on
their
17
<PAGE>
preliminary legal due diligence review of the Other Company and its acquisition
target. Wheat reviewed the oral change to the Proposal communicated by the Other
Company's financial advisors; reviewed the performance of the Other Company's
stock and the effect of the Pricing Collar on the value to be received by the
Company's shareholders if the Other Company's stock price fell below $10;
discussed the potential effect on valuation of the uncertain timing of the Other
Company's pending acquisition as well as the proposed transaction with the
Company; reviewed other financial information related to the Proposal; presented
a risk assessment of the Proposal compared to the Maxxim transaction; and
reconfirmed its original opinion (subsequently confirmed in writing) to the
effect that the Maxxim transaction was fair to the Company's shareholders from a
financial point of view. The legal advisors of the Company also informed the
Board that the waiting period required by the HSR Act with respect to the Maxxim
transaction was scheduled to expire later that day. Management of the Company
updated the Board on its recent operations and performance as well as its
prospects. The Board conducted detailed discussions about the advantages and
disadvantages of the Proposal and concluded, for essentially the same reasons
set forth above with respect to the Other Company's indication of interest
expressed in connection with the auction process as well as the negative
attributes of the Pricing Collar and the significant uncertainties and risks
inherent in the Proposal, to terminate its discussions with the Other Company.
On July 5, 1996, the legal advisors of the Company advised those of both
the Other Company and Maxxim of the Board's July 3 decision, and Wheat made a
similar call to the financial advisors of the Other Company. Later on July 5,
the Company issued a press release announcing the expiration of the HSR Act
waiting period with respect to the Maxxim transaction and discussing its receipt
of the Proposal and the Board's decision not to pursue it.
Recommendation of the Board of Directors; Reasons for Recommendation
The Company's Board of Directors and the Special Committee unanimously
have determined that the Merger is fair to and in the best interest of the
Shareholders of the Company, have approved the Merger Agreement and the Merger
and recommend that the Company's shareholders vote for approval and adoption of
the Merger Agreement and the Merger.
In approving the Merger Agreement and the transactions contemplated
thereby, and recommending that all shareholders tender their Shares pursuant to
the Offer and/or approve and adopt the Merger Agreement and the Merger, the
Board of Directors considered a number of factors, including:
(i) the unanimous determination of the Special Committee of
the Board that the Offer and the Merger are fair to and in
the best interests of the
18
<PAGE>
shareholders of the Company and the recommendation of the
Special Committee that the Board approve the Offer and the
Merger;
(ii) the opinion of Wheat that as of the date of its opinion
the $20.00 per Share in cash to be received by the holders
of the Shares pursuant to the Offer and the Merger is fair
to such holders from a financial point of view;
(iii) the presentation of Wheat in connection with such opinion,
as to various financial and other considerations deemed
relevant to the Board's evaluation of the Offer and the
Merger including: (A) a review of financial and other
information that was publicly available or furnished to
Wheat by the Company's management; (B) a review and
analysis of the historical market prices and trading
activity of the Shares and for certain publicly traded
companies which Wheat deemed relevant; (C) a comparison of
the results of operations of the Company with those of
certain publicly traded companies which Wheat deemed
relevant; (D) a comparison of the proposed financial terms
of the Offer and the Merger with those of certain other
mergers and acquisitions which Wheat deemed relevant; and
(E) a discounted cash flow analysis of the Company based
upon estimates of projected financial performance prepared
by management of the Company;
(iv) the results of the auction process undertaken to solicit
proposals from third parties to acquire the Company, and
the fact that Maxxim was the only potential acquiror of
the Company that submitted a definitive proposal in
accordance with the procedures outlined in the auction
process;
(v) the historical and recent market prices of the Shares and
the fact that the $20.00 per Share Offer Price represents
a substantial premium over the $13.00 per Share market
price on February 23, 1996 (the last trading day before
the public announcement of Maxxim's initial acquisition
proposal) and a substantial premium over the historical
trading prices since the Company's initial public offering
on September 27, 1994;
(vi) information with respect to the financial condition,
results of operations and business of the Company, on both
a historical and prospective basis, and current industry,
economic and market conditions;
19
<PAGE>
(vii) the potential impact of the Offer and the Merger and of
alternatives thereto on the Company's business and
prospects;
(viii) the commitment letter received by Maxxim from its
financing source with respect to the financing of the
Offer and the Merger; and
(ix) the terms and conditions of the Offer and the Merger,
including, without limitation, the fact that, to the
extent required by fiduciary obligations of the Board of
Directors of the Company to the shareholders under the
Virginia Act, the Company may terminate the Merger
Agreement in order to approve a tender offer or exchange
offer for the Shares by a third party, or another type of
business combination, on terms more favorable to the
Company's shareholders than the Offer and the Merger taken
together upon the payment of a $3.5 million termination
fee; in assessing the termination fee, the Board and the
Special Committee considered the likelihood of any third
party making an acquisition proposal for the Company and
that the effect of the termination fee would be to
increase by the amount of such termination fee the costs
to a third party of acquiring the Company.
The Board of Directors did not assign weights to the factors or
determine that any factor was of particular importance. Rather, the Board of
Directors viewed their position and recommendation as being based on the
totality of the information presented to and considered by them.
Opinion of the Company's Financial Advisor
Wheat was engaged by the Company to act as its financial advisor in
connection with a possible business combination. In connection with this
engagement, the Company requested that Wheat provide a written opinion to the
Board of Directors of the Company as to the fairness of the consideration to be
received by shareholders of the Company, from a financial point of view, in
connection with the proposed sale of the Company to Maxxim. On June 8, 1996, at
a meeting of the Board of Directors of the Company held to evaluate the proposed
transaction with Maxxim, Wheat delivered an oral opinion (subsequently confirmed
by delivery of a written opinion) to the Board of Directors of the Company to
the effect that, as of the date of such opinion and based upon and subject to
certain matters stated in such opinion, the cash consideration of $20.00 per
share to be received by the Company's shareholders was fair, from a financial
point of view, to such holders. On July 15, 1996, Wheat again confirmed its
opinion in writing.
20
<PAGE>
The full text of Wheat's opinion dated July 15, 1996, which sets forth
certain assumptions made, matters considered and limitations on review
undertaken is attached as Exhibit B to this Proxy Statement and is incorporated
herein by reference. Shareholders are urged to read this opinion in its
entirety. The summary of the opinion of Wheat set forth in this Proxy Statement
is qualified in its entirety by reference to the opinion. Wheat's opinion is
directed only to the fairness, from a financial point of view, of the
consideration to be received by the shareholders of the Company and does not
constitute a recommendation to any shareholders of the Company as to how such
shareholder should vote on the Merger.
In arriving at its opinion, Wheat, among other things, (1) reviewed the
financial and other information contained in the Company's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the fiscal years ended
September 30, 1995, September 30, 1994 and September 30, 1993 and certain
interim reports to the Company's shareholders and Quarterly Reports on Form 10-Q
and similar reports of the Parent; (2) conducted discussions with members of
senior management of the Company and Maxxim concerning their respective
businesses and prospects; (3) reviewed certain publicly available information
with respect to historical market prices and trading activity for the Company's
Common Stock and for certain publicly traded companies which it deemed relevant;
(4) compared the results of operations of the Company with those of certain
publicly traded companies which it deemed relevant; (5) compared the proposed
financial terms of the transaction with the financial terms of certain other
mergers and acquisitions which it deemed to be relevant; (6) performed a
discounted cash flow analysis of the Company based upon estimates of projected
financial performance prepared by the management of the Company; and (7)
reviewed the Merger Agreement (including the Exhibits thereto) dated as of June
10, 1996. In addition to the foregoing, Wheat reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as it deemed necessary.
In rendering its opinion, Wheat assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made available to it by
Maxxim and the Company, and did not assume any responsibility for independent
verification of such information or any independent valuation or appraisal of
any of the assets of Maxxim and the Company. Wheat relied upon the management of
Maxxim and the Company as to the reasonableness and achievability of their
financial and operational forecasts and projections, and the assumptions and
bases therefor, provided to it, and assumed that such forecasts and projections
reflected the best available estimates and judgments of such managements at that
time, and assumed that such forecasts and projections would be realized in the
amounts and in the time periods estimated by such managements. Wheat's opinion
is necessarily based upon market, economic and other conditions as they existed
and could be evaluated on the date of its opinion and the information made
available to Wheat through that date. Events occurring after that date could
materially affect the assumptions and conclusions contained in Wheat's opinion.
Wheat's opinion does not address the relative merits of the transaction
contemplated
21
<PAGE>
by the Merger Agreement as compared to any alternative business strategies that
might exist for the Company, nor does it address the effect of any other
business combination in which the Company might engage.
Wheat's advisory services and its opinion are provided to the Company's
Board of Directors in evaluating the transaction contemplated by the Merger
Agreement and are not on behalf of, and are not intended to confer rights or
remedies upon Maxxim, any shareholder of Maxxim and do not constitute a
recommendation to any holder of the Shares as to whether such holder should
approve the Merger.
Pursuant to the terms of its engagement, the Company agreed to pay Wheat
a transaction fee of approximately $1.5 million in cash at the closing of the
transaction (less $100,000 previously paid by the Company in connection with the
Company's retention of Wheat). In addition, the Company agreed to reimburse
Wheat for its reasonable out-of-pocket expenses (including legal fees and
expenses) incurred in performing its services under its engagement, whether or
not the transaction is consummated or the engagement terminates or expires. In
addition, the Company has agreed to indemnify Wheat and certain related persons
against certain liabilities related to or arising out of Wheat's engagement.
Wheat is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. The Company
selected Wheat as its financial advisor based upon its familiarity with the
Company and the industry in which the Company operates and its experience,
ability and reputation with respect to mergers and acquisitions.
In the ordinary course of its business as a broker-dealer, Wheat may,
from time to time, have a long or short position in, and buy or sell, debt or
equity securities of the Company or the Parent for its own account or for the
accounts of its customers. Wheat has provided investment banking services for
the Company in the past for which it has received customary compensation.
Interests of Certain Persons in the Merger
Certain existing and former members of the Company's management and
Board (as well as other employees of the Company) have certain interests that
are described below that may present them with actual or potential conflicts of
interest in connection with the Merger. Also see "Security Ownership of Certain
Beneficial Owners and Management."
22
<PAGE>
Employment Agreements
In October 1994, the Company entered into employment agreements with
certain executive officers having the following terms: three years in the case
of Mr. Woo and Mr. Graham, two years in the case of Mr. Davis and Mr. Holswade,
and through September 30, 1995 in the case of Mr. Martine. In June 1995, the
Company entered into an employment agreement having a two-year term with Mr.
Callahan. Each employment agreement, other than that of Mr. Martine, will be
extended for successive one-year terms beginning on the first anniversary of its
commencement, unless either the executive officer or the Company gives notice to
the other of an election not to extend the term of the employment agreement. The
employment agreements provide for base salaries of $250,000 for Mr. Martine,
$200,000 for Mr. Woo, $130,000 for Mr. Graham, and $105,420 for Mr. Callahan,
Mr. Davis and Mr. Holswade, subject to adjustment by the Board of Directors, as
well as performance-based bonuses. Under each of the employment agreements, the
Company may terminate the executive officer's employment at any time for
"Cause," as defined in the employment agreement, without incurring any
continuing obligations to the executive officer. If the Company terminates an
executive officer's employment for any reason other than for "Cause" or if an
executive officer terminates his or her employment for "Good Reason," as defined
in the employment agreement, the Company will remain obligated to continue to
provide the compensation and benefits specified in the executive officer's
employment agreement for the duration of what otherwise would have been the term
of the employment agreement.
In June 1995, the Company and Mr. Martine entered into an amendment of
his agreement under which Mr. Martine resigned as chief executive officer and
agreed that, upon his retirement as an employee of the Company as of September
30, 1995, he would continue to serve as Chairman of the Board and would become a
consultant to the Company for a period of two years. The amended agreement
provides for an annual retainer fee of $80,000 and has termination provisions
similar to those outlined above.
Change in Control Protections
The Company has entered into a severance agreement with each of Mr. Woo
and Mr. Graham, the terms of which automatically extend for successive one-year
periods unless terminated by either party. If the employment of the executive
officer is terminated by the Company or its successor (with certain exceptions)
for "Good Reason" (as defined in the severance agreement), within 36 months
following a "Change in Control" (as defined in the severance agreement) or if
the executive officer terminates his employment within a period of 45 days
following the first anniversary of the Change in Control, the executive officer
will be entitled to receive a cash payment equal to 2.99 times the average
annual compensation paid to the executive officer for the five most recent
taxable years of the Company ending prior to the
23
<PAGE>
Change in Control, as well as the continuation of fringe benefits (including
life insurance, disability, medical, dental and hospitalization benefits) for a
period of up to twelve months. To the extent the aggregate benefits available to
Mr. Woo or Mr. Graham, whether under their respective severance agreements or
otherwise, exceed the limit of three times the executive's average base
compensation provided in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), resulting in the executive officer incurring an excise tax
under Section 4999 of the Code or any other taxes or penalties (other than
ordinary income or capital gains taxes), the severance agreements require the
Company to pay the executive officer an additional amount to cover any such
excise taxes or penalties he incurs. In addition, all stock options awarded
under the Company's Stock Incentive Plan have become fully vested and
immediately exercisable as a result of the Board of Director's approval of the
Merger Agreement.
Retirement Benefits
Estimated annual benefits under the Company's pension plan and any
supplemental retirement plan upon retirement at age 65, determined as of October
1, 1995 to a person with specified earnings and years of pension benefit
service, are set forth in the table below.
Estimated Benefits Payable at Retirement (1)
<TABLE>
<CAPTION>
Estimated Annual Benefits for Representative
Years of Credited Service (2)
Benefit Compensation (3) 15 20 25 30 35
- ------------------------ -- -- -- -- --
<S> <C>
$ 50,000.........................................$.9,311... $12,415 $15,519 $18,623 $21,726
100,000..........................................21,311.. 28,415 35,519 42,623 49,726
150,000..........................................33,311... 44,415 55,519 66,623 77,726
200,000..........................................45,311... 60,415 75,519 90,623 105,726
250,000..........................................57,311... 76,415 95,519 114,623 133,726
300,000..........................................69,311... 92,415 115,519 138,623 161,726
</TABLE>
- -------------
(1) Assumes attainment of age 65 in fiscal 1996 and Social Security covered
compensation of $27,576.
(2) The projected years of pension benefit service at age 65 for each of the
named executive officers are:
Roy R. Martine, 14; Paul J. Woo, Jr., 35; D. Randolph Graham, 28;
Timothy J. Callahan, 26; Hubert A. Davis, Jr., 18; and Henry C.
Holswade, 28.
(3) Benefit Compensation is the average of the highest five consecutive plan
year's W-2 earnings (including overtime, bonuses, and commissions
preceding the date of determination for benefits accrued through
December 31, 1995) and W-2 earnings for benefits accrued after that
date.
The estimated benefits assume retirement at age 65 and assume that
payments will be made for the lifetime of the participant, which is the normal
form of payment under the Company's retirement plan. The estimated retirement
benefits reflected above may, in some cases, be based on compensation that
exceeds the amount that may be recognized by the plan
24
<PAGE>
under the Internal Revenue Code or otherwise exceed the maximum benefit
limitations prescribed under the Internal Revenue Code, in which event the
excess amount cannot be paid from Company's retirement plan, but may be paid
from the Company's supplemental retirement plan. Such limitations may change
from time to time before the individuals in question actually retire.
The Company's supplemental retirement plan is designed to provide
employees with the difference between the benefits they actually accrue under
the Company's pension plan and the benefits they would have accrued but for the
maximum benefit and compensation limits imposed by law. The supplemental
retirement plan provides an additional benefit for certain executives that is
designed to provide them with the difference in what they would have received
under the pension plan had it not been amended effective January 1, 1996, and
what they will actually receive under the pension plan.
The Company also maintains a defined contribution plan providing for
salary deferral elections pursuant to Section 401(k) of the Code and offering
eligible employees the opportunity to invest plan contributions in shares of
common stock of the Company. Participants are permitted to make salary deferral
elections with respect to from 1% to 12% of their compensation. The Company
provides a matching contribution equal to 50% of the employees' salary deferral
amounts up to 6% of employee compensation. In addition, the Company may make
additional profit sharing contributions each year in an amount, if any,
determined by the Company from time to time. To date, the Company has not made
any discretionary profit sharing contributions.
Stock Incentive Plan
The Company maintains a Stock Incentive Plan (the "Stock Incentive
Plan"), under which employees, nonemployee directors and independent sales
representatives of the Company are eligible to receive awards in the form of
stock options, stock appreciation rights and restricted stock grants.
An aggregate of 550,000 shares of Common Stock were reserved for
issuance under the Stock Incentive Plan, subject to adjustment in the event of a
stock split, stock dividend or other change in the Common Stock or the capital
structure of the Company. The Stock Incentive Plan has been administered by the
Executive Compensation Committee of the Board of Directors. Subject to the
provisions of the Stock Incentive Plan, the Executive Compensation Committee is
authorized to determined who may participate in the Stock Incentive Plan, the
number and type of awards to each participant, the schedule on which each award
other than non-employee director options will become exercisable and the terms,
conditions and limitations applicable to each award. The Executive Compensation
Committee may reduce the vesting schedule of a participant's award if the
participant has greater than
25
<PAGE>
three years of service with the Company, in connection with the retirement of
the participant or under certain other circumstances. In addition, the Executive
Compensation Committee has the exclusive power to interpret the Stock Incentive
Plan and to adopt such rules and regulations as it may deem necessary or
appropriate for purposes of administering the plan. Subject to certain
limitations, the Board of Directors is authorized to amend, modify or terminate
the Stock Incentive Plan to meet any changes in legal requirements or for any
other purpose permitted by law.
Stock Options. Under the Stock Incentive Plan, the Executive
Compensation Committee is authorized to grant options to purchase shares of
Common Stock, including options qualifying as "incentive stock options" ("ISOs")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and options that do not so qualify, to employees, nonemployee directors and
independent sales representatives. Options granted are subject to adjustment in
the event of a stock split, stock dividend or other change in the Common Stock
or the capital structure of the Company. Options are exercisable over such
period as may be determined by the Executive Compensation Committee, but no
option may be exercised after ten years from the date of grant. Options may be
exercisable in instalments and upon such other terms as determined by the
Executive Compensation Committee. Options are evidenced by option agreements. No
option may be transferable other than by will or by the laws of descent and
distribution. The purchase price of Common Stock subject to an option is not
less than 100% of the Fair Market Value (as defined in the Stock Incentive Plan)
of such Common Stock on the date of grant. The purchase price of Common Stock
under any options shall be paid in full in cash, Common Stock, a recourse note
or a combination thereof.
Stock Appreciation Rights. Under the Stock Incentive Plan, the Executive
Compensation Committee also may grant stock appreciation rights ("SARs") either
in tandem with an option or alone. SARs granted in tandem with a stock option
may be granted at the same time as the stock option or at a later time. An SAR
entitles the participant to receive from the Company an amount payable in cash,
in shares of Common Stock or in a combination of cash and Common Stock equal to
the positive difference between the Fair Market Value of a share of Common Stock
on the date of exercise and the grant price, or such lesser amount as the
Executive Compensation Committee may determine. No SAR may be exercisable
earlier than six months after grant.
Restricted Share Awards. Under the Stock Incentive Plan, the Executive
Compensation Committee may grant shares of restricted Common Stock, which are
subject to forfeiture under such conditions and for such period of time (not
less than one year) as the Executive Compensation Committee may determine. The
Executive Compensation Committee is authorized to determine the conditions or
restrictions of any restricted Common Stock awards, which may include
restrictions on transferability and requirements of continued employment,
individual performance or the Company's financial performance.
26
<PAGE>
The Stock Incentive Plan provides for the acceleration of certain
benefits in the event of a "Change in Control" of the Company. A Change in
Control will be deemed to have occurred if either (i) any person or group
acquires beneficial ownership of 20% of the voting securities of the Company,
(ii) there is a change in the composition of a majority of the Board of
Directors within any two-year period, (iii) the shareholders of the Company
approve a merger, consolidation or reorganization involving the Company in which
it is not the surviving entity, (iv) there is a complete liquidation or
dissolution of the Company or (v) the Company enters into an agreement for the
sale or other disposition of all or substantially all of the assets of the
Company.
As of August 12, 1996, the Company had outstanding options to purchase
549,616 shares of Common Stock heretofore granted under the Stock Incentive Plan
and no restricted share awards outstanding.
Under the Merger Agreement, the Company will, to the extent necessary,
adjust the terms of all outstanding Options to provide for cancellation of the
Options, not later than immediately before the Effective Time in exchange for
cash payment equal to the product of (i) the total number of Shares subject to
the Option and (ii) the excess, if any, of $20.00 over the exercise price per
Share subject to such Option.
Financing of the Offer and Merger
Of the estimated $108.8 million cost of the 5,438,059 shares of Common
Stock purchased pursuant to the Offer and related fees and expenses, (x)
approximately $12.55 million was borrowed from NationsBank of Texas, N.A. (the
"Senior Lender") under the terms of a Second Amended and Restated Credit
Agreement providing for a $165,000,000 Senior Credit Facility (the "Senior
Facility"), and (y) the remaining $96,250,000 consisted of the net proceeds of
the sale on July 30, 1996 of $100,000,000 in principal amount of 10-1/2% Senior
Subordinated Notes due 2006 (the "Senior Notes") to NationsBanc Capital Markets,
Inc., an affiliate of the Senior Lender, and Bear, Stearns & Co. Inc., as
initial purchasers ("Initial Purchasers"). Payment of the approximately $1.8
million cost of acquiring the remaining 88,325 Shares in connection with the
Merger will be funded by additional borrowings under the Senior Facility.
The Senior Facility consists of a $75,000,000 revolving credit facility,
which includes a $15,000,000 sublimit for the issuance of standby and commercial
letters of credit, and a $90,000,000 term loan facility. The proceeds of the
Senior Facility was or will be used to finance a portion of the acquisition of
the Shares, as well as for working capital, capital expenditures, refinancing
the existing credit facilities of Maxxim and the Company, and other lawful
purposes. Maxxim has paid to the Senior Lender and an affiliate of the Senior
Lender an upfront fee, a commitment fee, certain letter of credit fees and
administrative agency fees.
27
<PAGE>
The Senior Facility bears interest at a rate equal to LIBOR or an alternate base
rate (defined as the higher of (1) the Senior Lender prime rate and (ii) the
Federal Funds rate plus .50%) plus a margin (which will depend on the ratio of
total funded debt to EBIDTA).
The principal of the term loan portion of the Senior Facility is to be
repaid in quarterly installments, and the entire Senior Facility will mature and
become due and payable six years from the closing thereof; however, the Parent
may prepay the Senior Facility in whole or in part at any time without penalty
or premium (subject to reimbursement of the Senior Lender breakage and
redeployment costs actually incurred in the case of prepayment of LIBOR
borrowings), and must be prepaid with the proceeds of certain asset sales, and
permitted debt and equity issuances.
Repayment of the Senior Facility is secured by a first priority
perfected security interest in all of the capital stock of Maxxim and each of
its domestic subsidiaries, and sixty-five percent of the capital stock of each
of its foreign subsidiaries, which capital stock shall not be subject to any
other lien or encumbrance. In addition, repayment is guaranteed by all existing
or newly created subsidiaries of Maxxim, as well as the Parent.
The Senior Facility will also contains representations and warranties,
events of default, financial and other covenants, cost and yield protections,
indemnification and other provisions which are usual and customary for
transactions of this type.
The net proceeds of the Senior Notes were used to pay for Shares
acquired in the Offer. The Parent allowed the Initial Purchasers an aggregate of
$3,000,000 in underwriting discounts in connections with the sale of the Senior
Notes and paid an estimated $750,000 in fees and expenses of the Initial
Purchasers and the Company. Interest only is payable semi-annually on the Senior
Notes on each of February 1 and August 1, commencing February 1, 1997. The
Senior Notes are payable at their scheduled August 1, 2006 maturity, or earlier
upon a change of control or other events specified under the Indenture (the
"Indenture") dated July 30, 1996 between the Parent and Union National Bank of
North Carolina, as Trustee, under which the Senior Notes were issued. The Senior
Notes are general unsecured obligations of the Parent, subordinated in right of
payment to all existing and future Senior Indebtedness (as defined), including
the Senior Facility, and are unconditionally guaranteed by various subsidiaries
of the Parent. The Indenture restricts, among other things, the Parent's ability
to incur additional indebtedness, sell stock of subsidiaries, apply net proceeds
from certain asset sales, merge or consolidate with any other person, sell,
assign, transfer, lease, convey or otherwise dispose of substantially all of the
assets of the Company, enter into certain transactions with affiliates, or incur
indebtedness that is subordinate in right of payment to any senior indebtedness
and senior to the Senior Notes.
28
<PAGE>
It is anticipated that the Senior Notes will be repaid from funds
generated internally by the Parent and its subsidiaries (including, if the
Merger is consummated, the Company) or other sources, which may include the
proceeds of debt or equity financings of the Parent. No decision has been made
concerning these matters, and such decisions will be made based upon the
Parent's review from time to time of the advisability of particular transactions
as well as on prevailing interest rates and other financial conditions.
Certain Effects of the Merger
If the Merger is consummated, holders of Shares will not have an
opportunity to continue their common equity interest in the Company as an
ongoing operation and therefore will not have the opportunity to share in its
future earnings and potential growth, if any. Following the Merger, the Company
will take all necessary actions (i) to deregister the Shares under the Exchange
Act and (ii) to terminate listing of the Shares on the NYSE.
Payment of Merger Consideration
Promptly after consummation of the Merger, a paying agent (the "Paying
Agent") will send a transmittal letter and instructions to each person that was
a record holder of Shares immediately prior to the Effective Time advising such
holder of the procedure for surrendering his or her certificates in exchange for
$20.00 in cash for each formerly outstanding Share. To receive the payment to
which they are entitled pursuant to the terms of the Merger Agreement,
shareholders must carefully comply with the instructions on such transmittal
letter and return it, along with their certificates to the Paying Agent pursuant
to the terms thereof. Do not send share certificates with your Proxy. Interest
will not be paid on the amounts payable upon surrender of certificates which
formerly represented the Shares. It is therefore recommended that certificates
be surrendered promptly after consummation of the Merger. If, with respect to
any Shares, the cash price of $20.00 per Share is to be paid to a person who is
not the holder of record of such Shares, the amount of any applicable stock
transfer taxes will be required to be paid by the record holders or such other
person prior to the payment of the Merger Consideration unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted to
the Paying Agent.
THE MERGER AGREEMENT
Set forth below is a description of the principal terms of the Merger
Agreement which are of continuing applicability. This description is qualified
in its entirety by reference to the Merger Agreement, which is attached as
Exhibit A hereto and is incorporated herein by reference.
29
<PAGE>
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, and in accordance with the Virginia Stock Corporation Act
(the "Virginia Act"), the Purchaser shall be merged with and into the Company
(the "Merger"). As a result of the Merger, the separate corporate existence of
the Purchaser will cease and the Company will continue as the surviving
corporation (the "Surviving Corporation").
The Merger Agreement provides that at the effective time of the Merger
(the "Effective Time"), each issued and outstanding Share (other than Shares
that are owned directly or indirectly by Maxxim or any subsidiary of Maxxim)
shall be converted into the right to receive the Merger Consideration, without
interest.
Pursuant to the Merger Agreement, each issued and outstanding share of
common stock, no par value per share, of the Purchaser shall be converted into
one fully paid and non-assessable share of Common Stock of the Company.
The Company's Board of Directors. Pursuant to the Merger Agreement and
in conjunction with the consummation of the Offer, the Company has caused Roy R.
Martine, Paul J. Woo, Jr., and Nina Novak to resign from the Board of Directors.
The remaining Board of Directors, comprised of Messrs. Allen and Scherer, as
permitted by the Bylaws of the Company, expanded the size of the Board of
Directors from five members to seven members and appointed Kenneth W. Davidson,
Peter M. Graham, David L. Lamont, Alan S. Blazei and Ernest J. Henley, designees
of Maxxim, to fill the five vacancies on the Board of Directors. Neither the
Company, Maxxim nor the Purchaser will take any action to remove or replace any
member of the Special Committee (as defined herein) during the period after
consummation of the Offer and prior to the Effective Time, and if for any reason
during such period there are fewer than two members of the Special Committee on
the Company's Board of Directors, the Company, Maxxim and the Purchaser will use
their reasonable efforts to ensure that two members ("Continuing Directors") of
the Company's Board of Directors are either members of the Special Committee or
persons who are neither officers nor employees of the Company or associated or
affiliated with, or designated by, Maxxim. The Continuing Directors are Messrs.
Allen and Scherer. In the event that both Continuing Directors resign from the
Special Committee, Maxxim, the Purchaser and the Company shall permit the
resigning Continuing Directors to appoint their successors in their reasonable
discretion. The Merger Agreement also provides that following the election or
appointment of Maxxim's designees to the Company's Board of Directors and prior
to the Effective Time, if requested by the majority of the Continuing Directors,
such designees will abstain from acting upon, and the approval of the majority
of the Continuing Directors will be required to authorize, any termination of
the Merger Agreement by the Company, or any amendment of the Merger Agreement
requiring action by the Board of Directors, or any extension of time for
performance of any obligations or other acts of Maxxim or the Purchaser under
the Merger Agreement or any waiver of compliance with any other covenants,
agreements or conditions
30
<PAGE>
under the Merger Agreement for the benefit of the Company. In addition, the
Company will, if requested, use its reasonable efforts to cause persons
designated by the Purchaser to constitute the same percentage of each committee
of the Company's Board of Directors, each board of directors of the Company's
subsidiaries and of each committee of such subsidiary (in each case to the
extent of the Company's ability to elect such persons). It is contemplated that
upon consummation of the Merger, Messrs. Allen and Scherer will resign as
directors of the Company and that all continuing directors of the Company will
be officers or employees of Maxxim or the Purchaser.
For a period ending two days prior to the Effective Time (the "Option
Exercise Period"), the composition of the Executive Compensation Committee of
the Board of Directors of the Company shall remain the same as the Special
Committee of the Board of Directors and the Board of Directors shall not take
any action to limit or impair the authority of the Executive Compensation
Committee to administer the Stock Incentive Plan; provided, however, that the
Executive Compensation Committee will not (i) make any additional grants or
awards of any type pursuant to the Stock Incentive Plan, (ii) amend the terms
and conditions of any award made pursuant to the Stock Incentive Plan prior to
the date of the Merger Agreement, or (iii) have any authority to act with
respect to any matters other than those related to options previously granted
under the Stock Incentive Plan.
Interim Operations. In the Merger Agreement, the Company has agreed
that, except as expressly contemplated by the Merger Agreement or agreed to by
Maxxim in writing, prior to the closing of the Merger, the business of the
Company and its subsidiaries shall be conducted only in the ordinary and usual
course and, to the extent consistent therewith, each of the Company and its
subsidiaries will use its reasonable efforts to preserve its business
organization intact and maintain satisfactory relations with licensors,
customers, suppliers, distributors, employees, creditors and others having
business relationships with it. In addition, each of the Company and its
subsidiaries will not (i) issue or sell any shares of its capital stock (other
than in connection with the exercise of options outstanding on the date of the
Merger Agreement) or any of its other securities, or issue any securities
convertible into, or options, warrants or rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance or sale of,
any shares of its capital stock or any of its other securities or make any other
changes in its capital structure; (ii) sell or pledge or agree to sell or pledge
any stock owned by it in any of its subsidiaries; (iii) declare, pay, set aside
or make any dividend or other distribution or payment with respect to, or split,
combine, redeem or reclassify, any shares of its capital stock; (iv) enter into
any contract or commitment with respect to capital expenditures in excess of
$150,000 or enter into any other material contracts except contracts in the
ordinary course of business; (v) acquire a material amount of assets or
securities or release or relinquish any material contract rights; (vi) adopt or
amend any Employee Benefit Plan (as defined in the Merger Agreement) or
non-employee benefit plan or program, employment agreement, license agreement or
retirement agreement, or, except in the
31
<PAGE>
ordinary course of business consistent with past practice, pay any bonus or
contingent or other extraordinary compensation; (vii) other than in the ordinary
course of business consistent with past practice, transfer, lease, license,
guarantee, sell, mortgage, pledge, dispose of, encumber or subject to any lien,
any assets or incur or modify any indebtedness or other liability or issue any
debt securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for the obligations of any person; (viii) agree to the
settlement of any material claim or litigation; (ix) make any material tax
election or settle or compromise any material tax liability; (x) make any
material change in its method of accounting; (xi) make any change in or
amendment to its Articles or By-Laws (or comparable corporate documents:); or
(xii) agree, in writing or otherwise, to take any of the foregoing actions.
Directors' and Officers' Insurance and Indemnification. The Merger
Agreement provides that the Articles and By-laws of the Company shall contain
the provisions with respect to indemnification and exculpation from liability
set forth in the Company's Articles and By-laws on the date of the Merger
Agreement, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who on or prior to the
Effective Time were directors, officers, employees or agents of the Company
("Indemnified Parties"), unless such modification is required by law.
The Merger Agreement provides that the Company shall either (i) maintain
the Company's existing directors' and officers' liability insurance covering
those persons who were covered on the date of the Merger Agreement by the
Company's directors' and officers' liability insurance policy for a period of
six years after the Effective Time, except that the Company may substitute
therefor policies of substantially similar coverage and amounts containing terms
no less advantageous and provided that said substitution does not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time, provided that in no event shall the Company be required to
expend in any one year an amount in excess of 150% of the annual premiums
currently paid by the Company for such insurance and that if the annual premiums
of such insurance coverage exceed that amount, the Company shall be obligated to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount or (ii) cause Maxxim's directors' and officers' liability insurance
then in effect to cover those persons who are covered on the date of the Merger
Agreement by the Company's directors' and officers' liability insurance policy
with respect to those matters covered by the Company's directors' and officers'
liability policy.
In the Merger Agreement, Maxxim has agreed, from and after the date of
purchase of Shares pursuant to the Offer, to indemnify all Indemnified Parties
to the fullest extent permitted by applicable law, including, subject to certain
limitations, indemnification for reasonable legal and other expenses, with
respect to all acts and omissions arising out of such individuals' services as
officers, directors, employees or agents of the Company or any of its
32
<PAGE>
subsidiaries, occurring prior to the Effective Time including, without
limitation, the transactions contemplated by the Merger Agreement. If such
indemnity will not be available with respect to any Indemnified Party, then the
Company and the Indemnified Party shall contribute to the amount payable in such
proportion as is appropriate to reflect relative faults and benefits.
Compensation and Benefits. Pursuant to the Merger Agreement, Maxxim has
agreed that, during the period commencing at the Effective Time and ending on
the second anniversary thereof, the employees of the Company and its
subsidiaries will continue to be provided with employee benefit plans (other
than stock option, employee stock ownership or other plans involving the
potential issuance of securities of the Company or of Maxxim) which are in the
aggregate substantially comparable to those currently provided by the Company
and its subsidiaries to such employees. Maxxim will honor employee (or former
employee) benefit obligations and contractual rights existing as of the
Effective Time and all employment, incentive and deferred compensation or
severance agreements, plans or policies adopted by the Board of Directors of the
Company (or any committee thereof) prior to the date of the Merger Agreement in
accordance with their terms.
Options. Pursuant to the Merger Agreement, prior to the Effective Time,
the Board of Directors of the Company (or, if appropriate, any committee
thereof) will adopt appropriate resolutions and take all other actions necessary
to provide for the cancellation, effective at the Effective Time of all the
outstanding stock options to purchase Common Stock (the "Options") heretofore
granted under the Stock Incentive Plan of the Company. Immediately prior to the
Effective Time, (i) each Option, whether or not then vested or exercisable,
shall no longer be exercisable for the purchase of shares of Common Stock but
shall entitle each holder thereof, in cancellation and settlement therefor, to
payments in cash (subject to any applicable withholding taxes and repayment of
any outstanding Option Note (as hereinafter defined), the "Cash Payment"), at
the Effective Time, or as soon as practicable thereafter, subject to certain
considerations, equal to the product of (x) the total number of shares of Common
Stock subject to such Option, whether or not then vested or exercisable, and (y)
the excess of the Offer Price over the exercise price per share of Common Stock
subject to such Option, each such Cash Payment to be paid to each holder of an
outstanding Option at the Effective Time and (ii) each share of Common Stock
previously issued in the form of grants of restricted stock or grants of
contingent shares shall fully vest in accordance with their respective terms.
Any then outstanding stock appreciation rights or limited stock appreciation
rights shall be canceled as of immediately prior to the Effective Time without
any payment therefor. As provided herein, the Stock Incentive Plan and any other
plan, program or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any subsidiary shall
terminate as of the Effective Time. The Company will take all steps to ensure
that neither the Company nor any of its subsidiaries is or will be bound by any
Options, other options, warrants, rights or agreements which would entitle any
Person, other than Maxxim or
33
<PAGE>
its affiliates, to own any capital stock of the Company or any of its
subsidiaries or to receive any payment in respect thereof. The Company will use
its best efforts to obtain all necessary consents to ensure that after the
Effective Time, the only rights of the holders of Options to purchase shares of
Common Stock in respect of such Options will be to receive the Cash Payment in
cancellation and settlement thereof.
During the Option Exercise Period (which shall not be less than three
business days in duration), the Company shall permit holders of stock options
issued pursuant to the Company's Stock Incentive Plan which shall have become
exercisable to exercise such stock options in accordance with the provisions of
such Stock Incentive Plan, including without limitation those provisions
relating to (i) the payment of the exercise price of stock options by the
execution of a recourse note (the "Option Note") providing for the payment of
all amounts due under such note (A) through deductions from the Merger
Consideration which shall become due to the maker of such note at the Effective
Time or (B) if the Effective Time shall not occur within 120 days from the date
of the Offer Closing (as defined in the Merger Agreement), then on such 120th
day and (ii) the payment of the exercise price of stock options by the delivery
of shares of Common Stock.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Maxxim and the Purchaser with
respect to, among other things, its organization, capitalization, financial
statements, public filings, employee benefit plans, compliance with laws,
litigation, tax matters, action with respect to certain state takeover laws,
environmental matters, consents and approvals, material contracts, opinions of
financial advisors, undisclosed liabilities and the absence of certain changes
with respect to the Company since March 31, 1996.
Conditions to the Merger. Pursuant to the Merger Agreement, the
respective obligations of each party to effect the Merger is subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(i) to the extent required by applicable law, the Merger Agreement and the
Merger shall have been approved and adopted by holders of more than two-thirds
of the Shares in accordance with applicable law (if required by applicable law)
and the Company's Articles and By-Laws; (ii) no preliminary or permanent
injunction or other order shall have been issued by any court or by any
governmental or regulatory agency, body or authority which prohibits the
consummation of the Offer or the Merger and the transactions contemplated by the
Merger Agreement and which is in effect at the Effective Time, provided,
however, that, in the case of a decree, injunction or other order, each of the
parties shall have used reasonable efforts to prevent the entry of any such
decree, injunction or other order and to appeal as promptly as possible any
decree, injunction or other order that may be entered; and (iii) no statute,
rule, regulation, executive order, decree or order of any kind shall have been
enacted, entered, promulgated or enforced by any court or governmental authority
which prohibits the consummation of the Merger or has the effect of making the
purchase of the
34
<PAGE>
Shares illegal. The obligation of the Company to effect the Merger is subject to
the satisfaction or waiver of the condition that each of Maxxim and the
Purchaser shall have performed in all material respects all obligations and
agreements relating to the composition of the Board of Directors of the Company
after the closing of the Offer as set forth in the Merger Agreement and payment
for the Shares in the Merger to be performed or complied with by them prior to
the Effective Time.
Federal Income Tax Consequences
The following is a summary of the principal federal income tax
consequences of the Merger to shareholders of the Company who hold their Shares
as capital assets. The discussion is based on the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations ("Regulations") and public administrative and judicial
interpretations of the Code and Regulations, all of which are subject to change,
which changes could be applied retroactively. This discussion is for general
information purposes only and may not apply to shareholders of the Company who
are subject to special treatment under the Code, such as (but not limited to)
foreign persons, retirement plans, regulated investment companies and dealers in
securities. It does not cover the special tax consequences that may apply to
holders who acquired their Shares pursuant to the exercise of employee stock
options or otherwise as compensation. This summary is not intended to address
any aspects of state, local, foreign or other tax laws.
Accordingly, shareholders are urged and expected to consult their own
tax advisors to determine the specific tax consequences of the Merger to them
under federal, state, local, foreign or other tax laws and the effect of any
change in the applicable tax laws since the date hereof.
The receipt of cash from the Purchaser for Shares pursuant to the Merger
will be a taxable sale for federal income tax purposes (and also may be a
taxable sale under applicable state, local or foreign tax laws). In general, a
shareholder will recognize gain or loss for federal income tax purposes equal to
the difference between the amount of cash received for the Shares and the
holder's adjusted tax basis in such Shares. Gain or loss must be determined
separately for each identifiable block of Shares (i.e., shares acquired at the
same time and at the same price in one transaction) converted into cash in the
Merger. Provided the Shares constitute capital assets in the hands of the holder
thereof such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if, on the date of the sale pursuant to the Merger, the
Shares were held for more than one year. The deduction of any capital loss may
be limited under the Code.
Unless a shareholder complies with certain reporting and certification
procedures or is an exempt recipient under applicable withholding provisions of
the Code and Regulations, such
35
<PAGE>
holder may be subject to backup withholding tax of 31% with respect to any cash
payments received pursuant to the Merger. This tax is not an additional tax, but
is treated as a payment of the taxpayer's federal income tax and may be refunded
if the taxpayer has otherwise satisfied its federal income tax liability and the
taxpayer complies with the applicable requirements for obtaining a refund.
Shareholders should consult their brokers or the Paying Agent to ensure
compliance with such procedures. Foreign shareholders should consult their own
tax advisors regarding withholding taxes in general.
Accounting Treatment
The Merger will be accounted for under the "purchase" method of
accounting, whereby the purchase price for the Company will be allocated to the
identifiable assets and liabilities of the Company and its subsidiaries based on
their respective fair values.
Regulatory Matters
Except for the filing of Articles of Merger with the Virginia State
Corporation Commission, there are no federal or state regulatory requirements
which remain to be complied with in order for the Merger to be consummated in
accordance with the terms of the Merger Agreement.
NO DISSENTERS' RIGHTS
Holders of Shares are not entitled to dissenters' or appraisal rights in
connection with the Merger under the Virginia Act, since, at the record date
with respect to the Special Meeting at which the Merger Agreement and the Merger
will be acted upon, the Shares were listed on the New York Stock Exchange and
shareholders are entitled to receive only cash in connection with the Merger.
MARKET PRICE OF SHARES AND DIVIDENDS
The Shares are listed and were principally traded on the New York Stock
Exchange ("NYSE") under the symbol "SYS," and on the Chicago Stock Exchange and
Philadelphia Stock Exchange. The Shares commenced trading on the NYSE on
September 27, 1994. The following table sets forth, for each of the periods
indicated, the high and low sales prices per Share on the NYSE Composite Tape,
beginning September 27, 1994 as reported in published financial sources.
36
<PAGE>
<TABLE>
<CAPTION>
Sales Prices
High Low
<S> <C>
Year Ended December 31, 1994:
Fourth Quarter (from September 27, 1994)............. $17 3/8 $17
Year Ended December 31, 1995:
First Quarter........................................ $17 3/8 $15 1/8
Second Quarter....................................... 17 5/8 11 3/4
Third Quarter........................................ 13 3/8 10 3/4
Fourth Quarter....................................... 15 11 7/8
Year Ended December 31, 1996:
First Quarter........................................ $15 1/2 $12 7/8
Second Quarter....................................... 21 3/8 12
Third Quarter (through August 13, 1996).............. 20 1/2 19 1/2
</TABLE>
On June 7, 1996, the last full trading day before the public
announcement of the execution of the Merger Agreement, the reported closing
sales price of the Shares on the NYSE Composite Tape was $21 5/8 per Share.
Trading in the Shares was suspended on the NYSE on July 31, 1996 as a result of
the consummation of the Offer, and the last reported closing sales price of the
Shares on the NYSE Composite Tape on that date was $20.00 per Share.
The Company has declared a dividend of $0.04 per Share during every
quarter since the first quarter of fiscal 1995. The Merger Agreement prohibits
the Company from declaring, paying, setting aside or making any future dividend
or other distribution or payment on the Shares after June 10, 1996.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 13, 1996, certain
information regarding beneficial ownership of Shares by each current director of
the Company, each executive officer named in the Company's proxy statement for
its 1996 Annual Meeting of Shareholders, the current directors and "named
executive officers" as a group, and all persons known to the Company to be the
beneficial owners of more than 5% of the Shares.
37
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial Owner of Beneficial Ownership(1) Percent of Class(2)
<S> <C>
Maxxim Acquisition Co.(3) 5,438,059 95.7%
Paul J. Woo, Jr. 27,580 *
Roy P. Martine 52,390 *
D. Randolph Graham 9,550 *
Timothy J. Callahan 4,864 *
Hubert A. Davis, Jr. 7,375 *
Henry C. Holswade 7,375 *
Thomas N. Allen 196 *
J. Hamilton Scherer, Jr. 196 *
Kenneth W. Davidson(3)(4) 5,438,059 95.7%
Peter M. Graham(3)(4) 5,438,059 95.7%
David L. Lamont(3)(4) 5,438,059 95.7%
Alan S. Blazei(3)(4) 5,438,059 95.7%
Ernest J. Henley(3)(4) 5,438,059 95.7%
All executive officers and directors
as a group (16 persons)(4) 5,565,838 98.0%
</TABLE>
- ------------------------
* Less than one percent.
(1) Percent of class information includes 156,823 Shares which may be
acquired by persons who have the right to acquire such Shares
within 60 days, in accordance with Rule 13d-3 of the Exchange
Act.
(2) Includes shares that may be acquired upon the exercise of options
granted under the Company's Stock Incentive Plan that are
exercisable within 60 days of the Record Date in the following
amounts: Mr. Martine - 52,390 shares; Mr. Woo - 27,580 shares;
Mr. Graham - 9,550 shares; Mr. Callahan - 4,864 shares; Mr. Davis
- 7,375 shares; Mr. Holswade - 7,375 shares; Mr. Allen and Mr.
Scherer - 196 shares each; and all directors and executive
officers as a group - 127,779 shares. All outstanding and
unexercised options held by the named executive officers will be
canceled in exchange for the cash payment specified in the Merger
Agreement.
(3) The business address for such persons is 104 Industrial
Boulevard, Sugar Land, Texas 77478.
(4) Messrs. Davidson, Graham, Lamont, Blazei and Henley, directors of
the Company, may be deemed to share beneficial ownership of
shares owned of record by the Purchaser by virtue of their status
as officers and/or directors of the Purchaser or Maxxim.
38
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP, independent accountants and the Company's
auditors have audited and reported on the consolidated financial statements of
the Company and its subsidiaries for the year ended September 30, 1995. Such
financial statements have been incorporated by reference in this Proxy Statement
in reliance upon such report. It is expected that representatives of KPMG Peat
Marwick LLP will be present at the Special Meeting, that such representatives
will have an opportunity to make a statement if they desire to do so, and that
such representatives will be available to respond to appropriate questions.
OTHER MATTERS TO COME BEFORE THE MEETING
No other matters are intended to be brought before the Special Meeting
by the Company nor does the Company know of any matters that are expected to be
properly brought before the Special Meeting by others.
STOCKHOLDERS' PROPOSALS FOR 1997 ANNUAL MEETING
If the Merger is not consummated, any proposals of holders of Shares
intended to be presented at the annual meeting of shareholders of the Company to
be held on February 13, 1997 must have been received by the Company, addressed
to the Company at 5100 Commerce Road, Richmond, Virginia 23234, Attention:
Secretary, not later than August 31, 1996, to be considered for inclusion in the
proxy statement and form of proxy relating to such annual meeting.
AVAILABLE INFORMATION
As of the date hereof, the Company is subject to the informational
requirements of the Exchange Act, and in accordance therewith, files periodic
reports, proxy statements and other information with the Commission. Information
as of particular dates concerning the Company's directors and officers, their
remuneration, stock options granted to them, the principal holders of the
Company's securities and any material interest of such persons in transactions
with the Company is required to be disclosed in proxy statements distributed to
the Company's shareholders and filed with the Commission. Such reports,
definitive proxy statements and other information, as well as the Schedule 14D-1
and the Schedule 14D-9, as amended, relating to the Offer, are available for
inspection at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
also should be available for inspection at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661.
39
<PAGE>
Copies of such materials may also be obtained by mail, upon payment of the
Commission's customary fees, by writing to its principal office, Public
Reference Section, at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission (such as the Company) at
http://www.sec.gov. In addition, such materials may be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Shares are currently registered under the Exchange Act. Upon
consummation of the Merger, the Company will become a direct wholly owned
subsidiary of Parent, and there will be no public trading of the Shares.
Accordingly, as soon as practicable, registration of the Shares, and the
Company's obligation to file periodic reports, proxy statements and other
information with the Commission, will be terminated upon application of the NYSE
and/or the Company to the Commission. In addition, as the number of record
holders of the Company's shares is below 300, the Company has the option to
suspend its obligation to file periodic reports under Section 13(a) of the
Exchange Act. On or about the date of the Proxy Statement the Company will apply
to suspend such obligation.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Proxy Statement
the following documents previously filed with the Commission pursuant to the
Exchange Act:
o The Company's Annual Report on Form 10-K for the year ended
September 30, 1995;
o The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996; and
o The Company's Current Report on Form 8-K dated July 5, 1996.
In addition, all reports and other documents filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and prior to the Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein, or in any other subsequently filed document
that also is incorporated or deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement. A copy of any document incorporated
40
<PAGE>
by reference herein (including any exhibit incorporated by reference from any
such document) may be obtained without charge by any person receiving this Proxy
Statement, upon written or oral request, by contacting the Company at 5100
Commerce Road, Richmond, Virginia 23234, Attention: Secretary.
41
<PAGE>
EXHIBIT A
-----------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MAXXIM MEDICAL, INC.
MAXXIM ACQUISITION CO.
AND
STERILE CONCEPTS HOLDINGS, INC.
Dated as of June 10, 1996
-----------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE OFFER
1.1 The Offer.....................................................2
1.2 Company Actions...............................................3
1.3 Composition of the Board of Directors.........................5
1.4 Action By Directors...........................................8
ARTICLE II
THE MERGER AND RELATED MATTERS
2.1 The Merger....................................................9
2.2 Conversion of Stock..........................................10
2.3 Surrender of Certificates....................................11
2.4 Payment......................................................13
2.5 No Further Rights to Transfers...............................15
2.6 Stock Option and Other Plans.................................15
2.7 Articles of Incorporation of the Surviving
Corporation..............................................18
2.8 By-Laws of the Surviving Corporation.........................18
2.9 Directors and Officers of the Surviving
Corporation..............................................18
2.10 Closing......................................................19
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company................19
3.2 Representations and Warranties of Parent and Sub.............37
ARTICLE IV
TRANSACTIONS PRIOR TO AND AFTER THE CLOSING DATE
4.1 Access to Information Concerning Properties
and Records..............................................41
4.2 Confidentiality..........................................42
4.3 Conduct of the Business of the Company
Pending the Closing Date.................................42
4.4 Proxy Statement..........................................45
4.5 Stockholder Approval.....................................46
4.6 Reasonable Efforts.......................................46
4.7 No Solicitation of Other Offers..........................47
4.8 Notification of Certain Matters..........................50
4.9 HSR Act..................................................50
-i-
<PAGE>
4.10 Employee Benefits...........................................50
4.11 Directors' and Officers' Insurance;
Indemnification.........................................51
4.12 Financing...................................................54
4.13 Additional Reports and Filings..............................54
ARTICLE V
CONDITIONS PRECEDENT TO MERGER
5.1 Conditions Precedent to Obligations of Parent,
Sub and the Company......................................55
5.2 Conditions Precedent to Obligations of the
Company..................................................56
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1 Termination..................................................56
6.2 Effect of Termination........................................58
ARTICLE VII
MISCELLANEOUS
7.1 Fees and Expenses............................................59
7.2 Representations and Warranties...............................59
7.3 Extension; Waiver............................................60
7.4 Public Announcements.........................................60
7.5 Notices......................................................61
7.6 Entire Agreement.............................................62
7.7 Binding Effect; Benefit; Assignment..........................62
7.8 Applicable Law...............................................63
7.9 Severability.................................................63
7.10 "Person" Defined............................................63
-ii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 10, 1996 (this
"Agreement"), by and among MAXXIM MEDICAL, INC., a Delaware corporation
("Parent"), MAXXIM ACQUISITION CO., a Virginia corporation and a wholly-owned
subsidiary of Parent ("Sub"), and STERILE CONCEPTS HOLDINGS, INC., a Virginia
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and
the Company (in the case of the Company, based upon the recommendation of a
special committee of independent directors (the "Special Committee")) have
approved the acquisition of the Company by Parent;
WHEREAS, in contemplation thereof it is proposed that Sub will
make a tender offer (the "Offer") to purchase all the issued and outstanding
shares of common stock, no par value, of the Company ("Common Stock"), subject
to the terms and conditions of this Agreement, at a price of $20.00 per share
net to the seller in cash (the "Offer Price");
WHEREAS, to complete such acquisition, the respective Boards
of Directors of Parent, Sub and the Company have approved the merger of Sub into
the Company (the "Merger"), pursuant to and subject to the terms and conditions
of this Agreement; and
WHEREAS, the directors of the Company have unanimously
determined that each of the Offer and the Merger are fair to, and in the best
interests of, the holders of Common Stock, approved the Offer and the Merger and
recommended the acceptance of the
-1-
<PAGE>
Offer and approval and adoption of this Agreement by the stockholders of the
Company.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
THE OFFER
1.1 THE OFFER. Provided that this Agreement shall not have been
terminated in accordance with Article VI hereof and none of the events set forth
in Annex A hereto (the "Tender Offer Conditions") shall have occurred and be
existing, as promptly as practicable, but in no event later than the fifth
business day after the date of this Agreement, Sub shall commence the Offer in
compliance in all material respects with all applicable laws, rules and
regulations. The obligations of Sub to accept for payment and promptly to pay
for any shares of Common Stock tendered shall be subject only to the Tender
Offer Conditions, any of which may be waived; provided, however, that, without
the consent of the Company, Sub shall not waive the condition that there shall
have been validly tendered and not withdrawn prior to the expiration of the
Offer a number of shares of Common Stock which represent greater than two-thirds
of the total voting power of all shares of capital stock of the Company
outstanding on a fully diluted basis. The Tender Offer Conditions are for the
sole benefit of Parent and Sub and may be asserted by Parent and
-2-
<PAGE>
Sub regardless of the circumstances giving rise to any such Tender Offer
Conditions and, subject to the preceding sentence, may be waived by Parent and
Sub in whole or in part. Sub expressly reserves the right to modify the terms of
the Offer, except that, without the consent of the Company, Sub shall not (i)
reduce the number of shares of Common Stock to be purchased in the Offer, (ii)
reduce the Offer Price, (iii) modify or add to the Tender Offer Conditions, (iv)
extend the Offer beyond the scheduled expiration date (except that the Offer may
be extended to the extent required by law or in the event the Tender Offer
Conditions shall not have been satisfied by the scheduled expiration date) or
(v) change the form of consideration payable in the Offer.
1.2 COMPANY ACTIONS. The Company hereby consents to the Offer and the
Merger and represents that (a) its Board of Directors (at a meeting duly called
and held), based upon the recommendation of the Special Committee, has (i)
determined by the unanimous vote of the directors that each of the Offer and the
Merger is fair to, and in the best interests of, the holders of Common Stock,
(ii) approved the Offer and the Merger, (iii) recommended acceptance of the
Offer and approval and adoption of this Agreement by the stockholders of the
Company, (iv) taken all other action necessary to render the Shareholder
Protection Rights Agreement dated as of March 6, 1996 (the "Rights Agreement")
and Articles 14 and 14.1 of the Virginia Stock Corporation Act inapplicable to
the Offer and the Merger; and (b)
-3-
<PAGE>
Wheat First Butcher Singer has delivered to the Board of Directors of the
Company its opinion that the consideration to be received by the holders of
Common Stock pursuant to the Offer and the Merger is fair to the holders of
Common Stock from a financial point of view, subject to the assumptions and
qualifications contained in such opinion. The Company shall file with the
Securities and Exchange Commission (the "Commission"), as soon as practicable on
the date of the commencement of the Offer a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") containing the
recommendations referred to in clause (a) of the preceding sentence; provided,
however, that such recommendations may be withdrawn, modified or amended at any
time or from time-to-time to the extent required for the Board of Directors of
the Company to comply with its fiduciary obligations under applicable law.
Parent and Sub and their counsel shall be given the opportunity to review the
Schedule 14D-9 prior to its filing with the Commission. The Company agrees to
provide Parent and its counsel with any comments the Company or its counsel may
receive from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments and shall provide Parent and its counsel an
opportunity to participate, including by way of discussions with the SEC or its
staff, in the response of the Company to such comments. The Schedule 14D-9 will
comply in all material respects with the provisions of applicable federal
securities laws and, on the date filed with the Commission and on the date first
published, sent or given to
-4-
<PAGE>
the Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied by Parent or Sub in
writing for inclusion in the Schedule 14D-9. The Company, Parent and Sub each
agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect and the Company further agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the
Commission and disseminated to the stockholders, in each case as and to the
extent required by applicable federal securities laws. In connection with the
Offer, the Company will promptly furnish Sub with mailing labels, security
position listings and any available listings or computer lists containing the
names and addresses of the record holders of the Common Stock as of the most
recent practicable date and shall furnish Sub with such additional information
(including, but not limited to, updated lists of holders of Common Stock and
their addresses, mailing labels and lists of security positions) and such other
assistance as Sub or its agents may reasonably request in communicating the
Offer to the Company's stockholders.
1.3 COMPOSITION OF THE BOARD OF DIRECTORS. Promptly upon
the acceptance for payment of, and payment by Sub in accordance
-5-
<PAGE>
with the Offer for, greater than two-thirds of the outstanding shares of Common
Stock pursuant to the Offer (the "Offer Closing"), Sub shall be entitled to
designate such number of directors on the Board of Directors of the Company,
rounded up to the next whole number, as will give Sub, subject to compliance
with Section 14(f) of the Securities Exchange Act of 1934 (the "Exchange Act"),
representation on such Board of Directors equal to at least that number of
directors which equals the product of the total number of directors on the Board
of Directors (giving effect to the directors elected pursuant to this sentence)
multiplied by the percentage that such number of shares of Common Stock so
accepted for payment and paid for or otherwise acquired or owned by Sub or
Parent bears to the number of shares of Common Stock outstanding and the Company
and its Board of Directors shall, at such time, take any and all such action
needed to cause Sub's designees to be appointed to the Company's Board of
Directors (including to cause directors to resign). Notwithstanding the
foregoing, neither Parent, Sub nor the Company shall take any action to remove
or replace any member of the Special Committee after consummation of the Offer
and prior to the Effective Time (as hereinafter defined). If at any time prior
to the Effective Time there are less than two members of the Special Committee,
as constituted on the date hereof, on the Company's Board of Directors, Parent,
Sub and the Company shall use their reasonable efforts to ensure that two
members (the "Continuing Directors") of the Company's Board of Directors are
-6-
<PAGE>
either (a) members of the Special Committee (as constituted on the date hereof)
or (b) persons who are neither (i) officers or employees of the Company nor (ii)
associated with or affiliated with, or designated by, Parent. In the event that
both Continuing Directors resign from the Special Committee, Parent, Sub and the
Company shall permit the resigning Continuing Directors to appoint their
successors in their reasonable discretion. The Company shall take all action
requested by Parent which is reasonably necessary to effect any such election of
Parent's designees to the Board of Directors, including mailing to its
stockholders the Information Statement containing the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and the
Company agrees to make such mailing with the mailing of the Schedule 14D-9 so
long as Sub shall have provided to the Company on a timely basis all information
required to be included in the Information Statement with respect to Sub's
designees. The Company shall take all action required pursuant to such Section
and Rule to fulfill its obligations under this Section 1.3 and shall include in
the Schedule 14D-9 such information with respect to the Company and its officers
and directors as is required under such Section and Rule to fulfill its
obligations under this Section 1.3. Parent and Sub will supply to the Company in
writing and be responsible for any information with respect to Parent and Sub
and their respective nominees, officers, directors and affiliates required by
such Section and Rule. In furtherance thereof, the Company
-7-
<PAGE>
will increase the size of the Company's Board of Directors, or use its
reasonable efforts to secure the resignation of directors, or both, as is
necessary to permit Sub's designees to be elected to the Company's Board of
Directors. Immediately following the Offer Closing, the Company, if so
requested, will use its reasonable efforts to cause persons designated by Sub to
constitute the same percentage of each committee of such board, each board of
directors of each subsidiary of the Company and each committee of each such
board (in each case to the extent of the Company's ability to elect such
persons). At all times prior to the termination of the Option Exercise Period
(as defined in Section 2.6), the composition of the Executive Compensation
Committee of the Board of Directors of the Company shall remain the same as the
Special Committee and the Board of Directors of the Company shall not take any
action to limit or impair the authority of the Executive Compensation Committee
to administer the Plan (as defined in Section 2.6); provided, however, that the
Executive Compensation Committee shall not (i) make any additional grants or
awards of any type pursuant to the Plan, (ii) amend the terms and conditions of
any award made pursuant to the Plan prior to the date of this Agreement, except
as contemplated by this Agreement, or (iii) have any authority to act with
respect to any matters other than those relating to stock options previously
granted under the Plan.
1.4 ACTION BY DIRECTORS. Following the election or
appointment of Parent's designees pursuant to Section 1.3 and
-8-
<PAGE>
prior to the Effective Time, and, so long as there shall be at least one
Continuing Director, if requested by a majority of the Continuing Directors,
such designees shall abstain from acting upon, and the approval of a majority of
the Continuing Directors shall be required to authorize any termination of this
Agreement by the Company, any amendment of this Agreement requiring action by
the Board of Directors of the Company, any extension of time for the performance
of any of the obligations or other acts of Parent or Sub under this Agreement
and any waiver of compliance with any of the covenants, agreements or conditions
under this Agreement for the benefit of the Company.
ARTICLE II
THE MERGER AND RELATED MATTERS
2.1 THE MERGER. (a) Subject to the terms and conditions of this
Agreement, at the time of the Closing (as defined in Section 2.11 hereof),
Articles of Merger (the "Articles of Merger") shall be duly prepared, executed
and acknowledged by Sub and the Company in accordance with the Virginia Stock
Corporation Act and shall be filed on the Closing Date (as defined in Section
2.10 hereof). The Merger shall become effective upon the issuance by the State
Corporation Commission of the Commonwealth of Virginia of a certificate of
merger with respect to the Merger in accordance with the provisions and
requirements of the Virginia Stock Corporation Act. The date and time when the
-9-
<PAGE>
Merger shall become effective is hereinafter referred to as the
"Effective Time."
(b) At the Effective Time, Sub shall be merged with and into
the Company and the separate corporate existence of Sub shall cease, and the
Company shall continue as the surviving corporation under the laws of the
Commonwealth of Virginia under the name of "Sterile Concepts Holdings, Inc."
(the "Surviving Corporation").
(c) From and after the Effective Time, the Merger shall have
the effects set forth in Section 13.1-721 of the Virginia Stock Corporation Act.
2.2 CONVERSION OF STOCK. At the Effective Time:
(a) Each share of Common Stock then issued and
outstanding (other than any shares of Common Stock which are held by the Company
or any subsidiary of the Company, or which are held, directly or indirectly, by
Parent or any direct or indirect subsidiary of Parent (including Sub), all of
which shall be canceled and none of which shall receive any payment with respect
thereto) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into and represent the right to receive an
amount in cash, without interest, equal to the price paid for each share of
Common Stock pursuant to the offer (the "Merger Consideration"); and
(b) Each share of common stock, no par value, of Sub then
issued and outstanding shall, by virtue of the Merger and without any action on
the part of the holder thereof, become one
-10-
<PAGE>
fully paid and nonassessable share of common stock, no par value,
of the Surviving Corporation.
2.3 SURRENDER OF CERTIFICATES. (a) Concurrently with or prior to the
Effective Time, Parent shall designate a bank or trust company located in the
United States to act as paying agent (the "Paying Agent") for purposes of making
the cash payments contemplated hereby. As soon as practicable after the
Effective Time, Parent shall cause the Paying Agent to mail or otherwise make
available to each holder of a certificate theretofore evidencing shares of
Common Stock (other than those which are held by any subsidiary of the Company
or which are held directly or indirectly by Parent or any direct or indirect
subsidiary of Parent (including Sub) a notice and letter of transmittal advising
such holder of the effectiveness of the Merger and the procedure for
surrendering to the Paying Agent such certificate or certificates which
immediately prior to the Effective Time represented outstanding Common Stock
(the "Certificates") in exchange for the Merger Consideration deliverable in
respect thereof pursuant to this Article II. Upon the surrender for cancellation
to the Paying Agent of such Certificates, together with a letter of transmittal,
duly executed and completed in accordance with the instructions thereon, and any
other items specified by the letter of transmittal, the Paying Agent shall
promptly pay to the Person (as defined in Section 7.10 hereof) entitled thereto
the Merger Consideration deliverable in respect thereof. Until so surrendered,
each Certificate shall be deemed,
-11-
<PAGE>
for all corporate purposes, to evidence only the right to receive upon such
surrender the Merger Consideration deliverable in respect thereof to which such
Person is entitled pursuant to this Article II. No interest shall be paid or
accrued in respect of such cash payments.
(b) If the Merger Consideration (or any portion thereof) is to
be delivered to a Person other than the Person in whose name the Certificates
surrendered in exchange therefor are registered, it shall be a condition to the
payment of the Merger Consideration that the Certificates so surrendered shall
be properly endorsed or accompanied by appropriate stock powers and otherwise in
proper form for transfer, that such transfer otherwise be proper and that the
Person requesting such transfer pay to the Paying Agent any transfer or other
taxes payable by reason of the foregoing or establish to the satisfaction of the
Paying Agent that such taxes have been paid or are not required to be paid.
(c) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed, the Paying Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof as determined in accordance with
this Article II, provided that, the Person to whom the Merger Consideration is
paid shall, as a condition precedent to the payment thereof, give the Surviving
Corporation a bond in such
-12-
<PAGE>
sum as it may direct or otherwise indemnify the Surviving Corporation in a
manner satisfactory to it against any claim that may be made against the
Surviving Corporation with respect to the Certificate claimed to have been lost,
stolen or destroyed.
2.4 PAYMENT. Concurrently with or immediately prior to the Effective
Time, Parent or Sub shall deposit in trust with the Paying Agent cash in United
States dollars in an aggregate amount equal to the product of (i) the number of
shares of Common Stock outstanding immediately prior to the Effective Time
(other than shares of Common Stock which are held by any subsidiary of the
Company or which are held directly or indirectly by Parent or any direct or
indirect subsidiary of Parent (including Sub)) and (ii) the Merger Consideration
(such amount being hereinafter referred to as the "Payment Fund"). The Payment
Fund shall be invested by the Paying Agent as directed by Parent in direct
obligations of the United States; obligations for which the full faith and
credit of the United States is pledged to provide for the payment of principal
and interest; obligations of the Federal Intermediate Liquidity Banks, Federal
Home Loan Banks, National Bank for Cooperatives, Federal Land Banks, The
Government National Mortgage Association or The Federal National Mortgage
Association; commercial paper or finance company paper which is rated not less
than P-1, A-1 or F-1 by Moody's Investors Services, Inc., Standard & Poor's
Ratings Services or Fitch Investors Services, Inc., as the case may be;
certificates of deposit or bankers' acceptances of a bank or trust company
having
-13-
<PAGE>
at least $20,000,000 of combined capital and surplus; or repurchase agreements
secured by any one or more of the foregoing (collectively, "Permitted
Investments"); or in money market funds which are invested in Permitted
Investments, and any net earnings with respect thereto shall be paid to Parent
as and when requested by Parent. The Paying Agent shall, pursuant to irrevocable
instructions, make the payments referred to in Section 2.2(a) hereof out of the
Payment Fund. The Payment Fund shall not be used for any other purpose except as
otherwise agreed to by Parent. Promptly following the date which is three months
after the Effective Time, the Paying Agent shall return to Parent all cash,
certificates and other instruments in its possession that constitute any portion
of the Payment Fund (other than net earnings on the Payment Fund which shall be
paid to Parent), and the Paying Agent's duties shall terminate. Thereafter, each
holder of a Certificate may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the Merger Consideration, without interest,
but shall have no greater rights against the Surviving Corporation or Parent
than may be accorded to general creditors of the Surviving Corporation or Parent
under applicable law. Notwithstanding the foregoing, neither the Paying Agent
nor any party hereto shall be liable to a holder of shares of Common Stock for
any Merger Consideration delivered to a public official
-14-
<PAGE>
pursuant to applicable abandoned property, escheat and similar
laws.
2.5 NO FURTHER RIGHTS TO TRANSFERS. At and after the Effective Time,
each holder of a Certificate shall cease to have any rights as a stockholder of
the Company, except for, in the case of a holder of a Certificate (other than
shares to be canceled pursuant to Section 2.2(a) hereof), the right to surrender
his or her Certificate in exchange for payment of the Merger Consideration, and
no transfer of shares of Common Stock shall be made on the stock transfer books
of the Surviving Corporation. Certificates presented to the Surviving
Corporation after the Effective Time shall be canceled and exchanged for cash as
provided in this Article II. At the close of business on the day of the
Effective Time the stock ledger of the Company with respect to Common Stock
shall be closed.
2.6 STOCK OPTION AND OTHER PLANS. During the period (the "Option
Exercise Period") commencing on the date of payment by Sub in accordance with
the Offer and ending on the date that is two business days prior to the
Effective Time (provided that the Option Exercise Period shall not be less than
three business days in duration), the Company shall permit holders of stock
options issued pursuant to the Company's Stock Incentive Plan (the "Plan") which
shall have become exercisable to exercise such stock options in accordance with
the provisions of the Plan, including without limitation those provisions
relating to (i) the payment of the exercise price of stock options by the
execution
-15-
<PAGE>
of a recourse note (an "Option Note") providing for the payment of all amounts
due under such note through deductions from the Merger Consideration which shall
become due to the maker of the note at the earlier of the Effective Time or the
day that is 120 days from the date of the Offer Closing and (ii) the payment of
the exercise price of stock options by the delivery of shares of Common Stock.
After the termination of the Option Exercise Period and prior to the Effective
Time, the Board of Directors of the Company (or, if appropriate, any Committee
thereof) shall adopt appropriate resolutions and take all other actions
necessary to provide for the cancellation, effective at the Effective Time, of
all the outstanding stock options to purchase Common Stock (the "Options")
heretofore granted under any stock option plan of the Company (the "Stock
Plans"). Immediately prior to the Effective Time, (i) each Option, whether or
not then vested or exercisable, shall no longer be exercisable for the purchase
of shares of Common Stock but shall entitle each holder thereof, in cancellation
and settlement therefor, to payments in cash (subject to any applicable
withholding taxes and repayment of any outstanding Option Note, the "Cash
Payment"), at the Effective Time, equal to the product of (x) the total number
of shares of Common Stock subject to such Option, whether or not then vested or
exercisable, and (y) the excess of the Merger Consideration over the exercise
price per share of Common Stock subject to such Option, if any, each such Cash
Payment to be paid to each holder of an outstanding Option at the Effective
Time;
-16-
<PAGE>
provided, however, that with respect to any person subject to Section 16 of the
Exchange Act, any such amount shall be paid as soon as practicable after the
first date payment can be made without liability to such person subject to
Section 16(b) of the Exchange Act, and (ii) each share of Common Stock
previously issued in the form of grants of restricted stock or grants of
contingent shares shall fully vest in accordance with their respective terms.
Any then outstanding stock appreciation rights or limited stock appreciation
rights shall be canceled as of immediately prior to the Effective Time without
any payment therefor. As provided herein, the Stock Plans and any other plan,
program or arrangement providing for the issuance or grant of any other interest
in respect of the capital stock of the Company or any subsidiary (collectively
with the Stock Plans, referred to as the "Stock Incentive Plans") shall
terminate as of the Effective Time. The Company will take all steps to ensure
that neither the Company nor any of its subsidiaries is or will be bound by any
Options, other options, warrants, rights or agreements which would entitle any
Person, other than Parent or its affiliates, to purchase or own any capital
stock of the Surviving Corporation or any of its subsidiaries or to receive any
payment in respect thereof. The Company will use its best efforts to obtain all
necessary consents to ensure that, after the Effective Time, the only rights of
the holders of Options to purchase shares of Common Stock in respect of such
Options will
-17-
<PAGE>
be to receive the Cash Payment in cancellation and settlement
thereof.
2.7 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation and shall be amended so that Article III reads in its entirety as
follows: "The total number of shares of stock of all classes which the
Corporation has authority to issue is 1,000 shares of Common Stock, no par
value."
2.8 BY-LAWS OF THE SURVIVING CORPORATION. The By-Laws of Sub, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation.
2.9 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the
Effective Time, the directors of Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation, each of such directors to
hold office, subject to the applicable provisions of the Articles of
Incorporation and By-Laws of the Surviving Corporation, until the next annual
stockholders' meeting of the Surviving Corporation and until their respective
successors shall be duly elected or appointed and qualified. At the Effective
Time, the officers of the Company immediately prior to the Effective Time shall,
subject to the applicable provisions of the Articles of Incorporation and
By-Laws of the Surviving Corporation, be the officers of the
-18-
<PAGE>
Surviving Corporation until their respective successors shall be duly elected or
appointed and qualified.
2.10 CLOSING. The closing of the Merger (the "Closing") shall take
place at the offices of McGuire, Woods, Battle & Boothe, L.L.P., Richmond,
Virginia, as soon as practicable after the last of the conditions set forth in
Article V hereof is fulfilled or waived (subject to applicable law) but in no
event later than the fifth business day thereafter, or at such other time and
place and on such other date as Parent and the Company shall mutually agree (the
"Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to Parent and Sub as
follows:
(a) Due Organization, Good Standing and Corporate Power. Each
of the Company and its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and each such corporation has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of the Company and its subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business
-19-
<PAGE>
conducted by it makes such qualification necessary, except in such jurisdictions
where the failure to be so qualified or licensed and in good standing would not
have a material adverse effect on the business, properties, assets, liabilities,
operations, results of operations or condition (financial or otherwise) (the
"Condition") of the Company and its subsidiaries taken as a whole. The Company
has made available to Parent and Sub complete and correct copies of the Articles
of Incorporation and By-Laws of the Company and its subsidiaries, in each case
as amended to the date of this Agreement. The respective Articles of
Incorporation and By-laws or other organizational documents of the subsidiaries
of the Company do not contain any provision limiting or otherwise restricting
the ability of the Company to control such subsidiaries.
(b) Authorization and Validity of Agreement. The Company has
the corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company, and the consummation by it of the transactions contemplated
hereby, have been duly authorized and approved by its Board of Directors and no
other corporate action on the part of the Company is necessary to authorize the
execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby (other than the approval of
this Agreement by the holders of more than two-thirds of the shares of Common
Stock). This Agreement has been duly executed and delivered by the Company and
is a valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except to the extent that its enforceability may
be subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles.
(c) Capitalization.
(i) The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock, no par value (the "Preferred Stock"). As of the date
hereof, (1) 5,526,384 shares of Common Stock are issued and
outstanding, (2) 549,616 shares of Common Stock are reserved for
issuance pursuant to outstanding Options granted under the Stock
Incentive Plans, (3) no shares of Preferred Stock are issued and
outstanding and (4) no shares of Common Stock are held in the Company's
treasury. All issued and outstanding shares of Common Stock have been
validly issued and are fully paid and nonassessable, and are not
subject to, nor were they issued in violation of, any preemptive
rights. Except as set forth in this Section 3.1(c) or on Schedule
3.1(c) hereto, (i) there are no shares of capital stock of the Company
authorized, issued or outstanding, (ii)
-20-
<PAGE>
there are not as of the date hereof, and at the Effective Time there
will not be, any outstanding or authorized options, warrants, rights,
subscriptions, claims of any character, agreements, obligations,
convertible or exchangeable securities, or other commitments,
contingent or otherwise, relating to Common Stock or any other shares
of capital stock of the Company, pursuant to which the Company is or
may become obligated to issue shares of Common Stock, any other shares
of its capital stock or any securities convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of the
capital stock of the Company. The Company has no authorized or
outstanding bonds, debentures, notes or other indebtedness the holders
of which have the right to vote (or convertible or exchangeable into or
exercisable for securities having the right to vote) with the
stockholders of the Company or any of its subsidiaries on any matter
("Voting Debt"). After the Effective time, the Surviving Corporation
will have no obligation to issue, transfer or sell any Shares of common
stock of the Surviving Corporation pursuant to any Employee Plan (as
defined in Section 3.1(i)).
(ii) Schedule 3.1(c)(ii) hereto lists all of
the Company's subsidiaries. All of the outstanding
shares of capital stock of each of the Company's
-21-
<PAGE>
subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable, are not subject to, nor were they issued in
violation of, any preemptive rights, and are owned, of record and
beneficially, by the Company, free and clear of all liens,
encumbrances, options or claims whatsoever. Except as set forth on
Schedule 3.1(c)(ii) hereto, no shares of capital stock of any of the
Company's subsidiaries are reserved for issuance and there are no
outstanding or authorized options, warrants, rights, subscriptions,
claims of any character, agreements, obligations, convertible or
exchangeable securities, or other commitments, contingent or otherwise,
relating to the capital stock of any subsidiary of the Company,
pursuant to which such subsidiary is or may become obligated to issue
any shares of capital stock of such subsidiary or any securities
convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of such subsidiary. Except for the
subsidiaries listed on Schedule 3.1(c)(ii), the Company does not own,
directly or indirectly, any capital stock or other equity interest in
any Person or have any direct or indirect equity or ownership interest
in any Person and neither the Company nor any of its subsidiaries is
subject to any obligation or requirement to provide funds for or to
make any
-22-
<PAGE>
investment (in the form of a loan, capital contribution
or otherwise) to or in any Person. The Company's
subsidiaries have no Voting Debt.
(d) Consents and Approvals; No Violations. Assuming (i) the
filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), are made and the waiting period thereunder has been
terminated or has expired, (ii) the requirements of the Exchange Act relating to
the Proxy Statement and the Offer are met, (iii) the filing of the Articles of
Merger and other appropriate merger documents, if any, as required by the
Virginia Stock Corporation Act, is made and (iv) approval of the Merger by the
holders of more than two-thirds of the outstanding shares of Common Stock, if
required by the Virginia Stock Corporation Act, is obtained, the execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby will not: (1) violate any provision of the
Articles of Incorporation or By-Laws of the Company or of any of its
subsidiaries, each as amended; (2) violate any statute, ordinance, rule,
regulation, order or decree of any court or of any governmental or regulatory
body, agency or authority applicable to the Company or any of its subsidiaries
or by which any of their respective properties or assets may be bound; (3)
require any filing with, or the procurement of any permit, consent or approval
of, or the giving of any notice to, any governmental or regulatory body, agency
or authority or consent
-23-
<PAGE>
of any other Person; or (4) result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, payment or acceleration)
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any of its
subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or other instrument or obligation to which the Company or
any of its subsidiaries is a party, or by which it or any of their respective
properties or assets may be bound except, in the case of clauses (2), (3) and
(4) above, for such filing, permit, consent, approval or violation, which could
not reasonably be expected to have a material adverse effect on the Condition of
the Company and its subsidiaries, taken as a whole, or could be reasonably
likely to prevent or materially delay consummation of the transactions
contemplated by this Agreement.
(e) Company Reports and Financial Statements. The Company has,
prior to the date of this Agreement, made available to Parent true and complete
copies of all registration statements and periodic reports filed by the Company
with the Commission under the Securities Act of 1933, as amended, and the
Exchange Act since the date of filing with the SEC of Amendment No. 4 to the
Company's Registration Statement on Form S-1 (No. 33-80736) relating to the
initial public offering of shares of its Common
-24-
<PAGE>
Stock (such periodic reports and registration statements, together with any
exhibits, any amendments thereto and information incorporated by reference
therein, are sometimes collectively referred to as the "Commission Filings"). As
of their respective dates, the Commission Filings did not contain any untrue
statement of a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the audited consolidated balance sheets of the
Company as of the end of the fiscal years ended September 30, 1995, 1994 and
1993 and the audited consolidated statements of earnings, audited consolidated
statements of changes in stockholders' equity and audited consolidated
statements of cash flows included in the Commission Filings, were prepared in
accordance with generally accepted accounting principles (as in effect from time
to time) applied on a consistent basis (except as may be indicated therein or in
the notes or schedules thereto) and fairly present the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and the results of their operations and changes in financial position
for the periods then ended. In addition, the Company has previously furnished to
Parent a true and complete copy of the unaudited consolidated balance sheet as
of March 31, 1996 and the unaudited consolidated statements of earnings,
unaudited consolidated statements of changes in stockholders' equity and
unaudited consolidated statements of cash flows for the fiscal quarter
-25-
<PAGE>
ended March 31, 1996 (the "Interim Statements"), all of which were prepared in
accordance with generally accepted accounting principles (as in effect from time
to time) applied on a consistent basis (except as may be indicated therein or in
the notes or schedules thereto) and fairly present the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and the results of their operations and changes in financial positions
for the periods then ended.
(f) Absence of Certain Changes. Except as set forth on
Schedule 3.1(f) hereto or as otherwise contemplated by this Agreement, since
March 31, 1996 (i) there has not been any material adverse change in the
Condition of the Company and its subsidiaries taken as a whole; (ii) the
businesses of the Company and each of its subsidiaries have been conducted only
in the ordinary course; (iii) neither the Company nor any of its subsidiaries
has incurred any material liabilities (direct, contingent or otherwise) or
engaged in any material transaction or entered into any material agreement
outside the ordinary course of business; (iv) there has been no declaration,
setting aside or payment of any dividend or other distribution with respect to
the capital stock of the Company except for the normal quarterly cash dividend
of $.04 per share paid within approximately 10 days after the end of the March
31, 1996 quarter; and (v) there has been no change by the Company in accounting
principles, practices or methods.
-26-
<PAGE>
(g) Compliance with Laws. Except as set forth on Schedule
3.1(g) hereto, the Company and its subsidiaries are in compliance with all
applicable laws, regulations, orders, judgments and decrees except where the
failure to so comply would not have a material adverse effect on the Condition
of the Company and its subsidiaries taken as a whole or could be reasonably
likely to prevent or materially delay consummation of the transactions
contemplated by this Agreement.
(h) Litigation. Except as disclosed in the Commission Filings
or as set forth on Schedule 3.1(h) hereto, there is no action, suit, proceeding
at law or in equity, or any arbitration or any administrative or other
proceeding by or before (or to the knowledge of the Company any investigation
by) any governmental or other instrumentality or agency, pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or any of
its subsidiaries, or any of their properties or rights which could have a
material adverse effect on the Condition of the Company and its subsidiaries
taken as a whole. Except as disclosed in the Commission Filings or as set forth
on Schedule 3.1(h) hereto, neither the Company nor any of its subsidiaries is
subject to any judgment, order or decree entered in any lawsuit or proceeding
which could have a material adverse effect on the Condition of the Company and
its subsidiaries taken as a whole or on the ability of the Company or any
subsidiary to conduct its business as presently conducted.
-27-
<PAGE>
(i) Employee Benefit Plans.
(i) Schedule 3.1(i) hereto lists all
employee benefit plans and programs, including, without limitation, (w)
all retirement, savings and other pension plans; (x) all health,
severance, insurance, disability and other employee welfare plans; (y)
all incentive, vacation, bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, other
similar employee plans, programs or arrangements; and (z) all
employment, compensation or severance agreements, that are maintained
by the Company for the benefit of which, or relate to, current
employees and former employees of the Company and its subsidiaries
(collectively, the "Employee Plans").
(ii) None of the Employee Plans is a
"multiemployer plan" as defined in Section 3(37) of
ERISA.
(iii) Except as set forth on Schedule 3.1(i) hereto, all
Employee Plans are in compliance in all material respects with the
requirements prescribed by applicable statutes, orders or governmental
rules or regulations currently in effect with respect thereto, and the
Company has performed all material obligations required to be performed
by it under, and is not in any
-28-
<PAGE>
material respect in default under or in violation of,
any of the Employee Plans.
(iv) Except as set forth on Schedule 3.1(i) hereto, each
Employee Plan intended to be qualified under Section 401(a) of the
Internal Revenue Code ("Code") has heretofore been determined by the
Internal Revenue Service to so qualify, and each trust created
thereunder has heretofore been determined by the Internal Revenue
Service to so qualify, and each trust created thereunder has heretofore
been determined by the Internal Revenue Service to be exempt from tax
under the provisions of Section 501(a) of the Code and, to the
knowledge of the Company, nothing has occurred since the date of the
most recent determination that would be reasonably likely to cause any
such Employee Plan or trust to fail to qualify under Section 401(a) or
501(a) of the Code.
(v) The Company has not incurred any material
liability to the Pension Benefit Guaranty Corporation ("PBGC") under
Section 4001 et seq. of ERISA, except for premiums required under
Section 4007 of ERISA which are not yet due, and no condition exists
that could reasonably be expected to result in the Company incurring
material liability under Title IV of ERISA, either singly or as a
member of any trade or business, whether or not incorporated, under
common
-29-
<PAGE>
control of or affiliated with the Company, within the meaning of
Section 414(b), (c), (m) or (o) of the Code. All premiums payable to
the PBGC have been paid when due.
(vi) The Company has made available to Parent copies of
all Employee Plans and, where applicable, summary plan descriptions,
the most recent Internal Revenue Service determination letters, if
applicable, and annual reports required to be filed within the last
year pursuant to ERISA or the Code with respect to the Employee Plans.
(vii) No prohibited transaction, as defined in Section 4975
of the Code, has occurred with respect to any Employee Plan that is a
pension plan as defined in Section 3(2) of ERISA.
(viii) Except as set forth on Schedule 3.1(i) hereto, the
Company does not maintain and has not at any time in the past
maintained any plan which constitutes a defined benefit pension plan
subject to Title IV of ERISA.
(ix) There are no actions, suits or claims pending,
threatened or anticipated (other than routine claims for benefits) with
respect to any Employee Plan.
(x) Except as set forth on Schedule 3.1(i)
hereto, no compensation or benefit that is or will be
payable in connection with the transactions
-30-
<PAGE>
contemplated by this Agreement will be characterized as an "excess
parachute payment" within the meaning of Section 280G of the Code.
(xi) The Company has not made any commitment to establish
any new Employee Plan, to modify any Employee Plan or to increase
benefits or compensation of employees or former employees of the
Company (except for normal increases in compensation consistent with
past practices or as disclosed in Schedule 3.1(i) hereto), nor has any
intention to do so been communicated to employees or former employees
of the Company.
(xii) All material employment or compensation
agreements contained within the Employee Plans are in full force and
effect, and neither the Company nor any subsidiary, nor, to the best of
the Company's knowledge, any other party, is in default under any of
them. There have been no claims of default and, to the best knowledge
of the Company and its subsidiaries, there are no facts or conditions
which if continued, or on notice, will result in a material default
under any of such employment or compensation agreements.
(xiii) Except for severance payment obligations
contained in those certain employment, severance or compensation
agreements specified on Schedule 3.1(i), neither the Company nor any of
its subsidiaries will owe a
-31-
<PAGE>
severance payment or similar obligation to any of their respective
employees, officers or directors as a result of the Offer or the Merger
or the other transactions contemplated by this Agreement.
(j) Liabilities. Except as set forth in the Commission
Filings, as set forth on Schedule 3.1(j) hereto or as otherwise contemplated by
this Agreement, neither the Company nor any of its subsidiaries has any material
outstanding claims, liabilities or indebtedness, whether accrued, absolute,
contingent or otherwise, other than liabilities incurred subsequent to March 31,
1996 in the ordinary course of business. Neither the Company nor any of its
subsidiaries is in default in respect of the material terms and conditions of
any indebtedness or other agreement, which default might reasonably be expected
to have a material adverse effect on the Condition of the Company and its
subsidiaries taken as a whole.
(k) Broker's Or Finder's Fees. Except for Wheat First Butcher
Singer (whose fees and expenses will be paid by the Company in accordance with
the Company's agreement with such firm, a true and correct copy of which has
been previously delivered to Parent by the Company), no agent, broker, Person or
firm acting on behalf of the Company is, or will be, entitled to any fee,
commission or broker's or finder's fees from any of the parties hereto, or from
any Person controlling, controlled by, or under common control with any of the
parties hereto, in
-32-
<PAGE>
connection with this Agreement or any of the transactions
contemplated hereby.
(l) Environmental Laws and Regulations. Except as disclosed in
the Commission Filings, or as set forth on Schedule 3.1(l) hereto or as would
not individually or in the aggregate have a material adverse affect on the
Condition of the Company or its subsidiaries taken as a whole; (i) the Company
and its subsidiaries are not in violation of any Environmental Law; (ii) no real
property currently or formerly owned, occupied or operated by the Company or any
Subsidiary is contaminated with any Hazardous Substances requiring remediation
under any Environmental Law; (iii) the Company and its subsidiaries are not
subject to liability for any off-site disposal or contamination; (iv) the
Company and its subsidiaries have not received any claims or notices alleging
liability under any Environmental Law; and (v) there are no circumstances
involving the Company or its subsidiaries that could reasonably be expected to
result in any claims, liabilities, costs or restrictions on the ownership, use,
or transfer of any property pursuant to any Environmental Law. "Environmental
Law" means any law, regulation, order, decree, opinion or agency requirement
relating to noise, odor, Hazardous Substance or the protection of the
environment or human health and safety. "Hazardous Substance" means any
substance that is listed, classified or regulated by any government authority or
any Environmental Law, in any concentration, including any petroleum products,
asbestos or polychlorinated biphenyls.
-33-
<PAGE>
(m) Rights Agreement; State Takeover Laws. (i) The Company and
the Board of Directors of the Company have taken all necessary action to (i)
render the Rights Agreement and Articles 14 and 14.1 of the Virginia Stock
Corporation Act as well as any other applicable affiliated transaction, control
share acquisition or similar state takeover laws inapplicable with respect to
the Offer, the Merger and the other transactions contemplated by this Agreement
and (ii) ensure that (y) neither Parent nor Sub nor any of their Affiliates (as
defined in the Rights Agreement) or Associates (as defined in the Rights
Agreement) is considered to be an Acquiring Person (as defined in the Rights
Agreement) and (z) the provisions of the Rights Agreement, including the
occurrence of a Separation Time (as defined in the Rights Agreement), are not
and shall not be triggered by reason of the announcement or consummation of the
Offer, the Merger or the consummation of any of the other transactions
contemplated by this Agreement. The Board of Directors of the Company, at a
meeting duly called and held, will take such actions, if any, that may be
necessary for the Rights to be redeemed immediately prior to the acceptance for
payment and purchase of any of the outstanding Shares pursuant to the Offer in
accordance with the terms of this Agreement provided that this Agreement shall
not have been terminated in accordance with its terms. The Company has delivered
to Parent a complete and correct copy of the Rights Agreement as amended and
supplemented to the date of this Agreement.
-34-
<PAGE>
(n) Opinion of Financial Advisor. The Company has received the
opinion of Wheat First Butcher Singer, to the effect that, as of the date of
this Agreement, the consideration to be received in the Offer and the Merger by
the Company's stockholders is fair to the Company's stockholders from a
financial point of view, and a complete and correct signed copy of such opinion
has been, or promptly upon receipt thereof will be, delivered to Parent.
(o) Tax Returns. Except as set forth on Schedule 3.1(o),
within the times and in the manner prescribed by law, the Company and each
subsidiary has filed all material foreign country, federal, state and local tax
returns required by law, and has paid all material taxes, assessments and
penalties due and payable. Except as set forth on Schedule 3.1(o), all such tax
returns, when filed, were correct and complete in all material respects. Except
as set forth on Schedule 3.1(o), each of the Company and its subsidiaries has
withheld and paid all material taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party. The provisions for taxes reflected
in the Interim Statements are adequate for any and all material foreign,
federal, state, county and local taxes for the period ending on March 31, 1996,
and for all prior periods, whether or not disputed. There are no present
disputes as to material taxes of any nature allegedly due or payable by the
Company or any of its subsidiaries.
-35-
<PAGE>
(p) Material Contracts. Except as set forth on Schedule
3.1(p), the Company has filed as exhibits to the Commission Filings all material
contracts and agreements required to be filed as exhibits to periodic reports
under the Exchange Act, including without limitation the Asset Purchase
Agreement dated October 2, 1995 by and among the Company, Medical Design
Concepts, Inc. and John W. Hoffee, II (collectively, the "Contracts"). To the
best knowledge of the Company, each of the Contracts is in full force and
effect. The Company has complied in all material respects with its obligations
under the Contracts and, except as set forth on Schedule 3.1(p), to the best
knowledge of the Company, there is no default or event which with notice or
lapse of time, or both, would constitute a default by any party to any of the
Contracts the cumulative effect of which might reasonably be expected to have a
material adverse effect on the Condition of the Company and its subsidiaries
taken as a whole. Neither the Company nor any of its subsidiaries has received
notice that any party to any of the Contracts intends to cancel or terminate any
of the Contracts or to exercise or not exercise any options under any of the
Contracts.
3.2 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Each
of Parent and Sub represents and warrants to the Company as
follows:
(a) Due Organization; Good Standing and Corporate
Power. Each of Parent and Sub is a corporation duly organized,
-36-
<PAGE>
validly existing and in good standing under the laws of the State of Delaware
and the Commonwealth of Virginia, respectively.
(b) Authorization and Validity of Agreement. Each of Parent
and Sub has the corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Parent and Sub, and the consummation by each of them of the
transactions contemplated hereby, have been duly authorized by the Boards of
Directors of Parent and Sub. No other corporate action on the part of either of
Parent or Sub is necessary to authorize the execution, delivery and performance
of this Agreement by each of Parent or Sub and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and Sub and is a valid and binding obligation of
each of Parent and Sub, enforceable against each of Parent and Sub in accordance
with its terms, except that such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equitable principles.
(c) Consents and Approvals; No Violations. Assuming (i) the
filings required under the HSR Act are made and the waiting period thereunder
has been terminated or has expired, (ii) the requirements of the Exchange Act
relating to the Proxy Statement and the Offer are met and (iii) the filing of
the Articles of Merger and other appropriate merger documents, if
-37-
<PAGE>
any, as required by the laws of the Commonwealth of Virginia is made, the
execution and delivery of this Agreement by Parent and Sub and the consummation
by Parent and Sub of the transactions contemplated hereby will not: (1) violate
any provision of the Articles of Incorporation or By-Laws of Parent or Sub; (2)
violate any statute, ordinance, rule, regulation, order or decree of any court
or of any governmental or regulatory body, agency or authority applicable to
Parent or Sub or by which either of their respective properties or assets may be
bound; (3) require any filing with, or permit, the procurement of any consent or
approval of, or the giving of any notice to any governmental or regulatory body,
agency or authority or any other Person; or (4) result in a violation or breach
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right or termination, cancellation or
acceleration) under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Parent, Sub or
any of their subsidiaries under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease or other instrument or obligation to which Parent or Sub or any of their
subsidiaries is a party, or by which they or their respective properties or
assets may be bound except, in the case of clauses (3) and (4) above for any
such filing, permit, consent, approval or violation, which could not reasonably
be expected to have a material adverse effect on the
-38-
<PAGE>
Condition of the Parent and Sub, taken as a whole, or could be reasonably likely
to prevent or materially delay consummation of the transactions contemplated by
this Agreement.
(d) Offer Documents, Schedule 14D-9 and Proxy Statement. The
documents pursuant to which the Offer will be made, including a Tender Offer
Statement on Schedule 14D-1 and Offer to Purchase and related letter of
transmittal (the "Offer Documents"), will comply in all material respects with
the Exchange Act and the rules and regulations thereunder and any other
applicable laws. If at any time prior to the expiration or termination of the
Offer any event occurs which should be described in an amendment or supplement
thereto, Sub will file and disseminate, as required, an amendment or supplement
which complies in all material respects with the Exchange Act and the rules and
regulations thereunder and any other applicable laws. Prior to the filing with
the Commission, the amendment or supplement shall be delivered to the Company
and its counsel. The written information supplied or to be supplied by Parent
and Sub for inclusion in the Proxy Statement and the Schedule 14D-9 of the
Company will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made, in light
of the circumstances under which they are made, not misleading. Notwithstanding
the foregoing, no representation or warranty is made with respect to any
information with respect to the Company or its officers, directors and
affiliates provided to Parent or Sub by the Company
-39-
<PAGE>
in writing for inclusion in the Offer Documents or amendments or
supplements thereto.
(e) Broker's or Finder's Fees. Except for Bear Stearns & Co.,
Inc. (whose fees and expenses as financial advisor to Parent and Sub will be
paid by Parent or Sub in accordance with Parent's agreement with such firm, a
true and correct copy of which has been previously delivered to the Company by
Parent), no agent, broker, Person or firm acting on behalf of Parent or Sub is,
or will be, entitled to any fee, commission or broker's or finder's fees from
any of the parties hereto, or from any Person controlling, controlled by or
under common control with any of the parties hereto, in connection with this
Agreement or any of the transactions contemplated hereby.
(f) Common Stock Ownership. As of the date hereof, none of
Parent, Sub or their affiliates beneficially owns (within the meaning of Rule
13d-3 under the Exchange Act) any shares of Common Stock.
ARTICLE IV
TRANSACTIONS PRIOR TO AND AFTER THE CLOSING DATE
4.1 ACCESS TO INFORMATION CONCERNING PROPERTIES AND RECORDS. During the
period commencing on the date hereof and ending on the Closing Date, the Company
shall, and shall cause each of its subsidiaries to, upon reasonable notice,
afford Parent and Sub, and their respective counsel, accountants, consultants
and other authorized representatives, reasonable
-40-
<PAGE>
access during normal business hours to the officers, accountants, counsel,
consultants, employees, properties, books and records of the Company and its
subsidiaries in order that they may have the opportunity to make such
investigations as they shall desire of the affairs of the Company and its
subsidiaries. The Company shall furnish promptly to Parent and Sub (a) a copy of
each report, schedule, registration statement and other document filed by it or
its subsidiaries during such period pursuant to the requirements of federal or
state securities laws and (b) all other information concerning its or its
subsidiaries' business, properties and personnel as Parent and Sub may
reasonably request. The Company agrees to cause its officers and employees to
furnish such additional financial and operating data and other information and
respond to such inquiries as Parent and Sub shall from time to time reasonably
request.
4.2 CONFIDENTIALITY. Information obtained by Parent and Sub pursuant to
Section 4.1 hereof shall be subject to the provisions of the Confidentiality
Agreement between the Company and Parent dated March 28, 1996.
4.3 CONDUCT OF THE BUSINESS OF THE COMPANY PENDING THE CLOSING DATE.
The Company agrees that, except as permitted, required or specifically
contemplated by, or otherwise described in, this Agreement or otherwise
consented to or approved in writing by Parent, during the period commencing on
the date hereof and ending on the Closing Date:
-41-
<PAGE>
(a) The Company and each of its subsidiaries will conduct
their respective operations only according to their ordinary and usual course of
business consistent with past practice and will use their reasonable efforts to
preserve intact their respective business organizations, keep available the
services of their officers and employees and maintain satisfactory relationships
with licensors, suppliers, distributors, clients and others having business
relationships with them;
(b) Neither the Company nor any of its subsidiaries shall (i)
make any change in or amendment to its Articles of Incorporation or By-Laws (or
comparable governing documents), each as amended; (ii) issue or sell any shares
of its capital stock (other than in connection with the exercise of Options
outstanding on the date hereof in accordance with the terms and conditions in
effect on the date hereof) or any of its other securities, or issue any
securities convertible into, or options, warrants or rights to purchase or
subscribe to, or enter into any arrangement or contract with respect to the
issuance or sale of, any shares of its capital stock or any of its other
securities, or make any other changes in its capital structure; (iii) sell or
pledge or agree to sell or pledge any stock owned by it in any of its
subsidiaries; (iv) declare, pay, set aside or make any dividend or other
distribution or payment with respect to, or split, combine, redeem or
reclassify, any shares of its capital stock; (v) except as set forth on Schedule
4.3(b), enter into any
-42-
<PAGE>
contract or commitment with respect to capital expenditures in excess of
$150,000 or enter into any other material contract except contracts in the
ordinary course of business; (vi) acquire a material amount of assets or
securities or release or relinquish any material contract rights other than in
the ordinary course of business; (vii) adopt or amend any Employee Benefit Plan
or non-employee benefit plan or program, employment agreement, license agreement
or retirement agreement, or, except in the ordinary course of business and
consistent with past practice, pay any bonus or contingent or other
extraordinary compensation; (viii) other than in the ordinary course of business
transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of,
encumber or subject to any lien, any assets or incur or modify any indebtedness
or other liability or issue any debt securities or assume, guarantee or endorse
or otherwise as an accommodation become responsible for the obligations of any
person; (ix) agree to the settlement of any material claim or litigation; (x)
make any material tax election or settle or compromise any material tax
liability; (xi) make any material change in its method of accounting or (xii)
agree, in writing or otherwise, to take any of the foregoing actions; and
(c) Except as set forth on Schedule 4.3(c), the Company shall
not, and shall not permit any of its subsidiaries to, (i) take any action,
engage in any transaction or enter into any agreement which would cause any of
the representations or warranties set forth in Section 3.1 hereof to be untrue
as of the
-43-
<PAGE>
Closing Date, or (ii) purchase or acquire, or offer to purchase or acquire, any
shares of capital stock of the Company.
4.4 PROXY STATEMENT. If stockholder approval of the Merger is required
by law, as promptly as practicable, the Company will prepare and file a
preliminary Proxy Statement with the Commission and will use its reasonable
efforts to respond to the comments of the Commission in connection therewith and
to furnish all information required to prepare the definitive Proxy Statement
(including, without limitation, financial statements and supporting schedules
and certificates and reports of independent certified public accountants).
Promptly after the expiration or termination of the Offer, if required by the
Virginia Stock Corporation Act in order to consummate the Merger, the Company
will cause the definitive Proxy Statement to be mailed to the stockholders of
the Company and, if necessary, after the definitive Proxy Statement shall have
been so mailed, promptly circulate amended, supplemental or supplemented proxy
material and, if required in connection therewith, resolicit proxies. The
Company will not use any proxy material in connection with the meeting of its
stockholders without Parent's prior approval. Prior to filing the preliminary
Proxy Statement with the Commission and mailing the definitive Proxy Statement
to the stockholders of the Company, the Company shall forward copies of such
Proxy Statements to Parent for Parent's review and comment, and otherwise
cooperate with Parent in the preparation, filing and/or distribution of such
Proxy Statements.
-44-
<PAGE>
4.5 STOCKHOLDER APPROVAL. Promptly after the expiration or termination
of the Offer, if required by the Virginia Stock Corporation Act in order to
consummate the Merger, the Company, acting through its Board of Directors, shall
in accordance with applicable law, promptly call a special meeting of the
holders of Common Stock for the purpose of voting upon this Agreement and the
Merger and the Company agrees that this Agreement and the Merger shall be
submitted at such special meeting. The Company shall use its reasonable efforts
to solicit from its stockholders proxies, and shall take all other action
necessary and advisable, to secure the vote of stockholders required by
applicable law to obtain the approval for this Agreement. Subject to Section 4.7
of this Agreement, the Company agrees that it will include in the Proxy
Statement the recommendation of its Board of Directors that holders of Common
Stock approve and adopt this Agreement and approve the Merger. Parent will cause
all shares of Common Stock owned by Parent and its affiliates to be voted in
favor of the Merger.
4.6 REASONABLE EFFORTS. Subject to the terms and conditions provided
herein and to the fiduciary duties of the Board of Directors of the Company
under applicable law, each of the Company, Parent and Sub shall, and the Company
shall cause each of its subsidiaries to, cooperate and use reasonable efforts to
take, or cause to be taken, all appropriate action, and to make, or cause to be
made, all filings necessary, proper or advisable under applicable laws and
regulations to consummate and
-45-
<PAGE>
make effective the transactions contemplated by this Agreement, including,
without limitation, their respective reasonable efforts to obtain, prior to the
Closing Date, all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries as are necessary for consummation of the
transactions contemplated by this Agreement and to fulfill the conditions to the
Offer and the Merger. The Company and Parent shall use their reasonable efforts
to consummate the Merger as promptly as practicable.
4.7 NO SOLICITATION OF OTHER OFFERS. (a) Neither the Company nor any of
its subsidiaries, shall, directly or indirectly, take (and the Company shall not
authorize or permit its or its subsidiaries officers, directors, employees,
representatives, consultants, investment bankers, attorneys, accountants or
other agents or affiliates, to so take) any action to (i) solicit, encourage,
facilitate or initiate the submission of any Acquisition Proposal or (ii)
participate in any way in discussions or negotiations with, or, furnish any
information to, any Person (other than Parent or Sub) in connection with, or
take any other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal, provided, however, that the Company may participate in discussions or
negotiations with or furnish information to any third party which makes an
unsolicited, bona fide noncollusive proposal in writing with respect to a
-46-
<PAGE>
transaction which the Board of Directors of the Company believes is likely to
result in an Acquisition Proposal if the Board of Directors believes (and has
been advised by counsel) that failing to take such action would constitute a
breach of its fiduciary duties. In addition, neither the Board of Directors of
the Company nor any Committee thereof shall withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent the approval and
recommendation of the Offer and this Agreement or approve or recommend any
Acquisition Proposal, provided that the Board of Directors (or a Committee
thereof) may recommend to the Company's stockholders an Acquisition Proposal and
in connection therewith withdraw or modify its approval or recommendation of the
Offer or the Merger if (i) the Board of Directors of the Company has determined
that the Acquisition Proposal is a Superior Proposal and (ii) simultaneously
with such withdrawal, modification or recommendation, this Agreement is
terminated in accordance with Section 6.1(e). Any actions permitted under, and
taken in compliance with, this Section 4.7 shall not be deemed a breach of any
other covenant or agreement of such party contained in this Agreement.
"Acquisition Proposal" shall mean any proposed merger, consolidation,
share exchange or other business combination, sale or other disposition of any
material amount of assets, sale or issuance of shares of capital stock, tender
offer or exchange offer or similar transaction involving the Company or any of
its subsidiaries and a third party. "Superior Proposal" shall mean
-47-
<PAGE>
an unsolicited, bona fide noncollusive Acquisition Proposal on terms which a
majority of the members of the Special Committee and Board of Directors of the
Company determines in its good faith judgment (based on the advice of
independent financial and legal advisors) to be more favorable to the Company
and its shareholders than the transactions contemplated hereby.
(b) In addition to the obligations of the Company set forth in
paragraph (a), the Company shall advise Parent immediately of any request for
information or of any Acquisition Proposal, or any proposal with respect to any
Acquisition Proposal, the material terms and conditions of such request or
Acquisition Proposal, and the identity of the person making any such Acquisition
Proposal or inquiry. The Company will promptly inform Parent of the status and
details both orally and in writing (including amendments or proposed amendments)
of any such request, takeover proposal or inquiry, and will promptly provide
Parent with copies of all such written requests, proposals and inquiries.
(c) Immediately following the purchase of Shares pursuant to
the Offer, the Company will request each person which has heretofore executed a
confidentiality agreement in connection with its consideration of acquiring the
Company or any portion thereof (the "Confidentiality Agreements") other than
Parent to return all confidential information heretofore furnished to such
person by or on behalf of the Company.
-48-
<PAGE>
4.8 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent of: (a) any notice of, or other communication relating to, a
material default or event that, with notice or lapse of time or both, might
reasonably be expected to become a material default, received by the Company or
any of its subsidiaries subsequent to the date of this Agreement and prior to
the Effective Time, under any material contract to which the Company or any of
its subsidiaries is a party or is subject; and (b) any material adverse change
in the Condition of the Company and its subsidiaries taken as a whole or the
occurrence of any event which is reasonably likely to result in any such change.
Each of the Company and Parent shall give prompt notice to the other party of
any notice or other communication from any third party alleging that the consent
of such third party is or may be required in connection with the transactions
contemplated by this Agreement.
4.9 HSR ACT. The Company and Parent shall file, within eight business
days from the date of this Agreement, Notification and Report Forms under the
HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division
of the Department of Justice (the "Antitrust Division") and shall use their
reasonable efforts to respond as promptly as practicable to all inquiries
received from the FTC or the Antitrust Division for additional information or
documentation.
4.10 EMPLOYEE BENEFITS. Parent agrees that, during the
period commencing at the Effective Time and ending on the second
-49-
<PAGE>
anniversary thereof, the employees of the Company and its subsidiaries will
continue to be provided with employee benefit plans (other than stock option or
other plans involving the potential issuance of securities of the Company or of
Parent) that are in the aggregate substantially comparable to those currently
provided by the Company and its subsidiaries to such employees. Parent will, and
will cause the Surviving Corporation to, honor employee (or former employee)
benefit obligations and contractual rights existing as of the Effective Time and
all employment or severance agreements, plans or policies adopted by the Board
of Directors of the Company (or any committee thereof) prior to the date hereof
and disclosed to Parent under this Agreement in accordance with their terms.
4.11 DIRECTORS' AND OFFICERS' INSURANCE; INDEMNIFICATION. (a) The
Articles of Incorporation and the By-laws of the Surviving Corporation shall
contain the provisions with respect to indemnification and exculpation from
liability set forth in the Company's Articles of Incorporation and By-laws on
the date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who on
or prior to the Effective Time were directors, officers, employees or agents of
the Company ("Indemnified Parties"), unless such modification is required by
law.
-50-
<PAGE>
(b) (i) Parent agrees, from and after the purchase of shares
of Common Stock pursuant to the Offer, to indemnify all Indemnified Parties to
the fullest extent permitted by applicable law with respect to all acts and
omissions arising out of such individuals' services as officers, directors,
employees or agents of the Company or any of its subsidiaries or as trustees or
fiduciaries of any plan for the benefit of employees, or otherwise on behalf of,
the Company or any of its subsidiaries, occurring prior to the Effective Time
including, without limitation, the transactions contemplated by this Agreement.
Without limitation of the foregoing, in the event any such Indemnified Party is
or becomes involved in any capacity in any action, proceeding or investigation
in connection with any matter, including without limitation, the transactions
contemplated by this Agreement, occurring prior to, and including, the Effective
Time, Parent, from and after the purchase of shares of Common Stock pursuant to
the Offer, will pay as incurred such Indemnified Party's legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith. Parent shall pay all expenses, including attorneys' fees,
that may be incurred by any Indemnified Party in enforcing this Section 4.11 or
any action involving an Indemnified Party resulting from the transactions
contemplated by this Agreement. If for any reason the indemnification provided
for in this Section 4.11 is unavailable with respect to any Indemnified Party or
insufficient to hold him
-51-
<PAGE>
or her harmless with respect to any such loss, claim, damage or liability, then
Parent shall contribute to the amount paid or payable by such Indemnified Party
as a result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect (i) the relative economic interests of the Company and
its affiliates on the one hand and Parent on the other in connection with the
Offer and the Merger to which such loss, claim, damage or liability relates,
(ii) the relative fault of the Company and its affiliates on the one hand and
Parent on the other with respect to such loss, claim, damage or liability and
(iii) any other relevant equitable considerations.
(c) For six years from the Effective Time, Parent shall either
(x) maintain in effect the Company's current directors' and officers' liability
insurance covering those persons who are currently covered on the date of this
Agreement by the Company's directors' and officers' liability insurance policy
(a copy of which has been heretofore delivered to Parent); provided, however,
that in no event shall Parent be required to expend in any one year an amount in
excess of 150% of the annual premiums currently paid by the Company for such
insurance, which the Company represents to be $153,000 (exclusive of related
commissions) for the twelve month period ended September 30, 1996; and provided
further that if the annual premiums of such insurance coverage exceed such
amount, Parent shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount and to give prompt written notice
-52-
<PAGE>
of any reduction in the amount or scope of coverage resulting therefrom to the
directors and officers affected thereby; provided further that Parent may
substitute for such Company policies, policies with at least the same coverage
containing terms and conditions which are no less advantageous and provided that
said substitution does not result in any gaps or lapses in coverage with respect
to matters occurring prior to the Effective Time, or (y) cause the Parent's
directors' and officers' liability insurance then in effect to cover those
persons who are covered on the date of this Agreement by the Company's
directors' and officers' liability insurance policy with respect to those
matters covered by the Company's directors' and officers' liability policy.
4.12 FINANCING. On or before the day on which Sub accepts for payment
the shares of Common Stock pursuant to the Offer, Parent shall have the funds
necessary to consummate the Offer, the Merger and the transactions contemplated
hereby and shall promptly provide Sub with such funds at the times necessary to
discharge the obligations of Parent and Sub in accordance with the terms hereof.
4.13 ADDITIONAL REPORTS AND FILINGS. Prior to the Effective Time, the
Company shall promptly furnish to Parent a copy of any Form 10-Q or other
reports or other filings filed by the Company under the Exchange Act after the
date hereof.
-53-
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO MERGER
5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT, SUB AND THE COMPANY.
The respective obligations of Parent and Sub, on the one hand, and the Company,
on the other hand, to effect the Merger are subject to the satisfaction or
waiver (subject to applicable law) at or prior to the Effective Time of each of
the following conditions:
(a) Approval of Company's Stockholders. To the extent required
by applicable law, this Agreement and the Merger shall have been approved and
adopted by holders of more than two-thirds of the shares of Common Stock of the
Company in accordance with applicable law (if required by applicable law) and
the Company's Articles of Incorporation and By-Laws;
(b) HSR Act. Any waiting period (and any extension
thereof) under the HSR Act applicable to the Merger shall have
expired or been terminated;
(c) Injunction. No preliminary or permanent injunction or
other order shall have been issued by any court or by any governmental or
regulatory agency, body or authority which prohibits the consummation of the
Offer or the Merger and the transactions contemplated by this Agreement and
which is in effect at the Effective Time, provided, however, that, in the case
of a decree, injunction or other order, each of the parties shall have used
reasonable efforts to prevent the entry of any such injunction or other order
and to appeal as promptly as
-54-
<PAGE>
possible any decree, injunction or other order that may be
entered;
(d) Payment for Common Stock. Sub shall have accepted
for payment and paid for the shares of Common Stock tendered
pursuant to the Offer; and
(e) Statutes. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which prohibits the consummation
of the Offer or the Merger or has the effect or making the purchase of the
Common Stock illegal.
5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The obligation
of the Company to effect the Merger is also subject to the satisfaction or
waiver, at or prior to the Effective Time, of each of the following conditions:
(a) Performance by Parent and Sub. Each of Parent and Sub
shall have performed in all material respects all obligations and agreements
contained in Sections 1.3 and 2.4 of this Agreement to be performed or complied
with by it prior to the Closing Date.
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, at any time
-55-
<PAGE>
prior to the Effective Time, whether before or after approval of the Merger by
the Company's stockholders:
(a) by mutual consent of the Company, on the one hand,
and of Parent and Sub, on the other hand;
(b) by either Parent, on the one hand, or the Company, on the
other hand, if any governmental or regulatory agency shall have issued an order,
decree or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the acceptance for payment of, or payment for, shares of
Common Stock pursuant to the Offer or the Merger and such order, decree or
ruling or other action shall have become final and nonappealable;
(c) by either Parent, on the one hand, or the Company, on the
other hand, if the Offer shall not have been consummated within six months after
commencement of the Offer unless the Offer Closing shall not have occurred
because of a material breach of any representation, warranty, obligation,
covenant, agreement or condition set forth in this Agreement on the part of the
party seeking to terminate this Agreement;
(d) by Parent, if the Offer is terminated or expires in
accordance with its terms without Sub having purchased any Common Stock
thereunder due to failure to satisfy any of the conditions set forth in Annex A
hereto, unless such termination or expiration has been caused by or results from
the failure of Parent or Sub to perform in any material respect any of their
respective covenants or agreements contained in this Agreement;
(e) by either Parent, on the one hand, or the Company,
on the other hand, if the Board of Directors of the Company
-56-
<PAGE>
determines that an Acquisition Proposal will result in a Superior Proposal and
the Board believes (and has been advised in writing by counsel) that a failure
to terminate this Agreement and enter into an agreement to effect the Superior
Proposal would constitute a breach of its fiduciary duties;
(f) by the Company, if Parent or Sub shall have failed to
comply in any material respect with any of the covenants or agreements contained
in this Agreement to be complied with or performed by Parent or Sub at or prior
to the Offer Closing or if Parent or Sub shall have failed to commence the Offer
within the time required by Section 1.1; or
(g) by the Company, if (i) prior to the Offer Closing, any of
the representations and warranties of Parent or Sub contained in this Agreement
were untrue or incorrect in any material respect when made or (ii) Parent or Sub
shall have terminated the Offer prior to the Offer Closing or the Offer is
terminated or expires in accordance with its terms.
6.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 6.1 hereof by Parent or Sub, on the one hand, or
the Company, on the other hand, written notice thereof shall forthwith be given
to the other party or parties specifying the provision hereof pursuant to which
such termination is made, and this Agreement shall become void and have no
effect, and there shall be no liability hereunder on the part of Parent, Sub or
the Company, except that Sections 4.2, 7.1 and this Section 6.2 hereof shall
survive any termination of this
-57-
<PAGE>
Agreement. Nothing in this Section 6.2 shall relieve any party
to this Agreement of liability for breach of this Agreement.
ARTICLE VII
MISCELLANEOUS
7.1 FEES AND EXPENSES. (a) Except as provided in paragraph (b) below,
all costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
(b) If this Agreement is terminated by Parent pursuant to
Section 6.1(e) hereof or pursuant to Section 6.1(d) hereof by reason of
paragraphs (d) or (f) of Annex A hereof or if, prior to the Offer Closing, any
material representation or warranty made by the Company herein shall prove to
have been untrue or incorrect in any material respect when made and as a result
thereof this Agreement is terminated by Parent pursuant to Section 6.1(d) hereof
by reason of paragraph (e) of Annex A hereof, the Company shall pay to Parent,
within one business day thereafter, the amount of $3,500,000.
7.2 REPRESENTATIONS AND WARRANTIES. The respective representations and
warranties of the Company, on the one hand, and Parent and Sub, on the other
hand, contained herein or in any certificates or other documents delivered prior
to or at the Closing shall not be deemed waived or otherwise affected by any
-58-
<PAGE>
investigation made by any party. Each and every such representation and warranty
shall expire with, and be terminated and extinguished by, the Closing and
thereafter none of the Company, Parent or Sub shall be under any liability
whatsoever with respect to any such representation or warranty. This Section 7.2
shall have no effect upon any other obligation of the parties hereto, whether to
be performed hereunder or after the Effective Time.
7.3 EXTENSION; WAIVER. Subject to the provisions of Section 1.1, at any
time prior to the Effective Time, the parties hereto, by action taken by or on
behalf of the respective Boards of Directors of the Company, Parent or Sub, may
(i) extend the time for the performance of any of the obligations or acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein by any other applicable party or in any documents,
certificate or writing delivered pursuant hereto by any other applicable party
or (iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
7.4 PUBLIC ANNOUNCEMENTS. The Company, on the one hand, and Parent and
Sub, on the other hand, agree to consult promptly with each other prior to
issuing any press release or otherwise making any public statement with respect
to the transactions contemplated hereby, and shall not issue any such press
release
-59-
<PAGE>
or make any such public statement prior to such consultation and review by the
other party of a copy of such release or statement, unless required by
applicable law.
7.5 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered in person or
mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or telecopier, as follows:
(a) If to the Company, to it at:
Sterile Concepts Holdings, Inc.
5100 Commerce Road
Richmond, Virginia 23234
Attention: Paul J. Woo, Jr., President
and Chief Executive Officer
with copies to:
McGuire, Woods, Battle, & Boothe, L.L.P.
One James Center
901 East Cary Street
Richmond, Virginia 23219
Attention: Wellford L. Sanders, Jr., Esq.
and Joseph C. Carter, III, Esq.
LeClair Ryan
707 East Main Street
11th Floor
Richmond, Virginia 23219
Attention: J. Benjamin English, Esq.
(b) If to either Parent or Sub, to it at:
Maxxim Medical, Inc.
104 Industrial Boulevard
Sugar Land, Texas 77478
Attention: Kenneth W. Davidson, Chairman of
the Board, President and Chief
Executive Officer
-60-
<PAGE>
with a copy to:
Boyer, Ewing & Harris Incorporated
9 Greenway Plaza, Suite 3100
Houston, Texas 77046
Attention: John R. Boyer, Jr., Esq. and
J. Randolph Ewing, Esq.
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery unless if mailed, in which case on the third business day after the
mailing thereof, except for a notice of a change of address, which shall be
effective only upon receipt thereof.
7.6 ENTIRE AGREEMENT. This Agreement and the Annex, schedules and other
documents referred to herein or delivered pursuant hereto, collectively contain
the entire understanding of the parties hereto with respect to the subject
matter contained herein and supersede all prior agreements and understandings,
oral and written, with respect thereto.
7.7 BINDING EFFECT; BENEFIT; ASSIGNMENT. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. Nothing
in this Agreement, expressed or implied, is intended to confer on any Person
other than the parties hereto or their
-61-
<PAGE>
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except for Section 4.10 and
4.11, which are intended to be for the benefit of the persons referred to
therein, and may be enforced by such persons.
7.8 APPLICABLE LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the Commonwealth of Virginia, without regard to the conflict of laws rules
thereof.
7.9 SEVERABILITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
7.10 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, a group and a government
or other department or agency thereof.
-62-
<PAGE>
IN WITNESS WHEREOF, each of Parent, Sub and the Company have caused
this Agreement to be executed by their respective officers thereunto duly
authorized, all as of the date first above written.
MAXXIM MEDICAL, INC.
BY: /S/ KENNETH W. DAVIDSON
NAME: Kenneth W. Davidson
TITLE: Chairman President & CEO
MAXXIM ACQUISITION CO.
BY: /s/ KENNETH W. DAVIDSON
NAME: Kenneth W. Davidson
TITLE: President
STERILE CONCEPTS HOLDINGS, INC.
BY: /s/ PAUL J. WOO, JR.
NAME: Paul J. Woo, Jr.
TITLE: President and Chief
Executive Officer
-63-
<PAGE>
ANNEX A
TO
AGREEMENT AND PLAN OF MERGER
THE CAPITALIZED TERMS IN THIS ANNEX A SHALL HAVE THE MEANINGS SET FORTH
IN THE AGREEMENT TO WHICH IT IS ANNEXED, EXCEPT THAT THE TERM "MERGER AGREEMENT"
SHALL BE DEEMED TO REFER TO THE AGREEMENT TO WHICH THIS ANNEX A IS APPENDED AND
"PURCHASER" SHALL BE DEEMED TO REFER TO SUB.
Notwithstanding any other provision of the Offer, Purchaser shall not
be required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1c under the Exchange Act, pay
for any shares of Common Stock tendered and may terminate or amend the Offer in
accordance with the Agreement and may postpone the acceptance of, and payment
for, shares of Common Stock, if (i) there shall not have been validly tendered
and not withdrawn prior to the expiration of the Offer a number of shares of
Common Stock which represent more than two-thirds of the total voting power of
all shares of capital stock of the Company outstanding on a fully diluted basis
(the "Minimum Condition"), (ii) any applicable waiting period under the HSR Act
shall not have expired or been terminated or (iii) at any time on or after the
date of the Merger Agreement and at or before the time of payment for any such
shares of Common Stock (whether or not any shares of Common Stock have
A-1
<PAGE>
theretofore been accepted for payment or paid for pursuant to the Offer) any of
the following shall occur:
(a) any court or domestic government or governmental
authority or agency shall have enacted, issued, promulgated, enforced
or entered any statute, rule, regulation, executive order, decree or
injunction or other order which (i) makes illegal, materially delays or
otherwise directly or indirectly materially restrains or prohibits the
Offer or the Merger, (ii) prohibits or materially limits the ownership
or operation by Parent or Purchaser of all or any material portion of
the business or assets of the Company or compels Parent or Sub to
dispose of all or any material portion of the business or assets of
Parent or Purchaser or the Company, or imposes any limitations on the
ability of Parent or Purchaser to conduct its business or own such
assets, (iii) imposes limitations on the ability of Parent or Sub
effectively to exercise full rights of ownership of the shares of
Common Stock, including, without limitation, the right to vote any
shares of Common Stock acquired or owned by Purchaser or Parent on all
matters properly presented to the Company's stockholders, (iv) requires
divestiture by Parent or Purchaser of any shares of Common Stock, or
(v) otherwise materially adversely affects the
A-2
<PAGE>
Condition of the Company and its subsidiaries taken as
a whole;
(b) there shall have occurred (i) any general
suspension of trading in, or limitation on prices for, securities on
any national securities exchange or in the over-the-counter market,
(ii) any material change in United States or any other currency
exchange rates or a suspension of, or limitation on, the markets
therefor, (iii) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States, (iv) the
commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States
and having a material adverse effect on the Company or materially
adversely affecting (or materially delaying) the consummation of the
Offer, (v) from the date of the Merger Agreement through the date of
termination or expiration of the Offer, a decline of at least 25% in
the Standard & Poor's 500 Index or (vi) in the case of any of the
situations described in clauses (i) through (v) inclusive existing at
the date of commencement of the Offer, a material acceleration or
worsening thereof;
(c) all consents, registrations, approvals,
permits, authorizations, notices, reports or other
A-3
<PAGE>
filings required to be obtained or made by the Company, Parent or
Purchaser with or from any governmental or regulatory entity in
connection with the execution, delivery and performance of the Merger
Agreement, the Offer and the consummation of the transactions
contemplated by the Merger Agreement shall not have been made or
obtained and such failure could reasonably be expected to have a
material adverse effect on the Condition of the Company and its
subsidiaries taken as a whole or could be reasonably likely to prevent
or materially delay consummation of the transactions contemplated by
the Merger Agreement;
(d) the Company's Board of Directors shall have
withdrawn, modified or amended in any respect adverse to Parent or
Purchaser its recommendation of the Offer or the Merger or shall have
resolved to do so;
(e) any representation or warranty made by the
Company in the Merger Agreement shall be untrue or incorrect
in any material respect;
(f) there shall have been a breach by the
Company of any of its covenants or agreements in any material respect
contained in the Merger Agreement;
(g) it shall have been publicly disclosed that
any Person (which includes a "person" as such term is
A-4
<PAGE>
defined in Section 13(d)(3) of the Exchange Act) other than Purchaser,
any of its affiliates, or any group in which any of them is a member
shall have acquired beneficial ownership of more than 30% of the
outstanding Common Stock or shall have entered into a definitive
agreement or an agreement in principle with the Company with respect to
a tender offer or exchange offer for any Common Stock or a merger,
consolidation or other business combination with or involving the
Company; or
(h) the Merger Agreement shall have been terminated in
accordance with its terms; which, in the reasonable judgment of
Purchaser, in any such case and regardless of the circumstances giving
rise to any such condition, makes it inadvisable to proceed with such
acceptance for payment.
The foregoing conditions are for the sole benefit of Parent or
Purchaser, and may be asserted by them or waived in whole or in part at any time
and from time to time in their sole discretion; provided, however, that, without
the consent of the Company, Parent and Sub shall not waive the Minimum
Condition.
A-5
<PAGE>
Exhibit B
The Board of Directors
July 15, 1996
CONFIDENTIAL
Sterile Concepts Holdings, Inc.
5100 Commerce Road
Richmond, Virginia 23234
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of Common Stock, without par
value (the "Shares"), of Sterile Concepts Holdings, Inc. (the "Company") of the
cash consideration of $20.00 per Share to be received by such holders pursuant
to the Agreement and Plan of Merger dated as of June 10, 1996, among Maxxim
Medical, Inc. (the "Acquiror"), Maxxim Acquisition Co.
and the Company (the "Agreement").
Wheat, First Securities, Inc. ("Wheat"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. Wheat has provided investment banking services for the Company
in the past for which it has recieved customary compensation. In the ordinary
course of our business as a broker-dealer, we may, from time to time, have a
long or short position in, and buy or sell, debt or equity securities of the
Company or the Acquiror for our own account or for the accounts of our
customers. Wheat has acted as financial advisor to the Board of Directors of the
Company in connection with this transaction and will receive a fee for such
services. Wheat will also receive a fee from the Company for rendering this
opinion.
In arriving at our opinion, we have, among other things:
1. reviewed the financial and other information contained in the Company's
Annual Reports to Shareholders and Annual Reports on Form 10-K for the
fiscal years ended September 30, 1995, September 30, 1994 and September
30, 1993, and certain interim reports to Shareholders and Quarterly
Reports on Form 10-Q;
2. reviewed the financial and other information contained in the
Acquiror's Annual Reports to Shareholders and Annual Reports on Form
10-K for the fiscal years ended October 29, 1995, October 30, 1994, and
October 31, 1993, and certain interim reports to Shareholders and
Quarterly Reports on Form 10-Q;
3. conducted discussions with members of senior management of the Company
and the Acquiror concerning their respective businesses and prospects;
4. reviewed certain publicly available information with respect to
historical market prices and trading activity for the Company's Common
Stock and for certain publicly traded companies which we deemed
relevant;
5. compared the results of operations of the Company with those of certain
publicly traded companies which we deemed relevant;
6. compared the proposed financial terms of the transaction with the
financial terms of certain other mergers and acquisitions which we
deemed to be relevant;
7. performed a discounted cash flow analysis of the Company based upon
estimates of projected financial performance prepared by the management
of the Company;
8. reviewed the Agreement (including the Exhibits thereto) dated June 10,
1996; and
9. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made available to us by
the Acquiror and the Company, and we have not assumed any responsibility for
independent verification of such information or any independent valuation or
appraisal of any of the assets of the Acquiror and the Company. We have relied
upon the management of the Acquiror and the Company as to the reasonableness and
achievability of their financial and operational forecasts and projections, and
the assumptions and bases therefor, provided to us, and we have assumed that
such forecasts and projections reflect the best currently available estimates
and judgments of such management and that such forecasts and projections will be
realized in the amounts and in the time periods currently estimated by such
management. Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof. Our opinion does not
address the relative merits of the transaction contemplated by the Agreement as
compared to any alternative business strategies that might exist for the
Company, nor does it address the effect of any other business combination in
which the Company might engage.
Our advisory services and the opinion expressed herein are provided to the
Company's Board of Directors for use in evaluating the transaction contemplated
by the Agreement, are not on behalf of, and are not intended to confer rights or
remedies upon the Acquiror or any stockholder of the Acquiror and do not
constitute a recommendation to any holder of the Shares as to whether such
holder should tender his or her Shares pursuant to the Acquiror's offer or
approve the merger. This opinion may not be summarized, excerpted from or
otherwise publicly referred to without our prior written consent, except that it
may be reproduced in the Schedule 14D-9 relating to the Acquiror's offer.
On the basis of, and subject to the foregoing, we are of the opinion that as of
the date hereof the cash consideration of $20.00 per Share to be received by the
holders of the Shares is fair, from a financial point of view, to such holders.
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
By: /s/ Schuyler E. Grow
---------------------------
Vice President
<PAGE>
PRELIMINARY MATERIALS
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
STERILE CONCEPTS HOLDINGS, INC.
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Kenneth W. Davidson and Peter M. Graham
jointly and severally, proxies, with full power to act alone, and with full
power of substitution, to represent the undersigned and to vote, as designated
below and upon any and all other matters which may properly be brought before
such meeting, all shares of Common Stock which the undersigned would be entitled
to vote at the Special Meeting of Shareholders of Sterile Concepts Holdings,
Inc. to be held on September 16, 1996, or any adjournment thereof.
1. To consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger, dated June 10, 1996 by and among Sterile Concepts Holdings,
Inc., Maxxim Medical, Inc., a Delaware corporation, and Maxxim Acquisition Co.,
a Virginia corporation and a wholly-owned subsidiary of Maxxim Medical, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon any other
business that may come before the meeting or any adjournment thereof.
Unless otherwise specified in the squares provided, the
undersigned's vote will be cast for item 1. This proxy may be revoked at any
time prior to its exercise.
----------------------------
Signature
----------------------------
Signature
Dated:__________________, 1996
(In signing as Attorney, Administrator, Executor, Guardian or
Trustee, please add your title as such)
